---

---

 

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 September 30, 2018
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 November 9, 2018.  

 

 

MCORPCX, Inc.

Form 10-Q Quarterly Report

 

TABLE OF CONTENTS

 

		Page No.
	Part I. - Financial Information	3
Item 1.	Financial Statements.	3
	Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017.	3
	Statements of Operations for the Three and Nine Months ended September 30, 2018 and 2017 (unaudited).	4
	Statements of Cash Flows for the Three and Nine Months ended September 30, 2018 and 2017 (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.	17
Item 4.	Controls and Procedures.	17
	Part II. - Other Information	18
Item 1.	Legal Proceedings.	18
Item 1A.	Risk Factors.	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	18
Item 3.	Defaults Upon Senior Securities.	18
Item 4.	Mine Safety Disclosures.	18
Item 5.	Other Information.	18
Item 6.	Exhibits.	19
Signatures		20

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS.

 

McorpCX, Inc.

Balance Sheets

 

 

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

 

 

McorpCX, Inc.

Statements of Operations

(unaudited)

 

 

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

 

 

McorpCX, Inc.

Statements of Cash Flows

(unaudited)

 

 

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

  

 

MCORPCX, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(unaudited)

  

 

 

 

 

  

 

 

   

 

   

 

 

 

 

 

 

ITEM 2.

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

 

Cautionary Statement

 

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

 

Unless the context otherwise requires, all references to "McorpCX," "we," "us," "our" or the "Company" are to McorpCX, Inc. and our subsidiaries.

 

Critical Accounting Policies and Estimates

 

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

 

A description of the Company’s critical accounting policies and related judgments and estimates that affect the preparation of the Company’s financial statements is set forth in under the heading “Critical Accounting Policies and Estimates” in Item 7, Management’s Discussion and Analysis of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. With the exception of the adoption of Topic 606 discussed in Note 3, such policies were unchanged during the nine months ended September 30, 2018.

 

 

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 themselves from their competition. As such, we are engaged in the business of providing customer experience focused consulting services and where applicable, 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 primary source of revenue is derived from our consulting services which 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.

 

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.

 

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.

 

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.

 

Although management still believes that offering technology enabled consulting services can provide long-term profitability and we intend to continue to explore ways to successfully commercialize our software products, in the short-term, we are focused on expanding our consulting business which we believe may lead to greater revenues for the Company and which could be utilized for cross sale of technology products to our consulting clients. We intend to continue to evaluate our software products to determine the next phase of new product development and potential enhancements to our existing product suite or identify other software products that may be more conducive to supporting our CX consulting expertise.

 

The Company is in the process of determining the optimal path forward for our software products based on current market dynamics, the competitive environment and customer feedback. We continue to evaluate various potential strategies with the goal of improving our ability to achieve additional revenue and profit growth for both our software products as well as our consultant services. These possible strategies, which are generally focused on ways to create a more complete slate of customer experience solutions for our clients, include further software or technology development expenditures, pursuit of merger, acquisitions or joint ventures with companies that provide complimentary products and services, software licensing arrangements, and investment in additional infrastructure within our Company. Each of these possible strategies will be thoroughly vetted by our board of directors to assess the expected level of enterprise value creation for each strategy compared to the various risks associated with each possible scenario.  In addition, we may require financing to pursue these strategies that is beyond our current financial resources.  Accordingly, there is no assurance that we will be able to pursue any strategies that are identified by our board of directors.

 

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

 

 

Summary of Financial Results

 

Select financial highlights for the three and nine months ended September 30, 2018:

 

	●	Total revenue increased by 44% from $647,436 during the third quarter of 2017 to $933,836 during the third quarter of 2018 and by 91% from $1,547,340 in the first nine months of 2017 to $2,952,344 in the first nine months of 2018.
	●	We recorded net losses of $254,176 and $308,962 in the third quarter and first nine months of 2018, respectively, compared to net losses of $10,695 and $341,881 for the third quarter and first nine months of 2017.
	●	The Company reported EBITDA(1) of ($204,478) and ($154,840) in the third quarter and first nine months of 2018, respectively, compared to $45,962 and ($164,032) in the third quarter and first nine months of 2017.
	●	The Company had a cash balance of $1,469,921 at September 30, 2018 compared to a cash balance of $1,616,076 at December 31, 2017.

