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QUOTEMEDIA INC - Quarter Report: 2018 June (Form 10-Q)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark one)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2018
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 I
ncorporation 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 ☑   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 ☑    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" and "emerging growth 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 ☑ 
 
Emerging growth company ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐   No ☑
 
The Registrant has 90,477,798 shares of common stock outstanding as at August 3, 2018.

 
 
 
QUOTEMEDIA, INC.
 
FORM 10-Q for the Quarter Ended June 30, 2018
 
INDEX
 
 
 
Page
 
 
 
 
3
 
 
 
 
         3
 
 
 
 
4
 
 
 
 
         5
 
 
 
 
6
 
 
 
       11
 
 
 
16
 
 
 
 17
 
 
 
17
 
 
 
 
17
 
 
 

 
2
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
 
June 30,
2018
 
 
December 31,
2017
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
    Cash and cash equivalents
 $584,711 
 $451,151 
    Accounts receivable, net
  505,525 
  344,512 
    Prepaid expenses
  71,896 
  89,884 
    Other current assets
  157,364 
  149,379 
    Total current assets
  1,319,496 
  1,034,926 
 
    
    
    Deposits
  15,896 
  16,551 
    Property and equipment, net
  1,610,708 
  1,420,946 
    Goodwill
  110,000 
  110,000 
    Intangible assets
  64,130 
  64,657 
 
    
    
        Total assets
 $3,120,230 
 $2,647,080 
 
    
    
LIABILITIES AND STOCKHOLDERS’ DEFICIT
    
    
 
    
    
Current liabilities:
    
    
    Accounts payable and accrued liabilities
 $1,536,543 
 $1,565,972 
    Deferred revenue
  789,839 
  706,819 
    Current portion of capital lease obligation
  27,337 
  - 
        Total current liabilities
  2,353,719 
  2,272,791 
 
    
    
Long-term portion of capital lease obligation
  54,143 
  - 
 
    
    
Mezzanine equity:
    
    
    Series A Redeemable Convertible Preferred stock,
    
    
    $0.001 par value, 550,000 shares designated,
    
    
    127,685 shares issued
  3,082,211 
  3,082,211 
 
    
    
Stockholders’ deficit:
    
    
    Preferred stock, 10,000,000 shares
    
    
    authorized, 550,000 shares designated
  - 
  - 
    Common stock, $0.001 par value, 150,000,000
    
    
    shares authorized, 90,477,798 shares issued
    
    
    and outstanding
  90,479 
  90,479 
    Additional paid-in capital
  18,945,043 
  18,727,661 
    Accumulated deficit
  (21,405,365)
  (21,526,062)
        Total stockholders’ deficit
  (2,369,843)
  (2,707,922)
 
    
    
        Total liabilities and stockholders’ deficit
 $3,120,230 
 $2,647,080 
 
See accompanying notes 
3
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
 
Three months ended June 30,
 
 
Six months ended June 30,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
LICENSING FEES
 $2,798,570 
 $2,339,265 
 $5,465,810 
 $4,627,718 
 
    
    
    
    
COST OF REVENUE
  1,414,269 
  1,242,978 
  2,785,724 
  2,550,607 
 
    
    
    
    
GROSS PROFIT
  1,384,301 
  1,096,287 
  2,680,086 
  2,077,111 
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
 
    
    
    
    
Sales and marketing
  487,930 
  382,977 
  935,988 
  777,349 
General and administrative
  500,238 
  495,534 
  1,038,593 
  1,028,447 
Software development
  284,878 
  251,234 
  588,658 
  495,468 
 
  1,273,046 
  1,129,745 
  2,563,239 
  2,301,264 
 
    
    
    
    
OPERATING PROFIT (LOSS)
  111,255 
  (33,458)
  116,847 
  (224,153)
 
    
    
    
    
OTHER INCOME (EXPENSES)
    
    
    
    
 
    
    
    
    
Foreign exchange gain (loss)
  4,383 
  (59,027)
  8,200 
  (73,467)
Interest expense (related party)
  - 
  (285,183)
  - 
  (561,497)
Interest expense - other
  (2,328)
  - 
  (2,785)
  - 
 
  2,055 
  (344,210)
  5,415 
  (634,964)
 
    
    
    
    
INCOME (LOSS) BEFORE INCOME TAXES
  113,310 
  (377,668)
  122,262 
  (859,117)
 
    
    
    
    
Provision for income taxes
  (774)
  (743)
  (1,565)
  (1,499)
 
    
    
    
    
NET INCOME (LOSS)
 $112,536 
 $(378,411)
 $120,697 
 $(860,616)
 
    
    
    
    
EARNINGS (LOSS) PER SHARE
    
    
    
    
 
    
    
    
    
Basic earnings (loss) per share
  0.00 
  (0.00)
  0.00 
  (0.01)
Diluted earnings (loss) per share
  0.00 
  (0.00)
  0.00 
  (0.01)
 
    
    
    
    
WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    
    
 
    
    
    
    
Basic
  90,477,798 
  90,477,798 
  90,477,798 
  90,477,798 
Diluted
  99,803,542 
  90,477,798 
  101,186,441 
  90,477,798 
 
See accompanying notes  
4
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
 
Six months ended June 30,
 
 
 
2018
 
 
2017
 
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $120,697 
 $(860,616)
 
    
    
Adjustments to reconcile net income (loss) to net cash
    
    
provided by operating activities:
    
    
Depreciation and amortization
  431,799 
  418,906 
Bad debt expense
  7,420 
  34,308 
Stock-based compensation expense
  226,232 
  30,664 
Changes in assets and liabilities:
    
    
Accounts receivable
  (168,433)
  2,933 
Prepaid expenses
  17,988 
  8,079 
      Other current assets
  (7,985)
  (31,236)
Deposits
  655 
  (498)
Accounts payable and amounts due to related parties
  (38,279)
  693,085 
Deferred revenue
  83,020 
  218,581 
Net cash provided by operating activities
  673,114 
  514,206 
 
    
    
INVESTING ACTIVITIES:
    
    
 
    
    
Purchase of fixed assets
  (99,593)
  (35,224)
Purchase of intangible assets
  (2,570)
  - 
Capitalized application software
  (430,781)
  (370,669)
Net cash used in investing activities
  (532,944)
  (405,893)
 
    
    
FINANCING ACTIVITIES:
    
    
 
    
    
Repayment of capital lease financing
  (6,610)
  - 
Net cash used in financing activities
  (6,610)
  - 
 
    
    
Net increase in cash
  133,560 
  108,313 
 
    
    
Cash and equivalents, beginning of period
  451,151 
  271,700 
 
    
    
Cash and equivalents, end of period
 $584,711 
 $380,013 
 
    
    
NON-CASH ITEMS:
    
    
 
    
    
Purchase of fixed assets under capital lease
 $89,120 
 $- 
 
See accompanying notes 
5
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1. BASIS OF PRESENTATION
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial statements and instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for a full year. In connection with the preparation of the condensed consolidated financial statements the Company evaluated subsequent events after the balance sheet date of June 30, 2018 through the filing of this report.
 
As of June 30, 2018, the Company has a working capital deficit of $1,034,223. Our current liabilities include deferred revenue of $789,839. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal.
 
The Company has a plan in place for the next 12 months to ensure ongoing expenditures are balanced with the expected growth rate, and believes cash on hand and cash generated will be sufficient to fund operations for 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.
 
These financial statements should be read in conjunction with our financial statements and the notes thereto for the fiscal year ended December 31, 2017 contained in our Form 10-K filed with the Securities and Exchange Commission dated April 11, 2018.
 
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 earnings in the period in which they occur.
 
d) Allowances for doubtful accounts
 
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company determines the allowance by reviewing the age of the receivables and assessing the anticipated ability of customers to pay. No collateral is required for any of the receivables and the Company does not usually apply financing charges to outstanding accounts receivable balances. If the financial condition of our customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The allowance for doubtful accounts was $120,000 as of June 30, 2018 and December 31, 2017.
 
 
6
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
e) Accounting Pronouncements
 
Not Yet Adopted
 
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill by eliminating step 2 from the goodwill impairment test. Under the new ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized for the amount by which the carrying amount exceeds its fair value. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company believes that this pronouncement will have no impact on its consolidated financial statements and related disclosures.
 
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain cash receipts and payments in the statement of cash flows in order to eliminate diversity in practice. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the potential impact that adoption will have on its consolidated financial statements and related disclosures.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU is intended to improve the reporting of leasing transactions to provide users of financial statements with more decision-useful information. This ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company is evaluating the potential impact that adoption will have on its consolidated financial statements and related disclosures.
 
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. REVENUE
 
Disaggregated Revenue
 
The Company provides market data, financial web content solutions and cloud-based applications. Our revenue by type of service consists of the following:
 
 
 
Three months ended June 30,
 
 
Six months ended June 30,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Portfolio Management Systems:
 
 
 
 
 
 
 
 
 
 
 
 
   Corporate Quotestream
 $881,557 
 $752,992 
 $1,747,020 
 $1,486,413 
   Individual Quotestream
  466,888 
  412,234 
  944,048 
  820,087 
Interactive Content & Data Applications
  1,450,125 
  1,174,039 
  2,774,742 
  2,321,218 
Total revenue
 $2,798,570 
 $2,339,265 
 $5,465,810 
 $4,627,718 
 
Deferred Revenue
 
Changes in deferred revenue for the period were as follows:
 
Balance at January 1, 2018
 $706,819 
Revenue recognized in the current period from the amounts in the beginning balance
  (512,956)
New deferrals, net of amounts recognized in the current period
  604,298 
Effects of foreign currency translation
  (8,322)
Balance at June 30, 2018
 $789,839 
 
Practical Expedients 
 
As permitted under ASU 2014-09 (and related ASUs), unsatisfied performance obligations are not disclosed, as the original expected duration of substantially all of our contracts is one year or less.
 
 
7
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
4. RELATED PARTIES
 
On December 28, 2017, the Company entered into Debt Exchange and Debt Forgiveness Agreements with Bravenet Web Services, Inc. (“Bravenet”), and Harrison Avenue Holdings Ltd. (“Harrison”). David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc., is a control person of Bravenet and Harrison. Also effective December 28, 2017, the Company entered into a Compensation Agreement with David M. Shworan. As a result of these agreements and transactions, all of our related party debt was eliminated effective December 28, 2017; therefore no related party interest expense was incurred for the three or six months ended June 30, 2018. Interest was accrued at 10% on outstanding balances owed to related parties in the comparative period resulting in $285,183 and $561,497 in interest expenses for the three and six months ended June 30, 2017, respectively. Refer to Note 6, “Stockholders’ Deficit” for additional information.
 
The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2016 for approximately $7,365 per month. David M. Shworan is a control person of 410734 B.C. Ltd. At June 30, 2018, there were no amounts due to 410734 B.C. Ltd. As a matter of policy all related party transactions are subject to review and approval by the Company’s Board of Directors.
 
5.CAPITAL LEASES
 
The Company’s property and equipment includes the following computer equipment on capital lease:
 
 
 
June 30,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
Computer equipment on capital lease
 $89,120 
  - 
Less: accumulated depreciation
  5,941 
  - 
 
 $83,179 
  - 
 
The Company’s capital lease obligations consist of the following:
 
 
 
June 30,
2018
 
 
December 31,
2017
 
 
 
 
 
 
 
 
Total capital lease obligations
 $92,498 
  - 
Less amount representing interest
  11,018 
  - 
Present value of minimum lease payments
  81,480 
  - 
Less current portion
  27,337 
  - 
Long-term portion
 $54,143 
  - 
 
6.STOCKHOLDERS’ DEFICIT
 
a) Preferred shares
 
We are authorized to issue up to 10,000,000 non-designated preferred shares at the Board of Directors’ discretion.
 
On December 28, 2017, a total of 550,000 shares of the Company’s Preferred Stock were designated as “Series A Redeemable Convertible Preferred Stock.” The Series A Redeemable Convertible Preferred Stock has no dividend or voting rights. Holders of Series A Redeemable Convertible Preferred Stock shall have the right to convert their shares into shares of common stock at the rate of 83.33 shares of common stock for one share of Series A Redeemable Convertible Preferred Stock, at any time following the date the closing price of a share of common stock on a securities exchange or actively traded over-the-counter market has exceeded $0.30 for ninety (90) consecutive trading days. The conversion rights are subject to the availability of authorized but unissued shares of common stock.
 
In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to any holders of any shares of common stock, the holders of shares of Series A Redeemable Convertible Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Company’s capital stock whether such assets are capital, surplus, or earnings, an amount equal to $25.00 per share of Series A Redeemable Convertible Preferred Stock.
 
At June 30, 2018, 127,685 shares of Series A Redeemable Convertible Preferred Stock have been issued. No shares of Series A Redeemable Convertible Preferred Stock were issued during the six months ended June 30, 2018 and 2017.
 
b) Common stock
 
No shares of common stock were issued during the six months ended June 30, 2018 and 2017.
 
 
8
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
c) Stock Options and Warrants
 
FASB ASC 718, Stock Compensation, requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.
 
Total 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, 2018 and 2017 was comprised as follows:
 
 
 
Three months ended June 30,
 
 
Six months ended June 30,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 $99,291 
 $5,288 
 $198,582 
 $10,664 
General and administrative
  12,700 
  10,000 
  25,400 
  20,000 
Development
  1,125 
  - 
  2,250 
  - 
Total stock-based compensation
 $113,116 
 $15,288 
 $226,232 
 $30,664 
 
Common Stock Options and Warrants
 
As of June 30, 2018 there were a total of 26,372,803 options and warrants to purchase common stock outstanding, with a weighted average exercise price of $0.06 and a weighted average remaining contractual life of 10.9 years. As of June 30, 2018 there were a total of 18,747,803 vested and 7,625,000 non-vested options and warrants to purchase common stock with weighted average exercise prices of $0.05 and $0.07, respectively. There was no stock option or warrant activity during the six months ended June 30, 2018.
 
At June 30, 2018 there was $165,755 of unrecognized compensation cost related to non-vested options and warrants granted to purchase common stock which is expected to be recognized over a weighted-average period of 3.33 years.
 
All stock options and warrants to purchase common stock have been granted with exercise prices equal to or greater than the market value of the underlying common shares on the date of grant. At June 30, 2018 the aggregate intrinsic value of options and warrants outstanding was $1,124,513. The aggregate intrinsic value of options and warrants exercisable was $921,888. 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.
 
Preferred Stock Warrants
 
On December 28, 2017, the Company entered into a Compensation Agreement with David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc., pursuant to which, in lieu of receiving a cash salary the Company will issue to Mr. Shworan warrants to purchase shares of Series A Redeemable Convertible Preferred Stock (“Compensation Preferred Stock Warrants”). Provided that Mr. Shworan is employed by or otherwise providing services to the Company or its subsidiaries on each of January 1, 2018 and 2019, the Company will issue to Mr. Shworan warrants to purchase up to 15,000 shares of Compensation Preferred Stock Warrants at an exercise price equal to $1.00 per share. A total of $90,000 and $180,000 of stock-based compensation expense was recognized related to the Compensation Preferred Stock Warrants during the three and six months ending June 30, 2018. At June 30, 2018 there was $180,000 of unrecognized compensation costs related to the 15,000 Compensation Preferred Stock Warrants granted on January 1, 2018 which are expected to be recognized over a weighted-average period of 0.50 years.
 
 Also pursuant to the Compensation Agreement with Mr. Shworan, on December 28, 2017 the Company issued Mr. Shworan warrants to purchase up to 382,243 shares of Series A Redeemable Convertible Preferred Stock at an exercise price equal to $1.00 per share (“Liquidity Preferred Stock Warrant”). The Liquidity Preferred Stock Warrants only vest and become exercisable on the consummation of a Liquidity Event as defined in the Company’s Certificate of Designation of Series A Redeemable Convertible Preferred Stock. The probability of the liquidity event performance condition is not currently determinable or probable; therefore, no compensation expense has been recognized as of June 30, 2018. The probability is re-evaluated each reporting period. As of June 30, 2018, there was $9,173,832 in unrecognized stock-based compensation expense related to these Liquidity Preferred Stock Warrants. Since the Liquidity Preferred Stock Warrants only vest and become exercisable on the consummation of a Liquidity Event which is currently not determinable or probable, we are also unable to determine the weighted-average period over which the unrecognized compensation cost will be recognized. Refer to Note 4, “Related Parties” for additional information.
 
