MCX Technologies Corp - Quarter Report: 2016 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number:   000-54918

MCORPCX, INC.

(Exact name of registrant as specified in its charter)

California

(State or other jurisdiction of incorporation or organization)

26-0030631

(I.R.S. Employer Identification No.)

201 Spear Street, Suite 1100

San Francisco, CA   94105

(Address of principal executive offices, including zip code)

(415) 526-2655

(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 last 90 days.  

YES ☑     NO ☐

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).   YES ☑     NO ☐

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," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES ☐     NO ☑

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

20,426,158 as of August 12, 2016. 

MCORPCX, Inc.

Form 10-Q Quarterly Report

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS.

McorpCX, Inc.

Condensed Balance Sheets

The accompanying notes are an integral part of these unaudited statements.

McorpCX, Inc.

Condensed Statement of Operations

(unaudited)

The accompanying notes are an integral part of these unaudited statements.

McorpCX, Inc.

Condensed Statement of Cash Flows

(unaudited)

The accompanying notes are an integral part of these unaudited statements.

MCORPCX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

MCORPCX, INC.

(unaudited)

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016

(unaudited)

Cautionary Statement

This Management's Discussion and Analysis includes a number of “forward-looking statements”, that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe," "expect," "plan", "estimate," "anticipate," "intend," "project," "will," "predicts," "seeks," "may," "would," "could," "potential," "continue," "ongoing," "should" and similar expressions, or words which, by their nature, refer to future events. Although we believe that our expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-Q. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or from our predictions. Other than as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

Unless the context otherwise requires, all references to "McorpCX," "we," "us," "our" or the "Company" are to McorpCX, Inc. and our subsidiaries.

Overview

We are a customer experience (CX) management solutions company that develops and delivers technology products such as Touchpoint Mapping®, an on-demand "cloud based" suite of customer experience management software, and that also provides professional and related services designed to help organizations improve customer experiences, increase customer loyalty, reduce costs and increase revenue.

We believe that delivering better customer experiences is a powerful, sustainable way for any organization to differentiate from their competition. We are engaged in the business of developing and delivering technology-enabled products and professional services that help large, medium and small organizations improve their customer listening and customer experience management capabilities.

Our current product, Touchpoint Mapping® On-Demand, is a research-based software solution designed to be a comprehensive customer experience solution for customer-centric organizations to measure and gather customer data across all their touchpoints, channels and interactions with their customers. Touchpoint Mapping® On-Demand is designed to enable an organization to see where and how to improve brand and customer loyalty, as well as their customers' experiences across multiple channels and touchpoints.

Our professional services are intended to help primarily large and medium sized organizations plan, design and deliver better customer experiences, and to analyze and review client data gathered through our software application. Other services include customer experience training, strategy consulting and business process optimization, which are intended to increase our customers' adoption of our products and services, help our customers maximize their return on investment, and improve our customers' efficiency.

Development of our software is ongoing, as Touchpoint Mapping® On-Demand is refined and improved based on customer feedback, and customized for specific organizations and industry sectors. The services delivered with Touchpoint Mapping® On-Demand may include consulting and additional research services, as well as services such as assessment, integration, implementation and additional offline analysis and reporting of data.

Though we released Touchpoint Mapping^® On-Demand in 2013, we cannot predict the timing or probability of generating material sales revenue from it.  As of this filing, we have yet to engage the necessary sales and marketing staff or the capabilities required to identify, develop, and close material product sales opportunities, and currently lack sufficient resources to market and sell our products in the manner which we believe is required to achieve our product sales and revenue growth objectives.

Sources of Revenue

Our revenue consisted primarily of professional and software-enabled consulting services, product sales and other revenues in 2016 and 2015. Consulting services include customer experience management consulting in the areas of strategy development, planning, education, training and program design, and includes the articulation of customer-centric strategies and implementation roadmaps in support of these strategies. Product revenue is from productized and software-enabled service sales not elsewhere classified, while other revenue includes reimbursement of related travel costs and out-of-pocket expenses.

While our plan of operations is based on migrating the majority of our service revenue from these categories to recurring Software as Service (“SaaS”) subscription fees, we anticipate that fees for professional and software-enabled consulting services will remain a significant revenue source in the foreseeable future. As of June 30, 2016, we have successfully delivered certain features and functionality of our software product, Touchpoint Mapping^® On-Demand, to several clients. However, we have not obtained material stand-alone sales commitments for Touchpoint Mapping^® On-Demand, and do not anticipate being able to do so until we engage the necessary sales and marketing staff to develop and execute product sales opportunities.

Should we successfully obtain material sales commitments for Touchpoint Mapping^® On-Demand, we anticipate that subscription agreements and related professional services associated with delivering our software solutions will become a source of increased revenue. Subscriptions and associated professional services pricing are based on our gross margin objectives, growth strategies and the specific needs of our clients' organizations, measured primarily by the following metrics: breadth of insights sought, number of employees, number of customers and customer segments, frequency of insights gathered, and other variables.

Subscription agreements for our software solutions are offered as monthly term agreements which contain a minimum commitment period of at least 12 months, and which include related setup, upgrades, hosting and support. Professional services include consulting fees related to implementation, customization, configuration, training and other services.

Based on data gathered during the implementation stage of on-demand software and software-enabled services engagements, we believe that the average time it will take our clients from placing an order to live deployment of our products is between 30 and 45 days. We typically invoice clients upon inception of subscription agreements for setup and total subscription fees contracted over the term of the agreements, with payment due within 30 days.

Professional services related to the subscription agreements are invoiced at the inception of the professional services agreement at one-third or fifty percent of total fees, with the balance of payments due over the duration of the contract as project milestones are met. Amounts invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether revenue recognition criteria have been met.

Cost of Revenue and Operating Expenses

Our costs of revenue and operating expenses are detailed at the sub-category level in our Income Statements. And while the financial results for these categories are further explained in the Results of Operations section below, a general description of these categories follows:

Cost of Goods Sold

Cost of goods sold has historically consisted primarily of expenses directly related to providing professional and consulting services. Those expenses include contract labor, third-party services, and materials and travel expenses related to providing professional services to our clients.  However, as certain features of Touchpoint Mapping^® On-Demand were made available for general release beginning in 2014, costs of goods now also includes significant product-related hosting and monitoring costs, licenses for products embedded in the application, amortization of capitalized software development costs, related sales commissions, service support, account management and subscriptions, as applicable.

Should our client base grow, we intend to continue to invest additional resources in our hosting, technical support and professional services capabilities, as well as our utilization of third-party licensed software.

General and Administrative Expenses

General and administrative expenses consist primarily of salary and related expenses for management, client delivery, finance and accounting, and marketing personnel. Expenses also include contract services, as well as marketing and promotion costs, professional fees, software license fee expenses, administrative costs, insurance, rent and a portion of travel expenses and other overhead, which are categorized as “other general and administrative expenses” in our financial statements.

Sales and marketing expenses are currently reflected in salaries and wages, commissions, contract labor, sales, marketing and promotion, and other related overhead expense categories. Since we currently recognize revenue over the terms of the subscriptions or professional services engagements, we expect to experience a delay between increases in selling and marketing expenses and the recognition of revenue. We expect to continue to incur significant sales and marketing expenses in both absolute dollars and as a percentage of expenses as we hire sales and additional marketing personnel and increase the level of marketing activities.

We expect that total general and administrative expenses will increase as we continue to add personnel in connection with the growth of our business. In addition to increases in sales and marketing and research and development expenses, in order to meet the requirements of a public company we anticipate we will also incur additional employee salaries and related expenses, professional service fees and insurance costs in connection with any growth of our business and operations.

Results of Operations

Revenues were lower for the six months ended June 30, 2016 when compared to the same period in 2015, primarily due to decreased revenues from consulting services in the first half of 2016 compared to the first half of 2015 mainly due to a decrease in revenues from our consulting services during the three months ended March 31, 2016, not being fully offset by increased revenues from our consulting services in the second quarter of 2016. Revenues also decreased from our software products and software related services in the first half of 2016 compared to the same period in 2015. During the first quarter of 2016, we decided to focus on internal initiatives that we believed were critical to our long-term growth. These initiates included the listing of our shares of common stock on the TSX Venture Exchange and the closing of the related private placement of our common stock in February 2016.

