Table of Contents
PART I
| ITEM 1. | DESCRIPTION OF BUSINESS |
General
QuoteMedia, Inc. (OTCBB: QMCI) is a leading provider of financial stock market data, market news feeds, market research information, and financial software solutions to online brokerages, clearing firms, banks, financial service companies, media portals, and public corporations. We are a single source for a wide array of market information and services, including streaming stock market data feeds, research and analysis information, content applications, portfolio management systems, software products, corporate Investor Relations provisioning, news services, wireless applications, and custom development.
We have created a scalable system that aggregates, manages, and streams information from the stock exchanges, and from other information and content feeds, across both the Web and dedicated telecommunication lines. Because QuoteMedia™ is a comprehensive single source market data provider, our clients are not required to deal with multiple data vendors, many of which continue to employ outdated infrastructures and delivery technologies. This allows our clients to license comprehensive financial information applications and raw data feeds more efficiently and cost-effectively.
QuoteMedia™ offers clients the advantages of a single source for a broad range of data, information and services, including:
| • | Streaming Real-time Data Feeds |
| • | Mobile/PDA Wireless Solutions |
| • | News Feed Aggregation and Delivery |
| • | Streaming, Dynamic Content |
| • | Complete Portfolio Management |
| • | Corporate Investor Relations Solutions |
| • | Internet Data and Product Provisioning |
| • | Custom Software Application Development |
| • | Research Information Supply |
Our array of data-delivery solutions are fast, lightweight, reliable, and easy to implement across all platforms. Our products are technologically advanced, providing a framework for quick implementation, seamless client integration and complete customization.
We are a United States reporting public company which was incorporated in the State of Nevada. Our shares are listed on the NASDAQ:OTCBB under the trading symbol QMCI. Our corporate head office is located at 17100 East Shea Boulevard, Suite 230, Fountain Hills, Arizona 85268, and our telephone number is (480) 905-7311. All references to our business operations in this report include the operations of QuoteMedia, Inc. and our operating divisions and subsidiaries.
Our website is located at www.quotemedia.com. Through our website we make available free of charge the following company information: our annual reports on Form 10-KSB; our quarterly reports on Form 10-QSB; our current reports on Form 8-K; our proxy statements; and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports are available as soon as reasonably practical after we electronically file these reports with the SEC. We also post on our website the charter of our Audit Committee; our Corporate Governance Guidelines; our Code of Business Conduct/Ethics and Code of Ethics for the CEO and Senior Financial Officers, and any amendments or waivers thereto; and any other corporate governance materials contemplated by SEC or applicable regulations. These documents are also available in print to any stockholder requesting a copy from our corporate secretary at our principal executive offices.
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Products and Services
QuoteMedia has developed a full range of financial data and market information solutions which are licensed to our clients on a monthly, quarterly, or annual basis. Our products and services are divided into three main categories: Data Feed Services; Interactive Content and Data Applications; and Portfolio Management and Real-Time Quote Systems.
Data Feed Services
QuoteMedia offers comprehensive, ultra low latency, tick-by-tick enterprise level streaming market data feeds with complete coverage of all North American Exchanges as well as the London Stock Exchange. Data Feeds coverage includes equities, options, futures, commodities, currencies, mutual funds, and indices. Supplemental fundamental, historical, and analytical data is also available, keyed to the same symbology for a complete market data solution. The data is normalized for ease of use, and is available in a wide range of formats and delivery methods, from streaming tick-by-tick; real-time feeds delivered via dedicated telecommunications lines to XML feeds, delivering aggregated data to clients over the Internet. Data is available in real-time, delayed, as well as end of day format.
Interactive Content and Data Applications
QuoteMedia’s proprietary financial software applications comprise a unique suite of custom web technologies, encompassing customizable Java Applets, JavaScript Inserts, XML data sets and Java Servlets. These technologies combine the power and depth of established financial databases with the flexibility and efficiency of the Web to deliver customized high quality content to clients around the world. QuoteMedia financial data delivery application products and components make up a extensive product line that spans the spectrum of Quote Modules, Charts, Market Movers, News, Watch Lists, Tickers, Market Summaries, Option Chains, SEC Filings, Investor Relations Solutions, Component Fundamentals and much more. Our lightweight and fast-loading applications provide an extensive array of information in a variety of delivery vehicles. Services are purchased on a subscription basis for products ranging from fully integrated backend-compliant systems to highly portable and user friendly solutions that can be deployed in minutes to deliver robust and timely data. Our Interactive Content and Data Applications include the following:
Quote Modules – allow users to enter information and look up various data points on equities, funds, rates, currencies and the markets. Our Quote Modules provide complete market data and supplemental data coverage. This comprehensive coverage consists of fundamental data (EPS, P/E ratio, dividends, yield, shares outstanding, market cap, etc.), analytical statistics (52 wk high/low, moving averages, average volumes, moving performance numbers), historical EOD data (fully adjusted and keyed historical data), market updates, North American indices, market movers, actives, gainers, losers, Company Information (business description, address, phone, fax, auditors, officers, etc.), classification codes (sector, industry, NAICS, SIC, CIK, etc.), share statistics (shares outstanding, float, holdings, profitability, management effectiveness, short interest, short interest ratio), as well as broader market information such as bank rates and currency values. The data returned is compact, customizable, and incorporates comprehensive information, including charts, news, historical stock prices, market depth, SEC filings, insiders, financials, and other information.
Real-Time Snap Quotes – Cost-effective, customizable, instant Real-Time Quotes and Market data, Real-Time Charts, Real-Time Level II, and Real-Time Options. The Real-Time Snap Quote Service features client-controlled entitlements, comprehensive online tracking, detailed reporting capabilities, and North American Exchange Fee Capping. These features are unique to our company and result in greater efficiency and cost savings for our clients.
Market Indices – At-a-glance display of market conditions, fed directly from the major North American and International exchanges and index providers.
Charts – Markets and equity charting are available in a variety of formats. Static thumbnails or dynamic interactive charting is available to allow full market charting or individual stock performance displays, including comparisons to other equities or indices, as well as the ability to plot a wide range of technical studies.
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Stock Tickers – Fully customizable vertical or horizontally scrolling tickers supply instant market information.
Stock Screeners – Allow users to filter stocks based on a wide variety of selection criteria, including sector/industry, share price, market cap, exchange, EPS, P/E ratio, etc.
News – Topic-based, sector-based and equity-based lookup of news stories and commentary relating to the markets, individual companies, or specific areas of interest.
Watch Lists – Display current values and trends for a group of user-defined equities and indices.
Market Statistics – Top gainers and losers on the day for a variety of exchanges and detailed statistical analysis of most actively traded stocks.
Investor Relations – Information on current value, historical data, charting and news, and other data related to individual public companies for investor relations information provisioning. These products provide a turnkey and self-updating Investor Relations solution for corporate websites and their investors.
Portfolio Management Systems
QuoteMedia offers four leading edge portfolio managements systems: Quotestream™ II Desktop; Quotestream™ Wireless; Quotestream™ Professional; and a Web Portfolio Management product. Each of these systems can be implemented independently, or they can be employed in conjunction with each other to provide a complete portfolio management solution for both non-professionals and professionals.
Quotestream™ II Desktop
QuoteMedia’s proprietary software, Quotestream II, is our new, unique web-delivered, embedded application providing real-time tick-by-tick streaming market quotes and research information. Coverage includes North American and LSE real-time data, NASDAQ, TSX, TSXV and LSE Level 2 data (market depth), market indices, dynamic and interactive charts, options, news and research information, as well as end of day quote data for over 35 international exchanges, in an easy-to-use and highly configurable interface.
No downloads or installations are required with this quick, lightweight and robust application. It is a sophisticated streaming portfolio management solution that can readily be embedded in any web environment, allowing users to track investments and access research data with ease.
Quotestream II has been designed specifically for syndication and private branding by brokerage, banking, and other corporate clients. It can be fully integrated into existing user registration databases, portfolio systems and on-line trading systems, thus enabling any brokerage, clearing firm, bank or other corporation to seamlessly complement their existing product offerings and differentiate themselves from their competition.
QuoteMedia corporate clients purchase volume licenses for their customers, gaining significant increases in customer attraction, retention and activity, and increased revenues as a result.
Quotestream offers the user ten portfolios, as well as market summaries, NASDAQ Level 2 data, a last-ten-trade trend meter, volume leaders, top gainers and losers, company news, insider activity, SEC Filings, research, analysts and opinions, earnings forecasts, news, stock ticker, intraday through twenty year historical charting, interactive charting, desktop pop-up alerts, and email alerts. Users may fully customize their workspaces to suit their needs. The design also offers a very simple point-and-click, and drag-and-drop navigation with little or no typing involved. Quotestream II displays in full screen mode, providing a comprehensive professional trade-style interface.
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Quotestream™ Wireless
QuoteMedia’s Quotestream Wireless is a revolutionary wireless companion to the desktop product that allows users to access financial data, news, and charting in real time or delayed modes, from many different handheld devices. Users are able to access and manage their Quotestream portfolios over-the-air through a cellular telephone or PDA. Quotestream Wireless offers an extensive array of features and advanced functionality, and supports RIM BlackBerry™, PalmOne™, Sony Ericsson™, Motorola™, Nokia™ and countless other handheld devices and cellular telephones.
Quotestream Wireless can be integrated with any brokerage/clearing firm’s existing on-line trading platform without the installation of expensive Business Enterprise Servers. QuoteMedia’s Quotestream Wireless is a revolutionary wireless companion to the desktop product that allows users to access financial data, news, and charting in real time or delayed modes, from many different handheld devices.
Quotestream supports the largest selection of web based phone/pda’s of any supplier in the market. Quotestream Wireless and Quotestream Desktop are true companion products as any changes made to portfolios in either application are automatically reflected in the other.
Quotestream™ Professional
Quotestream Professional is designed specifically 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 Professional was created with the latest technology, making QuoteMedia’s professional application one of the most sophisticated, user friendly and dependable market data and technical analysis solution available to market professionals today. It provides true thin client access as there is no software to download, no upgrades to install, and no technical staff required. QuoteMedia Professional is accessed via the internet, avoiding expensive server and circuit infrastructure requirements.
Quotestream Professional also features Wireless access to the same portfolios and market data entitlements through your mobile device. The Desktop and Wireless applications work in a co-companion relationship, where any changes made on one device immediately transfer to the other.
