MCX Technologies Corporation

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 Web 3 company focused on powering innovation for the Metaverse. The Company is dedicated to delivering experiences that connect the Web 3 virtual worlds and our physical world. During 2021, through our subsidiary The Collective Experience LLC we generated revenue by delivering digital transformation solutions to customer centric organizations through integrated marketing, data science, and commerce. We are now in the process of transitioning the focus of the Company toward the development and/or implementation of Web 3 technologies.

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 $100,000 as of the date of this report. The note is secured by the Purchaser's ownership interest in McorpCX LLC.

Our vision is to create a protocol to connect the Metaverse to the Physical world. We see a decentralized approach where there is personalized value exchange between individuals, brands and peer to peer. This focus supports our vision as a technology and service provider to virtual and physical Web 3.0 technologies. MCX sees the future building on top of Web 3.0 platforms to connect the metaverse to the physical worlds. We believe these platforms will: 1. Create revenue at every loyalty transaction level between digital and physical interactions, 2. Monetize digital engagement and assets as users interact in both worlds, and 3. Build how users control how data is monetized inside. 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 year ended December 31, 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.

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 McopCX LLC. Product revenue was from productized and software-enabled service sales not elsewhere classified.

As of December 31, 2021, our only source of revenue is derived from providing digital transformation services through the Collective Experience that includes brand strategy, data science, pricing science, customer experience management consulting and implementation in support of these strategies.

Operating Expenses

Cost of Goods Sold

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

General and Administrative Expenses

General and administrative expenses consist primarily of 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.

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 have the greatest potential impact on our consolidated financial statements.

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. Other revenue includes reimbursement of related travel costs and out-of-pocket expenses.

The Company’s 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. In addition, some clients will enter into annual or longer-term contracts that will have a monthly retainer for general consulting and project services. The revenue for these engagements is 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 4 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.

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 year ending December 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. During the year ending December 31, 2020, we had $47,933 in revenue recognized as well as the related cost of goods sold of $45,425 generated through continuing operations from two customer contracts entered into in the last quarter of 2020.

the last quarter of 2020.
		Year	Ended			Change from	Percent Change
		2021		2020		Prior Year	from Prior Year
Net Operating Loss	$	(359,536)	$	(427,498)	$	67,962	(16%)

For the year ended December 31, 2021 we had net operating loss of $359,536 compared to a net operating loss of $427,498 in 2020. The decrease in net operating loss in 2021 compared to 2020 was primarily a result of revenue generated in the fourth quarter of 2020 from new operations being more than offset by a full year of revenues generated from new operations in 2021.

Net loss increased to $360,678 for the year ended December 31, 2021 from a net loss of $44,502 in 2020, mostly as a result of $181,634 in income from discontinue operation of McorpCX, LLC in the 2020 combined with the $202,376 gain on disposal of McorpCX, LLC in 2020 and there were no such activities from discontinued operations in 2021.

			Year	Ended				Change from		Percent Change
		2021			2020			Prior Year		from Prior Year
Salaries and Wages	$		39,066	$		81,172	$	(42,106)		(52%)

Expenses attributable to salaries and wages decreased by $42,106 during the year ended December 31, 2021 compared to 2020 primarily due the outsourcing of our bookkeeping function in 2021 which resulted in compensation expenses in 2021 solely consisting of stock compensation expenses related to the vesting of previously granted options.

granted options.
		Year	Ended				Change from	Percent Change
		2021		2020			Prior Year	from Prior Year
Contract Services	$	291,411	$		22,375	$	269,036	1,202%

Contract services expenses increased during the year ended December 31, 2021 compared to 2020 primarily due to administration services, corporate and investor relations expenses, accounting, marketing, and business development and sales expenses provided by contractors in 2021, which were not required in 2020.

		Year Ended	Year Ended			Change from	Percent Change
		2021		2020		Prior Year	from Prior Year
Other General and Administrative	$	400,979	$	326,459	$	74,520	23%

Other general and administrative costs increased by $74,520 during the year ended December 31, 2021 compared to 2020 primarily due to increases in expenses related to computers and software, rent, sales and marketing, travel, insurance and repairs and maintenance partially offset by decreases in professional fees and administration.

