MCX Technologies Corp - Annual Report: 2020 (Form 10-K)

PART I

General

MCX Technologies Corporation (formerly McorpCX, Inc) (“we,” “us,” “our,” or the “Company”) is currently focused on delivering digital transformation solutions to customer-centric organizations through integrated marketing, data science, analytics, commerce, and machine learning. We were previously engaged in the more narrowly focused business of delivering consulting and professional services that were designed to help corporations improve their customer listening and customer management capabilities, often referred to as customer experience (“CX”) management solutions.

We were incorporated in the State of California on December 14, 2001 as a CX management solutions company dedicated to helping organizations improve customer experiences, increase customer loyalty, reduce cost and increase revenue. The Company operated as The Innes Group, Inc., d/b/a MCorp Consulting until filing a Certificate of Amendment to the Articles of Incorporation renaming the Company Touchpoint Metrics, Inc., effective October 18, 2011. On June 11, 2015, our shareholders passed a resolution to change the name of the Company to McorpCX, Inc., and on June 29, 2020, in connection with the sale of McorpCX, LLC, as described below, our shareholders passed a resolution to change the name of the Company to MCX Technologies Corporation.

The Company formed a wholly owned subsidiary, McorpCX, LLC (“McorpCX LLC”) as a limited liability company in the state of Delaware on December 14, 2017. On August 16, 2018, the Company entered into a contribution agreement with its wholly owned subsidiary McorpCX LLC, pursuant to which the Company transferred to McorpCX LLC all of the Company’s assets and liabilities related to the Company’s customer experience consulting business, excluding the underlying technology and databases related thereto which remained with the Company.

Effective August 3, 2020, the Company sold all of its membership interests in McorpCX, LLC to mfifty, LLC, a California limited liability company controlled by Michael Hinshaw, the President of McorpCX LLC (the “Purchaser”). Since the Company’s professional and related consulting services business, which constituted substantially all of the Company’s operations at the time of the sale of McorpCX LLC, was conducted through McorpCX LLC, the sale of McorpCX LLC represented a strategic shift that we believe will have a major effect on the Company’s operations and financial results.

As consideration for the sale of McorpCX LLC, the Company received a total of $352,000 in cash consisting of $100,000 received upon the signing of the purchase agreement and $252,000 received at the closing of the transaction along with a $756,000 promissory note. The promissory note has an initial annual interest rate of 0.99% (to be recalculated at the end of each twelve-month period subsequent to the date of the note based on the annual Applicable Federal Rate for mid-term loans on the first business day following each such twelve month period) accruing daily on the outstanding balance of the note, and monthly principal payments are payable to the Company over a term of four or more years. Monthly principal payments to the Company are initially $7,292 per month for the first twelve months following the date of the note, and then during each subsequent twelve-month period are based on the annual revenues of McorpCX, LLC.  The note is secured by the Purchaser's ownership interest in McorpCX LLC.

On November 12, 2020, the Company formed a wholly-owned subsidiary, The Collective Experience, LLC (the “Collective Experience”) as a Delaware limited liability company. The Company is currently providing all of its customer relations management consulting services, which is the Company’s sole revenue generating operations, through the Collective Experience.

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic and the government responses to the outbreak presents uncertainty and risk with respect to the Company and its performance and financial results.

The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic is continually evolving. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted.

We maintain our primary business address at 2529 Detroit Ave, Cleveland, OH 44113. Our telephone number is (216) 264-0055 and our internet website is www.mcxtechnologies.com. Our registered agent for service of process is Northwest Registered Agents, Inc. Our web address is www.mcxtechnologies.io. The inclusion of our internet address in this report does not include or incorporate by reference into this report any information contained on, or accessible through, our website. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, amendments to those reports and other Securities and Exchange Commission, or “SEC”, filings are available free of charge at www.sec.gov.

Our common stock trades on the TSX Venture Exchange in Canada under the symbol “MCX” and on the OTC Pink Sheets in the United States under the symbol “MCCX”.

Products and Services

Excluding revenues derived from our consulting services provided through the operations of McorpCX, LLC, our primary revenue source in 2020 came from consulting and professional services provided through the Collective Experience, including strategy consulting, digital marketing, data science and process optimization. We plan to focus on developing and/or acquiring new technology solutions as part of our overall strategy. This focus supports our vision as a technology and service provider. Together, our services and products are expected to be designed to help organizations improve customer experiences, increase customer loyalty, reduce costs and increase revenue. We expect to serve a wide variety of industries and customer sizes.

Professional Services

We provide professional and related consulting services through the Collective Experience including brand strategy, pricing science, data science, digital marketing, customer experience management consulting, implementation and go-to-market execution in support of these strategies.

These services are intended to help primarily large and medium sized organizations systematically and predictably plan, design and deliver better customer experiences, drive revenue, maximize their return on investment, improve their operational efficiency, and increase customers' adoption of their products and services.

Our Strategy 

The Company’s management is now in the process of recreating the Company to enable it to focus on providing technology solutions for the Always-On Economy. MCX is exploring investment opportunities into three areas: digital transformation-, cryptocurrency,  and decentralized finance (“DeFi”). In developing our portfolio offering, we are in the process of exploring various strategic alternatives, such as proprietary software or technology development, pursuit of mergers/acquisitions or joint venture opportunities, “white-labeling” arrangements, software licensing arrangements, and investment in additional infrastructure for our Company. Each of these possible strategies will be thoroughly vetted by our board of directors to assess the expected level of enterprise value creation for each strategy compared to the various risks associated with each possible scenario. In addition, we may require financing to pursue these strategies that are beyond our current financial resources. Accordingly, there is no assurance that we will be able to pursue any strategy identified by our board of directors.

Digital Transformation.  We are now focused on developing business transformation platforms that we expect will offer digital transformation solutions for organizations.  These services are intended to allow organizations gain more refined insights into their customers’ needs which will then be the catalyst for the development and facilitation of their product and services offerings.  Our digital transformation platform is in the process of being developed and is expected to focus on integrated marketing, data science and analytics, utilizing methods that include but are not limited to machine learning technologies.

Crypto-Currency. We are actively analyzing the development, and/or acquisition, of crypto-currency enabling technologies. A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services but uses an online ledger with strong cryptography to secure online transactions. Potential uses for our clients could be seeking alternative forms of payment when transacting sales of its products and services.

Decentralized Finance. We are exploring technologies that will allow companies to transact business utilizing cyber-currencies. Decentralized finance is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum. These DeFi technologies can provide clients to exchange cyber-currencies, participate in lending and facilitate participation in predictive markets.

Competition 

Given the emergence of digital transformation technologies as a priority for many organizations and service providers numerous technology companies are seeking ways to support these efforts.  Additionally, cyber-currency and DeFi have become more readily recognized as method of completing transactions and as such, more competitors are seeking to enter this marketplace. These technologies are subject to rapidly changing technological developments, shifting organizational priorities and requirements, frequent introductions of new products and services, and increased marketing and sales activities of other industry participants.

Many competitors exist in the overlapping areas of on-demand and traditional digital marketing, data analytics, digital transformation, cyber-currency and decentralized finance software services and consulting. Many of our current and potential competitors have a significantly larger market presence, greater name recognition, access to more potential customers and substantially greater financial, technical, sales and marketing, management, support, and other resources than we have. As a result, many of our competitors are able to respond more quickly than we can to new or changing opportunities and technologies, and may devote greater resources to the marketing, promotion and sale of their products than we can.

We believe it is highly likely that existing and new competitors will rapidly acquire significant market share, which would negatively impact our ability to effectively market, compete and sell our products and services we are currently developing into the markets in which such competitors operate.

Dependence on Major Customers

As of December 31, 2020, we had two active customers, and there are no assurances that we will be able to expand our customer base.

Intellectual Property

We rely on intellectual property laws, contractual arrangements, such as assignment, confidentiality and non-disclosure agreements, and confidentiality procedures and technical measures to gain rights to and protect the technology and intellectual property used in our business.

As of December 31, 2020, we do not own any trademarks or service marks, patents or other intellectual property assets.

Insurance

We maintain general liability, commercial auto, and professional liability/E&O insurance policies and director and officer insurance.

Employees

At the end of 2020 we had no full-time employees and three independent contractors. We have never experienced any employment-related work stoppages and none of our independent contractors are represented by a labor union or collective bargaining agreements.. We intend to hire more employees and independent contractors on an as-needed basis.

Offices

We have one business addresses. Our headquarters is located at 2529 Detroit Ave, Cleveland, OH 44113.

Costs and Effects of Compliance with Local, State and Federal Environmental Laws

Given the nature of the Company’s business operations, local, state and federal environmental laws do not impose any material costs or have any material effect on the Company.

Government Regulation

We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses. 

ITEM 1A. RISK FACTORS

The statements in this “Risk Factors” section describe material risks to our business and should be considered carefully. You should review carefully the risk factors listed below, as well as those factors listed in other documents we file with the SEC. Our disclosure and analysis in this annual report on Form 10-K contain some forward-looking statements that set forth anticipated results based on management’s current plans and assumptions.

Following the sale of McorpCX LLC, the Company’s profitability and growth will depend on the success of the Company’s planned development of its technology services business, which is subject to a variety of business risks and uncertainties.

In connection with the completion of the sale of McorpCX LLC, the Company is now focused on growing its technology solutions business. Any evaluation of our technology services business and our prospects going forward must be considered in light of the risks and uncertainties stated above, as well as the following:

If the Company is unable to address these risks, the Company’s business, results of operations and prospects could suffer and the Company may not be able to successfully able to develop a revenue generating business.

We have never generated profits from our current operations and may continue to incur losses from our operations into the future. There is no assurance our future operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably, we will cease operations and any investment will be lost.

During the years ended December 31, 2020 and 2019, we incurred net operating losses of approximately $0.05 million and $0.8 million, respectively. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to develop new products and services and to retain and expand our existing customer base. .

Since prior to the sale of McorpCX, LLC in August 2020, all of the Company’s revenues were generated through the operations of McorpCX, LLC, subsequent to the sale of McorpCX, LLC, the Company has had to develop new sources of revenues. Although the Company’s management is now focused on developing a digital transformation platform that we expect will allow us to offer digital transformation solutions to organizations, as of the date of this report, revenues from the Company’s operations are minimal and there is no assurance that we will be able to attract the necessary employees, independent contractors and other resources required to develop our digital transformation platform to a level where we would be able to generate sufficient revenues to support the growth of our operations.

Our ability to achieve revenue growth sufficient to support our business will stem in large part from our ability to develop and/or acquire new technology solutions, the licensing and adoption of our systems and methodologies, and the development of direct and indirect sales and distribution channels through which we can distribute our products and services. Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses required to achieve our objectives and not generating revenues sufficient to generate profits. We cannot guarantee that we will be successful in generating sufficient revenues in the future. Failure to generate profits from operations may cause our business to fail.

The Company’s ability to execute its strategy following the sale of McorpCX LLC depends on the Company’s ability to retain and recruit qualified management and/or advisors.

The Company’s ability to execute its strategy following the closing of the sale of McorpCX LLC in August 2020 requires that the Company retain and recruit personnel with technology services experience. There are no assurances that the Company will be able to find and/or be able to recruit qualified personnel required to build the Company’s technology services business, and if the Company is not able to recruit such personnel the Company may not be able to successfully grow its technology services business and consequently may not develop a revenue generating business.

Business or economic disruptions or global health concerns beyond our control could seriously harm our business and results of operations.

Broad-based business or economic disruptions could adversely affect our ongoing or planned business activities. For example, beginning in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries, including the United States. The outbreak has prompted precautionary government-imposed closures of certain travel and businesses. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted.

If we do not attract new customers, we will not make a profit, which ultimately will result in a cessation of operations.

Our ability to maintain operations is predicated upon us being retained to provide technology enabled products and services. As of December 31, 2020, we only had two active customers, and there are no assurances that we will be able to expand our customer base. If we are unable to attract and maintain an adequate customer base to generate revenues, we will have to suspend or cease operations.

The market for our products and services is evolving rapidly

We are engaged in a new and rapidly evolving business, and consequently we may experience rapid shifts in demands for our products and services. These changes in demand may result from a number of factors, including, without limitation, changes in the perceived benefits of or need for our services and the introduction of technology-based solutions that supplant the need for professional consulting-based services. These changes in demand may adversely impact on our ability to earn revenues and achieve profitability.

We face intense competition for our products and services

The market for digital transformation solutions is highly competitive, increasingly fragmented, and subject to rapidly changing technology, shifting organizational priorities and requirements, frequent introductions of new products and services, and increased marketing activities of other industry participants. Many of our current competitors have a larger market presence, greater name recognition, access to more potential customers and substantially greater financial, technical, sales and marketing, management, support and other resources than we have, which allows such competitors to respond more quickly than we can to new or changing opportunities and technologies, and to devote greater resources to the marketing, promotion and sale of their products than we can.

Additionally, many large consulting firms include digital transformation-specific insights as adjunct capabilities to their existing platforms, and others have rebranded their existing software or customer satisfaction research software as digital transformation software, which has the potential to create unforeseen competitive barriers and market confusion, which could negatively affect our operations.

We have limited access to financing and capital to fund our operations

We primarily generate cash to fund our business operations from our business operations and from the proceeds from the sale of McorpCX, LLC in August 2020. However, since we have incurred net losses in each of 2016 through 2020, there is no assurance that our cash from operations will be sufficient to fund our business operations on an ongoing basis. Accordingly, we may require additional financing to continue our operations. We do not have any arrangements in place for any future debt or equity financing and there is no assurance that any financing would be available to us if required.

Our inability to generate sufficient cash flows may result in our Company not being able to continue as a going concern.

For the year ended December 31, 2020, the Company had a net loss of $44,502.  In addition, the Company had a net loss of $760,955 for the year ended December 31, 2019. These circumstances result in substantial doubt as to the Company’s ability to continue as a going concern.  The Company's ability to continue as a going concern is dependent upon the Company's ability to continue to generate sufficient revenues to operate profitably or raise additional capital through debt financing and/or through sales of common shares.

The failure to achieve the necessary levels of profitability or obtain the additional funding would be detrimental to the Company. The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Because we have only two officers and four directors who are responsible for our managerial and organizational structure, there may not be effective disclosure and accounting controls to comply with applicable laws and regulations which could result in fines, penalties and assessments against us.

We have only two officers and four directors. These persons are responsible for our managerial and organizational structure, which include preparation of disclosure and accounting controls under the Sarbanes Oxley Act of 2002. As such, they are responsible for the administration of the Company’s internal controls. Should they not properly administer the Company’s internal controls, we may be subject to sanctions and fines by the SEC.

