QUOTEMEDIA INC 10-Q

ITEM 2. Management’s Discussion and Analysis The following discussion should be read in conjunction with our consolidated 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, 2022 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, 2022 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 APIs, 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 APIs 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. We provide 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 APIs 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. 15 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 five 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 APIs 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 five years and are automatically renewed unless notice is given 90 days prior to the expiration of the contract term. Business Environment and Trends While our licensed-based revenue is generally more recurring in nature, the uncertainty caused by the recent market volatility, rising inflation and federal debt level payment uncertainty may result in some clients to delay purchasing decisions, product and service implementations or cancel or reduce spending with us. Recent events in the Ukraine and Russia have also caused disruptions in the global financial markets. While we do not have any operations or customers in the Ukraine or Russia, we will continue to monitor the situation as a prolonged conflict could impact our business. Approximately 38% of our revenue and 39% of our expenses are denominated in Canadian dollars. The Canadian dollar depreciated 7% against the U.S. dollar when comparing the average exchange rate for the three-months ended March 31,2023 versus the comparative 2022 period. This decreased both Canadian dollar revenues and expenses by approximately 3% once translated into U.S. dollars but had a minimal impact on our net income and cash flow. Our revenue increased 11% for the three-months ended March 31, 2023 versus the comparative 2022 period. Based on revenue already under contract, we expect our revenue growth and net income to improve for the remainder of fiscal 2023. Plan of Operation For the remainder of 2023 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. This expansion is expected to result in both increased revenue and costs for the remainder of fiscal 2023. 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 APIs, 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 2023 include broad expansion of data and news coverage, including the addition of a wide array of international exchange data and news, 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. 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. 16 Table of Contents Critical Accounting Policies and Estimates Critical Accounting Policies and Estimates In the 2022 Annual Report, we disclose our critical accounting policies and estimates upon which our consolidated financial statements are derived. There have been no material changes to these policies since December 31, 2022. Readers are encouraged to read the 2022 Annual Report in conjunction. Results of Operations Revenue Three-months ended March 31, 2023 2022 Change ($) Change (%) Corporate Quotestream $ 1,827,253 $ 1,716,097 $ 111,156 6 % Individual Quotestream 487,567 553,461 (65,894 ) (12 %) Total Portfolio Management Systems 2,314,820 2,269,558 45,262 2 % Interactive Content and Data APIs 2,435,228 1,994,238 440,990 22 % Total subscription revenue $ 4,750,048 $ 4,263,796 $ 486,252 11 % Total licensing revenue increased 11% when comparing the three-months ended March 31, 2023 and 2022. The increase is a result of a 2% increase in revenue from licensing our Portfolio Management Systems and 22% increase in revenue from our Interactive Content and Data APIs. The depreciation of the Canadian dollar since the comparative period, discussed above in the “Business Environment and Trends” section, significantly impacted our revenue across all product lines, reducing our total revenue by 3%. Corporate Quotestream revenue increased 6% for the three-months ended March 31, 2023 from the comparative period in 2022 due to an increase in both the number of customers and average revenue per customer since the comparative period. We have added new products over the past couple years that are continuing to gain traction in the market, and we have made improvements and upgrades to our existing Portfolio Management products as we continue to improve functionality and add new data offerings. These improvements have allowed us to attract larger customers and increase the average revenue for our existing customers. Individual Quotestream revenue decreased 12% for the three-months ended March 31, 2023 from the comparative period in 2022 due to both a decrease in total subscribers and average revenue per subscriber. Interactive Content and Data APIs revenue increased 22% for the three-months ended March 31, 2023 from the comparative period in 2022. The increase is attributable to an increase in the average revenue per client as the launch of new products and the expansion of our data coverage have allowed us to attract larger clients. Cost of Revenue and Gross Profit Summary Three-months ended March 31, 2023 2022 Change ($) Change (%) Cost of revenue $ 2,319,935 $ 2,240,116 $ 79,819 4 % Gross profit $ 2,430,113 $ 2,023,680 $ 406,433 20 % Gross margin % 51 % 47 % 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. Our