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QUOTEMEDIA INC - Quarter Report: 2011 September (Form 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

 

¨ 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  x    No  ¨

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  x    No  ¨

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   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The Registrant has 89,371,320 shares of common stock outstanding as at November 4, 2011.

 

 

 


Table of Contents

QUOTEMEDIA, INC.

FORM 10-Q for the Quarter Ended September 30, 2011

INDEX

 

         Page  
Part I.   Financial Information   
Item 1.   Financial Statements (unaudited):      3   
  Consolidated Balance Sheets at September 30, 2011 and December 31, 2010      3   
  Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010      4   
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010      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        20   


Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

QUOTEMEDIA, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

     September 30, 2011     December 31, 2010  

ASSETS

    

Current assets:

    

Cash

   $ 371,128      $ 510,018   

Accounts receivable, net

     507,021        376,426   

Prepaid expenses

     223,587        202,931   

Other current assets

     191,719        136,234   
  

 

 

   

 

 

 

Total current assets

     1,293,455        1,225,609   

Deposits

     24,064        24,166   

Property and equipment, net

     1,190,020        1,168,089   

Goodwill

     110,000        110,000   

Intangible assets

     98,436        103,487   
  

 

 

   

 

 

 

Total assets

   $ 2,715,975      $ 2,631,351   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 925,755      $ 1,290,693   

Deferred revenue

     646,735        441,446   
  

 

 

   

 

 

 

Total current liabilities

     1,572,490        1,732,139   

Long-term portion of amounts due to related parties

     5,678,617        4,825,767   

Stockholders’ deficit:

    

Preferred stock, nondesignated, 10,000,000 shares authorized, none issued

     —          —     

Common stock, $0.001 par value, 100,000,000 shares authorized, 89,371,320 shares issued and outstanding

     89,372        89,372   

Additional paid-in capital

     8,909,942        8,872,465   

Accumulated deficit

     (13,534,446     (12,888,392
  

 

 

   

 

 

 

Total stockholders’ deficit

     (4,535,132     (3,926,555
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 2,715,975      $ 2,631,351   
  

 

 

   

 

 

 

See accompanying notes

 

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Table of Contents

QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

     Three months ended September 30,     Nine months ended September 30,  
     2011     2010     2011     2010  

Revenue

   $ 2,330,479      $ 1,929,946      $ 6,563,369      $ 5,851,421   

Cost of revenue

     1,053,454        942,825        3,055,839        2,840,194   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,277,025        987,121        3,507,530        3,011,227   

Operating expenses

        

Sales and marketing

     477,206        470,471        1,457,243        1,719,025   

General and administrative

     468,159        503,802        1,453,860        1,685,621   

Software development

     278,291        301,762        882,028        925,822   
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,223,656        1,276,035        3,793,131        4,330,468   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

     53,369        (288,914     (285,601     (1,319,241

Other income and (expense)

        

Foreign exchange gain (loss)

     83,162        (8,863     42,523        22,706   

Interest expense (related party)

     (141,281)        (102,999)        (401,442)        (294,209)   
     (58,119     (111,862     (358,919     (271,503
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (4,750     (400,776     (644,520     (1,590,744

Provision for income taxes

     (511     (962     (1,534     (2,412
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (5,261   $ (401,738   $ (646,054   $ (1,593,156
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share

        

Basic and diluted loss per share

     (0.00     (0.00     (0.01     (0.02

Weighted average shares outstanding

        

Basic and diluted

     89,371,320        89,371,320        89,371,320        89,371,320   

See accompanying notes

 

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QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

     Nine months ended September 30,  
     2011     2010  

Operating activities:

    

Net loss

   $ (646,054   $ (1,593,156

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     524,271        507,338   

Bad debt expense

     31,718        116,060   

Stock-based compensation expense

     37,477        328,410   

Noncash barter revenue

     (270,000     (270,000

Noncash barter advertising expense

     270,000        270,000   

Changes in assets and liabilities:

    

Accounts receivable

     (162,313     (69,245

Prepaid expenses

     (20,656     41,523   

Other current assets

     (55,485     26,071   

Deposits

     102        2,789   

Accounts payable and amounts due to related parties

     287,912        999,052   

Deferred revenue

     205,289        9,817   
  

 

 

   

 

 

 