Total revenues in the second quarter of 2016 were 48% higher than total revenues in the second quarter of 2015, mainly due to increased revenue from consulting services in the second quarter of 2016 that was primarily the result of management’s re-focus on business development and revenue generating efforts in that quarter.

Cost of goods sold decreased by $22,364 for the three months ended June 30, 2016 when compared to the same period in 2015 due primarily to a decrease of approximately $29,000 in professional fee costs. This decrease was largely driven by the hiring of additional salaried employees leading to a lesser need for contracted resources.

Cost of goods sold decreased by $103,133 during the six months ended June 30, 2016 when compared to the same period in 2015 primarily as a result of a decrease of approximately $84,000 in professional fee costs. A decrease of $37,000 in reimbursable expenses such as lodging, meals and entertainment and transportation in the same period also contributed to the decrease in cost of goods sold.

Salaries and wages increased by $39,178 for the three months ended June 30, 2016 when compared to the three months ended June 30, 2015 driven largely by an increase in staff salaries of $53,000 combined with an increased stock based compensation expense of $29,000, being partially offset by a reduction in officer salaries and related benefits of approximately $43,000 mainly due to the capitalization of officer salaries for software development efforts during the second quarter of 2016. We hired additional staff in 2016 to assist with the delivery of our professional services and other tasks, which primarily contributed to the increased staff salaries and stock compensation expenses in the second quarter of 2016.

For the six months ended June 30, 2016, salaries increased when compared to the six months ended June 30, 2015, primarily as a result of the hiring of new employees and increased stock based compensation expense of $39,000 mostly due to the issuance of option grants to these employees. This increase was partially offset by a decrease in commissions.

Contract services expenses decreased by $60,147 for the three and six months ended June 30, 2016 primarily due to decreases in corporate and investor relations, business development and sales, accounting, marketing, and product development expenses, being partially offset by an increase in acquisition assistance of $9,000 for the six months ended June 30, 2016. There was no change in acquisition assistance for the three months ended June 30, 2015.

Other general and administrative costs increased for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 primarily due to an increase in professional fees of $53,000 mainly as a result of increased legal costs. Other increases include $38,000 in sales, marketing, and promotion, $20,000 in travel, meals, and entertainment and $13,000 across all of the following categories: computers and software, dues and subscriptions, insurance, rent, and repairs and maintenance. These increases were partially offset by a decrease in administration costs of $9,000.

Other general and administrative costs increased for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 primarily due to an increase of $187,000 in professional fees associated with our listing on the TSX-V exchange, the closing of our private placement in February 2016, and the engagement of a new audit firm. Other increases include $90,000 in sales, marketing, and promotion, $29,000 in administration costs, $24,000 in travel, meals, and entertainment and $25,000 across all of the following categories: computers and software, dues and subscriptions, insurance, rent, and repairs and maintenance.

Other expenses increased for the three and six months ended June 30, 2016 when compared to the same periods in 2015 primarily due to unrealized losses associated with the revaluation of a promissory note from Canadian dollars to United States dollars in 2016.

Liquidity and Capital Resources

We measure our liquidity in a variety of ways, including the following:

As at June 30, 2016, our cash and cash equivalents and working capital had increased to $2,538,902 and $2,292,814, respectively, from $492,733 and $349,740 as at December 31, 2015. The closing of a private placement of our common stock in February 2016 for proceeds of $2,745,000 was the primary driver behind the increase in cash and working capital.

For the six months ended June 30, 2016 and the year ended December 31, 2015, we were able to finance our operations, including capital expenditures for infrastructure, product development and marketing activities with cash generated through operating activities, cash on hand, and the proceeds received from our private placement of common stock in February 2016.  The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As reflected in the financial statements included in this report, for the six months ended June 30, 2016 we had a net loss of $687,838 and a net loss of $994,351 for the year ended December 31, 2015.

