MCX Technologies Corp - Quarter Report: 2020 September (Form 10-Q)

MCX Technologies Corporation (formerly McorpCX, Inc.)

Form 10-Q Quarterly Report

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS.

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Balance Sheets

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

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Statements of Operations

(unaudited)

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

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

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

MCX Technologies Corporation (formerly McorpCX, Inc.)

Consolidated Statements of Cash Flows

(unaudited)

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

MCX TECHNOLOGIES CORPORATION (formerly MCORPCX, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(unaudited)

Cautionary Statement

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

Unless the context otherwise requires, all references to “we,” “us,” “our” or the “Company” are to MCX Technologies Corporation and our subsidiaries.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these 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 financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

A description of the Company’s critical accounting policies and related judgments and estimates that affect the preparation of the Company’s financial statements is set forth in under the heading “Critical Accounting Policies and Estimates” in Item 7, Management’s Discussion and Analysis of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. With the exception of the policy adoptions discussed in Note 3 of the Notes to the Consolidated Financial Statements included with this report, such policies were unchanged during the nine months ended September 30, 2020.

Overview

We are currently focused on delivering digital transformation solutions to customer-centric organizations through integrated marketing, data science & analytics, commerce, and machine learning. We previously engaged in the business of delivering consulting and professional services that were designed to help corporations improve their customer listening and customer management capabilities.

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 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 to customer centric organizations. We are now focused on developing a platform that we expect will allow us to offer digital transformation solutions to organizations to help them gain insights into their customers’ needs in order for them to be better able to provide products and services that are more in line with their customers' needs.  Our digital transformation platform is in the process of being developed and will focus on integrated marketing, data science and analytics, utilizing methods that include but are not limited to machine learning technologies. 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.

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.

Administrative Expenses

General and Administrative Expenses

General and administrative expenses consist primarily of salary and related expenses for management, finance and accounting, and sales and marketing. These expenses also include contract services, as well as marketing and promotion costs, 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as having our stock listed on the TSX Venture Exchange in Canada and quoted on the OTCQB venture marketplace in the United States.

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

There was no revenue generated through continuing operations for the three and nine months ended September 30, 2020 and 2019.

Costs of Goods Sold

There were no costs of goods sold generated through continuing operations for the three and nine months ended September 30, 2020 and 2019.

For the three months ended September 30, 2020 we had net operating loss of $71,446 compared to a net operating loss of $153,244 for the three months ended September 30, 2019. The decrease in net operating loss in the second quarter of 2020 compared to the same quarter of 2020 was mostly the result of fewer salaried employees and reduced administrative expenses in the current quarter compared to the same quarter in 2019.

For the nine months ended September 30, 2020, we had net operating loss of $292,325 compared to a net operating loss of $457,997 for the nine months ended September 30, 2019. The decrease in net operating loss in the current period was primarily a result of fewer salaried employees and less professional fees combined with no consulting services or travel expenses in 2020.

Net income increased to $291,928 in the third quarter of 2020 from a net loss of $524,453 in the same quarter of 2019, mostly as a result of $10,015 in income from the discontinued operations of McorpCX, LLC in the current quarter compared with a loss of $366,336 from such discontinued operations in the same quarter last year combined with a $346,138 gain on disposal of McorpCX, LLC in 2020. 

Net income increased to $90,441 in the first nine months of 2020 from a net loss of $434,492 in the same period of 2019, mostly as a result of $181,634 in income from the discontinued operations of McorpCX, LLC in the current period compared with income of $24,711 from such discontinued operations in the same period last year combined with a $202,376 gain on disposal of McorpCX, LLC in 2020.

Salaries and wages decreased by $40,769 during the three months ended September 30, 2020 compared to the same quarter in 2019 primarily due to a decrease in the compensation of our executives officers in the current quarter compared to the same quarter in 2019 and a reduction in staff salaries due to the outsourcing of our bookkeeping function.

Salaries and wages decreased by $46,832 during the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to a decrease in the compensation of our executives officers in the current period compared to the same period in 2019 and a reduction in staff salaries due to the outsourcing of our bookkeeping function.

Other general and administrative costs decreased by $37,466 during the three months ended September 30, 2020 compared to the same quarter of 2019 primarily as a result of a decrease in professional fees, travel expenses, and insurance combined with reduced marketing and promotional expenses being partially offset by increased computers and software expenses.

Other general and administrative costs decreased by $63,853 during the first nine months of 2020 compared to the same period of 2019 primarily due to decreases in travel expenses combined with a slight reduction in marketing and promotional expenses in the first nine months of 2020 compared to the same period of 2019.

Other income increased for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to decreases in state use tax expenses, interest on related party notes receivable, as well as the correction of cash reconciliation items booked during the period.

Other expense for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was relatively the same and consists of state use tax expense and 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 September 30, 2020, our cash and cash equivalents and working capital had decreased to $327,659 and $217,090, respectively, from $379,180 and $779,762 as of December 31, 2019.

For the nine months ended September 30, 2020 and the year ended December 31, 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 nine months ended September 30, 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.

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 – Nine months ended September 30, 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 $373,209 for the nine months ended September 30, 2020 compared to net cash used in operating activities of $580,869 for the nine months ended September 30, 2019. This decrease in cash used in operating activities in 2020 compared to 2019 was primarily due to a $202,376 gain on disposal of McorpCX, LLC in 2020 as well as an increase in accounts payable in 2020 compared to a decrease in accounts payable in the same period of 2019 and a greater increase in accounts receivable in the first nine months of 2020 compared to the first nine months of 2019.

Investing Activities. There was cash used in investing activities for nine months ended September 30, 2020 due to the net change in cash from the sale of McorpCX, LLC of $305,737 partially offset by cash received from related party notes receivable of $6,688. There was no cash provided by, or used in, investing activities for nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2020. During the three months ended September 30, 2020, McorpCX, LLC received a note in the amount of $100,000.  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 nine months ended September 30, 2019.  

Results of Discontinued Operations

During the three months ended September 30, 2020, total income from discontinued operations increased by $722,489 to $356,153 from a loss of $366,336 in the third quarter of 2019 mostly as a result of $10,015 in income from the discontinued operations of McorpCX, LLC in the current quarter compared with a loss of $366,336 from such discontinued operations in the same quarter last year combined with $346,138 in proceeds from the sale of McorpCX, LLC being recognized as a gain on disposal of McorpCX, LLC in 2020. 

During the first nine months of 2020, total income from discontinued operations increased by $359,299 to $384,010 from $24,711 in the first nine months of 2019, mostly as a result of $181,634 in income from the discontinued operations of McorpCX, LLC in the current period compared with income of $24,711 from such discontinued operations in the same period last year 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 September 30, 2020.

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

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 the period covered by this report, and as reported in Item 9A of the Company’s Form 10-K for the year ended December 31, 2019, 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.

Changes in Internal Controls

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

PART II. OTHER INFORMATION

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

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Annual Report”), which could materially affect our business, results of operations or financial condition. In addition to the risks outlined in the 2019 Annual Report we are subject to the following risks:

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.

You are not guaranteed any of the proceeds from the sale of McorpCX LLC.

The consideration for McorpCX LLC was paid by the Purchaser directly to the Company. The Company could spend or invest the net proceeds from the sale of McorpCX, LLC in ways with which our stockholders may not agree. The investment of these proceeds may not yield a favorable return.

The Company will be a very small public company.

Despite the completion of the sale of McorpCX LLC, the Company is expected to continue to file periodic annual, quarterly and current reports, as well as proxy statements with the SEC. As a result, the Company will continue to incur additional ongoing operating expenses and the Company cannot assure how much of the cash proceeds, if any, will ultimately be distributed to stockholders or invested in growing the Company’s technology services business.

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 recent closing of the sale of McorpCX LLC 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.

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 recent completion of the sale of McorpCX LLC, the Company is expected to be 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.

It is important to note that the risks described above as well as in our 2019 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, results of operations or financial condition.

Recent Sales of Unregistered Securities

There were no unregistered sales of our equity securities during the three-month period ended on September 30, 2020.

Purchases of Equity Securities

During the nine months ended September 30, 2020, there were no purchases of our common stock made by, or on behalf of, the Company or any "affiliated purchaser," as defined by Rule 10b-18 of the Exchange Act.

None.

Not applicable.

*Furnished, not filed

Notes to Exhibits List:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report has been signed on its behalf by the undersigned, thereunto duly authorized on this 16th day of November 2020.

EXHIBIT INDEX

*Furnished, not filed

Notes to Exhibits List: