UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
2019
|
OR
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
Commission File Number: 000-54918
MCORPCX, INC.
(Exact name of registrant as specified in its charter)
California
|
26-0030631
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
201 Spear Street, Suite 1100
San Francisco, CA 94105
(Address of principal executive offices, including zip
code)
(415) 526-2655
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Exchange Act:
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange on which registered
|
None
|
|
N/A
|
|
N/A
|
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act: YES ☐ NO ☒
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
YES ☒ NO ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large Accelerated Filer
|
☐ |
Accelerated Filer
|
☐ |
Non-accelerated Filer
|
☒ |
Smaller Reporting Company
|
☒ |
Emerging Growth Company ☐
|
|
|
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 12(a) of the Exchange
Act.☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value of common stock held by non-affiliates
of the registrant as of June 28, 2019 the last business day of the
registrant’s most recently completed second fiscal quarter, based
on the closing price of the registrant’s common stock on the OTCQB
Venture Marketplace on such date, was approximately $657,768.
At March 26, 2020, 20,426,158 shares of the registrant’s common
stock were outstanding.
TABLE OF CONTENTS
|
Page
|
|
|
|
PART I
|
3
|
|
|
|
Item 1.
|
Business.
|
3
|
Item 1A.
|
Risk Factors.
|
7
|
Item 1B.
|
Unresolved Staff Comments.
|
12
|
Item 2.
|
Properties.
|
12
|
Item 3.
|
Legal Proceedings.
|
12
|
Item 4.
|
Mine Safety Disclosure.
|
12
|
|
|
|
|
PART II
|
13
|
|
|
|
Item 5.
|
Market for Our Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
|
13
|
Item 6.
|
Selected Financial Data.
|
15
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and
Results of Operation.
|
15
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
24
|
Item 8.
|
Financial Statements and Supplementary Data.
|
24
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
25
|
Item 9A.
|
Controls and Procedures.
|
25
|
Item 9B.
|
Other Information.
|
26
|
|
|
|
|
PART III
|
26
|
|
|
|
Item 10.
|
Directors, Executive Officers and Corporate Governance.
|
26
|
Item 11.
|
Executive Compensation.
|
32
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
37
|
Item 13.
|
Certain Relationships and Related Transactions, and Director
Independence.
|
39
|
Item 14.
|
Principal Accountant Fees and Services.
|
40
|
|
|
|
|
PART IV
|
41
|
|
|
|
Item 15.
|
Exhibits and Financial Statement Schedules.
|
41
|
|
|
|
Signatures
|
43
|
|
|
Exhibit Index
|
41
|
PART I
General
McorpCX, Inc. (“we,” “us,” “our,” or the “Company”) was
incorporated in the State of California on December 14, 2001. 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 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. During the first quarter of 2015, the
Company filed a d/b/a (doing business as) with the State of
California Secretary of State to begin doing business as McorpCX.
On June 11, 2015, at our Annual General Meeting, shareholders
passed a resolution to change the name of the Company to McorpCX,
Inc.
We are a customer experience services company, delivering
consulting and technology solutions to customer-centric
organizations. Our professional and related services include a
range of customer experience management services such as research,
training, strategy consulting and process
optimization. Currently we are engaged in the business of
delivering consulting and professional services that are designed
to help corporations improve their customer listening and customer
experience management capabilities. Going forward we will focus on
developing and/or acquiring new technology solutions as part of our
overall strategy. This supports our vision as a technology and
service provider.
On August 16, 2018, the Company entered into a contribution
agreement with its wholly owned subsidiary McorpCX, LLC, (“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. In connection with this internal reorganization, Michael
Hinshaw, resigned as the Company’s President and Chief Executive
and was appointed President of McorpCX LLC in order to be able to
focus the majority of his time and energies towards building the
Company’s consulting business, which is now operated through
McorpCX LLC.
We maintain our primary business address at 201 Spear Street, Suite
1100, San Francisco, CA 94105. Our telephone number is (415)
526-2655. Our registered agent for service of process is Northwest
Registered Agents, Inc. Our web address is http://www.mcorp.cx. 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 through our website as soon as reasonably
practicable after such reports are electronically filed with, or
furnished to, the SEC. Additionally, copies of materials filed by
us with the SEC may be accessed at www.sec.gov.
Our common stock trades on the TSX Venture Exchange in Canada under
the symbol “MCX” and on the OTCQB Venture Marketplace in the United
States under the symbol “MCCX”.
Customer experience (CX)
CX is defined as the sum of all experiences a customer has with a
company, its goods and its services, across various touchpoints and
over the duration of their relationship with that company. Customer
experience management (CXM) is a series of disciplines,
methodologies and processes used to comprehensively understand,
plan, measure and manage a customer’s experiences, with the goal of
improving customer perceptions.
We are engaged in the business of helping corporations improve
their CX and CXM capabilities and serve a wide variety of
industries and customer sizes.
Products and Services
Our primary revenue source comes from consulting and professional
services including research, training, strategy consulting and
process optimization. To add value to our customers, we have
developed technology products that support customer insight and
understanding for our consulting clients. We will 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
designed to help organizations improve customer experiences,
increase customer loyalty, reduce costs and increase revenue. We
serve a wide variety of industries and customer sizes.
Professional Services
We provide professional and related consulting services including
customer experience management consulting in the areas of research,
strategy development, planning, education, training and best
practices, and includes the articulation of customer-centric
strategies and implementation roadmaps 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, maximize their return on
investment, improve their operational efficiency, and increase
customers' adoption of their products and services.
Software
We have developed two SaaS-based software solutions, Touchpoint
Mapping On Demand, referred to as “Touchpoint Mapping” and McorpCX
| Persona, which are each designed to be delivered through a
cloud-based platform. The Touchpoint Mapping platform can provide
access to survey deployment, the ability to manage customer data,
and access to customer-driven business intelligence (BI) by
displaying data in a series of online dashboards. The McorpCX |
Persona platform is intended to provide the ability to create,
manage, access and share customer persona, with the intention of
helping to digitize and automate the persona development process.
In addition, we utilize licensed third party software with many of
our clients to provide analytics and execute our client
engagements. During the second half of 2017, we stopped further
development of our exiting CX software products in order to
re-assess the product roadmap to better define the future direction
of our software platform, and in 2018 we suspended future sales of
both Touchpoint Mapping and McorpCX | Persona. We intend to
continue to focus on developing and/or acquiring technology
solutions as part of our overall offerings to our customers. This
focus supports are vision as a technology and service provider.
Our Strategy
Since our founding, we have been focused on customer experience
improvement. The methodologies we have developed and deliver as a
professional services firm have formed the foundation for our CX
consulting, advisory and analytic expertise. We will focus on
developing and/or acquiring new technology solutions. This focus
supports are vision as a technology and service provider.
We used our CX consulting experience to create the foundation for a
cloud-based software platform. Though we released the first version
of Touchpoint Mapping in 2013 and released the first version
of McorpCX | Persona in 2016, there are many potential unforeseen
and significant market and competitive risks associated with the
market penetration of our software products and related services,
and we cannot predict the timing or probability of generating
material sales revenue from them.
As of the date of this report, we have yet to engage the necessary
development and client support or sales staff required to identify,
develop, and close material product sales opportunities which we
believe is required to achieve our product sales and revenue growth
objectives. In addition, we believe that our current software
capabilities are more limited in scope than our desired final
software platform and as such, we will require significant further
software development expenditures. Consequently, revenues from our
consulting services provided to our clients continued to represent
a majority of our revenue in 2019. To support our vision as a
provider of technology and services to our customers, management
plans to focus on developing and/or acquiring new technology
solutions.
The Company is 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 our
software products. These possible strategies, which are generally
focused on ways to create a more complete slate of customer
experience solutions for our clients, may 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 director.
Competition
The market for customer experience management solutions is highly
competitive and increasingly fragmented. It is subject to rapidly
changing technology, shifting organizational priorities and
requirements, frequent introductions of new products and services,
and increased marketing and sales activities of other industry
participants.
Multiple competitors exist in the overlapping areas of on-demand
and traditional marketing research, customer relationship
management (CRM), Enterprise Feedback Management (EFM), Customer
Journey Management and analytics and Digital Experience Management
(DXM) software, services, management consulting and customer
experience management consulting. For example, many CRM software
companies include customer experience-specific insights as adjunct
capabilities to their existing platforms, and others have rebranded
their existing CRM software or customer satisfaction research
software as customer experience software, which has the potential
to create unforeseen competitive barriers and market confusion.
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.
Given the growth of customer experience management as a business
discipline and on-demand software as a way for companies to better
understand and manage customer experiences across their business,
there are likely many competitors we have not identified.
Additionally, we expect that new competitors will continue to enter
the customer experience management and on-demand customer
experience software markets with competing products and services as
the market continues to rapidly develop and mature.
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 into the markets in which such
competitors operate.
Dependence on Major Customers
The Company sells its products and services under various terms to
a broad range of companies across multiple industries ranging from
start-ups to Fortune 500 companies, with sales concentrated among a
few large clients. For the twelve months ended December 31, 2019
and 2018, the percentage of the Company’s total sales to its
largest customer was 28% and 35%, respectively, while sales to the
Company’s second largest customer accounted for 18% and 29%,
respectively of the Company’s total sales over those same time
periods. See “Note 7 Concentrations” in the Notes to Consolidated
Financial Statements in this report.
Intellectual Property
We rely on our trademark and other 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. We actively pursue
registration of our trademarks and service marks in the United
States.
As of December 31, 2019, we own, through McorpCX LLC, four issued
U.S. trademarks. The issued U.S. trademarks that we own are
expected to expire between August 2020 and February 2027. Our
trademarks include Touchpoint Mapping, MCORP., Loyalty Mapping and
Touchpoint Metrics.
Our applications use a combination of “open source” software and
technology we license from third parties. Open source software is
made available to the general public in source code form for use,
modification and redistribution on an “as-is” basis under the terms
of a non-negotiable license. Though the third-party technology we
rely upon may not continue to be available to us on commercially
reasonable terms, we believe that alternative technology would
likely be available to us in such circumstances.
Our policy is to require employees and independent contractors to
sign agreements assigning to us any inventions, trade secrets,
works of authorship, and other technology and intellectual property
created by them on our behalf and agreeing to protect our
confidential information, and all of our key employees and
contractors have done so. In addition, we generally enter into
confidentiality agreements with our vendors and customers. We also
control and monitor access to our software, source code and other
proprietary information.
Insurance
We maintain health, dental, workmen’s compensation, general
liability, commercial auto, and professional liability/E&O
insurance policies and director and officer insurance.
Employees
At the end of 2019 we had six full-time employees and fourteen
independent contractors. None of our employees are represented by a
labor union or covered by a collective bargaining agreement. We
have never experienced any employment-related work stoppages and
consider relations with our employees to be good. We intend to hire
more employees and independent contractors on an as-needed
basis.