Web Portfolio Manager
The Web Portfolio Manager is a user friendly yet powerful solution allowing users to track their holdings, conduct in-depth research and analyze performance for all stocks, mutual funds and indices listed on any of the major global exchanges.
The Web Portfolio Manager provides immediate web access to detailed Quote Data, Market and Company News, Charting, Depth / Level II, Filings, Historical Data, Snap Quotes and more, the Web Portfolio Manager is an efficient and economical solution for both the new and experienced investor.
The Web Portfolio Manager offers corporate clients such as banks, wealth management companies, brokerages, clearing firms and web portals an ideal opportunity to cost-effectively provide premium online portfolio management services for their investor customers.
The Web Portfolio Manager can be integrated with the Quotestream products, so that changes in any one platform are reflected across the other systems, and real-time data entitlements are consistent across the board.
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New Products and Services
We introduced Quotestream II and Quotestream Professional to the market in limited release in 2007. Quotestream II is our next generation portfolio management system for non-professional users, with enhanced features and functionality compared to our original Quotestream product – most notably tick-by-tick true streaming data, significantly enhanced charting features, and a broad range of additional research and analytical content and custom functionality. Quotestream II is geared towards providing a professional level experience to non-professional users. New and upgraded versions of our interactive web-based content applications in such areas as streaming news, charting, screening, mutual funds, FOREX, and advanced research information are also in development for 2008.
Products Competitive Advantage
Our products attract a broad market base, targeting corporate clients worldwide and providing comprehensive financial data services in a wide selection of custom packages. Markets for our services include:
| • | Online Brokerages |
| • | Full Service Brokerage Firms |
| • | Banks and other Financial Institutions |
| • | Financial Web Sites |
| • | Web Portals |
| • | Public Companies |
| • | Investor Relations Firms |
| • | Corporate Financial Intranets and Extranets |
| • | Mutual Fund Companies |
| • | Internet Service Providers |
| • | Media Companies |
| • | Publishers |
| • | Wealth Management Companies |
| • | Individual Traders and Investors |
Our financial data services provide a sensible solution to the high up-front cost of in-house developed software. We leverage our technical talent and innovative infrastructure across multiple client platforms, thus creating an economical, efficient and scalable system that can manage and deliver information application capabilities to an unlimited number of entities from data centers and content feeds across the worldwide web and over dedicated lines. Our data feeds have among the lowest latency of any available in the market and are developed and delivered using technology that is more current than that used by many major competitors in this market. Our marketing strategy is based on the following key competitive advantages:
Superior Products – Our goal has always been to create the best products on the market. We develop all of our products in-house and take pride in creating quality applications. Our products stand out for their superior design, user-friendliness, and ease of implementation, customizability, reliability, data speed, accuracy and comprehensiveness.
Custom Development – QuoteMedia’s ability to provide complete custom design and development services differentiates us from our competitors. We are able to create custom market data applications and software architected precisely to our clients’ specifications, and the speed that we are able to take a product from concept to deliverable, truly sets us apart.
Data Speed and Quality – Our connections to the world’s exchanges for equities and derivatives have most sources of latency removed. This allows us to deliver extremely fast, accurate, and reliable data.
Single Source Provider – Clients are eager to acquire premium market data feeds, financial applications, streaming solutions, and news and research information from a single source provider. Rather than having to license applications, information and market data from multiple sources, our clients enjoy the benefits of dealing with a single comprehensive market data supplier.
Cutting Edge Data Delivery Technology - We use state-of-the-art hardware and software systems for maximum speed and efficiency. This provides us with a distinct advantage over our competitors, most of whom use outdated data delivery technologies based on legacy style data networks.
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Effective Marketing – We have implemented a marketing strategy that focuses on multiple markets for our products and services, from individual non-professional end users to corporate and institutional clients and their customer bases. In furtherance of our marketing strategy, we have entered into agreements with Forbes Magazine and Equities Magazine which have resulted in the recent launch of extensive marketing and advertising campaigns, as well as online advertising on select websites.
Low Infrastructure Costs – Because of the unique technological advancements in data delivery developed by our company, our distribution model and the strategic partnerships that are in place, we have maintained very low corporate overhead. All of our development is completed in-house, resulting in significant cost efficiencies. This allows us to focus our resources on data management, data acquisition, customer satisfaction, and business development activities. Our low cost base of development and operation also allows us to maintain very competitive pricing.
Competition
Many companies provide financial market data and related information. Companies such as Bloomberg, Reuters, Thompson, Comstock, IDC (eSignal), Telekurs, Stockgroup, Financial Content and Money.net are some of the data providers in this highly competitive market place.
While there are many financial data providers, what mainly differentiates us from others is that we offer clients a comprehensive solution for stock market related information provisioning with more advanced technologies than employed by our competitors. Our diversity of technical expertise, agile responsiveness to custom corporate requirements and development needs, and proven commitment to superior delivery technologies have established QuoteMedia as a frontrunner in the financial market data industry.
QuoteMedia’s array of products benefit clients with an exceptional number of strong technical differentiators in embedded, fully private-labeled and seamlessly integrated environments which combine to offer strong market differentiation.
