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EXCEL - IDEA: XBRL DOCUMENT - QUOTEMEDIA INCFinancial_Report.xls
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A), PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - QUOTEMEDIA INCcertex-312.htm
EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - QUOTEMEDIA INCcertex-322.htm
EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - QUOTEMEDIA INCcertex-321.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A), PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. - QUOTEMEDIA INCcertex-311.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark one)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period _________ to _________                    
    
Commission File Number:  0-28599

QUOTEMEDIA, INC.
 (Exact name of registrant as specified in its charter)
 
Nevada
 
91-2008633
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification Number)
 
17100 East Shea Boulevard, Suite 230, Fountain Hills, AZ 85268
(Address of Principal Executive Offices)

(480) 905-7311
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes þ    No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o   No þ
 
The Registrant has 90,444,162 shares of common stock outstanding as at October 31, 2013.
 


 
 

 
QUOTEMEDIA, INC.
FORM 10-Q for the Quarter Ended September 30, 2013

INDEX

     
Page
Part I.
Financial Information
   
       
Item 1.
Financial Statements (unaudited):
    3
         
 
Consolidated Balance Sheets at September 30, 2013 and December 31, 2012
    3
         
 
Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012
    4
         
 
Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012
    5
         
 
Notes to Consolidated Financial Statements
    6
         
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    12
         
Item 4.
Controls and Procedures
    19
         
Part II.
Other Information
     
         
Item 6.
Exhibits
    20
         
Signatures
      21
 
 
2

 
 
PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

QUOTEMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
September 30,
2013
   
December 31,
2012
 
             
ASSETS
           
             
Current assets:
           
    Cash
  $ 447,418     $ 658,100  
    Accounts receivable, net
    596,114       652,603  
    Prepaid expenses
    54,115       72,843  
    Other current assets
    306,655       273,577  
    Total current assets
    1,404,302       1,657,123  
                 
    Deposits
    21,122       21,810  
    Property and equipment, net
    1,356,308       1,276,776  
    Goodwill
    110,000       110,000  
    Intangible assets
    89,889       91,922  
                 
        Total assets
  $ 2,981,621     $ 3,157,631  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current liabilities:
               
    Accounts payable and accrued liabilities
  $ 1,179,507     $ 1,156,289  
    Deferred revenue
    604,766       525,026  
        Total current liabilities
    1,784,273       1,681,315  
                 
Long-term portion of amounts due to related parties
    7,173,832       6,615,136  
                 
Stockholders’ deficit:
               
    Preferred stock, nondesignated, 10,000,000 shares
    -       -  
      authorized, none issued
               
    Common stock, $0.001 par value, 150,000,000 shares
               
      authorized, 90,444,162 and 89,371,320 shares issued
               
      and outstanding
    90,445       89,372  
    Additional paid-in capital
    8,928,316       8,922,108  
    Accumulated deficit
    (14,995,245 )     (14,150,300 )
        Total stockholders’ deficit
    (5,976,484 )     (5,138,820 )
                 
        Total liabilities and stockholders’ deficit
  $
2,981,621
    $
3,157,631
 
 
See accompanying notes
 
 
3

 
 
QUOTEMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
                         
Revenue
  $ 2,395,733     $ 2,388,241     $ 7,160,432     $ 7,429,241  
                                 
Cost of revenue
    1,298,590       1,188,580       3,904,274       3,590,724  
                                 
Gross profit
    1,097,143       1,199,661       3,256,158       3,838,517  
                                 
Operating expenses
                               
                                 
    Sales and marketing
    415,270       414,052       1,241,560       1,316,540  
    General and administrative
    493,039       452,638       1,545,308       1,488,568  
    Software development
    233,133       304,477       832,446       900,853  
      1,141,442       1,171,167       3,619,314       3,705,961  
                                 
Operating profit (loss)
    (44,299 )     28,494       (363,156 )     132,556  
                                 
Other income and (expense)
                               
                                 
    Foreign exchange gain (loss)
    (17,901 )     (61,907 )     31,834       (59,232 )
    Interest expense (related party)
    (175,381 )     (158,934 )     (510,693 )     (469,118 )
      (193,282 )     (220,841 )     (478,859 )     (528,350 )
                                 