cost of revenue increased 4% for the three-months ended March 31, 2023 from the comparative period in 2022. This was mainly due to increased amortization expenses associated with internally developed application software resulting from our major growth initiative, which included investing in infrastructure, new product development, data collection, and the expansion of our global market coverage. Overall, the cost of revenue decreased as a percentage of sales, as evidenced by our gross margin percentage that increased to 51% for the three-months ended March 31, 2023 from 47% in the comparative 2022 period. New contracts signed since the comparative period have higher gross margins than our other customer contracts typically have on average, resulting in a significant increase in our gross margin percentage. 17 Table of Contents Operating Expenses Summary Three-months ended March 31, 2023 2022 Change ($) Change (%) Sales and marketing $ 824,053 $ 748,268 $ 75,785 10 % General and administrative 852,514 671,891 180,623 27 % Software development 630,073 470,056 160,017 34 % Total operating expenses $ 2,306,640 $ 1,890,215 $ 416,425 22 % Sales and Marketing Sales and marketing consist primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses increased 10% for the three-months ended March 31, 2023 when compared to the same period in 2022. The increase is a result of additional sales personnel hired since the comparative period to support our product growth initiatives and salary increases for existing personnel. The increase was offset by the depreciation of the Canadian dollar from the comparative period as most of our sales personnel are located in Canada. General and Administrative General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses increased 27% for the three-months ended March 31, 2023 when compared to the same period in 2022. The increase is mainly a result of additional professional fees resulting from the change of principal accountants in January 2023. 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 34% for the three-months ended March 31, 2023 when compared to the same period in 2022, primarily due to new personnel hired since the comparative period to improve our infrastructure, security, and business continuity management. The increase in development personnel costs was offset by the depreciation of the Canadian dollar from the comparative period as most of our development personnel are located in Canada. We capitalized $766,515 of development costs for the three-month period ended March 31, 2023 compared to $606,152 in the same period in 2022. 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 March 31, 2023 2022 Foreign exchange (loss) gain $ (8,001 ) $ 17,590 Interest expense, net (1,452 ) (1,224 ) Total other (expense) income, net $ (9,453 ) $ 16,366 Foreign Exchange Gain We incurred a foreign exchange loss of $8,001 for the three-month period ended March 31, 2023, compared to a foreign exchange gain of $17,590 in the comparative 2022 period. 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, Net Interest expense is netted against interest earned on cash balances. Net interest expense of $1,452 was incurred for the three-month period ended March 31, 2023, compared to $1,224 incurred in the same 2022 period. 18 Table of Contents Provision for Income Taxes For the three-month period ended March 31, 2023, the Company recorded $730 in Canadian income tax expense compared to $790 in the comparative period in 2022. Net Income for the Period As a result of the foregoing, our net income for the three-month period ended March 31, 2023 was $113,290 compared to $149,041 in the comparative period in 2022. Basic and diluted earnings per share were $0.00 for the three-months periods ended March 31, 2023 and 2022, respectively. Liquidity and Capital Resources Our cash totaled $675,065 at March 31, 2023, as compared with $477,987 at December 31, 2022, an increase of $197,078. Net cash of $992,379 was provided by operations for the three-months ended March 31, 2023, primarily due to adjustments for non-cash charges and the increase in deferred revenue, offset by a decrease in accounts payable and accrued liabilities. Net cash used in investing activities for the three-months ended March 31, 2023 was $795,301, primarily due to capitalized application software costs and the purchases of fixed assets. We typically operate with a working capital deficit. As of March 31, 2023, our working capital deficit was $1,806,768, however current liabilities include $1,095,103 in deferred revenue. 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 April 2024. However, implementing our business plan may require additional financing. Additional financing 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 March 31, 2023, 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 7 a) “ Preferred shares ”. 19 Table of Contents Foreign Exchange Risk Currently, approximately 38% of our consolidated revenue and 39% percent of our consolidated expenses are denominated in Canadian dollars. Since currently our Canadian dollar revenue and expenses are closely matched, our consolidated cashflows are not significantly impacted by foreign exchange fluctuations. Off-Balance Sheet Arrangements At March 31, 2023 and December 31, 2022, we did not have any unconsolidated entities or financial partnerships, or other off-balance sheet arrangements.