MCCX MCX Technologies Corporation (PK)

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Statement

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

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

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe that the assumptions and estimates associated with revenue recognition, income taxes, stock-based compensation, research and development costs and impairment of long-lived assets have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

A description of the Company’s critical accounting policies and related judgments and estimates that affect the preparation of the Company’s financial statements is set forth in under the heading “Critical Accounting Policies and Estimates” in Item 7, Management’s Discussion and Analysis of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. With the exception of the policy adoptions discussed in Note 3 of the Notes to the Consolidated Financial Statements included with this report, such policies were unchanged during the nine months ended September 30, 2021.

Overview

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

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

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

As consideration for the sale of McorpCX LLC, the Company received a total of $352,000 in cash consisting of $100,000 received upon the signing of the purchase agreement and $252,000 received at the closing of the transaction along with a $756,000 promissory note. The promissory note has an initial annual interest rate of 0.99% (to be recalculated at the end of each twelve-month period subsequent to the date of the note based on the annual Applicable Federal Rate for mid-term loans on the first business day following each such twelve-month period) accruing daily on the outstanding balance of the note, and monthly principal payments are payable to the Company over a term of four or more years. Monthly principal payments to the Company were initially $7,292 per month for the first twelve months following the date of the note, and then during each subsequent twelve-month period are based on the annual revenues of McorpCX, LLC. On June 11, 2021, the Company and the Purchaser entered into an amendment to the promissory note whereby the Purchaser agreed to pay the Company One Hundred Thousand Dollars ($100,000) on or before July 1, 2021 to be applied towards the outstanding principal amount of the promissory note and then going forward to pay the remaining principal amount in installments of Twenty Thousand Dollars ($20,000) each due on the first day of each month commencing on August 1, 2021 until the principal amount is paid in full, with the final payment being the remaining unpaid outstanding balance due at that time. The amendment to the promissory note also provides that the promissory note will be considered paid in full if any of the following occurs: (i) the Purchaser pays at least 90% of the outstanding balance due (principal and interest) under the promissory note by December 31, 2021; (ii) the Purchaser pays at least 95% of the outstanding balance due under the promissory note by June 30, 2022; and (iii) the Purchaser pays at least 97.5% of the outstanding balance due (principal and interest) under the promissory note by December 31, 2022. The Company has received the initial $100,000 payment and the first few payments in the amount of $80,000 as of the date of this report. The note is secured by the Purchaser's ownership interest in McorpCX LLC.

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

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

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China and has since extensively impacted the global health and economic environment.

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. COVID-19 infections and health risks, including from variants, continue.

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers.

As of the date of issuance of these consolidated financial statements for the nine months ended September 30, 2021, the Company has not had any significant financial losses and the Company’s liquidity has not been negatively impacted as a result of the COVID-19 pandemic, but the extent to which the COVID-19 pandemic may materially impact the Company's future financial condition, liquidity, or results of operations remains uncertain.

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

Sources of Revenue

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

As of September 30, 2021, our only source of revenue is derived from providing digital transformation services through the Collective Experience that include brand strategy, data science, pricing science, customer experience management consulting and implementation in support of these strategies.

Operating Expenses

Cost of Goods Sold

Cost of goods sold consist primarily of expenses directly related to providing professional and consulting services. Those expenses include contract labor, third-party services, and materials and travel expenses related to providing professional services to our clients.

General and Administrative Expenses 

General and administrative expenses consist primarily finance and accounting, software subscriptions, insurance, stock compensation expense, client delivery, 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, as well as having our stock listed on the TSX Venture Exchange in Canada and quoted on the OTC Pink Sheets in the United States.

Results of Continuing Operations

Management determined that the completion of the sale of McorpCX LLC meets the criteria for the presentation of the operations of McorpCX LLC as discontinued operations as of August 3, 2020 and accordingly, the results of the McorpCX, LLC are presented as discontinued operations in the Company’s Consolidated Statements of Operations beginning in the third quarter of 2020, and thus excluded from continuing operations for all periods presented.

Revenues & Cost of Goods Sold

During the three and nine months ended September 30, 2021, we had $240,462 and $549,778, respectively, in revenue recognized as well as the related cost of goods sold of $191,126 and $311,295, respectively, generated through continuing operations from two customer contracts entered into in the last quarter of 2020 plus an additional six customer contracts entered into in 2021. There was no revenue or cost of goods sold generated through continuing operations for the three and nine months ended September 30, 2020.

Net income decreased to a loss of $92,601 for the three months ended September 30, 2021 from a net income of $291,928 for the three months ended September 30, 2020 mostly as a result of $356,153 in income from discontinued operations in the third quarter of 2020. Net operating loss from continuing operations decreased $28,376 to a loss of $92,601 in the current quarter from a net loss from continuing operations of $64,225 in the same quarter of 2020 mostly as a result of revenue generated in 2021 from new operations combined with fewer salaried employees being more than offset by expenses associated with finance and administration services provided by contractors in the first nine months of 2021 compared to the same period of 2020.