Loss before income taxes
    (237,581 )     (192,347 )     (842,015 )     (395,794 )
                                 
Provision for income taxes
    (961 )     (1,004 )     (2,930 )     (2,991 )
                                 
Net loss
  $ (238,542 )   $ (193,351 )   $ (844,945 )   $ (398,785 )
                                 
Loss per share
                               
                                 
Basic and diluted loss per share
    (0.00 )     (0.00 )     (0.01 )     (0.00 )
                                 
Weighted average shares outstanding
                               
                                 
Basic and diluted
    90,039,311       89,371,320       89,596,430       89,371,320  
 
See accompanying notes
 
 
4

 
 
QUOTEMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine months ended September 30,
 
   
2013
   
2012
 
             
Operating activities:
           
             
Net loss
  $ (844,945 )   $ (398,785 )
                 
Adjustments to reconcile net loss to net cash provided
               
   by operating activities:
               
Depreciation and amortization
    601,513       561,890  
Bad debt expense
    152,461       70,386  
Stock-based compensation expense
    7,281       7,549  
Noncash barter revenue
    -       (180,000 )
Noncash barter advertising expense
    -       96,000  
Changes in assets and liabilities:
               
Accounts receivable
    (95,972 )     (222,774 )
Prepaid expenses
    18,728       19,338  
        Other current assets
    (33,078 )     201,561  
Deposits
    688       2,273  
Accounts payable and amounts due to related parties
    581,914       395,337  
Deferred revenue
    79,740       26,144  
Net cash provided by operating activities
    468,330       578,919  
                 
Investing activities:
               
Purchase of fixed assets
    (73,136 )     (20,675 )
Purchase of intangible assets
    (2,380 )     -  
Capitalized application software
    (603,496 )     (564,997 )
Net cash used in investing activities
    (679,012 )     (585,672 )
                 
Net decrease in cash
    (210,682 )     (6,753 )
                 
Cash and equivalents, beginning of period
    658,100       427,010  
                 
Cash and equivalents, end of period
  $ 447,418     $ 420,257  
 
See accompanying notes
 
 
5

 
 
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1.  
BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial statements and instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for a full year.  In connection with the preparation of the condensed financial statements, the Company evaluated subsequent events after the balance sheet date of September 30, 2013 through the filing of this report.
 
These financial statements should be read in conjunction with our financial statements and the notes thereto for the fiscal year ended December 31, 2012 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 28, 2013.

2.  
SIGNIFICANT ACCOUNTING POLICIES

a) Nature of operations

We are a software developer and distributor of financial market data and related services to a global marketplace. We specialize in the collection, aggregation, and delivery of both delayed and real-time financial data content via the Internet. We develop and license software components that deliver dynamic content to banks, brokerage firms, financial institutions, mutual fund companies, online information and financial portals, media outlets, public companies, and corporate intranets.

b) Basis of consolidation

The consolidated financial statements include the operations of QuoteMedia, Ltd., a wholly owned subsidiary of QuoteMedia, Inc. All intercompany transactions and balances have been eliminated.

c) Foreign currency translation and transactions

The U.S. dollar is the functional currency of all our company's operations. Foreign currency asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, except for equipment and intangible assets, which are remeasured at historical rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the period, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.

d) Barter revenue
 
The Company licensed one of its portfolio management applications in exchange for advertising services of a customer, referred to as “barter revenue”, whereby advertising credits were received in exchange for subscription services. This revenue was recognized in the period in which the applications were licensed based on the fair market value of the services delivered. The Company determined the fair market value of the service delivered based upon amounts charged for similar services in nonbarter arrangements within the previous six-month period. The Company also ensured that the value of barter delivered did not exceed the value of cash-based revenue in any period.
 