Offices
We have two business addresses. Our headquarters is located at 201
Spear Street, Suite 1100, San Francisco, CA 94105. We also have a
business office in San Anselmo, California located at 251 Sir
Francis Drake Boulevard, 94960.
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.
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 and in our annual report to shareholders
contain some forward-looking statements that set forth anticipated
results based on management’s current plans and assumptions.
We have incurred losses from our 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, 2019 and 2018, we incurred net
operating losses of approximately $0.8 million and $0.4 million,
respectively. Our ability to achieve and maintain profitability and
positive cash flow is dependent upon our ability to retain and
expand our existing customer base and our ability to increase our
revenues through the sale of our services and products.
There are many potential unforeseen and significant market and
competitive risks associated our current products and services.
Although we released the first version of Touchpoint Mapping in
2013, and we released the first version of McorpCX | Persona in
2016, we cannot predict the timing or probability of generating
material sales revenue from either of them. As of the date of this
report, we have yet to engage the necessary sales and marketing
staff or the capabilities required to identify, develop, and close
material product sales opportunities, and currently lack sufficient
resources to market and sell our products in the manner which we
believe is required to achieve our product sales and revenue growth
objectives. In addition, we believe that our current CX software
capabilities are more limited in scope than our desired final
software platform and as such, we will focus on developing and/or
acquiring new technology solutions. This focus supports our vision
as a technology and service provider. Further, during the
second half of 2017, we stopped further development of our CX
software products in order to re-assess the product roadmap to
better define the future direction of our software platform, and in
2018 we suspended future sales of both Touchpoint Mapping and
McorpCX | Persona until we further assess the platform and the
commercial viability of our software products in their current
state. We can give no assurance that we will resume development or
sales of either of our software products. Our consulting services
business is project based, and as such there is no guarantee that
past or current success in this area will lead to future revenue.
It is our expectation that numerous unforeseen challenges will be
encountered as we work to develop, market, distribute and sell our
services and products. We cannot assure you that 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.
Our ability to achieve our objectives 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, the
development of direct and indirect sales and distribution channels
through which we can distribute our products and services, and/or
the definition and execution of other strategic plans. 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.
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.
We are dependent on Michael Hinshaw, the President of McorpCX
LLC to guide our
consulting operations and we may be faced with
interruptions and challenges to continuing our business if we were
to lose the services of Mr. Hinshaw.
Our continuing consulting operations depend on the efforts,
abilities and resources of Michael Hinshaw, the President of
McorpCX LLC. Mr. Hinshaw plays an integral role in among other
things:
|
●
|
acquiring new clients for our consulting services;
|
|
●
|
managing the relationships with our current clients and overseeing
the consulting and product services provided to such clients;
and
|
|
●
|
providing thought leadership content for the Company and its
clients.
|
Since we believe there is currently no other employee of the
Company who has both the ability and the resources to perform the
services to the Company that Mr. Hinshaw is currently performing,
if we lose the services of Mr. Hinshaw, we may have to cease
operations.
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 being
retained to provide technology enabled products and services that
improve customer experience management capabilities for
corporations. As of December 31, 2019, we had approximately 6
customers active and 17 customers total for the year ended December
31, 2019. If we are unable to attract and maintain an adequate
customer base to generate revenues, we will have to suspend or
cease operations.
If the Company cannot protect its intellectual property
rights, its operating results will suffer
Our intellectual property rights are important to our business. We
rely on a combination of patent, copyright, trademark, service
mark, trade secret and other rights in the United States and other
jurisdictions, as well as confidentiality procedures and
contractual provisions to protect our proprietary technology,
processes and other intellectual property. We protect our
intellectual property rights in a number of ways including entering
into confidentiality and other written agreements with our
employees, customers, consultants and partners in an attempt to
control access to and distribution of our software, documentation
and other proprietary technology and other information. Despite our
efforts to protect our proprietary rights, third parties may, in an
unauthorized manner, attempt to use, copy or otherwise obtain and
market or distribute our intellectual property rights or technology
or otherwise develop software or services with the same
functionality as our software and services. Litigation may be
necessary to enforce the Company’s intellectual property rights and
to determine the validity and scope of the proprietary rights of
others. Any litigation could result in substantial costs and
diversion of management and other resources with no assurance of
success and could seriously harm the Company’s business and
operating results.
If we infringe on any patents of our competitors, we will be liable
for damages and may be enjoined from conducting our proposed
business. Further, because our patents do not cover the entirety of
our product, someone could use the information and compete with us
and we will have no recourse against him.
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 customer experience management 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 CRM software companies include customer
experience-specific insights as adjunct capabilities to their
existing platforms, and others have rebranded their existing CRM
software or customer satisfaction research software as customer
experience software, which has the potential to create unforeseen
competitive barriers and market confusion, which could negatively
affect our operations.
Given the growth of customer experience management as a business
discipline, we expect that new competitors will continue to enter
the customer experience management and on-demand customer
experience software markets with competing products and services as
the market continues to rapidly develop and mature. We believe it
is highly likely that existing and new competitors will rapidly
acquire significant market share, which could negatively impact our
ability to effectively market, compete and sell our products and
services into the markets in which such competitors operate.
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 a private placement
completed in 2016. However, since we have incurred net losses in
each of 2016 through 2019, 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, 2019, the Company had a net loss of
$760,955. In addition, the Company had a net loss of $411,216
for the year ended December 31, 2018. 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 five officers and
five 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 five officers and five 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, 2019, 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 2019 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 is no assurance that we will be able to update our
Touchpoint Mapping software or our McorpCX | Persona solution to
incorporate features that our customers and potential customers
require
Our Touchpoint Mapping software and our McorpCX | Persona solution
have not been upgraded and ceased to be a functioning technology
and any enhancements will be based on our understanding of the
features that potential customers will require. However, there is
no assurance that any enhancements we incorporate into updated
Touchpoint Mapping or McorpCX | Persona software will provide our
customers and potential customers with the features and
functionality that they require. Accordingly, there is no assurance
that we will be able to achieve material sales of our Touchpoint
Mapping or McorpCX | Persona software on a stand-alone basis once
further development is completed.
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:
|
●
|
Fluctuations in our quarterly financial results or the quarterly
financial results of companies perceived to be similar to us;
|
|
●
|
Changes in estimates of our financial results or recommendations by
securities analysts;
|
|
●
|
Failure of any of our products to achieve or maintain market
acceptance;
|
|
●
|
Changes in market valuations of similar companies;
|
|
●
|
Significant products, contracts, acquisitions or strategic
alliances of our competitors;
|
|
●
|
Success of competing products or services;
|
|
●
|
Changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
|
|
●
|
Regulatory developments;
|
|
●
|
Litigation involving our Company, our general industry or both;
|
|
●
|
Additions or departures of key personnel;
|
|
●
|
Investors’ general perception of us; and
|
|
●
|
Changes in general economic, industry and market conditions.
|
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.
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS.
|
None.
Our corporate headquarters, located at 201 Spear Street, Suite
1100, San Francisco, CA 94105 is a leased space, which we lease on
a month-to-month basis for $129 a month.
ITEM 3.
|
LEGAL PROCEEDINGS.
|
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.
ITEM 4.
|
MINE SAFETY DISCLOSURES.
|
None.
PART II
ITEM 5.
|
MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
|
Market Information
Our common stock is traded in the United States on the OTCQB
Venture Marketplace, 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 44 holders of record for our common stock as of
March 27, 2020 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, 2019
with respect to compensation plans under which shares of our common
stock may be issued.
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
Number of securities to
|
|
|
Weighted-average
|
|
|
remaining available for
|
|
|
|
be issued upon exercise
|
|
|
exercise price of
|
|
|
future issuance under
|
|
|
|
of outstanding options,
|
|
|
outstanding options,
|
|
|
equity compensation plans
|
|
|
|
warrants and rights
|
|
|
warrants and rights
|
|
|
(excluding securities
|
|
Plan category
|
|
(a)
|
|
|
(b)
|
|
|
in column (a)) (c)
|
|
|
|
|
|
|
|
|
|
[1]
|
|
Equity compensation plans approved by security holders
|
|
1,140,000 |
|
|
$0.35 |
|
|
902,616 |
|
Equity compensation plans not approved by securities holders
|
|
None
|
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,140,000 |
|
|
$0.35 |
|
|
902,616 |
|
[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, 2019, 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.
ITEM 6.
|
SELECTED FINANCIAL DATA.
|
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.
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
|
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 a customer experience (CX) management solutions company
dedicated to helping organizations improve customer experiences,
increase customer loyalty, reduce costs and increase revenue. We
believe that delivering better customer experiences is a powerful,
sustainable way for any organization to differentiate themselves
from their competition. As such, we are engaged in the business of
providing customer experience focused consulting services and where
applicable, delivering technology-enabled services that are
designed to help corporations improve their customer listening and
customer experience management capabilities with the goal of
helping them design and deliver better experiences for their
customers.
Our primary source of revenue is derived from our consulting
services which are 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 include 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 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.
There are many potential unforeseen and significant market and
competitive risks associated with our current products and
services. 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 cannot predict the timing or probability of
generating material sales revenue from either of them. Further, as
of the date of this report, 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. Consequently, 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 until we more fully assess the
roadmap to make these products more marketable to clients. As a
result, revenues from our consulting services provided to our
clients represented a majority of our revenue in 2018 and for the
twelve months ended December 31, 2019, and management believes that
consulting services would remain our most significant revenue
source for the foreseeable future unless fundamental strategic
changes are initiated.
The Company is 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 our
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. .
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
Our revenue consists 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. Through May 31 of this 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 further
develop, upgrade and provide support to resume actively selling our
software products and obtain material stand-alone sales commitments
for them.
Subscription agreements for our software solutions have 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.
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.
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.
Operating 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.
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.
Consulting services include customer experience management
consulting in the areas of strategy development, planning,
education, training and program design, and includes the
articulation of customer-centric strategies and implementation
roadmaps in support of these strategies. Product revenue is from
productized and software-enabled service sales not elsewhere
classified, while other revenue includes reimbursement of related
travel costs and out-of-pocket expenses.
The consulting services are contracted under master terms and
conditions with 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, which are typically
60-180 days in duration. In addition, we typically incur travel
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.
Contract costs, such as commissions, are typically incurred
contemporaneously with the pattern of revenue recognition and, as
such, are expensed as incurred. See Note 3 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.