 

⁽¹⁾ We define EBITDA as net income (loss) plus interest, tax, depreciation and amortization expenses. We consider EBITDA to be a meaningful supplement to net income (loss) as a performance measure primarily because depreciation and amortization expenses are not actual cash costs, and interest and tax expenses are not related to our direct operating activities. See below for a reconciliation of net income (loss) to EBITDA.

 

Sources of Revenue

 

Our revenue consists primarily of professional and consulting services, reimbursable expenses billed to clients, and 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 and other revenue during 2018 was principally related to revenue from reimbursement of expenses billed to clients and to a lesser degree from productized and software-enabled service sales.

 

Our current plan of operations is based on enhancing our consulting service revenue to open possible opportunities to cross-sell our third party licensed products to our clients in order to establish more recurring revenue. We anticipate that fees for professional and consulting services will remain our most significant revenue source in the foreseeable future. We have not obtained material stand-alone sales commitments for Touchpoint Mapping or McorpCX | Persona, and do not anticipate being able to do so until we engage the necessary sales and marketing staff to develop and execute product sales opportunities. During the second half of 2017, we stopped further development of our software in order to re-assess the product roadmap to better define the future direction of our software platform.

 

Cost of Goods Sold and General and Administrative Expenses

 

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, but is not limited to, product-related hosting and monitoring costs, the cost of licenses for products embedded in the application, amortization of capitalized software development costs, service support costs, and costs related to account and subscription management.

  

General and Administrative Expenses

 

General and administrative expenses consist primarily of salary and related expenses for management, client delivery, finance and accounting, 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 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 (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as having our stock listed on the TSX Venture Exchange (the “TSX-V”) in Canada and quoted on the OTCQB venture marketplace in the United States.

 

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 term 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. We expect to continue to incur significant sales and marketing expenses in both absolute dollars and as a percentage of expenses as we seek to increase the level of our sales and marketing activities. We expect that total general and administrative expenses will increase as we continue to add resources in connection with the growth of our business.

 

 

Results of Operations

 

										Change from				Percent Change
Revenue		2018				2017				Prior Year				from Prior Year
Three Months Ended September 30,		$	933,836			$	647,436			$	286,400				44	%
Nine Months Ended September 30,		$	2,952,344			$	1,547,340			$	1,405,004				91	%

 

Overall, the 44% increase in total revenues for the three months ended September 30, 2018 compared to the same period in 2017 was attributed to a 43% increase in consulting services revenue as well as a 50% increase in products and other revenue for the three months ended September 30, 2018 compared to same period in the prior year.  The increase in products and other revenue was primarily the result of an increase in revenue from reimbursable expenses, which was partially offset by a decrease in product revenue. The increase in consulting services revenue from $539,562 for the three months ended September 30, 2017 to $772,081 for the same period in 2018 was primarily the result of increased revenues from both new clients as well as from existing clients in 2018 compared to 2017.  We have continued to improve upon our sales and marketing efforts which allowed us to attract new clients and cross-sell add-on services to our existing clients. Product and other revenue largely consisted of reimbursable expense income of $154,580 and $68,570 and only $7,175 and $39,304 in product revenue for the three months ended September 30, 2018 and 2017, respectively.  As such, the increase in product and other revenue from $107,874 for the three months ended September 30, 2017 to $161,755 for the same period in 2018 was attributed to a $86,010 increase in recognized revenue for reimbursable travel and miscellaneous expenses, which we provided in connection with our consulting services, being partially offset by a $32,129 decrease in product revenue during the current quarter compared to the same quarter in 2017.

 

Overall, the 91% increase in total revenues for nine months ended September 30, 2018 compared to the same period in 2017 was attributed to a 97% increase in consulting services revenue and a 59% increase in products and other revenue for the nine months ended September 30, 2018 compared to same period in the prior year. The increase in consulting services revenue from $1,304,541 for the nine months ended September 30, 2017 to $2,567,153 for the same period in 2018 was primarily the result of increased revenues from both new clients as well as from existing clients in 2018 compared to 2017.  We have continued to improve our sale and marketing efforts which allowed us to attract new clients and cross-sell add-on services to our existing clients. Product and other revenue largely consisted of reimbursable expense income of $362,979 and $151,973 and only $22,212 and $90,826 in product revenue for the three months ended September 30, 2018 and 2017, respectively.  As such, the increase in product and other revenue from $242,799 for the nine months ended September 30, 2017 to $385,191 for the same period in 2018 was attributed to a $211,006 increase in recognized revenue for reimbursable travel and miscellaneous expenses we provided in connection with our consulting services being partially offset by a $68,613 decrease in product revenue.

