QUOTEMEDIA INC 10-Q

ITEM 1. Financial Statements QUOTEMEDIA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 232,735 $ 342,014 Accounts receivable, net 1,250,482 1,154,787 Prepaid expenses 218,552 133,478 Other current assets 132,176 104,931 Total current assets 1,833,945 1,735,210 Deposits 16,404 16,850 Property and equipment, net 261,551 302,224 Capitalized internal-use software development costs, net 4,833,259 4,552,910 Goodwill 110,000 110,000 Intangible assets 56,570 65,636 Operating lease right-of-use assets (see note 5) 292,047 393,472 Total assets $ 7,403,776 $ 7,176,302 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued liabilities $ 2,532,243 $ 2,210,933 Deferred revenue (see note 3) 1,865,332 1,456,381 Operating lease liabilities (see note 5) 204,686 206,146 Total current liabilities 4,602,261 3,873,460 Long-term liabilities: Deferred revenue (see note 3) 258,676 375,568 Operating lease liabilities (see note 5) 84,899 191,735 Preferred stock warrant liability (see note 6) - 611,563 Total long-term liabilities 343,575 1,178,866 Mezzanine equity: Preferred stock, 10,000,000 shares authorized: Series A redeemable convertible preferred stock, $ 0.001 par value, 550,000 shares designated; shares issued and outstanding: 123,685 at June 30, 2024 and December 31, 2023 (see note 6) - 2,983,857 Stockholders’ equity: Preferred stock, 10,000,000 shares authorized: Series A redeemable convertible preferred stock, $ 0.001 par value, 550,000 shares designated; shares issued and outstanding: 123,685 at June 30, 2024 and December 31, 2023 (see note 6) 2,983,857 - Common stock, $ 0.001 par value, 150,000,000 shares authorized, shares issued and outstanding: 90,477,798 at June 30, 2024 and December 31, 2023 90,479 90,479 Additional paid-in capital 19,523,795 18,910,482 Accumulated deficit ( 20,140,191 ) ( 19,860,842 ) Total stockholders’ equity (deficit) 2,457,940 ( 859,881 ) Total liabilities, mezzanine equity and stockholders’ equity (deficit) $ 7,403,776 $ 7,176,302 The accompanying notes are an integral part of these consolidated condensed financial statements. 3 Table of Contents QUOTEMEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED ) Three-months ended June 30, Six-months ended June 30, 2024 2023 2024 2023 REVENUE (see note 3) $ 4,675,946 $ 4,712,977 $ 9,355,146 $ 9,463,025 COST OF REVENUE 2,431,460 2,324,798 4,773,574 4,644,733 GROSS PROFIT 2,244,486 2,388,179 4,581,572 4,818,292 OPERATING EXPENSES Sales and marketing 857,524 829,712 1,634,726 1,653,765 General and administrative 860,327 770,187 1,668,681 1,622,701 Software development 787,074 684,015 1,590,396 1,314,088 2,504,925 2,283,914 4,893,803 4,590,554 OPERATING INCOME (LOSS) ( 260,439 ) 104,265 ( 312,231 ) 227,738 OTHER INCOME (EXPENSES) Foreign exchange gain (loss) 10,415 ( 30,073 ) 35,722 ( 38,074 ) Interest expense ( 419 ) ( 404 ) ( 1,372 ) ( 1,856 ) 9,996 ( 30,477 ) 34,350 ( 39,930 ) NET INCOME (LOSS) BEFORE INCOME TAXES ( 250,443 ) 73,788 ( 277,881 ) 187,808 Income tax expense ( 730 ) ( 752 ) ( 1,468 ) ( 1,482 ) NET INCOME (LOSS) $ ( 251,173 ) $ 73,036 $ ( 279,349 ) $ 186,326 EARNINGS (LOSS) PER SHARE (see note 7) Basic earnings (loss) per share $ ( 0.00 ) $ 0.00 $ ( 0.00 ) $ 0.00 Diluted earnings (loss) per share $ ( 0.00 ) $ 0.00 $ ( 0.00 ) $ 0.00 WEIGHTED AVERAGE SHARES OUTSTANDING (see note 7) Basic 90,477,798 90,477,798 90,477,798 90,477,798 Diluted 90,477,798 121,000,418 90,477,798 120,876,073 The accompanying notes are an integral part of these consolidated condensed financial statements. 4 Table of Contents QUOTEMEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED) Series A Redeemable Convertible Preferred Stock Common Stock Three-months ended June 30, 2024: Number of Shares Amount Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Balance, March 31, 2024 - $ - 90,477,798 $ 90,479 $ 18,910,482 $ ( 19,889,018 ) $ ( 888,057 ) Reclassification of preferred stock warrants - - - - 611,563 - 611,563 Reclassification of series A redeemable convertible preferred stock 123,685 2,983,857 - - - - 2,983,857 Stock-based compensation - - - - 1,750 - 1,750 Net loss - - - - - ( 251,173 ) ( 251,173 ) Balance, June 30, 2024 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 19,523,795 $ ( 20,140,191 ) $ 2,457,940 Series A Redeemable Convertible Preferred Stock Common Stock Six-months ended June 30, 2024: Number of Shares Amount Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Balance, December 31, 2023 - $ - 90,477,798 $ 90,479 $ 18,910,482 $ ( 19,860,842 ) $ ( 859,881 ) Reclassification of preferred stock warrants - - - - 611,563 - 611,563 Reclassification of series A redeemable convertible preferred stock 123,685 2,983,857 - - - - 2,983,857 Stock-based compensation - - - - 1,750 - 1,750 Net loss - - - - - ( 279,349 ) ( 279,349 ) Balance, June 30, 2024 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 19,523,795 $ ( 20,140,191 ) $ 2,457,940 The accompanying notes are an integral part of these consolidated condensed financial statements. 