As of December 31, 2020, management assessed the effectiveness of our internal control over financial reporting and concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of U.S. generally accepted accounting principles. Management determined that this was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses. See Item 9A Controls and Procedures – Internal Control Over Financial Reporting for more information. Although management has taken steps in 2020 to address the deficiencies in our internal controls, the Company currently does not have sufficient internal controls over financial reporting which could limit investment in the Company’s securities and expose the Company to SEC fines or administrative sanctions.

There are legal restrictions on the resale of our shares of common stock, including penny stock regulations under the United States federal securities laws. These restrictions may adversely affect the ability to resell our shares of common stock.

We anticipate that our common shares will continue to be subject to the penny stock rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These rules regulate broker/dealer practices for transactions in “penny stocks.” Penny stocks are generally equity securities with a price of less than $5.00. The penny stock rules require broker/dealers to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker/dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The transaction costs associated with penny stocks are high, reducing the number of broker-dealers who may be willing to engage in the trading of our shares. These additional penny stock disclosure requirements are burdensome and may reduce all of the trading activity in the market for our common stock. As long as the common stock is subject to the penny stock rules, our shareholders may find it more difficult to sell their shares.

Our future sales of our common stock could cause our share price to decline.

There is no contractual restriction on our ability to issue additional shares of our common stock. We cannot predict the effect, if any, that market sales of our common stock or the availability of shares for sale will have on the market price prevailing from time to time. Sales by us of our common stock in the public market, or the perception that such sales may occur, could cause the trading price of our common stock to decrease or to be lower than it might be in the absence of those sales or perceptions.

The market price of our common stock may be volatile.

The trading price of our shares of common stock may be highly volatile and could be subject to wide fluctuations in response to various factors. Some of the factors that may cause the market price of our shares of common stock to fluctuate include:

Failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business.

We use information technologies to securely manage our operations and various business functions. We rely on various technologies to process, store and report on our business and to communicate electronically between our employees, consultants and customers. We also use information technologies to process financial information and results of operations for internal reporting purposes and to comply with regulatory, legal and tax requirements. Despite our security design and controls, and those of our third party providers, our information technology systems may be vulnerable to a variety of interruptions, including during the process of upgrading or replacing software, databases or components thereof, natural disasters, terrorist attacks, telecommunications failures, computer viruses, cyber-attacks, hackers, unauthorized access attempts and other security issues or may be breached due to employee error, malfeasance or other disruptions. Any such interruption or breach could result in operational disruptions or the misappropriation of sensitive data that could subject us to civil and criminal penalties, litigation or have a negative impact on our reputation. There can be no assurance that such disruptions or misappropriations and the resulting repercussions will not negatively impact our cash flows and materially affect our results of operations or financial condition.

In addition, many of our information technology systems, such as those we use for administrative functions, including human resources, payroll, accounting and internal and external communications, as well as the information technology systems of our third-party business partners and service providers, whether cloud-based or hosted in proprietary servers, contain personal, financial or other information that is entrusted to us by our customers and personnel. Many of our information technology systems also contain proprietary and other confidential information related to our business, such as business plans and research and development initiatives. To the extent we or a third party were to experience a material breach of our or such third party’s information technology systems that results in the unauthorized access, theft, use, destruction or other compromises of our customers’ or personnel’s data or confidential information stored in such systems, including through cyber-attacks or other external or internal methods, it could result in a violation of applicable privacy and other laws, and subject us to litigation and governmental investigations and proceedings, any of which could result in our exposure to material liability.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks or natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions and could lead to operational difficulties (including travel limitations) that could impair our ability to manage or operate our business and adversely affect our results of operations.

A small number of our shareholders could significantly influence our business.

There are a few significant shareholders of our common stock who own a substantial percentage of the outstanding shares of our common stock. These few significant shareholders, either individually or acting together, may be able to exercise significant influence over matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of the Company or our assets. This concentration of ownership may make it more difficult for other shareholders to effect substantial changes in the Company, may have the effect of delaying, preventing or expediting, as the case may be, a change in control of the Company and may adversely affect the market price of our common stock. Further, the possibility that one or more of these significant shareholders may sell all or a large portion of their common stock in a short period of time could adversely affect the trading price of our common stock. Also, the interests of these few shareholders may not be in the best interests of all shareholders.

Limited liability of the Company’s executive officers and directors may discourage stockholders from bringing a lawsuit against them.

The Company’s Articles of Incorporation and Bylaws contain provisions that limit the liability of directors for monetary damages and provide for indemnification of officers and directors. These provisions may discourage stockholders from bringing a lawsuit against officers and directors for breaches of fiduciary duty and may also reduce the likelihood of derivative litigation against officers and directors even though such action, if successful, might otherwise have benefited the stockholders. In addition, a stockholder’s investment in the Company may be adversely affected to the extent that costs of settlement and damage awards against officers or directors are paid by the Company under the indemnification provisions of the Company’s Articles of Incorporation and Bylaws.

Under the Articles of Incorporation and Bylaws of the Company, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his or her position, if he or she acted in good faith and in a manner he or she reasonably believed to be in our best interest. We may also advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he or she is to be indemnified, we must indemnify him or her against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of California.

The COVID-19 pandemic could adversely affect our financial results, operations and outlook for an extended period of time.

The COVID-19 pandemic and restrictions imposed by federal, state and local governments in response to the outbreak have disrupted and will continue to disrupt our business. We expect any stay-at-home orders and the corresponding increase in unemployment caused by the closure of businesses in response to the COVID-19 pandemic to adversely affect our revenues, which adversely impacts our liquidity, financial condition and results of operations.

Our operations could be further disrupted if any of our executives or employees are unable or unwilling to work, whether because of illness, quarantine, restrictions on travel or fear of contracting COVID-19, which could further materially adversely affect our liquidity, financial position and results of operations.

We cannot predict how long the COVID-19 pandemic will last or if it will recur, if new government restrictions and mandates will be imposed or how long they will be effective, or the economic impact of such restrictions on our clients, so we cannot predict how long our results of operations and financial performance will be adversely impacted.

None.

Our corporate headquarters, located at 2529 Detroit Ave, Cleveland, OH 44113 is a leased space, which we lease on a month-to-month basis for $2,200 a month.

Although the Company from time to time may be involved with disputes, claims and litigation related to the conduct of its business, there are no material legal proceedings pending to which the Company is a party or to which any of its property is subject, and the Company’s management does not know of any such action being contemplated.

None.

PART II

Market Information 

Our common stock is traded in the United States on the OTC Pink Sheets, operated by the OTC Markets Group under the symbol “MCCX.” and on the TSX Venture Exchange in Canada under the symbol “MCX”.

Holders

There are 41 holders of record for our common stock as of April 9, 2021 and there are a total of 20,426,158 shares of common stock outstanding as of such date. As some of our shares of common stock are held in “street name” by brokers on behalf of shareholders, we are unable to estimate the total number of beneficial holders of our common stock represented by these record holders.

Dividends

We have not declared any cash dividends, nor do we currently intend to do so. We are not subject to any legal restrictions respecting the payment of dividends, except that they may not be paid to render us insolvent. Dividend policy will be based on our cash resources and capital business requirements. It is anticipated that all available cash will be needed for our operations in the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table presents information as of December 31, 2020 with respect to compensation plans under which shares of our common stock may be issued.

[1] The aggregate number of shares of common stock reserved for issuance under the Company’s Amended and Restated Stock Option Plan (the “Plan”) is fixed at 10% of the total number of issued and outstanding shares from time to time, such that the shares of common stock reserved for issuance under the Plan will increase automatically with increases in the total number of Shares issued and outstanding.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities

During the three months ended December 31, 2020, there were no purchases of shares of common stock made by, or on behalf of, the Company or any "affiliated purchaser," as defined by Rule 10b-18 of the Exchange Act.

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

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. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-K. 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. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

Overview

We are currently focused on delivering digital transformation solutions to customer-centric organizations through integrated marketing, data science, analytics, commerce, and machine learning. In addition, we are seeking to invest in cyber-currency and decentralized finance technologies to support the “Always-On Economy”. We were previously engaged in the more narrowly focused business of solely delivering consulting and professional services that were designed to help corporations improve their customer listening and customer management capabilities, referred to as customer experience (“CX”) management solutions. 

The Company formed a wholly owned subsidiary, McorpCX, LLC (“McorpCX LLC”) as a limited liability company in the state of Delaware on December 14, 2017. On August 16, 2018, the Company entered into a contribution agreement with its wholly owned subsidiary McorpCX LLC, pursuant to which the Company transferred to McorpCX LLC all the Company’s assets and liabilities related to the Company’s customer experience consulting business, excluding the underlying technology and databases related thereto which remained with the Company.

Effective August 3, 2020, the Company sold all of its membership interests in McorpCX, LLC to mfifty, LLC, a California limited liability company controlled by Michael Hinshaw, the current President of McorpCX LLC (the “Purchaser”). Since the Company’s professional and related consulting services business, which constituted substantially all of the Company’s operations at the time of the sale of McorpCX LLC, was conducted through McorpCX LLC, the sale of McorpCX LLC represented a strategic shift that we believe will have a major effect on the Company’s operations and financial results.

As consideration for the sale of McorpCX LLC, the Company received a total of $352,000 in cash consisting of $100,000 received upon the signing of the purchase agreement and $252,000 received at the closing of the transaction along with a $756,000 promissory note. The promissory note has an initial annual interest rate of 0.99% (to be recalculated at the end of each twelve-month period subsequent to the date of the note based on the annual Applicable Federal Rate for mid-term loans on the first business day following each such twelve-month period) accruing daily on the outstanding balance of the note, and monthly principal payments are payable to the Company over a term of four or more years. Monthly principal payments to the Company are initially $7,292 per month for the first twelve months following the date of the note, and then during each subsequent twelve-month period are based on the annual revenues of McorpCX, LLC.  The note is secured by the Purchaser's ownership interest in McorpCX LLC.

The Company’s management is now in the process of recreating the Company to enable it to focus on providing technology solutions for the “Always-On Economy”. MCX is exploring investment opportunities into three areas: digital transformation, cryptocurrency, decentralized finance (“DeFi”). In developing our portfolio offering, we are in the process of exploring various strategic alternatives, such as proprietary software or technology development, pursuit of mergers/acquisitions or joint venture opportunities, “white-labeling” arrangements, software licensing arrangements, and investment in additional infrastructure for our Company. Each of these possible strategies will be thoroughly vetted by our board of directors to assess the expected level of enterprise value creation for each strategy compared to the various risks associated with each possible scenario. In addition, we may require financing to pursue these strategies that are beyond our current financial resources. Accordingly, there is no assurance that we will be able to pursue any strategy identified by our board of directors.

On November 12, 2020, the Company formed The Collective Experience, LLC in Delaware (the “Collective Experience”). The Company is currently providing all of its customer relations management consulting services, which is the Company’s sole revenue generating operations, through the Collective Experience.

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China and has since extensively impacted the global health and economic environment. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic and the government responses to the outbreak presents uncertainty and risk with respect to the Company and its performance and financial results.

The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict, as the response to the pandemic is continually evolving. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted.

We cannot assure you that we will be able to compete successfully against current or potential competitors, or that competition will not have a material adverse effect on our business, financial condition, and operations. 

Sources of Revenue

Prior to the sale of McorpCX, LLC in August 2020, our revenue consisted primarily of fees from professional and consulting services and other revenue primarily related to the reimbursement of expenses mostly through the operations of McopCX LLC. Product revenue was from productized and software-enabled service sales not elsewhere classified.

As of December 31, 2020, our only source of revenue is derived from providing digital transformation services through the Collective Experience that include brand strategy, data science, pricing science, customer experience management consulting and implementation in support of these strategies.

Operating Expenses

Cost of Goods Sold

Cost of goods sold consist 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.

General and Administrative Expenses 

General and administrative expenses consist primarily of salary and related expenses for management, client delivery, finance and accounting, and sales and marketing. These 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 consolidated financial statements. In addition, the other general and administrative expenses include the professional fees, filing, and registration costs necessary to meet the requirements associated with having to file reports with the United States Securities and Exchange Commission under the Exchange Act as well as having our stock listed on the TSX Venture Exchange in Canada and quoted on the OTC Pink Sheets in the United States.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis.

Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe that the assumptions and estimates associated with revenue recognition, income taxes, stock-based compensation, research and development costs and impairment of long-lived assets have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Revenue Recognition

The Company’s revenue consists primarily of professional and consulting services, as well as reimbursable expenses billed to clients, software-enabled product sales and other revenues. Other revenue includes reimbursement of related travel costs and out-of-pocket expenses.

The Company’s consulting services are contracted under master terms and conditions with statements of work (“SOW”) defined for each project. A typical consulting SOW will span a period of 60-180 days and will usually be billed to the client based on certain milestones being achieved throughout the SOW. The Company recognizes revenue based upon a percentage of completion of each SOW during each project. In addition, we typically incur travel and other miscellaneous expenses during work on each SOW which we bill to our clients for reimbursement. The travel and miscellaneous expenses are recognized in revenue on a percentage of work complete basis.  In addition, some clients will enter into annual or longer-term contracts that will have a monthly retainer for general consulting and project services.  The revenue for these engagements is recognized on straight-line basis monthly during the term of the contract.

Contract costs, such as commissions, are typically incurred contemporaneously with the pattern of revenue recognition and, as such, are expensed as incurred. See Note 4 Revenue Recognition for further information.

Income Taxes

No provision for income taxes at this time is being made due to the offset of cumulative net operating losses. A full valuation allowance has been established for deferred tax assets based on a “more likely than not” threshold. The ability to realize deferred tax assets depends on our ability to generate sufficient taxable income within the carry forward periods provided under the United States Internal Revenue Code of 1986, as amended and the rules promulgated thereunder. While the Company’s statutory tax rate can vary depending on taxable income level, the effective tax rate is currently 0% mostly because of the valuation allowance described above. The Company does not have any material uncertainties with respect to its provisions for income taxes.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date using a Black-Scholes valuation model and is recognized as expense over the requisite service period. Determining the fair value of stock-based awards at the grant date requires judgment and assumptions, including expected volatility. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be impacted.

Results of Continuing Operations

Management determined that the completion of the sale of McorpCX LLC meets the criteria for the presentation of the operations of McorpCX LLC as discontinued operations as of August 3, 2020 and accordingly, the results of the McorpCX, LLC are presented as discontinued operations in the Company’s Consolidated Statements of Operations beginning in the third quarter of 2020, and thus excluded from continuing operations for all periods presented. In addition, the related assets and liabilities of McorpCX, LLC are classified as discontinued operations on the Company’s Consolidated Balance Sheets for all periods presented prior to the disposal.

Revenues & Cost of Goods Sold

During the year ending December 31, 2020, we had $47,933 in revenue recognized as well as the related cost of goods sold of $45,425 generated through continuing operations from two customer contracts entered into in the last quarter of 2020. There was no revenue or cost of goods sold generated through continuing operations for the year ended December 31, 2019.

For the year ended December 31, 2020 we had net operating loss of $427,498 compared to a net operating loss of $586,986 in 2019. The decrease in net operating loss in 2020 compared to 2019 was primarily a result of revenue generated in the fourth quarter of 2020 from new operations combined with fewer salaried employees, less professional fees and no consulting services or travel expenses in 2020.

Net loss decreased to $44,502 for the year ended December 31, 2020 from a net loss of $760,955 in 2019, mostly as a result of $181,634 in income from discontinue operation of McorpCX, LLC in the current period compared with the loss of $178,879 from such discontinued operations in the same period last year combined with the $202,376 gain on disposal of McorpCX, LLC in 2020.

Expenses attributable to salaries and wages decreased by $48,779 during the year ended December 31, 2020 compared to 2019 primarily due to a decrease in the compensation of our executive officers in 2020 compared to 2019 and a reduction in staff salaries due to the outsourcing of our bookkeeping function.

Contract services expenses decreased during the year ended December 31, 2020 compared to 2019 primarily due to finance and administration services provided by contractors in 2019, which were not required in 2020.

Other general and administrative costs decreased by $70,501 during the year ended December 31, 2020 compared to 2019 primarily due to decreases in travel expenses combined with a reduction professional fees in 2020 compared to 2019.

We recognized $1,014 in other expense in 2020 compared to $4,910 in other income in 2019 primarily due to increases in state use tax expenses being more than offset by interest on related party notes receivable.

Liquidity and Capital Resources

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

Anticipated Uses of Cash

As of December 31, 2020, our cash and cash equivalents and working capital had decreased to $297,965 and $114,499, respectively, from $379,180 and $779,762 as of December 31, 2019. Cash and cash equivalents for discontinued operations were $209,669 as of December 31, 2019.

For the year ended December 31, 2020 and 2019, we were able to finance our operations with cash generated through cash on hand as well as proceeds of the sale of McorpCX, LLC. The accompanying consolidated financial statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

During the year ended December 31, 2020, our primary uses of cash included cash paid to professional staff to support our consulting services, general and administrative support and new business development activities as well as direct selling costs related to the sale of LLC.

We currently plan to fund our expenditures with cash on hand as well as cash flows generated from new revenue sources as a digital transformation company. If needed, the possibility may exist to raise additional capital through debt financing and common stock sales. We do not intend to pay dividends in the foreseeable future. In addition to the working capital position of the Company, we are seeking new sources of revenue to fund our capital requirements for our business during the next 12 months

We received total consideration of $1,108,000 consisting of $352,000 in cash and a $756,000 promissory note for the sale of McorpCX, LLC, which was completed on August 3, 2020, which applied to transaction costs as well as investment toward becoming a technology solutions business. These measures combined with our positive working capital position are expected to enable us to meet our liquidity needs over the next 12 months. Notwithstanding the foregoing, 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 obligations, nor that sufficient capital can be raised through debt or equity financing.

We intend to continue to seek ways to expand upon our business and as such, in the future we may make acquisitions of businesses or assets or commitments to additional capital projects. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources may be required. Depending on the size of a transaction, the capital resources that may be required can be substantial. The necessary resources may be generated from cash flow from operations, cash on hand, the proceeds of the sale of McorpCX, LLC, borrowing against our assets or the issuance of securities, and there is no assurance these capital resources will be available to us when required.

Cash Flow for the Years Ended December 31, 2020 and 2019

The cash flows related to discontinued operations have not been segregated and are included in the Consolidated Statements of Cash Flows. There were no significant capital expenditures and operating noncash items for any periods presented.

Operating Activities. Net cash used in operating activities decreased to $425,384 for the year ended December 31, 2020 compared to net cash used in operating activities of $761,166 in 2019. This decrease in cash used in operating activities in 2020 compared to 2019 was primarily due to the $716,453 decrease in net loss from 2019 to 2020 as well as a $202,376 gain on disposal of McorpCX, LLC in 2020. Cash provided from greater increases in accounts payable and deferred revenue in 2020 compared to 2019 was more than offset by cash used in connection with greater decreases in accounts receivable and depreciation in 2020 compared to 2019.

Investing Activities. There was cash used in investing activities for the year ended December 31, 2020 due to the net change in cash from the sale of McorpCX, LLC of $305,736 partially offset by cash received from related party notes receivable of $29,168. There was no cash provided by, or used in, investing activities for the year ended December 31, 2019.

Financing Activities. The Company had cash used in financing activities due to $411,069 cash proceeds received from the PPP Note and EIDL Note (each defined below) and $100,000 cash proceeds from a related party note during the year ended December 31, 2020.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was passed in the United States, which included amongst other programs, loans to businesses under a Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”). On May 12, 2020, McorpCX LLC received an unsecured non-recourse promissory note in the amount of $161,069 under the PPP (the “PPP Note”). The PPP Note incurs interest at a fixed rate of 1.00% and is scheduled to mature on May 3, 2022. McorpCX, LLC is required to make monthly payments on the PPP Note of $6,785 commencing on November 1, 2020. 

On June 11, 2020, McorpCX LLC received a secured non-recourse promissory note in the amount of $150,000 under the EIDL program (the “EIDL Loan”). The EIDL Loan incurs interest at a fixed rate of 3.75% and is scheduled to mature on 30 years from June 10, 2050. McorpCX, LLC is required to make monthly payments on the EIDL Loan of $731 which includes principal and interest beginning twelve months from the date of the EIDL Loan beginning June 11, 2021. Collateral for the loan includes all tangible and intangible personal property. As a result of the sale of McorpCX LLC, each of the PPP Note and the EIDL Loan are no longer liabilities of the Company.

The Company also had cash provided by financing activities of $100,000 due to cash proceeds from a related party note during the year ended December 31, 2020. The note is not explicit in its terms of payment, interest, or maturity. As a result of the sale of McorpCX LLC, this note is no longer a liability of the Company.

There was no cash provided by, or used in, financing activities for the year ended December 31, 2019.  

Results of Discontinued Operations

During the year ended December 31, 2020, total income from discontinued operations increased by $562,889 to $384,010 from a loss of $178,879 in 2019, mostly as a result of $181,634 in income from the discontinued operations of McorpCX, LLC in 2020 compared with a loss of $178,879 from such discontinued operations in 2019 mostly as a result of a decrease in expenses more than offsetting a decrease in gross profit and an increase in other expenses in 2020 compared to 2019, combined with $202,376 in net proceeds from the sale of McorpCX, LLC being recognized as a gain on disposal of McorpCX, LLC in 2020. 

Off Balance Sheet Arrangements

We did not have any off balance sheet arrangements as of December 31, 2020.

Contractual Obligations

We lease one facility in Ohio on a month-to-month basis. We do not have any debt capital lease obligations.

The operating lease obligations presented reflect future minimum lease payments due under the non-cancelable portions of our operating lease.

