MCX Technologies Corp - Quarter Report: 2020 June (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.

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 six months ended June 30, 2020.

Overview

We are a customer experience (CX) management solutions company dedicated to helping organizations improve customer experiences, increase customer loyalty, reduce costs and increase revenue.

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.

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 controlled by Michael Hinshaw, the current President of McorpCX LLC (the “Purchaser”). Since the Company’s professional and related consulting services business, which currently constitutes substantially all of the Company’s operations, is conducted through McorpCX LLC, the sale of McorpCX LLC represents a strategic shift that we believe will have a major effect on the Company’s operations and financial results.

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 the annual revenues of McorpCX, LLC.  The note is secured by mfifty's ownership interest in McorpCX LLC.

In connection with the completion of the sale of McorpCX LLC, the Company intends to focus on growing the Company’s software development and technology services business.

Prior to the sale of McorpCX LLC our primary source of revenue was derived from our consulting services which were intended to help primarily large and medium sized organizations plan, design and deliver better customer experiences in order to maximize their return on investment, improve efficiency, and increase the adoption of our products and services. Our services offered included a range of customer experience management consulting services in the areas of research, strategy development, planning, education, training and best practices, as well as providing customer-centric strategies and implementation roadmaps in support of these strategies.

We also have developed on-demand “cloud based” customer experience management software such as Touchpoint Mapping® On-Demand (also marketed as McorpCX | Insights), referred to as “Touchpoint Mapping”, and McorpCX | Persona.

Touchpoint Mapping is a research-based online Software-as-a-Service (“SaaS”) solution designed to provide insights to organizations that can help them improve customer and employee experience, brand, and loyalty. It is designed to be a solution for customer-centric organizations to measure and gather customer data across all their touchpoints, channels and interactions with their customers.

McorpCX | Persona, another online SaaS solution, is designed for developing and managing customer persona, as well as automating the currently manual process of developing, managing and sharing persona across corporations. It is designed to help customer-centric businesses and the agencies and consultancies that serve them to better understand, connect with and serve their customers.

Though we released the first version of Touchpoint Mapping in 2013, and we released the first version of McorpCX | Persona in 2016, neither product has generated significant sales revenue to date, and we have yet to engage the necessary development, client support, and sales staff required to identify, develop, and close material product sales opportunities that we believe are required to achieve our product sales and revenue growth objectives. We also believe that our current software capabilities are more limited in scope than our desired final software platform and as such, significant further software development expenditures will be required. Revenues from our consulting services provided to our clients represented a majority of our revenue in 2019 and for the six months ended June 30, 2020.

Upon the completion of the sale of the Company’s consulting services business, the Company’s management is now in the process of determining the optimal path forward for our software products based on current market dynamics, the competitive environment and customer feedback. We continue to evaluate various potential strategies with the goal of improving our ability to achieve additional revenue and profit growth for software products. These possible strategies, which are generally focused on ways to create a more complete slate of customer experience solutions for potential clients, include further software or technology development expenditures, pursuit of merger, acquisitions or joint ventures with companies that provide complimentary products and services, software licensing arrangements, and investment in additional infrastructure within 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 is beyond our current financial resources. Accordingly, there is no assurance that we will be able to pursue any strategies that are identified by our board of directors.

In addition, 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.

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, the Company 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 schedule to mature on May 3, 2022. The Company is required to make monthly payments on the PPP Note of $6,785 commencing on November 1, 2020.

On June 11, 2020, the Company 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. The Company 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.

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 in its early stages and information is rapidly 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.

Summary of Financial Results

Select financial highlights for the three and six months ended June 30, 2020:

(1) We define EBITDA as net income (loss) plus interest, tax, depreciation and amortization expenses. We consider EBITDA to be a meaningful supplement to net income (loss) as a performance measure primarily because depreciation and amortization expenses are not actual cash costs, and interest and tax expenses are not related to our direct operating activities. See page 18 for a reconciliation of net income (loss) to EBITDA.

