QUOTEMEDIA INC 10-Q

Item 1. Financial Statements QUOTEMEDIA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 820,939 $ 477,987 Accounts receivable, net 1,028,148 910,277 Prepaid expenses 161,258 231,694 Other current assets 86,707 29,092 Total current assets 2,097,052 1,649,050 Deposits 20,181 15,002 Property and equipment, net 4,728,954 4,208,250 Goodwill 110,000 110,000 Intangible assets 67,620 73,572 Operating lease right-of-use assets (see note 6) 442,384 506,219 Total assets $ 7,466,191 $ 6,562,093 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable and accrued liabilities $ 2,201,664 $ 2,512,837 Current portion of deferred revenue (see note 4) 1,676,949 1,166,848 Current portion of operating lease liabilities (see note 6) 198,239 174,166 Total current liabilities 4,076,852 3,853,851 Long-term portion of deferred revenue (see note 4) 372,715 - Long-term portion of operating lease liabilities (see note 6) 239,080 323,685 Preferred stock warrant liability (see note 7) 710,000 629,375 Mezzanine equity: Preferred stock, 10,000,000 shares authorized: Series A Redeemable Convertible Preferred stock, $ 0.001 par value, 550,000 shares designated; shares issued and outstanding: 123,685 at September 30, 2023 and December 31, 2022 (see note 7) 2,983,857 2,983,857 Stockholders’ deficit: Common stock, $ 0.001 par value, 150,000,000 shares authorized, shares issued and outstanding: 90,477,798 at September 30, 2023 and December 31, 2022 90,479 90,479 Additional paid-in capital 18,903,272 18,903,272 Accumulated deficit ( 19,910,064 ) ( 20,222,426 ) Total stockholders’ deficit ( 916,313 ) ( 1,228,675 ) Total liabilities, mezzanine equity and stockholders’ deficit $ 7,466,191 $ 6,562,093 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 3 Table of Contents QUOTEMEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED ) Three-months ended September 30, Nine-months ended September 30, 2023 2022 2023 2022 REVENUE (see note 4) $ 4,762,442 $ 4,390,667 $ 14,225,467 $ 12,953,420 COST OF REVENUE 2,296,736 2,096,773 6,941,469 6,599,396 GROSS PROFIT 2,465,706 2,293,894 7,283,998 6,354,024 OPERATING EXPENSES Sales and marketing 711,861 784,094 2,365,626 2,276,526 General and administrative 924,249 757,318 2,546,950 2,213,189 Software development 725,449 544,525 2,039,537 1,549,454 2,361,559 2,085,937 6,952,113 6,039,169 OPERATING INCOME 104,147 207,957 331,885 314,855 OTHER INCOME (EXPENSES) Foreign exchange gain (loss) 21,803 102,327 ( 16,271 ) ( 15,309 ) Interest income (expense), net 825 10 ( 1,031 ) ( 1,721 ) 22,628 102,337 ( 17,302 ) ( 17,030 ) NET INCOME BEFORE INCOME TAXES 126,775 310,294 314,583 297,825 Income tax expense 739 751 2,221 2,321 NET INCOME $ 126,036 $ 309,543 $ 312,362 $ 295,504 EARNINGS PER SHARE (see note 8) Basic earnings per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 Diluted earnings per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 WEIGHTED AVERAGE SHARES OUTSTANDING (see note 8) Basic 90,477,798 90,477,798 90,477,798 90,477,798 Diluted 121,479,248 119,432,085 121,103,306 119,517,746 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 4 Table of Contents QUOTEMEDIA, INC. CONDENSED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (UNAUDITED) Series A Redeemable Convertible Preferred Stock Common Stock Additional Total Three-months ended September 30, 2023: Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Stockholders’ Deficit Balance, June 30, 2023 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 20,036,100 ) $ ( 1,042,349 ) Net income - - - - - 126,036 126,036 Balance, September 30, 2023 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 19,910,064 ) $ ( 916,313 ) Series A Redeemable Convertible Preferred Stock Common Stock Additional Total Three-months ended September 30, 2022: Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Stockholders’ Deficit Balance, June 30, 2022 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,896,237 $ ( 20,680,935 ) $ ( 1,694,219 ) Stock-based compensation - - - - 4,239 - 4,239 Net income - - - - - 309,543 309,543 Balance, September 30, 2022 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,900,476 $ ( 20,371,392 ) $ ( 1,380,437 ) Series A Redeemable Convertible Preferred Stock Common Stock Additional Total Nine-months ended September 30, 2023: Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Stockholders’ Deficit Balance, December 31, 2022 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 20,222,426 ) $ ( 1,228,675 ) Net income - - - - - 312,362 312,362 Balance, September 30, 2023 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 19,910,064 ) $ ( 916,313 ) Series A Redeemable Convertible Preferred Stock Common Stock Additional Total Nine-months ended September 30, 2022: Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Stockholders’ Deficit Balance, December 31, 2021 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,887,759 $ ( 20,666,896 ) $ ( 1,688,658 ) Stock-based compensation - - - - 12,717 - 12,717 Net income - - - - - 295,504 295,504 Balance, September 30, 2022 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,900,476 $ ( 20,371,392 ) $ ( 1,380,437 ) The accompanying notes are an integral part of these interim condensed consolidated financial statements. 