			Year Ended	Year Ended				Change from	Percent Change
		2021			2020			Prior Year	from Prior Year
Other expense	$		1,142	$		1,014	$	128	13%

Other expenses were consistent year over year and primarily consisted of state use tax expenses being partially offset by interest on related party notes receivable.

Liquidity and Capital Resources

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

Liquidity and Capital Resources We measure our liquidity in a variety of ways, including the following:
		December	31,		December	31,
		2021			2020
Cash and cash equivalents	$		51,393	$		297,965
Working capital	$		49,542	$		114,499

Anticipated Uses of Cash

As of December 31, 2021, our cash and cash equivalents and working capital had decreased to $51,393 and $49,542, respectively, from $297,965 and $114,499 as of December 31, 2020.

For the year ended December 31, 2021 and 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 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 ended December 31, 2021, 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 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, which applied to transaction costs as well as investment toward becoming a technology solutions business. These measures combined with our positive working capital position are 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 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, the proceeds of the sale of McorpCX, 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.

Cash Flow for the Years Ended December 31, 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 increased to $488,037 for the year ended December 31, 2021 compared to net cash used in operating activities of $425,384 in 2020. This increase in cash used in operating activities in 2021 compared to 2020 was primarily due to the $316,176 increase in net loss from 2020 to 2021 combined with cash used from greater increases in deferred revenue in 2021 compared to 2020 being partially offset by cash provided by a $202,376 gain on disposal of McorpCX, LLC in 2020.

Investing Activities. There was cash provided by investing activities of $241,465 for the year ended December 31, 2021 due to cash received from the related party notes receivable issued in connection with the sale of McorpCX, LLC. In 2020, the net change in cash from the sale of McorpCX, LLC of $305,736 was partially offset by $29,168 in cash received from the promissory note issued in connection with the sale of McorpCX, LLC , which contributed to cash used in investing activities of $276,568.

Financing Activities. There was no cash provided by or use in financing activities for the year ended December 31, 2021. In the prior year, the Company had cash provided by financing activities due to $411,069 cash proceeds received from the PPP Note and EIDL Note (each defined below) and $100,000 cash proceeds from a related party note during the year ended December 31, 2020.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was passed in the United States, which included amongst other programs, loans to businesses under a Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”). On May 12, 2020, McorpCX LLC received an unsecured non-recourse promissory note in the amount of $161,069 under the PPP (the “PPP Note”). The PPP Note incurs interest at a fixed rate of 1.00% and is scheduled to mature on May 3, 2022. McorpCX, LLC is required to make monthly payments on the PPP Note of $6,785 commencing on November 1, 2020.

On June 11, 2020, McorpCX LLC received a secured non-recourse promissory note in the amount of $150,000 under the EIDL program (the “EIDL Loan”). The EIDL Loan incurs interest at a fixed rate of 3.75% and is scheduled to mature on 30 years from June 10, 2050. McorpCX, LLC is required to make monthly payments on the EIDL Loan of $731 which includes principal and interest beginning twelve months from the date of the EIDL Loan beginning June 11, 2021. Collateral for the loan includes all tangible and intangible personal property. As a result of the sale of McorpCX LLC, each of the PPP Note and the EIDL Loan are no longer liabilities of the Company.

The Company also had cash provided by financing activities of $100,000 due to cash proceeds from a related party note during the year ended December 31, 2020. The note is not explicit in its terms of payment, interest, or maturity. As a result of the sale of McorpCX LLC, this note is no longer a liability of the Company.

Results of Discontinued Operations

Results of Discontinued Operations
			Year	Ended			Change from	Percent Change
		2021			2020		Prior Year	from Prior Year
Income from discontinued operations	$		-	$	384,010	$	(384,010)	(100.00%)

During the year ended December 31, 2020, total income from discontinued operations was $384,010 mostly as a result of $181,634 in income from the discontinued operations of McorpCX, LLC in 2020 combined with $202,376 in net proceeds from the sale of McorpCX, LLC being recognized as a gain on disposal of McorpCX, LLC in 2020. There was no income from discontinued operations during the year ended December 31, 2021.

Contractual Obligations

We lease one facility in Ohio on a month-to-month basis. We do not have any debt capital lease obligations.

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.