The following table represents total preferred stock warrant activity for the six months ended June 30, 2018:
 
 
 
 
 
 
Weighted-
 
 
 
 
 
 
Average
 
 
 
Warrants
 
 
Exercise Price
 
Outstanding at January 1, 2018
  383,493 
 $1.00 
Warrants granted
  15,000 
 $1.00 
Outstanding at June 30, 2018
  398,493 
 $1.00 
 
9
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
The following table summarizes the total non-vested preferred stock warrant activity for the six months ended June 30, 2018:
 
 
 
 
 
 
Weighted-
 
 
 
 
 
 
Average
 
 
 
Warrants
 
 
Exercise Price
 
Outstanding at January 1, 2018
  382,243 
 $1.00 
Granted during the period
  15,000 
 $1.00 
Vested during the period
  (7,500)
 $1.00 
Outstanding at June 30, 2018
  389,743 
 $1.00 
 
As of June 30, 2018, a total of 398,493 preferred stock warrants were outstanding with a weighted average remaining contractual life of 19.5 years. As of June 30, 2018, a total of 8,750 preferred stock warrants were exercisable with a weighted average remaining contractual life of 19.5 years. There was no cash received from the exercise of preferred stock warrants for the six months ended June 30, 2018 or 2017.
 
At June 30, 2018 the total aggregate intrinsic value of preferred stock warrants outstanding was $9,563,832. The aggregate intrinsic value of preferred stock warrants exercisable was $210,000. The intrinsic value of our preferred stock warrants is calculated as the amount by which the liquidation value of our Series A Redeemable Convertible Preferred Stock ($25) exceeds the exercise price of the warrant ($1).
 
7.  EARNINGS PER SHARE
 
Basic net income per share is computed by dividing net income during the period by the weighted-average number of common shares outstanding, excluding the dilutive effects of common stock equivalents. Common stock equivalents include redeemable convertible preferred stock, stock options and warrants. Diluted net income per share is computed by dividing net income by the weighted-average number of dilutive common shares outstanding during the period. Diluted shares outstanding is calculated using the treasury stock method by adding to the weighted shares outstanding any potential shares of common stock from outstanding redeemable convertible preferred stock, stock options and warrants that are in-the-money. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported the calculation of basic and dilutive loss per share results in the same value. The calculations for basic and diluted net income per share for the three and six months ended June 30, 2018 and 2017 are as follows:
 
 
 
Three months ended June 30,
 
 
Six months ended June 30,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $112,536 
 $(378,411)
 $120,697 
 $(860,616)
 
    
    
    
    
Weighted average common shares used
    
    
    
    
  to calculate net income per share
  90,477,798 
  90,477,798 
  90,477,798 
  90,477,798 
Stock options and warrants to purchase
    
    
    
    
  common stock
  9,325,744 
  - 
  10,708,643 
  - 
Weighted average common shares used
    
    
    
    
  to calculate diluted net income per share
  99,803,542 
  90,477,798 
  101,186,441 
  90,477,798 
 
    
    
    
    
Net income (loss) per share - basic
 $0.00 
 $(0.00)
 $0.00 
 $(0.01)
Net income (loss) per share - diluted
 $0.00 
 $(0.00)
 $0.00 
 $(0.01)
 
The number of shares of potentially dilutive common stock related to options, warrants and redeemable convertible preferred stock that were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive for the three and six months ended June 30, 2018 and 2017 are shown below:
 
 
 
Three months ended June 30,
 
 
Six months ended June 30,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Stock options and warrants to purchase
 
 
 
 
 
 
 
 
 
 
 
 
  common stock
  4,000,000 
  16,372,803 
  4,000,000 
  16,372,803 
Warrants to purchase redeemable
    
    
    
    
  convertible preferred stock
  1,354,113 
  - 
  1,354,113 
  - 
Redeemable convertible preferred stock
  10,639,991 
  - 
  10,639,991 
  - 
Total potential common shares excluded
  15,994,104 
  16,372,803 
  15,994,104 
  16,372,803 
 
 
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, 2017 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, 2017 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 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: Interactive Content and Data Applications, Data Feed Services, and Portfolio Management Systems. For financial reporting purposes, our product categories share similar economic characteristics and share costs; therefore, they are combined into one reporting segment.
 
