QUOTEMEDIA INC - Quarter Report: 2013 June (Form 10-Q)

CA Filed by Filing Services Canada Inc. 403-717-3898

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2013

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

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

The Registrant has 89,371,320 shares of common stock outstanding as at July 16, 2013.

QUOTEMEDIA, INC.

FORM 10-Q for the Quarter Ended June 30, 2013

INDEX

		Page
Part I.	Financial Information

Item 1.	Financial Statements (unaudited):	3

	Consolidated Balance Sheets at June 30, 2013 and December 31, 2012	3

	Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012	4

	Consolidated Statements of Cash Flows for the six months ended June 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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

QUOTEMEDIA, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30, 2013			December 31, 2012

ASSETS

Current assets:
Cash	$	630,706		$	658,100
Accounts receivable, net		580,302			652,603
Prepaid expenses		60,580			72,843
Other current assets		303,084			273,577
Total current assets		1,574,672			1,657,123

Deposits		20,715			21,810
Property and equipment, net		1,309,110			1,276,776
Goodwill		110,000			110,000
Intangible assets		91,373			91,922

Total assets	$	3,105,870		$	3,157,631

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable and accrued liabilities	$	1,343,322		$	1,156,289
Deferred revenue		574,312			525,026
Total current liabilities		1,917,634			1,681,315

Long-term portion of amounts due to related parties		6,928,605			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, 89,371,320 shares issued and outstanding		89,372			89,372
Additional paid-in capital		8,926,962			8,922,108
Accumulated deficit		(14,756,703	)		(14,150,300	)
Total stockholders’ deficit		(5,740,369	)		(5,138,820	)

Total liabilities and stockholders’ deficit	$	3,105,870		$	3,157,631

See accompanying notes

QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012


Revenue	$	2,380,714		$	2,476,556		$	4,764,699		$	5,041,000

Cost of revenue		1,334,458			1,226,439			2,605,684			2,402,144

Gross profit		1,046,256			1,250,117			2,159,015			2,638,856

Operating expenses

Sales and marketing		418,124			423,266			826,290			902,488
General and administrative		516,818			514,085			1,052,269			1,035,930
Software development		283,079			292,004			599,313			596,376
		1,218,021			1,229,355			2,477,872			2,534,794

Operating profit (loss)		(171,765	)		20,762			(318,857	)		104,062

Other income and (expense)

Foreign exchange gain		27,974			36,851			49,735			2,675
Interest expense (related party)		(169,826	)		(157,569	)		(335,312	)		(310,184	)
		(141,852	)		(120,718	)		(285,577	)		(307,509	)

Loss before income taxes		(313,617	)		(99,956	)		(604,434	)		(203,447	)

Provision for income taxes		(977	)		(491	)		(1,969	)		(1,987	)

Net loss	$	(314,594	)	$	(100,447	)	$	(606,403	)	$	(205,434	)

Loss per share

Basic and diluted loss per share		(0.00	)		(0.00	)		(0.01	)		(0.00	)

Weighted average shares outstanding

Basic and diluted		89,371,320			89,371,320			89,371,320			89,371,320

See accompanying notes

QUOTEMEDIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended June 30,
	2013			2012

Operating activities:

Net loss	$	(606,403	)	$	(205,434	)

Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization		397,563			370,705
Bad debt expense		137,919			58,500
Stock-based compensation expense		4,854			4,798
Noncash barter revenue		-			(180,000	)
Noncash barter advertising expense		-			96,000
Changes in assets and liabilities:
Accounts receivable		(65,618	)		(36,880	)
Prepaid expenses		12,263			(6,605	)
Other current assets		(29,507	)		(52,522	)
Deposits		1,095			(205	)
Accounts payable and amounts due to related parties		500,502			340,772
Deferred revenue		49,286			35,214
Net cash provided by operating activities		401,954			424,343

Investing activities:

Purchase of fixed assets		(40,463	)		(16,299	)
Purchase of intangible assets		(2,380	)		-
Capitalized application software		(386,505	)		(372,092	)
Net cash used in investing activities		(429,348	)		(388,391	)

Net increase (decrease) in cash		(27,394	)		35,952

Cash and equivalents, beginning of period		658,100			427,010

Cash and equivalents, end of period	$	630,706		$	462,962

See accompanying notes

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 June 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 are licensed based on the fair market value of the services delivered. The Company determines the fair market value of the service delivered based upon amounts charged for similar services in non barter arrangements within the previous six-month period. The Company also ensures that the value of barter delivered did not exceed the value of cash-based revenue in any period.

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

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012

Barter revenue earned		-	$	90,000		-	$	180,000
Advertising credits expensed		-		6,000		-		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 2012, the FASB issued ASU No. 2012-02, on testing indefinite-lived intangible assets for impairment. Under the guidance, testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill has been simplified. The guidance allows an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. The guidance is effective for impairment tests for fiscal years beginning after September 15, 2012. We adopted this guidance on January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated 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 June 30, 2013, the fair market value for forward contracts was a liability of $11,206 and was included in accrued liabilities. 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:

	June 30, 2013					December 31, 2012
	Notional Amount		Net Asset (Liability)			Notional Amount		Net Asset (Liability)

Forward contracts	$	450,000	$	(11,206	)	$	-	$	-

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 $22,700 related to forward contracts outstanding are included in other current assets at June 30, 2013. There were no margin deposits at December 31, 2012.

4. RELATED PARTIES

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

	June 30, 2013		December 31, 2012

Purchase of business unit	$	227,677	$	228,721
Computer hosting services		23,647		127,127
Office rent		954,537		970,729
Other		17,276		17,276
Loan		756,458		732,670
Lead generation services		999,691		951,133
Due to Management		3,949,319		3,587,480
	$	6,928,605	$	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 June 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 six months ended June 30, 2013 and 2012 was comprised as follows:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012

Sales and marketing	$	2,001	$	2,001	$	4,002	$	4,002
General and administrative		426		318		852		796
Total stock-based compensation	$	2,427	$	2,319	$	4,854	$	4,798

At June 30, 2013 there was $31,998 of unrecognized compensation cost related to non-vested share-based payments which is expected to be recognized over a weighted-average period of 3.46 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 June 30,		Six months ended June 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 six months ended June 30, 2013:

				Weighted-
	Options and			Average
	Warrants			Exercise Price
Outstanding at December 31, 2012		13,837,803		$	0.05

Stock options forfeited/expired		(110,000	)	$	0.04

Outstanding at June 30, 2013		13,727,803		$	0.05

The following table summarizes our non-vested stock option and warrant activity for the six months ended June 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		(181,668	)	$	0.04
Non-vested stock options and warrants at
June 30, 2013		557,219		$	0.04

								Options and Warrants
		Options and Warrants Outstanding						Exercisable
				Weighted
		Number		Average		Weighted		Number		Weighted
		Outstanding at		Remaining		Average		Exercisable at		Average
		June 30,		Contractual		Exercise		June 30,		Exercise
		2013		Life		Price		2013		Price

$	0.05-0.10		13,227,803		2.59	$	0.04		12,670,584	$	0.04
$	0.11-0.40		500,000		1.38	$	0.40		500,000	$	0.40

As at June 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 June 30, 2013 the aggregate intrinsic value of options and warrants outstanding was $179,639. The aggregate intrinsic value of options and warrants exercisable was $174,857. 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 June 30, 2013 and 2012, respectively. The basic and diluted net loss per share was $(0.01) and $(0.00) per share for the six months ended June 30, 2013 and 2012, respectively. There were 13,727,803 and 13,937,803 stock options and warrants excluded from the calculation of dilutive loss per share for the three and six months ended June 30, 2013 and 2012, respectively, because they were anti-dilutive.

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.

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 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. We have a plan in place to manage costs to ensure that our ongoing expenditures are balanced with our revenue growth rate.

One of our larger clients, Penson Worldwide Inc., filed for Chapter 11 protection in January 2013 and is currently in the process of liquidating its assets. The loss of revenue from the Penson Worldwide Inc. contract and its affiliate companies negatively impacted our revenue growth for the first two quarters of 2013. We expect revenue growth to remain relatively flat for the 3rd and 4th quarters of 2013.

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. 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 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 June 30,

Licensing revenue	$	2,380,714	$	2,476,556	$	(95,842	)	(4	)%

Six months ended June 30,

Licensing revenue

4,764,699

5,041,000

(276,301

)

Licensing revenue has decreased 4% and 5% when comparing the three and six months ended June 30, 2013 and 2012. The decrease is a result of decreased sales from licensing both our Interactive Content and Data Applications and Portfolio Management Systems.

Interactive Content and Data Application revenue decreased $52,239 (4%) when comparing the three month periods ended June 30, 2013 and 2012. Interactive Content and Data Application revenue decreased $66,990 (3%) when comparing the six month periods ended June 30, 2013 and 2012. The decreases are due to a decrease in the number of Interactive Content and Data Application client contracts.

Our Portfolio Management System revenue decreased by a total of $43,602 (4%) when comparing the three month periods ended June 30, 2013 and 2012. Portfolio Management System revenue decreased by a total of $209,310 (8%) when comparing the six month periods ended June 30, 2013 and 2012. Corporate Quotestream revenue decreased $133,835 (16%) for the three month period ended June 30, 2013 from the comparative period in 2012. Corporate Quotestream revenue decreased $325,471 (18%) when comparing the six month periods ended June 30, 2013 and 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 two quarters of 2013.

The decrease in Corporate Quotestream revenue for the three and six months ended June 30, 2013 is also due to the expiration of our barter licensing agreement. Included in Portfolio Management System revenue in the comparative 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 six months ended June 30, 2013. See discussion regarding our barter licensing agreement below under “Sales and Marketing”.

Individual Quotestream revenue increased $90,234 (26%) and $116,160 (17%) from the three and six 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.

Cost of Revenue and Gross Profit Summary

	2013			2012			Change ($)			Change (%)

Three months ended June 30,

Cost of revenue	$	1,334,458		$	1,226,439		$	108,019			9	%
Gross profit	$	1,046,256		$	1,250,117		$	(203,861	)		(16	)%
Gross margin %		44	%		50	%

Six months ended June 30,

Cost of revenue	$	2,605,684		$	2,402,144		$	203,540		8	%
Gross profit	$	2,159,015		$	2,638,856		$	(479,841	)	(18	)%
Gross margin %		45	%		52	%

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% and 8% when comparing the three and six month periods ended June 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 and to the acquisition of new data content required to support the new products and features that we have recently developed and 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 44% and 45% for the three and six month periods ended June 30, 2013 from 50% and 52% in the respective comparative periods in 2012.

Operating Expenses Summary

	2013		2012		Change ($)			Change (%)

Three months ended June 30,

Sales and marketing	$	418,124	$	423,266	$	(5,142	)		(1	)%
General and administrative		516,818		514,085		2,733			1	%
Software development		283,079		292,004		(8,925	)		(3	)%
Total operating expenses	$	1,218,021	$	1,229,355	$	(11,334	)		(1	)%

Six months ended June 30,

Sales and marketing	$	826,290	$	902,488	$	(76,198	)	(8	)%
General and administrative		1,052,269		1,035,930		16,339		2	%
Software development		599,313		596,376		2,937		0	%
Total operating expenses	$	2,477,872	$	2,534,794	$	(56,922	)	(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 decreased $5,142 (1%) and $76,198 (8%) for the three and six month periods ended June 30, 2013 when compared to the same periods in 2012.

The decrease from the six month period ended June 30, 2013 is primarily due to a decrease in non-cash advertising costs. We had no noncash advertising expenses for the three and six month periods ended June 30, 2013 compared to $6,000 and $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.

General and Administrative

General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses remained relatively unchanged, increasing $2,733 (1%) and $16,339 (2%) for the three and six month periods ended June 30, 2013 when compared to the same periods in 2012.

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 remained relatively unchanged; decreasing $8,925 (3%) for the three month period ended June 30, 2013 and increasing $2,937 (0%) for the six month period ended June 30, 2013 when compared to the same periods in 2012.

We capitalized $197,713 and $386,505 of development costs for the three and six months ended June 30, 2013, compared to $191,712 and $372,092 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 June 30,

Foreign exchange gain (loss)	$	27,974		$	36,851
Interest expense		(169,826	)		(157,569	)
Total other income and (expenses)	$	(141,852	)	$	(120,718	)

Six months ended June 30,

Foreign exchange gain (loss)	$	49,735		$	2,675
Interest expense		(335,312	)		(310,184	)
Total other income and (expenses)	$	(285,577	)	$	(307,509	)

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 $27,974 and $49,735 for the three and six month periods ended June 30, 2013, compared to foreign exchange gain of $36,851 and $2,675 for the same periods in 2012. The foreign exchange gains for the three and six month periods ended June 30, 2013 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, 2012 to June 30, 2013.

Interest Expense

Interest is accrued on certain amounts owed to related parties. Interest expense increased for the three and six month periods ended June 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 six month periods ended June 30, 2013, the Company recorded Canadian income tax expense of $977 and $1,969, compared to $491 and $1,987 in the comparative periods in 2012.

Net Loss for the Period

As a result of the foregoing, net loss for the three months ended June 30, 2013 was $(314,594) or $(0.00) per share compared to a net loss of $(100,447) or $(0.00) per share for the three months ended June 30, 2012. The net loss for the six months ended June 30, 2013 was $(606,403) or $(0.01) per share compared to a net loss of $(205,434) or $(0.00) per share for the six months ended June 30, 2012.

Liquidity and Capital Resources

Our cash totaled $630,706 at June 30, 2013, as compared with $658,100 at December 31, 2012, a decrease of $27,394. Net cash of $401,954 was provided by operations for the six months ended June 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 six months ended June 30, 2013 was $429,348 resulting from capitalized application software costs and the purchase of new computer equipment. There were no financing activities for the six month period ended June 30, 2013.

For the six months ended June 30, 2013 we had a net loss of $606,403, and at June 30, 2013 we have a net working capital deficit of $342,962 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 $574,312. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal. Our long-term liabilities include $6,928,605 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 June 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 June 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.

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 June 30, 2013, 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: August 8, 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)