5 Table of Contents QUOTEMEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (UNAUDITED) Series A Redeemable Convertible Preferred Stock Common Stock Three-months ended June 30, 2023: Number of Shares Amount Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit Balance, March 31, 2023 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 20,109,136 ) $ ( 1,115,385 ) Net income - - - - - 73,036 73,036 Balance, June 30, 2023 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 20,036,100 ) $ ( 1,042,349 ) Series A Redeemable Convertible Preferred Stock Common Stock Six-months ended June 30, 2023: Number of Shares Amount Number of Shares Amount Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Deficit Balance, December 31, 2022 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 20,222,426 ) $ ( 1,228,675 ) Net income - - - - - 186,326 186,326 Balance, June 30, 2023 123,685 $ 2,983,857 90,477,798 $ 90,479 $ 18,903,272 $ ( 20,036,100 ) $ ( 1,042,349 ) The accompanying notes are an integral part of these consolidated condensed financial statements. 6 Table of Contents QUOTEMEDIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six-months ended June 30, 2024 2023 OPERATING ACTIVITIES: Net (loss) income $ ( 279,349 ) $ 186,326 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,480,760 1,271,683 Allowance for doubtful accounts 350,000 125,000 Stock-based compensation expense – common stock warrants 1,750 - Stock-based compensation expense – preferred stock warrants - 137,813 Changes in assets and liabilities: Accounts receivable ( 445,695 ) ( 89,853 ) Prepaid expenses ( 85,074 ) 3,863 Other current assets ( 27,245 ) ( 77,772 ) Deposits 446 ( 351 ) Accounts payable, accrued and other liabilities 314,439 ( 324,580 ) Deferred revenue 292,059 642,450 Net cash provided by operating activities 1,602,091 1,874,579 INVESTING ACTIVITIES: Purchase of property and equipment ( 28,655 ) ( 37,120 ) Capitalized application software ( 1,682,715 ) ( 1,575,346 ) Net cash used in investing activities ( 1,711,370 ) ( 1,612,466 ) Net (decrease) increase in cash ( 109,279 ) 262,113 Cash and equivalents, beginning of period 342,014 477,987 Cash and equivalents, end of period $ 232,735 $ 740,100 The accompanying notes are an integral part of these consolidated condensed financial statements. 7 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial statements and instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. Operating results for any quarter are not necessarily indicative of the results for any other quarter or for a full year. In connection with the preparation of the condensed consolidated financial statements, management evaluated subsequent events after the balance sheet date of June 30, 2024 through the filing of this report. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2023 contained in the Form 10-K filed with the Securities and Exchange Commission dated April 8, 2024. Risks and Uncertainties Adverse macroeconomic conditions, including inflation, slower growth or recession, and higher interest rates could materially adversely affect demand for the Company’s services. 2. SIGNIFICANT ACCOUNTING POLICIES a) Nature of operations Quotemedia, Inc. (the “Company”) is a software developer and distributor of financial market data and related services to a global marketplace. The Company specializes in the collection, aggregation, and delivery of both delayed and real-time financial data content via the Internet. The Company develops 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 These 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 of the 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 year, except for expenses related to balance sheet amounts remeasured at historical exchange rates. Because the U.S. dollar is the functional currency, exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur. d) Allowances for doubtful accounts The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company believes that the historical loss information it has compiled is a reasonable base on which to determine expected credit losses for trade receivables held at June 30, 2024, because the composition of the trade receivables at that date is consistent with that used in developing the historical credit-loss percentages (i.e., the similar risk characteristics of its customers and its credit practices have not changed significantly over time). The allowance for doubtful accounts was $ 350,000 and $ 225,000 as of June 30, 2024 and December 31, 2023, respectively. Bad debt expenses were $127,650 and $ 25,852 for the three-months ended June 30, 2024 and 2023, respectively. Bad debt expenses (recovery) were $ 140,979 and ($ 38,241 ) for the six-months ended June 30, 2024 and 2023, respectively. e) Revenue The Company generates substantially all of its revenue from subscriptions for access to its software products and