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, 2023 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, 2023 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 our content solutions are completely customizable and embedded 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. 18 Table of Contents 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 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 downturn and rising inflation may result in some clients to delay purchasing decisions, product and service implementations or cancel or reduce spending with us. Events in Ukraine and Russia have continued to cause disruptions in the global financial markets. While we do not have any operations or customers in Ukraine or Russia, we will continue to monitor the situation as a prolonged conflict could impact our business. Approximately 39% of our revenue and expenses are denominated in Canadian dollars. The Canadian dollar remained relatively unchanged against the U.S. dollar when comparing the average exchange rate for the six-months ended June 30, 2024 versus the comparative 2023 period. Because our Canadian dollar revenue and expenses are evenly matched, exchange rate fluctuations have minimal impact on our net income and cash flows. Our revenue decreased 1% for the six-months ended June 30, 2024 versus the comparative 2023 period. Based on revenue already under contract, we expect revenue growth to improve for the remainder of fiscal 2024. Plan of Operation For the remainder of 2024 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 2024. 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 2024 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 for the remainder of 2024. 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. 19 Table of Contents Critical Accounting Policies and Estimates Critical Accounting Policies and Estimates In the 2023 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, 2023. Readers are encouraged to read the 2023 Annual Report in conjunction. Results of Operations Revenue Three-months ended June 30, 2024 2023 Change ($) Change (%) Corporate Quotestream $ 1,782,826 $ 1,876,898 $ (94,072 ) (5 )% Individual Quotestream 466,695 474,143 (7,448 ) (2 )% Total Portfolio Management Systems 2,249,521 2,351,041 (101,520 ) (4 )% Interactive Content and Data APIs 2,426,425 2,361,936 64,489 3 % Total subscription revenue $ 4,675,946 $ 4,712,977 $ (37,031 ) (1 )% Six-months ended June 30, 2024 2023 Change ($) Change (%) Corporate Quotestream $ 3,564,511 $ 3,704,151 $ (139,640 ) (4 )% Individual Quotestream 935,700 961,710 (26,010 ) (3 )% Total Portfolio Management Systems 4,500,211 4,665,861 (165,650 ) (4 )% Interactive Content and Data APIs 4,854,935 4,797,164 57,771 1 % Total subscription revenue $ 9,355,146 $ 9,463,025 $ (107,879 ) (1 )% Total licensing revenue decreased 1% when comparing the three and six-months ended June 30, 2024 and 2023. Total Portfolio Management Systems revenue decreased 4% for the three and six-months ended June 30, 2024 and 2023. Corporate Quotestream revenue decreased 5% and 4% for the three and six-months ended June 30, 2024 from the comparative periods in 2023 due to decreases in average revenue per customer since the comparative periods. This decrease in average revenue per customer was due mainly to a decrease in usage for one of our larger Corporate Quotestream customers since the comparative periods in 2023. Individual Quotestream revenue decreased 2% and 3% for the three and six-months ended June 30, 2024 from the comparative periods in 2023 due to decreases in total subscribers, offset by increases in average revenue per subscriber. Interactive Content and Data APIs revenue increased 3% and 1% for the three and six-months ended June 30, 2024 from the comparative periods in 2023. Increases in average revenue per customer were offset by decreases in the number of customers since the comparative periods. The launch of new products and the expansion of our data coverage have allowed us to attract larger clients, increasing our average revenue per customer. 20 Table of Contents Cost of Revenue and Gross Profit Summary Three-months ended June 30, 2024 2023 Change ($) Change (%) Cost of revenue $ 2,431,460 $ 2,324,798 $ 106,662 5 % Gross profit $ 2,244,486 $ 2,388,179 $ (143,693 ) (6 )% Gross margin % 48 % 51 % Six-months ended June 30, 2024 2023 Change ($) Change (%) Cost of revenue $ 4,773,574 $ 4,644,733 $ 128,841 3 % Gross profit $ 4,581,572 $ 4,818,292 $ (236,720 ) (5 )% Gross margin % 49 % 51 % 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 5% and 3% for the three and six-months ended June 30, 2024 from the comparative periods in 2023. 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 increased as a percentage of sales, as evidenced by our gross margin percentage that decreased to 48% and 49% for the three and six-months ended June 30, 2024 from 51% in the comparative 2023 periods. Operating Expenses Summary Three-months ended June 30, 2024 2023 Change ($) Change (%) Sales and marketing $ 857,524 $ 829,712 $ 27,812 3 % General and administrative 860,327 770,187 90,140 12 % Software development 787,074 684,015 103,059 15 % Total operating expenses $ 2,504,925 $ 2,283,914 $ 221,011 10 % Six-months ended June 30, 2024 2023 Change ($) Change (%) Sales and marketing $ 1,634,726 $ 1,653,765 $ (19,039 ) (1 )% General and administrative 1,668,681 1,622,701 45,980 3 % Software development 1,590,396 1,314,088 276,308 21 % Total operating expenses $ 4,893,803 $ 4,590,554 $ 303,249 7 % 21 Table of Contents Sales and Marketing Sales and marketing consist primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses were relatively flat when comparing periods, increasing 3% and decreasing 1% for the three and six-months ended June 30, 2024 when compared to the same periods in 2023. Personnel costs increased for the three and six-months ended June 30, 2024 due to additional sales personnel hired since the comparative periods to support our product growth initiatives and salary increases for existing personnel. The increases in personnel costs were offset by decreases in stock-based compensation expenses as $78,125 and $59,688 in stock-based compensation expenses were incurred in March and June 2023, respectively, related to the fair value adjustment to our preferred stock warrant liability. General and Administrative General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses increased 12% and 3% for the three and six-months ended June 30, 2024, when compared to the same periods in 2023. The increases are due to increases in bad debt expenses, offset by decreases in professional fees as we incurred additional professional fees in the comparative 2023 periods 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 15% and 21% for the three and six-months ended June 30, 2024 when compared to the same periods in 2023, primarily due to new personnel hired since the comparative periods to improve our infrastructure, security, and business continuity management. The increase in software development expenses was also due to a decrease in the percentage of total development costs capitalized during the three and six-month periods ending June 30, 2024, when compared to the same periods in 2023. We capitalized $867,400 and $1,682,715 of development costs for the three and six-month periods ended June 30, 2024 compared to $808,832 and $1,575,346 in the same periods in 2023. 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, 2024 2023 Foreign exchange gain (loss) $ 10,415 $ (30,073 ) Interest expense, net (419 ) (404 ) Total other income (expense), net $ 9,996 $ (30,477 ) Six-months ended June 30, 2024 2023 Foreign exchange gain (loss) $ 35,722 $ (38,074 ) Interest expense, net (1,372 ) (1,856 ) Total other income (expenses), net $ 34,350 $ (39,930 ) 22 Table of Contents Foreign Exchange Gain We incurred foreign exchange gains of $10,415 and $35,722 for the three and six-months periods ended June 30, 2024, compared to foreign exchange losses of $30,073 and $38,074 in the comparative 2023 periods. 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 expenses of $953 and $1,372 were incurred for the three and six-months periods ended June 30, 2024, compared to $1,452 and $1,856 incurred in the same 2023 periods. Provision for Income Taxes For the three and six-months periods ended June 30, 2024, the Company recorded $730 and $1,468 in Canadian income tax expenses compared to $752 and $1,482 in the comparative periods in 2023. Net Income (Loss) for the Period As a result of the foregoing, our net losses for the three and six-months periods ended June 30, 2024 were $251,173 and $279,349 compared to net income of $71,036 and $186,326 in the comparative periods in 2023. The basic and diluted loss per share was $(0.00) for the three and six-months periods ended June 30, 2024, compared to the basic and diluted earnings per share of $0.00 for the three and six-months periods ended June 30, 2023. Liquidity and Capital Resources Our cash totaled $232,735 at June 30, 2024, as compared with $342,014 at December 31, 2023, a decrease of $109,279. Net cash of $1,602,091 was provided by operations for the six-months ended June 30, 2024, primarily due to adjustments for non-cash charges and the increase in accounts payable and accrued liabilities, offset by an increase in accounts receivable. Net cash used in investing activities for the six-months ended June 30, 2024 was $1,711,370, due to capitalized application software costs and purchases of computer equipment. We typically operate with a working capital deficit. As of June 30, 2024, our working capital deficit was $2,768,316, however current liabilities include $1,865,332 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 July 2025. 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. Foreign Exchange Risk Currently, approximately 39% of our consolidated revenue and 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 June 30, 2024 and December 31, 2023, we did not have any unconsolidated entities or financial partnerships, or other off-balance sheet arrangements. 23 Table of Contents