Research and Development Costs
Costs previously incurred to develop Software as a Service (SaaS)
products and technology enabled services consisted of external
direct costs of materials and services and payroll and
payroll-related costs for employees who directly devoted time to
the project. Research and development costs incurred during the
preliminary project stage were expensed as incurred. Capitalization
begins when technological feasibility is established. Costs
incurred during the operating stage of the software application
relating to upgrades and enhancements are capitalized to the extent
that they result in the extended life of the product. All other
costs are expensed as incurred. Amortization of software
development costs commences when the product is available for
general release to customers. The capitalized costs are amortized
on a straight line basis over the three year expected useful life
of the software.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate an asset’s carrying value may not
be recoverable. If such circumstances are present, we assess the
recoverability of the long-lived assets by comparing the carrying
value to the undiscounted future cash flows associated with the
related assets. If the future net undiscounted cash flows are less
than the carrying value of the assets, the assets are considered
impaired and an expense, equal to the amount required to reduce the
carrying value of the assets to the estimated fair value, is
recorded in the statements of operations. Significant judgment is
required to estimate the amount and timing of future cash flows and
the relative risk of achieving those cash flows.
Assumptions and estimates about future values and remaining useful
lives are complex and often subjective. They can be affected by a
variety of factors, including external factors such as industry and
economic trends, and internal factors such as changes in our
business strategy and our internal forecasts. Impairment charges
could materially decrease our future net income and result in lower
asset values on our balance sheet.
Results of Operations
|
|
Year Ended
|
|
|
Change from
|
|
|
Percent Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Revenue
|
|
$ |
3,240,009 |
|
|
$ |
3,987,199 |
|
|
$ |
(747,190 |
) |
|
|
(19 |
%) |
Overall, the 19% decrease in year over year revenue was attributed
to a 14% decrease in consulting services revenue and a 56% decrease
in products and other revenue in 2019 compared to the prior year.
The decrease in consulting services revenue from $3,545,199 in
2018 to $3,045,591 in 2019 was primarily the result of the loss of
a major client account. Product and other revenue largely consisted
of reimbursable expense income, which decreased to $181,264 in 2019
from $412,612 in 2018, as well as product revenue, which decreased
to $13,154 in 2019 from $29,388 in 2018. Overall, the decrease
in product and other revenue from $442,000 for the year ended
December 31, 2018 to $194,418 for 2019 was primarily the result of
our decision to suspend selling each of our software products in
2018 combined with a decrease in reimbursable expense mostly
resulting from less travel required to execute the projects in 2019
compared to the same period in 2018.
|
|
Year Ended
|
|
|
Change from
|
|
|
Percent Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Cost of Goods Sold
|
|
$ |
1,501,372 |
|
|
$ |
2,164,240 |
|
|
$ |
(662,868 |
) |
|
|
(31% |
) |
Cost of goods sold decreased by $662,868, for the year ended
December 31, 2019, compared to 2018 primarily as a result of 23%
decrease in professional fees and 53% decrease in reimbursable
expenses during 2019 compared to 2018. The decrease in professional
fees from $1,495,464 in 2018 to $1,150,280 for 2019 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 expenses from $391,570 in 2018 to $185,092
for 2019 was primarily the result of reduction in reimbursable
research costs required under the specific contracts. The remainder
of the decrease in cost of goods sold in 2019 compared to 2018 were
mostly attributable to a decrease in amortization of capitalized
software development costs as well as a reduction in vendor and
non-reimbursable expenses in 2019 compared to the prior year.
|
|
Year Ended
|
|
|
Change from
|
|
|
Percent Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Net Operating Income (Loss)
|
|
$ |
(755,487 |
) |
|
$ |
(404,215 |
) |
|
$ |
(351,272 |
) |
|
|
87 |
% |
For the year ended December 31, 2019 we had a net operating loss of
$755,487 compared to a net operating loss of $404,215 for the year
ended December 31, 2018. The increase in net operating loss for the
current year compared to prior year 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 in 2019 when compared to 2018. EBITDA decreased by
$437,416 to a loss of $646,536 for the year ended December 31, 2019
compared to a loss of $209,120 for the year ended December 31,
2018.
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:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$ |
(760,955 |
) |
|
$ |
(411,216 |
) |
Depreciation and Amortization
|
|
|
111,491 |
|
|
|
200,917 |
|
Interest expense
|
|
|
2,928 |
|
|
|
1,179 |
|
EBITDA
|
|
$ |
(646,536 |
) |
|
$ |
(209,120 |
) |
|
|
Year Ended
|
|
|
Change from
|
|
|
Percent Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Salaries and Wages
|
|
$ |
1,128,790 |
|
|
$ |
1,042,077 |
|
|
$ |
86,713 |
|
|
|
8 |
% |
Expenses attributable to salaries and wages
increased by $86,713 during the year ended December 31, 2019
compared to 2018 mostly due to an increase in executive salaries in
2019 mainly resulting from an increase in the number of executive
officers in 2019 in connection with our corporate restructuring in
August 2018. The Company also experienced an increase of $37,300 in
stock based compensation expenses in 2019 compared to 2018
primarily due to a portion of the stock options granted in 2018
becoming exercisable in 2019.
|
|
Year Ended
|
|
|
Change from
|
|
|
Percent Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Contract Services
|
|
$ |
182,259 |
|
|
$ |
210,848 |
|
|
$ |
(28,589 |
) |
|
|
(14% |
) |
Contract services expenses decreased during
the year ended December 31, 2019 compared to 2018 primarily due to
finance and administration services provided by contractors in
2018, which were not required in 2019.
|
|
Year Ended
|
|
|
Change from
|
|
|
Percent Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Other General and Administrative
|
|
$ |
1,183,075 |
|
|
$ |
974,249 |
|
|
$ |
208,826 |
|
|
|
21 |
% |
Other general and administrative costs
increased for the year ended December 31, 2019 compared to 2018
primarily due to an increase in sales and marketing expenses of
$118,191 mostly related to attendance at industry trade conferences
and increases in content marketing to attract new clients, and a
focus on account management to expand sales to existing clients.
Other increases included computer and software, insurance and tax
expenses, travel, and dues and subscriptions which increased by
$33,281, $12,024, $29,183, and $23,796, respectively. These
increases were primarily due to additional software licenses
supporting consulting delivery services and a new partnership fee
incurred in connection with the pursuit of joint sales
opportunities. These were partially offset by a decrease in
professional fees and legal fees of $7,621 mostly due to
restructuring costs incurred in the prior year.
|
|
Year Ended
|
|
|
Change from
|
|
|
Percent Change
|
|
|
|
2019
|
|
|
2018
|
|
|
Prior Year
|
|
|
from Prior Year
|
|
Other Expense
|
|
$ |
(2,540 |
) |
|
$ |
(5,822 |
) |
|
$ |
3,282 |
|
|
|
(56% |
) |
Other expense decreased in 2019 compared to 2018 primarily due to a
decrease in state use tax expenses.
Liquidity and Capital Resources
We measure our liquidity in a variety of ways, including the
following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash and cash equivalents
|
|
$ |
588,848 |
|
|
$ |
1,350,014 |
|
Working capital
|
|
$ |
779,762 |
|
|
$ |
1,348,700 |
|
Anticipated Uses of Cash
As of December 31, 2019, our cash and cash equivalents and working
capital had decreased to $588,848 and $779,762, respectively, from
$1,350,014 and $1,348,700 as of December 31, 2018. Decreases in
cash were primarily driven by an increase in accounts receivable
and decrease in accounts payable at year end in addition to an
increase in our net loss for the year of $349,739.
For the twelve months ended December 31, 2019 and the year ended
December 31, 2018, we were able to finance our operations with cash
generated through operating 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 year ended December 31, 2019, 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. Based upon
the current level of our pipeline of signed contracts and pipeline
of potential new projects plus our current expectations for future
periods in light of the current economic environment, 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.
We 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, 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,
2019 and 2018
Operating Activities. Net cash used in operating activities
increased to $761,166 for the year ended December 31, 2019 compared
to $252,309 for the year ended December 31, 2018. This increase in
cash used in 2019 compared to 2018 was primarily the result of cash
used in connection with a decrease in deferred revenue and
increased accounts receivables, combined with an increase in net
loss of $349,739 in the current year compared to the previous year
as well as a decrease in cash provided in connection with
depreciation expense in 2019 compared to the prior year.
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 2019 compared to the prior year. During the
year ended December 31, 2019, DSO was approximately 55 days, up
from approximately 31 days during the year ended December 31, 2018.
This increase was largely attributed to the increase in accounts
receivable and decrease in sales 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 the year ended December 31, 2019.
There was $5,584 cash used in investing activities for the year
ended December 31, 2018.
Financing Activities. There was no cash provided by, or used
in, financing activities for the year ended December 31, 2019. Net
cash used in financing activities for year ended December 31, 2018
amounted to $8,169 which related to the repayment of a note during
the period.
Off Balance Sheet Arrangements
We did not have any off balance sheet arrangements as of December
31, 2019.
Contractual Obligations
We lease two facilities in northern California, under operating
leases one expiring in 2020 and the other which we lease on a
month-to-month basis. We do not have any debt capital lease
obligations. As of December 31, 2019, the estimated future payments
under this operating lease (including rent escalation clauses) for
2020 is $7,692 less imputed interest of $153. There are no
estimated future payments after 2020.
The operating lease obligations presented reflect future minimum
lease payments due under the non-cancelable portions of our
operating lease.
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
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.
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
MCORPCX, INC.
INDEX TO THE FINANCIALS
|
Index
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F-1
|
|
|
FINANCIAL STATEMENTS
|
|
|
Consolidated Balance Sheets
|
F-2
|
|
Consolidated Statements of Operations
|
F-3
|
|
Consolidated Statements of Changes in Shareholders’
Equity
|
F-4
|
|
Consolidated Statements of Cash Flows
|
F-5
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
F-6
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
McorpCX, Inc.
San Francisco, CA
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
McorpCX, Inc. and its subsidiary (the “Company”) as of December 31,
2019 and 2018, 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, 2019 and 2018, 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 11 to the financial statements, the Company has suffered
recurring losses from operations and negative operating cash flows
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 11. 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 audit. 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.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2016.
Houston, Texas
March 27, 2020
McorpCX, Inc.
Consolidated Balance Sheets
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
588,848 |
|
|
$ |
1,350,014 |
|
Accounts receivable
|
|
|
486,317 |
|
|
|
343,036 |
|
Total current assets
|
|
|
1,075,165 |
|
|
|
1,693,050 |
|
Long term assets:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
87,551 |
|
|
|
90,074 |
|
Capitalized software development costs, net
|
|
|
- |
|
|
|
108,968 |
|
Other assets
|
|
|
55,444 |
|
|
|
72,876 |
|
Total assets
|
|
$ |
1,218,160 |
|
|
$ |
1,964,968 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$ |
253,824 |
|
|
$ |
220,576 |
|
Deferred revenue
|
|
|
32,358 |
|
|
|
122,238 |
|
Lease payable
|
|
|
7,539 |
|
|
|
- |
|
Other current liabilities
|
|
|
1,682 |
|
|
|
1,536 |
|
Total current liabilities
|
|
|
295,403 |
|
|
|
344,350 |
|
Total liabilities
|
|
|
295,403 |
|
|
|
344,350 |
|
Shareholders' equity:
|
|
|
|
|
|
|
|
|
Common stock, no par value, 500,000,000 shares authorized,
20,426,158 shares issued and outstanding at December 31, 2019 and
December 31, 2018
|
|
|
- |
|
|
|
- |
|
Additional paid-in capital
|
|
|
6,517,885 |
|
|
|
6,454,791 |
|
Accumulated deficit
|
|
|
(5,595,128 |
) |
|
|
(4,834,173 |
) |
Total shareholders' equity
|
|
|
922,757 |
|
|
|
1,620,618 |
|
Total liabilities and shareholders' equity
|
|
$ |
1,218,160 |
|
|
$ |
1,964,968 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
McorpCX, Inc.
Consolidated Statements of Operations
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
|
|
|
|
|
|
|
Consulting services
|
|
$ |
3,045,591 |
|
|
$ |
3,545,199 |
|
Products and other
|
|
|
194,418 |
|
|
|
442,000 |
|
Total revenue, net
|
|
|
3,240,009 |
|
|
|
3,987,199 |
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
Labor
|
|
|
1,150,279 |
|
|
|
1,495,464 |
|
Products and other
|
|
|
351,093 |
|
|
|
668,776 |
|
Total cost of goods sold
|
|
|
1,501,372 |
|
|
|
2,164,240 |
|
Gross profit
|
|
|
1,738,637 |
|
|
|
1,822,959 |
|
Expenses
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
1,128,790 |
|
|
|
1,042,077 |
|
Contract services
|
|
|
182,259 |
|
|
|
210,848 |
|
Other general and administrative
|
|
|
1,183,075 |
|
|
|
974,249 |
|
Total expenses
|
|
|
2,494,124 |
|
|
|
2,227,174 |
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
|
(755,487 |
) |
|
|
(404,215 |
) |
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(2,928 |
) |
|
|
(1,179 |
) |
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
(2,540 |
) |
|
|
(5,822 |
) |
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(760,955 |
) |
|
$ |
(411,216 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share-basic and diluted
|
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-basic and diluted
|
|
|
20,426,158 |
|
|
|
20,426,158 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
McorpCX, Inc.
Consolidated Statements of Changes in Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
(Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Total
|
|
Balance at December 31, 2017
|
|
|
20,426,158 |
|
|
$ |
- |
|
|
$ |
6,428,997 |
|
|
$ |
(4,422,957 |
) |
|
$ |
2,006,040 |
|
Stock based compensation - stock options
|
|
|
- |
|
|
|
- |
|
|
|
25,794 |
|
|
|
- |
|
|
|
25,794 |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(411,216 |
) |
|
|
(411,216 |
) |
Balance at December 31, 2018
|
|
|
20,426,158 |
|
|
$ |
- |
|
|
$ |
6,454,791 |
|
|
$ |
(4,834,173 |
) |
|
$ |
1,620,618 |
|
Stock based compensation - stock options
|
|
|
- |
|
|
|
- |
|
|
|
63,094 |
|
|
|
- |
|
|
|
63,094 |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(760,955 |
) |
|
|
(760,955 |
) |
Balance at December 31, 2019
|
|
|
20,426,158 |
|
|
$ |
- |
|
|
$ |
6,517,885 |
|
|
$ |
(5,595,128 |
) |
|
$ |
922,757 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
McorpCX, Inc.
Consolidated Statements of Cash Flows
|
|
Year Ended December 31,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(760,955 |
) |
|
$ |
(411,216 |
) |
Adjustments to reconcile net loss to net cash used in
operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
111,491 |
|
|
|
200,917 |
|
Operating lease ROU asset amortization
|
|
|
28,203 |
|
|
|
- |
|
Stock compensation expense
|
|
|
63,094 |
|
|
|
25,794 |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(143,281 |
) |
|
|
(68,251 |
) |
Other assets
|
|
|
25,061 |
|
|
|
(45,739 |
) |
Accounts payable and accrued liabilities
|
|
|
33,248 |
|
|
|
2,469 |
|
Lease liability
|
|
|
(28,293 |
) |
|
|
- |
|
Other current liabilities
|
|
|
146 |
|
|
|
1,536 |
|
Deferred revenue
|
|
|
(89,880 |
) |
|
|
42,181 |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(761,166 |
) |
|
|
(252,309 |
) |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Equipment purchases
|
|
|
- |
|
|
|
(5,584 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
- |
|
|
|
(5,584 |
) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Repayment of notes payable
|
|
|
- |
|
|
|
(8,169 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
- |
|
|
|
(8,169 |
) |
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(761,166 |
) |
|
|
(266,062 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,350,014 |
|
|
|
1,616,076 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
588,848 |
|
|
$ |
1,350,014 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$ |
2,928 |
|
|
$ |
1,179 |
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
ROU asset and operating lease obligation recognized upon adoption
of ASU 2016-02 |
|
$ |
34,164 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these consolidated
financial statements.
MCORPCX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 & 2018
Note 1: Organization and Basis of Presentation
McorpCX, Inc. (“we,” “us,” “our,” or the “Company”) was
incorporated in the State of California on December 14, 2001. 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 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. During Q1 2015, the Company filed a
d/b/a (doing business as) with the State of California Secretary of
State to begin doing business as McorpCX. On June 11, 2015, at our
Annual General Meeting, shareholders passed a resolution to change
the name of the Company to McorpCX, Inc.
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.
We are a customer experience services company, delivering
consulting and technology solutions to customer-centric
organizations. We are engaged in the business of delivering
consulting and professional services that are designed to help
corporations improve their customer listening and customer
experience management capabilities. To augment our consultative
solutions, we have developed technology products that include
on-demand “cloud based” customer experience management software.
Our professional and related services include a range of customer
experience management services such as research, training, strategy
consulting and process optimization.
Note 2: Summary of Significant Accounting Policies
The consolidated financial statements of the Company are presented
on the accrual basis. All intercompany accounts and transactions
have been eliminated in consolidation. The significant accounting
policies followed are described below to enhance the usefulness of
the consolidated financial statements to the reader.
Use of Estimates
The preparation of the consolidated financial statements is in
conformity with accounting principles generally accepted in the
United States of America. This requires management to make
estimates and assumptions that affect the reported amounts and
disclosures at the date of the consolidated financial statements
and during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid
investments with original maturity dates of less than three months
that are not reported as investments. While the Company may
maintain cash and cash equivalents in bank deposit accounts, which
at times exceed Federal Deposit Insurance Corporation insured
limits, we have not experienced any losses in such accounts.
Portions of the bank deposit accounts are held in Canadian banks on
a Canadian and US Dollar basis. The balances in these accounts at
times exceed Canada Deposit Insurance Corporation insured limits.
We have not experienced any losses in these accounts.
Management believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Accounts receivable and allowance for doubtful
accounts
Accounts receivable are recorded at the invoiced amount, do not
require collateral, and do not bear interest. The Company estimates
its allowance for doubtful accounts by evaluating specific accounts
where information indicates the Company’s customers may have an
inability to meet financial obligations, such as bankruptcy and
significantly aged receivables outstanding. No allowance for
doubtful accounts is required to be recognized as of December 31,
2019 and 2018.
Fair Value of Financial Instruments
Effective July 1, 2009, the Company adopted Accounting Standards
Codification Topic 820, Fair Value Measurements (ASC 820).
ASC 820 defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value
measurements.
ASC 820 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
ASC 820 also establishes a fair market hierarchy, which requires
the Company to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The
standard describes three levels based on the reliability of the
inputs to determine the fair value:
●
|
Level 1, defined as inputs such as unadjusted quoted prices in
active markets for identical assets or liabilities;
|
●
|
Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and
|
●
|
Level 3, defined as unobservable inputs for use when little or no
market data exists, therefore requiring an entity to develop its
own assumptions.
|
The Company’s consolidated financial instruments consist of cash
and cash equivalents, accounts receivable, and accounts payable.
The carrying amount of cash, accounts receivable and accounts
payable approximates fair value because of the short-term nature of
these items. The Company does not have any financial instruments
that are required to be fair valued on a recurring basis as of
December 31, 2019 and 2018.
Advertising Expense
Advertising is expensed as incurred. During the twelve months ended
December 31, 2019 there was advertising expense of $340. There was
no advertising expense during the twelve months ended December 31,
2018.
Property, Equipment, and Depreciation
Property and equipment are stated at cost less accumulated
depreciation. Betterments, renewals, and extraordinary repairs over
$1,000 that extend the life of the assets are capitalized; other
repairs and maintenance are expensed. We measure property, plant
and equipment, at fair value on a nonrecurring basis. The cost and
accumulated depreciation applicable to assets retired are removed
from the accounts, and the gain or loss on disposition is
recognized as other income or expense. Depreciation and
amortization is computed on the straight line method over the
applicable estimated depreciable life as follows:
Depreciable Asset Class
|
|
Depreciable Life
|
|
Real Property Improvements (Years)
|
|
15 |
|
Computer Equipment (Years)
|
|
5 |
|
Furniture and Fixtures (Years)
|
|
7 |
|
Leasehold Improvements (Years)
|
|
Shorter of useful life or term of the lease
|
|
Machinery and Equipment (Years)
|
|
7 |
|
Software Development Costs
Costs for the development and delivery of the SaaS technology are
capitalized once planning is completed and technological
feasibility is established. Costs incurred during the
operating stage of the software application relating to upgrades
and enhancements are capitalized to the extent that they result in
the extended life of the product. All other costs are expensed as
incurred. Capitalized costs include only direct external costs of
materials and services as well as compensation and benefits for
employees directly associated with the software project. Such
amounts are included in the accompanying consolidated balance
sheets under the caption “Capitalized software development costs”.
As of December 31, 2019 capitalized software development costs were
fully amortized.
Intangibles
Intangible assets are periodically reviewed for impairment
indicators and tested for recoverability whenever events or changes
in circumstances indicate the carrying amount may not be
recoverable. An impairment loss, if any, would be measured as the
excess of the carrying value over the fair value determined by
discounted future cash flows. As of December 31, 2019 and 2018
intangible assets were fully amortized.
Stock-Based Compensation
We account for share based payments by recognizing compensation
expense based upon the estimated fair value of the awards on the
date of grant. We determine the estimated grant-date fair value of
restricted shares using quoted market prices and the grant-date
fair value of stock options using the Black-Scholes option pricing
model. In order to calculate the fair value of the options, certain
assumptions are made regarding the components of the model,
including the estimated fair value of underlying common stock,
risk-free interest rate, volatility, expected dividend yield and
expected option life. Changes to the assumptions could cause
significant adjustments to the valuation. We recognize compensation
costs ratably over the period of service using the straight-line
method.
Leases
As further discussed below, the Company adopted the provisions of
Accounting Standards Update 2016-02, Leases, effective January 1,
2019. We determine if an arrangement is a lease at inception.
Operating lease right-of-use (“ROU”) assets are recorded in other
assets and operating lease liabilities are recorded in current
liabilities in the accompanying consolidated balance sheet. Finance
leases, none of which existed as of the adoption of Accounting
Standards Codification (“ASC”) 842 or as of December 31, 2019,
would be reflected in property and equipment and other liabilities
in our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the
lease term and lease liabilities represent our obligation to make
lease payments arising from the lease. Operating lease ROU assets
and liabilities are recognized at commencement date based on the
present value of lease payments over the lease term. As most of our
leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at commencement
date in determining the present value of lease payments. We use the
implicit rate when readily determinable. The operating lease ROU
asset also includes any lease payments made and excludes lease
incentives. Our lease terms may include options to extend or
terminate the lease when it is reasonably certain that we will
exercise that option. Lease expense for lease payments is
recognized on a straight-line basis over the lease term.
Under the available practical expedient, we account for the lease
and non-lease components as a single lease component for all
classes of underlying assets. Further, we elected a short-term
lease exception policy on all classes of underlying assets,
permitting us to not apply the recognition requirements of this
standard to short-term leases (i.e. leases with terms of 12 months
or less).
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.
Consulting services include customer experience management
consulting in the areas of strategy development, planning,
education, training and program design, and includes the
articulation of customer-centric strategies and implementation
roadmaps in support of these strategies. Product revenue is from
productized and software-enabled service sales not elsewhere
classified, while other revenue includes reimbursement of related
travel costs and out-of-pocket expenses.
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, which are typically 60-180 days in
duration. In addition, we typically incur travel 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 completed
basis.
Contract costs, such as commissions, are typically incurred
contemporaneously with the pattern of revenue recognition and, as
such, are expensed as incurred.
See Note 3 Revenue Recognition for further information.
Income Taxes
We use the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial reporting
and the tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that some portion or all
of a deferred tax asset will not be realized.
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 the
“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 in the tax
law.
While the Company’s statutory tax rate approximates 21%, the
effective tax rate is 0% due to the effects of the valuation
allowance described above. The Company does not have any material
uncertainties with respect to its provisions for income taxes.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standard Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases
(Topic 842)” (“ASU 2016-02”) to increase the transparency and
comparability about leases among entities. Additional ASUs have
been issued subsequent to ASU 2016-02 to provide supplementary
clarification and implementation guidance for leases related to,
among other things, the application of certain practical
expedients, the rate implicit in the lease, lessee reassessment of
lease classification, lessor reassessment of lease term and
purchase options, variable payments that depend on an index or rate
and certain transition adjustments. ASU 2016-02 and these
additional ASUs are now codified as Accounting Standards
Codification Standard 842 - “Leases” (“ASC 842”). ASC 842
supersedes the lease accounting guidance in Accounting Standards
Codification 840 “Leases” (“ASC 840”) and requires lessees to
recognize a lease liability and a corresponding lease asset for
virtually all lease contracts. It also requires additional
disclosures about leasing arrangements. The Company’s consolidated
financial statements for the periods prior to the adoption of ASC
842 are not adjusted and are reported in accordance with the
Company’s historical accounting policy. As of the date of
implementation on January 1, 2019, the impact of the adoption of
ASC 842 resulted in the recognition of a right of use asset,
included in other assets, and lease payable obligation on the
Company’s consolidated balance sheets of approximately $34,000. We
elected the package of practical expedients permitted under the
transition guidance.
As the right of use asset and the lease payable obligation were the
same upon adoption of ASC 842, there was no cumulative effect
impact on the Company’s retained earnings.
In February 2018, the FASB issued ASU 2018-02, Reclassification of
Certain Tax Effects From Accumulated Other Comprehensive Income.
The ASU amends ASC 220, Income Statement — Reporting Comprehensive
Income, to “allow a reclassification from accumulated other
comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act.” In addition, under the
ASU, an entity will be required to provide certain disclosures
regarding standard tax effects. The ASU is effective for all
entities for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. The Company adopted ASU
2018-02 effective January 1, 2019. The adoption of this standard
did not have a material impact on the consolidated financial
statements.
Note 3. Revenues
Consulting Service Revenues
The Company’s consulting services are project based and include the
articulation of customer-centric strategies and implementation
roadmaps in support of these strategies. The performance obligation
in these projects is the delivery of specific findings reports as
it pertains to the analysis of a client customer’s experience.
These projects include milestone payments for completion of
different phases of the project and are included in the transaction
price. These milestone payments are deemed to be fixed because the
milestones are within the control of the Company. The projects also
include reimbursable expenses, which are part of the transaction
price and deemed variable consideration. These reimbursable
expenses are estimated at contract inception. Given the
confidentiality provisions in the agreement and the nature of the
services being performed, the Company has no alternative use for
the specific findings report. Therefore, the Company recognizes the
transaction price over time, based on percentage of completion of
the milestones in the contract.
Product and other revenue
Product and other revenue during 2019 and 2018 has primarily been
derived from reimbursable expenses charged to clients and to a
lesser degree from product sales and related revenue. The product
related portion of this revenue originates from the utilization of
the Company’s web-hosted Touchpoint Mapping On-Demand application
(“Touchpoint Mapping”), which is designed to gather customer
satisfaction data, track brand perceptions, and analyze results.
Touchpoint Mapping is a SaaS (Software as a Service)
subscription-based technology application, which derives revenue
from the following sources: nonrefundable setup fees, subscription
fees, professional service fees, and consulting fees related to
implementation, customization, configuration, training, and other
value-added services. Customer licenses for Touchpoint Mapping are
not subject to the licensing guidance in Topic 606 because the
customer can’t take possession of the software at any time and the
customer would not be able to operate the software on its own or
with another third party. Fees charged to customers of Touchpoint
Mapping may include implementation, setup, training and license
fees for the application. Revenue generated from Touchpoint Mapping
(either directly through licensing fees or fees received through
support functions) is recognized on a straight-line basis because
the Company’s obligations under its contracts concerning Touchpoint
Mapping are deemed to be stand-ready obligations due to the fact
that the Company is contractually required to provide access to
Touchpoint Mapping and customer support on a daily basis.
Consequently, usage of Touchpoint Mapping by customers does not
affect the ability of customers to access the application or our
customer support functions. For these reasons, revenue is
recognized on a straight-line basis over the contract period. If
billings are front loaded, this will result in a deferral of
revenue during the contract period. For recognition purposes, we do
not unbundle such services into separate performance obligations as
their pattern of transfer does not differ.
The aggregate amount of the fees received from customers that are
allocated to each customer’s respective performance obligation that
is unsatisfied (or partially unsatisfied) as of December 31, 2019
is $32,358, and included in deferred revenue on the accompanying
consolidated balance sheets. The Company expects to recognize
revenue of approximately $32,358 in the next 12 months related to
these unsatisfied (or partially unsatisfied) performance
obligations. Deferred revenue is not expected to be recognized
beyond fiscal year 2020.
Deferred Revenues (Contract Liabilities)
The Company records deferred revenues when cash payments are
received, including amounts which are refundable.
Payment terms vary by customer and the products or services
offered. The term between invoicing and when payment is due is not
significant. For certain products or services and customer types,
full or a partial payment of the entire contract is required before
the products or services are delivered to the customer.
During the twelve months ended December 31, 2019, we recognized
revenue of $122,238, related to our contract liabilities included
in deferred revenue at December 31, 2018. During the twelve months
ended December 31, 2018 we recognized revenue of $80,057, related
to our contract liabilities included in deferred revenue at
December 31, 2017.
Contract Assets
Given the nature of the Company’s services and contracts, it has no
contract assets.
Practical Expedients and Exemptions
Contract costs consist primarily of sales commissions, The Company
generally expenses sales commissions when incurred because the
amortization period would have been one year or less and the
commissions are only due and payable upon receipt of payment from
the client. These costs are recorded within sales and marketing
expenses.
The Company does not disclose the value of unsatisfied performance
obligations for (i) contracts with an original expected length of
one year or less and (ii) contracts for which we recognize revenue
at the amount to which we have the right to invoice for services
performed.
Note 4: Property and Equipment
|
|
December 31,
|
|
|
December 31,
|
|
Property and equipment consist of:
|
|
2019
|
|
|
2018
|
|
Furniture
|
|
$ |
31,731 |
|
|
$ |
31,731 |
|
Computers and hardware
|
|
|
63,264 |
|
|
|
63,264 |
|
Software
|
|
|
38,646 |
|
|
|
38,646 |
|
Equipment
|
|
|
2,359 |
|
|
|
2,359 |
|
Leasehold Improvements
|
|
|
99,246 |
|
|
|
99,246 |
|
Land
|
|
|
85,000 |
|
|
|
85,000 |
|
Land Improvements
|
|
|
4,000 |
|
|
|
4,000 |
|
Total property and equipment |
|
|
324,246 |
|
|
|
324,246 |
|
Less: accumulated depreciation
|
|
|
(236,695 |
) |
|
|
(234,172 |
) |
Property and equipment, net |
|
$ |
87,551 |
|
|
$ |
90,074 |
|
Depreciation expense incurred during the twelve months ended
December 31, 2019 and 2018 was $2,523 and $2,060, respectively.
Note 5: Capitalized Software Development Costs
Costs incurred to develop Software as a Service (SaaS) technology
consist of external direct costs of materials and services and
payroll and payroll-related costs for employees who directly devote
time to the project. Research and development costs incurred during
the preliminary project stage are expensed as incurred.
Capitalization begins when technological feasibility is
established. Costs incurred during the operating stage of the
software application relating to upgrades and enhancements are
capitalized to the extent that they result in the extended life of
the product. All other costs are expensed as incurred. There were
no capitalizable costs during the twelve months ended December 31,
2019 and 2018.
Amortization of software development costs commenced when the
product was available for general release to customers. The
capitalized costs are amortized on a straight-line basis over the
three-year expected useful life of the software. Capitalized
software development costs, net of amortization were $108,968 as of
December 31, 2018. There were no capitalized software development
costs as of December 31, 2019. Amortization expense incurred during
the twelve months ended December 31, 2019 and 2018 was $108,968 and
$192,606, respectively and is included in cost of goods sold. As of
December 31, 2019 capitalized software development costs were fully
amortized.
Note 6: Stock-Based Compensation
Our stock-based compensation plan was originally established in
2008. The shares of our common stock issuable pursuant to the terms
of such plan (the “Plan Shares”) could not exceed 30% of any
outstanding issue or 2,500,000 shares, whichever was the lower
amount.
In December 2015, we adopted a revised share option plan in which
Plan Shares cannot exceed 10% of the total issued and outstanding
shares at any given time. All stock option grants have an exercise
price equal to the fair market value of our common stock on the
date of the grant and all option grants have a 10-year term. This
share option plan was initially approved by the Company’s
shareholders at the annual meeting of shareholders on August 10,
2016 and has subsequently been re-approved at each subsequent
annual meeting of the Company’s stock holders since that date, as
required under applicable TSX-V rules.
To calculate the fair value of stock options at the date of grant,
we use the Black-Scholes option pricing model. The volatility used
is based on a blended historical volatility of our own stock and
similar sized companies due to the limited historical data
available for our own stock price. The expected term was determined
based on the simplified method outlined in Staff Accounting
Bulletin No. 110. The risk-free interest rate for periods within
the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
At December 31, 2019, 680,000 stock options were exercisable and
$63,094 and $25,794 of total compensation cost related to vested
share-based compensation grants had been recognized for years ended
December 31, 2019 and 2018, respectively. Unrecognized compensation
expense from stock options was $102,506 at December 31, 2019, which
is expected to be recognized over a weighted-average vesting period
of 1.62 years beginning January 1, 2020.
The following table summarizes our stock option activity for the
twelve months ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (in years)
|
|
|
Value
|
|
Outstanding at December 31, 2017
|
|
|
1,350,000 |
|
|
$ |
0.60 |
|
|
|
6.07 |
|
|
|
- |
|
Granted
|
|
|
690,000 |
|
|
|
0.23 |
|
|
|
9.63 |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited or expired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding at December 31, 2018
|
|
|
2,040,000 |
|
|
$ |
0.47 |
|
|
|
6.63 |
|
|
|
- |
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
(900,000 |
) |
|
|
0.63 |
|
|
|
- |
|
|
|
- |
|
Forfeited or expired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding at December 31, 2019
|
|
|
1,140,000 |
|
|
$ |
0.35 |
|
|
|
6.25 |
|
|
|
- |
|
Exercisable at December 31, 2019
|
|
|
680,000 |
|
|
$ |
0.43 |
|
|
|
4.64 |
|
|
$ |
- |
|
During the year ended December 31, 2018, the Company granted
690,000 options to certain employees of the Company with an
incremental vesting schedule over 3 years and a weighted-average
grant date fair value of $0.27. Of the total options granted during
the period 400,000 have a ten year term and 290,000 have a five
year term. There were no options granted during the year ended
December 31, 2019. The following assumptions were used to calculate
weighted average fair values of the options granted in the year
ended December 31, 2018.
|
|
2018
|
Expected life (in years)
|
|
|
3.50 |
- |
6.00 |
Risk-free interest rate
|
|
|
|
|
2.79% |
Volatility
|
|
|
139.34% |
- |
162.16% |
Dividend yield
|
|
|
|
|
- |
Weighted average grant date fair value per option granted
|
|
$ |
|
|
0.27 |
A summary of the status of the Company’s nonvested options as of
December 31, 2019, is presented below:
|
|
Number of
|
|
|
|
Shares
|
|
Nonvested options at December 31, 2017
|
|
|
10,000 |
|
Granted
|
|
|
690,000 |
|
Exercised
|
|
|
- |
|
Cancelled
|
|
|
- |
|
Forfeited or expired
|
|
|
- |
|
Vested
|
|
|
(10,000 |
) |
Nonvested options at December 31, 2018
|
|
|
690,000 |
|
Granted
|
|
|
- |
|
Exercised
|
|
|
- |
|
Cancelled
|
|
|
- |
|
Forfeited or expired
|
|
|
- |
|
Vested
|
|
|
(230,000 |
) |
Nonvested options at December 31, 2019
|
|
|
460,000 |
|
To the extent the actual forfeiture rate is different than what has
been anticipated, share-based compensation expense related to these
options will be different from expectations.
Note 7: Concentrations
We sell products and services under various terms to a broad range
of companies across multiple industries ranging from start-ups to
Fortune 500 companies, with sales historically concentrated among a
few large clients. We continue to make efforts to mitigate risk
from loss of a single client and shift sales concentration to a
more even distribution among our clients. For the twelve months
ended December 31, 2019 and 2018, the percentage of sales and the
concentrations are:
|
|
2019
|
|
|
2018
|
|
Largest client
|
|
|
28 |
% |
|
|
35 |
% |
Second largest client
|
|
|
18 |
% |
|
|
29 |
% |
Third largest client
|
|
|
11 |
% |
|
|
12 |
% |
Next three largest clients
|
|
|
25 |
% |
|
|
17 |
% |
All other clients
|
|
|
18 |
% |
|
|
7 |
% |
|
|
|
100 |
% |
|
|
100 |
% |
Sales are made without collateral and the credit-related losses
have been insignificant or non-existent. Accordingly, there is no
provision made to include an allowance for doubtful accounts.
Note 8: Commitments and Contingencies
Leases
Our corporate headquarters, located at 201 Spear Street, Suite
1100, San Francisco, CA 94105 is a leased space, which we lease on
a month-to-month basis for $129 a month. The Company also leases
office space in San Anselmo, California under an operating lease
that was scheduled to expire March 31, 2020 and monthly rent of
$2,466. The original lease included an option to extend the lease
term for up to two years to be exercised no later than August 31,
2019. This option was not included in the calculation of the ROU
assets and lease liabilities recorded upon the adoption of ASC 842
on January 1, 2019 because it was not reasonably certain that the
Company would exercise the option.
Lease expense was $27,331 for the year ended December 31, 2019
which is included in general and administrative expenses in the
accompanying consolidated statement of operations. Cash payments
for the operating lease were $29,586 for the year ended December
31, 2019.
Supplemental balance sheet information related to leases as of
December 31, 2019 was as follows:
Operating lease right-of-use assets in other assets
|
|
|
6,833 |
|
Operating lease liabilities in lease payable
|
|
|
7,539 |
|
Weighted average remaining lease term
|
|
|
0.75 |
|
Discount rate
|
|
|
6 |
% |
As of December 31, 2019, the estimated future payments under this
operating lease (including rent escalation clauses) for 2020 is
$7,692 less imputed interest of $153. There are no estimated future
payments after 2020.
Note 9: Income Taxes
We use the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. At December
31, 2019 and 2018 net deferred tax assets were fully offset by a
valuation allowance. The Company is no longer subject to U.S.
federal tax examinations by tax authorities for years before 2015
and for state examinations by tax authorities for years before
2014.
As of December 31, 2019, the Company has net operating loss
carry-forwards of approximately $5,000,000 that will begin to
expire in 2033. Pursuant to Sections 382 and 383 of the Internal
Revenue Code, the utilization of NOLs and other tax attributes may
be subject to substantial limitations if certain ownership changes
occur during a three-year testing period (as defined by the
Internal Revenue Code). A valuation allowance was established for
all the net deferred tax assets because realization is not assured.
The components of the deferred tax assets consist of the
following:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net operating losses
|
|
$ |
1,100,000 |
|
|
$ |
900,000 |
|
Less: valuation allowance
|
|
|
(1,100,000 |
) |
|
|
(900,000 |
) |
Net deferred tax assets
|
|
$ |
- |
|
|
$ |
- |
|
Note 10: Basic and Diluted Net Income / (Loss) per
Share
Net income (loss) per share was computed by dividing the net income
(loss) by the weighted average number of common shares outstanding
during the period. The weighted average number of shares was
calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. For the
twelve months ended December 31, 2019 and 2018, the assumed
exercise of share options is anti-dilutive and are excluded from
the determination of net income (loss) per share – basic and
diluted. The share options were anti-dilutive due to the Company’s
net loss or the Company’s common stock average market price was
less than the share options exercise price. Accordingly, net income
/ (loss) per share basic and diluted are equal in all periods
presented. Securities that were not included in the diluted per
share calculations because they would be anti-dilutive were options
to purchase common stock of 1,140,000 and 1,350,000 for the twelve
months ended December 31, 2019 and 2018, respectively.
The computations for basic and diluted net loss per share are as
follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$ |
(760,955 |
) |
|
$ |
(411,216 |
) |
Basic and diluted weighted average common shares outstanding
|
|
|
20,426,158 |
|
|
|
20,426,158 |
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
Note 11: Going Concern
The accompanying consolidated financial statements and notes have
been prepared assuming that the Company will continue as a going
concern.
We have had material operating losses and have not yet created
positive cash flows for a full fiscal year. These factors raise
substantial doubt as to our ability to continue as a going concern.
We continue to focus on our sales pipeline of new business and our
cost reduction plans to improve upon our positive working capital
of $779,762 at December 31, 2019. These measures combined
with our positive working capital position should enable us to
meet our liquidity needs over the next 12 months. Notwithstanding
the foregoing, our longer-term 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. The consolidated financial
statements do not include adjustments related to the recoverability
and classification of asset carrying amounts or the amount and
classification of liabilities that might result should we be unable
to continue as a going concern.
Note 12: Subsequent Events
Effective January 1, 2020 the Company’s leased office space in San
Anselmo, California which was originally scheduled to expire on
March 31, 2020 was renegotiated for an extended 6-month term and
monthly rent of $2,539 and will now expire September 30, 2020.
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
None
ITEM 9A.
|
CONTROLS AND PROCEDURES.
|
Disclosures Control and Procedures
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, 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.
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:
|
●
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
|
|
●
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of the consolidated financial
statements in accordance with accounting principles generally
accepted in the United States of America and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
|
|
●
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the
consolidated financial statements.
|
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, 2019, 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:
|
(1)
|
We do not have controls that are designed to provide adequate
review and oversight of certain financial processes; and
|
|
(2)
|
We do not have adequate evidence to support that controls are
functioning as designed including evidence of review and oversight
of certain financial processes; and
|
|
(3)
|
We do not have adequate written documentation of our internal
control policies and procedures. Written documentation of key
internal controls over financial reporting is a requirement of
Section 404 of the Sarbanes-Oxley Act which is applicable to us.
Management evaluated the impact of our failure to have written
documentation of our internal controls and procedures on our
assessment of our disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a
material weakness.
|
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, 2019.
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, 2019.
ITEM 9B.
|
OTHER INFORMATION.
|
None.
PART III
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
Officers and Directors
Our directors will serve until their successor is elected and
qualified. Our officers serve at the pleasure of the 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:
Name and Address
|
Age
|
Position(s)
|
Matthew Kruchko
|
49
|
President, Chief Executive Officer and Director
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Lynn Davison
|
56
|
Chief Operating Officer
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Stephen Shay
|
60
|
Vice President
|
201 Spear St. Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Barry MacNeil
|
56
|
Chief Financial Officer and Director
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Gregg Budoi
|
55
|
Director
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Nii Quaye
|
47
|
Director
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Giuseppe (Pino) Perone
|
40
|
Director
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Michael Hinshaw
|
58
|
President, McorpCX, LLC
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
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 Company’s board of directors 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.
Barry MacNeil – Chief Financial Officer and
Director
On February 3, 2020, Barry MacNeil was appointed as our Chief
Financial Officer and as a member of the Board. . Mr. MacNeil
previously served as the Company’s Chief Financial Officer from
November 20, 2015 through September 26, 2017. Mr. MacNeil has more
than 20 years of accounting experience in public and private
practice. Since April 2016, Mr. MacNeil has served as Chief
Financial Officer for TAG Oil Ltd., an oil and gas exploration and
production company headquartered in Vancouver British
Columbia. Mr. MacNeil was previously the Controller of TAG Oil
Ltd. from March 2015 through April 2016. Since August 2012, Mr.
MacNeil has served as Chief Financial Officer of Interlapse
Technologies Corp. (formerly Coronado Resources Ltd.), a
Canadian-based fintech applications public company. From
October 2004 through March 2008, Mr. MacNeil served as a member of
the board of directors, CFO and Secretary for Trans-Orient
Petroleum Ltd., a company that invests in early-stage resource and
technology companies. Mr. MacNeil is a Chartered Public
Accountant and earned a diploma in Financial Management from the
British Columbia Institute of Technology.
Mr. MacNeil brings to the Board significant accounting and finance
experience from a variety of public and private companies.
Michael Hinshaw – President, McorpCX, LLC
Since August 2018 Mr. Hinshaw has been the President of our
wholly-owned operating subsidiary, McorpCX, LLC. From March 2006
through January 23, 2020 he served as a director on the Board and
from March 2006 to August 2018, Mr. Hinshaw served our President
and Chief Executive Officer and from December 2011 to August 2018
as our Treasurer and Principal Accounting Officer. From December 7,
2011 until November 20, 2015, Mr. Hinshaw was our Chief Financial
Officer. Mr. Hinshaw founded the Company in 2001. From 1999
until 2002, Mr. Hinshaw served as President and Chief Executive
Officer of Verida Internet Corp. Prior to its sale in 1999,
Mr. Hinshaw served as President of Triad Inc., a brand strategy and
management consulting firm. Mr. Hinshaw holds a MFA in Design and
Communication and a BFA in Graphic Design from the Academy of Art
University in San Francisco.
Lynn Davison – Chief Operating Officer
Since October 9, 2013, Ms. Davison has been our Chief Operating
Officer, and has served as our Secretary from February 3, 2012
until November 20, 2015. Ms. Davison served as our
Vice-President from February 7, 2011 to October 9, 2013. From
April 2004 to February 2011, Ms. Davison worked as a management
consultant to a range of start-up, mid-sized and Fortune 500
clients providing strategic business consulting services. From 1994
through April, 2004, Ms. Davison was a co-founder of C-Change,
Inc., a management consulting firm working with Fortune 500
companies. Ms. Davison has a BA in economics from Whitman College
in Walla Walla, Washington and is a certified Project Management
Professional (PMP) by the Project Management Institute.
Stephen Shay – Vice President
On May 16, 2015, Stephen Shay was appointed as our Vice President.
Prior to joining McorpCX, Mr. Shay enjoyed a nearly 21-year career
with Microsoft Corporation, where he served as an executive leader
in Sales, Operations, and IT. From November 2010 to September 2014,
he was General Manager, Customer Experience, responsible for
conceptualizing and driving initiatives designed to transform the
customer centricity of the organization and delivering simplified,
seamless, and successful interactions across the customer and
partner lifecycle at Microsoft. From August 2005 to November 2010,
Mr. Shay was General Manager, Strategy & Business Development,
were he supported Microsoft's acquisition growth strategy.
Mr. Shay earned a Bachelor of Science Degree in Management &
Computer Information Systems, from Park University, Kansas City,
Missouri and completed additional undergraduate studies in
architecture at the University of Kansas.
Gregg Budoi – Director
Gregg Budoi has been a director since August 2018. Mr. Budoi
also served as our interim President and Chief Executive Officer
from August 2018 to February 2020. Mr. Budoi previously served as
the Company’s Interim President and Chief Executive Officer from
August 16, 2018 to June 7, 2019, and the Company’s 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.
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.
Giuseppe (Pino) Perone - Director
Giuseppe (Pino) Perone has been a director since October 3, 2019.
Mr. Perone is a Canadian lawyer serving as an executive and
director for various public and private companies in the resource
and technology sectors. He has served as a director and executive
officer of Interlapse Technologies Corp., formerly Coronado
Resources Ltd. since August 2012. Mr. Perone has also served as the
Corporate Secretary and General Counsel
of TAG Oil Ltd. since December 2010 and was a member
of the board of directors from July 2007 to December 2009.
The Board believes that Mr. Perone brings to the Board experience
practicing as a corporate lawyer, and his legal experience in a
variety of corporate and commercial matters.
Involvement in Certain Legal Proceedings
During the past ten years, Mr. Hinshaw, Ms. Davison, Mr. Shay, Mr.
Kruchko, Mr. MacNeil, Mr. Budoi, Mr. Perone and Mr. Quaye have not
been the subject of the following events:
1.
|
A petition under the Federal bankruptcy laws or any state
insolvency law filed by or against, or a receiver, fiscal agent or
similar officer appointed by a court for the business or property
of such person, or any partnership in which he/she was a general
partner at or within two years before the time of such filing, or
any corporation or business association of which he/she was an
executive officer at or within two years before the time of such
filing;
|
2.
|
Convicted in a criminal proceeding or named subject of a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
|
3.
|
The subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him/her from, or
otherwise limiting, the following activities;
|
|
i)
|
Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, any other person regulated by the
Commodity Futures Trading Commission, or an associated person of
any of the foregoing, or as an investment adviser, underwriter,
broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and
loan association or insurance company, or engaging in or continuing
any conduct or practice in connection with such activity; or
|
|
ii)
|
Engaging in any type of business practice; or
|
|
iii)
|
Engaging in any activity in connection with the purchase or sale of
any security or commodity or in connection with any violation of
Federal or State securities laws or Federal commodities laws.
|
4.
|
The subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the
right of such person to engage in any activity described in
paragraph 3.i in the preceding paragraph or to be associated with
persons engaged in any such activity;
|
5.
|
Found by a court of competent jurisdiction in a civil action or by
the SEC to have violated any Federal or State securities law, and
the judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended, or vacated;
|
6.
|
Found by a court of competent jurisdiction in a civil action or by
the Commodity Futures Trading Commission to have violated any
Federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated;
|
7.
|
The subject of, or a party to, any Federal or State judicial or
administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of:
|
|
i)
|
Any Federal or State securities or commodities law or regulation;
or
|
|
ii)
|
Any law or regulation respecting financial institutions or
insurance companies including, but not limited to, a temporary or
permanent injunction, order of disgorgement or restitution, civil
money penalty or temporary or permanent cease-and-desist order, or
removal or prohibition order, or
|
|
iii)
|
Any law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or
|
8.
|
Was the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act
(15 U.S.C. 78c(a)(26))), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C.
1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or
persons associated with a member.
|
Audit Committee Financial Expert
Our Board has determined that Mr. Quaye is an independent director
under the standards established by the NASDAQ Stock Market and
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.
Audit Committee and Charter
We have a separately-designated audit committee of the Board that
is currently comprised of the following directors: Gregg Budoi, Nii
Quaye and Matthew Kruchko of which Mr. Quaye is determined to be an
independent director under the standards established by the NASDAQ
Stock Market.
According to our audit committee charter, which is
available on our website at http://investors.mcorp.cx,
our audit committee is responsible for: (1) selection and oversight
of our independent accountant; (2) establishing procedures for the
receipt, retention and treatment of complaints regarding
accounting, internal controls and auditing matters; (3)
establishing procedures for the confidential, anonymous submission
by our employees of concerns regarding accounting and auditing
matters; (4) engaging outside advisors; and, (5) funding for the
outside auditory and any outside advisors engagement by the audit
committee.
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 Securities Exchange Act of 1934, as amended
(“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 the following all officers,
directors and owners of 10% or more of our Shares have filed all
reports required by Section 16(a) of the Exchange Act for the year
ended December 31, 2019: 1) A Form 3 was filed late by Rajesh
Makhija, 2) one Form 4 was filed late by Michael Hinshaw to report
five separate transactions, which were each reported late, 3) one
Form 4 was filed late by Lynn Davison to report one transaction
late, 4) one Form 4 was filed late by Stephen Shay to report one
transaction late, and 5) one Form 4 was filed late by Rajesh
Makhija to report two transactions late.
ITEM 11.
|
EXECUTIVE COMPENSATION.
|
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 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 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 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.
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 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 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:
(a)
|
For the months of November and December 2018 Mr. Budoi agreed to
not receive any compensation and effective January 1, 2019, Mr.
Budoi’s base salary shall be reduced to $60,000 subject to an
adjustment by the Board in connection with the determination by the
Board that Mr. Budoi has successfully executed a strategic plan
developed by the Board that may include the acquisition, joint
venture, licensing and/or merger of new business operations or
technology 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.
|
(b)
|
Mr. Budoi’s one-time signing bonus shall be increased to an amount
of up to $200,000 contingent upon the determination by the Board
that Mr. Budoi has successfully executed a strategic plan developed
by the Board that may include the acquisition, joint venture,
licensing and/or merger of new business operations or technology 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.
|
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.
While he was serving as our President and Chief Executive Officer,
Michael Hinshaw did not have a written employment agreement with
the Company. However, pursuant to the terms of a verbal agreement
between Mr. Hinshaw and the Company, Mr. Hinshaw received an annual
base salary of $300,000 for his executive services as the Company’s
President and Chief Executive Officer.
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”):
|
●
|
Quarterly payments equal to (i) 2.5% of all gross revenues
generated by McorpCX, LLC, plus (ii) an additional 2.5% (for a
total of 5%) of all gross revenues generated by McorpCX, LLC in
excess of $5.0 million per year, and
|
|
●
|
An amount up to 10% of the aggregate of all fees received by
McorpCX, LLC from existing clients of McorpCX, LLC for projects
that were not agreed to as of the effective date of Mr. Hinshaw’s
employment agreement (“New Projects”), and for all projects with
clients of the McorpCX, LLC that were not clients of the McorpCX,
LLC as of the effective date of Mr. Hinshaw’s employment agreement
(“New Clients”), where such New Projects or projects from New
Clients were originated by Mr. Hinshaw, provided that the aggregate
sales commission paid to both Mr. Hinshaw and to other persons
related to the same New Project or project from a New Client will
not exceed 15% of the total fees received by McorpCX, LLC on such
New Project or project from a New Client.
|
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.
From June 7, 2019 until his resignation on September 30, 2019
Rajesh Makhija served as our President and Chief Executive Officer.
Mr. Makhija executed an executive employment agreement (the
“Makhija Employment Agreement”) with the Company dated June 7,
2019, which provided Mr. Makhija was to be paid an initial base
salary of $120,000. Additionally, Mr. Makhija was entitled to
receive a one-time performance bonus of $150,000, if prior to the
one year anniversary of the effective date of the Makhija
Employment Agreement, any two of the following events occur: (i)
the Company has “annualized revenue” (defined as recognized revenue
plus monthly contracted recurring revenue (multi-year contracts
with clients that have known amounts of annual net revenue) with a
term greater than twelve months as of the 12th month
after the effective date times 12) greater than $7,000,000 as of
the 12th calendar
month following the effective date of the Makhija Employment
Agreement plus (C) the annualized revenue of any completed
acquisition, merger or similar arrangement with another company,
and/or (ii) the Board determines that Mr. Makhija has successfully
executed a strategic plan approved by the Board, and the
shareholders if required, which may include the acquisition,
merger, joint venture, or other transaction and/or (iii) has raised
capital from new investors in an amount equaling $1,500,000 or more
that will enable the execution of a Board approved strategic plan,
in each case to be achieved prior to the one year anniversary of
the effective date of the Employment Agreement. If only one of the
above events occur, Mr. Makhija would have been entitled to a
performance bonus of $50,000.
Mr. Makhija was also eligible to receive an annual bonus based on
his achievement against specific criteria which was to be
determined jointly by the Board and Mr. Makhija within 90 days of
the effective date of the Makhija Employment Agreement. The amount
of bonus earned due to the Company meeting any target EBIDTA and/or
net revenue was capped at 75% of his base salary.
The Makhija Employment Agreement was terminated upon Mr. Makhija’s
resignation as our President and Chief Executive Officer on
September 30, 2019.
The Company has yet to enter an employment agreement with Matthew
Kruchko since his appointment as our President and Chief Executive
Officer in February 2020.
The following table sets forth information with respect to
compensation paid by us to our “named executive officers” (which
includes our principle executive officer or “PEO” and our two
highest compensated officers in 2019 outside of our PEO) for each
of the last two years as well as all persons who served as our PEO
during 2019, but were not serving in such position at the end of
such year.
Executive Officer Compensation Table |
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
Pension Value &
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
Non-Equity
|
Deferred
|
|
|
Name and
|
|
|
|
Stock
|
Option
|
Incentive Plan
|
Compensation
|
All Other
|
|
Principal
|
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Totals
|
Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|
|
|
|
|
|
|
|
|
|
Michael Hinshaw
|
2019
|
344,192 [2]
|
0 |
0 |
0 |
0 |
0 |
183,941 [3]
|
528,133 |
President [1]
|
2018
|
348,314 [2]
|
0 |
0 |
0 |
0 |
0 |
23,442 [3]
|
371,756 |
|
|
|
|
|
|
|
|
|
|
Gregg Budoi
|
2019
|
25,923 [5]
|
0 |
0 |
0 |
0 |
0 |
0 |
25,923 |
President, CEO [4]
|
2018
|
42,500 [5]
|
0 |
0 |
77,699 [6]
|
0 |
0 |
58,578 [7]
|
178,777 |
|
|
|
|
|
|
|
|
|
|
Rajesh Makhija
|
2019
|
37,769 |
0 |
0 |
0 |
0 |
0 |
0 |
37,769 |
President, CEO [8]
|
2018
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
|
|
|
|
|
|
|
|
|
Stephen Shay
|
2019
|
240,000 |
7,133 |
0 |
0 |
0 |
0 |
6,000 [9]
|
253,133 |
Vice President
|
2018
|
240,000 |
0 |
0 |
0 |
0 |
0 |
6,000 [9]
|
246,000 |
[1]
|
Mr. Hinshaw resigned as the Company’s President and Chief Executive
Officer in August 2018 and was appointed the President of the
Company’s wholly owned subsidiary, McoprCX, LLC at such time.
|
[2]
|
In addition to Mr. Hinshaw’s salary of $250,000, his compensation
also includes variable compensation in the form of quarterly
payments equal to (i) 2.5% of all gross revenues generated by
McorpCX, LLC, plus (ii) an additional 2.5% (for a total of 5%) of
all gross revenues generated by McorpCX, LLC in excess of $5.0
million per year.
|
[3]
|
All other compensation for Michael Hinshaw for the year ended 2019
consisted of sales commissions of $156,681, and for each of the
years ended 2019 and 2018, payments for health insurance in the
amount of $25,260 and $23,442, respectively.
|
[4]
|
Mr. Budoi served as our Interim Chief Executive Officer from August
16, 2018 until June 7, 2019 and again from September 30, 2019 until
February 3, 2020.
|
[5]
|
In 2019, Mr. Budoi’s salary includes salary earned only for the
periods he served as Interim President and Chief Executive Officer.
In 2018, for the months of November and December, Budoi agreed to
not receive any compensation.
|
[6]
|
On August 16, 2018, the Company granted 290,000 stock options to
Mr. Budoi. These options had an exercise price of $0.30 (Canadian)
and are scheduled to vest incrementally in roughly equal amounts on
August 16, 2019, 2020 and 2021.
|
[7]
|
All other compensation for Mr. Budoi consisted of consulting fees
earned by Mr. Budoi pursuant to a consulting agreement dated
September 26, 2017, which terminated on August 16, 2018 in
connection with Mr. Budoi’s appointment as our Interim Chief
Executive Officer.
|
[8]
|
Mr. Makhija was appointed our President and Chief Executive Officer
on June 7, 2019 and resigned September 30, 2019. His salary
includes salary earned only for the period of employment.
|
[9]
|
All other compensation for Stephen Shay for each of the years ended
2019 and 2018 consisted of cash payments to Mr. Shay intended to
cover the cost of health insurance premiums.
|
The following table sets forth information with respect to
compensation paid by us to our non-employee directors (all
directors except for Mr. Hinshaw and Mr. Budoi) during the last
completed fiscal year ended December 31, 2019.
Director Compensation Table
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
Pension Value &
|
|
|
|
Fees
|
|
|
|
Nonqualified
|
|
|
|
Earned or
|
|
|
Non-Equity
|
Deferred
|
|
|
|
Paid in
|
Stock
|
Option
|
Incentive Plan
|
Compensation
|
All Other
|
|
|
Cash
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|
|
|
|
|
|
|
|
Nii Quaye
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Matthew Kruchko
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Guiseppe Perone
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
(1)
|
The table above does not include Barry MacNeil as he was
appointed subsequent to year end on February 3, 2020.
|
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 and Mr.
Kruchko agreed that they 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 2019.
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, 2019.
Outstanding Equity Awards at December 31,
2019
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
Number of
|
|
Number of
|
|
Plan Awards:
|
|
|
|
|
|
|
Number of
|
|
Plan Awards:
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Shares
|
|
Number of
|
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
Or Units of
|
|
Unearned
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock
|
|
Shares,
|
|
|
|
Options
|
|
Options
|
|
Unearned
|
|
Exercise
|
|
Expiration
|
|
that have not
|
|
Units that
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Options
|
|
Price
|
|
Date
|
|
Vested
|
|
have not vested
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
Gregg Budoi
|
|
96,667 |
|
193,333 |
|
0 |
|
$ |
0.23 |
|
8/16/2023
|
|
0 |
|
0 |
|
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 former Interim President and Chief Executive Officer,
Mr. Makhija, our former President and Chief Executive Officer, and
Mr. Hinshaw, our former President and Chief Executive Officer and
the current President of the Company’s wholly-owned subsidiary,
McorpCX, LLC 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. Makhija,
Mr. Hinshaw and Mr. Budoi excused themselves from our Board’s
discussions concerning the compensation of our President and Chief
Executive Officer when such person was serving in that capacity.
With the exception of each of Mr. Budoi, Mr. Makhija, and Mr.
Hinshaw, no member of our Board was, during the year ended December
31, 2019, 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, 2019.
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
|
The following table sets forth, as of March 27, 2020, 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 March 26, 2020.
|
Shares of Common Stock
|
|
Beneficially Owned
|
Name and Address of Beneficial Owner
|
Number
|
%
|
Michael Hinshaw
|
5,200,000 |
25.46% |
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Stephen Shay
|
0 |
*
|
201 Spear St. Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
Barry MacNeil
|
50,000[2]
|
*
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Guiseppe Perone
|
25,000
|
*
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Gregg Budoi
|
96,667[3]
|
*
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Matthew Kruchko
|
66,667[4]
|
*
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
|
|
|
Nii-Ayikwei Quaye
|
66,667[5]
|
*
|
201 Spear Street, Suite 1100
|
|
|
San Francisco, CA 94105
|
|
|
All officers and directors as a group (8 individuals)
|
5,505,001
|
25.82%
|
|
|
|
Alex Guidi
|
2,762,302[6]
|
13.77%
|
2040 – 885 West Georgia Street
|
|
|
Vancouver, British Columbia V6C 3E8
|
|
|
|
|
|
Eva Lundin
|
2,900,000[7]
|
14.20%
|
6 Rue de Rive
|
|
|
1204 Geneva, Switzerland
|
|
|
|
|
|
Peter Loretto
|
1,443,262[8]
|
7.07%
|
350-6165 HWY 17
|
|
|
Delta British Columbia V4K 5B8
|
|
|
*Represents beneficial ownership of less than 1%.
[1]
|
Includes 700,000 shares issuable pursuant to presently exercisable
stock options and options that become exercisable within 60 days of
March 26, 2020.
|
[2]
|
Includes 50,000 shares issuable pursuant to presently exercisable
stock option and options that become exercisable within 60 days of
March 26, 2020.
|
|
|
[3]
|
Includes 96,667 shares issuable pursuant to presently exercisable
stock option and options that become exercisable within 60 days of
March 26, 2020.
|
|
|
[4]
|
Includes 66,667 shares issuable pursuant to presently exercisable
stock option and options that become exercisable within 60 days of
March 26, 2020.
|
|
|
[5]
|
Includes 66,667 shares issuable pursuant to presently exercisable
stock option and options that become exercisable within 60 days of
March 26, 2020.
|
[6]
|
Based on Schedule 13D filed by the reporting person with the SEC on
February 24, 2016.
|
[7]
|
Based on Schedule 13G filed by the reporting person with the SEC on
February 18, 2016.
|
[8]
|
Based on Schedule 13G filed by the reporting person with the SEC on
February 11, 2016. Mr. Loretto has sole voting and dispositive
power over 1,425,000 shares of our common stock and has shared
voting and dispositive power over the remaining 18,262 shares of
our common stock he beneficially owns.
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
Related Party Transactions
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, 2019 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:
|
•
|
whether the transaction is fair and reasonable to us;
|
|
•
|
the business reasons for the transaction; and
|
|
•
|
whether the transaction is material, taking into account the
significance of the transaction.
|
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 Perone are
independent directors under standards established by the NASDAQ
Stock Market.
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|
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 2019 and 2018 and fees billed for other
services rendered during 2019 and 2018.
|
|
Fiscal 2019
|
|
|
Fiscal 2018
|
|
|
|
MaloneBailey
|
|
|
MaloneBailey
|
|
Type of Service/Fee
|
|
|
|
|
|
|
|
|
Audit Fees (1)
|
|
$ |
56,500 |
|
|
$ |
47,500 |
|
Audit Related Fees (2)
|
|
$ |
- |
|
|
$ |
- |
|
Tax Fees (3)
|
|
$ |
- |
|
|
$ |
- |
|
All Other Fees
|
|
$ |
- |
|
|
$ |
- |
|
(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
ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES.