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. OverviewMCX Technologies Corporation ("we," "us," "our," or the "Company") intends to acquire or develop a technologies that would become the Company's new operating platform which may include innovations directed toward the internet's evolution into the Web 3. During 2021 and into the first quarter of 2022, through our subsidiaryThe Collective Experience LLC we generated revenue by delivering digital transformation solutions to customer centric organizations through integrated marketing, data science, and commerce. We have ceased the operations under TCE and are now transitioning the focus of the Company toward new technologies. The Company formed a wholly owned subsidiary,McorpCX, LLC ("McorpCX LLC ") as a limited liability company in the state ofDelaware onDecember 14, 2017 . OnAugust 16, 2018 , the Company entered into a contribution agreement withMcorpCX LLC pursuant to which the Company transferred toMcorpCX LLC all the Company's assets and liabilities related to the Company's customer experience consulting business, excluding the underlying technology and databases related thereto which remained with the Company. EffectiveAugust 3, 2020 , the Company sold all of its membership interests inMcorpCX, LLC to mfifty, LLC, aCalifornia limited liability company controlled byMichael Hinshaw , the then current President ofMcorpCX LLC (the "Purchaser"). Since the Company's professional and related consulting services business, which constituted substantially all of the Company's operations at the time of the sale ofMcorpCX LLC , was conducted throughMcorpCX LLC , the sale ofMcorpCX LLC represented a strategic shift that had a major effect on the Company's operations and financial results. As consideration for the sale ofMcorpCX LLC , the Company received a total of$352,000 in cash consisting of$100,000 received upon the signing of the purchase agreement and$252,000 received at the closing of the transaction along with a$756,000 promissory note. The promissory note has an initial annual interest rate of 0.99% (to be recalculated at the end of each twelve-month period subsequent to the date of the note based on the annual Applicable Federal Rate for mid-term loans on the first business day following each such twelve-month period) accruing daily on the outstanding balance of the note, and monthly principal payments are payable to the Company over a term of four or more years. Monthly principal payments to the Company 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 ofMcorpCX, LLC . OnJune 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 beforeJuly 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 ofTwenty Thousand Dollars ($20,000 ) each due on the first day of each month commencing onAugust 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 byDecember 31, 2021 ; (ii) the Purchaser pays at least 95% of the outstanding balance due under the promissory note byJune 30, 2022 ; and (iii) the Purchaser pays at least 97.5% of the outstanding balance due (principal and interest) under the promissory note byDecember 31, 2022 . The Company has received a total of$579,378 as of the date of this report, which is less than 97.5% of the original outstanding balance, and as such the promissory note is not considered paid in full. The note is secured by the Purchaser's ownership interest inMcorpCX LLC . 14
-------------------------------------------------------------------------------- OnNovember 12, 2020 , the Company formed a wholly owned subsidiary,The Collective Experience, LLC (the "Collective Experience" or "TCE") as aDelaware limited liability company. The Company is currently providing all of its digital transformation and marketing management consulting services, which was the Company's sole revenue generating operations, through the Collective Experience. InDecember 2019 , COVID-19 was reported inWuhan, 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 year endedDecember 31, 2022 , the Company has not, as a result of the COVID-19 pandemic, had any significant additional financial losses or seen a negative impact on its liquidity, 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. Sources of Revenue Our only source of revenue was derived from providing digital transformation services through our subsidiaryThe Collective Experience LLC , that included brand strategy, data science, pricing science, customer experience management consulting and implementation in support of these strategies. As ofApril 1, 2022 , TCE ceased signing new client engagements since we are no longer pursuing that segment in order to focus on alternative technologies. 15 --------------------------------------------------------------------------------
Operating Expenses Cost of Goods Sold Cost of goods sold 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.
General and Administrative Expenses
General and administrative expenses consist primarily of finance and accounting, legal, 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 theUnited States Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, as well as having our stock listed on theTSX Venture Exchange inCanada and quoted on the OTC Pink Sheets inthe United States .
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance withU.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 have the greatest potential impact on our consolidated financial statements. Revenue Recognition
The Company's revenue consisted primarily of professional and consulting services, as well as reimbursable expenses billed to clients, software-enabled product sales and other revenues. Other revenue included reimbursement of related travel costs and out-of-pocket expenses.