Net cash provided by operating activities

     202,261        368,659   
  

 

 

   

 

 

 

Investing activities:

    

Purchase of fixed assets

     (36,464     (38,636

Capitalized application software

     (504,687     (518,654
  

 

 

   

 

 

 

Net cash used in investing activities

     (541,151     (592,019
  

 

 

   

 

 

 

Financing activities:

    

Loans from related parties

     200,000        —     
  

 

 

   

 

 

 

Net cash provided by financing activities

     200,000        —     
  

 

 

   

 

 

 

Net decrease in cash

     (138,890     (223,360

Cash and equivalents, beginning of period

     510,018        477,222   
  

 

 

   

 

 

 

Cash and equivalents, end of period

   $ 371,128      $ 253,862   
  

 

 

   

 

 

 

See accompanying notes

 

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Table of Contents

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, 2011 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, 2010 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 30, 2011.

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.

 

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

d) Accounting Pronouncements

Recent Accounting Pronouncements

In May 2011, the FASB issued additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this guidance will not 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.

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, 2011, the fair market value for forward contracts was a liability of $2,759 that was included in accrued liabilities. We had no forward contracts outstanding at December 31, 2010.

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.

 

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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, 2011     December 31, 2010  
     Notional
Amount
     Net Asset
(Liability)
    Notional
Amount
     Net Asset
(Liability)
 

Forward contracts

   $ 300,000       $ (2,759     —           —     

We are required to maintain a margin deposit with a foreign exchange corporation equal to 5% of the value of each forward contract outstanding. Margin deposits totaling $15,000 are included in other current assets as of September 30, 2011. We had no forward contracts outstanding at December 31, 2010.

4. RELATED PARTIES

The following table summarizes amounts due to related parties at September 30, 2011 and December 31, 2010:

 

     September 30, 2011      December 31, 2010  

Purchase of business unit

   $ 194,911       $ 186,798   

Computer hosting services

     417,500         332,427   

Office rent

     808,873         769,517   

Other

     17,276         38,217   

Loan

     639,380         406,225   

Lead generation services

     839,807         779,367   

Due to Management

     2,760,870         2,313,216   
  

 

 

    

 

 

 
   $ 5,678,617       $ 4,825,767   
  

 

 

    

 

 

 

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, 2011 balance sheet date. Our related party creditors have agreed to these repayment terms.

 

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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, 2011 and 2010 was comprised as follows:

 

     Three months ended September 30,        Nine months ended September 30,  
     2011      2010        2011      2010  

Sales and marketing

   $ 969       $ 1,845         $ 27,390       $ 286,335   

General and administrative

     549         549           4,337         7,047   

Software development

     —           11,676           5,750         35,028   
  

 

 

    

 

 

      

 

 

    

 

 

 

Total stock-based compensation

   $ 1,518       $ 14,070         $ 37,477       $ 328,410   
  

 

 

    

 

 

      

 

 

    

 

 

 

At September 30, 2011 there was $1,523 of unrecognized compensation cost related to non-vested share-based payments which is expected to be recognized over a weighted-average period of 0.25 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,  
     2011      2010        2011     2010  

Expected dividend yield

     n/a         n/a           —          —     

Expected stock price volatility

     n/a         n/a           187     176

Risk-free interest rate

     n/a         n/a           4     4

Expected life of options

     n/a         n/a           2.1 years        2.5 years   

Weighted average fair value of options and
warrants granted

     n/a         n/a         $ 0.03      $ 0.12   

 

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table represents stock option and warrant activity for the nine months ended September 30, 2011:

 

     Options and
Warrants
    Weighted- Average
Exercise Price
 

Outstanding at December 31, 2010

     12,707,803      $ 0.08   
  

 

 

   

 

 

 

Granted under company stock option plan

     3,655,000      $ 0.04   

Options and Warrants granted

     8,552,803      $ 0.04   

Stock options canceled

     (3,655,000   $ 0.07   

Warrants canceled

     (8,552,803   $ 0.07   
  

 

 

   

 

 

 

Outstanding at September 30, 2011

     12,707,803      $ 0.05   
  

 

 

   

 

 

 

The following table summarizes our non-vested stock option and warrant activity for the nine months ended September 30, 2011:

 

     Options and
Warrants
    Weighted-
Average Grant
Date Fair Value
 

Non-vested stock options and warrants at December 31, 2010

     40,417      $ 0.07   

Granted during the period

     19,792      $ 0.04   

Vested during the period

     (32,917   $ 0.06   

Forfeited during the period

     (19,792   $ 0.07   
  

 

 

   

 

 

 

Non-vested stock options and warrants at September 30, 2011

     7,500      $ 0.04   
  

 

 

   

 

 

 

 

     Options and Warrants Outstanding      Options and Warrants
Exercisable
 
     Number
Outstanding at
September 30,
2011
     Weighted
Average
Remaining
Contractual
Life
     Weighted
Average
Exercise
Price
     Number
Exercisable at
September 30,
2011
     Weighted
Average
Exercise
Price
 

$0.05-0.10

     12,207,803         3.82       $ 0.04         12,200,303       $ 0.04   

$0.11-0.40

     500,000         3.13       $ 0.40         500,000       $ 0.40   

 

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QUOTEMEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In April 2011, the Company’s Board of Directors and Compensation Committee authorized a reduction of the exercise price of a total of 12,207,803 stock options and warrants granted to employees and directors. The new exercise price for those options and warrants was fixed at $0.036 per share, which was the market price of the Company’s common stock at the time of the repricings. The vesting period and the expiry dates of the repriced options and warrants remained unchanged. The repricing of the options and warrants was accounted for as an exchange of the original awards for new awards. The incremental increase in fair value of the new awards resulted in additional stock-based compensation expenses totaling $31,475 that was recognized in full in April 2011.

As at September 30, 2011 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, 2011 the aggregate intrinsic value of options and warrants outstanding was $170,909. The aggregate intrinsic value of options and warrants exercisable was $170,804. 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.

The Company is authorized to issue up to 100,000,000 common shares and 10,000,000 non-designated preferred shares. Until such time as the Company is able to increase its authorized number of shares of common stock, in the event that an exercise of warrants or stock options would result in the number of issued common shares exceeding the authorized limit, the Company would designate the preferred shares with the same rights and preferences as the common shares to accommodate the exercise of the options or warrants.

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, 2011 and 2010, respectively. The basic and diluted net loss per share was $(0.01) and $(0.02) per share for the nine months ended September 30, 2011 and 2010, respectively. There were 12,707,803 stock options and warrants excluded from the calculation of dilutive loss per share for the three and nine months ended September 30, 2011 and 2010 because they were anti-dilutive.

7. SUBSEQUENT EVENTS

On September 2, 2011, the Company’s Board of Directors approved amendments to the Corporation’s articles of incorporation to increase the authorized number of shares of Common Stock of the Corporation from 100,000,000 to 150,000,000, and to increase the number of shares of Common Stock authorized for issuance pursuant to the Corporation’s 2003 Equity Incentive Compensation Plan from 10,000,000 to 15,000,000. The amendments are subject to shareholder approval at the Company’s Annual Meeting of Stockholders to be held on November 18, 2011.

 

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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, 2010 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, 2010 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 and request-based 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.

 

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All of our content solutions are completely customizable and embed directly into client Web pages for seamless integration with existing content.

Our Portfolio Management Systems consist of Quotestream Desktop, Quotestream Professional, Quotestream Wireless, 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 Wireless and Mobile are true companion products to the Quotestream desktop products (Quotestream and Quotestream Professional) – any changes made to portfolios in either the desktop or wireless 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. We expect that uncertainty with respect to spending on financial information and related services will persist for the remainder of 2011. While in some areas the anticipated impact of current trends may lead to a decision to reduce demand for market data and related services, we expect overall spending on financial information services to grow modestly over the next several years.

Plan of operation

Our plan of operation for the remainder of 2011 and for 2012 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

 

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Quotestream Wireless, both as a companion to the Quotestream desktop products, and as a stand-alone solution, 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. We have a plan in place to manage costs to ensure that our ongoing expenditures are balanced with our revenue growth rate. We anticipate that based on product deployments that have been recently completed or are near completion, we will continue to see strong revenue growth for the remainder of 2011 and into 2012.

Opportunistically, efforts will be made to evaluate and pursue the development of additional new products that may eventually be commercialized by our company. Although not currently anticipated, 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 downturn 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

 

     2011      2010      Change ($)      Change (%)  

Three months ended September 30,

           

Licensing revenue

   $ 2,330,479       $ 1,929,946       $ 400,533         21

Nine months ended September 30,

           

Licensing revenue

   $ 6,563,369       $ 5,851,421       $ 711,948         12

Licensing revenue has increased 21% and 12% when comparing the three and nine months ended September 30, 2011 and 2010. The increase is a result of sales growth from licensing both our Interactive Content and Data Applications and Portfolio Management Systems.

Interactive Content and Data Application revenue increased $200,626 (20%) and $465,814 (16%) when comparing the three and nine month periods ended September 30, 2011 and 2010. The increases are due to an increase in the number and average value of Interactive Content and Data Application client contracts, as we signed several large-scale clients since the comparable periods – most notably the Toronto Stock Exchange.

 

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Our Portfolio Management System revenue increased by a total of $199,907 (21%) and $246,134 (9%) when comparing the three and nine month periods ended September 30, 2011 and 2010. Corporate Quotestream revenue increased $122,489 (18%) and increased $67,253 (3%) for the three and nine months periods ended September 30, 2011 from the comparative periods in 2010. The increases for the three and nine month periods ended September 30, 2011 are due to new contracts signed with the Toronto Stock Exchange and other large-scale clients in 2011.

Individual Quotestream revenue increased $77,418 (31%) and $178,881 (23%) from the comparative periods in 2010, resulting from an increase in the number of subscribers and an increase in the average revenue per subscriber. Included in Portfolio Management System revenue is revenue earned from licensing of one of our portfolio management applications in exchange for advertising services, referred to as “barter revenue,” whereby advertising credits were received for subscription services. This barter revenue amounted to $90,000 and $270,000 for the three and nine month periods ended September 30, 2011 and 2010.

Cost of Revenue and Gross Profit Summary

 

     2011     2010     Change ($)      Change (%)  

Three months ended September 30,

  

Cost of revenue

   $ 1,053,454      $ 942,825      $ 110,629         12

Gross profit

   $ 1,277,025      $ 987,121      $ 289,904         29

Gross margin %

     55     51     

Nine months ended September 30,

  

Cost of revenue

   $ 3,055,839      $ 2,840,194      $ 215,645         8

Gross profit

   $ 3,507,530      $ 3,011,227      $ 496,303         16

Gross margin %

     53     51     

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 12% and 8% when comparing the three and nine month periods ended September 30, 2011 and 2010. The increases are primarily due to an increase in variable stock exchange fees associated with an increase in the number of Quotestream subscribers. The increase is also due to an increase in the average stock exchange fees per user as, on average, users subscribed to more stock exchange data in the current periods than in the comparative periods. This is consistent with the increase in subscriber revenue discussed above. The increase in variable stock exchange fees is also due to new NASDAQ fees introduced in 2011 for Interactive Content and Data Application clients displaying NASDAQ Mutual Funds and Indices data.

Overall, the cost of revenue decreased as a percentage of sales, as evidenced by our gross margin percentage which increased to 55% and 53% for the three and nine month periods ended September 30, 2011 from 51% in the respective comparative periods in 2010.

 

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Operating Expenses Summary

 

     2011      2010      Change ($)     Change (%)  

Three months ended September 30,

  

Sales and marketing

   $ 477,206       $ 470,471       $ 6,735        1

General and administrative

     468,159         503,802         (35,643     (7 %) 

Software development

     278,291         301,762         (23,471     (8 %) 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total operating expenses

   $ 1,223,656       $ 1,276,035       $ (52,379     (4 %) 
  

 

 

    

 

 

    

 

 

   

 

 

 

Nine months ended September 30,

  

       

Sales and marketing

   $ 1,457,243       $ 1,719,025       $ (261,782     (15 )% 

General and administrative

     1,453,860         1,685,621         (231,761     (14 )% 

Software development

     882,028         925,822         (43,794     (5 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Total operating expenses

   $ 3,793,131       $ 4,330,468       $ (537,337     (12 )% 
  

 

 

    

 

 

    

 

 

   

 

 

 

Sales and Marketing

Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses for the three month period ended September 30, 2011 were comparable to the same period in 2010, increasing slightly by $6,735 (1%). Sales and marketing expenses decreased $261,782 (15%) for the nine month periods ended September 30, 2011 when compared to the same period in 2010. The decrease was primarily due to $270,000 in stock-based compensation expense recognized in the second quarter of 2010 as a result of extending the terms of stock options and warrants held by an executive of the Company. Included in sales and marketing expense are $90,000 and $270,000 in non-cash advertising costs incurred in the three and nine month periods ended September 30, 2011 and 2010. We receive advertising credits with a large national magazine in exchange for subscription services. The advertising credits are expensed as used, and unused advertising credits are reflected as prepaid expenses.

General and Administrative

General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses decreased $35,643 (7%) and $231,761 (14%) for the three and nine month periods ended September 30, 2011 when compared to the same periods in 2010. The decreases are due to nonrecurring accruals for potential tax penalties made in the comparative periods in 2010, as well as a decrease in bad debt expense in 2011 from the comparative periods in 2010. The decreases are also due to a decrease in salary expense resulting from a reduction in administrative personnel from the comparative periods in 2010.

 

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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 $23,471 (8%) and $43,794 (5%) for the nine month periods ended September 30, 2011 when compared to the same periods in 2010, primarily due to decreases in stock-based compensation expense associated with development personnel.

We capitalized $173,020 and $504,687 of development costs for the three and nine months ended September 30, 2011, compared to $179,080 and $518,654 for the same periods in 2010. 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

 

     2011     2010  

Three months ended September 30,

    

Foreign exchange gain (loss)

   $ 83,162      $ (8,863

Interest expense

     (141,281     (102,999
  

 

 

   

 

 

 

Total other income and (expenses)

   $ (58,119   $ (111,862
  

 

 

   

 

 

 
Nine months ended September 30,     

Foreign exchange gain (loss)

   $ 42,523      $ 22,706   

Interest expense

     (401,442     (294,209
  

 

 

   

 

 

 

Total other income and (expenses)

   $ (358,919   $ (271,503
  

 

 

   

 

 

 

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.

We recognized foreign exchange gain of $83,162 and $42,523 for the three and nine month periods ended September 30, 2011, compared to a foreign exchange loss of $(8,863) and a foreign exchange gain of $22,706 for the same periods in 2010. The foreign exchange gains are 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 versus the Canadian dollar from December 31, 2010 to September 30, 2011.

 

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Interest Expense

Interest is accrued on certain amounts owed to related parties. Interest expense increased for the three and nine months ended September 30, 2011 due to additional borrowings compared to the same period in 2010. 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, 2011, the Company recorded Canadian income tax expense of $511 and $1,534, compared to $962 and $2,412 in the comparative periods in 2010.

Net Loss for the Period

As a result of the foregoing, net loss for the three months ended September 30, 2011 was $(5,261) or $(0.00) per share compared to a net loss of $(401,738) or $(0.00) per share for the three months ended September 30, 2010. The net loss for the nine months ended September 30, 2011 was $(646,054) or $(0.01) per share compared to a net loss of $(1,593,156) or $(0.02) per share for the nine months ended September 30, 2010.

Liquidity and Capital Resources

Our cash totaled $371,128 at September 30, 2011, as compared with $510,018 at December 31, 2010, a decrease of $138,890. Net cash of $202,261 was provided by operations for the nine months ended September 30, 2011, 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 and the increase in accounts receivable. Net cash used in investing activities for the nine months ended September 30, 2011 was $541,151 resulting from capitalized application software costs and the purchase of new computer equipment. Net cash provided by financing activities for the nine months ended September 30, 2011 was $200,000 resulting from additional loans from Company management.

For the nine months ended September 30, 2011 we had a net loss of $646,054, and at September 30, 2011 we had a net working capital deficit of $279,035, which represented current assets minus current liabilities.

Our working capital deficit raises doubt about the Company’s ability to continue as a going concern. To address these concerns, 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 continue to see revenue growth for the next 12 months. Our current liabilities include deferred revenue of $646,735. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal. Our long-term liabilities include $5,678,617 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.

 

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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, 2011 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, 2011, 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   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.
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.
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.
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.
101   Interactive Data Files (Quarterly Report on Form 10-Q, for the quarterly period ended September 30, 2011, furnished in XBRL (eXtensible Business Reporting Language)).

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 14, 2011

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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