We have had material operating losses and have not yet created positive cash flows. These factors raise substantial doubt as to our ability to continue as a going concern. Although we believe that sufficient funding will be available from operations, private placements of equity securities or additional borrowings to meet our liquidity needs over the next 12 months, our ability to continue as a going concern is entirely dependent upon our ability to achieve a level of profitability, and/or to raise additional capital through debt financing and/or through sales of common stock. We cannot provide any assurance that profits from operations, if any, will generate sufficient cash flow to meet our working capital needs and service our existing debt, nor that sufficient capital can be raised through debt or equity financing. The financial statements do not include adjustments related to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.

Anticipated Uses of Cash

In 2015 and the first half of 2016, our primary areas of investment were professional staff to support our services business, as well as staff to support SaaS product delivery and client relationship management. We also invested in product development and sales and marketing activities, including sales staff, marketing and sales automation software and other related services.

For the remainder of 2016, we currently anticipate increased uses of cash in connection with sales and marketing activities, including on- and offline marketing, marketing and sales automation software, and other related services. We also anticipate investments in product development, professional sales and development staff, staff to support SaaS product delivery and client relationship management, and staff to support our services business.

We intend to fund these planned expenditures with cash on-hand, cash flows generated from ongoing operations during this period and/or additional capital raised through debt financing or through sales of common stock or both. We do not intend to pay dividends in the foreseeable future.

Cash Flow – Six Months Ended June 30, 2016 and 2015

Operating Activities. Net cash used in operating activities increased to $491,526 for the six months ended June 30, 2016 compared to $303,754 for the six months ended June 30, 2015. This increase in cash used by operating activities was attributable primarily to a $272,833 increase in net losses, partially offset by increases in cash flow due to the change in net working capital, primarily due to increases in account payable and deferred revenue balances in 2016.

Days Sales Outstanding (“DSO”), which the Company defines as the average number of days it takes to collect revenue once a sale has been made, increased in the first half of 2016 compared to the same period in the prior year.  During the six months ended June 30, 2016, DSO was approximately 63 days, up from approximately 49 days during the six months ended June 30, 2015. This increase mainly resulted from a high accounts receivable balance at the end of the second quarter of 2016 driven primarily by up-front billings in the current quarter related to deferred revenue on services not yet performed.

Investing Activities. Net cash used in investing activities for the six months ended June 30, 2016 increased to $207,305 compared to $41,685 in net cash used in investing activities for the same period in 2015. Net cash used in investing activities in the first half of 2016 primarily consisted of capitalized software development costs of $168,499 as well as payments for acquisition of intangible assets of $30,000 and equipment for $8,856.

Financing Activities. Net cash provided by financing activities for the six months ended June 30, 2016 and 2015 amounted to $2,745,000 and $513,750, respectively. Cash provided in both years was the result of separate private placement of our common stock in each period.

Off Balance Sheet Arrangements

We did not have any off balance sheet arrangements as of June 30, 2016.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and as such, are not required to provide the associated information under this item.

Disclosure Controls and Procedure

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective.

We are in the process of developing and implementing remediation plans to address our material weaknesses as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

We are not involved in any legal actions or claims and to our knowledge no such actions or claims are pending.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and as such, are not required to provide the associated information under this item.

Recent Sales of Unregistered Securities

There were no unregistered sales of our equity securities during the three month period ended on June 30, 2016.

Purchases of Equity Securities

During the three months ended June 30, 2016, there were no purchases of our common stock made by, or on behalf of, the Company or any "affiliated purchaser," as defined by Rule 10b-18 of the Exchange Act.

None.

Not applicable.

See exhibits listed under the Exhibit Index below.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report has been signed on its behalf by the undersigned, thereunto duly authorized on this 12^th day of August, 2016.

EXHBIIT INDEX

*Furnished, not filed

Notes to Exhibits List:

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheet, (ii) Statements of Operations, (iii) Statements of Cash Flows, and (iv)Notes to the Financial Statements. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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