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

MCX Technologies Corporation (formerly McorpCX, Inc.)

INDEX TO THE FINANCIALS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

MCX Technologies Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MCX Technologies Corporation and its subsidiary (collectively, the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2016.

Houston, Texas

April 15, 2021

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Balance Sheets

The accompanying notes are an integral part of these consolidated financial statements.

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Statements of Operations

The accompanying notes are an integral part of these consolidated financial statements.

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Statements of Changes in Shareholders' Equity

The accompanying notes are an integral part of these consolidated financial statements.

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Statements of Cash Flows

The accompanying notes are an integral part of these consolidated financial statements.

MCX TECHNOLOGIES CORPORATION (formerly MCORPCX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 & 2019

None

Disclosure Controls and Procedure

Pursuant to Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based upon that evaluation, the Company’s management concluded that, as of December 31, 2020, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure.

It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness, and there can be no assurance that any design will succeed in achieving its stated goals.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of December 31, 2020, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that were considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were:

The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the audit of our financial statements as of December 31, 2020.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

Plan for Remediation of Material Weaknesses

We are in the process of developing and implementing remediation plans to address our material weaknesses. 

Changes in internal controls over financial reporting

We experienced some changes in internal controls some of which resulted in the aforementioned material weaknesses. These changes were primarily due to significant turnover of our executive officers during the year ended December 31, 2020.

None.

PART III

Officers and Directors 

Our directors will serve until their successor is elected and qualified. Our officers serve at the pleasure of the Company’s board of directors (the “Board”). The Board has no nominating or compensation committees.

The names, addresses, ages and positions of our officers and directors are set forth below:

The people named above are expected to hold their offices/positions until the next annual meeting of our stockholders.

There are no family relationships between any of our directors or executive officers.

Background of Officers and Directors

Matthew Kruchko – President, Chief Executive Officer and Director

On February 3, 2020, Matthew Kruchko was appointed as our President and Chief Executive Officer. Matthew Kruchko has been a member of the Board since August 31, 2017. Since 2016, Mr. Kruchko has been a principal and the Chief Strategy Officer of Connect Brands, Inc., a San Francisco based marketing and advertising company. He has also been a member of the board of directors of that company since 2016. Previously, from 2007 to 2015 he was a Managing Director and a member of the board of directors of Applied Storytelling, a brand consultancy/strategy firm, and was previously Executive Vice President of Strategy and Global Marketing for the UK-based SaaS software company Kalibrate Technologies PLC from 2014 to 2015. Mr. Kruchko studied finance and marketing at the University of Southern Maine and is currently an advisory board member for the Detroit Creative Corridor Center (DC3).

Mr. Kruchko brings to the Board extensive knowledge of global marketing and marketing strategy, including in the SaaS software industry, which the Board believes will important as the Company continues to develop and market its customer experience services. Also, as the Company’s President and Chief Executive Officer, Mr. Kruchko provides the Board with exposure to the Company’s executive team and insight into our specific strategic and operational challenges and opportunities.

Gregg Budoi – Interim Chief Financial Officer and Director

Gregg Budoi has been a director since August 2018 and our Interim Chief Financial Officer since January 15, 2021. Mr. Budoi has previously served as the Company’s Interim President and Chief Executive Officer from both August 16, 2018 to June 7, 2019 as well as from September 30, 2019 to February 3, 2020. Previously, Mr. Budoi served as the Company’s Interim Chief Financial Officer from September 26, 2017 to November 6, 2018. Prior to becoming the Company’s Interim Chief Financial Officer, Mr. Budoi was from 2014 to 2017 the Chief Financial Officer and member of the Board of Directors of Kalibrate Technologies Plc, a London Stock Exchange (AIM) listed SaaS software and consulting company. Prior to that, from 2007 to 2014 he was a co-founder and former President and CEO of EZ Energy USA, Inc. an Israeli company that operated 69 gas & convenience stores. Mr. Budoi has also been Managing Director at Barnes Wendling Corporate Finance, LLC, a financial advisory firm where from 2006 to 2007 he established a corporate finance advisory services platform and completed several corporate restructurings as well as M&A and capital raising transactions. Prior to that, he was Chief Executive Officer of his own financial advisory firm, Budoi & Company, Inc. from 2003 to 2006 and was from 1999 to 2003 the Chief Financial Officer, Vice President Finance and Treasurer of Dairy Mart Convenience Stores, Inc., where he led the strategic evaluation and recapitalization process for this publicly traded chain of over 850 convenience stores. Mr. Budoi holds a BS in Business Administration/Finance from Ohio State University, and a Masters of Business Administration from Cleveland State University.

The Board believes Mr. Budoi brings to the Board extensive executive management experience from several public and private companies, as well as significant experience in the SaaS software industry.

Christopher Rowlison – Director

On November 11, 2020, Christopher Rowlison was appointed by the Board to serve as a director until the next annual meeting of the Company’s shareholders. From September, 2018 to the present, Mr. Rowlison has served as the President of Liquid Agency, a Brand Experience Agency based in Silicon Valley. Prior to that, Mr. Rowlison was at Wire Stone, LLC where he spent 15 years in various positions, including Senior Vice President & Chief Client Officer from 2002 to 2017. Previously, Mr. Rowlison was Senior Director, Emerging Marketing Solutions for Hewlett-Packard from 2000 to 2002.

The Board believes Mr. Rowlison brings to the Board an extensive background in the customer experience industry.

Nii A. Quaye – Director

Nii A. Quaye has been a member of the Company’s board of directors since August 31, 2017. From 2015 to 2016, Mr. Quaye was the Senior Vice President of Global Head of Service Quality for the Abu Dhabi based First Gulf Bank (FGB). Previously, from 2013 to 2014, Mr. Quaye was Vice President, Group Head of Customer Service for Ecobank Transnational Incorporated. Mr. Quaye also was General Manager and Head of Service and Quality for the Saudi Investment Bank from 2010 to 2012, and was a Senior Vice President at CitiGroup where he was responsible for administering that company’s Global Contact Center. A GE-trained Six Sigma Black Belt, Mr. Quay holds a B.A. from Ottawa University, a J.D. from the University of Maryland Law School, and an MBA in Finance & Investments from The George Washington University in Washington, DC.

The Board believes Mr. Quay brings to the Board significant global finance and technology experience with several large global organizations.

Involvement in Certain Legal Proceedings

During the past ten years, Mr. Kruchko, Mr. Budoi, Mr. Rowlison, and Mr. Quaye have not been the subject of the following events:

Audit Committee Financial Expert

Our Board has determined that Mr. Quaye and Mr. Rowlison are an independent directors under the standards established by the NASDAQ Stock Market and Mr. Quaye qualifies as an "audit committee financial expert" as defined in applicable SEC rules. 

The Committees of the Board

Due to the Company's current size, the only committee of the Company’s board of directors is an audit committee. Our board of directors currently does not have a nominating or compensation committee and the functions normally performed by such committees are performed by the board of directors as a whole.

Code of Ethics

We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. Our code of ethics applies to each of our executive officers. A copy of our code of ethics is included as an exhibit to this Annual Report on Form 10-K.