 

										Change from				Percent Change
Cost of Goods Sold		2018				2017				Prior Year				from Prior Year
Three Months Ended September 30,		$	622,428			$	266,085			$	356,343				134	%
Nine Months Ended September 30,		$	1,660,632			$	646,059			$	1,014,573				157	%

 

Cost of goods sold increased by $356,343 and $1,014,573 for the three and nine months ended September 30, 2018, respectively, compared to the same periods in 2017 due primarily to increased resources required to support the increase in consulting services revenue provided during the three- and nine-month periods respectively. In the three and nine months ended September 30, 2018, our labor costs increased by $261,391 and $795,020 compared to the respective periods in the prior year mainly as a result of the Company’s need to contract outside services to assist with delivery of our consulting services in 2018. There was also an increase in reimbursable expenses of $91,919 and $202,866 for the three- and nine-month periods ended September 30, 2018 respectively compared to the same periods in the prior year, which was related to an increase in travel and miscellaneous expenses associated with the delivery of the increased consulting services in 2018.  The remaining increase was due to increases in other non-reimbursable expenses.

 

										Change from				Percent Change
Net Operating Income (Loss)		2018				2017				Prior Year				from Prior Year
Three Months Ended September 30,		$	(249,756	)		$	(4,469	)		$	(245,287	)			5,489	%
Nine Months Ended September 30,		$	(303,382	)		$	(332,907	)		$	29,525				9	%

 

For the three months ended September 30, 2018, we had a net operating loss of $249,756 compared to a net operating loss of $4,469 for the three months September 30, 2017. The increase in net operating loss in the current quarter was primarily a result of increased labor costs combined with increased operating expenses, which more than offset increased total revenues in the third quarter of 2018 compared to the same quarter in 2017.  During the third quarter of 2018, we increased our revenues compared to the prior year period mostly as a result of certain large projects having very short sales cycles, coupled with the completion of some uniquely complex projects.  To ensure that we could complete these projects, we were required to utilize some short-term, higher expense third-party resources which increased our labor costs and therefore reduced our profitability.  This increased cost of resources was the primary driver of the 18% decrease in gross profit in the three months ended September 30, 2018 compared to the same period in the previous year. This reduction in gross profit margin coupled with higher administrative expenses also resulted in a net loss of $254,176 in the third quarter of 2018 compared to a net loss of $10,695 in the same quarter of 2017, as well as a decrease in EBITDA by $250,440 to a loss of $204,478 for the three months ended September 30, 2018 compared to a gain of $45,962 for the three months ended September 30, 2017.

 

For the nine months ended September 30, 2018 we had a net operating loss of $303,382 compared to a net operating loss of $332,907 for the nine months September 30, 2017. The decrease in net operating loss for the current period compared to the same period in 2017 was primarily a result of increased total revenues in the first nine months of 2018 compared to the same period in 2017 being partially offset by increased labor costs combined with increased operating expenses in the current year period compared to the prior year period. During 2018, we focused on growing our consulting services operations through increased business development activities which resulted in a 43% increase in gross profit for the nine months ended 2018 compared to the same period in the previous year. Net loss decreased to $308,962 in the first nine months of 2018 compared to a net loss of $341,881 in the same period of 2017, while EBITDA improved slightly by $9,192 to a loss of $154,840 for the nine months ended September 30, 2018 compared to a loss of $164,032 for the nine months ended September 30, 2017. 

  

 

We consider EBITDA to be a meaningful supplement to net income (loss) as a performance measure primarily because depreciation and amortization expenses are not an actual cash costs, and interest and tax expenses are not related to our direct operating activities. In addition, we believe EBITDA is commonly used by investors and other interested parties to evaluate our financial performance. EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs. EBITDA should not be considered as an alternative to net income (loss) or income (loss) from operations as a measure of performance, or as an alternative to net cash from operating activities as a measure of liquidity. EBITDA is an internal measure and therefore may not be comparable to other companies. EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that EBITDA does not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash requirements for, working capital needs; and (iii) the interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt (if any). Because of these limitations, EBITDA should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. Because all companies do not calculate EBITDA in the same manner, EBITDA as calculated by us may differ from EBITDA as calculated by other companies. We compensate for these limitations by using EBITDA as a supplemental measure of our performance and by relying primarily on our GAAP financial statements.

