Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
one)
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☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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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)
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Nevada
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91-2008633
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(State
or Other Jurisdiction of I
ncorporation
or Organization)
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(IRS
Employer
Identification
Number)
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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):
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐ (Do not check if a smaller reporting
company)
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Smaller
reporting company ☑
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Emerging
growth company ☐
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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
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2
PART I - FINANCIAL
INFORMATION
Item 1. Financial Statements
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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June
30,
2018
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December
31,
2017
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$584,711
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$451,151
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Accounts
receivable, net
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505,525
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344,512
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Prepaid
expenses
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71,896
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89,884
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Other
current assets
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157,364
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149,379
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Total
current assets
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1,319,496
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1,034,926
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Deposits
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15,896
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16,551
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Property
and equipment, net
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1,610,708
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1,420,946
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Goodwill
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110,000
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110,000
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Intangible
assets
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64,130
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64,657
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Total
assets
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$3,120,230
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$2,647,080
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LIABILITIES
AND STOCKHOLDERS’ DEFICIT
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Current
liabilities:
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Accounts
payable and accrued liabilities
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$1,536,543
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$1,565,972
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Deferred
revenue
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789,839
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706,819
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Current
portion of capital lease obligation
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27,337
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-
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Total
current liabilities
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2,353,719
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2,272,791
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Long-term portion
of capital lease obligation
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54,143
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-
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Mezzanine
equity:
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Series
A Redeemable Convertible Preferred stock,
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$0.001
par value, 550,000 shares designated,
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127,685
shares issued
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3,082,211
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3,082,211
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Stockholders’
deficit:
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Preferred
stock, 10,000,000 shares
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authorized,
550,000 shares designated
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-
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-
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Common
stock, $0.001 par value, 150,000,000
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shares
authorized, 90,477,798 shares issued
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and
outstanding
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90,479
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90,479
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Additional
paid-in capital
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18,945,043
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18,727,661
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Accumulated
deficit
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(21,405,365)
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(21,526,062)
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Total
stockholders’ deficit
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(2,369,843)
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(2,707,922)
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Total
liabilities and stockholders’ deficit
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$3,120,230
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$2,647,080
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See accompanying notes
3
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Three months ended June 30,
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Six months ended
June 30,
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2018
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2017
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2018
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2017
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LICENSING
FEES
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$2,798,570
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$2,339,265
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$5,465,810
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$4,627,718
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COST
OF REVENUE
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1,414,269
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1,242,978
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2,785,724
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2,550,607
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GROSS
PROFIT
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1,384,301
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1,096,287
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2,680,086
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2,077,111
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OPERATING
EXPENSES
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Sales and
marketing
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487,930
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382,977
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935,988
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777,349
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General and
administrative
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500,238
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495,534
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1,038,593
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1,028,447
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Software
development
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284,878
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251,234
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588,658
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495,468
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1,273,046
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1,129,745
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2,563,239
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2,301,264
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OPERATING
PROFIT (LOSS)
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111,255
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(33,458)
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116,847
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(224,153)
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OTHER
INCOME (EXPENSES)
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Foreign exchange
gain (loss)
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4,383
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(59,027)
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8,200
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(73,467)
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Interest expense
(related party)
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-
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(285,183)
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-
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(561,497)
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Interest expense -
other
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(2,328)
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-
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(2,785)
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-
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2,055
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(344,210)
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5,415
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(634,964)
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INCOME
(LOSS) BEFORE INCOME TAXES
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113,310
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(377,668)
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122,262
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(859,117)
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Provision for
income taxes
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(774)
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(743)
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(1,565)
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(1,499)
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NET
INCOME (LOSS)
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$112,536
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$(378,411)
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$120,697
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$(860,616)
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EARNINGS
(LOSS) PER SHARE
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Basic earnings
(loss) per share
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0.00
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(0.00)
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0.00
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(0.01)
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Diluted earnings
(loss) per share
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0.00
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(0.00)
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0.00
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(0.01)
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WEIGHTED
AVERAGE SHARES OUTSTANDING
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Basic
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90,477,798
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90,477,798
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90,477,798
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90,477,798
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Diluted
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99,803,542
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90,477,798
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101,186,441
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90,477,798
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See accompanying notes
4
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Six months ended June 30,
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2018
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2017
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OPERATING
ACTIVITIES:
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Net income
(loss)
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$120,697
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$(860,616)
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Adjustments to
reconcile net income (loss) to net cash
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provided by
operating activities:
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Depreciation and
amortization
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431,799
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418,906
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Bad debt
expense
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7,420
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34,308
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Stock-based
compensation expense
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226,232
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30,664
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Changes in assets
and liabilities:
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Accounts
receivable
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(168,433)
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2,933
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Prepaid
expenses
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17,988
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8,079
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Other
current assets
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(7,985)
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(31,236)
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Deposits
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655
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(498)
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Accounts payable
and amounts due to related parties
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(38,279)
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693,085
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Deferred
revenue
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83,020
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218,581
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Net cash provided
by operating activities
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673,114
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514,206
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INVESTING
ACTIVITIES:
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Purchase of fixed
assets
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(99,593)
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(35,224)
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Purchase of
intangible assets
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(2,570)
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-
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Capitalized
application software
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(430,781)
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(370,669)
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Net cash used in
investing activities
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(532,944)
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(405,893)
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FINANCING
ACTIVITIES:
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Repayment of
capital lease financing
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(6,610)
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-
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Net cash used in
financing activities
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(6,610)
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-
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Net increase in
cash
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133,560
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108,313
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Cash and
equivalents, beginning of period
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451,151
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271,700
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Cash and
equivalents, end of period
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$584,711
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$380,013
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NON-CASH
ITEMS:
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Purchase of fixed
assets under capital lease
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$89,120
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$-
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See accompanying notes
5
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
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:
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Three months
ended June 30,
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Six months ended
June 30,
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2018
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2017
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2018
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2017
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Portfolio
Management Systems:
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Corporate
Quotestream
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$881,557
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$752,992
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$1,747,020
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$1,486,413
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Individual
Quotestream
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466,888
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412,234
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944,048
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820,087
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Interactive Content
& Data Applications
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1,450,125
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1,174,039
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2,774,742
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2,321,218
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Total
revenue
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$2,798,570
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$2,339,265
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$5,465,810
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$4,627,718
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Deferred Revenue
Changes
in deferred revenue for the period were as follows:
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Balance at January
1, 2018
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$706,819
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Revenue recognized
in the current period from the amounts in the beginning
balance
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(512,956)
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New deferrals, net
of amounts recognized in the current period
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604,298
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Effects of foreign
currency translation
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(8,322)
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Balance at June 30,
2018
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$789,839
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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
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:
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June
30,
2018
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December
31,
2017
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Computer equipment
on capital lease
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$89,120
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-
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Less: accumulated
depreciation
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5,941
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-
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$83,179
|
-
|
The
Company’s capital lease obligations consist of the
following:
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June
30,
2018
|
December
31,
2017
|
|
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Total capital lease
obligations
|
$92,498
|
-
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Less amount
representing interest
|
11,018
|
-
|
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Present value of
minimum lease payments
|
81,480
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-
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Less current
portion
|
27,337
|
-
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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
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
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
|
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|
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|
|
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