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 "we," "us," "our" or
the "Company" are to
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles inthe 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 endedDecember 31, 2021 . Such policies were unchanged during the six months endedJune 30, 2022 . 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 subsidiaryThe 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 ofDelaware onDecember 14, 2017 . OnAugust 16, 2018 , the Company entered into a contribution agreement withMcorpCX LLC pursuant to which the Company transferred toMcorpCX LLC all the Company's assets and liabilities related to the Company's customer experience consulting business, excluding the underlying technology and databases related thereto which remained with the Company. EffectiveAugust 3, 2020 , the Company sold all of its membership interests inMcorpCX, LLC to mfifty, LLC, aCalifornia limited liability company controlled byMichael Hinshaw , the then current President ofMcorpCX LLC (the "Purchaser"). Since the Company's professional and related consulting services business, which constituted substantially all of the Company's operations at the time of the sale ofMcorpCX LLC , was conducted throughMcorpCX LLC , the sale ofMcorpCX LLC represented a strategic shift that had a major effect on the Company's operations and financial results. As consideration for the sale ofMcorpCX LLC , the Company received a total of$352,000 in cash consisting of$100,000 received upon the signing of the purchase agreement and$252,000 received at the closing of the transaction along with a$756,000 promissory note. The promissory note has an initial annual interest rate of 0.99% (to be recalculated at the end of each twelve-month period subsequent to the date of the note based on the annual Applicable Federal Rate for mid-term loans on the first business day following each such twelve-month period) accruing daily on the outstanding balance of the note, and monthly principal payments are payable to the Company over a term of four or more years. Monthly principal payments to the Company were initially$7,292 per month for the first twelve months following the date of the note, and then during each subsequent twelve-month period are based on the annual revenues ofMcorpCX, LLC . OnJune 11, 2021 , the Company and the Purchaser entered into an amendment to the promissory note whereby the Purchaser agreed to pay the Company One Hundred Thousand Dollars ($100,000 ) on or beforeJuly 1, 2021 to be applied towards the outstanding principal amount of the promissory note and then going forward to pay the remaining principal amount in installments ofTwenty Thousand Dollars ($20,000 ) each due on the first day of each month commencing onAugust 1, 2021 until the principal amount is paid in full, with the final payment being the remaining unpaid outstanding balance due at that time. The amendment to the promissory note also provides that the promissory note will be considered paid in full if any of the following occurs: (i) the Purchaser pays at least 90% of the outstanding balance due (principal and interest) under the promissory note byDecember 31, 2021 ; (ii) the Purchaser pays at least 95% of the outstanding balance due under the promissory note byJune 30, 2022 ; and (iii) the Purchaser pays at least 97.5% of the outstanding balance due (principal and interest) under the promissory note byDecember 31, 2022 . The Company has received a total of$427,830 as of the date of this report. The note is secured by the Purchaser's ownership interest inMcorpCX LLC . 10 -------------------------------------------------------------------------------- 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
InDecember 2019 , a novel strain of coronavirus ("COVID-19") was reported inWuhan, China and has since extensively impacted the global health and economic environment. The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. COVID-19 infections and health risks, including from variants, continue. The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company's customers, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these consolidated financial statements for the three and six months endedJune 30, 2022 , 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 ofMcorpCX, LLC inAugust 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 ofMcorpCX LLC . Product revenue was from productized and software-enabled service sales not elsewhere classified. As ofJune 30, 2022 , our only source of revenue was 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. As ofApril 1, 2022 , MCX will no longer be signing new client engagements within TCE as we are not pursuing that segment in order to focus on Web 3 technologies and powering the Metaverse 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 theUnited States Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, as well as having our stock listed on theTSX Venture Exchange inCanada and quoted on the OTC Pink Sheets inthe United States . 11
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Results of Operations
Revenues and Cost of Goods Sold
During the three and six months endedJune 30, 2022 , we had$51,488 and$92,664 , respectively, in revenue recognized as well as the related cost of goods sold of$19,964 and$99,350 , respectively, generated from the continuation of one client contract that was entered into in the last quarter of 2021. During the three and six months endedJune 30, 2021 , we had$202,606 and$309,316 , respectively, in revenue recognized as well as the related cost of goods sold of$42,998 and$120,169 , respectively, generated through continuing operations from two customer contracts entered into in the last quarter of 2020 plus an additional 4 customer contracts entered into in 2021. Change from Percent Change Net Loss 2022 2021 Prior Year from Prior Year Three Months Ended June 30,$ (107,594 ) $ (41,927 ) $ (65,667 ) (157 %) Six Months Ended June 30,$ (311,717 ) $ (109,320 ) $ (202,397 ) (185 %) Net loss increased to$107,594 for the three months endedJune 30, 2022 from a net loss of$41,927 for the three months endedJune 30, 2021 mostly as a result of an increase in net operating loss from continuing operations of$113,885 in the second quarter of 2022 compared to the same quarter of 2021 of$42,393 , which is primarily the result of a decrease in revenue. Net loss increased to$311,717 for the six months endedJune 30, 2022 from a net loss of$109,320 for the six months endedJune 30, 2021 . The increase in net loss in the first half of 2022 compared to same period of 2021 was primarily a result of a decrease in revenue generated in 2022 and additional travel expenses, partially offset by less expense from salaries and wages, and less contract services being provided in the first half of 2022 compared to the same period in 2021. Change from Percent Change Salaries and Wages 2022 2021 Prior Year from Prior Year Three Months Ended June 30, $ -$ 15,557 $ (15,557 ) (100 %) Six Months Ended June 30, $ -$ 31,114 $ (31,114 ) (100 %) There were no expenses attributable to salaries and wages for the three or six months endedJune 30, 2022 , as stock options have been fully expensed. Expenses attributable to salaries and wages for the six months endedJune 30, 2021 , consisted exclusively of stock compensation expense. Change from Percent Change Contract Services 2022 2021 Prior Year from Prior Year Three Months Ended June 30,$ 52,265 $ (52,265 ) (100 %) Six Months Ended June 30,$ 75,212 $ 104,261 $ (29,049 ) (28 %) Contract service expenses decreased during the three and six months endedJune 30, 2022 , due to management actively seeking to lower costs being provided by contractors in 2022, compared to the same period in 2021. In addition, while the Company is transitioning to Web 3 technologies, we have classified all executive, finance, and administrative services under Other General and Administrative expense. Change from Percent Change Other General and Administrative 2022 2021 Prior Year from Prior Year Three Months Ended June 30,$ 145,409 $ 134,179 $ 11,230 8 % Six Months Ended June 30,$ 219,776 $ 166,590 $ 53,186 32 % 12
-------------------------------------------------------------------------------- Other general and administrative costs increased by$11,230 and$53,186 during the three and six months endedJune 30, 2022 , respectively, compared with the same period in 2021 primarily due to increases in sales and marketing, professional fees and travel expenses in 2022 compared to 2021. Change from Percent Change Other Income (Expense) 2022 2021 Prior Year from Prior Year Three Months Ended June 30,$ 6,291 $ 466 $ 5,825
1,250 %
Six Months Ended
(387 %) Other income was$6 ,291and other expense was$10,043 in the three and six months endedJune 30, 2022 , respectively, compared to$466 and$3,498 in other income in the three and six months endedJune 30, 2021 , respectively, due to reduced other income from the prior year coupled with an increase in non-recurring other expenses.
Liquidity and Capital Resources
We measure our liquidity in a variety of ways, including the following:
June 30, December 31, 2022 2021 Cash and cash equivalents$ 14,037 $ 51,393 Working capital$ (59,376 ) $ 49,542 Anticipated Uses of Cash As ofJune 30, 2022 , our cash and cash equivalents had decreased to$14,037 from$51,393 and our working capital changed to ($59,376 ) from$49,542 as ofDecember 31, 2021 . 13
-------------------------------------------------------------------------------- For the six months endedJune 30, 2022 , we were able to finance our operations with cash generated through cash on hand as well as proceeds of the sale ofMcorpCX, LLC . 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 six months ended
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 ofMcorpCX, LLC , which was completed onAugust 3, 2020 , which applied to transaction costs as well as investment toward becoming a technology solutions business. The Company continues to receive$20,000 per month in payments from the purchaser ofMcorpCX LLC . This cash flow should 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 ofMcorpCX, LLC , borrowing against our assets or the issuance of securities, and there is no assurance these capital resources will be available to us when required.
Cash Flow - Six months ended
Operating Activities. Net cash used in operating activities increased to$241,685 for the six months endedJune 30, 2022 compared to net cash used in operating activities of$232,871 for the six months endedJune 30, 2021 . This increase was primarily due an increase in net loss, offset by a decrease in accounts receivable. Investing Activities. Net cash provided by investing activities was$204,329 for the six months endedJune 30, 2022 . This included cash received from the sale of land of$86,530 and cash received from notes receivable - related party of$117,799 . There was cash provided by investing activities for the six months endedJune 30, 2021 due to cash received from related party notes receivable of$43,752 .
Financing Activities. There was no cash provided by, or used in, financing
activities for the six months ended
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