MCCX MCX Technologies Corporation (CE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 & 2021

Note 1: Organization and Basis of Presentation

MCX 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 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 have ceased operations under TCE and we are now transitioning the focus of the Company toward new technologies.

We were incorporated in the State of California on December 14, 2001, as a customer experience (“CX”) management solutions company dedicated to helping organizations improve customer experiences, increase customer loyalty, reduce cost and increase revenue. The Company operated as The Innes Group, Inc., d/b/a MCorp Consulting until filing a Certificate of Amendment to the Articles of Incorporation renaming the Company Touchpoint Metrics, Inc., effective October 18, 2011. On June 11, 2015, our shareholders passed a resolution to change the name of the Company to McorpCX, Inc., and on June 29, 2020, in connection with the sale of McorpCX, LLC, as described below, our shareholders passed a resolution to change the name of the Company to MCX Technologies Corporation.

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

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 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 we 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. The note is secured by the Purchaser's ownership interest in McorpCX LLC. On June 11, 2021, the note was amended whereby the obligor would pay $100,000 principal payment on or before July 1, 2021 and the remaining principal and interest would be paid in installments of $20,000 per month due on the first day of each month.

On November 12, 2020, the Company formed a wholly owned subsidiary, The Collective Experience, LLC (the “Collective Experience” or “TCE”) as a Delaware 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.

In December 2019, COVID-19 was reported in Wuhan, China and has since extensively impacted the global health and economic environment. The outbreak in the United States, as well as the response to COVID-19 by federal, state and local governments could have a continued material adverse impact on economic and market conditions in the United States, which may negatively affect our business and operations. Although the administration of vaccines throughout the United States contributed to the lifting of most restrictive measures, there remains ongoing uncertainty about the impact of COVID-19 variations on infection levels. The re-emergence of significant increases in infection rates could result in governments re-imposing restrictive measures that could reduce or impair economic activity. Consequently, the COVID-19 pandemic and the government responses to the outbreak presents continued uncertainty and risk with respect to the Company and its performance and financial results.

As of the date of issuance of these consolidated financial statements for the year ended December 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.

Note 2: Summary of Significant Accounting Policies

The consolidated financial statements of the Company are presented on the accrual basis. All intercompany accounts and transactions have been eliminated in consolidation. The significant accounting policies followed are described below to enhance the usefulness of the consolidated financial statements to the reader.

Use of Estimates

The preparation of the consolidated financial statements is in conformity with accounting principles generally accepted in the United States of America. This requires management to make estimates and assumptions that affect the reported amounts and disclosures at the date of the consolidated financial statements and during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are comprised of highly liquid investments with original maturity dates of less than three months that are not reported as investments. While the Company may maintain cash and cash equivalents in bank deposit accounts, which at times exceed Federal Deposit Insurance Corporation insured limits, we have not experienced any losses in such accounts.

Management believes it is not exposed to any significant credit risk on cash and cash equivalents.

Accounts receivable and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount, do not require collateral, and do not bear interest. The Company estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the Company’s customers may have an inability to meet financial obligations, such as bankruptcy and significantly aged receivables outstanding. No allowance for doubtful accounts is required to be recognized as of December 31, 2022 and 2021.

Fair Value of Financial Instruments

Effective July 1, 2009, the Company adopted Accounting Standards Codification Topic 820, Fair Value Measurements (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair market hierarchy, which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels based on the reliability of the inputs to determine the fair value:

The Company’s consolidated financial instruments consist of cash and cash equivalents, accounts receivable, and accounts payable. The carrying amount of cash, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items. The Company does not have any financial instruments that are required to be fair valued on a recurring basis as of December 31, 2022 and 2021.

Advertising Expense

Advertising is expensed as incurred. There was $5,925 and $22,794 of advertising expense recorded in other general and administrative expense during the twelve months ended December 31, 2022 and 2021, respectively.

Property, Equipment, and Depreciation

Property and equipment are stated at cost less accumulated depreciation. Betterments, renewals, and extraordinary repairs over $1,000 that extend the life of the assets are capitalized; other repairs and maintenance are expensed. We measure property, plant and equipment, at fair value on a nonrecurring basis. The cost and accumulated depreciation applicable to assets retired are removed from the accounts, and the gain or loss on disposition is recognized as other income or expense. Depreciation and amortization is computed on the straight line method over the applicable estimated depreciable life as follows:

Stock-Based Compensation

We account for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. We determine the estimated grant-date fair value of restricted shares using quoted market prices and the grant-date fair value of stock options using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. We recognize compensation costs ratably over the period of service using the straight-line method.

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.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

No provision for income taxes at this time is being made due to the offset of cumulative net operating losses. A full valuation allowance has been established for deferred tax assets based on the “more likely than not” threshold. The ability to realize deferred tax assets depends on our ability to generate sufficient taxable income within the carry forward periods provided in the tax law.

While the Company’s statutory tax rate approximates 21%, the effective tax rate is 0% due to the effects of the valuation allowance described above. The Company does not have any material uncertainties with respect to its provisions for income taxes.

Recent Accounting Pronouncements

The Company reviewed newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that no material effect is expected on the Company's financial statements upon future adoption.

