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EX-32.1 - EXHIBIT 32.1 - McorpCX, Inc.ex32-1.htm
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EX-31.1 - EXHIBIT 31.1 - McorpCX, Inc.ex31-1.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2017

 

 

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

(State or other jurisdiction of incorporation or organization)

 

26-0030631

(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)

 

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 last 90 days.  

YES      NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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

(Do not check if a smaller reporting company)

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 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES      NO

 

:

 

Indicated the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 20,426,158 as of May 12, 2017.  

 



 
 

 

 

MCORPCX, Inc.

Form 10-Q Quarterly Report

 

TABLE OF CONTENTS

 

 

 

Page

No.

 

 

 

 

Part I. - Financial Information

  

 

 

  

Item 1.

Financial Statements.

3

 

 

  

 

Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016.

3

 

 

  

 

Statements of Operations for the Three Months ended March 31, 2017 and 2016 (unaudited).

4

 

 

  

 

Statements of Cash Flows for the Three Months ended March 31, 2017 and 2016 (unaudited).

5

 

 

  

 

Notes to Financial Statements (unaudited).

6

 

 

  

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

11

 

 

  

Item 3.

Quantitative and Qualitative Disclosure about Market Risk.

16

 

 

  

Item 4.

Controls and Procedures.

16

 

 

  

 

 

  

 

Part II. - Other Information

17

 

 

  

Item 1. 

Legal Proceedings.

17

 

  

  

Item 1A.

Risk Factors.

17

 

  

  

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds.

17

 

  

  

Item 3. 

Defaults Upon Senior Securities.

17

  

  

  

Item 4. 

Mine Safety Disclosures.

17

  

  

  

Item 5. 

Other Information.

17

 

 

  

Item 6.

Exhibits.

17

 

 

  

Signatures

18

 

  

Exhibit Index

19

     

 
-2-

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS.

 

McorpCX, Inc.

Balance Sheets

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 
   

(unaudited)

         

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 1,731,268     $ 1,925,744  

Accounts receivable

    101,525       31,889  

Total current assets

    1,832,793       1,957,633  

Long term assets:

               

Property and equipment, net

    92,203       95,704  

Capitalized software development costs, net

    437,416       398,506  

Intangible assets, net

    20,989       32,906  

Other assets

    18,369       21,606  

Total assets

  $ 2,401,770     $ 2,506,355  
                 

Liabilities and Shareholders' Equity

               

Liabilities:

               

Accounts payable

  $ 127,386     $ 67,051  

Deferred revenue

    91,574       51,029  

Related party notes - current portion

    75,072       74,386  

Other current liabilities

    1,252       538  

Total current liabilities

    295,284       193,004  

Total liabilities

    295,284       193,004  

Shareholders' equity:

               

Common stock, $0 par value, 500,000,000 shares authorized, 20,426,158 shares issued and outstanding at March 31, 2017 and December 31, 2016

    -       -  

Additional paid-in capital

    6,373,500       6,325,235  

Accumulated deficit

    (4,267,014 )     (4,011,884 )

Total shareholders' equity

    2,106,486       2,313,351  

Total liabilities and shareholders' equity

  $ 2,401,770     $ 2,506,355  

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
-3-

 

  

McorpCX, Inc.

Statements of Operations

(unaudited)

 

   

Three Months Ended

 
   

March 31,

 
   

2017

   

2016

 
                 

Revenue

               

Consulting services

  $ 258,675     $ 186,534  

Products and other

    38,616       49,418  

Total revenue

    297,291       235,952  

Cost of goods sold

               

Labor

    59,970       31,517  

Products and other

    79,803       61,627  

Total cost of goods sold

    139,773       93,144  

Gross profit

    157,518       142,808  

Expenses

               

Salaries and wages

    245,359       243,502  

Contract services

    9,748       45,405  

Other general and administrative

    152,199       332,090  

Total expenses

    407,306       620,997  
                 

Net operating loss

    (249,788 )     (478,189 )
                 

Interest expense

    (2,868 )     (3,718 )
                 

Other income (expense)

    (2,474 )     (6,850 )
                 

Loss before income taxes

    (255,130 )     (488,757 )
                 

Income tax provision

    -       -  
                 

Net loss

  $ (255,130 )   $ (488,757 )
                 

Net loss per share-basic and diluted

  $ (0.01 )   $ (0.03 )
                 

Weighted average common shares outstanding-basic and diluted

    20,426,158       19,139,125  

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
-4-

 

  

McorpCX, Inc.

Statements of Cash Flows

(unaudited)

 

   

Three Months Ended March 31,

 
   

2017

   

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (255,130 )   $ (488,757 )
                 

Adjustments to reconcile net loss to net cash used in operations:

               
                 

Depreciation and amortization

    58,509       33,172  

Stock compensation expense

    48,265       22,510  

Loss on disposal of assets

    298       -  

Loss on foreign currency translation

    686       6,151  

Changes in operating assets and liabilities:

               

Accounts receivable

    (69,636 )     (52,241 )

Other assets

    3,237       (5,005 )

Accounts payable

    60,335       89,000  

Other current liabilities

    714       (2,981 )

Deferred revenue

    40,545       27,006  
                 

Net cash used in operating activities

    (112,177 )     (371,145 )
                 

INVESTING ACTIVITIES

               

Equipment purchases

    -       (8,856 )

Proceeds from sale of equipment

    2,000          

Capitalized software development costs

    (84,299 )     (58,614 )
                 

Net cash used in investing activities

    (82,299 )     (67,470 )
                 

FINANCING ACTIVITIES

               

Proceeds from private placement of common stock

    -       2,745,000  
                 

Net cash provided by financing activities

    -       2,745,000  
                 

Increase (decrease) in cash and cash equivalents

    (194,476 )     2,306,385  
                 

Cash and cash equivalents, beginning of period

    1,925,744       492,733  
                 

Cash and cash equivalents, end of period

  $ 1,731,268     $ 2,799,118  
                 

Supplemental disclosure of cash flow information:

               

Interest paid

    2,111       2,477  

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 
-5-

 

 

MCORPCX, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2017

(unaudited)

  

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.

 

We are engaged in the business of developing and delivering technology-enabled products and professional services that are designed to help corporations improve their customer listening and customer experience management capabilities. Our products include 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. Our professional and related services include a range of customer experience management services such as research, training, strategy consulting and process optimization.

 

The financial statements and related disclosures as of and for the three months ended March 31, 2017 and 2016, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). The balance sheet as of December 31, 2016 was derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. In our opinion, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These financial statements should be read in conjunction with the financial statements included in our Annual Report for the year ended December 31, 2016, filed on Form 10-K with the SEC on March 31, 2017.  The results of operations for the three months ended March 31, 2017, are not necessarily indicative of the results to be expected for the full year. Unless the context otherwise requires, all references to "McorpCX," "we," "us," "our" or the "Company" are to McorpCX, Inc.

 

Note 2: Recent Accounting Pronouncements

 

In August 2014, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40) Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). Under generally accepted accounting principles (GAAP), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the Liquidation Basis of Accounting. Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in ASU 2014-15 require additional disclosure of information about the relevant conditions and events. The amendments in ASU 2014-15 are effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company adopted ASU 2014-15 with no material impact to the financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to reduce complexity in accounting standards involving several aspects of the accounting for employee share-based payment transactions, including (1) the income tax consequences, (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The amendments will be effective for financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and early adoption is permitted. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition, amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively, amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively, and amendments related to the presentation of excess tax benefits on the statement of cash flows can be applied using either a prospective transition method or a retrospective transition method. An entity that elects early adoption must adopt all of the amendments in the same period. The Company adopted ASU 2016-09 with no material impact to the financial statements.

 

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323). The ASU adds SEC disclosure requirements for both the quantitative and qualitative impacts that certain recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. Specially, these disclosure requirements apply to the adoption of ASU No. 2014- 09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. In addition, ASU No. 2017-03 conforms certain paragraphs within the SEC Staff Guidance to the guidance issued in Accounting Standards Update No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The Company is currently evaluating the impact of these amendments on its financial statements. 

 

 
-6-

 

  

MCORPCX, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2017

(unaudited) 

  

Note 3: 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. Expenses relating to upgrades and enhancements were capitalized during the three months ended March 31, 2017 and March 31, 2016 in the amount of $84,299 and $58,614, respectively.

 

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 $437,416 and $398,506 as of March 31, 2017 and December 31, 2016, respectively. Amortization expense incurred during the three months ended March 31, 2017 and 2016 was $45,389 and $24,049, respectively and is included in cost of goods sold in the statements of operations.

 

Note 4: Intangible Assets

 

Intangibles consist of the following as of March 31,

 

   

2017

 
           

Accumulated

         
   

Gross

   

Amortization

   

Net Book Value

 

Website development costs

  $ 70,188     $ (66,699 )   $ 3,489  

Media distribution rights

    25,000       (10,417 )     14,583  

Intellectual property

    5,000       (2,083 )     2,917  

LinkedIn Group

    2,500       (2,500 )     -  

Organization costs

    1,377       (1,377 )     -  

Total intangibles

  $ 104,065     $ (83,076 )   $ 20,989  

 

We began development of a new Company website in September 2014; related costs incurred during the design and production stages of website development were capitalized prior to its go-live date, which occurred in March 2015.  Now that the website is live, all capitalized costs are amortized using straight-line basis over two years, the estimated economic life of the completed website.

 

Acquisition of media distribution rights occurred in May 2016 and all capitalized costs are amortized using straight-line basis over two years, the estimated economic life of this asset.

 

Acquisition of intellectual property occurred in June 2016 and capitalized costs are amortized using straight-line basis over two years, the estimated economic life of this asset.

 

Our intangible assets are reviewed for impairment when facts or circumstances suggest that the carrying value of the asset may not be recoverable.  There were no impairment charges during the three months ended March 31, 2017 and 2016.

 

Total amortization of intangible assets was $11,917 and $8,375 for the three months ended March 31, 2017 and 2016, respectively.

 

 
-7-

 

 

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2017

(unaudited)

  

Note 5: 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 approved by the Company’s shareholders at the annual meeting of shareholders on August 10, 2016.

 

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 March 31, 2017, 1,130,000 stock options were exercisable and $48,265 of total compensation cost related to vested share-based compensation grants had been recognized for three months ended March 31, 2017. Unrecognized compensation expense from stock options was $183,830 at March 31, 2017, which is expected to be recognized over a weighted-average vesting period of 1.07 years beginning April 1, 2017. 

 

The following table summarizes our stock option activity for the three months ended March 31, 2017:

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Remaining

   

Aggregate

 
   

Number of

   

Exercise

   

Contractual

   

Intrinsic

 
   

Shares

   

Price

   

Term (in years)

   

Value

 

Outstanding at December 31, 2016

    1,575,000     $ 0.70       7.35       394,000  

Granted

    -       -       -       -  

Exercised

    -       -       -       -  

Forfeited or expired

    -       -       -       -  

Outstanding at March 31, 2017

    1,575,000     $ 0.70       7.10       -  

Exercisable at March 31, 2017

    1,130,000     $ 0.60       6.61     $ -  

 

There were no options granted in the three months ended March 31, 2017.

 

 
-8-

 

   

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2017

(unaudited)

  

Note 6: 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 three months ended March 31, 2017 and 2016, the percentage of sales and the concentrations are:

 

   

2017

   

2016

 

Largest client

    35.85 %     16.85 %

Second largest client

    24.82 %     15.95 %

Third largest client

    15.69 %     15.68 %

Next three largest clients

    21.71 %     38.76 %

All other clients

    1.93 %     12.76 %
      100.00 %     100.00 %

 

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 7: Debt

 

On September 16, 2011, a $100,000 CAD note was executed with an individual, a 1.64% shareholder. The note is structured to incur a balloon payment of the principal and 4% APR non-compounding accrued interest on its amended maturity date of October 31, 2017.  Effective October 31, 2016 the note's previous maturity date of September 16, 2016 was amended to extend the maturity date by 1 year. We have recorded an unrealized loss of $686 and a loss of $6,151 during the three months ended March 31, 2017 and 2016, respectively, related to the revaluation of this note's principal from CAD to USD.  As of March 31, 2017, principal and accrued interest was $75,072 and $1,252, respectively.

 

On September 7, 2011, a $50,000 USD note was executed with McLellan Investment Corporation, an unrelated party. The note was structured to incur a balloon payment of the principal and 4% APR non-compounding accrued interest which was paid in full just prior to its amended maturity date of December 31, 2016.

 

Interest expense was $2,868 and $3,718 for the three months ended March 31, 2017 and 2016, respectively and consists of interest on our short-term promissory notes, and credit card balances.

    

 
-9-

 

  

MCORPCX, INC.

NOTES TO THE FINANCIAL STATEMENTS

MARCH 31, 2017

(unaudited)

  

  

Note 8: Going Concern

 

The accompanying 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. These factors raise substantial doubt as to our ability to continue as a going concern. Although we believe that sufficient funding will be available from operations, private placements of equity securities or additional borrowings to meet our liquidity needs over the next 12 months, 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 debt, nor that sufficient capital can be raised through debt or equity financing. The 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.

  

 
-10-

 

 

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. Although we believe that our expectations as reflected in forward-looking statements are reasonable, we cannot assure readers that those expectations will prove to be correct. 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. Other than as required by law, 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 "McorpCX," "we," "us," "our" or the "Company" are to McorpCX, Inc. and our subsidiaries.

 

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 from their competition, and are engaged in the business of developing and delivering technology-enabled products and professional 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 products include 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. Data is analyzed and can be displayed across multiple axes including customer segments, location, time and many other variables of interest to personnel within an organization.

 

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.

 

Our professional and related services 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.

 

There are many potential unforeseen and significant market and competitive risks associated 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.

 

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. It is our expectation that numerous unforeseen challenges will be encountered as we continue to develop, market, distribute and sell our products and services.

 

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. 

 

 
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Sources of Revenue

 

Our revenue consists primarily of professional and consulting services, as well as 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.

 

Cost of Revenue and Operating Expenses

 

Our costs of revenue and operating expenses are detailed at the sub-category level in our Statements of Operations. And while the financial results for these categories are further explained in the Results of Operations section below, a general description of these categories follows:

 

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 product-related hosting and monitoring costs, licenses for products embedded in the application, amortization of capitalized software development costs, related sales commissions, service support, account and subscription management , as applicable. 

 

 
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General and Administrative Expenses

 

General and administrative expenses consist primarily of salary and related expenses for management, client delivery, finance and accounting, and marketing personnel. 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 financial statements.

 

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 terms of the subscriptions or professional services engagements, we expect to experience a delay between increases in selling and marketing expenses and the recognition of revenue.

 

 

Results of Operations

 

                   

Change from

   

Percent Change

 

Revenue

 

2017

   

2016

   

Prior Year

   

from Prior Year

 

Three Months Ended March 31,

  $ 297,291     $ 235,952     $ 61,339       26 %

 

Revenues increased for the three months ended March 31, 2017 compared to the same quarter in the prior year primarily due to increased revenues from consulting services during the current quarter. The growth in revenue during the first quarter of 2017 compared to the same quarter in 2016 was mainly a result of management’s re-focus on business development and revenue generating efforts after the first quarter of 2016.

 

During the first quarter of 2016, we focused on internal initiatives that we believed were critical to our long-term growth. These initiatives included the listing of our shares of common stock on the TSX Venture Exchange and the closing of the related private placement of our common stock in February 2016.

 

                   

Change from

   

Percent Change

 

Cost of Goods Sold

 

2017

   

2016

   

Prior Year

   

from Prior Year

 

Three Months Ended March 31,

  $ 139,773     $ 93,144     $ 46,629       50 %

 

 
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Cost of goods sold increased by approximately $47,000 for the three months ended March 31, 2017 when compared to the same period in 2016 due primarily to an increase of approximately $28,000 in professional fee costs. This increase corresponds with the increase in revenues from consulting services and is primarily due to the Company’s need to contract outside services to assist with delivery of professional services. The remaining increase was primarily due to an increase in software amortization mainly due to software purchases made during the current quarter and increased capitalized expenses related to updates and enhancements to our current software.

 

                   

Change from

   

Percent Change

 

Salaries and Wages

 

2017

   

2016

   

Prior Year

   

from Prior Year

 

Three Months Ended March 31,

  $ 245,359     $ 243,502     $ 1,857       0.76 %

 

Salaries and wages increased slightly for the three months ended March 31, 2017 when compared to the three months ended March 31, 2016 mostly as a result of a decrease of $36,000 in officer salaries in 2017 primarily due to officer turnover during the quarter being more than offset by a $13,000 decrease in the amount of salaries and wages associated with software development efforts in the first quarter of 2017 compared to the same period in 2016, and an increase in stock based compensation expense of $25,000 during the current quarter compared to the same quarter last year.

 

Software development costs decreased for the three months ended March 31, 2017 compared to 2016 primarily due to product development nearing completion. Capitalization of a certain portion of salaries and wages totaled $19,000 and $32,000 for three months ended March 31, 2017 and 2016, respectively. The aggregate cost for independent software designers, developers, programmers and project management professionals was $65,000 and $25,000 for three months ended March 31, 2017 and 2016, respectively.

 

                   

Change from

   

Percent Change

 

Contract Services

 

2017

   

2016

   

Prior Year

   

from Prior Year

 

Three Months Ended March 31,

  $ 9,748     $ 45,405     $ (35,657 )     (78.53% )

 

Contract services expenses decreased for the three months ended March 31, 2017 compared to the same period in 2016 primarily due to decreases in corporate and investor relations, product development, and marketing expenses in 2017.

 

                   

Change from

   

Percent Change

 

Other General and Administrative

 

2017

   

2016

   

Prior Year

   

from Prior Year

 

Three Months Ended March 31,

  $ 152,199     $ 332,090     $ (179,891 )     (54.17% )

 

Other general and administrative costs decreased for the three months ended March 31, 2017 compared to the same period in 2016 primarily due to $127,000 in professional fees incurred in the prior year associated with our listing on the TSX-V exchange and the closing of our private placement in February 2016. There was an additional decrease of $51,000 in sales, marketing, and promotion expenses, and decreased aggregate expenses of $21,000 across all of the following categories during the current quarter: computers and software, administration, and dues and subscriptions. These decreases were partially offset by an increase of $19,000 in insurance costs associated with the Company’s first director and officer insurance policy that began in August 2016 as well as increases in employee health insurance costs.

 

 
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Change from

   

Percent Change

 

Other Income/Expense

 

2017

   

2016

   

Prior Year

   

from Prior Year

 

Three Months Ended March 31,

  $ (2,474 )   $ (6,850 )   $ 4,376       (63.88% )

 

Other expenses decreased for the three months ended March 31, 2017 when compared to the same period in 2016 primarily due to the net effect of fluctuating unrealized gains and losses associated with the revaluation of a promissory note from Canadian dollars to United States dollars in 2017.

 

Liquidity and Capital Resources

 

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

 

   

March 31,

   

December 31,

 
   

2017

   

2016

 

Cash and cash equivalents

  $ 1,731,268     $ 1,925,744  

Working capital

  $ 1,537,509     $ 1,764,629  

 

 

As of March 31, 2017, our cash and cash equivalents and working capital had decreased to $1,731,268 and $1,537,509, respectively, from $1,925,744 and $1,764,629 as at December 31, 2016. The closing of a private placement of our common stock for proceeds of $2,745,000 occurred in February 2016. The use of these proceeds since closing was the primary driver behind the decrease in cash and working capital.

 

For the three months ended March 31, 2017 and the year ended December 31, 2016, we were able to finance our operations, including capital expenditures for infrastructure, product development and marketing activities with cash generated through operating activities, cash on hand, and the proceeds received from our private placement of common stock in February 2016.  The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As reflected in the financial statements included in this report, for the three months ended March 31, 2017 we had a net loss of $255,130 and a net loss of $1,158,854 for the year ended December 31, 2016.

 

We have had material operating losses and have not yet created positive cash flows. These factors raise substantial doubt as to our ability to continue as a going concern. Although we believe that sufficient funding will be available from operations, private placements of equity securities or additional borrowings to meet our liquidity needs over the next 12 months, 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 debt, nor that sufficient capital can be raised through debt or equity financing. The 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.

 

Anticipated Uses of Cash

 

In 2016 and the first quarter of 2017, our primary areas of investment were professional staff to support our professional services and SaaS product delivery business, including client relationship management, and product development staff as well as investments in sales and marketing activities, such as sales and marketing staff, marketing and sales automation software and other related services.

 

We currently anticipate that our uses of cash for the remainder of 2017 will mirror the primary uses of cash during the second half of 2016, which included cash paid to professional staff to support our professional services and SaaS product delivery business.

 

 
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Cash Flow – Three Months Ended March 31, 2017 and 2016

 

Operating Activities. Net cash used in operating activities decreased to $112,177 for the three months ended March 31, 2017 compared to $371,145 for the three months ended March 31, 2016. This decrease in cash used by operating activities was attributable primarily to a $233,627 decrease in net losses in the three months ended March 31, 2017 compared to the same period in 2016 combined with cash provided in connection with increases in accounts payable and deferred revenue being partially offset by cash used in connection with an increase in accounts receivables for the three months ended March 31, 2017 compared to the three months ended March 31, 2016.

 

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, decreased in 2017 compared to the same period of the prior year. During the three months ended March 31, 2017, DSO was approximately 31 days, down from approximately 64 days during the three months ended March 31, 2016. This decrease mainly resulted from a lower accounts receivable balance at the end of the current quarter compared to the same period in 2016 driven primarily by timing of payments from customers. 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. Net cash used in investing activities for the three months ended March 31, 2017 increased to $82,299 compared to $67,470 in net cash used in investing activities for the same period in 2016. Net cash used in investing activities in 2017 primarily consisted of cash used for capitalized software development costs of $84,299 offset by proceeds from the sale of equipment.

 

Financing Activities. There was no cash provided by, or used in, financing activities for the three months ended March 31, 2017. Net cash provided by financing activities for the three months ended March 31, 2016 amounted to $2,745,000. Cash provided in 2016 was the result of a completed private placement of our common stock during that quarter.

 

 

Off Balance Sheet Arrangements

 

We did not have any off balance sheet arrangements as of March 31, 2017.

   

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and as such, are not required to provide the associated information under this item.

  

ITEM 4.

CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedure

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective.

  

Changes in Internal Controls

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

 
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PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS.

 

We are not involved in any legal actions or claims and to our knowledge no such actions or claims are pending.

  

 

ITEM 1A.

RISK FACTORS.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and as such, are not required to provide the associated information under this item.

  

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

Recent Sales of Unregistered Securities

 

There were no unregistered sales of our equity securities during the three-month period ended on March 31, 2017.

 

Purchases of Equity Securities

 

During the three months ended March 31, 2017, there were no purchases of our common stock made by, or on behalf of, the Company or any "affiliated purchaser," as defined by Rule 10b-18 of the Exchange Act.

  

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

  

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

  

 

ITEM 5.

OTHER INFORMATION.

 

(a)

Not applicable.

 

   

 

ITEM 6.

EXHIBITS.

 

See exhibits listed under the Exhibit Index below.

  

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report has been signed on its behalf by the undersigned, thereunto duly authorized on this 12th day of May, 2017.

 

 

MCORPCX, INC.

 

 

 

 

 

BY:

/s/ MICHAEL HINSHAW

 

 

Michael Hinshaw

 

 

Chief Executive Officer, Treasurer, Principal Accounting Officer, Secretary and Director 

  

  

  

  

BY:

/s/ BARRY MACNEIL

  

 

Barry MacNeil

  

 

Chief Financial Officer

 

 
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EXHBIIT INDEX

 

3.1

Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 25, 2012).

3.2

Amended Articles of Incorporation (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 25, 2012).

3.3

Amended Articles of Incorporation (Incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on April 25, 2012).

3.4

Amended Articles of Incorporation (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 13, 2015).

3.5

Amended Articles of Incorporation (Incorporated by reference to the Company’s Form 10-Q filed with the Securities and Exchange Commission on November 14, 2016).

3.6 

Amended and Restated Bylaws (Incorporated by reference to Exhibit 3. 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 24, 2015).

31.1

Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).

31.2

Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a).

32.1*

Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension - Schema

101.CAL

XBRL Taxonomy Extension - Calculations

101.DEF

XBRL Taxonomy Extension - Definitions

101.LAB

XBRL Taxonomy Extension - Labels

101.PRE

XBRL Taxonomy Extension - Presentation

 

*Furnished, not filed

 

Notes to Exhibits List:

 


Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheet, (ii) Statements of Operations, (iii) Statements of Cash Flows, and (iv)Notes to the Financial Statements. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

 

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