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, market depth information, 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. We are continuing to develop and launch new modules of QModTM, our proprietary Web delivery system. QMod was created for secure market data provisioning as well as ease of integration and unlimited customization. Additionally, QMod delivers search engine optimized (SEO) responsive content designed to adapt on the fly when rendered on mobile devices or standard Web pages – automatically resizing and reformatting to fit the device on which it is displayed.
 
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 for our customers. Currently, QuoteMedia’s Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide. For financial reporting purposes, Data Feed Services revenue is included in the Interactive Content and Data Applications revenue totals.
 
Our Portfolio Management Systems consist of Quotestream®, Quotestream Mobile, Quotestream Professional, 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 nonprofessional 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 semi-annual 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. 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.
 
We recently completed a financial restructuring in December 2017 that eliminated over $12 million of debt from our balance sheet and reduced our annual interest expense by about $1.3 million. This restructuring has significantly improved our operating results through the first two quarters of 2018, and we believe that our strengthened financial position will allow us to attract and service much larger clients.
 
Our revenue increased 20% and 18% when comparing the three and six months ended June 30, 2018 and 2017. Through June 30, 2018, we have experienced ten consecutive quarters of revenue growth. Our revenue growth has led to an improved gross margin percentage of 49% for the three and six months ended June 30, 2018, up from 47% and 45% in the comparative 2017 periods. We expect our positive revenue growth to continue for the remainder of 2018 and 2019.
 
Plan of operation
 
For the remainder of 2018 we will maintain our focus on marketing Quotestream for deployments by brokerage firms to their retail clients and continue our expansion into the investment professional market with Quotestream Professional. We also plan to continue the growth of our Data Feed Services client base, particularly through the addition of major new international data feed coverage, as well as new data delivery products.
 
QuoteMedia will continue to focus on increasing 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. QMod is a major component of this strategy, given the broad demand for mobile-ready, SEO-friendly Web content.
 
Important development projects for 2018 include broad expansion of data and news coverage, including the addition of a wide array of international exchange data and news and video feeds, expansion of fixed-income coverage, and the introduction of several new and upgraded market information products.
 
New deployments of our trade integration capabilities, which allow our Quotestream applications to interact with our brokerage clients’ back-end trade execution and reporting platforms (enabling on-the-fly trade execution and tracking of holdings) are underway, and will continue to be a priority in the coming year.
 
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 market 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
 
Three months ended June 30,
 
2018
 
 
2017
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Corporate Quotestream
 $881,557 
 $752,991 
 $128,566
  17%
   Individual Quotestream
  466,888 
  412,235 
  54,653
  13%
Total Portfolio Management Systems
  1,348,445 
  1,165,226 
  183,219 
  16%
Interactive Content and Data Applications
  1,450,125 
  1,174,039 
  276,086 
  24%
Total Licensing Revenue
 $2,798,570 
 $2,339,265 
 $459,305 
  20%
 
Six months ended June 30,
 
2018
 
 
2017
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Corporate Quotestream
 $1,747,020 
 $1,486,413 
 $260,607 
  18%
   Individual Quotestream
  944,048 
  820,087 
  123,961 
  15%
Total Portfolio Management Systems
  2,691,068 
  2,306,500 
  384,568 
  17%
Interactive Content and Data Applications
  2,774,742 
  2,321,218 
  453,524 
  20%
Total Licensing Revenue
 $5,465,810 
 $4,627,718 
 $838,092 
  18%
 
Total licensing revenue increased 20% and 18% when comparing the three and six months ended June 30, 2018 and 2017.
 