We had a net loss of $201,921 for the nine months ended September 30, 2021 compared to a net income of $90,441 for the nine months ended September 30, 2020, which was mostly as a result of $384,010 in income from discontinued operations in the first nine months of 2020. Net loss from continuing operations decreased to a loss of $201,921 for the nine months ended September 30, 2021 from a loss of $293,569 for the nine months ended September 30, 2020 primarily a result of revenue generated in 2021 from new operations combined with fewer salaried employees being more than offset by expenses associated with finance and administration services provided by contractors in the first nine months of 2021 compared to the same period of 2020.

Expenses attributable to salaries and wages for the three months ended September 30, 2021 consisted exclusively of stock compensation expense.  The decrease in expenses attributable to salaries and wages in the third quarter of 2021 compared to the same quarter of 2020 was primarily due to the elimination of executive officer salaries and the outsourcing of all staff salaries due to the Company’s internal finance and administration services being provided by contractors in 2021.

Expenses attributable to salaries and wages exclusively consisted of stock compensation expense for the nine months ended September 30, 2021.  The decrease in expenses attributable to salaries and wages in the first nine months of 2021 compared to the same period of 2020 was primarily due to the elimination of executive officer salaries and the outsourcing of all staff salaries due to the Company’s internal finance and administration services being provided by contractors in 2021.

Contract services expenses increased during the three and nine months ended September 30, 2021 and 2020, due to executive, finance and administration services being provided by contractors in 2021, which were provided by salaried employees in 2020.

Other general and administrative costs increased by $23,989 and $16,059 during the three and nine months ended September 30, 2021 compared same periods in 2020 primarily due to increases in sales and marketing and travel expenses as well as software expenses in 2021 compared to 2020.

Other income decreased to $6,187 in the three months ended September 30, 2021 compared to $7,221 in other income in the three months ended September 30, 2020 primarily due to the incurrence of some non-recurring expenses coupled with slightly lower interest income from the prior year.

We recognized $9,685 in other income in the nine months ended September 30, 2021 compared to $1,244 in other expenses in the nine months ended September 30, 2020 primarily due to a decrease in state use tax expenses, and an increase in interest on related party notes receivable in the first nine months of 2021 compared to the same period of 2020, as well as the correction of cash reconciliation items booked during the first nine months of 2020.

Anticipated Uses of Cash

As of September 30, 2021, our cash and cash equivalents had decreased to $168,975 from $297,965 and our working capital increased to $136,302 from $114,499 as of December 31, 2020.

For the nine months ended September 30, 2021 and the year ended December 31, 2020, we were able to finance our operations with cash generated through cash on hand as well as proceeds of the sale of McorpCX, LLC. The accompanying consolidated financial statements have been prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

During the nine months ended September 30, 2021, our primary uses of cash included cash paid to professional staff to support our consulting services, general and administrative support and new business development activities.

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

We received total consideration of $1,108,000 consisting of $352,000 in cash and a $756,000 promissory note for the sale of McorpCX, LLC, which was completed on August 3, 2020.

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

Cash Flow – Nine months ended September 30, 2021 and 2020

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

Operating Activities. Net cash used in operating activities decreased to $309,569 for the nine months ended September 30, 2021 compared to net cash used in operating activities of $373,209 for the nine months ended September 30, 2020. This decrease in cash used in operating activities in 2021 compared to 2020 was primarily due to a $202,376 gain on disposal of McorpCX, LLC in 2020 combined with cash used in connection with increased accounts receivable associated with discontinued operations in 2020 being partially offset by net loss of $201,921 in 2021 as well as an increase in accrued revenue of $142,227 in the first nine months of 2021 compared to the same period of 2020.

Investing Activities. $182,788 in cash received as interest and principal payments on the promissory note from the Purchaser constituted all of the cash provided by investing activities for nine months ended September 30, 2021 offset partially by $2,209 of cash used to purchase fixed assets. There was cash used in investing activities for nine months ended September 30, 2020 due to the net change in cash from the sale of McorpCX, LLC of $305,737 partially offset by cash received from related party notes receivable of $6,688.

Financing Activities. There was no cash provided by, or used in, financing activities for the nine months ended September 30, 2021. For the nine months ended September 30, 2020, the Company had cash provided by financing activities of $411,069 due to proceeds from two promissory notes issued to McorpCX, LLC.  As a result of the sale of McorpCX LLC on August 3, 2020, these notes are no longer a liability of the Company.

There was no income from discontinued operations during the three or nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, total income from discontinued operations was $356,153 and $384,010, respectively.

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2021.