5 Table of Contents QUOTEMEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine-months ended September 30, 2023 2022 OPERATING ACTIVITIES: Net income $ 312,362 $ 295,504 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,944,271 1,544,810 Stock-based compensation expense – common stock warrants - ( 720 ) Stock-based compensation expense – preferred stock warrants 80,625 - Changes in assets and liabilities: Accounts receivable ( 300,133 ) ( 99,542 ) Prepaid expenses ( 52,764 ) 76,570 Other current assets ( 57,615 ) 27,316 Deposits ( 5,179 ) ( 40,528 ) Accounts payable, accrued and other liabilities ( 184,670 ) ( 77,132 ) Deferred revenue 1,065,078 465,612 Net cash provided by operating activities 2,801,975 2,191,890 INVESTING ACTIVITIES: Purchase of fixed assets ( 71,249 ) ( 105,629 ) Purchase of intangible assets - ( 16,313 ) Capitalized application software ( 2,387,774 ) ( 2,022,885 ) Net cash used in investing activities ( 2,459,023 ) ( 2,144,827 ) FINANCING ACTIVITIES: Repayment of finance lease obligations - ( 2,094 ) Net cash used in financing activities - ( 2,094 ) Net increase in cash 342,952 44,969 Cash and equivalents, beginning of period 477,987 258,705 Cash and equivalents, end of period $ 820,939 $ 303,674 The accompanying notes are an integral part of these interim condensed consolidated financial statements. 6 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed 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 consolidated financial statements, management evaluated subsequent events after the balance sheet date of September 30, 2023 through the filing of this report. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2022 contained in the Form 10-K filed with the Securities and Exchange Commission dated March 31, 2023. Risks and Uncertainties Adverse macroeconomic conditions, including inflation, slower growth or recession, and higher interest rates could materially adversely affect demand for the Company’s services. 2. SIGNIFICANT ACCOUNTING POLICIES a) Nature of operations QuoteMedia, Inc. (the “Company”) is a software developer and distributor of financial market data and related services to a global marketplace. The Company specializes in the collection, aggregation, and delivery of both delayed and real-time financial data content via the Internet. The Company develops 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 These 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 of the 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 year, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Because the U.S. dollar is the functional currency, 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) Allowances for doubtful accounts The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company determines the allowance by reviewing the age of the receivables and assessing the anticipated ability of customers to pay. No collateral is required for any of the receivables and the Company does not usually apply financing charges to outstanding accounts receivable balances. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), which changes the impairment model for most financial assets, including accounts receivable, and replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The adoption of ASU 2016-13 had no impact on the Company’s consolidated financial statements. The allowance for doubtful accounts was $ 275,000 and $ 200,000 as of September 30, 2023 and December 31, 2022, respectively. Bad debt expenses were $ 155,980 and $ 19,745 for the three-months ended September 30, 2023 and 2022, respectively. Bad debt expenses were $ 117,739 and $ 55,936 for the nine-months ended September 30, 2023 and 2022, respectively. 7 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) e) Revenue The Company generates substantially all of its revenue from subscriptions for access to its software products and related support. The Company licenses financial market data information on a monthly, quarterly, or annual basis. The Company’s products and services are divided into two main categories: Interactive Content and Data Applications · Proprietary financial software applications and streaming market data feeds · Subscriptions are typically sold for a fixed fee and revenue is recognized ratably over the term of the subscription. Portfolio Management and Real-Time Quote Systems 1. Corporate Quotestream (Business-to-Business) o Web-delivered, embedded applications providing real-time, streaming market quotes and research information targeted to both professionals and non-professional users. o Revenue is typically earned based on customer usage. 2. Individual Quotestream (Business-to-Consumer) o Web-delivered, embedded applications providing real-time, streaming market quotes and research information targeted to non-professional users. o Subscriptions are typically sold for a fixed fee and revenue is recognized ratably over the term of the subscription. The Company does not provide its customers with the right to take possession of its software products at any time. The Company determines revenue recognition through the following steps: · Identification of the contract, or contracts, with a customer · Identification of the performance obligations in the contract · Determination of the transaction price · Allocation of the transaction price to the performance obligations in the contract · Recognition of revenue when, or as, the Company satisfies a performance obligation The Company executes a signed contract with the customer that specifies services to be provided, the payment amounts and terms, and the period of service, among other terms. Contract Balances The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Upfront set-up or development fees are deferred and recognized over the service term of the contract, as set-up and development fees are not distinct from the market data service contracts to which they relate. The Company considers the following factors when determining if collection of a fee is reasonably assured: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Cost of revenue Cost of revenue primarily consists of customer support personnel-related compensation expenses, including salaries, bonuses, benefits, payroll taxes, and stock-based compensation expense, as well as expenses related to third-party hosting costs, software license fees, amortization of capitalized software development costs, amortization of acquired technology, intangible assets, and allocated overhead. f) Accounting Pronouncements Not Yet Adopted In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) : Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the complexity associated with applying U.S. Generally Accepted Accounting Principles (“GAAP”) for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity's own equity. The new standard is effective for the Company for fiscal years beginning after December 15, 2023. The Company does not expect that the adoption of ASU 2020-06 will have a significant impact on the Company’s consolidated financial statements. 8 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. 3. PRIOR PERIOD RESTATEMENTS Subsequent to the filing of its Quarterly Report for the quarterly period ended March 31, 2022, the Company reassessed its classification of warrants to purchase shares of Series A Redeemable Convertible Preferred Stock (“Compensation Preferred Stock Warrants” – see Financial Statement Note 9 “ Redeemable Convertible Preferred Stock and Stockholders’ Deficit” ). The Company concluded that its original classification of the Preferred Stock Warrants as equity was incorrect and that the Preferred Stock Warrants should have been classified as a liability in accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities From Equity , resulting in the following revisions in the Company’s comparative consolidated financial statements: Statement of Changes in Series A Redeemable Convertible Preferred Stock and Stockholders’ Deficit as of December 31, 2021: · Additional Paid-in Capital was reduced by $ 750,000 . · Accumulated Deficit was reduced by $ 236,250 . 4. REVENUE Disaggregated Revenue The Company provides market data, financial web content solutions and cloud-based applications. Revenue by type of service consists of the following: Three-months ended September 30, Nine-months ended September 30, 2023 2022 2023 2022 Portfolio Management Systems Corporate Quotestream $ 1,782,581 $ 1,708,627 $ 5,486,732 $ 5,146,298 Individual Quotestream 458,428 512,142 1,420,138 1,606,133 Interactive Content and Data APIs 2,521,433 2,169,898 7,318,597 6,200,989 Total revenue $ 4,762,442 $ 4,390,667 $ 14,225,467 $ 12,953,420 Deferred Revenue Changes in deferred revenue for the nine-months ended September 30, 2023 and 2022 were as follows: September 30, 2023 September 30, 2022 Deferred revenue at beginning of period $ 1,166,848 $ 622,497 Revenue recognized in the current period from the amounts in the beginning balance ( 995,364 ) ( 522,431 ) New deferrals, net of amounts recognized in the current period 1,873,614 988,102 Effects of foreign currency translation 4,566 ( 59 ) Deferred revenue at end of period $ 2,049,664 $ 1,088,109 Current portion of deferred revenue $ 1,676,949 $ 1,088,109 Long-term portion of deferred revenue 372,715 - Total deferred revenue $ 2,049,664 $ 1,088,109 Practical Expedients The Company applies a practical expedient and does not disclose the value of the remaining performance obligations for contracts that are less than one year in duration, which represent a substantial majority of its revenue. 