Our Portfolio Management System revenue increased by 16% and 17% when comparing the three and six month periods ended June 30, 2018 and 2017, due to increases in both Corporate Quotestream Revenue and Individual Quotestream revenue. The increases are attributable in part to improvements and upgrades made to our Portfolio Management products.
 
Corporate Quotestream revenue increased 17% and 18% for the three and six month period ended June 30, 2018 from the comparative periods in 2017 due to new contracts signed since the comparative periods and increases in the number of subscribers for existing clients.
 
Individual Quotestream revenue increased 13% and 15% from the three and six month comparative periods in 2017. The increases are due to increases in both the number of subscribers and average revenue per subscriber from the comparative periods.
 
Interactive Content and Data Application revenue increased 24% and 20% when comparing the three and six month periods ended June 30, 2018 and 2017, due to increases in both the number of clients and the average revenue per client which is attributable to the launch of new products such as QMod, our proprietary Web delivery system.
 
Cost of Revenue and Gross Profit Summary
 
Three months ended June 30,
 
2018
 
 
2017
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 $1,414,269 
 $1,242,978 
 $171,291 
  14%
Gross profit
 $1,384,301 
 $1,096,287 
 $288,014 
  26%
Gross margin %
  49%
  47%
    
    
 
Six months ended June 30,
 
2018
 
 
2017
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 $2,785,724 
 $2,550,607 
 $235,117 
  9%
Gross profit
 $2,680,086 
 $2,077,111 
 $602,975 
  29%
Gross margin %
  49%
  45%
    
    
 
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 internal-use software costs. We capitalize the costs associated with developing new products during the application development stage.
 
 
Cost of revenue increased 14% and 9% when comparing the three and six month periods ended June 30, 2018 and 2017. The increase in cost of revenue was mainly due to increased variable stock exchange fees resulting from increased customer usage, as well as new and increased fees levied by our content providers.
 
Overall, the cost of revenue decreased as a percentage of sales, as evidenced by our gross margin percentage of 49% for the three and six month periods ended June 30, 2018 compared to 47% and 45% in 2017.
 
Operating Expenses Summary
 
Three months ended June 30,
 
2018
 
 
2017
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 $487,930 
 $382,977 
 $104,953 
  27%
General and administrative
  500,238 
  495,534 
  4,704 
  1%
Software development
  284,878 
  251,234 
  33,644 
  13%
Total operating expenses
 $1,273,046 
 $1,129,745 
 $143,301 
  13%
 
Six months ended June 30,
 
2018
 
 
2017
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 $935,988 
 $777,349 
 $158,639 
  20%
General and administrative
  1,038,593 
  1,028,447 
  10,146 
  1%
Software development
  588,658 
  495,468 
  93,190 
  19%
Total operating expenses
 $2,563,239 
 $2,301,264 
 $261,975 
  11%
 
Sales and Marketing
 
Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased 27% and 20% when comparing the three and six month periods ended June 30, 2018 and 2017. The increase was due primarily to additional sales personnel hired since comparative periods.
 
Effective December 28, 2017, the Company entered into a new Compensation Agreement with David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc. On January 1, 2018, in accordance with the Compensation Agreement the Company issued Mr. Shworan 15,000 warrants to purchase shares of Series A Redeemable Convertible Preferred Stock in lieu of a cash salary. A total of $90,000 and $180,000 of stock-based compensation was included in sales and marketing expenses for the three and six months ending June 30, 2018 related to warrants granted to Mr. Shworan, effectively offsetting the same amount of salary expense that was accrued for Mr. Shworan in the comparative period.
 
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 from the comparative periods, increasing 1% when comparing the three and six month periods ended June 30, 2018 and 2017.
 
Software Development
 
Software development expenses consist primarily of costs associated with the design, programming, and testing of our software applications during the preliminary project stage. Software development expenses also include costs incurred to maintain our software applications.
 
Software development expenses increased 13% and 19% for the three and six month period ended June 30, 2018 when compared to the same periods in 2017. The increases are mainly due to hiring additional development personnel since the comparative period.
 
We capitalized $233,893 and $430,781 of development costs for the three and six months ended June 30, 2018, compared to $187,825 and $370,669 for the same periods in 2017. 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
 
Three months ended June 30,
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Foreign exchange gain (loss)
 $4,383 
 $(59,027)
Interest expense – related party
  - 
  (285,183)
Interest expense - other
  (2,328)
  - 
Total other income and (expenses)
 $2,055 
 $(344,210)
 
Six months ended June 30,
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Foreign exchange gain (loss)
 $8,200 
 $(73,467)
Interest expense – related party
  - 
  (561,497)
Interest expense - other
  (2,785)
  - 
Total other income and (expenses)
 $5,415 
 $(634,964)
 
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. We have a net Canadian dollar liability, therefore we incur a foreign exchange gain when the Canadian dollar depreciates from the period beginning date, and a loss when the Canadian dollar appreciates.
 
The Canadian dollar depreciated 2.0% versus the U.S. dollar when comparing the foreign exchange rate at June 30, 2018 to the rate at March 31, 2018 resulting in a foreign exchange gain of $4,383 for the three months ended June 30, 2018, compared to a foreign exchange loss of $59,027 for the same period in 2017 when the Canadian dollar appreciated 2.5% versus the U.S. dollar.
 
The Canadian dollar depreciated 4.6% versus the U.S. dollar when comparing the foreign exchange rate at June 30, 2018 to the rate at December 31, 2017 resulting in a foreign exchange gain of $8,200 for the six months ended June 30, 2018, compared to a foreign exchange loss of $73,467 for the same period in 2017 when the Canadian dollar appreciated 3.3% versus the U.S. dollar.
 
Interest Expense – Related Party
 
No related party interest expense was incurred during the three and six month periods ended June 30, 2018. Interest expense of $285,183 and $561,497 in the comparative 2017 periods was accrued at 10% on amounts owed to related parties. On December 28, 2017, the Company entered into Debt Exchange and Debt Forgiveness Agreements with Bravenet Web Services, Inc. (“Bravenet”), and Harrison Avenue Holdings Ltd. (“Harrison”). David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary, is a control person of Bravenet and Harrison. Also effective December 28, 2017, the Company entered into a Compensation Agreement with David M. Shworan. As a result of these agreements and transactions, all of our related party debt and its related interest expense was eliminated.
 
Provision for Income Taxes
 
For the three and six month periods ended June 30, 2018, the Company recorded Canadian income tax expense of $774 and $1,565 compared to $743 and $1,499 in the comparative periods in 2017.
 
 
Net Income (Loss) for the Period
 
As a result of the foregoing, net income for the three and six months ended June 30, 2018 was $112,536 and $120,697 compared to net losses of $378,411 and $860,616 for the three and six months ended June 30, 2017. Basic and diluted earnings per share was $0.00 for the three and six months ended June 30, 2018 compared to a basic and diluted loss per share of $0.00 and $0.01 for the three and six months ended June 30, 2017.
 
Liquidity and Capital Resources
 
Our cash totaled $584,711 at June 30, 2018, as compared with $451,151 at December 31, 2017, an increase of $133,560. Net cash of $673,114 was provided by operations for the six months ended June 30, 2018, primarily due to the net income during the period adjusted for non-cash charges and the increase in deferred revenue, offset by an increase in accounts receivable. Net cash used in investing activities for the six months ended June 30, 2018 was $532,944 resulting from capitalized application software costs and the purchase of new computer equipment. Cash used in financing activities for the six months ended June 30, 2018 was $6,610 related to the repayment of capital lease financing.
 
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, 2018 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, 2018, 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
 
 
 
 
 
 
 
 
 

 
 
 
 
 
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 10, 2018
 
 
 
 
 


By:  
/s/ Keith J. Randall
 
 
 
Keith J. Randall, 
 
 
 
Chief Executive Officer
(Principal Executive Officer) 
 
 
 
 
 
 
 
 
 
By:  
/s/ Keith J. Randall
 
 
 
Keith J. Randall,
 
 
 
Chief Financial Officer 
(Principal Accounting Officer)
 
 
 
 
 
 
 
 
18