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[August 11, 2014]
QUOTEMEDIA INC - 10-Q - Management's Discussion and Analysis
(Edgar Glimpses Via Acquire Media NewsEdge) 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, 2013 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, 2013 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: Data Feed Services, Interactive Content and Data Applications, and Portfolio Management Systems.
Our Data Feed Services consist of raw streaming real-time market data delivered over the Internet or via dedicated telecommunication lines, and supplemental fundamental, historical, and analytical data, keyed to the same symbology, which provides a complete market data solution to be offered to our customers.
Currently, QuoteMedia's Data Feed services include complete coverage of North American exchanges and over 70 exchanges worldwide.
Our Interactive Content and Data Applications consist of a suite of software applications that provide publicly traded company and market information to corporate clients via the Internet. Products include stock market quotes, fundamentals, historical and interactive charts, company news, filings, option chains, insider transactions, corporate financials, corporate profiles, screeners, market research information, investor relations provisions, level II, watch lists, and real-time quotes. All of our content solutions are completely customizable and embed directly into client Web pages for seamless integration with existing content.
11-------------------------------------------------------------------------------- Our Portfolio Management Systems consist of Quotestream, 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 designed specifically for use by financial services professionals and their support personnel, 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.
A key feature of QuoteMedia's business model is that all of our product lines generate recurring monthly licensing revenue from each client. Contracts to license Quotestream to our corporate clients, for example, typically have a term of one to three years and are automatically renewed unless notice is given at least 90 days prior to the expiration of the current license term. We also generate Quotestream revenue through individual end-user licenses on a monthly or annual subscription fee basis. Interactive Content and Data Applications and Market Data Feeds are licensed for a monthly, quarterly, annual, or biannual subscription fee. Contracts to license our Financial Data Products and Data Feeds typically have a term of one to three years and are automatically renewed unless notice is given 90 days prior to the expiration of the contract term.
Business environment and trends The global financial markets have experienced extreme volatility and disruption in recent years. As a result, financial institutions globally have acted to control or reduce operational spending. While in some areas the anticipated impact of current market conditions may lead to a decision to reduce demand for market data and related services, we expect overall spending on financial information services will grow modestly over the next several years.
On average, the U.S. dollar exchange rate has appreciated versus the Canadian dollar since the comparative periods in 2013. This has resulted in lowering both our reported Canadian dollar revenues and expenses in 2014 compared to 2013 once translated into U.S. dollars. Approximately 29% of our revenues and 36% of our expenses are in Canadian dollars, so while the appreciation of the U.S. dollar will lower revenue figures compared to 2013, it will positively impact our bottom line in 2014.
12 --------------------------------------------------------------------------------Plan of operation For the remainder of 2014 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.
Our deployment of native applications for the iPhone, Android and Blackberry mobile devices is an important new development that we are planning to exploit this year. We also plan to continue the growth of our Data Feed Services client base and to increase the sales of its Interactive Content and Data Applications, particularly in the context of large-scale enterprise deployments encompassing solutions ranging across several product lines. Broad expansion of data and news coverage is also an ongoing priority.
Important new development projects for remainder of 2014 include completion of trade integration capabilities, allowing our Quotestream to interact with our brokerage clients' back-end trade execution and reporting platforms to enable on-the-fly trade execution and tracking of holdings. Additionally, we will be adding transactional and enhanced reporting functionality to our portfolio management systems and launching new Web content solutions and data feed products using new dynamically updating data delivery mechanisms, proprietary content libraries and advanced HTML5 solutions.
One of our larger clients, Penson Worldwide Inc., filed for Chapter 11 protection in January 2013. The loss of revenue from the Penson Worldwide Inc.
contract and its affiliate companies negatively impacted our revenue growth in 2013 and continued to impact our growth for the first two quarters of 2014.
Revenue in 2014 was also negatively impacted by the strength of the U.S. dollar versus the Canadian dollar as discussed above; however, based on new product deployments that have been recently completed or are near completion, we anticipate that we will return to positive revenue growth in the fourth quarter of 2014.
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 achieve profitable operations.
13 -------------------------------------------------------------------------------- Results of Operations Revenue 2014 2013 Change ($) Change (%) Three months ended June 30, Corporate Quotestream $ 666,499 $ 726,882 $ (60,383 ) (8 )% Individual Quotestream 452,124 442,917 9,207 2 % Total Portfolio Management Systems 1,118,623 1,169,799 (51,176 ) (4 )% Interactive Content and Data Applications 1,160,333 1,210,915 (50,582 ) (4 )% Total Licensing Revenue $ 2,278,956 $ 2,380,714 $ (101,758 ) (4 %) Six months ended June 30, Corporate Quotestream $ 1,311,243 $ 1,482,322 $ (171,079 ) (12 )% Individual Quotestream 875,819 816,795 59,024 7 % Total Portfolio Management Systems 2,187,062 2,299,117 (112,055 ) (5 )% Interactive Content and Data Applications 2,315,961 2,465,582 (149,621 ) (6 )% Total Licensing Revenue $ 4,503,023 $ 4,764,699 $ (261,676 ) (5 )% Licensing revenue has decreased 4% and 5% when comparing the three and six months ended June 30, 2014 and 2013. The decrease is a result of decreased sales from licensing both our Interactive Content and Data Applications and Portfolio Management Systems.
Our revenue was negatively impacted by the change in average exchange rates from the comparatives periods in 2013. The U.S. dollar has appreciated an average of 6.6% and 8.0% versus the Canadian dollar for the three and six months ending June 30, 2014 compared to the same periods in 2013. This resulted in lowering our reported Canadian dollar revenues by approximately $44,000 and $102,000 for the three and six month periods ending June 30, 2014 once translated into U.S.
Interactive Content and Data Application revenue decreased $50,582 (4%) when comparing the three month periods ended June 30, 2014 and 2013. Interactive Content and Data Application revenue decreased $149,621 (6%) when comparing the six month periods ended June 30, 2014 and 2013. The decreases are due to a decrease in the number of Interactive Content and Data Application client contracts.
Our Portfolio Management System revenue decreased by a total of $51,176 (4%) when comparing the three month periods ended June 30, 2014 and 2013. Portfolio Management System revenue decreased by a total of $112,055 (5%) when comparing the six month periods ended June 30, 2014 and 2013.
14 -------------------------------------------------------------------------------- Corporate Quotestream revenue decreased $60,383 (8%) for the three month period ended June 30, 2014 from the comparative period in 2013. Corporate Quotestream revenue decreased $171,079 (12%) when comparing the six month periods ended June 30, 2014 and 2013. One of our larger clients, Penson Worldwide Inc., filed for Chapter 11 protection in January 2013. We lost the revenue from the Penson Worldwide Inc. contract in the first quarter of 2013, and lost the revenue from its affiliate companies in July 2013 which negatively impacted our results for the first two quarters of 2014 versus the comparative periods in 2013.
Individual Quotestream revenue increased $9,207 (2%) and $59,024 (7%) from the three and six month comparative periods in 2013, resulting mainly from an increase in the number of subscribers from the comparative periods.
Cost of Revenue and Gross Profit Summary 2014 2013 Change ($) Change (%) Three months ended June 30, Cost of revenue $ 1,239,493 $ 1,334,458 $ (94,965 ) (7 )% Gross profit $ 1,039,463 $ 1,046,256 $ (6,793 ) (1 )% Gross margin % 46 % 44 % Six months ended June 30, Cost of revenue $ 2,512,776 $ 2,605,684 $ (92,908 ) (4 )% Gross profit $ 1,990,247 $ 2,159,015 $ (168,768 ) (8 )% Gross margin % 44 % 45 % 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 application software costs. We capitalize the costs associated with developing new products once technological feasibility has been established.
Cost of revenue decreased 7% and 4% when comparing the three and six month periods ended June 30, 2014 and 2013. The decreases are primarily due to decreases in variable stock exchange fees resulting from losing some larger Quotestream clients as discussed above. The decreases are also due to negotiating more favorable terms for our data feeds and lines.
Overall, the cost of revenue remained relatively unchanged as a percentage of sales, as evidenced by our gross margin percentages of 44% and 46% for the three and six month periods ended June 30, 2014 compared to 44% and 45% in the respective periods in 2013.
15 --------------------------------------------------------------------------------Operating Expenses Summary 2014 2013 Change ($) Change (%) Three months ended June 30, Sales and marketing $ 406,782 $ 418,124 $ (11,342 ) (3 )% General and administrative 518,762 516,818 1,944 0 % Software development 298,760 283,079 15,681 6 % Total operating expenses $ 1,224,304 $ 1,218,021 $ 6,283 (1 )% Six months ended June 30, Sales and marketing $ 820,860 $ 826,290 $ (5,430 ) (1 )% General and administrative 1,058,362 1,052,269 6,093 1 % Software development 543,172 599,313 (56,141 ) (9 )% Total operating expenses $ 2,422,394 $ 2,477,872 $ (55,478 ) (2 )% Sales and Marketing Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel and advertising expenses. Sales and marketing expenses remained relatively unchanged from the comparative periods in 2013, decreasing $11,342 (3%) and $5,430 (1%) for the three and six month periods ended June 30, 2014.
General and Administrative General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses remained relatively unchanged, increasing $1,944 (0%) and $6,093 (1%) for the three and six month periods ended June 30, 2014 when compared to the same periods in 2013.
Software Development Software development expenses consist primarily of costs associated with the design, programming, and testing of our software applications prior to the establishment of technological feasibility. Software development expenses also include costs incurred to maintain our software applications.
Software development expenses increased $15,681 (6%) for the three month period ended June 30, 2014 and decreased $56,141 (9%) for the six month period ended June 30, 2014 when compared to the same periods in 2013. The decrease for the six month period ending June 30, 2014 is due mainly to the appreciation of the U.S. dollar, as the U.S. dollar appreciated an average of 8% versus the Canadian dollar and our development expenses are incurred mainly in Canadian dollars.
We capitalized $209,949 and $403,246 of development costs for the three and six months ended June 30, 2014, compared to $197,713 and $386,505 for the same periods in 2013. 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.
16 --------------------------------------------------------------------------------Other Income and (Expense) Summary 2014 2013 Three months ended June 30, Foreign exchange gain (loss) $ (48,806 ) $ 27,974 Interest expense (191,617 ) (169,826 )Total other income and (expenses) $ (240,423 ) $ (141,852 ) Six months ended June 30, Foreign exchange gain (loss) $ (22,585 ) $ 49,735 Interest expense (376,845 ) (335,312 )Total other income and (expenses) $ (399,430 ) $ (285,577 ) Foreign Exchange Gain (Loss) Exchange gains and losses primarily arise from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars. The change in fair value for outstanding foreign exchange forward contracts is also included in foreign exchanges gains and losses as well as gains and losses recognized from foreign exchange forward contracts exercised during the period.
We recognized foreign exchange losses of $48,806 and $22,585 for the three and six month periods ended June 30, 2014, compared to foreign exchange gain of $27,974 and $49,735 for the same periods in 2013. The foreign exchange losses for the three and six month periods ended June 30, 2014 are due to the loss arising from the re-measurement of Canadian dollar monetary assets and liabilities into U.S. dollars, as we have a net Canadian dollar liability and the U.S. dollar depreciated slightly versus the Canadian dollar when comparing the foreign exchange rate at December 31, 2013 versus the rate at June 30, 2014.
The foreign exchange losses were also due to losses on foreign exchange forward contracts exercised during 2014.
Interest Expense Interest is accrued on certain amounts owed to related parties. Interest expense increased for the three and six month periods ended June 30, 2014 due to additional borrowings compared to the same periods in 2013. Interest is accrued at 10% per annum. Interest income earned on cash balances is netted against interest expenses.
Provision for Income Taxes For the three and six month periods ended June 30, 2014, the Company recorded Canadian income tax expense of $917 and $1,824, compared to $977 and $1,969 in the comparative periods in 2013.
17 --------------------------------------------------------------------------------Net Loss for the Period As a result of the foregoing, net loss for the three months ended June 30, 2014 was $(426,181) or $(0.00) per share compared to a net loss of $(314,594) or $(0.00) per share for the three months ended June 30, 2013. The net loss for the six months ended June 30, 2014 was $(833,401) or $(0.01) per share compared to a net loss of $(606,403) or $(0.01) per share for the six months ended June 30, 2013.
Liquidity and Capital Resources Our cash totaled $450,685 at June 30, 2014, as compared with $425,899 at December 31, 2013, an increase of $24,786. Net cash of $500,089 was provided by operations for the six months ended June 30, 2014, primarily due to the increase in amounts due to related parties and deferred revenue, offset by the net loss for the period adjusted for non-cash charges. Net cash used in investing activities for the six months ended June 30, 2014 was $475,303 resulting from capitalized application software costs and the purchase of new computer equipment. There were no financing activities for the six month period ended June 30, 2014.
For the six months ended June 30, 2014 we had a net loss of $833,401, and at June 30, 2014 we have a net working capital deficit of $827,164 which represented current assets minus current liabilities.
We have a plan in place for the next 12 months to ensure that our ongoing expenditures are balanced with our expected revenue growth rate. We anticipate that based on product deployments that have recently been completed and are near completion, we will see moderate revenue growth for the next 12 months. Our current liabilities include deferred revenue of $617,887. The costs expected to be incurred to realize the deferred revenue in the next 12 months are minimal.
Our long-term liabilities include $7,924,283 due to related parties. All repayments of amounts due to related parties must be approved by our Board of Directors. Repayments are subject to our company having sufficient cash on hand and are intended not to impair continuing business operations.
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. 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.
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.
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