9 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. RELATED PARTIES The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2021 for approximately $6,500 per month. David M. Shworan, President & CEO of QuoteMedia Ltd., is a control person of 410734 B.C. Ltd. At September 30, 2023, there were no amounts due to 410734 B.C. Ltd. At December 31, 2022, there was $ 13,343 due to 410734 B.C. Ltd. The Company entered into a marketing agreement with Bravenet Web Services, Inc. (“Bravenet”) effective November 28, 2019. The Company agreed to pay Bravenet an upfront setup fee of $ 7,000 upon signing the agreement and a monthly service fee of $ 2,500 starting February 2020. At September 30, 2023 and December 31, 2022, there was $ 7,000 and $ 12,500 due to Bravenet related to this agreement, respectively. David M. Shworan is a control person of Bravenet. At September 30, 2023 and December 31, 2022, there were $ 48,628 and $ 70,100 in unreimbursed expenses owed to Keith Randall, CEO of QuoteMedia, Inc., respectively. As a matter of policy all significant related party transactions are subject to review and approval by the Company’s Board of Directors. 6. LEASES The Company has operating leases for corporate offices and finance leases for certain equipment. The leases have remaining lease terms of 1 year to 5 years. Management determines if an arrangement is a lease at inception. Operating lease assets and liabilities are included in operating lease right-of-use assets and operating lease liabilities, respectively, on the consolidated balance sheets. Finance lease assets and liabilities are included in property and equipment and finance lease liabilities, respectively, on the consolidated balance sheets. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, an incremental borrowing rate based on the information available at commencement date in determining the present value of future payments is used. Management elected the short-term lease exception and therefore only recognize right-of-use assets and lease liabilities for leases with a term greater than one year. When determining lease terms, management factors in options to extend or terminate leases when it is reasonably certain that the Company will exercise that option. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases the Company accounts for the lease and non-lease components as a single lease component. Supplemental balance sheet information related to leases was as follows: September 30, 2023 December 31, 2022 Operating Leases Operating lease right-of-use assets $ 442,384 $ 506,219 Current portion of operating lease liability $ 198,239 $ 174,166 239,080 323,685 Total operating lease liability $ 437,319 $ 497,851 September 30, 2023 December 31, 2022 Weighted Average Remaining Lease Term Operating leases 2.2 years 2.7 years Weighted Average Discount Rate Operating leases 9.5 % 9.9 % Maturities of lease liabilities were as follows: Operating Leases 2023 (excluding the nine-months ended September 30, 2023) $ 57,437 2024 230,067 2025 164,285 2026 and thereafter 34,006 Total lease payments 485,795 Less imputed interest ( 48,476 ) Total $ 437,319 10 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The components of lease expense for the three and nine-months ended September 30, 2023 and 2022 were as follows: Three-months ended September 30, Nine-months ended September 30, 2023 2022 2023 2022 Operating lease costs: Operating lease costs $ 58,504 $ 57,543 $ 176,096 $ 179,152 Short-term lease costs 27,111 22,387 81,091 67,189 Total operating lease costs $ 85,615 $ 79,930 $ 257,187 $ 246,341 Finance lease costs: Interest $ - $ 7 $ - $ 64 Total finance lease costs $ - $ 7 $ - $ 64 Supplemental cash flow information for the nine-months ended September 30, 2023 and 2022 related to leases was as follows: 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows used in operating leases $ 172,454 $ 173,682 Operating cash flows used in finance leases - 64 Financing cash flows used in finance leases - 2,094 Right-of-use assets obtained in exchange for lease obligations: Operating leases 78,304 - 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT a) Redeemable Convertible Preferred Stock The Company is authorized to issue up to 10,000,000 non-designated preferred shares at the Board of Directors’ discretion. A total of 550,000 shares of the Company’s Preferred Stock are designated as “Series A Redeemable Convertible Preferred Stock.” The Series A Redeemable Convertible Preferred Stock has no dividend or voting rights. At September 30, 2023, 123,685 shares of Series A Redeemable Convertible Preferred Stock were outstanding. No shares of Series A Redeemable Convertible Preferred Stock were issued or redeemed during the three and nine-months ended September 30, 2023 and 2022. Redemption Rights Holders of Series A Redeemable Convertible Preferred Stock shall have the right to convert their shares into shares of common stock at the rate of 83.33 shares of common stock for one share of Series A Redeemable Convertible Preferred Stock, at any time following the date the closing price of a share of common stock on a securities exchange or actively traded over-the-counter market has exceeded $ 0.30 for ninety (90) consecutive trading days. The conversion rights are subject to the availability of authorized but unissued shares of common stock. In addition, 1,000 Series A Redeemable Convertible Preferred Stock may be redeemed at the holder’s option at the liquidation value of $ 25 per share if the cash balance of the Company as reported at the end of each fiscal quarter exceeds $ 400,000 . In accordance with Accounting Standards Update (“ASU”) 480-10-S99, because a limited number of Series A Redeemable Convertible Preferred Stock may be redeemed at the holder’s option if the above criteria are met, it was classified as mezzanine equity and not permanent equity. In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to any holders of any shares of common stock, the holders of shares of Series A Redeemable Convertible Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Company’s capital stock whether such assets are capital, surplus, or earnings, an amount equal to $25.00 per share of Series A Redeemable Convertible Preferred Stock. 11 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) b) Common stock No shares of common stock were issued during the three and nine-months ended September 30, 2023 and 2022. c) Stock Options and Warrants 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 stock-based compensation expense, related to all of the Company’s stock-based awards, recognized for the three and nine-months ended September 30, 2023 and 2022 was comprised as follows: Three-months ended September 30, Nine-months ended September 30, 2023 2022 2023 2022 Sales and marketing $ ( 57,188 ) $ ( 82,888 ) $ 80,625 $ ( 720 ) Total stock-based compensation expense $ ( 57,188 ) $ ( 82,888 ) $ 80,625 $ ( 720 ) Common Stock Options and Warrants There were 25,772,803 fully vested common stock warrants and options outstanding at September 30, 2023 and December 31, 2022 at a weighted-average grant date exercise price of $ 0.06 . No stock options or warrants to purchase common stock were granted or exercised during the three and nine-months ended September 30, 2023 and 2022. The following table summarizes the weighted average remaining contractual life and exercise price of common stock options and warrants outstanding and exercisable at September 30, 2023: Weighted Average Weighted Remaining Average Number Contractual Exercise Outstanding Life (Years) Price $0.03-0.11 25,772,803 5.81 $ 0.06 At September 30, 2023, there was no unrecognized compensation cost related to non-vested options and warrants granted to purchase common stock. All stock options and warrants to purchase common stock 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, 2023, the aggregate intrinsic value of options and warrants outstanding and exercisable was $ 5,725,118 . The intrinsic value of stock options and warrants are calculated as the amount by which the market price of the Company’s common stock exceeds the exercise price of the option or warrant. Preferred Stock Warrants Pursuant to the December 28, 2017 Compensation Agreement with David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of QuoteMedia, Inc., the Company issued Mr. Shworan warrants to purchase shares of Series A Redeemable Convertible Preferred Stock (“Compensation Preferred Stock Warrants”) in lieu of a cash salary. From the period December 28, 2017 to December 31, 2019 the Company issued a total of 31,250 Compensation Preferred Stock Warrants at an exercise price equal to $ 1.00 per share. Also pursuant to the Compensation Agreement with Mr. Shworan, on December 28, 2017 the Company issued Mr. Shworan warrants to purchase up to 382,243 shares of Series A Redeemable Convertible Preferred Stock at an exercise price equal to $ 1.00 per share (“Liquidity Preferred Stock Warrant”). The Liquidity Preferred Stock Warrants only vest and become exercisable on the consummation of a Liquidity Event as defined in the Company’s Certificate of Designation of Series A Redeemable Convertible Preferred Stock. The probability of the liquidity event performance condition is not currently determinable or probable; therefore, no compensation expense has been recognized as of September 30, 2023. The probability is re-evaluated each reporting period. As of September 30, 2023, there was $ 7,185,430 in unrecognized stock-based compensation expense related to these Liquidity Preferred Stock Warrants. Since the Liquidity Preferred Stock Warrants only vest and become exercisable on the consummation of a Liquidity Event which is currently determined not to be probable, management is also unable to determine the weighted-average period over which the unrecognized compensation cost will be recognized. 