QUOTEMEDIA INC 10-Q

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, 2020 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, 2020 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 QMod TM , 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 Quotestream TM , 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 Table of Contents 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 experienced extreme volatility and disruption over the past year due to the COVID-19 pandemic. While global financial markets are recovering, risk still exists; therefore we will continue 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. Most of our employees, particularly in Canada, continue to work remotely. While our licensed-based revenue is generally more recurring in nature, the uncertainty caused by the COVID-19 pandemic led some clients to delay purchasing decisions, product and service implementations or cancel or reduce spending with us in 2020. While the impact of COVID-19 appears to be diminishing, we are focused on maintaining a strong balance sheet and liquidity position and will continue to closely monitor the potential impact of COVID-19 and adjust our response going forward as circumstances dictate. On May 4, 2020, the Company received a $133,257 loan under the Paycheck Protection Program (“PPP”). On February 19, 2021, the Company received forgiveness from the SBA for its PPP loan in its entirety. The Company recognized the forgiveness of the loan as other income on our consolidated statements of operations. See Financial Statement Note 8 – Paycheck Protection Program. Our revenue grew 22% and 23% when comparing the three and nine-month periods ended September 30, 2021 to the comparative 2020 periods. Based on clients currently under contract, we expect to maintain similar revenue growth for the remainder of 2021. Plan of Operation For the remainder of 2021 and into 2022 we plan to continue to expand our product lines and improve our infrastructure. We plan to continue 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 the remainder of 2021 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. 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. 15 Table of Contents 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 maintain profitable operations. Critical Accounting Policies and Estimates In the 2020 Annual Report, we disclose our critical accounting policies and estimates upon which our financial statements are derived. There have been no material changes to these policies since December 31, 2020 that are not included in Note 3 of the accompanying consolidated financial statements for the three and nine-months ended September 30, 2021. Readers are encouraged to read the 2020 Annual Report in conjunction. Results of Operations Revenue Three-months ended September 30, 2021 2020 Change ($) Change (%) Corporate Quotestream $ 1,665,555 $ 1,127,941 $ 537,614 48 % Individual Quotestream 571,201 485,392 85,809 18 % Total portfolio management systems 2,236,756 1,613,333 623,423 39 % Interactive content and data applications 1,581,957 1,527,025 54,932 4 % Total subscription revenue $ 3,818,713 $ 3,140,358 $ 678,355 22 % Nine-months ended September 30, 2021 2020 Change ($) Change (%) Corporate Quotestream $ 4,754,698 $ 3,158,076 $ 1,596,622 51 % Individual Quotestream 1,725,404 1,379,518 345,886 25 % Total portfolio management systems 6,480,102 4,537,594 1,942,508 43 % Interactive content and data applications 4,777,847 4,598,547 179,300 4 % Total subscription revenue $ 11,257,949 $ 9,136,141 $ 2,121,808 23 % Total revenue increased 22% and 23% when comparing the three and nine-month periods ended September 30, 2021 and 2020. Our total Portfolio Management System revenue increased by 39% and 43% when comparing the three and nine-month periods ended September 30, 2021 from the comparative periods, due to increases in both Corporate Quotestream and Individual Quotestream revenue. Corporate Quotestream revenue increased 48% and 51% for the three and nine-month periods ended September 30, 2021 from the comparative periods in 2020 primarily due to new contracts signed since the comparative periods and increases in the number of subscribers for existing clients. The increases are due to new products added over the past couple years that are continuing to gain traction in the market, as well as improvements and upgrades made to our existing Portfolio Management products as we continue to improve functionality and add new data offerings. The increases are also due to stock exchange fee price increases passed on to our customers. Finally, we believe there has been an increase in the need for our services for customers working remotely during the pandemic, a trend we expect to continue for the foreseeable future. Individual Quotestream revenue increased 18% and 25% for the three and nine-month periods ended September 30, 2021 from the comparative periods in 2020. There were increases in total users and average revenue per user, which can be attributed to new marketing efforts initiated since the comparative periods and more customers working remotely due to COVID-19. Interactive Content and Data Application revenue increased 4% when comparing the three and nine-month periods ended September 30, 2021 and 2020, mainly attributable to an increase in new customers. The success of new products introduced over the past couple years such as QMod TM and the expansion of our data coverage have allowed us to attract new clients. 16 Table of Contents Cost of Revenue and Gross Profit Summary Three-months ended September 30, 2021 2020 Change ($) Change (%) Cost of revenue $ 2,033,020 $ 1,706,476 $ 326,544 19 % Gross profit $ 1,785,693 $ 1,433,882 $ 351,811 25 % Gross margin % 47 % 46 % Nine-months ended September 30, 2021 2020 Change ($) Change (%) Cost of revenue $ 6,283,017 $ 4,795,150 $ 1,487,867 31 % Gross profit $ 4,974,932 $ 4,340,991 $ 633,941 15 % Gross margin % 44 % 48 % 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. We launched a major growth initiative in early 2020, investing in infrastructure, new product development, data collection, and the expansion of our global market coverage. As a result, our cost of revenue increased 19% and 31% for the three and nine-month periods ended September 30, 2021 from the comparative periods in 2020, respectively. We incurred increased stock exchange fees related to increased usage and new market data added since the comparative periods, and increased amortization expenses associated with internally developed application software. Overall, the cost of revenue decreased as a percentage of sales, as evidenced by our gross margin percentage that increased to 47% for the three months ended September 30, 2021 from 46% in the comparative period. The gross margin percentage decreased to 44% for the nine months ended September 30, 2021 from 48% in the comparative period. There were non-recurring credits to our cost of revenue that resulted in an increase in gross margin percentage for the quarter, but year to date our gross margins have decreased due to the change in our revenue mix, as our Portfolio Management System revenue has been growing at a higher rate than our Interactive Content revenue which typically has higher gross margins. Operating Expenses Summary Three-months ended September 30, 2021 2020 Change ($) Change (%) Sales and marketing $ 623,821 $ 552,960 $ 70,861 13 % General and administrative 650,191 555,002 95,189 17 % Software development 411,137 405,703 5,434 1 % Total operating expenses $ 1,685,149 $ 1,513,665 $ 171,484 11 % Nine-months ended September 30, 2021 2020 Change ($) Change (%) Sales and marketing $ 1,882,807 $ 1,602,501 $ 280,306 17 % General and administrative 1,943,162 1,817,748 125,414 7 % Software development 1,257,470 1,246,722 10,748 1 % Total operating expenses $ 5,083,439 $ 4,666,971 $ 416,468 9 % 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 13% and 17% when comparing the three and nine-month periods ended September 30, 2021 from the comparative periods in 2020. The increases are a result of additional sales personnel hired to support our growth initiative. 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 7% when comparing the three and nine-month periods ended September 30, 2021 to the same periods in 2020. The increases were due to some significant non-recurring professional fees incurred during the third quarter of 2021. 17 Table of Contents 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 remained relatively unchanged from the comparative periods, increasing 1% for the three and nine-month periods ended September 30, 2021 due to additional development personnel hired since the comparative 2020 periods, offset by an increase in development costs capitalized during 2021. Hiring new development personnel was required to expand our product lines and improve our infrastructure in 2021. We capitalized $572,795 and $1,621,738 of development costs for the three and nine-month periods ended September 30, 2021, compared to $460,666 and $1,225,898 in the same periods in 2020. 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 September 30, 2021 2020 Foreign exchange gain $ 55,278 $ 5,930 Interest expense (101 ) (701 ) Total other income, net $ 55,177 $ 5,229 Nine-months ended September 30, 2021 2020 Foreign exchange gain $ 77,606 $ 11,887 Interest expense (1,560 ) (3,419 ) Other income 133,257 - Total other income, net $ 209,303 $ 8,468 Foreign Exchange Gain We incurred foreign exchange gains of $55,278 and $77,606 for the three and nine-month periods ended September 30, 2021 compared to foreign exchange gains of $5,930 and $11,887 in the comparative 2020 periods, respectively. Foreign exchange gains and losses arise from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars and from exchange rate fluctuations between transaction and settlement dates for foreign currency denominated transactions. Interest Expense Interest expense relates primarily to the interest expense associated with our finance leases and was relatively unchanged from the comparative periods. Interest expense of $101 and $1,560 was incurred for the three and nine-month periods ended September 30, 2021, compared to $701 and $3,419 incurred in the same 2020 periods. Other Income Other income was $133,257 for the nine-month period ended September 30, 2021. On May 4, 2020, the Company received a $133,257 loan under the Paycheck Protection Program (“PPP”). The PPP loan was forgiven in its entirety on February 19, 2021 and was recognized as other income. No other income was recognized in the comparative 2020 periods. See Financial Statement Note 8 “ Paycheck Protection Program ”. Provision for Income Taxes For the three and nine-month periods ended September 30, 2021, the Company recorded Canadian income tax expense of $790 and $2,403 compared to $751 and $2,216 in the comparative periods in 2020. Net Income (Loss) for the Period As a result of the foregoing, our net income for the three and nine-month periods ended September 30, 2021 were $154,931 and $98,393 compared to net losses of $75,305 and $319,728 for the three and nine-month periods ended September 30, 2020. Basic and diluted income per share was $0.00 for the three and nine-month periods ended September 30, 2021, compared to a basic and diluted loss per share of $(0.00) for the three and nine-month periods ended September 30, 2020. 18 Table of Contents Liquidity and Capital Resources Our cash totaled $271,696 at September 30, 2021, as compared with $417,910 at December 31, 2020, a decrease of $146,214. Net cash of $1,586,447 was provided by operations for the nine-month period ended September 30, 2021, primarily due to the net income during the period adjusted for non-cash charges and the increase in accounts payable and deferred revenue. Net cash used in investing activities for the nine-month period ended September 30, 2021 was $1,721,364 resulting primarily from capitalized application software costs. Cash used in financing activities for the nine-month period ended September 30, 2021 was $11,297 related to the repayment of capital lease financing. We typically operate with a working capital deficit. As of September 30, 2021 our working capital deficit is $2,063,727, however current liabilities include $753,409 in deferred revenue and the expected costs necessary to realize the deferred revenue are minimal. If circumstances dictate, we have the flexibility to reduce development spending to maintain a strong liquidity position. Based on the factors discussed above, we believe that our cash on hand and cash generated from operations will be sufficient to fund our current operations for at least the next 12 months through November 2022. 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. 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. Preferred Stock Redemption Rights At September 30, 2021, 123,685 shares of Series A Redeemable Convertible Preferred Stock were outstanding and 1,000 shares may be redeemed at the holder’s option at the liquidation value of $25 per share if the cash balance of the Company as reported at the end of each fiscal quarter exceeds $400,000. See Financial Statement Note 6 a) “ Preferred shares ”. Foreign Exchange Risk Approximately 28% of our consolidated revenue and 34% percent of our consolidated expenses are denominated in Canadian dollars; therefore, our consolidated cashflow may be impacted by foreign exchange fluctuations. Off-Balance Sheet Arrangements At September 30, 2021 and December 31, 2020, we did not have any unconsolidated entities or financial partnerships, or other off-balance sheet arrangements.