 

The following table provides a reconciliation of net income (loss) to EBITDA for the periods indicated:

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2018				2017				2018				2017
Net Income (Loss)		$	(254,176	)		$	(10,695	)		$	(308,962	)		$	(341,881	)
Depreciation and Amortization			(49,053	)			(54,208	)			(153,074	)			(169,658	)
Interest expense			(645	)			(2,449	)			(1,048	)			(8,191	)
EBITDA		$	(204,478	)		$	45,962			$	(154,840	)		$	(164,032	)

 

 

										Change from				Percent Change
Salaries and Wages		2018				2017				Prior Year				from Prior Year
Three Months Ended September 30,		$	251,111			$	214,923			$	36,188				17	%
Nine Months Ended September 30,		$	684,029			$	713,363			$	(29,334	)			(4	%)

 

Salaries and wages increased by $36,188 during the three months ended September 30, 2018 compared to the same period in 2017 mostly as a result of an increase in salaries of $19,300, an increase of $6,200 in payroll taxes, and an increase of $15,600 in commissions offset partially by a $4,900 reduction in stock-based compensation expense primarily related to certain options forfeited late in 2017.

 

Salaries and wages decreased by $29,334 during the nine months ended September 30, 2018 compared to the same period in 2017 mostly as a result of a decrease in stock-based compensation expense of approximately $77,300, which was primarily driven by the Company not granting options to employees until later in 2018 as well as a number of options forfeited in late 2017. Stock compensation expense was $10,849 and $88,111 for the nine months ended September 30, 2018 and 2017, respectively. These decreases are partially offset with an increase of $29,900 in salaries and a $2,400 increase in payroll taxes as well as an increase in commissions of $15,600 during the first nine months of 2018 compared to the same period in 2017. From the total officer’s salary costs incurred during the nine months ended September 30, 2017, $21,000 was capitalized.

 

 

We did not incur any software development costs for either the three or nine months ended September 30, 2018 primarily due to the decision to curtail additional software development halfway through 2017.

 

										Change from				Percent Change
Contract Services		2018				2017				Prior Year				from Prior Year
Three Months Ended September 30,		$	47,202			$	4,758			$	42,444				892	%
Nine Months Ended September 30,		$	161,453			$	35,468			$	125,985				355	%

 

Contract services expenses increased during the three and nine months ended September 30, 2018 compared to the same periods in 2017 primarily due to increased accounting and administrative costs as well as other expenses associated with the additional personnel required to support increased consulting projects and from the contractor fees related to our Chief Financial Officer during the current quarter and first nine months of 2018 compared to the same periods in 2017.

 

										Change from				Percent Change
Other General and Administrative		2018				2017				Prior Year				from Prior Year
Three Months Ended September 30,		$	262,851			$	166,139			$	96,712				58	%
Nine Months Ended September 30,		$	749,612			$	485,357			$	264,255				54	%

 

Other general and administrative costs increased for the three months ended September 30, 2018 compared to the same period in 2017 primarily due to an increase in sales and marketing expenses of $50,400 as well as an increase in professional and legal fees of $42,100 mostly due to increased accounting fees, legal fees, and other professional fees related to business development and corporate governance activities during the current quarter compared to the same period in 2017.

 

Other general and administrative costs increased for the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to an increase in sales and marketing expenses of $134,400 as well as an increase in professional fees and legal fees of $143,700 mostly due to increased accounting fees associated with additional work related to the adoption of new accounting standard ASC 606 in January 2018, the year-over-year timing of incurring accounting fees, as well as an increase in legal fees and other professional fees related to business development and corporate governance activities during the current period compared to the same period in 2017. Computer and software expenses also increased by $18,200 compared to the same period in 2017.  These increases were partially offset by a $38,300 decrease in expenses related to administration, rent and utilities in the first nine months of 2018 compared to the same period in 2017. 

 

										Change from				Percent Change
Other Income/Expense		2018				2017				Prior Year				from Prior Year
Three Months Ended September 30,		$	(3,775	)		$	(3,777	)		$	2				(0	%)
Nine Months Ended September 30,		$	(4,532	)		$	(783	)		$	(3,749	)			(479	%)

 

Other income (expense) increased for the nine months ended September 30, 2018 when compared to the corresponding period in 2017 primarily due to an increase in state use tax expenses.

 

Liquidity and Capital Resources

 

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

 

		September 30,				December 31,
		2018				2017
Cash and cash equivalents		$	1,469,921			$	1,616,076
Working capital		$	1,399,656			$	1,584,528

 

 

Anticipated Uses of Cash

 

For the nine months ended September 30, 2018 and the year ended December 31, 2017, we were able to finance our operations, including capital expenditures for product development and marketing activities with cash generated through operating activities, and cash on hand. The accompanying 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.

 

In 2017 our primary area of investment was professional staff to support our consulting services, including client relationship management, software development costs during the first half of 2017 and staff for administration, sales and marketing activities.

 

During the first nine months of 2018, our primary uses of cash included cash paid to professional staff to support our consulting services, professional services along with our general and administrative support and new business development activities. It is currently anticipated that our primary uses of cash for the remainder of 2018 will closely mirror our uses of cash during the first nine months of 2018.

 

We currently plan to fund our expenditures with cash flows generated from ongoing operations and/or if needed, the possibility may exist to raise additional capital through debt financing and/or through sales of common stock. We do not intend to pay dividends in the foreseeable future. Based upon the current level of our pipeline of signed contracts and pipeline of potential new projects plus our current expectations for future periods in light of the current economic environment, we believe that cash flow from operations and available cash will be adequate to finance the capital requirements for our business during the next 12 months.

 

We 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, borrowing against our assets or the issuance of securities, and there is no assurance these capital resources will be available to us when required.

 

Cash Flow – Nine months Ended September 30, 2018 and 2017

 

Operating Activities. Net cash used in operating activities decreased to $133,512 for the nine months ended September 30, 2018 compared to $147,941 for the nine months ended September 30, 2017, mostly as a result of increased cash from a reduction in net loss of $32,919 combined with a $164,731 increase in accounts payable during the current period compared to the same period of 2017, being partially offset by a $91,761 increase in accounts receivable and other assets as well as a reduction of the non-cash stock compensation expenses by $77,262, in the first nine months of 2018 compared to the first nine months of 2017.

 

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, increased in the first nine months of 2018 compared to the same period of the prior year. During the nine months ended September 30, 2018, DSO was approximately 45 days, up from approximately 31 days during the nine months ended September 30, 2017. The increase in DSO was mostly attributed to the timing of collections from clients which increased our accounts receivable balance at September 30, 2018 compared to September 30, 2017. In addition to the increased DSO, our accounts receivable increased largely due to the 44% and 91% increase in revenue during the three and nine months ended September 30, 2018, respectively. 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. There was $4,474 net cash used in investing activities for the nine months ended September 30, 2018 compared to $94,156 in net cash used in investing activities for the same period in 2017. Net cash used in investing activities in 2017 primarily consisted of cash used for capitalized software development costs of $93,803 partially offset by proceeds from the sale of equipment.

 

Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2018 amounted to $8,169 which related to the repayment of a $100,000 CAD note during the period. There was no cash provided by, or used in, financing activities for the nine months ended September 30, 2017.  

 

Off Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of September 30, 2018.

  

   

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

  

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 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, as a result of the material weaknesses identified in connection with our financial statements as of December 31, 2017, as disclosed on our Form 10-K annual report for the year ended December 31, 2017.

 

 

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. However, in order to address the deficiencies in the Company’s internal control over financial reporting, the Company engaged an external firm during 2018 to provide outsourced controller services and segregation of certain duties within the accounting function.

 

 

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.

 

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Annual Report”), which could materially affect our business, results of operations or financial condition.

 

The risk factors affecting the Company have not materially changed as of September 30, 2018 from those disclosed in the 2017 Annual Report. However, it is important to note that the risks described in our 2017 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may eventually prove to materially adversely affect our business, results of operations or financial condition.

 

 

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 nine-month period ended on September 30, 2018.

 

Purchases of Equity Securities

 

During the nine months ended September 30, 2018, 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.

 

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.

 

 

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 14th day of November 2018.

 

	MCORPCX, INC.
	BY:	/s/Gregg Budoi
		Gregg Budoi
		Chief Executive Officer
	BY:	/s/Tricia Tomko
		Tricia Tomko
		Chief Financial Officer

 

 

EXHIBIT 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.

 

21