 
6

 
 
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table summarizes our barter revenue transactions for the three and nine month periods ended September 30, 2013 and 2012:

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Barter revenue earned
    -       -       -     $ 180,000  
Advertising credits expensed
    -       -       -       96,000  

The Company’s barter licensing agreement expired on June 30, 2012, at which time we had unused advertising credits valued at $180,000 that were reflected as prepaid expenses. In June 2012 we agreed to accept a cash settlement of $264,000 to forfeit our unused advertising credits. In accordance with the terms of the settlement agreement, the $264,000 cash payment was received in full on July 31, 2012. The settlement receivable balance was applied against prepaid expenses at June 30, 2012, with the excess ($84,000) applied against advertising credits expensed during the three month period ended June 30, 2012.
 
e) Accounting Pronouncements

Recently Adopted Accounting Guidance

In July 2013, the Financial Accounting Standards Board issued an accounting standard update which will require us to present an unrecognized tax benefit, if applicable, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward in our financial statements, with certain exceptions. The update will be effective for fiscal years beginning after December 15, 2013. We do not expect the adoption of this guidance to have a material impact on our financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
 
 
7

 
 
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
3.  
FINANCIAL INSTRUMENTS

a) Fair value of financial instruments

FASB ASC 820, Fair Value Measurements and Disclosures establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

From time to time we utilize forward contracts that are measured at fair market value on a recurring basis based on Level 2 inputs.  At September 30, 2013, the fair market value for forward contracts was an asset of $136 and was included in other assets.  We had no forward contracts outstanding at December 31, 2012.

b) Derivative instruments

A significant portion of our expenses are paid in Canadian dollars, therefore changes to the exchange rate between the U.S. and Canadian dollar affect our operating results.  To manage this exchange rate risk, from time to time we utilize forward contracts to purchase Canadian dollars.  Our Company policy limits contracts to maturities of one year or less from the date of issuance. We do not enter into foreign exchange forward contracts for trading purposes.

We account for derivatives and hedging activities in accordance with FASB ASC 815, Derivatives and Hedging, which requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether the derivative has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship.

We have chosen not to elect hedge accounting for these forward contracts; therefore, changes in fair value for these instruments are immediately recognized in earnings and included in our foreign exchange gain (loss).  The fluctuations in the value of these forward contracts do, however, generally offset the impact of changes in the value of the underlying risk that they are intended to economically hedge.

The following table provides gross notional value of foreign currency derivative financial instruments and the related net asset or liability. The table presents the notional amount (at contract exchange rates) and the fair value of the derivatives in U.S. dollars:
 
   
September 30, 2013
   
December 31, 2012
 
   
Notional Amount
   
Net Asset (Liability)
   
Notional Amount
   
Net Asset (Liability)
 
                         
Forward contracts
  $ 300,000     $ 136     $ -     $ -  
 
 
8

 
 
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
We are required to maintain a margin deposit with a foreign exchange corporation based on the value of the forward contracts outstanding. Margin deposits totaling $15,400 related to forward contracts outstanding are included in other current assets at September 30, 2013.  There were no margin deposits at December 31, 2012.


4.  
RELATED PARTIES

The following table summarizes amounts due to related parties at September 30, 2013 and December 31, 2012:

   
September 30, 2013
   
December 31, 2012
 
Purchase of business unit
  $ 206,789     $ 228,721  
Computer hosting services
    -       127,127  
Office rent
    1,007,053       970,729  
Other
    17,276       17,276  
Loan
    780,713       732,670  
Lead generation services
    1,024,893       951,133  
Due to Management
    4,137,108       3,587,480  
    $ 7,173,832     $ 6,615,136  

As a matter of policy, all related party transactions are subject to review and approval by the Company’s Board of Directors. All repayments of amounts due to related parties must be approved by our Board of Directors.  Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations. All amounts due to related parties have been classified as non-current liabilities as we do not expect to make any repayments within a year of the September 30, 2013 balance sheet date.  Our related party creditors have agreed to these repayment terms.
 
5.  
STOCK-BASED COMPENSATION

FASB ASC 718, Stock Compensation requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.

Total estimated stock-based compensation expense, related to all of the Company’s stock-based awards, recognized for the three and nine months ended September 30, 2013 and 2012 was comprised as follows:
 
 
9

 
 
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Sales and marketing
  $ 426     $ 750     $ 1,278     $ 1,546  
General and administrative
    2,001       2,001       6,003       6,003  
Total stock-based compensation
  $ 2,427     $ 2,751     $ 7,281     $ 7,549  

At September 30, 2013 there was $29,571 of unrecognized compensation cost related to non-vested share-based payments which is expected to be recognized over a weighted-average period of 3.23 years.