The Company's consulting services were contracted under master terms and conditions with statements of work ("SOW") defined for each project. A typical consulting SOW would 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 recognized 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 were recognized in revenue on a percentage of work complete basis. In addition, some clients would enter into annual or longer-term contracts that will have a monthly retainer for general consulting and project services. The revenue for these engagements was recognized on straight-line basis monthly during the term of the contract. 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. 16 --------------------------------------------------------------------------------
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 underthe 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. 17
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Results of Continuing Operations
Revenues & Cost of Goods Sold During the year endingDecember 31, 2022 , we had$101,409 in revenue recognized as well as the related cost of goods sold of$99,350 generated through continuing operations from one customer contracts entered into in 2021 that carried over into 2022. During the year endingDecember 31, 2021 , we had$752,167 in revenue recognized as well as the related cost of goods sold of$380,247 generated through continuing operations from six customer contracts entered into in 2021 and two customer contracts that carried over from 2020. Year Ended Change from Percent Change 2022 2021 Prior Year from Prior Year Net Operating Loss$ (460,003 ) $ (359,536 ) $ (100,467 ) 28 % For the year endedDecember 31, 2022 we had net operating loss of$460,003 compared to a net operating loss of$359,536 in 2021. The increase in net operating loss in 2022 compared to 2021 was primarily a result of a decrease in revenue generated in 2022, and expenses associated with the winding up of the TCE operations. 18
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Year Ended Change from Percent Change 2022 2021 Prior Year from Prior Year Salaries and Wages$ 0 $ 39,066 $ (39,066 ) (100 %) Expenses attributable to salaries and wages decreased by$39,066 during the year endedDecember 31, 2022 compared to 2021 due to the elimination of stock compensation expenses related to the vesting of previously granted options as those options have been fully vested and expensed during 2021. Year Ended Change from Percent Change 2022 2021 Prior Year from Prior Year Contract Services$ 75,212 $ 291,411 $ (216,199 ) (74 %)
Contract services expenses decreased during the year ended
Year Ended Change from Percent Change 2022 2021 Prior
Year from Prior Year
Other General and Administrative
(4 %)
Other general and administrative costs decreased by
Year Ended Change from Percent Change 2022 2021 Prior Year from Prior Year Other expense$ 5,549 $ 1,142 $ 4,407 386 %
Other expenses were consistent year over year and primarily consisted of non-recurring other expenses, partially offset by interest income on related party notes receivable.
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Liquidity and Capital Resources
We measure our liquidity in a variety of ways, including the following:
December 31, December 31, 2022 2021 Cash and cash equivalents$ 2,595 $ 51,393 Working capital$ (98,381 ) $ 49,542 Anticipated Uses of Cash
As of
For the year endedDecember 31, 2022 and 2021, we were able to finance our operations with cash generated through cash on hand as well as proceeds of the sale ofMcorpCX, LLC that took place in 2020. 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 endedDecember 31, 2022 , our primary uses of cash included third party contractors to support our consulting services, general and administrative expenses to support 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 note receivable due to the Company, we are seeking new sources of revenue to fund our capital requirements for our business during the next 12 months. We received total consideration of$1,108,000 consisting of$352,000 in cash and a$756,000 promissory note for the sale ofMcorpCX, LLC , which was completed onAugust 3, 2020 , which applied to transaction costs as well as investment toward becoming a technology solutions business. The collection of the promissory note is expected to enable us to meet our liquidity needs over the next 12 months. Notwithstanding the foregoing, our 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. We intend to continue to seek ways to transition our business to new technologies, including through acquisitions, mergers, licensing arrangements, joint-ventures new capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources may be generated from cash flow from operations, cash on hand, the proceeds of the sale ofMcorpCX, LLC , borrowing against our assets or the issuance of securities, and there is no assurance these capital resources will be available to us when required. 20 --------------------------------------------------------------------------------
Cash Flow for the Years Ended
Operating Activities. Net cash used in operating activities decreased to$367,957 for the year endedDecember 31, 2022 compared to net cash used in operating activities of$488,037 in 2021. This decrease in cash used in operating activities in 2022 compared to 2021 was primarily due to a$130,874 decrease in Accounts Receivable in 2022 compared to a$170,874 increase in Accounts Receivable in 2021, as well as a smaller decrease in cash attributed to deferred revenue in 2022 compared to 2021, offset by a$104,874 increase in net loss from 2021 to 2022 and a$47,843 decrease in Accounts Payable in 2022 compared to a$111,766 increase in Accounts Payable in 2021. Investing Activities. There was cash provided by investing activities of$319,159 for the year endedDecember 31, 2022 due to cash received from the related party notes receivable issued in connection with the sale ofMcorpCX, LLC , as well as the sale of land during 2022. In 2021, cash provided by investing activities of$241,465 was due to cash received from the related party notes receivable issued in connection with the sale ofMcorpCX, LLC .
Financing Activities. There was no cash provided by or used in financing
activities for the year ended
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Contractual Obligations
We lease one office in
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