QMCI 10-Q
Quotemedia Inc (QMCI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period _________ to _________
Commission File Number:
(Exact name of registrant as specified in its charter) |
| ||
(State or Other Jurisdiction of Incorporation or Organization) |
| (IRS Employer Identification Number) |
(Address of Principal Executive Offices)
(
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
(Do not check if a smaller reporting company) | ☐ | Smaller reporting company | |
|
| Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
The Registrant has
QUOTEMEDIA, INC.
FORM 10-Q for the Quarter Ended June 30, 2022
INDEX
| 2 |
| Table of Contents |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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| June 30, 2022 |
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| December 31, 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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Accounts receivable, net |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Deposits |
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Property and equipment, net |
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Goodwill |
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Intangible assets |
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Operating lease right-of-use assets |
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Total assets |
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| $ |
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable and accrued liabilities |
| $ |
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| $ |
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Deferred revenue |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Total current liabilities |
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Long-term portion of operating lease liabilities |
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Preferred stock warrant liability |
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Mezzanine equity: |
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Preferred stock, |
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Series A Redeemable Convertible Preferred stock, $ |
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Stockholders’ deficit: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ deficit |
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Total liabilities and stockholders’ deficit |
| $ |
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| $ |
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| 3 |
| Table of Contents |
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| Three-months ended June 30, |
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| Six-months ended June 30, |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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REVENUE |
| $ |
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| $ |
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| $ |
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COST OF REVENUE |
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GROSS PROFIT |
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OPERATING EXPENSES |
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Sales and marketing |
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General and administrative |
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Software development |
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OPERATING INCOME (LOSS) |
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OTHER INCOME (EXPENSES) |
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Foreign exchange gain (loss) |
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Interest expense |
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Other income (Note 9) |
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NET LOSS BEFORE INCOME TAXES |
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Income tax expense |
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NET LOSS |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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LOSS PER SHARE |
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Basic and diluted loss per share |
| $ | ( | ) |
| $ | ( | ) |
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| $ | ( | ) |
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WEIGHTED AVERAGE SHARES OUTSTANDING |
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Basic and diluted |
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| 4 |
| Table of Contents |
QUOTEMEDIA, INC.
CONDENSED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(UNAUDITED)
|
| Series A Redeemable Convertible Preferred Stock |
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| Common Stock |
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| Additional |
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| Total Stockholders’ |
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Three-months ended June 30, 2022: |
| Number of Shares |
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| Amount |
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| Number of Shares |
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| Amount |
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| Paid-in Capital |
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| Accumulated Deficit |
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| Equity (Deficit) |
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Balance, March 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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Stock-based compensation |
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| - |
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| - |
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Net loss |
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| - |
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| - |
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Balance, June 30, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | |||||
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| Series A Redeemable Convertible Preferred Stock |
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| Common Stock |
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| Additional |
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| Total Stockholders’ |
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Three-months ended June 30, 2021: |
| Number of Shares |
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| Amount |
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| Number of Shares |
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| Amount |
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| Paid-in Capital |
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| Accumulated Deficit |
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| Equity (Deficit) |
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Balance, March 31, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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Stock-based compensation |
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Net loss |
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| - |
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Balance, June 30, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) | |||||
| 5 |
| Table of Contents |
QUOTEMEDIA, INC.
CONDENSED STATEMENTS OF CHANGES IN SERIES A REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(UNAUDITED)
|
| Series A Redeemable Convertible Preferred Stock |
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| Common Stock |
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| Additional |
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| Total Stockholders’ |
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Six-months ended June 30, 2022: |
| Number of Shares |
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| Amount |
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| Number of Shares |
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| Amount |
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| Paid-in Capital |
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| Accumulated Deficit |
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| Equity (Deficit) |
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Balance, December 31, 2021 |
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| $ |
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| $ | ( | ) |
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Stock-based compensation |
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Net loss |
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Balance, June 30, 2022 |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | |||||
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| Series A Redeemable Convertible Preferred Stock |
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| Common Stock |
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| Additional |
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| Total Stockholders’ |
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Six-months ended June 30, 2021: |
| Number of Shares |
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| Amount |
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| Number of Shares |
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| Amount |
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| Paid-in Capital |
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| Accumulated Deficit |
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| Equity (Deficit) |
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Balance, December 31, 2020 |
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Stock-based compensation |
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Net loss |
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Balance, June 30, 2021 |
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| $ |
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| $ | ( | ) | |||||
| 6 |
| Table of Contents |
QUOTEMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| Six-months ended June 30, |
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| 2022 |
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| 2021 |
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OPERATING ACTIVITIES: |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Gain on forgiveness of PPP loan (Note 9) |
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Changes in assets and liabilities: |
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Accounts receivable |
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Prepaid expenses |
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Other current assets |
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Deposits |
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Accounts payable, accrued and other liabilities |
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Deferred revenue |
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Net cash provided by operating activities |
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INVESTING ACTIVITIES: |
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Purchase of fixed assets |
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Purchase of intangible assets |
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Capitalized application software |
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Net cash used in investing activities |
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FINANCING ACTIVITIES: |
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Repayment of finance lease obligations |
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Net cash used in financing activities |
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Net increase in cash |
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Cash and equivalents, beginning of period |
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Cash and equivalents, end of period |
| $ |
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| $ |
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| 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, the Company evaluated subsequent events after the balance sheet date of June 30, 2022 through the filing of this report.
As of June 30, 2022, the Company has a working capital deficit of $
The Company has a plan in place for the next 12 months to ensure ongoing expenditures are balanced with the expected growth rate and believes cash on hand and cash generated will be sufficient to fund operations for the next 12 months. However, to implement our business plan may require additional financing. Additional financings may come from future equity or debt offerings that could result in dilution to our stockholders. 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.
These financial statements should be read in conjunction with our financial statements and the notes thereto for the fiscal year ended December 31, 2021 contained in our Form 10-K filed with the Securities and Exchange Commission dated March 30, 2022.
Risks and Uncertainties
Recent events in the Ukraine and Russia have 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.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Nature of operations
We are a software developer and distributor of financial market data and related services to a global marketplace. We specialize in the collection, aggregation, and delivery of both delayed and real-time financial data content via the Internet. We develop and license software components that deliver dynamic content to banks, brokerage firms, financial institutions, mutual fund companies, online information and financial portals, media outlets, public companies, and corporate intranets.
b) Basis of consolidation
The consolidated financial statements include the operations of QuoteMedia, Ltd., a wholly owned subsidiary of QuoteMedia, Inc. All intercompany transactions and balances have been eliminated.
c) Foreign currency translation and transactions
The U.S. dollar is the functional currency of all our company's operations. Foreign currency asset and liability amounts are remeasured into U.S. dollars at end-of-period exchange rates, except for equipment and intangible assets, which are remeasured at historical rates. Foreign currency income and expenses are remeasured at average exchange rates in effect during the 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
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make required payments. The Company determines the allowance by reviewing the age of the receivables and assessing the anticipated ability of customers to pay. No collateral is required for any of the receivables and the Company does not usually apply financing charges to outstanding accounts receivable balances. If the financial condition of our customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The allowance for doubtful accounts was $
| 8 |
| Table of Contents |
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
e) Revenue
The Company generates substantially all of its revenue from subscriptions for access to its software products and related support. We license financial market data information on a monthly, quarterly, or annual basis. Our products and services are divided into two main categories: Interactive Content and Data Applications and Portfolio Management and Real-Time Quote Systems. Subscriptions are sold for a fixed fee and revenue is recognized ratably over the term of the subscription. The Company does not provide the customer 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.
f) Accounting Pronouncements
Recently Adopted
There are no new recently adopted accounting pronouncements for the three-months ended June 30, 2022.
Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326), which changes the impairment model for most financial assets, including accounts receivable, and replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The guidance is effective for the Company for interim and annual periods beginning after December 15, 2022. Early adoption is permitted. The Company does not expect that the adoption of ASU 2016-13 will have a significant impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the complexity associated with applying U.S. Generally Accepted Accounting Principles (“GAAP”) for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity's own equity. The new standard is effective for the Company for fiscal years beginning after December 15, 2023. The Company does not expect that the adoption of ASU 2020-06 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. PRIOR PERIOD ERROR
Subsequent to the filing of its Quarterly Report for the quarterly period ended March 31, 2022, the Company reassessed its classification of warrants to purchase shares of Series A Redeemable Convertible Preferred Stock (“Compensation Preferred Stock Warrants” – see Financial Statement Note 7 “Redeemable Convertible Preferred Stock and Stockholders’ Deficit”). The Company concluded that its original classification of the Preferred Stock Warrants as equity was incorrect and that the Preferred Stock Warrants should have been classified as a liability in accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities From Equity. The error was not material and resulted in the following revision for the comparative December 31, 2021 Balance Sheet:
· Additional Paid-in Capital was reduced by $
· Preferred Stock Warrant Liability was increased by $
· Accumulated Deficit was reduced by $
In addition, Additional Paid-in Capital was reduced by $
| 9 |
| Table of Contents |
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. REVENUE
Disaggregated Revenue
The Company provides market data, financial web content solutions and cloud-based applications. Our revenue by type of service consists of the following:
|
| Three-months ended June 30, |
|
| Six-months ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Portfolio Management Systems |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate Quotestream |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Individual Quotestream |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interactive Content and Data APIs |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Deferred Revenue
Changes in deferred revenue for the period were as follows:
Balance at December 31, 2021 |
| $ |
| |
Revenue recognized in the current period from the amounts in the beginning balance |
|
| ( | ) |
New deferrals, net of amounts recognized in the current period |
|
|
| |
Effects of foreign currency translation |
|
|
| |
Balance at June 30, 2022 |
| $ |
|
Practical Expedients
As permitted under ASU 2014-09 (and related ASUs), unsatisfied performance obligations are not disclosed, as the original expected duration of substantially all of our contracts is one year or less.
5. RELATED PARTIES
The Company entered into a five-year office lease with 410734 B.C. Ltd. effective May 1, 2021 for approximately $
The Company entered into a marketing agreement with Bravenet Web Services, Inc. (“Bravenet”) effective November 28, 2019 for approximately $
6. LEASES
We have operating leases for corporate offices and finance leases for certain equipment. Our
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 our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. We 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, we factor in options to extend or terminate leases when it is reasonably certain that we will exercise that option. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases we account for the lease and non-lease components as a single lease component.
| 10 |
| Table of Contents |
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Supplemental balance sheet information related to leases was as follows:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Operating Leases |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Operating lease right-of-use assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Current portion of operating lease liability |
| $ |
|
| $ |
| ||
Long-term portion of operating lease liability |
|
|
|
|
|
| ||
Total operating lease liability |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment on financing lease |
| $ |
|
| $ |
| ||
Less: accumulated depreciation |
|
|
|
|
|
| ||
Property and equipment, net |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Current portion of finance lease liability |
|
|
|
|
|
| ||
Long-term portion of finance lease liability |
|
|
|
|
|
| ||
Total finance lease liability |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
| ||||
Weighted Average Remaining Lease Term |
|
|
|
| ||||
Operating leases |
|
|
|
| ||||
Finance leases |
|
|
|
| ||||
Weighted Average Discount Rate |
|
|
|
|
|
| ||
Operating leases |
|
| % |
|
| % | ||
Finance leases |
|
| % |
|
| % | ||
Maturities of lease liabilities were as follows:
Year ending December 31, |
| Operating Leases |
|
| Finance Leases |
| ||
|
|
|
|
|
|
| ||
2022 (excluding the six-months ended June 30, 2022) |
| $ |
|
| $ |
| ||
2023 |
|
|
|
|
|
| ||
2024 |
|
|
|
|
|
| ||
2025 |
|
|
|
|
|
| ||
2026 |
|
|
|
|
|
| ||
Total lease payments |
|
|
|
|
|
| ||
Less imputed interest |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
The components of lease expense for the three and six-months ended June 30, 2022 and 2021 were as follows:
|
| Three-months ended June 30, |
|
| Six-months ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating lease costs: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease costs |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Short-term lease costs |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total operating lease costs |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Interest |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total finance lease costs |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 11 |
| Table of Contents |
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Supplemental cash flow information for the six-months ended June 30, 2022 and 2021 related to leases was as follows:
|
| 2022 |
|
| 2021 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows from operating leases |
| $ |
|
| $ |
| ||
Operating cash flows from finance leases |
|
|
|
|
|
| ||
Financing cash flows from finance leases |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
| ||
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
a) Redeemable Convertible Preferred Stock
We are authorized to issue up to
A total of
At June 30, 2022,
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
In addition,
In accordance with Accounting Standards Update (“ASU”) 480-10-S99, because a limited number of Series A Redeemable Convertible Preferred Stock may be redeemed at the holder’s option if the above criteria are met, it was classified as mezzanine equity and not permanent equity.
In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to any holders of any shares of common stock, the holders of shares of Series A Redeemable Convertible Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to holders of the Company’s capital stock whether such assets are capital, surplus, or earnings, an amount equal to $25.00 per share of Series A Redeemable Convertible Preferred Stock.
b) Common stock
No shares of common stock were issued during the three and six-months ended June 30, 2022 and 2021.
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.
| 12 |
| 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, 2022 and 2021 was comprised as follows:
|
| Three-months ended June 30, |
|
| Six-months ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total stock-based compensation expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Common Stock Options and Warrants
There were
The following table summarizes our non-vested common stock option and warrant activity for the six-months ended June 30, 2022:
|
| Common Stock Options and Warrants |
|
| Weighted-Average Grant Date Exercise Price |
| ||
|
|
|
|
|
|
| ||
Non-vested at January 1, 2022 |
|
|
|
| $ |
| ||
Vested during the period |
|
| ( | ) |
| $ |
| |
Non-vested at June 30, 2022 |
|
|
|
| $ |
| ||
The following table summarizes the weighted average remaining contractual life and exercise price of common stock options and warrants outstanding at June 30, 2022:
|
| Common Stock Options and Warrants Outstanding |
|
| Common Stock Options and Warrants Exercisable |
| ||||||||||||||
|
|
|
| Weighted |
|
|
|
|
|
|
| |||||||||
|
|
|
| Average |
|
| Weighted |
|
|
|
| Weighted |
| |||||||
|
|
|
| Remaining |
|
| Average |
|
|
|
| Average |
| |||||||
|
| Number |
|
| Contractual |
|
| Exercise |
|
| Number |
|
| Exercise |
| |||||
|
| Outstanding |
|
| Life (Years) |
|
| Price |
|
| Exercisable |
|
| Price |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
$0.03-0.11 |
|
|
|
|
|
|
| $ |
|
|
|
|
| $ |
| |||||
At June 30, 2022, there was $
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, 2022, the aggregate intrinsic value of options and warrants outstanding was $
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
Also pursuant to the Compensation Agreement with Mr. Shworan, on December 28, 2017 the Company issued Mr. Shworan warrants to purchase up to
| 13 |
| Table of Contents |
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 2022, there were a total of
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.
The estimated fair value of the Preferred Stock Warrant liability is determined using Level 3 inputs. As of June 30, 2022 and December 31, 2021, the fair value of the Preferred Stock Warrant Liability was $
Valuation Inputs |
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Expected Time to Expiration |
|
|
|
|
|
| ||
Stock Price on Valuation Date |
| $ |
|
| $ |
| ||
5-Year Peer Volatility |
|
| % |
|
| % | ||
Cash Flow Discount Rate |
|
| % |
|
| % | ||
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, 2022:
|
| Preferred Stock Warrant Liability |
| |
Fair value as of December 31, 2021 |
| $ |
| |
Change in fair value |
|
|
| |
Fair value as of March 31, 2022 |
|
|
| |
Change in fair value |
|
|
| |
Fair value as of June 30, 2022 |
| $ |
| |
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 Statements of Operations. The changes in fair value for the Preferred Stock Warrant Liability in the comparative three and six-months periods ended June 30, 2021 were insignificant.
8. LOSS PER SHARE
Basic net income per share is computed by dividing net income during the period by the weighted-average number of common shares outstanding, excluding the dilutive effects of common stock equivalents. Common stock equivalents include redeemable convertible preferred stock, stock options and warrants. Diluted net income per share is computed by dividing net income by the weighted-average number of dilutive common shares outstanding during the period. Diluted shares outstanding is calculated using the treasury stock method by adding to the weighted shares outstanding any potential shares of common stock from outstanding redeemable convertible preferred stock, stock options and warrants that are in-the-money. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, the calculation of basic and dilutive loss per share results in the same value. The calculations for basic and diluted net income per share for the three and six-months ended June 30, 2022 and 2021 are as follows:
| 14 |
| Table of Contents |
QUOTEMEDIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| Three-months ended June 30, |
|
| Six-months ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used to calculate net income per share |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Warrants to purchase redeemable convertible preferred stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Redeemable convertible preferred stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Stock options and warrants to purchase common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares used to calculate diluted net income per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share – basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
The number of shares of potentially dilutive common stock related to options, warrants and redeemable convertible preferred stock that were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive for the three and six-month periods ended June 30, 2022 and 2021 are shown below:
|
| Three-months ended June 30, |
|
| Six-months ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stock options and warrants to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Warrants to purchase redeemable convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Redeemable convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total potential common shares excluded |
|
|
|
|
|
|
|
|
|
|
|
| ||||
9. PAYCHECK PROTECTION PROGRAM
On May 4, 2020, the Company received a $
| 15 |
| Table of Contents |
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, 2021 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, 2021 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 QModTM, 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 QuotestreamTM, 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.
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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
The global financial markets experienced extreme volatility and disruption over the past couple years 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 the early stages of the pandemic. 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.
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.
In 2022, we finalized a contract with a large multinational financial institution that was effective January 1, 2022, and signed a statement of work with another large multinational financial institution to start services while their contract is being finalized. Pursuant to the statement of work, we received a partial development fee payment of $300,000 in Q2 2022 which has been deferred until the start of the service component of the contract. Once finalized, the service component of the contract is expected to start in Q4 2022. The contracts are for a wide range of services that will be included in both portfolio management and interactive content and data API revenue. Based on these new contracts and our other clients currently under contract, we expect revenue growth of 19% in fiscal 2022, and similar revenue growth in fiscal 2023. We also expect to report a profit for fiscal 2022, and we except our net income to significantly improve in 2023. This is mainly due to the new contracts mentioned above as they have significantly higher gross margins than our typical customer contracts have on average.
Plan of Operation
For the remainder of 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. This expansion is expected to result in both increased revenue and costs for fiscal 2022.
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 2022 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.
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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
Critical Accounting Policies and Estimates
In the 2021 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, 2021. Readers are encouraged to read the 2021 Annual Report in conjunction.
Results of Operations
Revenue
Three-months ended June 30, |
| 2022 |
|
| 2021 |
|
| Change ($) |
|
| Change (%) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate Quotestream |
| $ | 1,721,574 |
|
| $ | 1,635,071 |
|
| $ | 86,503 |
|
|
| 5 | % |
Individual Quotestream |
|
| 540,530 |
|
|
| 591,415 |
|
|
| (50,885 | ) |
| (9 | %) | |
Total Portfolio Management Systems |
|
| 2,262,104 |
|
|
| 2,226,486 |
|
|
| 35,618 |
|
|
| 2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interactive Content and Data APIs |
|
| 2,036,853 |
|
|
| 1,606,532 |
|
|
| 430,321 |
|
|
| 27 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription revenue |
| $ | 4,298,957 |
|
| $ | 3,833,018 |
|
| $ | 465,939 |
|
|
| 12 | % |
Six-months ended June 30, |
| 2022 |
|
| 2021 |
|
| Change ($) |
|
| Change (%) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate Quotestream |
| $ | 3,437,671 |
|
| $ | 3,089,143 |
|
| $ | 348,528 |
|
|
| 11 | % |
Individual Quotestream |
|
| 1,093,991 |
|
|
| 1,154,202 |
|
|
| (60,211 | ) |
|
| (5 | %) |
Total Portfolio Management Systems |
|
| 4,531,662 |
|
|
| 4,243,345 |
|
|
| 288,317 |
|
|
| 7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interactive Content and Data APIs |
|
| 4,031,091 |
|
|
| 3,195,891 |
|
|
| 835,200 |
|
|
| 26 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription revenue |
| $ | 8,562,753 |
|
| $ | 7,439,236 |
|
| $ | 1,123,517 |
|
|
| 15 | % |
Total subscription revenue increased 12% and 15% when comparing the three and six-months ended June 30, 2022 and 2021.
Total Portfolio Management Systems revenue increased 2% and 7% for the three and six-months ended June 30, 2022 from the comparative periods in 2021.
Corporate Quotestream revenue increased 5% and 11% for the three and six-months ended June 30, 2022 from the comparative periods in 2021 due to new contracts signed since the comparative periods. In particular, the increases were due to the new contract we recently signed with the two large multinational financial institutions discussed above in the “Business Environment and Trends” section. The increase was also due to an increase in the number of subscribers for existing clients. 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. 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 decreased 9% and 5% for the three and six-months ended June 30, 2022 from the comparative periods in 2021 due to a decrease in total subscribers.
Interactive Content and Data APIs revenue increased 27% and 26% when comparing the three and six-months ended June 30, 2022, attributable to an increase in the number of clients and an increase in the average revenue per client. The launch of new products and the expansion of our data coverage have allowed us to attract new, larger clients to replace some of our smaller clients lost due to the economic hardship related to COVID-19. In particular, the increase was due to the new contracts we recently signed with the two large multinational financial institution discussed above in the “Business Environment and Trends” section.
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Cost of Revenue and Gross Profit Summary
Three-months ended June 30, |
| 2022 |
|
| 2021 |
|
| Change ($) |
|
| Change (%) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue |
| $ | 2,262,507 |
|
| $ | 2,186,357 |
|
| $ | 76,150 |
|
|
| 3 | % |
Gross profit |
| $ | 2,036,450 |
|
| $ | 1,646,661 |
|
| $ | 389,789 |
|
|
| 24 | % |
Gross margin % |
|
| 47 | % |
|
| 43 | % |
|
|
|
|
|
|
|
|
Six-months ended June 30, |
| 2022 |
|
| 2021 |
|
| Change ($) |
|
| Change (%) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue |
| $ | 4,502,623 |
|
| $ | 4,249,997 |
|
| $ | 252,626 |
|
|
| 6 | % |
Gross profit |
| $ | 4,060,130 |
|
| $ | 3,189,239 |
|
| $ | 870,891 |
|
|
| 27 | % |
Gross margin % |
|
| 47 | % |
|
| 43 | % |
|
|
|
|
|
|
|
|
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.
As a result of a major growth initiative, which included investing in infrastructure, new product development, data collection, and the expansion of our global market coverage, our cost of revenue increased 3% and 6% for the three and six-months ended June 30, 2022 from the comparative periods in 2021. This was mainly due to 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 and six-months ended June 30, 2022 from 43% in the comparative 2021 periods. As discussed above in the “Business Environment and Trends” section, we signed new contracts with two large multinational financial institution. These contracts have higher gross margins than our other customer contracts typically have on average, resulting in a significant increase to our gross margin percentage.
Operating Expenses Summary
Three-months ended June 30, |
| 2022 |
|
| 2021 |
|
| Change ($) |
|
| Change (%) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| $ | 744,164 |
|
| $ | 620,122 |
|
| $ | 124,042 |
| 20 | % | ||
General and administrative |
|
| 783,980 |
|
|
| 685,731 |
|
|
| 98,249 |
|
|
| 14 | % |
Software development |
|
| 534,873 |
|
|
| 439,045 |
|
|
| 95,828 |
|
|
| 22 | % |
Total operating expenses |
| $ | 2,063,017 |
|
| $ | 1,744,898 |
|
| $ | 318,119 |
|
|
| 18 | % |
Six-months ended June 30, |
| 2022 |
|
| 2021 |
|
| Change ($) |
|
| Change (%) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Sales and marketing |
| $ | 1,492,432 |
|
| $ | 1,258,986 |
|
| $ | 233,446 |
| 19 | % | ||
General and administrative |
|
| 1,455,871 |
|
|
| 1,292,971 |
|
|
| 162,900 |
|
|
| 13 | % |
Software development |
|
| 1,004,929 |
|
|
| 846,333 |
|
|
| 158,596 |
|
|
| 19 | % |
Total operating expenses |
| $ | 3,953,232 |
|
| $ | 3,398,290 |
|
| $ | 554,942 |
|
|
| 16 | % |
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 20% and 19% for the three and six-months ended June 30, 2022 when compared to the same periods in 2021. The increases are a result of additional sales personnel hired since the comparative periods to support our product growth initiatives.
General and Administrative
General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses increased 14% and 13% for the three and six-months ended June 30, 2022 when compared to the same periods in 2021. The increases are a result of additional personnel and other costs incurred to support our growth initiatives, and in particular the costs associated with obtaining SOC2 Type II certification. SOC2 certification provides independent assurance that an organization maintains a high level of information security, data integrity and business resiliency. We expect to achieve SOC2 Type II certification in late 2022.
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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 22% and 19% for the three and six-months ended June 30, 2022 when compared to the same periods in 2021, primarily due to new personnel hired since the comparative periods to improve our infrastructure, security, and business continuity management.
We capitalized $681,564 and $1,287,716 of development costs for the three and six-month periods ended June 30, 2022 compared to $489,306 and $1,048,943 in the same periods in 2021. 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, |
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Foreign exchange gain (loss) |
| $ | (135,226 | ) |
| $ | 19,880 |
|
Interest expense |
|
| (507 | ) |
|
| (451 | ) |
Total other income (expenses), net |
| $ | (135,733 | ) |
| $ | 19,429 |
|
Six-months ended June 30, |
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Foreign exchange gain |
| $ | (117,636 | ) |
| $ | 22,328 |
|
Interest expense |
|
| (1,731 | ) |
|
| (1,459 | ) |
Other income |
|
| - |
|
|
| 133,257 |
|
Total other income, net |
| $ | (119,367 | ) |
| $ | 154,126 |
|
Foreign Exchange Gain
We incurred foreign exchange losses of $135,226 and $117,636 for the three and six-month periods ended June 30, 2022 compared to foreign exchange gains of $19,880 and $22,328 in the comparative 2021 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 $507 and $1,731was incurred for the three and six-month periods ended June 30, 2022, compared to $451 and $1,459 incurred in the same 2021 periods.
Other Income
There was no other income for the three and six-months ended June 30, 2022. 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 in the six-months ended June, 2021 comparative period. See Financial Statement Note 9 “Paycheck Protection Program”.
Provision for Income Taxes
For the three and six-month periods ended June 30, 2022, the Company recorded Canadian income tax expense of $780 and $1,570 compared to $817 and $1,613 in the comparative periods in 2021.
Net Loss for the Period
As a result of the foregoing, our net loss for the three and six-month periods ended June 30, 2022 was $163,080 and $14,039, respectively. We incurred net losses of $79,625 and $56,538 for the three and six-month periods ended June 30, 2021. Basic and diluted loss share were $(0.00) for the three and six-months periods ended June 30, 2022, respectively. Basic and diluted losses per share were $(0.00) for the three and six-month periods ended June 30, 2021, respectively.
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Liquidity and Capital Resources
Our cash totaled $890,292 at June 30, 2022, as compared with $258,705 at December 31, 2021, an increase of $631,587. Net cash of $2,017,350 was provided by operations for the six-months ended June 30, 2022, primarily due to adjustment for non-cash charges and the increases in deferred revenue and accounts payable, offset by an increase in accounts receivable. Net cash used in investing activities for the six-months ended June 30, 2022 was $1,384,379, primarily due to capitalized application software costs and the purchases of fixed assets. Cash used in financing activities for the six-months ended June 30, 2022 was $1,384 related to the repayment of finance leases.
We typically operate with a working capital deficit. As of June 30, 2022, our working capital deficit is $2,324,203, however current liabilities include $1,482,540 in deferred revenue and a $233,000 nonrefundable customer deposit. 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 August 2023. 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 June 30, 2022, 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”.
Foreign Exchange Risk
Approximately 32% of our consolidated revenue and 36% 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 June 30, 2022 and December 31, 2021, we did not have any unconsolidated entities or financial partnerships, or other off-balance sheet arrangements.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chairman of the Board and Chairman of the Audit Committee, Chief Executive Officer and Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2022, and concluded that our disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our management identified the following material weaknesses in our internal control over financial reporting, as described below.
Notwithstanding the material weaknesses described below our management has concluded that our consolidated financial statements for the periods covered by and included in this Quarterly Report are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and fairly present, in all material respects, our financial position, results of operations and cash flows for each of the periods presented herein.
The following material weaknesses were identified during the preparation and review of the current period financial statements:
| · | Management review controls were not designed and implemented to operate at an appropriate level of precision and lack sufficient personnel resources to detect and identify potential material errors relating to - |
| ○ | The valuation and accounting for complex financial instruments, including the Company’s warrant agreements. |
| ○ | Account reconciliations and financial reporting relating to the accounting for revenue and leases. |
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2022 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, with the exception of the below.
Plan for Remediation
We plan to hire or contract additional finance and accounting personnel who possess public company accounting and reporting technical expertise.
We will consider further actions and continue to evaluate the effectiveness of our disclosure controls and internal controls and procedures on an ongoing basis, taking corrective action as appropriate. Management does not expect that disclosure controls and procedures or internal controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable and not absolute assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. While management believes that its disclosure controls and procedures provide reasonable assurance that fraud can be detected and prevented, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit Number |
| Description of Exhibit |
| ||
| ||
| ||
|
| 23 |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
QUOTEMEDIA, INC.
By: | /s/ Keith J. Randall |
|
| Keith J. Randall |
|
| Chief Executive Officer and Chief Financial Officer |
|
| (Duly authorized officer and principal financial officer) |
|
Dated: August 22, 2022
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