We calculate the fair value of stock options and warrants granted under the provisions of FASB ASC 718 using the Black-Scholes valuation model with the following assumptions:

   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2013
   
2012
   
2013
   
2012
 
Expected dividend yield
    N/A       -       N/A       -  
Expected stock price volatility
    N/A       276%       N/A       276%  
Risk-free interest rate
    N/A       4%       N/A       4%  
Expected life of options
    N/A    
6.5 years
      N/A    
6.3 years
 
Weighted average fair value of options and warrants granted
    N/A     $ 0.065       N/A     $ 0.062  

The following table represents stock option and warrant activity for the nine months ended September 30, 2013:
 
         
Weighted-
 
   
Options and
   
Average
 
   
Warrants
   
Exercise Price
 
                 
Outstanding at December 31, 2012
    13,837,803     $ 0.05  
                 
Stock options exercised
    (1,700,000 )   $ 0.04  
Stock options forfeited/expired
    (110,000 )   $ 0.04  
                 
Outstanding at September 30, 2013
    12,027,803     $ 0.05  
 
 
10

 
 
QUOTEMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
The following table summarizes our non-vested stock option and warrant activity for the nine months ended September 30, 2013:
 
         
Weighted-
 
   
Options and
   
Average Grant
 
   
Warrants
   
Date Fair Value
 
Non-vested stock options and warrants at
           
December 31, 2012
    738,887     $ 0.04  
Vested during the period
    (272,502 )   $ 0.04  
Non-vested stock options and warrants at
               
September 30, 2013
    466,385     $ 0.04  

                       
Options and Warrants
 
     
Options and Warrants Outstanding
   
Exercisable
 
           
Weighted
                   
     
Number
   
Average
   
Weighted
   
Number
   
Weighted
 
     
Outstanding at
   
Remaining
   
Average
   
Exercisable at
   
Average
 
     
September 30,
   
Contractual
   
Exercise
   
September 30,
   
Exercise
 
     
2013
   
Life
   
Price
   
2013
   
Price
 
                                 
$ 0.05-0.10       11,527,803       2.38     $ 0.04       11,061,418     $ 0.04  
$ 0.11-0.40       500,000       1.13     $ 0.40       500,000     $ 0.40  

As at September 30, 2013 all stock options and warrants have been granted with exercise prices equal to or greater than the market value of the underlying common shares on the date of grant.

At September 30, 2013 the aggregate intrinsic value of options and warrants outstanding was $384,895.  The aggregate intrinsic value of options and warrants exercisable was $372,741.  The intrinsic value of stock options and warrants are calculated as the amount by which the market price of our common stock exceeds the exercise price of the option or warrant.

6.  
LOSS PER SHARE

The basic and diluted net loss per share was $(0.00) and $(0.00) per share for the three months ended September 30, 2013 and 2012, respectively.  The basic and diluted net loss per share was $(0.01) and $(0.00) per share for the nine months ended September 30, 2013 and 2012, respectively.  There were 12,027,803 and 13,937,803 stock options and warrants excluded from the calculation of dilutive loss per share for the three and nine months ended September 30, 2013 and 2012, respectively, because they were anti-dilutive.
 
 
11

 

ITEM 2.  Management’s Discussion and Analysis

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this report. We caution readers regarding certain forward looking statements in the following discussion, elsewhere in this report, and in any other statements, made by, or on behalf of our company, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on behalf of, our company. Uncertainties and contingencies that might cause such differences include those risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2012 and other reports filed from time to time with the SEC.

We disclaim any obligation to update forward-looking statements. All references to “we”, “our”, “us”, or “quotemedia” refer to QuoteMedia, Inc., and its predecessors, operating divisions, and subsidiaries.

This report should be read in conjunction with our Form 10-K for the fiscal year ended December 31, 2012 filed with the Securities and Exchange Commission.

Overview
 
We are a developer of financial software and a distributor of market data and research information to stock exchanges, online brokerages, clearing firms, banks, media properties, public companies and financial service corporations worldwide. Through the aggregation of information from many direct data, news, and research sources, we offer a comprehensive range of solutions for all market related information provisioning requirements.

We have three general product lines:  Data Feed Services, Interactive Content and Data Applications, and Portfolio Management Systems.

Our Data Feed Services consist of raw streaming real-time market data delivered over the Internet or via dedicated telecommunication lines, and supplemental fundamental, historical, and analytical data, keyed to the same symbology, which provides a complete market data solution to be offered to our customers.  Currently, QuoteMedia’s Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide.

Our Interactive Content and Data Applications consist of a suite of software applications that provide publicly traded company and market information to corporate clients via the Internet.  Products include stock market quotes, fundamentals, historical and interactive charts, company news, filings, option chains, insider transactions, corporate financials, corporate profiles, screeners, market research information, investor relations provisions, level II, watch lists, and real-time quotes. All of our content solutions are completely customizable and embed directly into client Web pages for seamless integration with existing content.
 
 
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Our Portfolio Management Systems consist of Quotestream, Quotestream Professional, Quotestream Mobile, and our Web Portfolio Management systems.   Quotestream Desktop is an Internet-based streaming online portfolio management system that delivers real-time and delayed market data to both consumer and corporate markets.  Quotestream has been designed for syndication and private branding by brokerage, banking, and Web portal companies.  Quotestream’s enhanced features and functionality – most notably tick-by-tick true streaming data, significantly enhanced charting features, and a broad range of additional research and analytical content and functionality – offer a professional-level experience to non-professional users.

Quotestream Professional is designed specifically for use by financial services professionals, offering exceptional coverage and functionality at extremely aggressive pricing.  Quotestream Professional features broad market coverage, reliability, complete flexibility, ultra low-latency tick-by-tick data, as well as completely customizable screens, advanced charting, comprehensive technical analysis, news and research data.

Quotestream Mobile is a true companion product to the Quotestream desktop products (Quotestream and Quotestream Professional) – any changes made to portfolios in either the desktop or Mobile application are automatically reflected in the other.

A key feature of QuoteMedia’s business model is that all of our product lines generate recurring monthly licensing revenue from each client. Contracts to license Quotestream to our corporate clients, for example, typically have a term of one to three years and are automatically renewed unless notice is given at least 90 days prior to the expiration of the current license term.  We also generate Quotestream revenue through individual end-user licenses on a monthly or annual subscription fee basis.  Interactive Content and Data Applications and Market Data Feeds are licensed for a monthly, quarterly, annual, or biannual subscription fee. Contracts to license our Financial Data Products and Data Feeds typically have a term of one to three years and are automatically renewed unless notice is given 90 days prior to the expiration of the contract term.

Business environment and trends
 
The global financial markets have experienced extreme volatility and disruption in recent years. As a result, financial institutions globally have acted to control or reduce operational spending. Nevertheless, during this same period we have maintained positive overall revenue growth.  While in some areas the anticipated impact of current market conditions may lead to a decision to reduce demand for market data and related services, we expect overall spending on financial information services will grow modestly over the next several years.

Plan of operation
 
Our plan of operation for the remainder of 2013 and for 2014 will focus on marketing Quotestream for deployments by brokerage firms to their retail clients, and pursuing further expansion into the investment professional market with Quotestream Professional. Licensing Quotestream Mobile as a companion to the Quotestream desktop products will also continue to be a focal point. We will also look to continue the growth of our Data Feed Services client base, and to increase the sales of its Interactive Content and Data Applications, particularly in the context of large-scale enterprise deployments encompassing solutions ranging across several product lines.
 
 
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One of our larger clients, Penson Worldwide Inc., filed for Chapter 11 protection in January 2013. The loss of revenue from the Penson Worldwide Inc. contract and its affiliate companies negatively impacted our revenue growth for the first three quarters of 2013.  We expect revenue growth to remain relatively flat for the 4th quarter of 2013, but anticipate improved revenue growth in 2014.

We have a plan in place to manage costs to ensure that our ongoing expenditures are balanced with our revenue growth rate.  Opportunistically, efforts will be made to evaluate and pursue the development of additional new products that may eventually be commercialized by our company.  We may require additional capital to execute our proposed plan of operation. There can be no assurance that such additional capital will be available to our company, on commercially reasonable terms or at all.

Our future performance will be subject to a number of business factors, including those beyond our control, such as a continuation of the economic uncertainty and evolving industry needs and preferences as well as the level of competition and our ability to continue to successfully market our products and technology.  There can be no assurance that we will be able to successfully implement our marketing strategy, continue our revenue growth, or achieve profitable operations.

Results of Operations
 
Revenue
 
   
2013
   
2012
   
Change ($)
   
Change (%)
 
                         
Three months ended September 30,
                       
                         
Corporate Quotestream
  $ 742,346     $ 777,815     $ (35,469 )     (5 )%
Individual Quotestream
    429,280       341,508       87,772       26 %
Total Portfolio
Management Systems
    1,171,626       1,119,323       52,303       5 %
Interactive Content and Data Applications
    1,224,107       1,268,918       (44,811 )     (4 )%
Total Licensing Revenue
  $ 2,395,733     $ 2,388,241     $ 7,492       0 %
 
Nine months ended September 30,
                       
                         
Corporate Quotestream
  $ 2,224,667     $ 2,585,607     $ (360,940 )     (14 )%
Individual Quotestream
    1,246,076       1,042,143       203,933       20 %
Total Portfolio Management Systems
    3,470,743       3,627,750       (157,007 )     (4 )%
Interactive Content and Data Applications
    3,689,689       3,801,491       (111,802 )     (3 )%
Total Licensing Revenue
  $ 7,160,432     $ 7,429,241     $ (268,809 )     (4 )%

Total licensing revenue increased 0% when comparing the three month periods ended September 30, 2013 and 2012.  Total licensing revenue decreased 4% when comparing the nine month periods ended September 30, 2013 and 2012.  The decrease is a result of decreased sales from licensing both our Portfolio Management Systems and Interactive Content and Data Applications.
 
 
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Total Portfolio Management System revenue increased by a total of 5% when comparing the three month periods ended September 30, 2013 and 2012.  Total Portfolio Management System revenue decreased by a total of 4% when comparing the nine month periods ended September 30, 2013 and 2012.  Corporate Quotestream revenue decreased 5% and 14% for the three and nine month period ended September 30, 2013 from the comparative periods in 2012.

One of our larger clients, Penson Worldwide Inc., filed for Chapter 11 protection in January 2013. The loss of revenue from the Penson Worldwide Inc. contract and its affiliate companies negatively impacted our Corporate Quotestream revenue for the first three quarters of 2013.

The decrease in Corporate Quotestream revenue for the three and nine months ended September 30, 2013 is also due to the expiration of our barter licensing agreement. Included in Portfolio Management System revenue in the comparative 2012 periods is $90,000 and $180,000 of barter revenue earned from licensing of one of our portfolio management applications in exchange for advertising services. Our barter licensing agreement expired on June 30, 2012; therefore there was no barter revenue for the three and nine months ended September 30, 2013. See discussion regarding our barter licensing agreement below under “Sales and Marketing”.

Individual Quotestream revenue increased 26% and 20% from the three and nine month comparative periods in 2012, resulting from an increase in the number of subscribers and an increase in the average revenue per subscriber.  The increase in subscribers is due mainly to acquiring customers of a competitor, AlphaTrade, who ceased operations in January 2013.

Interactive Content and Data Application revenue decreased 4% and 3% when comparing the three and nine month periods ended September 30, 2013 and 2012.  The decreases are due to a decrease in the number of Interactive Content and Data Application client contracts.

Cost of Revenue and Gross Profit Summary
 
   
2013
   
2012
   
Change ($)
   
Change (%)
 
                         
Three months ended September 30,
                       
                         
Cost of revenue
  $ 1,298,590     $ 1,188,580     $ 110,010       9 %
Gross profit
  $ 1,097,143     $ 1,199,661     $ (102,518 )     (9 )%
Gross margin %
    46 %     50 %                

Nine months ended September 30,
                       
                         
Cost of revenue
  $ 3,904,274     $ 3,590,724     $ 313,550       9 %
Gross profit
  $ 3,256,158     $ 3,838,517     $ (582,359 )     (15 )%
Gross margin %
    45 %     52 %                
 
 
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Our cost of revenue consists of fixed and variable stock exchange fees and data feed provisioning costs. Cost of revenue also includes amortization of capitalized application software costs. We capitalize the costs associated with developing new products once technological feasibility has been established.

Cost of revenue increased 9% when comparing the three and nine month periods ended September 30, 2013 and 2012. The increases are primarily due to increases in variable stock exchange, data feed, and bandwidth usage charges resulting from new and increased fees levied by a number of stock exchanges since the comparable periods, to the acquisition of new data content required to support the new products and features that we have recently developed, and to the amortization expense related to additional capitalized application software costs.

Overall, the cost of revenue increased as a percentage of sales, as evidenced by our gross margin percentage which decreased to 46% and 45% for the three and nine month periods ended September 30, 2013 from 50% and 52% in the respective comparative periods in 2012.

Operating Expenses Summary

   
2013
   
2012
   
Change ($)
   
Change (%)
 
                         
Three months ended September 30,
                       
                         
Sales and marketing
  $ 415,270     $ 414,052     $ 1,218       (0 )%
General and administrative
    493,039       452,638       40,401       9 %
Software development
    233,133       304,477       (71,344 )     (23 )%
Total operating expenses
  $ 1,141,442     $ 1,171,167     $ (29,725 )     (3 )%

Nine months ended September 30,
                   
                         
Sales and marketing
  $ 1,241,560     $ 1,316,540     $ (74,980 )     (6 )%
General and administrative
    1,545,308       1,488,568       56,740       4 %
Software development
    832,446       900,853       (68,407 )     (8 )%
Total operating expenses
  $ 3,619,314     $ 3,705,961     $ (86,647 )     (2 )%

Sales and Marketing

Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased $1,218 (0%) for the three month period ended September 30, 2013 and decreased $74,980 (6%) for the nine month period ended September 30, 2013 when compared to the same period in 2012.

The decrease from the nine month period ended September 30, 2012 is primarily due to a decrease in non-cash advertising costs.  We had no noncash advertising expenses for the nine month period ended September 30, 2013 compared to $90,000 of non-cash advertising costs in the same periods in 2012.  We received advertising credits with a large national magazine in exchange for subscription services until the Company’s barter licensing agreement expired on June 30, 2012.
 
 
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General and Administrative

General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, bad debts, and professional fees.  General and administrative expenses increased $40,401 (9%) and $56,740 (4%) for the three and nine month periods ended September 30, 2013 when compared to the same periods in 2012.  The increases from the comparative periods are primarily due to an increase in bad debts expense as we wrote off some large accounts receivable balances in 2013 and increased our allowance for doubtful accounts by $25,000 in Q1 2013.

Software Development

Software development expenses consist primarily of costs associated with the design, programming, and testing of our software applications prior to the establishment of technological feasibility. Software development expenses also include costs incurred to maintain our software applications.

Software development expenses decreased $71,344 (23%) and $68,407 (8%) for the three and nine month periods ended September 30, 2013 when compared to the same periods in 2012.  The decrease from the comparative periods is due to a decrease in development personnel.

We capitalized $216,991 and $603,496 of development costs for the three and nine months ended September 30, 2013, compared to $192,905 and $564,997 for the same periods in 2012. These costs relate to the development of application software used by subscribers to access, manage, and analyze information in our databases. Capitalized costs associated with application software are amortized over their estimated economic life of three years.

Other Income and (Expense) Summary

   
2013
   
2012
 
             
Three months ended September 30,
           
             
Foreign exchange gain (loss)
  $ (17,901 )   $ (61,907 )
Interest expense
    (175,381 )     (158,934 )
Total other income and (expenses)
  $ (193,282 )   $ (220,841 )

Nine months ended September 30,

Foreign exchange gain (loss)
  $ 31,834     $ (59,232 )
Interest expense
    (510,693 )     (469,118 )
Total other income and (expenses)
  $ (478,859 )   $ (528,350 )
 
 
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Foreign Exchange Gain (Loss)

Exchange gains and losses primarily arise from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars. The change in fair value for outstanding foreign exchange forward contracts is also included in foreign exchanges gains and losses as well as gains and losses recognized from foreign exchange forward contracts exercised during the period.

The foreign exchange loss for the three month period ended September 30, 2013 is due to the loss arising from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars, as we have a net Canadian dollar liability and the U.S. dollar depreciated 2% versus the Canadian dollar from June 30, 2012 to September 30, 2013.

The foreign exchange gain for the nine month period ended September 30, 2013 is due to the gain arising from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars, as we have a net Canadian dollar liability and the U.S. dollar appreciated 3.4% versus the Canadian dollar from December 31, 2012 to September 30, 2013.

Interest Expense

Interest is accrued on certain amounts owed to related parties. Interest expense increased for the three and nine month periods ended September 30, 2013 due to additional borrowings compared to the same periods in 2012.  Interest is accrued at 10% per annum.  Interest income earned on cash balances is netted against interest expenses.

Provision for Income Taxes

For the three and nine month periods ended September 30, 2013, the Company recorded Canadian income tax expense of $961 and $2,930, compared to $1,004 and $2,991 in the comparative periods in 2012.

Net Loss for the Period

As a result of the foregoing, net loss for the three months ended September 30, 2013 was $(238,542) or $(0.00) per share compared to a net loss of $(193,351) or $(0.00) per share for the three months ended September 30, 2012.  The net loss for the nine months ended September 30, 2013 was $(844,945) or $(0.01) per share compared to a net loss of $(398,785) or $(0.00) per share for the nine months ended September 30, 2012.

Liquidity and Capital Resources

Our cash totaled $447,418 at September 30, 2013, as compared with $658,100 at December 31, 2012, a decrease of $210,682.  Net cash of $468,330 was provided by operations for the nine months ended September 30, 2013, primarily due to the increase in amounts due to related parties and deferred revenue, offset by the net loss for the period adjusted for non-cash charges. Net cash used in investing activities for the nine months ended September 30, 2013 was $679,012 resulting from capitalized application software costs and the purchase of new computer equipment. There were no financing activities for the nine month period ended September 30, 2013.
 
 
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For the nine months ended September 30, 2013 we had a net loss of $844,945, and at September 30, 2013 we have a net working capital deficit of $379,971 which represented current assets minus current liabilities.

We have a plan in place for the next 12 months to ensure that our ongoing expenditures are balanced with our expected revenue growth rate.  We anticipate that based on product deployments that have recently been completed and are near completion, we will see moderate revenue growth for the next 12 months.  Our current liabilities include deferred revenue of $604,766. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal. Our long-term liabilities include $7,173,832 due to related parties. All repayments of amounts due to related parties must be approved by our Board of Directors.  Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations.

Based on the factors discussed above, we believe that our cash on hand and cash generated from operations will be sufficient to fund our current operations for at least the next 12 months.  However, to implement our business plan may require additional financing. Additional financings may come from future equity or debt offerings that could result in dilution to our stockholders.

Our long-term liquidity requirements will depend on many factors, including the rate at which we expand our business, and whether we do so internally or through acquisitions. To the extent that the funds generated from operations are insufficient to fund our activities in the long term, we may be required to raise additional funds through public or private financing. No assurance can be given that additional financing will be available or that, if it is available, it will be on terms acceptable to us.

ITEM 4.    Controls and Procedures

Under the supervision and with the participation of our Chairman of the Board and Chairman of the Audit Committee, Chief Executive Officer and Chief Financial Officer, we completed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, we and our management have concluded that our disclosure controls and procedures at September 30, 2013 were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and are designed to ensure that information required to be disclosed by us in these reports is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosures. In the three months ended September 30, 2013, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

We will consider further actions and continue to evaluate the effectiveness of our disclosure controls and internal controls and procedures on an ongoing basis, taking corrective action as appropriate. Management does not expect that disclosure controls and procedures or internal controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. While management believes that its disclosure controls and procedures provide reasonable assurance that fraud can be detected and prevented, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
 
 
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PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS
 
Exhibit
Number
 
Description of Exhibit
     
31.1
 
31.2
 
32.1
 
32.2
 
101
 
Interactive Data Files (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2013, furnished in XBRL (eXtensible Business Reporting Language)).
 
 
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SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
QUOTEMEDIA, INC.
 
     
  Dated: November 13, 2013  
       
  By:
/s/ R. Keith Guelpa
 
   
R. Keith Guelpa,
President and Chief Executive Officer
(Principal Executive Officer)
 
       
  By:
/s/ Keith J. Randall
 
   
Keith J. Randall,
Chief Financial Officer
(Principal Accounting Officer)
 
 
 
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