Whistleblower Policy

We have adopted a whistleblower policy that provides for the protection of our employees from our retaliation where an employee believes that we are violating some law, rule or regulation and wants to disclose the same to proper authorities or to the public at large.  This policy further provides a mechanism whereby the employee may disclose the information to us in a confidential manner and may possibly resolve the issue without the need of going to third parties outside of our organization.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based upon a review of information available to us and a review of the information filed with the SEC, with the exception of a Form 3 that has yet to be filed by Christopher Rowlison, all officers, directors and owners of 10% or more of our shares of common stock have filed all reports required by Section 16(a) of the Exchange Act for the year ended December 31, 2020.

On February 1, 2011, we entered into an employment agreement with Lynn Davison, pursuant to which she agreed to serve as our Vice President. This initial agreement provided for an annual base salary of $132,000 but was subsequently increased to $162,000 effective August 22, 2014 and again increased to $202,500 effective January 1, 2019. In addition, Ms. Davison is eligible for bonus compensation as established by us from time to time. On February 7, 2011, we granted Ms. Davison 10-year options to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.35 per share. A Board resolution dated December 17, 2015 later reset the exercise price of these options to $0.05 per share. On September 3, 2013, we granted Ms. Davison an additional 10-year options to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.40 per share. On May 15, 2015, we granted Ms. Davison an additional 10-year options to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.75 per share.

All of the options granted to Ms. Davison have fully vested and are exercisable pursuant to their respective terms. In August 2019, the Board cancelled 300,000 stock options with an exercise price of $0.40 per share previously granted to Ms. Davison in connection with Ms. Davison entering into a private stock purchase agreement with Mr. Hinshaw to acquire shares currently owned by Mr. Hinshaw. In connection with the sale of McorpCX, LLC in August 2020, Ms. Davison ceased to be an employee of the Company, and consequently all of her remaining stock options have been forfeited.

On May 15, 2016, the Company entered into an employment agreement with Stephen Shay pursuant to which he agreed to serve as our Vice President. This initial agreement provided for an annual base salary of $240,000. In addition, Mr. Shay is eligible for bonus compensation as established by us from time to time.

On May 15, 2015, we granted Mr. Shay 10-year options to purchase 600,000 shares of common stock with an exercise price of $0.75 per share. These stock options were subsequently cancelled by the Board in August of 2019 in connection with Mr. Shay entering into a private stock purchase agreement with Mr. Hinshaw to acquire shares currently owned by Mr. Hinshaw. In connection with the sale of McorpCX, LLC in August 2020, Mr. Shay ceased to be an employee of the Company, and consequently all of his remaining stock options have been forfeited.

In connection with his original appointment as the Company’s Interim President and Chief Executive Officer in August 2018, the Company and Mr. Budoi entered into an executive employment agreement dated August 16, 2018 (the “Budoi Employment Agreement”), under which Mr. Budoi was to be paid a base salary of $204,000 subject to an adjustment to $300,000 upon the occurrence of any of the following events: (i) the Company raises an aggregate of at least $5.0 million in connection with the new issuance of any form of equity securities, or (ii) the acquisition of another company with annual revenues that when combined with the Company’s revenues over that previous 12 calendar month period equals $5.0 million or more on an annualized pro forma basis.

The Budoi Employment Agreement also provided that Mr. Budoi was entitled to receive a one-time signing bonus of $100,000 contingent upon the achievement of certain milestone events, including (i) the completion of an equity financing in excess of $5.0 million, (ii) the completion of an acquisition of a new business with annualized revenues (which when combined with the Company’s annual revenues over the previous 12 months) that are in excess of $5.0 million per year, or (iii) the determination by the Board that Mr. Budoi has successfully executed a strategic plan developed by the Board that includes the acquisition and/or disposition of material assets or business operations in a transaction approved by the Board and the Company’s shareholders, if required, in each case to be achieved prior to the one year anniversary of the effective date of Mr. Budoi’s employment agreement.

In addition, Mr. Budoi was entitled to participate in the Company’s employee benefit plans and receive stock options under the Company’s Amended and Restated Stock Option Plan (the “Option Plan”). Mr. Budoi’s employment as our Interim President and Chief Executive Officer was for an initial term expiring October 31, 2018 with automatic renewals (subject to right of the Company and Mr. Budoi to elect not to renew) for additional one month periods. Upon the initial expiration of the Budoi Employment Agreement on October 31, 2018, Mr. Budoi and the Company agreed to amend the employment agreement as follows:

The Board also granted Gregg Budoi 290,000 stock options with an exercise price of $0.30(Canadian) per share. The options vest incrementally in three roughly equal installments on August 16, 2019, August 16, 2020 and August 16, 2021, respectively. The stock options are subject to accelerated vesting in connection with a change in control of the Company, pursuant to the terms of the Option Plan.

The Budoi Employment Agreement, as amended, was terminated upon Mr. Budoi’s resignation as our Interim President and Chief Executive Officer on June 7, 2019. Mr. Budoi did not enter a new employment agreement with the Company during his tenure as our Interim President and Chief Executive Officer from September 30, 2019 through February 3, 2020 and has not entered a new employment agreement in connection with his appointment as our Interim Chief Financial Officer in January 2021.

In connection with his appointment as President of McorpCX, LLC in August 2018, Michael Hinshaw has entered into an executive compensation agreement with McorpCX, LLC under which he will be paid a base salary of $250,000 and will be entitled to receive the following additional incentive remuneration (collectively, “Variable Compensation”):

In addition, Mr. Hinshaw will be entitled to participate in any deferred compensation plan that may be adopted by McorpCX, LLC reflecting Mr. Hinshaw’s right to receive awards from a share of the deferred compensation pool that will be comprised of up to 50% of the annual cash flow of McorpCX, LLC, which will include net income (i) plus depreciation and amortization expense, (ii) less principal payments made on any indebtedness, and (iii) less any capital expenditures paid in cash during a fiscal year.

The initial term of Mr. Hinshaw’s employment is six months from the date of his employment agreement, with automatic renewals (subject to right of McorpCX, LLC and Mr. Hinshaw to elect not to renew) for additional three month periods. McorpCX, LLC may terminate Mr. Hinshaw’s employment without cause (or Mr. Hinshaw can terminate the agreement upon good reason) in which case Mr. Hinshaw is entitled to payment of six months’ salary as severance plus all Variable Compensation earned by Mr. Hinshaw during the previous twelve months. This employment agreement ceased to be an obligation of the Company in connection with the sale of McorpCX, LLC in August 2020, and consequently, Mr. Hinshaw no longer has any employment relationship or otherwise receives any compensation from the Company or any of the Company’s affiliates.

The Company has yet to enter an employment agreement with Matthew Kruchko since his appointment as our President and Chief Executive Officer in February 2020.

The following table sets forth information with respect to compensation paid by us to our “named executive officers” (which includes our principle executive officer or “PEO” and our two highest compensated officers in 2019 outside of our PEO) for each of the last two years as well as all persons who served as our PEO during 2019, but were not serving in such position at the end of such year.

The following table sets forth information with respect to compensation paid by us to our non-employee directors (all directors except for Mr. Kruchko and Mr. Budoi) during the last completed fiscal year ended December 31, 2020.

Director Compensation Table

Non-employee members of our board of directors may receive stock options granted under the Company’s Amended and Restated Stock Option Plan (the “Plan”) as consideration for their services on our board of directors. Should any director be awarded option grants the amount of those grants would be proportionate to their level of involvement with the activities of the board of directors (meeting attendance, service on committees, etc.). Additionally, in August 2017, the Company decided to pay a $2,500 monthly fee to our non-employee directors in consideration for their service on our board of directors. As of January 1, 2019, Mr. Quaye agreed that he would no long receive any monthly compensation to participate on the Board and no fees were paid to any of our non-employee directors during 2020.

There are no retirement, pension, or profit sharing plans for the benefit of our officers and directors other than the Plan. Securities offered under the Plan will consist exclusively of our shares of common stock. The aggregate number of shares of common stock reserved for issuance under the Plan is fixed at 10% of the total number of issued and outstanding shares of common stock from time to time, such that the shares of common stock reserved for issuance under the Plan will increase automatically with increases in the total number of shares of common stock issued and outstanding.

If an option awarded under the Plan expires, is surrendered in exchange for another option, or terminates for any reason during the term of the Plan prior to its exercise in full, the shares of common stock subject to but not delivered under such option will be available for issuance pursuant to the exercise of future options granted under the Plan. 

The following table sets forth information with respect to outstanding equity awards held by our named executive officers at December 31, 2020.

Compensation Committee Interlocks and Insider Participation

Since the Company currently does not have a compensation committee or other committee of the Board performing similar functions, executive officer compensation is determined by the entire Board. Mr. Kruchko, our current President and Chief Executive Officer, Mr. Budoi, our current Interim Chief Financial Officer, and Mr. MacNeil, our former Chief Financial Officer are the only officers or employees of the Company who participated in deliberations of the Board concerning executive officer compensation. However, each of Mr. Kruchko, Mr. MacNeil, and Mr. Budoi excused themselves from our Board’s discussions concerning the compensation of our President and Chief Executive Officer or Chief Financial Officer when such person was serving in that capacity. With the exception of each of Mr. Budoi, Mr. Kruchko, Mr. MacNeil, and Michael Hinshaw, the President of McorpCX, LLC, no member of our Board was, during the year ended December 31, 2020, an officer, former officer or employee of the Company or any of its subsidiaries, or had any relationship requiring disclosure by the Company under the SEC rules requiring disclosure of certain relationships and related party transactions. No executive officer of the Company served as a member of (i) the compensation committee of another entity in which one of the executive officers of such entity served on our Board, (ii) the board of directors of another entity in which one of the executive officers of such entity served on our Board, or (iii) the compensation committee of another entity in which one of the executive officers of such entity served as a member of our board of directors, during the year ended December 31, 2020.

The following table sets forth, as of April 14, 2021, the total number of shares owned beneficially by each of our directors, director nominees and named executive officers, individually and directors and all executive officers as a group, and the present owners of 5% or more of our total outstanding shares of common stock.  Shares of common stock subject to options and warrants exercisable within 60 days from the date of this table are deemed to be outstanding and beneficially owned for purposes of computing the number of shares held and the percentage ownership of such each individual but are not treated as outstanding for purposes of computing the percentage ownership of others.

The information in this table reflects "beneficial ownership" as defined in Rule 13d-3 of the Exchange Act. We have determined beneficial ownership in accordance with the rules of the SEC or other information we believe to be reliable. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares that they beneficially own, subject to applicable community property laws where applicable.

Applicable percentage ownership is based on 20,426,158 shares of common stock outstanding as of April 14, 2021.

*Represents beneficial ownership of less than 1%.

Related Party Transactions

On April 15, 2020, the Company entered into a definitive purchase agreement (the “Purchase Agreement”) to sell all of the membership interests in McorpCX LLC to mfifty, LLC, a California limited liability company that is controlled by Michael Hinshaw (who is the manager and sole member of mfifty, LLC), the President of McorpCX LLC, who has beneficial ownership over 5,200,000 shares of the Company’s common stock, representing approximately 25% of the total outstanding shares of the Company’s common stock.

The Company received stockholder approval of the Purchase Agreement during a special meeting held on June 29, 2020, and the transaction closed on August 3, 2020.

As consideration for the sale of McorpCX LLC, the Company received a total of $352,000 in cash consisting of $100,000 received upon the signing of the Purchase Agreement and $252,000 received at the closing of the transaction along with a $756,000 promissory note. The promissory note has an initial annual interest rate of 0.99% (to be recalculated at the end of each twelve month period subsequent to the date of the note based on the annual Applicable Federal Rate for mid-term loans on the first business day following each such twelve month period) accruing daily on the outstanding balance of the note, and monthly principal payments are to be payable to the Company over a term of four or more years. Monthly principal payments to the Company are initially $7,292 per month for the first twelve months following the date of the note, and then during each subsequent twelve month period are to be based on a percentage of the annual revenues of McorpCX LLC.  The note is secured by the mfifty, LLC’s ownership interest in McorpCX LLC.

Other than the sale of McorpCX, LLC to mfifty, LLC pursuant to the terms of the Purchase Agreement, the Company did not engage in any transactions with related parties requiring disclosure under Item 404 of Regulation S-K under the Securities Act since January 1, 2020 and there are currently no such transactions proposed.

Review and Approval of Related Party Transactions

Our Board recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest and may create the appearance that Company decisions are based on considerations other than the best interests of the Company and its shareholders. As a result, the Board refers to avoid related party transactions. However, the Board recognizes that there are situations where related party transactions may be in, but may not be inconsistent with, the best interests of the Company and its shareholders.

As a result, our Board is responsible for reviewing and approving the terms and conditions of all proposed transactions between us, any of our officers, directors or shareholders who beneficially own more than 5% of our outstanding shares of common stock, or relatives or affiliates of any such officers, directors or shareholders, to ensure that such related party transactions are fair and are in our overall best interest and that of our shareholders.

Our Board has not adopted any specific procedures for the conduct of reviews and considers each transaction in light of the specific facts and circumstances. In the course of its review and approval of a transaction, our board of directors the following factors, among other factors it deems appropriate:

Any member of our Board who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction, provided, however, that such director may be counted in determining the presence of a quorum at a meeting of the Board that considers the transaction.

Independence of Directors

Our shares of common stock are not listed on a national securities exchange or an inter-dealer quotation system that requires that a majority of our Board of Directors consist of independent directors. Under these circumstances, the rules of the SEC require that we identify which of our directors is independent using a definition for independence for directors of a national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be independent. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, with us, our senior management and our independent registered public accounting firm, our board of directors has determined that Messrs. Quaye and Rowlison are independent directors under standards established by the NASDAQ Stock Market. 

Audit Fees

The following table presents fees for professional audit services for the audit of the Company’s annual consolidated financial statements for fiscal year 2020 and 2019 and fees billed for other services rendered during 2020 and 2019.

(1) Audit Fees consist of fees for professional services rendered for the audit of the company's consolidated financial statements included in its Annual Report on Form 10-K, the review of the interim financial statements included in its Quarterly Reports on Form 10-Q, and for the services that are normally provided in connection with regulatory filings or engagements.

(2) Includes fees associated with assurance and related services that are reasonably related to the performance of the audit or review of the Company's consolidated financial statements. This category includes fees related to consultation regarding generally accepted accounting principles.

(3) Tax Fees consist of fees for tax compliance, tax advice and tax planning. The fee includes the preparation of the Company's income tax returns, franchise tax reports, and other tax filings.

Although our audit committee currently does not have a formal policy in place to pre-approve all audit and non-audit services provided by our independent auditor and the fees for such non-audit services, the Company's audit committee has adopted a policy to review on an annual basis the performance, objectivity and independence of our independent auditor. 

PART IV

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 15th day of April, 2021.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.