related support. The Company licenses financial market data information on a monthly, quarterly, or annual basis. The Company’s products and services are divided into two main categories: 8 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Interactive Content and Data Applications · Proprietary financial software applications and streaming market data feeds · Subscriptions are typically sold for a fixed fee and revenue is recognized ratably over the term of the subscription. Portfolio Management and Real-Time Quote Systems 1. Corporate Quotestream (Business-to-Business) o Web-delivered, embedded applications providing real-time, streaming market quotes and research information targeted to both professionals and non-professional users. o Revenue is typically earned based on customer usage. 2. Individual Quotestream (Business-to-Consumer) o Web-delivered, embedded applications providing real-time, streaming market quotes and research information targeted to non-professional users. o Subscriptions are typically sold for a fixed fee and revenue is recognized ratably over the term of the subscription. The Company does not provide its customers with the right to take possession of its software products at any time. The Company determines revenue recognition through the following steps: · Identification of the contract, or contracts, with a customer · Identification of the performance obligations in the contract · Determination of the transaction price · Allocation of the transaction price to the performance obligations in the contract · Recognition of revenue when, or as, the Company satisfies a performance obligation The Company executes a signed contract with the customer that specifies services to be provided, the payment amounts and terms, and the period of service, among other terms. Contract Balances The Company’s corporate customers are invoiced based on fee schedules that are agreed upon in each customer contract. Individual Quotestream customers are charged a subscription fee based on their subscription agreement. The Company recognizes revenue when performance obligations have been satisfied, which is the date the customer has access to the contracted market data. The timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing. Upfront set-up or development fees are deferred and recognized evenly from the date performance obligations have been met to the end of the service term of the contract, as set-up and development fees are not distinct from the market data service contracts to which they relate. The Company considers the following factors when determining if collection of a fee is reasonably assured: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If these factors do not indicate collection is reasonably assured, revenue is not recognized until collection becomes reasonably assured, which is generally upon receipt of cash. 9 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Cost of revenue Cost of revenue primarily consists of customer support personnel-related compensation expenses, including salaries, bonuses, benefits, payroll taxes, and stock-based compensation expense, as well as expenses related to third-party hosting costs, software license fees, amortization of capitalized software development costs, amortization of acquired technology intangible assets, and allocated overhead. f) Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). This standard improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in ASU 2023-07 will be applied retrospectively to all prior periods presented in the consolidated financial statements. The Company does not expect that the adoption of ASU 2023-07 will have a significant impact on the Company’s consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure (“ASU 2023-09”) . This standard provides transparency to income tax disclosures related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 for public entities with early adoption permitted. The amendments in ASU 2023-09 will be applied prospectively in the consolidated financial statements. The Company does not expect that the adoption of ASU 2023-09 will have a significant impact on the Company’s consolidated financial statements. 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. Revenue by type of service consists of the following: Three-months ended June 30, Six-months ended June 30, 2024 2023 2024 2023 Portfolio Management Systems Corporate Quotestream $ 1,782,826 $ 1,876,898 $ 3,564,511 $ 3,704,151 Individual Quotestream 466,695 474,143 935,700 961,710 Interactive Content and Data APIs 2,426,425 2,361,936 4,854,935 4,797,164 Total revenue $ 4,675,946 $ 4,712,977 $ 9,355,146 $ 9,463,025 10 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Deferred Revenue Changes in deferred revenue were as follows for the periods ending June 30, 2024 2023 Beginning balance at Jan 1, $ 1,831,949 $ 1,166,848 Revenue recognized in the current period from the amounts in the beginning balance ( 1,105,335 ) ( 868,395 ) New deferrals, net of amounts recognized in the current period 1,381,619 1,507,660 Effects of foreign currency translation 15,775 3,185 Total deferred revenue $ 2,124,008 $ 1,809,298 Current portion of deferred revenue $ 1,865,332 $ 1,530,329 Long-term portion of deferred revenue 258,676 278,969 Total deferred revenue $ 2,124,008 $ 1,809,298 Practical Expedients As permitted under ASU 2014-09 (and related ASUs), unsatisfied performance obligations are not disclosed, as the original expected duration of substantially of the Company’s contracts is one year or less. 4. RELATED PARTIES The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2021 for approximately $ 6,500 per month. David M. Shworan, CEO of Quotemedia Ltd., is a control person of 410734 B.C. Ltd. There were no amounts due to 410734 B.C. Ltd. at June 30, 2024 and December 31, 2023. The Company pays a monthly marketing service fee of $ 3,000 to Bravenet Web Services, Inc. (“Bravenet”). At June 30, 2024 and December 31, 2023, there was $ 15,000 and $ 12,500 due to Bravenet related to this agreement, respectively. David M. Shworan is a control person of Bravenet. At June 30, 2024 and December 31, 2023, there were $ 185,498 and $ 68,988 in unreimbursed expenses owed to Keith Randall, CEO of Quotemedia, Inc., respectively. As a matter of policy all significant related party transactions are subject to review and approval by the Company’s Board of Directors. 5 . LEASES The Company has operating leases for corporate offices. The Company’s leases have remaining lease terms of 1 year to 3 years . Management determines if an arrangement is a lease at inception. Operating lease assets and liabilities are included in operating lease right-of-use assets and operating lease liabilities, respectively, on the Company’s consolidated balance sheets. Finance lease assets and liabilities are included in property and equipment and finance lease liabilities, respectively, on the Company’s consolidated balance sheets. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The Company elected the short-term lease exception and therefore only recognize right-of-use assets and lease liabilities for leases with a term greater than one year. When determining lease terms, the Company factors in options to extend or terminate leases when it is reasonably certain that the Company will exercise that option. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases the Company accounts for the lease and non-lease components as a single lease component. 11 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Supplemental balance sheet information related to leases was as follows: June 30, 2024 December 31, 2023 Operating Leases Operating lease right-of-use assets $ 292,047 $ 393,472 Current portion of operating lease liability $ 204,686 $ 206,146 Long-term portion of operating lease liability 84,899 191,735 Total operating lease liability $ 289,585 $ 397,881 June 30, 2024 December 31, 2023 Weighted Average Remaining Lease Term Operating leases 1.5 years 1.9 years Weighted Average Discount Rate Operating leases 9.5 % 9.5 % Maturities of lease liabilities were as follows: Year ending December 31, Operating Leases 2024 (excluding the six-months ended June 30, 2024) $ 114,182 2025 163,272 2026 33,861 Total lease payments 311,315 Less imputed interest ( 21,730 ) Total $ 289,585 12 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The components of lease expense for the three and six-months ended June 30, 2024 and 2023 were as follows: Three-months ended June 30, Six-months ended June 30, 2024 2023 2024 2023 Operating lease costs: Operating lease costs $ 58,969 $ 59,165 $ 118,010 $ 117,592 Short-term lease costs 27,338 26,993 54,674 53,980 Total operating lease costs $ 86,307 $ 86,158 $ 172,684 $ 171,572 Supplemental cash flow information for the six-months ended June 30, 2024 and 2023 related to leases was as follows: 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 115,146 $ 116,784 There was no additional right of use assets obtained in exchange for lease obligations for the six-months ended June 30, 2024 and 2023. 6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT a) Redeemable Convertible Preferred Stock The Company is authorized to issue up to 10,000,000 non-designated preferred shares at the Board of Directors’ discretion. A total of 550,000 shares of the Company’s preferred stock are designated as “Series A Redeemable Convertible Preferred Stock.” The Series A redeemable convertible preferred stock has no dividend or voting rights. At June 30, 2024 and December 31, 2023, 123,685 shares of Series A redeemable convertible preferred stock were outstanding. No shares of Series A redeemable convertible preferred stock were issued or redeemed during the three and six-months ended June 30, 2024 and 2023. Redemption Rights Holders of Series A redeemable convertible preferred stock shall have the right to convert their shares into shares of common stock at the rate of 83.33 shares of common stock for one share of Series A redeemable convertible preferred stock, at any time following the date the closing price of a share of common stock on a securities exchange or actively traded over-the-counter market has exceeded $ 0.30 for ninety ( 90 ) consecutive trading days. The conversion rights are subject to the availability of authorized but unissued shares of common stock. In 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 Company 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. Reclassification of Redeemable Convertible Preferred Stock resulting from Amendment to Redemption Rights Prior to April 26, 2024, 1,000 Series A redeemable convertible preferred stock could 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 . In accordance with Accounting Standards Update (“ASU”) 480-10-S99, because a limited number of Series A redeemable convertible preferred stock could be redeemed at the holder’s option if the above criteria are met, it was classified as mezzanine equity and not permanent equity. On April 26, 2024, the Certificate of Designation of the Series A Redeemable Convertible Preferred Stock was amended removing the above redemption right, at no cost to the Company, resulting in a change in the classification of Series A redeemable preferred stock from mezzanine equity to permanent equity. In addition, the amendment resulted in a change to the classification of warrants to purchase shares of Series A redeemable convertible preferred stock (“preferred stock warrants”) from preferred stock warrant liability to additional paid-in capital. There was no impact on the consolidated statement of operations resulting from the amendment. b) Common stock No shares of common stock were issued during the three and six-months ended June 30, 2024 and 2023. 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. 13 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Total stock-based compensation expense, related to all of the Company’s stock-based awards, recognized for the three and six-months ended June 30, 2024 and 2023 was comprised as follows: Three-months ended June 30, Six-months ended June 30, 2024 2023 2024 2023 Sales and marketing $ 1,750 $ - $ 1,750 $ - Total stock-based compensation expense $ 1,750 $ - $ 1,750 $ - Common Stock Options and Warrants The following table summarizes the Company’s common stock option and warrant activity for the six-months ended June 30, 2024: Common Stock Options and Warrants Weighted-Average Grant Date Exercise Price Outstanding at December 31, 2023 25,772,803 $ 0.06 Granted during the period 350,000 $ 0.03 Forfeited during the period ( 350,000 ) $ 0.03 Outstanding at June 30, 2024 25,772,803 $ 0.06 The following table summarizes the weighted average remaining contractual life and exercise price of common stock options and warrants outstanding and exercisable at June 30, 2024: Weighted Average Weighted Remaining Average Number Contractual Exercise Outstanding Life (Years) Price $ 0.03 - 0.11 25,772,803 5.33 $ 0.06 At June 30, 2024, there was no unrecognized compensation cost related to non-vested options and warrants granted to purchase common stock. Management calculates the fair value of stock options and warrants granted to purchase common stock under the provisions of FASB ASC 718 using the Black-Scholes valuation model with the following assumptions: Three-months ended June 30, Six-months ended June 30, 2024 2023 2024 2023 Expected dividend yield - N/A - N/A Expected stock price volatility 76 % N/A 76 % N/A Risk-free interest rate 4 % N/A 4 % N/A Expected life of options (years) 2.50 N/A 2.50 N/A Weighted average fair value of options and warrants granted $ 0.17 N/A $ 0.17 N/A 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, 2024, the aggregate intrinsic value of options and warrants outstanding and exercisable was $ 3,147,838 . The intrinsic value of stock options and warrants are calculated as the amount by which the market price of the Company’s common stock exceeds the exercise price of the option or warrant. 14 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Preferred Stock Warrants Pursuant to the December 28, 2017 Compensation Agreement with David M. Shworan, the President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of Quotemedia, Inc., the Company issued Mr. Shworan warrants to purchase shares of Series A redeemable convertible preferred stock (“compensation preferred stock warrants”) in lieu of a cash salary. From the period December 28, 2017 to December 31, 2019 the Company issued a total of 31,250 Compensation Preferred Stock Warrants at an exercise price equal to $ 1.00 per share. 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, 2024. The probability is re-evaluated each reporting period. As of June 30, 2024, there was $ 7,480,496 in unrecognized stock-based compensation expense related to these liquidity preferred stock warrants. Since the liquidity preferred stock warrants only vest and become exercisable on the consummation of a liquidity event which is currently determined not to be probable, management is also unable to determine the weighted-average period over which the unrecognized compensation cost will be recognized. As of June 30, 2024, there were a total of 413,493 preferred stock warrants outstanding with a weighted average remaining contractual life of 23.5 years. As of June 30, 2024, 31,250 preferred stock warrants were exercisable. No preferred stock warrants were granted or exercised for the six-months ended June 30, 2024 and 2023. Reclassification of Preferred Stock Warrant Liability resulting from Amendment to Redemption Rights As discussed in note 6 a), the amendment to the redemption rights for the Series A redeemable convertible preferred stock resulted in a change to the classification of preferred stock warrants on April 26, 2024. The preferred stock warrant liability of $ 611,563 was reclassified to additional paid-in capital. There was no impact on the consolidated statement of operations resulting from the amendment. Fair Value Measurement of Compensation Preferred Stock Warrants The Company adheres to ASC 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). · Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company could access. · Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. · Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. 15 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The estimated fair value of the preferred stock warrant liability is determined using Level 3 inputs. The preferred stock warrants were valued using a bond plus option framework reflecting the cash flow of the preferred stock warrants and used a probability weighted sum of the value in each potential year before expiration to estimate the fair value of the preferred stock warrants. Volatility was based on public peer companies, adjusted for size and leverage. Risk-free rate was selected based on term matched Treasury securities. Bond repayment depends on the Company’s timely access to the required cash and as such, is discounted at the Company’s assumed borrowing rate. This model was run based on the Management's expected term and probabilities of a liquidity event. The key inputs for the framework were as follows: Valuation Inputs June 30, 2024 December 31, 2023 Expected Time to Expiration (years) N/A 24.05 Stock Price on Valuation Date N/A $ 0.23 Peer Volatility N/A 47.35 % Cash Flow Discount Rate N/A 15.86 % The following table sets forth a summary of the changes in the fair value of the Level 3 preferred stock warrant liability for the three and six-months ended June 30, 2024 and 2023: Fair value as of December 31, 2023 and 2022, respectively $ 611,563 $ 629,375 Change in fair value - 78,125 Fair value as of March 31, 2024 and 2023, respectively $ 611,563 $ 707,500 Change in fair value - 59,688 Reclassification of preferred stock warrants on April 26, 2024 ( 611,563 ) - Fair value as of June 30, 2024 and 2024, respectively - 767,188 The changes in fair value attributable to the preferred stock warrants are recorded as an adjustment to stock compensation expense and reported in sales and marketing expense on the three and six-months ended June 30, 2024 and 2023 statements of operations. 7. EARNINGS (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) 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, 2024 and 2023 are as follows: 16 Table of Contents QUOTEMEDIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Three-months ended June 30, Six-months ended June 30, 2024 2023 2024 2023 Net income (loss) $ ( 251,173 ) $ 73,036 $ ( 279,349 ) $ 186,326 Weighted average common shares used to calculate net income per share 90,477,798 90,477,798 90,477,798 90,477,798 Warrants to purchase redeemable convertible preferred stock - 2,499,900 - 2,499,900 Redeemable convertible preferred stock - 10,306,671 - 10,306,671 Stock options and warrants to purchase common stock - 17,716,049 - 17,591,704 Weighted average common shares used to calculate diluted net income per share 90,477,798 121,000,418 90,477,798 120,876,073 Net income (loss) per share – basic $ ( 0.00 ) $ 0.00 $ ( 0.00 ) $ 0.00 Net income (loss) per share – diluted $ ( 0.00 ) $ 0.00 $ ( 0.00 ) $ 0.00 The number of shares of potentially dilutive common stock related to options and warrants 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, 2024 and 2023 are shown below: Three-months ended June 30, Six-months ended June 30, 2024 2023 2024 2023 Warrants to purchase redeemable convertible preferred stock $ 2,499,900 $ - $ 2,499,900 $ - Redeemable convertible preferred stock 10,306,671 - 10,306,671 - Stock options and warrants to purchase common stock 16,370,492 - 16,551,430 - Total potential common shares excluded $ 29,177,063 $ - $ 29,358,001 $ - 17 Table of Contents