MCX TECHNOLOGIES CORPORATION 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
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles inthe 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 endedDecember 31, 2020 . 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 three months endedMarch 31, 2021 . 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 ofDelaware onDecember 14, 2017 . OnAugust 16, 2018 , the Company entered into a contribution agreement with its wholly owned subsidiaryMcorpCX LLC , pursuant to which the Company transferred toMcorpCX 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. EffectiveAugust 3, 2020 , the Company sold all of its membership interests inMcorpCX, LLC to mfifty, LLC, aCalifornia limited liability company controlled byMichael Hinshaw , the current President ofMcorpCX 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 ofMcorpCX LLC , was conducted throughMcorpCX LLC , the sale ofMcorpCX 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 ofMcorpCX 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 ofMcorpCX, LLC . The note is secured by the Purchaser's ownership interest inMcorpCX LLC . 12
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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 ofMcorpCX, LLC inAugust 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 ofMcopCX LLC . Product revenue was from productized and software-enabled service sales not elsewhere classified. As ofMarch 31, 2021 , 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 theUnited States Securities and Exchange Commission under the Exchange Act as well as having our stock listed on theTSX Venture Exchange inCanada and quoted on the OTC Pink Sheets inthe United States . 13 --------------------------------------------------------------------------------
Results of Continuing Operations
Management determined that the completion of the sale ofMcorpCX LLC meets the criteria for the presentation of the operations ofMcorpCX LLC as discontinued operations as ofAugust 3, 2020 and accordingly, the results of theMcorpCX, 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.
Revenues & Cost of Goods Sold
During the three months ended
Net Loss 2021 2020 Prior Year from Prior Year
Three Months Ended March 31, $ (67,393 ) $ (165,851 ) $ 98,458 (59% )
Net loss decreased to $67,393 for the three months ended March 31, 2021 from a
net loss of $165,851 three months ended March 31, 2020 . The decrease in net loss
in 2021 compared to 2020 was primarily a result of revenue generated in the
first quarter of 2021 from new operations combined with fewer salaried
employees, less professional fees and no consulting services or travel expenses
being partially offset by expenses associated with finance and administration
services provided by contractors in the first quarter of 2021.
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Change from Percent Change
Salaries and Wages 2021 2020 Prior Year from Prior Year
Three Months Ended March 31, $ 15,557 $ 28,931 $ (13,374 ) (46% )
Expenses attributable to salaries and wages decreased to $15,557 during the
three months ended March 31, 2021 compared to $28,931 for the three months ended
March 31, 2020 primarily due to the elimination of executive officer salaries
and the outsourcing of all staff salaries due to the Company's internal finance
and administration services being provided by contractors in 2021.
Change from Percent Change
Contract Services 2021 2020 Prior Year from Prior Year
Three Months Ended March 31, $ 51,996 $ - $ 51,996 100 %
Contract services expenses increased during the three months ended
Change from Percent Change
Other General and Administrative 2021 2020 Prior
Year from Prior Year
Three Months Ended
(75% )
Other general and administrative costs decreased by
Change from Percent Change
Other Income (Expense) 2021 2020 Prior Year from Prior Year
Three Months Ended
(129% )
We recognized $3,032 in other income in the three months ended March 31, 2021
compared to $10,575 in other expense in the three months ended March 31, 2020
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 prior period.
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Liquidity and Capital Resources
We measure our liquidity in a variety of ways, including the following:
March 31 ,March 31, 2021 2020
Cash and cash equivalents
$ 88,618 $ 114,499
Anticipated Uses of Cash
As of
For the three months endedMarch 31, 2021 and the year endedDecember 31, 2020 , we were able to finance our operations with cash generated through cash on hand as well as proceeds of the sale ofMcorpCX, 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 three months endedMarch 31, 2021 , 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 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 ofMcorpCX, LLC , which was completed onAugust 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 could be substantial. The necessary resources may be generated from cash flow from operations, cash on hand, 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 - Three months ended
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$38,021 for the three months endedMarch 31, 2021 compared to net cash used in operating activities of$150,387 for the three months endedMarch 31, 2020 . This decrease in cash used in operating activities in 2021 compared to 2020 was primarily due to a decrease in net loss, combined with an increase in deferred revenue in the first three months of 2021 compared to the same period of 2020.
Investing Activities. There was cash provided by investing activities for three
months ended
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Financing Activities. There was no cash provided by, or used in, financing
activities for the three months ended
Results of Discontinued Operations
Percent
Change
Change from from Prior
Total income from discontinued operations 2021 2020 Prior Year Year
Three Months Ended March 31, $ - $ 2,141 $ (2,141 ) (100% )
During the three months ended March 31, 2020 , total income from discontinued
operations was $2,141 . There was no income from discontinued operations during
the three months ended March 31, 2021 .
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
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