Trademarks, Domain Names and Intellectual Property
We own the trademarks for “Quotemedia™” and “Quotestream™” and the domain names such as www.quotemedia.com; www.quotestream.com; www.quotestream.ca; www.quotemedia.co.uk. We will continue to own and protect these key assets into the future.
We protect our other intellectual property by a combination of copyrights, trademarks and confidentiality agreements with our employees, customers and other agents.
Regulatory Issues
We are not subject to any special governmental regulation concerning our supplying of products and services to the market place and we believe we are in compliance in all material respects with all existing regulations governing other aspects of our businesses.
Employees
We currently have 40 full time employees. Our employees are not members of any union, nor have we entered into any collective bargaining agreements. We believe that our relationship with our employees is good. With a successful implementation of our business plan, we may hire additional employees during fiscal 2008 to handle anticipated growth in the areas of administration, programming, sales, marketing, and customer care.
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Risk Factors
You should consider carefully the following factors, in addition to those discussed elsewhere in this report, in evaluating our company and our business.
If we are unable to maintain relationships with key suppliers and providers of market data, we would not be able to provide our services to our customers. We depend on key suppliers for the data we provide to our customers. Some of this data is exclusive to particular suppliers, such as national stock exchanges, and cannot be obtained from other suppliers. In other cases, although the data may be available from secondary sources, the secondary source may not be as adequate or reliable as the primary or preferred source, or we may not be able to obtain replacement data from an alternative supplier without undue cost and expense, if at all. We generally obtain data via license agreements. The disruption of any license agreement with a major data supplier, such as Nexa Technologies, Inc., could disrupt our operations and lead to an adverse impact on our results of operations.
A prolonged outage at one of our data centers that we share could result in reduced revenue and the loss of customers. Our customers rely on us for time-sensitive, up-to-date data that is reliably delivered. Our business is dependent on our ability to rapidly and efficiently process substantial quantities of data and transactions on our computer-based networks and systems. Our computer operations and those of our suppliers and customers are vulnerable to interruption by fire, natural disaster, power loss, telecommunications failure, terrorist attacks, acts of war, Internet failures, computer viruses and other events beyond our reasonable control. We maintain a back-up facility for our major data center that we share with Nexa Techologies, Inc. to seek to minimize the risk that any such event will disrupt operations. In addition, we maintain insurance for such events. However, the business interruption insurance we carry may not be sufficient to compensate us fully for losses or damages that may occur as a result of such events. Any such losses or damages incurred by us could have a material adverse effect on our business. Although we seek to minimize these risks through security measures, controls and a back-up data center, there can be no assurance that such efforts will be successful or effective.
A decline in activity levels in the securities markets could lower demand for our services. Our business is dependent upon the health of the financial markets as well as the financial health of the participants in those markets. Some of the financial data and information market demand is dependent upon activity levels in the securities markets while other demand is static and is not dependent on activity levels. In the event that the US or international financial markets suffer a prolonged downturn that results in a significant decline in investor activity, our revenue levels could be materially adversely affected.
Consolidation of financial services within and across industries could lower demand for our services. As consolidation occurs and synergies are achieved, the number of potential customers for our services decreases. This consolidation has two forms: consolidations within an industry, such as banking, and across industries, such as consolidations of insurance, banking and brokerage companies. When two companies that separately subscribe to or use our services combine, they may terminate or reduce duplicative subscriptions for our services or if they are billed on a usage basis, usage may decline due to synergies created by the business combination. A large number of cancellations, or lower utilization resulting from consolidations, could have a material adverse effect on our revenue.
We compete against companies with greater financial resources. We operate in highly competitive markets in which we compete with other distributors of financial and business information and related services. We expect competition to continue to be rigorous. Some of our competitors and potential competitors have significantly greater financial, technical and marketing resources than we have. These competitors may be able to expand product offerings and data content more effectively, and to respond more rapidly than us to new or emerging technologies, changes in the industry or changes in customer needs. They may also be in a position to devote greater resources to the development, promotion and sale of their products. Increased competition in the future could limit our ability to maintain or increase our market share or maintain our margins, and could have a material adverse effect on our business, financial condition or operating results.
New product offerings by competitors or new technologies could cause our services to become obsolete. We operate in an industry that is characterized by rapid and significant technological change, frequent new services, data content and coverage enhancements, and evolving industry standards. Without the timely introduction of new
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services and data content and coverage enhancements, our services could become technologically obsolete or inadequate over time, in which case our revenue and operating results would suffer. We expect our competitors to continue to improve the performance of their current services, to enhance data content and coverage and to introduce new services and technologies. These competitors may adapt more quickly to new technologies, changes in the industry and changes in customers’ requirements than we can. If we fail to adequately anticipate customers’ needs and technological trends accurately, we will be unable to introduce new services into the market and our ability to compete would be materially adversely impacted. Further, if we are unsuccessful at developing and introducing new services that are appealing to customers, with acceptable prices and terms, or if any such new services are not made available in a timely manner, our ability to compete would be materially adversely impacted. In both cases our ability to generate revenue could suffer and our business and operating results could be materially adversely affected. We will need to successfully enhance or add to current services in order to effectively expand into new geographic areas. In addition, new services, data content and coverage that we may develop and introduce may not achieve market acceptance; lack of market acceptance would result in lower revenue.