Note 3: Revenues

Consulting Service Revenues

As of December 31, 2022, our only source of revenue from continued operations is derived from engagements managed within our wholly owned subsidiary, The Collective Experience LLC (“TCE”) that is providing digital Transformation services include brand strategy, data science, pricing science, customer experience management consulting and implementation in support of these strategies. 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.

Accrued Revenues

The timing of revenue recognition, invoicing and cash collections affect trade accounts receivable and accrued revenue on the Consolidated Balance Sheets. Accrued revenue represents revenue on contracts that is recognized according to performance obligations being met and exceeds the amount that has been billed to the customer. Accrued revenue is separately presented in the Consolidated Balance Sheets.

Deferred Revenues (Contract Liabilities)

The Company records deferred revenues when cash payments are received, including amounts which are refundable.

Payment terms vary by customer and the products or services offered. For certain products or services and customer types, full or a partial payment of the entire contract is required before the products or services are delivered to the customer.

During the twelve months ended December 31, 2022 there was $8,745 revenue recognized related to our contract liabilities included in deferred revenue of $8,745 at December 31, 2021. During the twelve months ended December 31, 2021 there was $131,252 revenue recognized related to our contract liabilities included in deferred revenue of $131,252 at December 31, 2020.

Contract Assets

Given the nature of the Company’s services and contracts, it has no contract assets.

Practical Expedients and Exemptions

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less and the commissions are only due and payable upon receipt of payment from the client. These costs are recorded within sales and marketing expenses.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Note 4: Stock-Based Compensation

Our stock-based compensation plan was originally established in 2008. The shares of our common stock issuable pursuant to the terms of such plan (the “Plan Shares”) could not exceed 30% of any outstanding issue or 2,500,000 shares, whichever was the lower amount.

In December 2015, we adopted a revised share option plan in which Plan Shares cannot exceed 10% of the total issued and outstanding shares at any given time. All stock option grants have an exercise price equal to the fair market value of our common stock on the date of the grant and all option grants have a 10-year term. This share option plan was initially approved by the Company’s shareholders at the annual meeting of shareholders on August 10, 2016 and is required to be re-approved at each subsequent annual meeting of the Company’s stockholders since that date, in accordance with applicable TSX-V rules.

To calculate the fair value of stock options at the date of grant, we use the Black-Scholes option pricing model. The volatility used is based on a blended historical volatility of our own stock and similar sized companies due to the limited historical data available for our own stock price. The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The following table summarizes our stock option activity for the twelve months ended December 31, 2022 and 2021:
 

At December 31, 2022, 690,000 stock options were exercisable and no compensation cost related to share-based compensation grants was recognized for the year ended December 31, 2022. There was no unrecognized compensation expense from stock options at December 31, 2022.

There were no options granted during the year ended December 31, 2022.

There were no nonvested options during the year ended December 31, 2022.

Note 5: Concentrations

As of December 31, 2022, sales consisted of one project for one client. The sale was made without collateral and the credit-related losses have been insignificant however if there is no provision made to include an allowance for doubtful accounts.

Note 6: Commitments and Contingencies

Leases

Our corporate headquarters, located at 176 South Capital Blvd., Boise, Idaho 83702 is a leased space, which we lease on a month-to-month basis for $100 a month.

Note 7: Income Taxes 

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. At December 31, 2022 and 2021 net deferred tax assets were fully offset by a valuation allowance. The Company is no longer subject to U.S. federal tax examinations by tax authorities for years before 2018 and for state examinations by tax authorities for years before 2017.

As of December 31, 2022, the Company has net operating loss carry-forwards of approximately $6,000,000 that will begin to expire in 2033. Pursuant to Sections 382 and 383 of the Internal Revenue Code, the utilization of NOLs and other tax attributes may be subject to substantial limitations if certain ownership changes occur during a three-year testing period (as defined by the Internal Revenue Code). A valuation allowance was established for all the net deferred tax assets because realization is not assured. The components of the deferred tax assets consist of the following:

Note 8: Basic and Diluted Net Income / (Loss) per Share

Net income (loss) per share was computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. For the twelve months ended December 31, 2022 and 2021, the assumed exercise of share options is anti-dilutive and are excluded from the determination of net income (loss) per share – basic and diluted. The share options were anti-dilutive due to the Company’s net loss or the Company’s common stock average market price was less than the share options exercise price. Accordingly, net income / (loss) per share basic and diluted are equal in all periods presented. Securities that were not included in the diluted per share calculations because they would be anti-dilutive were options to purchase common stock of 690,000 for the twelve months ended December 31, 2022 and 2021.

The computations for basic and diluted net loss per share are as follows:

Note 9: Going Concern

The accompanying consolidated financial statements and notes have been prepared assuming that the Company will continue as a going concern.

We have had material operating losses and have not yet created positive cash flows for a full fiscal year. These factors raise substantial doubt as to our ability to continue as a going concern. On August 3, 2020, the Company completed the sale of all of the membership interests in McorpCX, LLC, of which the proceeds of $1,108,000, consisting of $352,000 in cash and a $756,000 promissory note, were applied to transaction costs as well as investment toward becoming a technology solutions business. The remaining balance of $252,738 on 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. The consolidated financial statements do not include adjustments related to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.