12 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of September 30, 2023, there were a total of 413,493 preferred stock warrants outstanding with a weighted average remaining contractual life of 24.3 years. As of September 30, 2023, 31,250 preferred stock warrants were exercisable. No preferred stock warrants were granted or exercised for the three and nine-months ended September 30, 2023 and 2022. Fair Value Measurement of Compensation Preferred Stock Warrants The Company adheres to ASC 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). · Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company could access. · Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. · Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The estimated fair value of the Preferred Stock Warrant liability is determined using Level 3 inputs. As of September 30, 2023 and December 31, 2022, the fair value of the Preferred Stock Warrant Liability was $ 710,000 and $ 629,375 , respectively. The Preferred Stock Warrants were valued using a bond plus option framework reflecting the cash flow of the Preferred Stock Warrants and used a probability weighted sum of the value in each potential year before expiration to estimate the fair value of the Preferred Stock Warrants. Volatility was based on public peer companies, adjusted for size and leverage. Risk-free rate was selected based on term matched Treasury securities. Bond repayment depends on the Company’s timely access to the required cash and as such, is discounted at the Company’s assumed borrowing rate. This model was run based on the Management's expected term and probabilities of a liquidity event. The key inputs for the framework were as follows as of September 30, 2023 and December 31, 2022: Valuation Inputs September 30, 2023 December 31, 2022 Expected Time to Expiration (years) 24.30 25.05 Stock Price on Valuation Date $ 0.28 $ 0.21 Peer Volatility 46.56 % 52.31 % Cash Flow Discount Rate 15.47 % 12.93 % 13 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following table sets forth a summary of the changes in the fair value of the Level 3 Preferred Stock Warrant Liability for the three and nine-months ended September 30, 2023: Preferred Stock Warrant Liability Fair value as of December 31, 2022 $ 629,375 Change in fair value 137,813 Fair value as of June 30, 2023 767,188 Change in fair value ( 57,188 ) Fair value as of September 30, 2023 $ 710,000 The changes in fair value attributable to the Preferred Stock Warrants are recorded as an adjustment to stock compensation expense and reported in Sales and Marketing expense on the Statements of Operations. 8. EARNINGS PER SHARE Basic net income per share is computed by dividing net income during the period by the weighted-average number of common shares outstanding, excluding the dilutive effects of common stock equivalents. Common stock equivalents include redeemable convertible preferred stock, stock options and warrants. Diluted net income per share is computed by dividing net income by the weighted-average number of dilutive common shares outstanding during the period. Diluted shares outstanding is calculated using the treasury stock method by adding to the weighted shares outstanding any potential shares of common stock from outstanding redeemable convertible preferred stock, stock options and warrants that are in-the-money. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, the calculation of basic and dilutive loss per share results in the same value. The calculations for basic and diluted net income per share for the three and nine-months ended September 30, 2023 and 2022 are as follows: Three-months ended September 30, Nine-months ended September 30, 2023 2022 2023 2022 Net income $ 126,036 $ 309,543 $ 312,362 $ 295,504 Weighted average common shares used to calculate net income per share - basic 90,477,798 90,477,798 90,477,798 90,477,798 Warrants to purchase redeemable convertible preferred stock 2,499,900 2,499,900 2,499,900 2,499,900 Redeemable convertible preferred stock 10,306,671 10,306,671 10,306,671 10,306,671 Stock options and warrants to purchase common stock 18,194,879 16,147,716 17,818,937 16,233,377 Weighted average common shares used to calculate net income per share - diluted 121,479,248 119,432,085 121,103,306 119,517,746 Net income per share – basic $ 0.00 $ 0.00 $ 0.00 $ 0.00 Net income per share – diluted $ 0.00 $ 0.00 $ 0.00 $ 0.00 14 Table of Contents