Sources of Revenue

Prior to the sale of McorpCX LLC, our revenue consisted primarily of fees from professional and consulting services and other revenue primarily related to the reimbursement of expenses entirely through the operations of McorpCX LLC. Through May 31 of last year, revenue was also derived from the Company’s software-enabled product sales. Consulting services include customer experience management consulting in the areas of strategy development, planning, education, training and program design, and includes the articulation of customer-centric strategies and implementation roadmaps in support of these strategies, while other revenue includes reimbursement of related travel costs and out-of-pocket expenses. Product revenue was from productized and software-enabled service sales not elsewhere classified.

The 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.

During the second half of 2017, we stopped further development of our software products and in 2018 we suspended actively selling Touchpoint Mapping and McorpCX | Persona in order to re-assess the product roadmap to better define the future direction of our software platform. On May 31, 2019, the last remaining contract for Touchpoint Mapping was closed, and we believe no further revenue will be recognized from this date, unless we decide to further develop, upgrade and provide support to resume actively selling our software products and obtain material stand-alone sales commitments for them.

When we were actively selling the products, we found that the implementation stage of on-demand software and software-enabled services engagements (the time between a client placing an order to the live deployment of our product ordered) averaged between 30 and 45 days. We typically invoiced clients upon inception of subscription agreements for setup and total subscription fees contracted over the term of the agreements, with payment due within 30 days. We then recognized the subscription fee revenue, including any associated professional services or separate set-up fee revenue, on a straight-line basis over the life of the agreement.

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

Professional services related to the subscription agreements are invoiced at the inception of the professional services agreement at a negotiated percentage of total fees, often but not exclusively one-third or one-half of the total estimated professional services fees, with the balance of payments due over the duration of the contract as project milestones are met. Amounts invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether revenue recognition criteria have been met.

Cost of Goods Sold and General and Administrative Expenses

Cost of Goods Sold

Cost of goods sold has historically consisted primarily of expenses directly related to providing professional and consulting services. Those expenses include contract labor, third-party services, and materials and travel expenses related to providing professional services to our clients. Costs of goods also includes, but is not limited to, product-related hosting and monitoring costs, the cost of licenses for products embedded in the application, amortization of capitalized software development costs, service support costs, and costs related to account and subscription management, as applicable.

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 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.

Sales and marketing expenses are currently reflected in salaries and wages, commissions, contract labor, sales, marketing and promotion, and other related overhead expense categories. Since we currently recognize revenue over the term of the consulting and professional services engagements or any software subscriptions, we expect to experience a delay between increases in selling and marketing expenses and the recognition of revenue.

Results of Operations

Overall, the 21% decrease in revenue in the second quarter of 2020 compared to the second quarter of 2019 was attributed to a 21% decrease in consulting services revenue and a 32% decrease in products and other revenue in the three months ended June 30, 2020 compared to the same period in the prior year. The decrease in consulting services revenue from $1,129,852 in 2019 to $894,094 in 2020 was primarily the result of the loss of a major client account. The decrease in product and other revenue from $47,258 for the three months ended June 30, 2019 to $32,090 for the same period in 2020, was primarily the result of our decision to suspend selling each of our software products in 2019 combined with a decrease in reimbursable expense mostly resulting from less travel required to execute the projects in 2020 compared to the same period in 2019 as well as travel restrictions due to COVID-19 shelter-in-place orders in the second quarter of 2020.

Overall, the 27% decrease in revenue in the first half of 2020 compared to the first half of 2019 was attributed to a 27% decrease in consulting services revenue and a 30% decrease in products and other revenue in the six months ended June 30, 2020 compared to the same period in the prior year. The decrease in consulting services revenue from $2,095,765 in 2019 to $1,531,519 in 2020 was primarily the result of the loss of a major client account. The decrease in product and other revenue from $91,673 for the six months ended June 30, 2019 to $64,457 for the same period in 2020, was primarily the result of our decision to suspend selling each of our software products in 2019 combined with a decrease in reimbursable expense mostly resulting from less travel required to execute the projects and travel restrictions due to COVID-19 shelter-in-place orders in the second quarter of 2020 compared to the same period in 2019.

