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QUOTEMEDIA INC - Quarter Report: 2020 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, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period _________ to _________                    
    
Commission File Number: 0-28599
 
QUOTEMEDIA, INC.
 (Exact name of registrant as specified in its charter)
 
Nevada
91-2008633
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification Number)
 
17100 East Shea Boulevard, Suite 230, Fountain Hills, AZ 85268
(Address of Principal Executive Offices)
 
(480) 905-7311
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑   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, 2020.
 


 
 
QUOTEMEDIA, INC.
 
FORM 10-Q for the Quarter Ended June 30, 2020
 
INDEX
 
 
 
Page
 
 
 
 
3
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
14
 
 
 
19
 
 
 
 
 
 
 
20
 
 
 
20
 
 
 
2
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
 
 
June 30,
2020
 
 
December 31,
2019
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
    Cash and cash equivalents
 $636,012 
 $815,487 
    Accounts receivable, net
  790,715 
  680,759 
    Prepaid expenses
  96,035 
  103,093 
    Other current assets
  67,472 
  47,793 
    Total current assets
  1,590,234 
  1,647,132 
 
    
    
    Deposits
  16,841 
  16,084 
    Property and equipment, net
  2,483,324 
  2,273,087 
    Goodwill
  110,000 
  110,000 
    Intangible assets
  65,153 
  51,265 
    Operating lease right-of-use assets
  227,684 
  328,676 
 
    
    
        Total assets
 $4,493,236 
 $4,426,244 
 
    
    
LIABILITIES AND STOCKHOLDERS’ DEFICIT
    
    
 
    
    
Current liabilities:
    
    
    Accounts payable and accrued liabilities
 $1,562,950 
 $1,286,340 
    Deferred revenue
  579,137 
  579,343 
    Current portion of operating lease liabilities
  182,665 
  172,049 
    Current portion of finance lease liabilities
  26,985 
  33,914 
        Total current liabilities
  2,351,737 
  2,071,646 
 
    
    
Paycheck Protection Program loan (Note 8)
  141,257 
  - 
Long-term portion of operating lease liabilities
  44,084 
  167,496 
Long-term portion of finance lease liabilities
  3,434 
  13,949 
 
    
    
Mezzanine equity:
    
    
    Series A Redeemable Convertible Preferred stock, $0.001 par value,
    
    
    550,000 shares designated; Shares issued and outstanding:
    
    
    123,685 at June 30, 2020 and December 31, 2019
  2,983,857 
  2,983,857 
 
    
    
Stockholders’ deficit:
    
    
    Preferred stock, 10,000,000 shares authorized, 550,000 shares designated
  - 
  - 
    Common stock, $0.001 par value, 150,000,000 shares authorized, shares issued and
    
    
    outstanding: 90,477,798 at June 30, 2020 and December 31, 2019
  90,479 
  90,479 
    Additional paid-in capital
  19,592,005 
  19,568,011 
    Accumulated deficit
  (20,713,617)
  (20,469,194)
        Total stockholders’ deficit
  (1,031,133)
  (810,704)
 
    
    
        Total liabilities and stockholders’ deficit
 $4,493,236 
 $4,426,244 
 
 
3
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
 
Three-months ended June 30,
 
 
Six-months ended June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LICENSING FEES
 $3,029,199 
 $2,984,846 
 $5,995,783 
 $5,855,465 
 
    
    
    
    
COST OF REVENUE
  1,589,190 
  1,463,090 
  3,088,674 
  2,925,802 
 
    
    
    
    
GROSS PROFIT
  1,440,009 
  1,521,756 
  2,907,109 
  2,929,663 
 
    
    
    
    
OPERATING EXPENSES
    
    
    
    
 
    
    
    
    
Sales and marketing
  532,061 
  486,401 
  1,049,541 
  930,000 
General and administrative
  612,693 
  524,923 
  1,262,746 
  1,046,059 
Software development
  415,192 
  298,562 
  841,019 
  612,190 
 
  1,559,946 
  1,309,886 
  3,153,306 
  2,588,249 
 
    
    
    
    
OPERATING PROFIT (LOSS)
  (119,937)
  211,870 
  (246,197)
  341,414 
 
    
    
    
    
OTHER INCOME (EXPENSES)
    
    
    
    
 
    
    
    
    
Foreign exchange gain (loss)
  (5,249)
  (7,256)
  5,957 
  (21,314)
Interest expense - other
  (1,191)
  (1,506)
  (2,718)
  (3,184)
 
  (6,440)
  (8,762)
  3,239 
  (24,498)
 
    
    
    
    
INCOME (LOSS) BEFORE INCOME TAXES
  (126,377)
  203,108 
  (242,958)
  316,916 
 
    
    
    
    
Provision for income taxes
  (721)
  (747)
  (1,465)
  (1,499)
 
    
    
    
    
NET INCOME (LOSS)
 $(127,098)
 $202,361 
 $(244,423)
 $315,417 
 
    
    
    
    
EARNINGS (LOSS) PER SHARE
    
    
    
    
 
    
    
    
    
Basic earnings (loss) per share
 $(0.00)
 $0.00 
 $(0.00)
 $0.00 
Diluted earnings (loss) per share
 $(0.00)
 $0.00 
 $(0.00)
 $0.00 
 
    
    
    
    
WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    
    
 
    
    
    
    
Basic
  90,477,798 
  90,477,798 
  90,477,798 
  90,477,798 
Diluted
  90,477,798 
  118,671,674 
  90,477,798 
  117,450,257 
 
 
4
QUOTEMEDIA, INC.
CONDENSED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
 (UNAUDITED)
 
 
 
 
 
Series A Redeemable
Convertible
 Preferred Stock
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Three-months ended June 30, 2020:
 
Number of Shares
 
 
Amount
 
 
Number of
Shares
 
 
Amount
 
 
Additional Paid-in Capital
 
 
Accumulated Deficit
 
 
Total Stockholders’ Equity (Deficit)
 
Balance, March 31, 2020
  123,685 
 $2,983,857 
  90,477,798 
 $90,479 
 $19,580,002 
 $(20,586,519)
 $(916,038)
 
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  12,003 
  - 
  12,003 
 
    
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  - 
  - 
  (127,098)
  (127,098)
 
    
    
    
    
    
    
    
Balance, June 30, 2020
  123,685 
 $2,983,857 
  90,477,798 
 $90,479 
 $19,592,005 
 $(20,713,617)
 $(1,031,133)
 
 
 
Series A Redeemable
Convertible
 Preferred Stock
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Six-months ended June 30, 2020:
 
Number of Shares
 
 
Amount
 
 
Number of
Shares
 
 
Amount
 
 
Additional Paid-in Capital
 
 
Accumulated Deficit
 
 
Total Stockholders’ Equity (Deficit)
 
Balance, December 31, 2019
  123,685 
 $2,983,857 
  90,477,798 
 $90,479 
 $19,568,011 
 $(20,469,194)
 $(810,704)
 
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  23,994 
  - 
  23,994 
 
    
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
  - 
  - 
  (244,423)
  (244,423)
 
    
    
    
    
    
    
    
Balance, June 30, 2020
  123,685 
 $2,983,857 
  90,477,798 
 $90,479 
 $19,592,005 
 $(20,713,617)
 $(1,031,133)
 
 
 
Series A Redeemable
Convertible
 Preferred Stock
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Three-months ended June 30, 2019:
 
Number of Shares
 
 
Amount
 
 
Number of
Shares
 
 
Amount
 
 
Additional Paid-in Capital
 
 
Accumulated Deficit
 
 
Total Stockholders’ Equity (Deficit)
 
Balance, March 31, 2019
  125,885 
 $3,037,952 
  90,477,798 
 $90,479 
 $19,260,318 
 $(20,915,135)
 $(1,564,338)
 
    
    
    
    
    
    
    
Preferred shares redeemed
  (1,400)
  (34,424)
  - 
  - 
  (576)
  - 
  (576)
 
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  103,116 
  - 
  103,116 
 
    
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  - 
  202,361 
  202,361 
 
    
    
    
    
    
    
    
Balance, June 30, 2019
  124,485 
 $3,003,528 
  90,477,798 
 $90,479 
 $19,362,858 
 $(20,712,774)
 $(1,259,437)
 
 
 
Series A Redeemable
Convertible
 Preferred Stock
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
Six-months ended June 30, 2019:
 
Number of Shares
 
 
Amount
 
 
Number of
Shares
 
 
Amount
 
 
Additional Paid-in Capital
 
 
Accumulated Deficit
 
 
Total Stockholders’ Equity (Deficit)
 
Balance, December 31, 2018
  125,885 
 $3,037,952 
  90,477,798 
 $90,479 
 $19,157,202 
 $(21,028,191)
 $(1,780,510)
 
    
    
    
    
    
    
    
Preferred shares redeemed
  (1,400)
  (34,424)
  - 
  - 
  (576)
  - 
  (576)
 
    
    
    
    
    
    
    
Stock-based compensation
  - 
  - 
  - 
  - 
  206,232 
  - 
  206,232 
 
    
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  - 
  - 
  315,417 
  315,417 
 
    
    
    
    
    
    
    
Balance, June 30, 2019
  124,485 
 $3,003,528 
  90,477,798 
 $90,479 
 $19,362,858 
 $(20,712,774)
 $(1,259,437)
 
 
5
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
 
 
Six-months ended June 30,
 
 
 
2020
 
 
2019
 
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $(244,423)
 $315,417 
 
    
    
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
    
    
    Depreciation and amortization
  627,339 
  511,333 
    Stock-based compensation expense
  23,994 
  206,232 
    Bad debt expense
  94,845 
  (776)
Changes in assets and liabilities:
    
    
    Accounts receivable
  (204,801)
  (119,716)
    Prepaid expenses
  7,058 
  50,442 
    Other current assets
  (19,679)
  (34,446)
    Deposits
  (757)
  (3,226)
    Accounts payable, accrued and other liabilities
  264,806 
  57,441 
    Deferred revenue
  (206)
  68,684 
Net cash provided by operating activities
  548,176 
  1,051,385 
 
    
    
INVESTING ACTIVITIES:
    
    
 
    
    
    Purchase of fixed assets
  (69,104)
  (137,709)
    Purchase of intangible assets
  (17,128)
  - 
    Capitalized application software
  (765,232)
  (660,240)
Net cash used in investing activities
  (851,464)
  (797,949)
 
    
    
FINANCING ACTIVITIES:
    
    
 
    
    
    Paycheck Protection Program loan
  141,257 
  - 
    Repayment of finance lease obligations
  (17,444)
  (13,300)
    Redemption of preferred stock
  - 
  (35,000)
Net cash provided by (used) in financing activities
  123,813 
  (48,300)
 
    
    
Net increase (decrease) in cash
  (179,475)
  205,136 
 
    
    
Cash and equivalents, beginning of period
  815,487 
  810,332 
 
    
    
Cash and equivalents, end of period
 $636,012 
 $1,015,468 
 
 
6
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, 2020 through the filing of this report.
 
As of June 30, 2020, the Company has a working capital deficit of $761,503. Our current liabilities include deferred revenue of $579,137. 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. 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.
 
These financial statements should be read in conjunction with our financial statements and the notes thereto for the fiscal year ended December 31, 2019 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 27, 2020.
 
Risks and Uncertainties
 
We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact team members, customers, suppliers, and global markets. While our licensed-based revenue is generally more recurring in nature, the uncertainty caused by the COVID-19 pandemic has led some clients to delay purchasing decisions, product and service implementations or cancel or reduce spending with us. Given the dynamic nature of these circumstances, it is too early to assess the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall future financial performance.
 
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 $100,000 and $80,000 as of June 30, 2020 and December 31, 2019, respectively. Bad debt expense was $94,845 and ($776) for the six-months ended June 30, 2020 and 2019, respectively.
 
 
7
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
 
e) Accounting Pronouncements
 
Recently 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. The Company adopted the new standard on January 1, 2020. There was no impact upon adoption to our consolidated financial statements and related disclosures.
 
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve the cost-benefit nature of disclosures. For example, disclosures around transfers between fair value hierarchy Levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs determining Level 3 fair value measurements will be added. The Company adopted the new standard on January 1, 2020. There was no impact upon adoption to our consolidated financial statements and related disclosures.
 
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Topic 350, "Intangibles - Goodwill and Other" to determine which implementation costs to capitalize as assets or expense as incurred. The Company adopted the new standard on January 1, 2020. There was no impact upon adoption to our consolidated financial statements and related disclosures.
 
Not Yet Adopted
 
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,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Portfolio Management Systems
 
 
 
 
 
 
 
 
 
 
 
 
   Corporate Quotestream
 $1,053,218 
 $915,335 
 $2,030,135 
 $1,920,044 
   Individual Quotestream
  455,492 
  473,137 
  894,126 
  924,858 
Interactive Content & Data Application
  1,520,489 
  1,596,374 
  3,071,522 
  3,010,563 
Total revenue
 $3,029,199 
 $2,984,846 
 $5,995,783 
 $5,855,465 
 
Deferred Revenue
 
Changes in deferred revenue for the period were as follows:
 
Balance at December 31, 2019
 $579,343 
Revenue recognized in the current period from the amounts in the beginning balance
  (371,369)
New deferrals, net of amounts recognized in the current period
  406,664 
Effects of foreign currency translation
  (35,501)
Balance at June 30, 2020
 $579,137 
 
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.
 
 
8
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
 
4.
RELATED PARTIES
 
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, 2020, there were no amounts due to 410734 B.C. Ltd.
 
The Company entered into a marketing agreement with Bravenet Web Services, Inc. (“Bravenet”) effective November 28, 2019 for approximately $2,500 per month. David M. Shworan is a control person of Bravenet. At June 30, 2020, $7,500 are due to Bravenet related to this agreement. As a matter of policy all related party transactions are subject to review and approval by the Company’s Board of Directors.
 
5.
LEASES
 
We have operating leases for corporate offices and finance leases for certain equipment. Our leases have remaining lease terms of 1 year to 5 years. We determine if an arrangement is a lease at inception. Operating lease assets and liabilities are included in operating lease right-of-use assets and operating lease liabilities, respectively, on our consolidated balance sheets. Finance lease assets and liabilities are included in property and equipment and finance lease liabilities, respectively, on our consolidated balance sheets.
 
Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. We elected the short-term lease exception and therefore only recognize right-of-use assets and lease liabilities for leases with a term greater than one year. When determining lease terms, we factor in options to extend or terminate leases when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases we account for the lease and non-lease components as a single lease component.
 
Supplemental balance sheet information related to leases was as follows:
 
 
 
June 30,
2020
 
 
December 31,
2019
 
 
 
 
 
 
 
 
Operating Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease right-of-use assets
 $227,684 
 $328,676 
 
    
    
Current portion of operating lease liability
 $182,665 
 $172,049 
Long-term portion of operating lease liability
  44,084 
  167,496 
Total operating lease liability
 $226,749 
 $339,545 
 
    
    
Finance Leases
    
    
 
    
    
Computer equipment on financing lease
 $101,049 
 $101,049 
Less: accumulated depreciation
  71,607 
  52,888 
Property and equipment, net
 $29,442 
 $48,161 
 
    
    
Current portion of finance lease liability
  26,985 
  33,914 
Long-term portion of finance lease liability
  3,434 
  13,949 
Total finance lease liability
 $30,419 
 $47,863 
 
 
 
June 30,
2020
 
 
December 31,
2019
 
 
 
 
 
 
 
 
Weighted Average Remaining Lease Term
 
 
 
 
 
 
    Operating leases
 
2.8 years
 
 
2.9 years
 
    Finance leases
 
1.1 years
 
 
1.5 years
 
 
 
 
 
 
 
 
Weighted Average Discount Rate
 
 
 
 
 
 
    Operating leases
  9.1%
  9.3%
    Finance leases
  8.9%
  8.9%
 
 
9
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
 
Maturities of lease liabilities were as follows:
 
 
Year ending December 31,
 
Operating
Leases
 
 
Finance
Leases
 
 
 
 
 
 
 
 
2020 (for the remainder of the year)
 $73,043 
 $17,869 
2021
  85,625 
  11,906 
2022
  49,529 
  2,151 
2023
  32,430 
  - 
2024
  14,967 
  - 
Total lease payments
  255,594 
  31,926 
Less imputed interest
  (28,845)
  (1,507)
Total
 $226,749 
 $30,419 
 
The components of lease expense for the three and six-months ended June 30, 2020 and 2019 were as follows:
 
 
 
Three-months ended
June 30,
 
 
Six-months ended
June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Operating lease costs:
 
 
 
 
 
 
 
 
 
 
 
 
Operating lease costs
 $57,205 
 $46,090 
 $114,161 
 $92,023 
Short-term lease costs
  25,500 
  33,311 
  50,999 
  65,761 
Total operating lease costs
 $82,705 
 $79,401 
 $165,160 
 $157,784 
 
    
    
    
    
Finance lease costs:
    
    
    
    
Amortization
 $8,763 
 $8,763 
 $17,526 
 $17,526 
Interest
  821 
  1,543 
  1,770 
  3,217 
Total finance lease costs
 $9,584 
 $10,306 
 $19,296 
 $20,743 
 
Supplemental cash flow information for the six-months ended June 30, 2020 and 2019 related to leases was as follows:
 
 
 
2020
 
 
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
 
 
    Operating cash flows from operating leases
 $113,953 
 $92,307 
    Operating cash flows from finance leases
  1,770 
  3,217 
 
There were no additional right of use assets obtained in exchange for lease obligations for the six-months ended June 30, 2020 and 2019.
 
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.
 
At June 30, 2020, 123,685 shares of Series A Redeemable Convertible Preferred Stock were outstanding. No shares of Series A Redeemable Convertible Preferred Stock were issued or redeemed during the three and six-months ended June 30, 2020. During the three and six-months ended June 30, 2019 1,400 shares of Series A Redeemable Convertible Preferred Stock were redeemed.
 
Redemption Rights
 
Holders of Series A Redeemable Convertible Preferred Stock shall have the right to convert their shares into shares of common stock at the rate of 83.33 shares of common stock for one share of Series A Redeemable Convertible Preferred Stock, at any time following the date the closing price of a share of common stock on a securities exchange or actively traded over-the-counter market has exceeded $0.30 for ninety (90) consecutive trading days. The conversion rights are subject to the availability of authorized but unissued shares of common stock.
 
In addition, a limited amount of Series A Redeemable Convertible Preferred Stock may be redeemed at the holder’s option if the following criteria are met:
 
 
10
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
 
(i) If the cash balance of the Company as reported at the end of each fiscal quarter in 2018 exceeds $350,000, up to an aggregate of 600 Series A Redeemable Convertible Preferred Stock may be redeemed at the liquidation value of $25 per share.
 
 
(ii) If the cash balance of the Company as reported at the end of each fiscal quarter in 2019 exceeds $375,000, up to an aggregate of 800 Series A Redeemable Convertible Preferred Stock may be redeemed at the liquidation value of $25 per share.
 
 
(iii) If the cash balance of the Company as reported at the end of each fiscal quarter in 2020 and in subsequent years exceeds $400,000, up to an aggregate of 1,000 Series A Redeemable Convertible Preferred Stock may be redeemed at the liquidation value of $25 per share.
 
In accordance with ASC 480-10-S99, because a limited amount of Series A Redeemable Convertible Preferred Stock may be redeemed at the holder’s option if the above criteria are met, it was classified as mezzanine equity and not permanent equity.
 
In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to any holders of any shares of common stock, the holders of shares of Series A Redeemable Convertible Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Company’s capital stock whether such assets are capital, surplus, or earnings, an amount equal to $25.00 per share of Series A Redeemable Convertible Preferred Stock.
 
b) Common Stock
 
No shares of common stock were issued during the three-months ended June 30, 2020 and 2019.
 
c) Stock Options and Warrants
 
FASB ASC 718, Stock Compensation, requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.
 
Total stock-based compensation expense, related to all of the Company’s stock-based awards, recognized for the three and six-months ended June 30, 2020 and 2019 was comprised as follows:
 
 
 
Three-months ended June 30,
 
 
Six-months ended June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 $9,303 
 $99,291 
 $18,594 
 $198,582 
General and administrative
  2,700 
  2,700 
  5,400 
  5,400 
Development
  - 
  1,125 
  - 
  2,250 
Stock-based compensation expense
 $12,003 
 $103,116 
 $23,994 
 $206,232 
 
Common Stock Options and Warrants
 
There were 26,372,803 common stock warrants and options outstanding at June 30, 2020. No stock options or warrants to purchase common stock were granted or exercised during the three and six-months ended June 30, 2020 and 2019.
 
The following table summarizes our non-vested common stock option and warrant activity for the six-months ended June 30, 2020:
 
 
 
Common Stock Options
and Warrants
 
 
Weighted-Average Grant Date Exercise Price
 
 
 
 
 
 
 
 
Non-vested at January 1, 2020
  5,625,000 
 $0.08 
Vested during the period
  (275,000)
 $0.04 
Non-vested at June 30, 2020
  5,350,000 
 $0.09 
 
 
11
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
 
The following table summarizes the weighted average remaining contractual life and exercise price of common stock options and warrants outstanding at June 30, 2020:
 
 
 
 
Common Stock Options
and Warrants Outstanding
 
Common Stock Options
 and Warrants Exercisable
 
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
Average
 
Weighted
 
 
 
Weighted
 
 
 
 
Remaining
 
Average
 
 
 
Average
 
 
Number
 
Contractual
 
Exercise
 
Number
 
Exercise

 
Outstanding
 
Life (Years)
 
Price
 
Exercisable
 
Price
 
 
 
 
 
 
 
 
 
 
 
$0.03-0.11
 
26,372,803
 
8.9
 
$0.06
 
21,022,803
 
$0.05
 
At June 30, 2020, there was $57,147 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 2.1 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, 2020, the aggregate intrinsic value of options and warrants outstanding was $1,388,241. The aggregate intrinsic value of options and warrants exercisable was $1,256,991. 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 of stock-based compensation expense was recognized related to the Compensation Preferred Stock Warrants during the comparative three-months ended March 31, 2019.
 
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, 2020. The probability is re-evaluated each reporting period. As of June 30, 2020, 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 determined not to be probable, we are also unable to determine the weighted-average period over which the unrecognized compensation cost will be recognized.
 
As of June 30, 2020, there were a total of 413,493 preferred stock warrants outstanding with a weighted average remaining contractual life of 27.5 years. As of June 30, 2020; 31,250 preferred stock warrants were exercisable. No preferred stock warrants were exercised for the three and six-months ended June 30, 2020 and 2019.
 
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, 2020 and 2019 are as follows:
 
 
12
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
 
 
Three-months ended
June 30,
 
 
Six-months ended
June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $(127,098)
 $202,361 
 $(244,423)
 $315,417 
 
    
    
    
    
Weighted average common shares used
    
    
    
    
  to calculate net income per share
  90,477,798 
  90,477,798 
  90,477,798 
  90,477,798 
Warrants to purchase redeemable
    
    
    
    
  convertible preferred stock
  - 
  2,604,062 
  - 
  2,604,063 
Redeemable convertible preferred stock
  - 
  10,489,997 
  - 
  10,489,997 
Stock options and warrants to purchase
    
    
    
    
  common stock
  - 
  15,099,817 
  - 
  13,878,399 
Weighted average common shares used
    
    
    
    
  to calculate diluted net income per share
  90,477,798 
  118,671,674 
  90,477,798 
  117,450,257 
 
    
    
    
    
Net income per share – basic
 $(0.00)
 $0.00 
 $(0.00)
 $0.00 
Net income per share – diluted
 $(0.00)
 $0.00 
 $(0.00)
 $0.00 
 
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, 2020 and 2019 are shown below:
 
 
 
Three-months ended
June 30,
 
 
Six-months ended
June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and warrants to purchase
 
 
 
 
 
 
 
 
 
 
 
 
  common stock
  12,256,740 
  - 
  13,679,312 
  - 
Warrants to purchase redeemable
    
    
    
    
  convertible preferred stock
  2,499,900 
  - 
  2,499,900 
  - 
Redeemable convertible preferred stock
  10,306,671 
  - 
  10,306,671 
  - 
Total potential common shares excluded
  25,063,311 
  - 
  26,485,883 
  - 
 
8.
PAYCHECK PROTECTION PROGRAM
 
On April 24, 2020, the Company received an $8,000 grant as part of the Economic Injury Disaster Loan (“EIDL”) program through the Small Business Administration (“SBA”), and on May 4, 2020, the Company received a $133,257 loan under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides qualifying businesses with these proceeds for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The proceeds and accrued interest are forgivable after twenty-four weeks, known as the covered period, as long as the borrower uses the proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of forgiveness will be reduced if the borrower terminates employees or reduces salaries during the twenty-four-week period. EIDL grants received are also deducted from the forgivable portion of PPP loans. The unforgiven portion of the PPP proceeds will be payable over two years at an interest rate of 1%, with a deferral of payments for the first six-months after the covered period. The Company is accounting for the PPP loan in accordance with ASC 470, Debt.
 
 
13
 
 
 
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, 2019 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, 2019 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, 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. We are continuing to develop and launch new modules of QModTM, our new 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) ready 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 offered to 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 QuotestreamTM, 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 specifically designed 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.
 
 
14
 
 
 
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 months. The outbreak of the COVID-19 pandemic and the resulting response by governments and individuals around the world has caused contraction in global economies. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact team members, customers, suppliers, and global markets.
 
Our operations also have been affected by a range of external factors related to the COVID-19 pandemic that are not within our control. For example, many jurisdictions imposed a wide range of restrictions on the physical movement of our employees and vendors to limit the spread of COVID-19. We have taken numerous steps, and will continue to take further actions, in our approach to addressing the COVID-19 pandemic. To protect the health and safety of our team members, we successfully transitioned our workforce to remote work environments. We are also working closely with our clients to support them as they implement their own contingency plans, helping them access our products and services remotely.
 
While our licensed-based revenue is generally more recurring in nature, the uncertainty caused by the COVID-19 pandemic has led some clients to delay purchasing decisions, product and service implementations or cancel or reduce spending with us. Given the dynamic nature of these circumstances, it is too early to assess the full impact of the COVID-19 pandemic on our ongoing business, results of operations, and overall future financial performance. We are actively managing our response and assessing potential impacts to our financial position and operating results. This includes the evaluation and implementation of certain cost control efforts to help us mitigate the impact that COVID-19 may have on our 2020 financial results. We are focusing on maintaining a strong balance sheet and liquidity position.
 
On April 24, 2020, the Company received an $8,000 grant as part of the Economic Injury Disaster Loan (“EIDL”) program through the Small Business Administration (“SBA”), and on May 4, 2020, the Company received a $133,257 loan under the Paycheck Protection Program (“PPP”). The Company anticipates that it will meet the requirements for full forgiveness for our PPP loan.. See Financial Statement Note 8 – Paycheck Protection Program.
 
The Canadian dollar depreciated 2.3% when comparing average exchange rates for the six-months ended June 30, 2020 and 2019. The exchange rate fluctuation decreased both Canadian dollar revenues and expenses once translated into U.S. dollars for the six-months ended June 30, 2020 when compared to the same period in 2019 but had a minimal impact on our net income.
 
Our revenue grew 2% when comparing the three and six-months ended June 30, 2020 to the comparative periods in 2019. Based on clients currently under contract, we expect our positive revenue growth to continue for the remainder of 2020 despite current market conditions related to COVID-19.
 
Plan of Operation
 
For the remainder of 2020 we plan to continue to expand our product lines and improve our infrastructure. We plan to add more features and data to our existing products and release newer versions with improved performance and flexibility for client integration.
 
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 2020 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.
 
 
15
 
 
 
We are also creating new proprietary data sets, analytics, and scoring mechanisms. We are now aggregating data direct from the sources to produce data sets that are proprietary to QuoteMedia. This allows us to offer our clients new data products and lower our product costs structure as we replace some of our existing data providers with our own lower cost data.
 
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,
 
2020
 
 
2019
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Corporate Quotestream
 $1,053,218 
 $915,335 
 $137,883 
  15% 
   Individual Quotestream
  455,492 
  473,137 
  (17,645)
  (4%) 
Total portfolio management systems
  1,508,710 
  1,388,472 
  120,238 
  9% 
 
    
    
    
    
Interactive content and data applications
  1,520,489 
  1,596,374 
  (75,885)
  (5%) 
 
    
    
    
    
Total subscription revenue
 $3,029,199 
 $2,984,846 
 $44,353 
  1% 
 
Six-months ended June 30,
 
2020
 
 
2019
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Corporate Quotestream
 $2,030,135 
 $1,920,044 
 $110,091 
  6% 
   Individual Quotestream
  894,126 
  924,858 
  (30,732)
  (3%) 
Total portfolio management systems
  2,924,261 
  2,844,902 
  79,359 
  3% 
 
    
    
    
    
Interactive content and data applications
  3,071,522 
  3,010,563 
  60,959 
  2% 
 
    
    
    
    
Total subscription revenue
 $5,995,783 
 $5,855,465 
 $140,318 
  2% 
 
Total subscription revenue increased 1% and 2% when comparing the three and six-months ended June 30, 2020 and 2019, respectively.
 
Our total Portfolio Management System revenue increased by 9% and 3%, respectively, when comparing the three and six-month periods ended June 30, 2020 and 2019.
 
Corporate Quotestream revenue increased 15% and 6% for the three and six-month periods ended June 30, 2020, respectively, from the comparative periods in 2019 due to new Corporate Quotestream customers signed since the comparative periods and increases in users for existing customers.
 
Individual Quotestream revenue decreased 3% and 4% for the three and six-month periods ended June 30, 2020, respectively, from the comparative periods in 2019. The decrease was due to a decrease in users from the comparative periods and foreign exchange fluctuations as 55% of Individual Quotestream revenue is earned in Canadian dollars. The Canadian dollar depreciated 2.3% and 3.5% when comparing average exchange rates for the three and six-month periods ended June 30, 2020 and 2019 to the comparative periods, lowering Canadian dollar revenue when translated into $U.S. dollars.
 
Interactive Content and Data Application revenue decreased 5% when comparing the three-months ended June 30, 2020 and 2019, primarily due to the impact of COVID-19 as a number of our customers have temporarily suspended their services. Interactive Content and Data Application revenue increased 2% when comparing the six-month period ended June 30, 2020 and 2019, mainly attributable to an increase in the average revenue per client offset by service suspensions due to COVID-19. The increase in average revenue per client results from the launch of new products such as QMod, our new proprietary Web delivery system, the expansion of our data coverage, as well as the general strengthening of our financial position, all of which have allowed us to attract larger clients.
 
 
 
16
 
 
Cost of Revenue and Gross Profit Summary
 
Three-months ended June 30,
 
2020
 
 
2019
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 $1,589,190 
 $1,463,090 
 $126,100 
  9% 
Gross profit
 $1,440,009 
 $1,521,756 
 $(81,747)
  (5%) 
Gross margin %
  48%
  51%
    
    
 
Six-months ended June 30,
 
2020
 
 
2019
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 $3,088,674 
 $2,925,802 
 $162,872 
  6% 
Gross profit
 $2,907,109 
 $2,929,663 
 $(22,554)
  (1%) 
Gross margin %
  48%
  50%
    
    
 
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 9% and 6% when comparing the three and six-month periods ended June 30, 2020 and 2019, respectively. The increase in cost of revenue is primarily due to an increase in the amortization of capitalized internal-use software costs related to the increase in capitalized development costs from the comparative periods.
 
Overall, our cost of revenue increased relative to the increase in sales, as evidenced by our gross margin percentage which decreased to 48% for the three and six-month periods ended June 30, 2020.
 
Operating Expenses Summary
 
Three-months ended June 30,
 
2020
 
 
2019
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 $532,061 
 $486,401 
 $45,660 
  9% 
General and administrative
  612,693 
  524,923 
  87,770 
  17% 
Software development
  415,192 
  298,562 
  116,630 
  39% 
Total operating expenses
 $1,559,946 
 $1,309,886 
 $250,060 
  19% 
 
Six-months ended June 30,
 
2020
 
 
2019
 
 
Change ($)
 
 
Change (%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 $1,049,541 
 $930,000 
 $119,541 
  13% 
General and administrative
  1,262,746 
  1,046,059 
  216,687 
  21% 
Software development
  841,019 
  612,190 
  228,829 
  37% 
Total operating expenses
 $3,153,306 
 $2,588,249 
 $565,057 
  22% 
 
Sales and Marketing
 
Sales and marketing consist primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased by 9% and 13% when comparing the three and six-month periods ended June 30, 2020 and 2019, respectively. The increases are a result of additional sales personnel hired since the comparative periods.
 
General and Administrative
 
General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses increased 17% and 21% when comparing the three and six-month periods ended June 30, 2020 and 2019, respectively. Increases were due to increases in salaries and health benefits due to the hiring of additional personnel to meet expected future growth. We also incurred an increase in bad debts from the comparative period of $95,621, primarily due to the impact of Covid-19 as some of our smaller customers have struggled to keep up with their payments or have ceased operations altogether.
 
 
 
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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 39% and 37% for the three and six-month periods ended June 30, 2020, respectively, when compared to the same period in 2019. The increase was mainly due to hiring additional development personnel since the comparative period.
 
We capitalized $429,683 and $765,232 of development costs for the three and six-month periods ended June 30, 2020, respectively, compared to $348,528 and $660,240 for the same periods in 2019. 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,
 
2020
 
 
2019
 
 
 
 
 
 
 
 
Foreign exchange loss
 $(5,249)
 $(7,256)
Interest expense
  (1,191)
  (1,506)
Total other expenses
 $(6,440)
 $(8,762)
 
Six-months ended June 30,
 
2020
 
 
2019
 
 
 
 
 
 
 
 
Foreign exchange gain (loss)
 $5,957 
 $(21,314)
Interest expense
  (2,718)
  (3,184)
Total other income and (expenses)
 $3,239 
 $(24,498)
 
Foreign Exchange Gain (Loss)
 
Foreign exchange gains and losses 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. Gains and losses arising from exchange rate fluctuations between transaction and settlement dates for foreign currency denominated transactions are also included in foreign exchange gains and losses.
 
We incurred a foreign exchange loss of $5,249 for the three-months ended June 30, 2020 primarily due to the foreign exchange re-measurement loss as the Canadian dollar appreciated 4% versus the U.S. dollar when comparing the foreign exchange rate at June 30, 2020 to the rate at March 31, 2020. We incurred a foreign exchange loss of $7,256 for the same period in 2019 arising from exchange rate fluctuations between transaction and settlement dates for foreign currency denominated transactions.
 
We incurred a foreign exchange gain of $5,957 for the six-months ended June 30, 2020 primarily due to the foreign exchange re-measurement gain as the Canadian dollar depreciated 5% versus the U.S. dollar when comparing the foreign exchange rate at June 30, 2020 to the rate at December 31, 2020. We incurred a foreign exchange loss of $21,314 for the comparative 2019 period mainly attributable to the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars as the Canadian dollar appreciated 3.8% versus the U.S. dollar in 2018.
 
Interest Expense
 
Interest expense relates primarily to the interest expense associated with our finance leases and was relatively unchanged from the comparative period. Interest expense of $1,191 and $2,718 was incurred for the three and six-month periods ended June 30, 2020, respectively, compared to $1,506 and $3,184 incurred in the same 2019 periods.
 
 
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Provision for Income Taxes
 
For the three and six-month periods ended June 30, 2020, the Company recorded Canadian income tax expense of $721 and $1,465 compared to $747 and $1,499 in the comparative periods in 2019.
 
Net Income (Loss) for the Period
 
As a result of the foregoing, the Company recognized net loss of $127,098 and $244,423 for the three and six-month periods ended June 30, 2020 compared to net income of $202,361 and $315,417 for the three and six-month periods ended June 30, 2019. Basic and diluted earnings per share were $(0.00) for the three and six-month periods ended June 30, 2020, and $0.00 for the three and six-month periods ended June 30, 2019.
 
Liquidity and Capital Resources
 
Our cash totaled $636,012 at June 30, 2020, as compared with $815,487 at December 31, 2019, a decrease of $179,475. Net cash of $548,176 was provided by operations for the six-months ended June 30, 2020, primarily due to non-cash charges and the increase in accounts payable, offset by the increase in accounts receivable and our net loss. Net cash used in investing activities for the six-months ended June 30, 2020 was $851,464 resulting primarily from capitalized application software costs and the purchase of new computer equipment. Cash provided by financing activities for the six-months ended June 30, 2020 was $123,813 related to the PPP loan offset by repayment of capital lease financing.
 
We have a working capital deficit of $761,503 as of June 30, 2020, however current liabilities include $579,137 in deferred revenue and the expected costs necessary to realize the deferred revenue are minimal.
 
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 a period of one year after issuance of these Financial Statements. 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. Further, current adverse capital and credit market conditions could limit our access to capital. We may be unable to raise capital or bear an unattractive cost of capital that could reduce our financial flexibility.
 
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, 2020 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 six-months ended June 30, 2020, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.
 
We will consider further actions and continue to evaluate the effectiveness of our disclosure controls and internal controls and procedures on an ongoing basis, taking corrective action as appropriate. Management does not expect that disclosure controls and procedures or internal controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. While management believes that its disclosure controls and procedures provide reasonable assurance that fraud can be detected and prevented, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
 
 
 
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PART II - OTHER INFORMATION
 
 
ITEM 6.   
EXHIBITS
 
Exhibit Number
Description of Exhibit
 
 
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.
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.
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.
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.
 
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.
 
By:
/s/ Keith J. Randall
 
 
Keith J. Randall
 
 
Chief Executive Officer and Chief Financial Officer
 
 
(Duly authorized officer and principal financial officer)
 
 
Dated: August 12, 2020
 
 
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