We may need additional capital with which to implement our business plan and there is no agreement with any third party to provide such capital. Implementing our business plan may require additional equity or debt financing. If we require additional funding or determine it appropriate to raise additional funding in the future, there is no assurance that adequate funding, whether through additional equity financing, debt financing, or other sources, will be available when needed or on terms acceptable to us. Further, any such funding may result in significant dilution to existing stockholders. The inability to obtain sufficient funds from operations and external sources when needed would have a material adverse affect on our business, results of operations, and financial condition.
We depend on key personnel and expect to hire additional personnel. Our performance substantially depends on the services of R. Keith Guelpa, our Chief Executive Officer and President, and David M. Shworan, President and Chief Executive Officer of QuoteMedia, Ltd., a wholly owned subsidiary of our company. The loss of Mr. Guelpa or Mr. Shworan, or our other key employees, could have a material adverse affect on our business. Our future success will also depend in large part upon our ability to attract and retain highly skilled management, technical engineers, sales and marketing personnel, and finance and technical personnel. Competition for such personnel is intense and there can be no assurance that we will be able to attract and retain such personnel. The loss of the services of any key personnel, the inability to attract or retain qualified personnel in the future, or any delays in hiring required personnel, particularly technical engineers and sales personnel, could have a material adverse affect on our business, results of operations, and financial condition.
We may spend significant amounts of money to protect against security breaches. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our Internet operations. We may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Consumer concern over Internet security has been, and could continue to be, a barrier to commercial activities requiring consumers to send their credit card information over the Internet. Computer viruses, break-ins, or other security problems could lead to misappropriation of proprietary information and interruptions, delays, or cessation in service to our customers. Moreover, until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet as a merchandising medium. Were these risks to occur, our business, results of operations, and financial condition could be materially adversely affected.
The success of our anticipated future growth depends upon our ability to manage successfully the growth of our proposed operations. We expect to experience significant growth in our number of employees and scope of operations. Our future success will depend upon our ability to manage successfully the expansion of our operations. Our ability to manage and support our growth effectively will depend on our ability to implement adequate improvements to financial and management controls, reporting, order entry systems, and other procedures and hire sufficient numbers of financial, accounting, administrative, and management personnel. Our expansion and the resulting growth in the number of our employees will result in increased responsibility for both existing and new management personnel. There can be no assurance that we will be able to identify, attract, and retain experienced accounting and financial personnel. Our future operating results will depend on the ability of our management and other key employees to implement and improve our systems for operations, financial control, and information management and to recruit, train, and manage our employee base. There can be no assurance that we will be able to achieve or manage any such growth successfully or to implement and maintain adequate financial and management
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controls and procedures. Any inability to do so would have a material adverse effect on our business, results of operations, and financial condition. Our future success depends upon our ability to address potential market opportunities while managing our expenses to match our ability to finance operations. This need to manage our expenses will place a significant strain on our management and operational resources. If we are unable to manage our expenses effectively, our business, results of operations, and financial condition will be adversely affected.
Penny stock rules may make buying or selling our common stock difficult. Our common stock in the past has been, and from time to time in the future may be, subject to the “penny stock” rules as promulgated under the Securities Exchange Act of 1934. In the event that no exclusion from the definition of a “penny stock” under the Exchange Act is available, then any broker engaging in a transaction in our common stock will be required to provide each customer with:
| • | a risk disclosure document; |
| • | disclosure of market quotations, if any; |
| • | disclosure of the compensation of the broker-dealer and its salesperson in the transaction; and |
| • | monthly account statements showing the market values of our securities held in the customer’s accounts. |
The bid and offer quotation and compensation information must be provided prior to effecting the transaction and must be contained on the customer’s confirmation. Certain brokers are less willing to engage in transactions involving “penny stocks” as a result of the additional disclosure requirements described above, which may make it more difficult for holders of our common stock to dispose of their shares.
Investors should not expect to receive a dividend in the future. We have never paid any cash dividends on our common stock and do not currently anticipate that we will pay dividends in the foreseeable future. Instead, we intend to apply earnings to the expansion and development of our business.
| ITEM 2. | DESCRIPTION OF PROPERTY. |
We lease executive office space in Fountain Hills, Arizona. The term of this lease expires in July 2010.
We lease office space for technical staff in Vancouver, British Columbia, Canada. The term of this lease expires in July 2008. We lease office space for sales and customer support staff in Parksville, British Columbia, Canada. The term of this lease expires April 2011.
We believe that our current leased space is sufficient to meet our needs for the next 12 months and that the property is currently in acceptable condition. Beyond that, we anticipate the need to expand our lease facilities in all locations as our company grows. We have no other properties and have no agreements to acquire any properties. We do own a right of first refusal to purchase the building we currently lease for our sales and customer support staff in Parksville, British Columbia, Canada. This right expires in April 2011.
| ITEM 3. | LEGAL PROCEEDINGS. |
None.
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
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PART II
| ITEM 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. |
Our common stock is quoted on the OTCBB under the symbol “QMCI.” The following table sets forth the high and low sales prices for our common stock for the calendar quarters indicated.
| High | Low | |||||
| Year ended December 31, 2006: |
||||||
| First Quarter |
$ | 0.50 | $ | 0.31 | ||
| Second Quarter |
0.40 | 0.28 | ||||
| Third Quarter |
0.40 | 0.25 | ||||
| Fourth Quarter |
0.38 | 0.25 | ||||
| Year ended December 31, 2007: |
||||||
| First Quarter |
$ | 0.40 | $ | 0.29 | ||
| Second Quarter |
0.32 | 0.23 | ||||
| Third Quarter |
0.25 | 0.18 | ||||
| Fourth Quarter |
0.22 | 0.18 | ||||
| Year ended December 31, 2008: |
||||||
| First Quarter (through March 3, 2008) |
$ | 0.22 | $ | 0.13 | ||
As of March 3, 2008, there were approximately 309 holders of record of our common stock. As of March 3, 2008, the closing price for our common stock was $0.22.
Dividend Policy
For the foreseeable future, we intend to retain any earnings to finance our operations and do not anticipate paying cash dividends with respect to our common stock. Subject to the preferences that may be applicable to any then-outstanding preferred stock, the holders of our common stock will be entitled to receive such dividends, if any, as may be declared by our board of directors, from time to time, out of legally available funds. Payments of any cash dividends in the future will depend on our financial condition, results of operations, and capital requirements as well as other factors deemed relevant by our board of directors.
| ITEM 6. | MANAGEMENT’S DISCUSSION AND ANALYSIS |
Overview
We are a financial software developer and a distributor of market data and research information to online brokerages, clearing firms, banks, media properties, public companies and financial service corporations world wide. 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, as well as supplemental fundamental, historical, and analytical data, keyed to the same symbology which provides a complete market data solution to be offered to our customers.
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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, and comprise only a single line of code for quick installation and fast loading efficiency.
Our Portfolio Management Systems consist of Quotestream Desktop, Quotestream Wireless, 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 Professional is designed specifically 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 Wireless is a true companion product to both Quotestream Desktop and Quotestream Professional – any changes made to portfolios in either application are automatically reflected in the other. We introduced Quotestream II to the market in limited release in 2007. Quotestream II is our next generation portfolio management system, with enhanced features and functionality compared to our original Quotestream product – most notably tick-by-tick true streaming data, significantly enhanced charting features, and a broad range of additional research and analytical content and functionality. We expect that Quotestream II will be available for general release in the third quarter of 2008.
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 two to three years and are automatically renewed unless notice is given within 90 days. 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 two years and are automatically renewed unless notice is given within 90 days.
During 2007 we achieved significant revenue growth compared to the previous year. The growth resulted from increased sales of our Interactive Content and Data Applications as we continued to expand our line of financial data products and the depth of our data offerings throughout the year. Increased subscriptions to Quotestream during the year also contributed to our revenue growth. Based on existing revenue under contract as of the date of this report, we anticipate that our revenue for fiscal 2008 will be significantly greater than the revenue earned in fiscal 2007. We expect revenue growth in 2008 to be primarily driven by our Interactive Content and Data Applications and our new Quotestream II and Quotestream Professional product offerings. We also anticipate growth as we expand our product line to include international market data consisting of equity quotes from many of the major world exchanges as well as other additional new data sets. We also anticipate acquiring new customers for our Data Feed Services.
Our comparative gross profit margin decreased in 2007 compared to the prior year resulting from the addition of new fixed data costs to support the new products developed during the period, including Quotestream II, Quotestream Professional, and our new Market Data Feeds. Because a significant portion of these costs are fixed, we expect higher gross margins as revenue increases in future periods.
Our operating expenses were also significantly greater in fiscal 2007 than in the comparative period. This growth was as result of increasing our staffing and operating capacities during the past 18 months to develop and support the new products we have recently launched, and new products that we plan to introduce to the market in 2008.
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Our plan of operation for 2008 will focus on marketing Quotestream II for deployments by brokerage firms to their clients, and moving strongly into the investment professional market with Quotestream Professional. We also plan to release new international data sets and market our Data Feed Services. We will continue to add new data content to expand our line of Interactive Content and Data Applications and to license our Quotestream Wireless applications.
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 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 economic downturns 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.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policy affects our more significant judgments and estimates used in the preparation of our financial statements.
Revenue recognition
Revenue is recognized over contractual periods as services are performed and when collection of the amount due is reasonably assured. Amounts recognized as revenue are determined based upon contractually agreed upon fee schedules with our customers. We account for subscription revenues received in advance of service being performed by deferring such amounts until the related services are performed. We consider the following factors when determining if collection of a fee is reasonably assured: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If these factors do not indicate collection is reasonably assured, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash.
We exercise judgment in assessing the credit worthiness of our customers and therefore in our determination of whether collectibility is reasonably assured. Should changes in conditions cause us to determine these criteria are not met for future transactions, revenue recognized for future reporting periods could be adversely affected.
Commencing in October 2005, the Company licensed one of its portfolio management applications in exchange for advertising services of a customer, referred to as “barter revenue”, whereby advertising credits were received in exchange for subscription services. This revenue is recognized in the period in which the applications are licensed based on the fair market value of the services delivered. The Company determines the fair market value of the service delivered based upon amounts charged for similar services in non-barter arrangements within the previous six-month period. The Company also ensures that the value of barter delivered does not exceed the value of cash based revenue in any period. Unused advertising credits are reflected as prepaid expenses. As at December 31, 2007, $180,000 in unused advertising credits was included in prepaid expenses.
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The following table summarizes our barter revenue transactions for the years ended December 31, 2007 and 2006:
| 2007 | 2006 | |||||
| Barter revenue earned |
$ | 360,000 | $ | 300,000 | ||
| Advertising credits used |
$ | 330,000 | $ | 300,000 | ||
Capitalized Application Software
Capitalized software costs include costs incurred in connection with the development of software and purchased software. These costs relate to software used by subscribers to access, manage and analyze information in the Company’s databases. Capitalized costs associated with internally developed software are amortized over three years which is their estimated economic life.
We exercise significant judgment in determining that capitalized application software costs meet the criteria established in FASB Statement no. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. Software production costs for computer software that is to be used as an integral part of a product or process shall not be capitalized until both (a) technological feasibility has been established for the software and (b) all research and development activities for the other components of the product or process have been completed.
For the years ended December 31, 2007 and 2006, the Company capitalized $492,625 and $273,405 of costs, respectively, related to the development of new software applications and enhancements made to existing software applications. Software applications are used by our subscribers to access, manage and analyze information in our databases. For the years ended December 31, 2007 and 2006, amortization expenses associated with the internally developed application software was $169,265 and $51,751 respectively. At December 31, 2007, the remaining book value of the application software was $587,465.
Recent Accounting Pronouncements
Effective January 1, 2007, the Company adopted FASB Interpretation No. 48 entitled “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation prescribes a recognition threshold and measurement method for the recognition of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance related to uncertain tax positions on the derecognition, measurement (according to the more likely than not criterion), classification, interest and penalties, accounting in interim periods and disclosure. We have evaluated all tax positions in accordance with FIN 48, and have concluded that there is no impact to our consolidated financial statements. Refer to Note 6 for additional disclosure.
In February 2007, FASB issued SFAS No. 159 entitled “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“FAS No. 159”). FAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. FAS No. 159 is effective for fiscal years beginning after November 15, 2007. The impact, if any, that FAS No. 159 will have on our consolidated financial statements is not yet determinable.
In September 2006, FASB issued SFAS No. 157 entitled “Fair Value Measurements” (“FAS No. 157”). This statement clarifies the definition of fair value to provide greater consistency and clarity on existing accounting pronouncements that require fair value measurements, provides a framework for using fair value to measure assets and liabilities and expands disclosures about fair value measurements. FAS No. 157 is required to be applied for fiscal years beginning after November 15, 2007 and interim periods within that year. We do not believe that the implementation of FAS No. 157 will impact our consolidated financial statements.
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On December 4, 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“Statement 141R”). Statement 141R requires that, upon a business combination, the acquired assets, assumed liabilities, contractual contingencies and contingent liabilities, be recognized and measured at their fair value at the acquisition date. Statement 141R also requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred. In addition, Statement 141R requires that acquired in-process research and development be measured at fair value and capitalized as an indefinite-lived intangible asset, and it is therefore not subject to amortization until the project is completed or abandoned. Moreover, Statement 141R requires changes in deferred tax asset valuation allowances and acquired income tax uncertainties that are recognized after the measurement period be recognized in income tax expense. Statement 141R is to be applied prospectively and is effective for fiscal years beginning on or after December 15, 2008, which for us will be our fiscal 2010. We are currently evaluating the impact Statement 141R may have on our financial position, results of operations and cash flows.
On December 4, 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“Statement 160”). Statement 160 requires that noncontrolling interests (previously referred to as minority interests) be clearly identified and presented as a component of equity, separate from the parent’s equity. Statement 160 also requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; that changes in ownership interest be accounted for as equity transactions; and that when a subsidiary is deconsolidated, any retained noncontrolling equity investment in that subsidiary and the gain or loss on the deconsolidation of that subsidiary be measured at fair value. Statement 160 is to be applied prospectively, except for the presentation and disclosure requirements (which are to be applied retrospectively for all periods presented) and is effective for fiscal years beginning after December 15, 2008, which for us will be our fiscal 2010. We do not believe that the implementation of Statement 160 will impact our consolidated financial statements.
Results of Operations
Revenue
| Years ended December 31, | ||||||||||||
| 2007 | 2006 | Change ($) | Change (%) | |||||||||
| Licensing revenue |
$ | 5,569,107 | $ | 3,742,534 | $ | 1,826,573 | 49 | % | ||||
Licensing revenue has increased 49% when comparing the years ended December 31, 2007 and 2006. This increase reflects sales growth for both our Interactive Content and Data Applications and our Portfolio Management Systems.
We expanded our line of Interactive Content and Data Applications, which includes XML market data feeds. This resulted in a $1,352,108 (58%) increase in Interactive Content and Data Application revenue when comparing the years ended December 31, 2007 and 2006. The number of Quotestream subscribers and the average subscription revenue per user increased during the year; resulting in a $474,465 (34%) increase in Portfolio Management System revenue when comparing the years ended December 31, 2007 and 2006. Included in Portfolio Management System revenue is revenue earned from licensing of one of our portfolio management applications in exchange for advertising services, referred to as “barter revenue” whereby advertising credits were received for subscription services. This barter revenue amounted to $360,000 for the year ended December 31, 2007, compared to $300,000 earned in 2006.
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Cost of Revenue and Gross Profit Summary
| Years ended December 31, | ||||||||||||||
| 2007 | 2006 | Change ($) | Change (%) | |||||||||||
| Cost of revenue |
$ | 2,386,925 | $ | 1,412,945 | $ | 973,980 | 69 | % | ||||||
| Gross profit |
$ | 3,182,182 | $ | 2,329,589 | $ | 852,593 | 37 | % | ||||||
| Gross margin % |
57 | % | 62 | % | ||||||||||
Our cost of revenue consists of fixed and variable stock exchange fees, data feed provisioning costs and bandwidth charges. Cost of revenue increased 69% when comparing the years ended December 31, 2007 and 2006. The increase is primarily due to communication costs associated with our new data feed which was implemented, on a graduated basis, starting February 2006. The new data feed was necessary to support the major technology expansion and reconfiguration program completed during 2007. The increase is also due to the acquisition of data content required to support the new products and features that we have recently launched, and new products that we plan to introduce to the market in 2008. We also incurred increases in variable stock exchange, data feed, and bandwidth usage charges resulting from the growth in the number of clients from the comparable period. This resulted in the cost of revenue increasing as a percentage of sales, as evidenced by our gross margin percentage which decreased to 57% for the year ended December 31, 2007, from 62% in the prior year. We do not anticipate that our primary data feed costs will increase significantly in the foreseeable future, therefore we expect higher gross margins as our revenues increase to offset these costs in future periods.
Operating Expenses Summary
| Years ended December 31, | ||||||||||||
| 2007 | 2006 | Change ($) | Change (%) | |||||||||
| Sales and marketing |
1,854,400 | 958,498 | 895,902 | 93 | % | |||||||
| General and administrative |
1,588,744 | 1,334,860 | 253,884 | 19 | % | |||||||
| Software development |
917,861 | 515,181 | 402,680 | 78 | % | |||||||
| Total operating expenses |
$ | 4,361,005 | $ | 2,808,539 | $ | 1,552,466 | 55 | % | ||||
Sales and Marketing
Sales and marketing consists primarily of sales and customer service salaries, investor relations, travel, and advertising expenses. Sales and marketing expenses increased $895,902 (93%) for the year ended December 31, 2007 when compared to fiscal 2006.
The increase is due primarily to the Company moving its lead generation services in house effective May 1, 2006. Quotemedia Ltd., a wholly owned subsidiary of QuoteMedia, Inc., now performs sales and customer support functions for QuoteMedia, Inc. Prior to May 2006, lead generation services were performed by Bravenet Web Services Inc. (a related party). The increase is also due to additional sales personnel hired since the comparative period, additional travel expense associated with marketing our new product lines, and increase investor relations expenses compared to the prior year.
Sales and marketing expenses were also affected by the devalued U.S. dollar versus the Canadian dollar. A significant portion of our sales and marketing expenses are incurred in Canadian dollars and converted to U.S. dollars at the average exchange rate during the period, therefore the weakening U.S. dollar contributed to cost increases from the comparative periods.
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Included in sales and marketing expense is $330,000 in non-cash advertising costs incurred in the year ended December 31, 2007. We receive advertising credits in exchange for subscription services. The advertising credits are with a large national magazine and are part of a significant advertising campaign launched in 2006. The advertising credits are expensed as used, and unused advertising credits are reflected as prepaid expenses. We used $300,000 in advertising credits during the comparative period in 2006.
General and Administrative
General and administrative expenses consist primarily of salaries expense, office rent, insurance premiums, and professional fees. General and administrative expenses increased $253,884 (19%) for year ended December 31, 2007 when compared to fiscal 2006. Commencing May 2006, QuoteMedia Ltd. rented new office space for its lead generation personnel, resulting in increased office rent expense from the comparative periods, as well as increased costs incurred for computer hosting and maintenance services for the new office. The increase in general and administrative expenses is also due to increased bad debt expenses compared to the prior year. The increase in bad debts is directly related to the increase in sales from the prior year. Depreciation expense also increased due to the purchase of new computer equipment during the year.
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 $402,680 (78%) for year ended December 31, 2007 when compared to fiscal 2006.
Salary expense for software development personnel increased from the comparative periods, as we made competitive salary adjustments for existing employees, and added new software development personnel. Additional software development personnel were required to develop our Quotestream II and Quotestream Professional products, as well as our new and upgraded versions of our web-based applications and market data feeds.
Software development costs were also affected by the devalued U.S. dollar versus the Canadian dollar. The majority of our development expenses are incurred in Canadian dollars and converted to U.S. dollars at the average exchange rate during the period, therefore the weakening U.S. dollar contributed to cost increases from the comparative periods.
The increase in software development expenses noted above was offset by software development costs capitalized during the period. We capitalized $492,625 of development costs for the year ended December 31, 2007, compared to $273,405 in 2006. 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 three years which is their estimated economic life.
Other Income and (Expense) Summary
| Years ended December 31, | ||||||||
| 2007 | 2006 | |||||||
| Foreign exchange loss |
$ | (91,532 | ) | $ | (2,396 | ) | ||
| Interest expense |
(239,663 | ) | (111,665 | ) | ||||
| Loss on disposal of equipment |
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