Cost of goods sold decreased by $105,647, for the three months ended June 30, 2020, compared to the same period in 2019 primarily as a result of a 9% decrease in professional fees and a 63% decrease in reimbursable and non-reimbursable expenses. The decrease in professional fees from $337,504 in 2019 to $307,963 for 2020 was primarily the result of a decrease in billings from our contract consultants mostly due to less consulting revenue volume described above. The decrease in reimbursable and non-reimbursable expenses from $65,513 in 2019 to $24,556 for 2020 was primarily the result of less travel due to the COVID-19 shelter-in-place orders. The remainder of the decrease in cost of goods sold in the second quarter of 2020 compared to the second quarter of 2019 was mostly attributable to a decrease in amortization of capitalized software development costs in the second quarter months of 2020 compared to the same period in the prior year.

Cost of goods sold decreased by $234,704, for the six months ended June 30, 2020, compared to the same period in 2019 primarily as a result of a 12% decrease in professional fees and a 54% decrease in reimbursable and non-reimbursable expenses. The decrease in professional fees from $595,656 in 2019 to $523,458 for 2020 was primarily the result of a decrease in billings from our contract consultants mostly due to less consulting revenue volume described above. The decrease in reimbursable and non-reimbursable expenses from $148,494 in 2019 to $68,404 for 2020 was primarily the result of less travel due to the COVID-19 shelter-in-place orders. The remainder of the decrease in cost of goods sold in the first half of 2020 compared to the first half of 2019 was mostly attributable to a decrease in amortization of capitalized software development costs as well as a reduction in vendors providing services to the Company in the first six months of 2020 compared to the same period in the prior year.

For the three months ended June 30, 2020 we had net operating loss of $40,304 compared to a net operating income of $83,526 for the six months ended June 30, 2019. The decrease in net operating income in the second quarter of 2020 was primarily a result of decreased total revenues, and an increase in general and administrative costs being partially offset by decrease in costs of goods sold and salaries and wages when compared to the same quarter in 2019.

For the six months ended June 30, 2020 we had net operating loss of $200,579 compared to a net operating income of $94,034 for the six months ended June 30, 2019. The decrease in net operating income in the current period was primarily a result of decreased total revenues combined with an increase in general and administrative costs being partially offset by a decrease in costs of goods sold and sales and wages when compared to the same period in 2019.

Net income decreased from $85,184 in the second quarter of 2019 to a net loss of $35,636 in the same quarter of 2020, while EBITDA decreased by $148,745 to a loss of $34,779 for the three months ended March 31, 2020 from earnings of $113,966 for the three months ended March 31, 2019. 

Net income decreased from $89,961 in the first half of 2019 to a net loss of $201,487 in the first half of 2020, while EBITDA decreased by $370,121 to a loss of $199,999 for the six months ended June 30, 2020 from earnings of $170,122 for the six months ended June 30, 2019. 

We consider EBITDA to be a meaningful supplement to net income (loss) as a performance measure primarily because depreciation and amortization expenses are not an actual cash costs, and interest and tax expenses are not related to our direct operating activities. In addition, we believe EBITDA is commonly used by investors and other interested parties to evaluate our financial performance. EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs. EBITDA should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, or as an alternative to net cash from operating activities as a measure of liquidity. EBITDA is an internal measure and therefore may not be comparable to other companies. EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that EBITDA does not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash requirements for, working capital needs; and (iii) the interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt (if any). Because of these limitations, EBITDA should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. Because all companies do not calculate EBITDA in the same manner, EBITDA as calculated by us may differ from EBITDA as calculated by other companies. We compensate for these limitations by using EBITDA as a supplemental measure of our performance and by relying primarily on our GAAP consolidated financial statements.

The following table provides a reconciliation of net income (loss) to EBITDA for the periods indicated:

Salaries and wages decreased by $24,141 during the three months ended June 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 $38,939 during the six months ended June 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.

Expenses related to contract services decreased in the three and six months ending June 30, 2020 compared to the same periods in 2019 primarily due to more finance and administration and marketing services provided by contractors in 2019.

Other general and administrative costs increased $22,254 and $35,507 during the three and six months ended June 30, 2020 compared to the same periods in 2019, primarily due to increases in professional fees, insurance, dues and subscriptions, rent, and computers and software partially offset by decreases in sales, marketing and promotion expenses, travel, meals, and entertainment as well as administration expenses.

Other income increased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, primarily due to an EIDL loan received in the second quarter in the amount of $5,000 which is not required to be repaid.  This loan is in addition to the EIDL loan discussed in Note 8 of the Notes to Consolidated Financial Statements included with this report.

Other expense decreased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to decreased state use tax expenses and unrealized losses as well as a decrease in interest income from the Company’s investment accounts.

Liquidity and Capital Resources

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

Anticipated Uses of Cash

As of June 30, 2020, our cash and cash equivalents and working capital had increased to $605,853 and $875,027, respectively, from $588,848 and $779,762 as of December 31, 2019. The increase in cash during the first half of 2020 was primarily the result of proceeds from new debt acquired during the first six months of 2020.  See Note 8 of the Notes to the Consolidated Financial Statements included with this report.

For the six months ended June 30, 2020 and the year ended December 31, 2019, we were able to finance our operations with cash generated through financing activities, and cash on hand. 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 six months ended June 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.

We currently plan to fund our expenditures with cash flows generated from ongoing operations, or new revenue sources, and/or if needed, the possibility may exist to raise additional capital through debt financing and/or through sales of common stock. We do not intend to pay dividends in the foreseeable future. We believe that cash flow from operations and available cash will be adequate to finance the capital requirements for our business during the next 12 months.

Pursuant to the terms of the Purchase Agreement, 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.

In connection with the completion of the sale of McorpCX LLC, 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 – Six months ended June 30, 2020 and 2019

Operating Activities. Net cash used in operating activities decreased to $294,064 for the six months ended June 30, 2020 compared to net cash used in operating activities of $433,454 for the six months ended June 30, 2019. This decrease in cash used in 2020 compared to 2019 was primarily due to a greater increase in accounts receivable in the first half of 2019 compared to the first half of 2020, combined with increased accounts payable and deferred revenues in the first half of 2020 compared to a decrease in accounts payable and deferred revenues in same period of 2019.

Days Sales Outstanding (“DSO”), which the Company defines as the average number of days it takes to collect revenue once a sale has been made, increased in the first six months of 2020 compared to the same period of the prior year. During the six months ended June 30, 2020, DSO was approximately 76 days, up from approximately 67 days during six months ended June 30, 2019. This increase was largely attributed to the impact of the COVID-19 pandemic during the current period. DSO can fluctuate due to the timing and nature of contracts that lead to up-front billings related to deferred revenue on services not yet performed.

Investing Activities. There was no cash provided by, or used in, investing activities for six months ended June 30, 2020 and 2019.

Financing Activities. The Company had cash provided by financing activities of $311,069 due to proceeds from the PPP Note and EIDL Note for the six months ended June 30, 2020. There was no cash provided by, or used in, financing activities for the six months ended June 30, 2019.

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 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 Fiscal 2019 Form 10-K, 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 the stay-at-home orders and the sudden 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 services 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 June 30, 2020.

Purchases of Equity Securities

During the six months ended June 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 14th day of August 2020.

EXHIBIT INDEX

*Furnished, not filed

Notes to Exhibits List: