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MASTERMIND, INC. - Annual Report: 2022 (Form 10-K)

mmnd_10k.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 30, 2022

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission File Number: 000-26533

 

MASTERMIND, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

82-3807447

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2221 Peachtree Rd. NE, Suite D-134, Atlanta, GA

30309

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number: (678) 420-4000

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

MMND

 

OTCQB

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

 

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 past 90 days. Yes ☒ No ☐

 

Indicated by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use to 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 ☒

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

The aggregate market value of the registrant’s common stock held by non-affiliates on March 31, 2022 was $1,264,503 (computed using the closing price of the common stock on March 31, 2022 as reported by the OTCQB).

 

As of January 13, 2023, 34,505,520 shares of common stock of the registrant were outstanding.

 

 

 

 

Mastermind, Inc.

 

Table of Contents

Form 10-K

 

 

 

Page

Part I

 

 

 

 

 

Item 1

Business

3

Item 1A

Risk Factors

9

Item 1B

Unresolved Staff Comments

9

Item 2

Properties

9

Item 3

Legal Proceedings

9

Item 4

Mine Safety Disclosures

9

 

 

 

Part II

 

 

 

 

 

Item 5

Market Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

10

Item 6

Selected Financial Data

10

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

14

Item 8

Financial Statements and Supplementary Data

14

Item 9

Changes in and Disagreements With Accountant on Accounting and Financial Disclosures

15

Item 9A

Controls and Procedures

15

Item 9B

Other Information

15

 

 

 

Part III

 

 

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

16

Item 11

Executive Compensation

17

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

18

Item 13

Certain Relationships and Related Transactions, and Director Independence

18

Item 14

Principal Accounting Fees and Services

19

 

 

 

Part IV

 

 

 

 

 

Item 15

Exhibits, Financial Statement Schedules

20

Item 16

Form 10–K Summary

20

 

 

 

Signatures

 

21

 

 
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Part I

 

Item 1. Business

 

Cautionary Note Regarding Forward Looking Statements

 

This Annual Report on Form 10-K (the “Report”) contains forward-looking statements in the sections captioned “Description of Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Plan of Operations” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of these terms) may identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report may include, without limitation, statements regarding the plans and objectives of management for future operations, projections of income or loss, earnings or loss per share, capital expenditures, dividends, capital structure or other financial items, our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), and the assumptions underlying or relating to any such statement.

 

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the accuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation:

 

 

·

Market acceptance of our products and services;

 

 

 

 

·

Competition from existing products or new products that may emerge;

 

 

 

 

·

The implementation of our business model and strategic plans for our business and our products;

 

 

 

 

·

Estimates of our future revenue, expenses, capital requirements and our need for financing;

 

 

 

 

·

Our financial performance;

 

 

 

 

·

Current and future government regulations;

 

 

 

 

·

Developments relating to our competitors; and

 

 

 

 

·

Other risks and uncertainties

 

Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. We disclaim any obligation to update the forward-looking statements contained in this Report to reflect any new information or future events or circumstances or otherwise, except as required by law. Readers should read this Report in conjunction with the discussion under the caption “Risk Factors,” our financial statements and the related notes thereto in this Report, and other documents which we may file from time to time with the SEC.

 

General

 

Overview

 

Mastermind Involvement Marketing, a Georgia joint venture (the “Company” or “MIM”) was formed on January 1, 2012 by Mastermind Marketing, Inc, a Georgia Corporation (“MM Inc.”), the founding member, through a contribution of assets. The organization, as governed by the written operating agreement dated January 1, 2012, as amended, (the “Operating Agreement”) was formed for the purpose of engaging in the business of conceiving, developing, selling, marketing, implementing and/or otherwise providing services, systems, platforms and products in the areas of mobile, social, digital and traditional marketing to and for businesses and organizations, and conducting services and functions incidental to the operation of such business.

 

We are an involvement marketing service agency that designs, creates and develops branding and marketing campaigns, primarily for large corporate clients with category-leading brands. We specialize in getting consumers and customers to take an action that leads to brand awareness, trial, loyalty, and ultimately advocacy (e.g. publicly “endorsing” the brand via digital/social media through reviews, likes, etc.). Our conversion initiatives facilitate the involvement of more of the “right customers” with the brands of our clients. Our programs can take on various forms, including creating and managing digital content, designing campaign websites/landing pages, social media and viral campaigns, mobile marketing initiatives, and brand communications.

 

 
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History

 

The Business Combination

 

On February 14, 2018 (the “Closing Date”), we consummated the transactions contemplated by the Joint Venture Interest Contribution Agreement (the “Contribution Agreement”) made and entered into as of February 14, 2018 by and among (i) the Company; (ii) CoConnect Inc., a Nevada Corporation (“CoConnect”), and (iii) Mastermind Marketing, Inc, a Georgia Corporation (“MM Inc.”), Digital Advize, LLC, a Georgia limited liability company (“Advize”), and Villanta Corporation, a Georgia Corporation (“Villanta”, together with Advize and MM Inc., the “Sellers”).

 

As a result of the Contribution Agreement, the Sellers became the controlling shareholders of the Company.

 

As used in this Report, unless otherwise stated or the context clearly indicates otherwise, the terms “Registrant,” “we,” “us” and “our” refer to the Company, giving effect to the Business Combination.

 

Our Mission

 

Our mission is to become one of the most well-respected marketing service agencies in the industry capable of involving people with Fortune 500 brands in ways that lead to increased sales and profits.

 

Our Business

 

We are an involvement marketing service agency that designs, creates and develops branding and marketing campaigns, primarily for large corporate clients with category-leading brands. We specialize in getting consumers and customers to take an action that leads to brand awareness, trial, loyalty, and ultimately advocacy (e.g. publicly “endorsing” the brand via digital/social media through reviews, likes, etc.). Our conversion initiatives facilitate the involvement of more of the “right customers” with the brands of our clients. Our programs can take on various forms, including creating and managing digital content, designing campaign websites/landing pages, social media and viral campaigns, mobile marketing initiatives, and brand communications.

 

We deliver innovative, result-producing campaigns to meet the business objectives of each client through any number, or combination thereof, or cutting-edge marketing initiatives:

 

 

·

Content marketing;

 

 

 

 

·

Influencer marketing – earned, owned, and paid;

 

 

 

 

·

Digital marketing across all screens;

 

 

 

 

·

Social marketing;

 

 

 

 

·

Gamification;

 

 

 

 

·

Promotion marketing;

 

 

 

 

·

Social Channel Optimization; and

 

 

 

 

·

Digital Issue Management Communications.

 

Our most important assets in delivering the highest-quality involvement marketing services to our clients are our highly talented and experienced people made up of technologists, strategists, and creatives who work together and represent a cross-discipline of experts. We pride ourselves in a culture of mutually-shared support and teamwork. We ensure that our team is provided the best-in-class research, equipment, technology and training in all disciplines within our proven delivery process to deliver cutting-edge initiatives the get results. We believe we are very competitive and have a winning culture that is present throughout the work we do for our clients and their brands.

 

Our organization has been structured in a manner to ensure a broad range of thinking, facilitate work flow, and deliver unparalleled marketing initiatives and service to our clients. We have a strong and long-lasting relationships with our clients and tenure of our key executives. Mastermind is organized in 6 key groups:

 

 

·

Account management;

 

 

 

 

·

Creative and development services;

 

 

 

 

·

Content studio;

 

 

 

 

·

Strategy, analytics & research;

 

 

 

 

·

Technology & campaign management; and

 

 

 

 

·

Agency Management and administration.

 

 
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Our Process

 

We have a proven, five-step cyclical approach to every client engagement that ensures learning from every campaign execution is used to optimize future campaigns. The process involves:

 

 

1.

Research and Testing. - data analysis, shopper journeys, AB/MV, eye-tracking

 

 

 

 

2.

Strategy and Planning - objectives, goals, analysis

 

 

 

 

3.

Creative- UX, mobile, digital, design thinking, branding

 

 

 

 

4.

Campaign Management - Optimization, Management, SEO, PPC & lead gen

 

 

 

 

5.

Analytics and Optimization - data analysis, ROI, reporting, dashboards

 

Mastermind process seeks to ensure that there is continual optimization to involve people with brands in ways that inspire them to take action – consideration, trial, loyalty, and advocacy.

 

Industry Background and Trends

 

We believe that the communications industry is going through a revolutionary evolution. Technology and big data are combining with creative and strategy across new platforms and communications. Things are moving quickly and Involvement Marketing is an opportunity for brands to reach their constituencies through a plethora of new ways to communicate with its key constituencies in ways that get them to take action. It is essential to understand target audiences and how they are consuming information. Creating brand preference and getting consumers to take an action is essential in growing share for a brand and will continue to be essential in 2023 and beyond.

 

Brands are expected to bring projects in-house or outsource to smaller digital agencies, and a definitive shift in brands choosing to bring creative projects in-house for more control over budgets and resources was seen in 2016. The other trend saw brands cutting ties with bigger agencies and outsourcing work to smaller digital agencies which could deliver more specialized campaigns. It was predicted that in 2017, brands would continue to move away from larger agencies that have in the past offered a one-stop-shop for their advertising needs. With tighter budgets, brands are seeing the cost-effectiveness of having their own studio team and paying salaries versus project-based fees. Likewise, outsourcing to specialized digital outfits for lower, one-off fees is proving more financially sound for brands.

 

The industry will ramp up its use of digital marketing and advertising tools to streamline marketing workflow. As brands and ad agencies continue to leverage multiple channels to capture new audiences, eliminating tedious administrative tasks is high on the agenda. With digital tools, marketers and creatives are managing approval workflow and resources with greater ease and transparency allowing them to stay on top of heavy workloads and multiple projects. Some of the digital tools that the industry is moving towards are:

 

 

·

marketing approval workflow software;

 

 

 

 

·

agency approval workflow software;

 

 

 

 

·

project management software;

 

 

 

 

·

social marketing tools and software;

 

 

 

 

·

online proofing tools; and

 

 

 

 

·

resource management software.

 

Not only do these tools cut out time-consuming administration, but they offer greater control and visibility over managing marketing projects as well as streamline marketing workflow.

 

More brands and ad agencies will move towards an agile methodology to enable them to be more flexible in responding to a rapidly changing marketplace. Agile project management was developed as an alternative to the hierarchical project management model, which favors processes and documentation, and longer-term development projection. Agile methodologies, on the other hand, utilize a self-organized team model with greater flexibility in scope, face-to-face collaboration and incremental planning to deliver projects on time and on budget. Experts are expecting to see more marketers and creatives to go agile to remain competitive.

 

To mitigate the risk of brands being called out by regulatory bodies for illegal or unethical practices and tarnishing the brand reputation, more brands will toe the line because their bottom line depends on it. With that said, marketing compliance will be high on the agenda again this year with marketers having to stay on top of compliance issues to mitigate the risk of regulatory violations. Digital tools that enable brands to audit their project work will go a long way in helping businesses to manage their market compliance.

 

While every brand and ad agency needs highly skilled individuals on board, there will be a return to focus on teams to propel businesses forward. Rather than focusing on individuals, it is believed that agency ROI’s could benefit by nurturing teams and their skillsets, setting processes that ease heavy workloads, delegating tasks evenly and ensuring morale remains positive. Experts are also warning that departments need to stop working in silos and implement processes and tools that offer greater transparency over the entire business.

 

 
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Experts are also predicting a greater prevalence in native advertising. With ad blocking on the rise, brands need to stay visible in a way that doesn’t interrupt the online user experience. Native advertising is a paid advertising placement that is blended seamlessly into a platform’s content so that it doesn’t interrupt the readers flow. The increasing importance of video is also being heralded. Reports indicate a video can achieve customer conversion rates of up to 60%. The video medium is enjoyable, easy to access and requires little effort for engagement. Live streaming is also providing customers a real time brand experience enabling brands to capitalize on a new revenue stream. Being “mobile friendly” is also important as growing trends indicate that brands have to wedge themselves firmly in the mobile space to stay relevant.

 

Competitive Strengths

 

Since our inception, we have worked diligently to establish and leverage key strengths in our business model, including:

 

A culture of innovation and creativity. We believe the only way to survive and thrive in our rapidly changing world is to change ahead of it. We are in a state of constant evolution and re-invention. We have created a culture committed to innovation and creativity that challenges convention and breaks new ground. Our team members are protective and proud of our culture by applying its “humble, yet hungry” attitude to all facets of our business. Our people and their innovations ultimately provide us with our largest competitive advantage. For example:

 

 

·

First-user generated content campaign for UPS;

 

 

 

 

·

First YouTube Influencer marketing campaign for The Home Depot and Citi;

 

 

 

 

·

First YouTube Influencer Campaign for ExxonMobil; and

 

 

 

 

·

First omni-channel shopping journey studies for Macy’s, Best Buy, and Staples.

 

Exploitation of Technologic Innovations and Social Marketing Importance

 

Our success lies, in part, to our understanding of new technologies especially in the social marketing space, augmented reality, image recognition, virtual reality and the ability to leverage these technologies in ways that we believe achieve and exceed our clients’ objectives.

 

Experienced management team and advisors

 

Our management team not only includes highly experienced entrepreneurs and executives from the digital media, technology and entertainment industries, but also outstanding strategic and creative advisors who are experts in social media and integrated marketing campaigns. See “Management” for details.

 

Our Growth Strategy

 

After more than 35 years of experience by management in delivering innovative involvement marketing campaigns, including more than ten years since our formation in January 2012, we believe our business model is market tested and poised for growth. While executing on our business strategy, we believe we have assembled a diverse and experienced team of senior managers, account executives and creative and analytical directors; developed and executed on involvement marketing campaigns which we believe have added value to our clients; and created our own brand-recognition in the marketing service agency industry. Key elements of our strategy to accelerate revenue growth and continue penetration of the marketplace include:

 

Organic Growth

 

We seek to work with one of the top three brands in almost every industry with focus on Restaurants, Packaged Goods, Retail, Pharma/OTC, Fuel, Automotive, Healthcare, Grocery/Convenience, and Entertainment. We will continue to use a mix of digital, social, public relations, and personal outreach to facilitate our organic growth.

 

Strategic Partnerships

 

We seek to develop strategic partnerships and alliances with companies that can facilitate expansion of our services to Fortune 500 companies having strong and well-recognized brands.

 

Executive Team Recruitment

 

We seek to attract talented executives possessing key skills and also relationships with brands which can be accretive to our client portfolio.

 

 
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Accretive Acquisitions

 

We seek to acquire companies having the following criteria to supplement our portfolio of clients with the objective of driving our additional near and long-term revenue.

 

 

·

Complementary companies in other major geographical markets; and

 

 

 

 

·

Companies that work with at least one of the top three brands in industries where we do not currently have a significant representative client.

 

Our Customers

 

We have experience with what we believe to be some of the industry’s most innovative companies possessing what we believe to be well-known brands. Our industry experience includes in the fields of or in respect to:

 

 

·

Sports and Entertainment;

 

 

 

 

·

Oil and Gas;

 

 

 

 

·

Automotive;

 

 

 

 

·

Retail;

 

 

 

 

·

Restaurant;

 

 

 

 

·

B2B;

 

 

 

 

·

Financial Services;

 

 

 

 

·

Hotel and Hospitality;

 

 

 

 

·

Consumer Packaged Goods (CPG);

 

 

 

 

·

Healthcare and Pharmaceuticals;

 

 

 

 

·

Technology; and

 

 

 

 

·

AgriChem.

 

We believe the client relationships established in these diverse industries provide us with a competitive edge over the broader market in the adoption of new strategies and leading technologies. Our services are provided pursuant to respective service agreements with a host of companies, and clients within them, including:

 

 

·

Citigroup;

 

 

 

 

·

Bayer US;

 

 

 

 

·

Bayer Crop Science;

 

 

 

 

·

Elanco

 

Our Sales and Marketing

 

We have a business development team that identifies potential clients having well-known brands as well as leveraging relationships with brands with whom our team is familiar. In addition to identifying potential clients, our business development team is responsible for nurturing and maintaining existing relationships to ensure customer satisfaction and to promote follow-up campaign opportunities.

 

Our business development team is composed of industry innovators in the communications business with deep connections and experience in digital, social media, technology, promotions, mobile, analytics and campaign development, implementation and management. Our business development team is led by award-winning executives who are frequent contributors to all-things digital on television, radio, conferences and webinars.

 

Our Revenue Model

 

We derive revenues from our clients based on a project-by-project basis through statement of work pursuant to a Master Services Agreement, which is typically customized to each of our clients. Dependent upon the statement of work which is directed by our clients, projects can vary from small scale platform, infrastructure and application development for influencer channels to large campaign initiatives that are project-based. Fees charged to clients are typically based on project/campaign fees which include retainer and ongoing fees negotiated with our clients.

 

Our Competition

 

Mastermind competes with agencies owned by large communications holding companies like WPP plc, Omnicom Group, Inc., Interpublic Group of Companies, Inc. and Publicis Groupe SA., for leading brands in almost every category.

 

 
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Contracts and Material Relationships

 

In the normal course of business, we have entered and will continue to enter into development, licensing and royalty agreements. In addition, we have certain customers that represent a significant component of our revenue. For the fiscal year ended September 30, 2022, there were three clients individually representing 10% or more of our total revenues. Total estimated project revenue for services provided by Mastermind personnel for these clients for the year ended September 30, 2022, was $2,849,194. For the fiscal year ended September 30, 2021, there were three clients individually representing 10% or more of our total revenues. Total estimated project revenue for services provided by Mastermind personnel for these clients for the year ended September 30, 2021, was $2,755,410.

  

Government Regulation

 

We are subject to a number of U.S. federal and state and foreign laws and regulations that affect companies conducting business on the Internet. These laws and regulations may involve privacy, data security, advertising, rights of publicity, data protection, content regulation, intellectual property, competition, protection of minors, consumer protection, taxation or other subjects. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm our business. As a result, the application, interpretation and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices.

 

We are also subject to federal, state and foreign laws regarding privacy and the protection of user data. Foreign data protection, privacy, consumer protection, content regulation and other laws and regulations are often more restrictive than those in the United States. There are also potential federal legislative proposals and various state legislative bodies and foreign governments concerning data protection, tracking, behavioral advertising and consumer protection that could affect us.

 

In recent years, social media companies, to resolve investigations into various incidents, have entered into settlement agreements and consent decrees with the Federal Trade Commission that, among other things, require them to establish an information security program designed to protect non-public consumer information and also require that they obtain periodic independent security assessments. Violation of any regulatory orders, settlements, or consent decrees into which we may be required to enter could subject us to substantial monetary fines and other penalties that could negatively affect our financial condition and results of operations.

 

 
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Backlog

 

Our backlog in the ordinary course of business was approximately $3,115,366 at September 30, 2022.

 

Employees

 

As of September 30, 2022, we had 24 contract and full-time employees at our leased facility in Atlanta, Georgia. None of these employees are covered by a collective bargaining agreement, and management considers its relations with its employees to be good.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

We do not own any properties. We lease our corporate facility in Atlanta, Georgia pursuant to a commercial lease agreement (the “Lease”) with 1450 West Peachtree, LLC, a Georgia limited liability company (the “Landlord”). The manager of the Landlord is also our chief executive officer. We believe our current leased facility space is adequate for our near-term needs.

 

Subsequent to September 30, 2022, the Company gave notice to our landlord for our leased office space to terminate the agreement as of December 31, 2022 with no payments due thereafter. The landlord agreed to the termination of the lease with no penalties and no additional payments required. The Company has adopted a fully remote work environment and no replacement office space is planned for.

 

Item 3. Legal Proceedings

 

On February 11, 2022, a Complaint and Demand for Jury Trial (the “Complaint”) was filed by a plaintiff (the “Plaintiff”) in the United States District Court for the Eastern District of Pennsylvania. The Complaint named Mastermind, Inc. (“the Company”) and Daniel Dodson, the Company’s Chief Executive Officer, (the “CEO”). The Company and the CEO are collectively referred to herein as “Defendants”. The Complaint includes alleged breach of contract and alleged breach of implied contract by the Defendants related to the Plaintiff’s allegations that he was entitled to 3,000,000 shares of common stock of the Company from the reverse merger transaction completed on February 14, 2018. The Defendants successfully got the Complaint transferred to the United States District Court for the Northern District of Georgia. The Defendants will contest the complaint and strongly believe they will prevail.

 

Other than the above we are not a party to any other legal proceedings, other than ordinary routine litigation incidental to our business, which we believe will not have a material effect on our financial position or results of operations.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 
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Part II

 

Item 5. Market Information for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Our common stock is quoted on the OTC Market under the symbol “MMND”. There is very limited trading of our common stock. The stock market in general has experienced significant stock price fluctuations in the past few years. In some cases, these fluctuations have been unrelated to the operating performance of the affected companies. Many companies have experienced dramatic volatility in the market prices of their common stock. We believe that a number of factors, both within and outside our control, could cause the price of our common stock to fluctuate, perhaps substantially. Factors such as the following could have a significant adverse impact on the market price of our common stock:

 

 

·

Our financial position and results of operations;

 

 

 

 

·

Any litigation against us;

 

 

 

 

·

Possible regulatory requirements on our business;

 

 

 

 

·

The issuance of new debt or equity securities pursuant to a future offering;

 

 

 

 

·

Our ability to obtain additional financing and the terms thereof;

 

 

 

 

·

Changes in interest rates;

 

 

 

 

·

Competitive developments;

 

 

 

 

·

Variations and fluctuations in our operating results;

 

 

 

 

·

Change in financial estimates by securities analysts;

 

 

 

 

·

The depth and liquidity of the market for our common stock;

 

 

 

 

·

Investor perceptions of us; and

 

 

 

 

·

General economic and business conditions.

 

As of January 6, 2023, there were approximately 4,720 stockholders of record. The last sale price as quoted by the OTCQB tier of The OTC Markets on January 6, 2023, was $0.349 per share.

 

Securities Authorized for Issuance under Equity Compensation Plans as of the End of Fiscal 2018 Equity Compensation Plan Information

 

Plan Category

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights

 

 

Weighted average exercise price of outstanding options, warrants and rights

 

 

Number of securities remaining available for future issuance

 

Equity compensation plans approved by stockholders

 

 

-

(1) 

 

$-

 

 

 

4,000,000

 

(1)

This total represents shares available to be issued pursuant to the Mastermind, Inc. 2018 Equity Incentive Plan. 

 

Recent Sales of Unregistered Securities

 

During the year ended September 30, 2022, the Company did not issue common stock.

 

Dividend Policy

 

Our dividend policy is determined by our Board of Directors and depends upon a number of factors, including our financial condition and performance, its cash needs and expansion plans, income tax consequences, and the restrictions that applicable laws and any credit or other contractual arrangements may then impose. We have not paid any cash dividends on our common stock and at the current time we do not anticipate paying a cash dividend on our common stock in the foreseeable future. We did not declare or pay any cash dividends on our common stock during the past two fiscal years.

 

Item 6. Selected Financial Data

 

Not Applicable.

  

 
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Item 7. Managements Discussion and Analysis or Plan of Operation

 

Overview

 

Our company was formed on January 1, 2012, by MM Inc. the Founding Member, through a contribution of assets. The organization, as governed by the Written Operating Agreement dated January 1, 2012, was formed for the purpose of engaging in the business of conceiving, developing, selling, marketing, implementing and/or otherwise providing services, systems, platforms and products in the areas of mobile, social, digital and traditional marketing to and for businesses and organizations, and conducting services and functions incidental to the operation of such business. Effective January 1, 2017 and March 1, 2017, we granted a thirty percent (30%) and ten percent (10%) interest to Villanta and Digital Advize, respectively, in consideration of services to be provided to us.

 

We are an involvement marketing service agency, whose mission is to become one of the most well-respected marketing service agencies in the industry capable of involving people with Fortune 500 brands that designs, creates and develops branding and marketing campaigns, primarily for large corporate clients with category-leading brands. We specialize in getting consumers and customers to take an action that leads to brand awareness, trial, loyalty, and ultimately advocacy. Our conversion initiatives facilitate the involvement of more of the “right customers” with the brands of our clients. Our programs can take on various forms, including creating and managing digital content, designing campaign websites/landing pages, social media and viral campaigns, mobile marketing initiatives, brand communications and search engine optimization. We deliver innovative, result-producing campaigns to meet the business objectives of each client through any number, or combination thereof, or cutting-edge marketing initiatives.

 

Our most important assets in delivering the highest-quality involvement marketing services to our clients are our highly talented and experienced people made up of technologists, strategists, account service, paid media and creatives who work together and represent a cross-discipline of experts. We pride ourselves in a culture of mutually-shared support and teamwork. We ensure that our team is provided the best-in-class research, equipment, technology and training in all disciplines within our proven delivery process to deliver cutting-edge initiatives the get results. We are very competitive and have a winning culture that is present throughout the work we do for our clients and their brands.

 

Our organization has been structured in a manner to ensure a broad range of thinking, facilitate work flow, and deliver unparalleled marketing initiatives and service to our clients. This is proven by strong and long-lasting relationships with our clients and tenure of our key executives. We have a proven, five-step cyclical approach to every client engagement that ensures learning from every campaign execution is used to optimize future campaigns.

 

After more than 35 years of experience in delivering innovative involvement marketing campaigns, including more than nine years since our formation in January 2012, we believe our business model is market tested and poised for growth. While executing on our business strategy, we believe we have assembled a diverse and experienced team of senior managers, account executives and creative and analytical directors; developed and executed on involvement marketing campaigns which we believe have added value to our clients; and created our own brand-recognition in the marketing service agency industry. Key elements of our strategy to accelerate revenue growth and continue penetration of the marketplace include organic growth, strategic partnerships, recruitment of talented executives, and accretive acquisitions.

 

We have relationships with what we believe to be some of the industry’s most innovative companies, including Fortune 500 companies, in a diverse spectrum of industries possessing what we believe to be well-known brands. We believe the client relationships established within these diverse industries provide us with a competitive edge over the broader market in the adoption of new strategies and leading technologies. We generate revenues from project/campaign-based fees charged to our clients pursuant to client-specific service agreements.

 

Through the efforts of our business development team, we identify potential clients having well-known brands as well as leveraging relationships with brands with whom our team is familiar. In addition to identifying potential clients, our senior management team is responsible for nurturing and maintaining existing relationships to ensure customer satisfaction and to promote follow-up campaign opportunities. Our business development team is composed of industry innovators in the communications business with deep connections and experience in digital, social media, technology, promotions, mobile, analytics and campaign development, implementation and management. Our business development team is led by award-winning executives who are frequent contributors to all-things digital on television, radio, conferences and webinars.

 

Fiscal Year

 

Our fiscal year ends on September 30. Reference in this annual report on Form 10-K to a fiscal year is reference to the fiscal year ended September 30. For example, references to “fiscal 2022” or our “2022 fiscal year” refer to the fiscal year ended September 30, 2022.

 

Critical Accounting Policies

 

Our significant accounting policies are summarized in Note 2 to our financial statements. However, certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our financial statements. In applying these policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, our observance of market trends, information provided by our strategic partners and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our financial statements.

 

 
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Results of Operations

 

Fiscal Year Ended September 30, 2022 vs. September 30, 2021

 

 

 

Years Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

%

 

Revenue

 

$

4,540,060

 

 

$

3,827,721

 

 

$

712,339

 

 

 

18.6

%

Gross profit

 

 

 3,005,662

 

 

 

2,329,196

 

 

 

 676,466

 

 

 

29.0

%

Total operating expenses

 

 

 2,267,369

 

 

 

2,344,601

 

 

 

(77,232

)

 

(3.3)

%

Income (loss) from operations

 

 

738,293

 

 

 

(15,405

)

 

 

753,698

 

 

4,892.6

%

Total other income

 

 

1,697

 

 

 

782,145

 

 

 

(780,448

 

 

(99.8)

%

Income before provision (benefit) for income taxes

 

 

739,990

 

 

 

766,740

 

 

 

(26,750

)

 

(3.5)

%

Provision (benefit) for income tax

 

 

51,271

 

 

 

(528

)

 

 

 51,799

 

 

 

 9,810.4

 %

Net income after tax

 

$

688,719

 

 

$

767,268

 

 

$

(78,549

)

 

(10.2)

%

 

Revenues

 

Revenues for the year ended September 30, 2022 were $4,540,060 as compared with $3,827,721 for the comparable prior year period, an increase of $712,339 or 19%. The increase is primarily attributable to post pandemic rebound of client projects that had previously been delayed, the timing of project work being completed, and also the revenue being recognized for direct expenses (media, influencer fees, etc.) attributable to jobs. These fluctuations in work accomplished and revenue being recognized for direct expenses are normal occurrences in our business.

 

 
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Table of Contents

 

Gross Profit

 

Gross profit for the year ended September 30, 2022 was $3,005,662 or 66% of revenues, compared with $2,329,196 or 61% of revenues, for the comparable prior year period. The increase in gross profit dollars was a result of higher revenues, including higher gross margins in the current period. The increase in gross margin percentage is primarily a result of the Company having more projects with lower direct expenses in the year ended September 30, 2022, compared to same period of last year. Direct cost includes expenses for media, sponsorship fees, etc. Gross margin will fluctuate from year to year based on the types of work assigned to the Company by its clients.

 

Operating Expenses

 

Total operating expenses for the year ended September 30, 2022 were $2,267,369 as compared with $2,344,601 for the comparable prior year period, a decrease of $77,232 or 3%. The decrease was primarily a result of a decrease in wages and benefits of $285,854, as a result of increases of in-house versus external work, along with decreases in other general and administrative costs of $114,000, offsetting by increases in management consulting fees of $130,500, and increases in professional fees (including public company expenses) of $192,122 primarily due to a new litigation occurred in fiscal year 2022.

 

Income before provision (benefit) for income taxes

 

Income before provision (benefit) for income taxes for the year ended September 30, 2022, was $739,990 as compared to $766,740 for the comparable prior year period, which included a gain on PPP loan forgiveness of $780,288.  Excluding the gain on PPP loan forgiveness, the Company incurred a $15,405 loss from operations in fiscal 2021 and increased income from operations by $753,698 during fiscal 2022. 

  

Other Income or Expense, net

 

Other income, net for the year ended September 30, 2022, was $1,697 as compared to $782,145 for the comparable prior year period, which included a gain on PPP loan forgiveness of $780,288.

 

Provision (benefit) for Income Tax

 

Provision for income tax for the year ended September 30, 2022 was $51,271 as compared to an income tax benefit of $528 for the comparable prior year period. The increase in income tax expense is primarily due to an increase in income from operations of $753,698 as compared to the same prior year period. Provision (benefit) for income tax is estimated quarterly applying both federal and state tax rates.

  

Liquidity and Capital Resources

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

%

 

Cash

 

$1,735,140

 

 

$1,075,188

 

 

$659,952

 

 

 

61.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$

3,326,379

 

 

$2,445,114

 

 

$

881,265

 

 

 

36.0

%

Current liabilities

 

$

551,733

 

 

$425,601

 

 

$

126,132

 

29.6

%

Working capital

 

$2,774,646

 

 

$2,019,513

 

 

$755,133

 

 

 

37.4%

 

As of September 30, 2022, we had cash of $1,735,140, an increase of $659,952, or 61% when compared with a balance of $1,075,188 as of September 30, 2021.

 

 

 

Years Ended

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

%

 

Cash provided by (used in) operating activities

 

$675,605

 

 

$(195,223)

 

$870,828

 

 

446

%

Cash used in investing activities

 

$(15,653)

 

$(15,389)

 

$(264)

 

 

2%

Cash provided by financing activities

 

$-

 

 

$478,538

 

 

$(478,538)

 

(100)

%

Net Change in Cash During Period

 

$659,952

 

 

$267,926

 

 

$392,026

 

 

 

146%

 

 
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Table of Contents

 

During the year ended September 30, 2022, $675,605 was provided by operating activities as compared with net cash used in operating activities of $195,223 for the comparable prior year period. Our uses of cash for operating activities have primarily consisted of salaries and wages for our employees; costs incurred in connection with performance on client projects; facility and facility-related costs, material, management consulting and professional fees. The sources of our cash flows from operating activities have consisted primarily of payments received from clients in connection with the performance on contractually agreed-upon projects. Net cash flows from operating activities for the current year were a result of the net income after tax of $688,719, depreciation expense of $23,144, change of deferred tax of $78,531, offset by stock compensation expense reversal of $13,500, and changes in operating assets and liabilities of $101,289.

 

During the year ended September 30, 2021, we used $195,223 in operating activities, which were a result of the net income after tax of $767,268, stock compensation expense of $77,000 and depreciation expense of $21,722, offset by the gains on the PPP loan forgiveness of $780,288, change of deferred tax of $1,278 and changes in current assets and liabilities of $279,647.

 

During the years ended September 30, 2022, and 2021, net cash used in investing activities were $15,653 and $15,389, respectively, and were a result of the purchase of computers and office equipment.

 

During the year ended September 30, 2022, the Company did not have any cash flow activity from financing activities and September 30, 2021, we received $478,538 related to amounts received under the Paycheck Protection Program.

 

The ability to attract additional capital investments for more rapid expansion in the future will depend on many factors, including the availability of credit, rate of revenue growth, ability to acquire new client opportunities, the timing of new service product introductions and enhancements to existing services/products, and the opportunities to acquire complimentary businesses that may be made available to us from time-to-time. We believe that as of September 30, 2022, our cash position and cash flows from our operations will be sufficient to fund our working capital and planned strategic activities, excluding acquisitions, if any, for at least the next twelve months.

 

Any potential future sale of equity or debt securities may result in dilution to our stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, or at all. If we are required to raise additional financing, but are unable to obtain such financing, we may be required to delay, reduce the scope of, or eliminate one or more aspects of our operations or business development activities.

 

The ongoing pandemic related issues from the coronavirus could adversely impact our liquidity and capital resources, especially if our customers are negatively impacted by the decrease in economic activity caused by the virus. If our customers fail to reach budgeted revenue projections and reduce their expenditures proportionally, we could experience lower than expected growth in revenue or lower overall revenue. We could also experience delays or declines in revenue and new business and implementations of marketing campaigns if customers or potential customers delay or cancel their plans due to the economic slowdown caused by the virus. Additionally, our operations could be impacted, and we could experience higher costs if, despite our mitigation and prevention efforts, the virus spread prevents affected employees from performing key duties.

 

This annual report on Form 10-K contains certain statements that are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward-looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2022, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

 

Item 8. Financial Statements and Supplementary Data

 

The following Consolidated Financial Statements and related report of independent registered public accounting firm are included in this report and are incorporated by reference in Part II, Item 8 hereof. See Index to Financial Statements on page F-1 hereof.

 

Report of Independent Registered Public Accounting Firm – Prager Metis CPAs LLC

Consolidated Balance Sheets at September 30, 2022, and 2021

Consolidated Statements of Operations for the years ended September 30, 2022, and 2021

Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2022, and 2021

Consolidated Statements of Cash Flows for the years ended September 30, 2022, and 2021

Notes to Consolidated Financial Statements

 

 
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Table of Contents

 

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

The certificates of our principal executive officer and principal financial and accounting officer attached as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K include, in paragraph 4 of such certifications, information concerning our disclosure controls and procedures, and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 9A for a more complete understanding of the matters covered by such certifications.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

As required by the SEC rules and regulations for the implementation of Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at September 30, 2022. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO).

 

Based on our assessments and those criteria and on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of September 30, 2022, to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, our management concluded that, as of September 30, 2022, our internal control over financial reporting was not effective due to (i) insufficient segregation of duties in the finance and accounting functions due to limited personnel; and (ii) inadequate corporate governance policies. In the future, subject to working capital limitations, we intend to take appropriate and reasonable steps to make improvements to remediate these deficiencies.

 

This annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to Securities and Exchange Commission rules that permit us to provide only management’s report in this annual report.

 

Changes in Internal Control Over Financial Reporting

 

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

 
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Table of Contents

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Directors and Executive Officers

 

Mastermind is currently comprised of one director. Our director and named executive officer, their ages and positions, as well as certain biographical information of these individuals, are set forth below. The ages of the individuals are provided as of January 13, 2023.

 

Name

 

Age

 

Positions Held with the Registrant

Daniel A. Dodson

 

63

 

Director, Chief Executive Officer

Michael Gelfond

 

50

 

Executive Vice President

Ricardo Rios

 

46

 

Senior Vice President

 

Biographies of Directors and Executive Officers

 

Daniel A. Dodson. Mr. Dodson has served as chief executive officer and sole director of the Company since January 1, 2012, the date of our inception and is sole director of Mastermind, Inc. since February 14, 2018. In 1984, Mr. Dodson was the founder, sole owner and president of National Promotion Services which was subsequently renamed Mastermind Marketing, Inc. and continues to be its president and sole owner. Mr. Dodson is considered an involvement marketing expert with demonstrated ability to leverage social, mobile, digital and promotion to facilitate the engagement of people with well-known brands to achieve increased client revenues and delivery of measurable returns on marketing investments. Mr. Dodson has been published in numerous trade publications and has been an invited speaker on the subject of involvement marketing at conferences and trade shows around the world. Mr. Dodson received his BBA in Accounting from Georgia State University in 1982.

 

Our Board has concluded that Mr. Dodson is an appropriate person to represent management on our Board of Directors given his position as our Chief Executive Officer, his tenure with us, which dates back to 1984, his professional credentials, and his standing in the advertising and media community, including expertise in involvement marketing, financial and operational matters as they relate to leveraging social, mobile, digital and promotion to facilitate the engagement of people with well-known brands.

 

Michael Gelfond. Mr. Gelfond was appointed as our Executive Vice President in February 2018. From July 2010 through February 2017, Mr. Gelfond was Executive Vice President and Partner at Mastermind Marketing, Inc. Prior to July 2010, Mr. Gelfond was one of the founders and Vice President of Creative Digital Group, which was formed in February 2002 and sold to Digtias/LBi, a major independent global interactive agency, in May 2007. From July 1995 to 2002, Mr. Gelfond was Sr. Account Manager with iXL, a global digital agency with over 3000 offices. Mr. Gelfond is an award-winning leader in the digital marketing industry with a proven track record of results with his clients. Since 2005, Mr. Gelfond has been a member of the Board of Directors Ian’s Friends Foundation, a pediatric brain cancer lab funding charity, and since 2016, a member of the Board of Directors of Read with Malcolm, which was founded by Malcolm Mitchell, a member of the New England Patriots football organization. Mr. Gelfond received his BA degree from the University of Georgia in May 1995. Mr. Gelfond is an award-winning, conference speaker/contributor on radio and TV on all matters of digital marketing. A 2010 winner of Atlanta 40 Under 40 award, Mr. Gelfond has proven track record of results with his clients.

 

Ricardo Rios. Mr. Rios was appointed as Senior Vice President of the Company in May 2016 and of CoConnect in February, 2018. From November 2010 through July 2015, Mr. Rios was Vice President of Digital Marketing for Citi Retail Services, a division of Citigroup. Prior to November 2010, Mr. Rios held various positions in the digital marketing and marketing agency industry. Mr. Rios received his Bachelor’s degree in Business Administration with a major in Finance from the University of Arizona in December 1998.

 

Stockholder Communications with the Board of Directors

 

Pursuant to procedures set forth in our bylaws, our Board of Directors will consider stockholder nominations for directors if we receive timely written notice, in proper form, of the intent to make a nomination at a meeting of stockholders. To be timely, the notice must be received within the time frame identified in our bylaws. To be in proper form, the notice must, among other matters, include each nominee’s written consent to serve as a director if elected, a description of all arrangements or understandings between the nominating stockholder and each nominee and information about the nominating stockholder and each nominee. These requirements are detailed in our bylaws, which were included in our previous filings with the SEC on Forms 10-K and 8-K. A copy of our bylaws will be provided upon written request to the Chief Executive Officer at Mastermind, Inc., 2221 Peachtree Rd. NE, Suite D-134, Atlanta, GA 30309.

 

Code of Ethics

 

We currently have not adopted a written code of ethics. We intend to implement a comprehensive corporate governance program, including adopting a Code of Ethics and corporate governance program as working capital allows.

 

 
16

Table of Contents

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who beneficially own more than 10% of a registered class of our securities to file reports of ownership and changes in ownership with the SEC. Based solely on a review of copies of such forms submitted to us, we believe that all persons subject to the requirements of Section 16(a) filed such reports on a timely basis in fiscal 2022.

 

Corporate Governance and Guidelines

 

Our Board of Directors has long believed that good corporate governance is important to ensure that we manage our company for the long-term benefit of stockholders. During the past year, our Board of Directors has continued to review our governance practices in light of the Sarbanes-Oxley Act of 2002 and recently revised SEC rules and regulations. The Company intends to implement internal corporate governance guidelines and practices, and will make such guidelines and practices available on its website at www.mastermindmarketing.com, when implemented as working capital allows.

 

Item 11. Executive Compensation

 

Summary Compensation Table

 

This section discusses the material components of the fiscal 2022 and 2021 executive compensation program for our named executive officers. This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.

 

The following table provides information regarding the compensation awarded to, or earned by, our named executive officers for fiscal years ended September 30, 2022, and 2021.

 

Named Executive Officer

 

Fiscal Year

 

Salary

($)

 

 

Bonus

($)

 

 

Stock Awards

($)

 

 

Option Awards

($)

 

 

All Other Compensation

($)(1)

 

 

Total

($)

 

Daniel A. Dodson

 

2022

 

$

36,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

342,985

 

 

$

378,985

 

Chief Executive Officer

 

2021

 

 

36,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

282,324

 

 

 

318,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Gelfond

 

2022

 

$

90,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

181,347

 

 

$

271,347

 

Executive Vice President

 

2021

 

 

90,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

120,824

 

 

 

210,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ricardo Rios

 

2022

 

$

90,000

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

134,833

 

 

$

224,833

 

Senior Vice President

 

2021

 

 

90,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

122,539

 

 

 

212,539

 

 

(1) All other compensation includes (i) consulting fees paid, pursuant to the terms of our operating agreement, to MM Inc. which is owned by Daniel A. Dodson; Villanta, which is owned by Michael Gelfond; and Advize, which is owned by Ricardo Rios; and (ii) health benefits paid on behalf of the named executive officers by us. All other compensation consists of the following:

 

 

a)

Daniel A. Dodson: Consulting fees of $324,000 and $264,000, and wages of $36,000 and $36,000 for the fiscal years ended September 30, 2022, and 2021, respectively.

 

 

 

 

b)

Michael Gelfond: Consulting fees of $180,500 and $120,000, and wages of $90,000 and $90,000 for the fiscal years ended September 30, 2022, and 2021, respectively.

 

 

 

 

c)

Ricardo Rios: Consulting fees of $110,900 and $100,900, and wages of $90,000 and $90,000 for the fiscal years ended September 30, 2022, and 2021, respectively.

 

Employment Agreements and Other Arrangements with Named Executive Officers

 

None. The Company is considering entering into agreements with key executives in fiscal year 2023.

 

Outstanding Equity Award During Fiscal 2022

 

None.

 

Option Exercises and Stock Vested During Fiscal 2022

 

None.

 

 
17

Table of Contents

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth the beneficial ownership of shares of our common stock, as of January 13, 2023, of (i) each person known by us to beneficially own five percent (5%) or more of such shares; (ii) each of our directors and current executive officers named in the Summary Compensation Table; and (iii) our current executive officer and directors as a group. Except as otherwise indicated, all shares are beneficially owned, and the persons named as owners hold investment and voting power.

 

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our Common Stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person. Subject to community property laws, where applicable, the persons or entities named in the tables below have sole voting and investment power with respect to all shares of our Common Stock indicated as beneficially owned by them.

 

The business address of each person listed below is c/o Mastermind Marketing, Inc., 2221 Peachtree Rd. NE, Suite D-134, Atlanta, GA 30309.

 

Name of Beneficial Owner

 

Amount and

Nature of

Beneficial

Ownership

 

 

Percent of

Class. (1)

 

Mastermind Marketing, Inc. (2)

 

 

17,542,055

 

 

 

50.8%

Digital Advize, LLC (3)

 

 

2,923,676

 

 

 

8.5%

Villanta Corporation (4)

 

 

8,771,028

 

 

 

25.4%

 

 

 

 

 

 

 

 

 

Total

 

 

29,236,759

 

 

 

84.7%

 

(1) Based on 34,505,520 shares of common stock issued and outstanding

(2) The principle of Mastermind Marketing Inc. is Daniel A. Dodson

(3) The principle of Digital Advize is Ricardo Rios

(4) The principle of Villanta Corporation is Michael Gelfond

 

Change of Control

 

As a result of the issuance of the shares pursuant to the Business Combination and related transactions, a change in control of the Company occurred as of February 14, 2018. Except as described in this Report, no arrangements or understandings exist among present or former controlling shareholders with respect to the election of members of our Board and, to our knowledge, no other arrangements exist that might result in a change of control of the Company.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

On January 3, 2012, we entered into a perpetual license agreement (the “Perpetual License”) with Mastermind Marketing, Inc. (the “Licensor”), which provides for licenses of trademarks, internet domains, and certain intellectual property as defined in the Perpetual License. The Licensor is one of our majority shareholders and its chief executive officer is Daniel A. Dodson, our chief executive officer. The Perpetual License, which may be terminated at any time by either party, is effective January 3, 2012 and provides for aggregate payments of $2,100,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. The Company has recorded expenses of $60,000 and $60,000 for the years ended September 30, 2022, and 2021, respectively (Note 5).

 

On January 3, 2014, we entered into a commercial lease agreement (the “Lease”) with 1450 West Peachtree, LLC, a Georgia limited liability company (the “Landlord”), for the lease of our corporate facility in Atlanta, Georgia. The manager of the Landlord is also our chief executive officer. The term of the Lease is 10 years from the date of the agreement and provides for monthly rent and payment of operating expenses on a triple-net basis. The monthly rent terms of the Lease have been altered by the landlord due to another tenant occupying space the Company verbally agreed to allow the landlord to remove from the space available to the Company. During the fiscal years ended September 30, 2022, and 2021, we made lease payments of $154,267 and $120,000, respectively, in satisfaction of our obligation pursuant to the Lease (Note 8). Subsequent to September 30, 2022, the Company and the landlord agreed to terminate the lease agreement as of December 31, 2022 with no penalties or additional payments required (Note 12).

 

During the fiscal years ended September 30, 2022, and 2021, we made payments to our three members pursuant to the terms of our operating agreement, as amended, for services rendered to us. The Company recorded expenses to our three members during the fiscal years ended September 30, 2022 and 2021 aggregating $875,165 and $741,687, respectively. As of September 30, 2022 and 2021, we owed $0 and $100,000 to our three majority stockholders for consulting services which is included in accounts payable and accrued expenses, related parties on the consolidated balance sheets herein. During the fiscal year ended September 30, 2022, the $100,000 owed as of September 30, 2021 was paid in full.

 

 
18

Table of Contents

 

Independence of the Board of Directors

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the Board be “independent” and, as a result, we are not at this time required to have our Board comprised of a majority of “Independent Directors.”

 

Board Attendance

 

Our Board is comprised of one director who is also our chief executive officer. We did not convene any formal meetings of the Board of directors during the fiscal year ended September 30, 2022.

 

Committees of the Board of Directors

 

We currently have no separate audit, compensation, or nominating committees. The entire Board oversees our (i) audits and auditing procedures; (ii) compensation philosophies and objectives, establishment of remuneration levels for our executive officers, and implementation of our incentive programs; and (iii) identification of individuals qualified to become Board members and recommendation to our shareholders of persons to be nominated for election as directors.

 

Directors Compensation

 

None.

 

Item 14. Principal Accounting Fees and Services

 

The following is a summary of the fees billed to us by Prager Metis CPAs LLC, our independent registered public accounting firm, for professional services rendered for the fiscal years ended September 30, 2022 and 2021.

 

 

 

Fiscal Years Ended September 30,

 

Fee Category

 

2022

 

 

2021

 

Prager Metis CPAs LLC Audit fees

 

$

48,500

 

 

$

40,500

 

Other audit related fees

 

 

-

 

 

 

-

 

Tax fees

 

 

8,650

 

 

 

3,500

 

Total fees

 

$

57,150

 

 

$

44,000

 

 

Audit Fees

 

This category consists of fees billed for professional services rendered for the audit of our annual financial statements and review of financial statements included in our quarterly reports and other professional services provided in connection with regulatory filings.

 

Other Audit Related Fees

 

This category consists of fees billed for professional services rendered for services other than those described herein as Audit Fees or Tax Fees.

 

Tax Fees

 

This category consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance and acquisitions.

 

Pre-Approval Policies and Procedures

 

The Board of Directors has the authority to approve all audit and non-audit services that are to be performed by our independent registered public accounting firm. Generally, we may not engage our independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Board of Directors.

 

 
19

Table of Contents

 

Part IV

 

Item 15. Exhibits, Financial Statement Schedules

 

The following are filed as part of this Form 10-K:

 

Exhibit No.

 

Description

31.1*

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

 

Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

 

Certification of Principal Executive, Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.INS**

 

Inline XBRL Instance Document

101.SCH**

 

Inline XBRL Taxonomy Extension Schema

101.CAL**

 

Inline XBRL Taxonomy Extension Calculation

101.DEF**

 

Inline XBRL Taxonomy Extension Definitions

101.LAB**

 

Inline XBRL Taxonomy Extension Label

101.PRE**

 

Inline XBRL Taxonomy Extension Presentation

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

Item 16. Form 10K Summary

 

None.

 

 
20

Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Mastermind, Inc.

 

Date: January 13, 2023

By:

/s/ Daniel A. Dodson

 

 

 

Daniel A. Dodson

Chief Executive Officer

(Principal Executive, Financial and Accounting Officer)

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

Signature

 

Capacity

 

Date

/s/ Daniel A. Dodson

Daniel A. Dodson

 

Chairman of the Board, President,

Chief Executive Officer and Director

(Principal Executive Officer)

 

January 13, 2023

 

 
21

Table of Contents

 

MASTERMIND, INC.

INDEX TO FINANCIAL STATEMENTS

 

The following consolidated financial statements of the Registrant and its subsidiaries are submitted herewith in response to Item 8:

 

Financial Statements:

 

Report of Independent Registered Public Accounting Firm – Prager Metis CPAs LLC

 

F-2

Consolidated Balance Sheets at September 30, 2022, and 2021

 

F-4

Consolidated Statements of Operations for the years ended September 30, 2022, and 2021

 

F-5

Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2022, and 2021

 

F-6

Consolidated Statements of Cash Flows for the years ended September 30, 2022, and 2021

 

F-7

Notes to Consolidated Financial Statements

 

F-8

 

 
F-1

Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

Mastermind, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Mastermind, Inc. (the “Company”) as of September 30, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended September 30, 2022 and 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for the years ended September 30, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below is matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Revenue Recognition

 

Critical Audit Matter Description

 

As disclosed in Note 2 to the financial statements, the Company follow ASU 2014-09, Revenue from Contracts with Customers (Topic 606) with regards to its revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company makes judgements and estimates based on the amount of time and billings relating to each contract, as it relates to the total estimated time to complete the contract. Revenues are primarily generated from the Company's involvement marketing services and contracts which are typically billed based on time and materials or at a fixed price. If billed at a fixed price, revenue is recognized on a proportional performance basis as the services specified in the arrangement are performed. The determination of proportional performance revenue recognition is dependent on the nature of the services specified in the arrangement. Advanced payments on services and contracts are deferred and recorded as unearned revenues on the balance sheet until the earnings process has been completed and revenue is then recognized. Similarly, advanced services are recorded as unbilled receivables on the balance sheet when the earnings process has been completed and revenue is recognized before related invoices have been issued to customers. In all cases, the Company evaluates involvement marketing contracts to determine that the time and amount of services reflects the consideration expected to be received for the performance obligations that have been provided in accordance with the five-step process in accordance with ASU 2014-09

 

 
F-2

Table of Contents

 

How the Critical Audit Matter Was Addressed in the Audit

 

After obtaining an understanding of the Company’s revenue recognition policy, we selected a sample of revenue contracts. Our audit procedures included, among other things, a review of the agreement to see if it meets the definition of a contract and how the Company evaluated the performance obligation and testing of how the Company recorded the obligations. We tested the determination of the transaction price and how the Company recorded the revenue based on the deliverables defined in the contract, including the timing of recording revenue and the calculation of the amounts recorded. We also verified the timing of billing and cash receipts to corroborate accounts receivable and deferred revenue for each transaction.

 

/s/ Prager Metis CPAs, LLC

 

We have served as the Company’s auditor since 2018

Firm ID#273

Hackensack, New Jersey

January 13, 2023

   

 
F-3

Table of Contents

 

Mastermind, Inc.

Consolidated Balance Sheets

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$1,735,140

 

 

$1,075,188

 

Accounts receivable

 

 

349,233

 

 

 

1,261,183

 

Unbilled receivables

 

 

1,137,078

 

 

 

-

 

Prepaid expenses and other current assets

 

 

27,451

 

 

 

31,266

 

Income tax receivable

 

 

77,477

 

 

 

77,477

 

Total Current Assets

 

 

3,326,379

 

 

 

2,445,114

 

 

 

 

 

 

 

 

 

 

Right-of-use asset, net

 

 

153,816

 

 

 

262,097

 

Property and equipment, net

 

 

52,004

 

 

 

59,495

 

TOTAL ASSETS

 

$3,532,199

 

 

$2,766,706

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$109,263

 

 

$157,994

 

Accounts payable and accrued expenses, related party

 

 

-

 

 

 

100,000

 

Unearned revenues

 

 

328,081

 

 

 

59,326

 

Lease obligation, current

 

 

114,389

 

 

 

108,281

 

Total Current Liabilities

 

 

551,733

 

 

 

425,601

 

 

 

 

 

 

 

 

 

 

Lease obligation, net of current portion

 

 

39,427

 

 

 

153,816

 

Deferred tax liabilities

 

 

246,705

 

 

 

168,174

 

Total Liabilities

 

 

 837,865

 

 

 

747,591

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred stock: 1,000,000 shares authorized; $0.001 par value; no shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock: 125,000,000 shares authorized; $0.001 par value;

 

 

 

 

 

 

 

 

34,505,520 shares issued and outstanding

 

 

34,506

 

 

 

34,506

 

Common stock to be issued; 0 and 135,000 shares as of September 30, 2022 and 2021, respectively

 

 

-

 

 

 

135

 

Additional paid in capital

 

 

62,865

 

 

 

76,230

 

Retained earnings

 

 

2,596,963

 

 

 

1,908,244

 

Total Stockholders' Equity

 

 

2,694,334

 

 

 

2,019,115

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$3,532,199

 

 

$2,766,706

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
F-4

Table of Contents

 

Mastermind, Inc.

Consolidated Statements of Operations

 

 

 

Years Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Revenues

 

$4,540,060

 

 

$3,827,721

 

Cost of revenues

 

 

1,534,398

 

 

 

1,498,525

 

Gross profit

 

 

3,005,662

 

 

 

2,329,196

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Management consulting

 

 

615,400

 

 

 

484,900

 

Professional fees

 

 

328,237

 

 

 

136,115

 

Wages and benefits

 

 

700,367

 

 

 

986,221

 

General and administrative

 

 

623,365

 

 

 

737,365

 

 Total Operating Expenses

 

 

2,267,369

 

 

 

2,344,601

 

 Income (loss) from operations

 

 

738,293

 

 

 

(15,405 )

 

 

 

 

 

 

 

 

 

Other Income

 

 

 

 

 

 

 

 

Interest income

 

 

1,697

 

 

 

1,857

 

Gain on PPP loan forgiveness

 

 

-

 

 

 

780,288

 

 Total other income

 

 

1,697

 

 

 

782,145

 

 

 

 

 

 

 

 

 

 

Income before provision (benefit) for income taxes

 

 

739,990

 

 

 

766,740

 

Provision (benefit) for income taxes

 

 

51,271

 

 

 

(528 )

Net income

 

$688,719

 

 

$767,268

 

 

 

 

 

 

 

 

 

 

Basic and diluted income per common share

 

 

 

 

 

 

 

 

Basic

 

$0.02

 

 

$0.02

 

Diluted

 

$0.02

 

 

$0.02

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

34,505,520

 

 

 

34,338,506

 

Diluted

 

 

34,505,520

 

 

 

34,647,863

 

  

The accompanying notes are an integral part of these consolidated financial statements

 

 
F-5

Table of Contents

 

Mastermind, Inc.

Consolidated Statements of Stockholders' Equity

For the Years Ended September 30, 2022 and 2021

 

 

 

 

 

 

 

 

 

Common Stock to be

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

issued

 

 

Additional

 

 

 

 

 

 

 

 

Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

Paid in

 Capital

 

 

Retained

 Earnings

 

 

Total

 Equity

 

Balance - September 30, 2020

 

 

33,870,520

 

 

$33,871

 

 

 

-

 

 

$-

 

 

$-

 

 

$1,140,976

 

 

$1,174,847

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of common stock issued and to be issued for services

 

 

635,000

 

 

 

635

 

 

 

135,000

 

 

 

135

 

 

 

76,230

 

 

 

-

 

 

 

77,000

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

767,268

 

 

 

767,268

 

Balance - September 30, 2021

 

 

34,505,520

 

 

34,506

 

 

 

135,000

 

 

 

135

 

 

76,230

 

 

1,908,244

 

 

2,019,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of common stock to be issued for services

 

 

-

 

 

 

-

 

 

 

(135,000)

 

 

(135)

 

 

(13,365)

 

 

-

 

 

 

(13,500)

Net income

 

 

-

 

 

 

-

 

 

 

 -

 

 

 

 -

 

 

 

-

 

 

 

688,719

 

 

 

688,719

 

Balance - September 30, 2022

 

 

34,505,520

 

 

$34,506

 

 

 

-

 

 

$ 

-

 

 

$62,865

 

 

$2,596,963

 

 

$2,694,334

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
F-6

Table of Contents

 

Mastermind, Inc.

Consolidated Statements of Cash Flows

 

 

 

Years Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$688,719

 

 

$767,268

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Gain on PPP loan forgiveness

 

 

-

 

 

 

(780,288)

(Reversal of) Stock based compensation

 

 

(13,500)

 

 

77,000

 

Depreciation

 

 

23,144

 

 

 

21,722

 

Deferred tax

 

 

78,531

 

 

 

(1,278)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

911,950

 

 

 

(513,711)

Unbilled receivables

 

 

(1,137,078)

 

 

40,019

 

Income tax receivable

 

 

-

 

 

 

40,233

 

Prepaid expenses and other current assets

 

 

3,815

 

 

 

142,158

 

Accounts payable and accrued expenses

 

 

(48,731)

 

 

34,778

 

Accounts payable and accrued expenses, related party

 

 

(100,000)

 

 

-

 

Unearned revenues

 

 

268,755

 

 

(23,124)

Net cash provided by (used in) operating activities

 

 

675,605

 

 

 

(195,223)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(15,653)

 

 

(15,389)

Net cash used in investing activities

 

 

(15,653)

 

 

(15,389)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from PPP note payable

 

 

-

 

 

 

478,538

 

Net cash provided by financing activities

 

 

-

 

 

 

478,538

 

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

659,952

 

 

 

267,926

 

Cash, beginning of year

 

 

1,075,188

 

 

 

807,262

 

Cash, end of year

 

$1,735,140

 

 

$1,075,188

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Income taxes paid (refunded)

 

$(13,257)

 

$-

 

Interest paid

 

$-

 

 

$-

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 
F-7

Table of Contents

 

Mastermind, Inc.

Notes to Consolidated Financial Statements

 

1. Business

 

Mastermind, Inc. (the “Company”, “we”, “us”, or the “organization”) is an involvement marketing service agency that designs, creates and develops branding and marketing campaigns, primarily for large corporate clients with well-known brands. We specialize in customer conversion initiatives that we believe facilitate the involvement of more of the “right customers” with the brands of our clients. We focus on converting prospects to customers. Our programs can take on various forms, including creating and managing content marketing, influencer marketing, social marketing/community management, digital issues management promotions, Augmented Reality Marketing, and UX Analytics & Digital Intelligence.

 

2. Summary of Significant Accounting Policies

 

Accounting Principles

 

The financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

 

Use of Accounting Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform with the current period presentation.

 

Cash and Cash Equivalents

 

Cash includes cash on hand. Cash equivalents include short-term, highly liquid investments, with a remaining maturity at the date of purchase of three months or less for which the risk of changes in value is considered to be insignificant.

 

Accounts Receivable

 

We perform various analyses to evaluate accounts receivable balances and specifically identify those accounts which may present them as a risk with respect to collectability of the accounts such that the amounts would reflect estimated net realizable value. Account balances are charged off after significant collection efforts have been made and potential for recovery is not considered probable. During the fiscal years ended September 30, 2022 and 2021, we did not record any bad debts. As of September 30, 2022 and 2021, we evaluated our accounts receivables and determined that an allowance for doubtful accounts was not required.

 

Unbilled Receivables

 

We perform various analyses to evaluate work performed that will give us future billings rights under current contracts with customers on jobs in progress. Under our revenue recognition policy and proportional revenue recognition, we recognize advanced services based on the buildup of cost related to these jobs in progress as unbilled receivables on our balance sheet when the earnings process has been completed and revenue is recognized before related invoices have been issued to our customers.

 

Property and Equipment

 

Property and equipment are stated at cost. Equipment is depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the remaining estimated life of the lease at the time the improvement is put into service. Expenditures for repairs and maintenance are charged to expense as incurred.

 

 
F-8

Table of Contents

 

Revenue Recognition

 

Revenue is recognized in accordance with the Accounting Standards Codification 606, “Revenue from Contracts with Customers,” recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. Our revenues are primarily generated from our involvement marketing services and contracts which are typically billed based on time and materials or at a fixed price. If billed at a fixed price, revenue is recognized on a proportional performance basis as the services specified in the arrangement are performed. The determination of proportional performance revenue recognition is dependent on the nature of the services specified in the arrangement. Advanced payments on services and contracts are deferred and recorded as unearned revenues on our balance sheet until the earnings process has been completed and revenue is then recognized. Similarly, advanced services are recorded as unbilled receivables on our balance sheet when the earnings process has been completed and revenue is recognized before related invoices have been issued to our customers. In all cases, we evaluate involvement marketing contracts to determine that the time and amount of services reflects the consideration expected to be received for the performance obligations that have been provided in accordance with the five-step process to recognize revenues as defined in Topic 606. Topic 606 defines contracts as written, oral and through customary business practice. Under this definition, we consider contracts to be created at the time that an order to provide services is agreed upon regardless of whether or not there is a written contract.

  

The Company recognizes revenues based on the following steps:

 

 

 

1.

contract with customer has been identified

 

 

 

 

 

 

2.

performance obligations of the company have been identified

 

 

 

 

 

 

3.

a transaction price has been determined

 

 

 

 

 

 

4.

the price has been allocated appropriately to the performance obligations

 

 

 

 

 

 

5.

performance obligations are satisfied.

 

Fair Value of Financial Instruments

 

We follow Accounting Standards Codification 820-10 (“ASC 820-10”), “Fair Value Measurements and Disclosures,” for fair value measurements. ASC 820-10 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard provides a consistent definition of fair value, which focuses on an exit price, which is 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. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurement based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

 

The hierarchy established under ASC 820-10 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

 

Level 1 - Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date. As required by ASC 820-10, we do not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.

 

Level 2 - Pricing inputs are quoted prices for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

 

Level 3 - Pricing inputs are unobservable for the investment, that is, inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Level 3 includes investments that are supported by little or no market activity.

 

Leases

 

The Company accounts for leases under ASC 842, “Leases”. The Company assesses whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. We allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

 

Operating lease Right-of-use assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company used an incremental borrowing rate of 5.5%, based on the information available at the adoption date in determining the present value of future payments. Operating lease expense is recognized pursuant to a straight-line basis over the lease term and is included in rent in the consolidated statements of operations.

 

 
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Impairment of Long-Lived Assets

 

Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable in accordance with ASC 360, “Property, Plant and Equipment.” For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. For the fiscal years ended September 30, 2022, and 2021, there has not been any impairment of long-lived assets.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. 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 be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

Stock-Based Compensation

 

Stock-based compensation is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the requisite service period. The valuation of employee stock options is an inherently subjective process, since market values are generally not available for long-term, non-transferable employee stock options. Accordingly, the Black-Scholes option pricing model is utilized to derive an estimated fair value. The Black-Scholes pricing model requires the consideration of the following six variables for purposes of estimating fair value:

 

 

 

·

the stock option exercise price;

 

 

 

 

 

 

·

the expected term of the option;

 

 

 

 

 

 

·

the grant date price of our common stock, which is issuable upon exercise of the option;

 

 

 

 

 

 

·

the expected volatility of our common stock;

 

 

 

 

 

 

·

the expected dividends on our common stock (we do not anticipate paying dividends in the foreseeable future); and

 

 

 

 

 

 

·

the risk free interest rate for the expected option term.

 

Expected Dividends. We have never declared or paid any cash dividends on any of our capital stock and do not expect to do so in the foreseeable future. Accordingly, we use an expected dividend yield of zero to calculate the grant-date fair value of a stock option.

 

Expected Volatility. The expected volatility is a measure of the amount by which our stock price is expected to fluctuate during the expected term of options granted. We determine the expected volatility solely based upon the historical volatility of our common stock over a period commensurate with the option’s expected term. We do not believe that the future volatility of our common stock over an option’s expected term is likely to differ significantly from the past.

 

Risk-Free Interest Rate. The risk-free interest rate is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the option’s expected term on the grant date.

 

Expected Term. For option grants subsequent to the adoption of the fair value recognition provisions of the accounting standards, the expected life of stock options granted is based on the actual vesting date and the end of the contractual term.

 

Stock Option Exercise Price and Grant Date Price of Common Stock. The closing market price of our common stock on the date of grant.

 

 
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We are required to estimate the level of award forfeitures expected to occur and record compensation expense only for those awards that are ultimately expected to vest. This requirement applies to all awards that are not yet vested. Due to the limited number of unvested options outstanding, the majority of which are held by executives and members of our Board of Directors, we have estimated a zero forfeiture rate. We will revisit this assumption periodically and as changes in the composition of the option pool dictate.

 

Basic and Diluted Net Income Per Common Share

 

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and as if converted method. Dilutive potential common shares include outstanding stock options.

 

For the years ended September 30, 2022 and 2021, respectively, the following common stock equivalents were potentially dilutive.

 

 

 

Years Ended

 

 

 

September 30,

 

 

 

2022

 

 

2021

 

Stock options

 

 

-

 

 

 

525,667

 

 

 

 

-

 

 

 

525,667

 

 

Related Party Balances and Transactions

 

The Company follows FASB ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transaction. See Note 3 for additional information.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

3. Related Party Transactions

 

On January 3, 2012, we entered into a perpetual license agreement (the “Perpetual License”) with Mastermind Marketing, Inc. (the “Licensor”), which provides for licenses of trademarks, internet domains, and certain intellectual property as defined in the Perpetual License. The Licensor is one of our members and its chief executive officer is also our chief executive officer. The Perpetual License, which may be terminated at any time by either party, is effective January 3, 2012 and provides for aggregate payments of $2,100,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. The Company has recorded expenses related to the license of $60,000 and $60,000 for the years ended September 30, 2022 and 2021, respectively (Note 5).

 

On January 3, 2014, we entered into a commercial lease agreement (the “Lease”) with 1450 West Peachtree, LLC, a Georgia limited liability company (the “Landlord”), for the lease of our corporate facility in Atlanta, Georgia. The manager of the Landlord is also our chief executive officer. The term of the lease is 10 years from the date of the agreement and provides for monthly rent and payment of operating expenses on a triple-net basis. The monthly rent terms of the lease have been altered by the landlord due to another tenant occupying space the Company verbally agreed to allow the landlord to remove from the space available to the Company. During the years ended September 30, 2022, and 2021, we made lease payments of $154,267 and $120,000, respectively, in satisfaction of our obligation pursuant to the Lease (Note 8). Subsequent to September 30, 2022, the Company and the landlord agreed to terminate the lease agreement as of December 31, 2022 with no penalties or additional payments required (Note 12).

 

During the fiscal years ended September 30, 2022, and 2021, we made payments to our three members pursuant to the terms of our operating agreement, as amended, for services rendered to us. The Company recorded expenses to our three members during the fiscal years ended September 30, 2022 and 2021 aggregating $875,165 and $741,687, respectively. As of September 30, 2022 and 2021, we owed $0 and $100,000 to our three majority stockholders for consulting services which is included in accounts payable and accrued expenses, related parties on the consolidated balance sheets herein. During the fiscal year ended September 30, 2022, the $100,000 owed as of September 30, 2021 was paid in full.

 

 
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4. Property and Equipment

 

Property and equipment consist of the following:

 

 

 

September 30,

 

 

September 30,

 

 

 

2022

 

 

2021

 

Furniture, fixtures and office equipment

 

$

161,640

 

 

$

145,987

 

Leasehold improvements

 

 

73,795

 

 

 

73,795

 

Property and equipment, gross

 

 

235,435

 

 

 

219,782

 

Less: accumulated depreciation

 

 

(183,431))

 

 

(160,287)

Property and equipment, net

 

$52,004

 

 

$59,495

 

 

Depreciation expense for the fiscal years ended September 30, 2022 and 2021, was $23,144 and $21,722, respectively.

 

5. Licensing Agreements

 

On January 3, 2012, we entered into a perpetual license agreement (the “Perpetual License”) with Mastermind Marketing, Inc. (the “Licensor”), which provides for licenses of trademarks, internet domains, and certain intellectual property as defined in the Perpetual License. The Licensor is one of our members and its chief executive officer is also our chief executive officer. The Perpetual License, which may be terminated at any time by either party, is effective January 3, 2012 and provides for aggregate payments of $2,100,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. The Company has recorded expenses of $60,000 and $60,000 for the years ended September 30, 2022 and 2021, respectively.

 

In consideration for the Perpetual License, we agreed to pay the following fees through fiscal year 2040 (calendar year 2039):

 

Fiscal Years Ending September 30,

 

Amount

 

2023

 

$60,000

 

2024

 

 

60,000

 

2025

 

 

60,000

 

2026

 

 

120,000

 

    2027

 

 

             120,000

 

Thereafter

 

 

1,440,000

 

 

 

$1,860,000

 

 

6. PPP Loan Forgiveness

 

In April 2020, the Company received a loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as administered by the U.S. Small Business Administration (the “SBA”). The loan is in the principal amount of $301,750 (the “PPP Loan”). The PPP loan was forgiven in June 2021 and the Company recognized a gain on PPP loan forgiveness in Other Income for the year ended September 30, 2021.

 

In April 2021, the Company received a loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), as administered by the U.S. Small Business Administration (the “SBA”). The loan is in the principal amount of $478,538 (the “2nd PPP Loan”). The 2nd PPP loan was forgiven in September 2021 and the Company recognized a gain on PPP loan forgiveness in Other Income for the year ended September 30, 2021.

 

 

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7. Operating Lease Right-of-Use Assets and Operating Lease Liabilities

 

Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 5.5%, as the interest rate implicit in our lease is not readily determinable. Operating lease expense is recognized pursuant to ASC Topic 842 Leases (Topic 842) over the lease term. During the years ended September 30, 2022, and 2021, the Company recorded rent expense of $154,267 and $239,273, respectively.

 

In adopting Topic 842, the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. During the year ended September 30, 2020, upon adoption of ASC Topic 842 for the 10-year commercial lease with 1450 West Peachtree, LLC for our leased office space, the Company recorded right-of-use assets and lease liabilities of $461,740.

 

The Right-of-use assets are summarized below:

 

 

 

September 30,

 

 

September 30,

 

 

 

20221

 

 

2021

 

Office Lease

 

$461,740

 

 

$461,740

 

Less accumulated amortization

 

 

(307,924)

 

 

(199,643)

Right-of-use, net

 

$153,816

 

 

$262,097

 

  

Amortization on the right-of-use asset is included in general and administrative expense on the statements of operations.

 

Operating lease liabilities are summarized below:

 

 

 

September 30,

 

 

September 30,

 

 

 

 

20221

 

 

2021

 

Lease liability

 

$153,816

 

 

$262,097

 

Less: current portion

 

 

(114,389)

 

 

(108,281)

Long term portion

 

$39,427

 

 

$153,816

 

 

The maturities of lease liabilities are summarized below:

 

 

 

As of

 

 

 

September 30,

 

 

 

 

20221

 

2023

 

$120,000

 

2024

 

 

40,000

 

Total future minimum lease payments

 

 

160,000

 

Less imputed interest

 

 

(6,184 )

PV of Payments

 

$153,816

 

 

1Subsequent to September 30, 2022, the Company and the landlord agreed to terminate the lease agreement as of December 31, 2022 with no penalties or additional payments required (Note 12).

 

8. Commitments and Contingencies

 

Operating Lease

 

On January 3, 2014, we entered into a commercial lease agreement (the “Lease”) with 1450 West Peachtree, LLC, a Georgia limited liability company (the “Landlord”), for the lease of our corporate facility in Atlanta, Georgia. The manager of the Landlord is also our chief executive officer. The term of the lease is 10 years from the date of the agreement and provides for monthly rent and payment of operating expenses on a triple-net basis. The monthly rent terms of the lease have been altered by the landlord due to another tenant occupying space the Company verbally agreed to allow the landlord to remove from the space available to the Company. During the fiscal years ended September 30, 2022, and 2021, we made lease payments of $154,267 and $120,000, respectively, in satisfaction of our obligation pursuant to the Lease.

 

The Lease provides for the following total lease commitments pursuant to the Lease and we have also provided our expected portion of the lease commitments based on the updated verbal agreement with the landlord (without consideration of early termination of the Lease in the subsequent period as discussed below):

 

 

 

Total Lease

 

 

Expected Lease

 

Fiscal Years Ending September 30,

 

Commitment1

 

 

Commitment

 

2023

 

384,000

 

 

177,681

 

2024

 

 

97,500

 

 

 

45,419

 

 

 

$481,500

 

 

$223,100

 

 

1Subsequent to September 30, 2022, the Company and the landlord agreed to terminate the lease agreement as of December 31, 2022 with no penalties or additional payments required (Note 12). The expected lease payments for period from October 1, 2022 to lease termination date of December 31, 2022 would be $41,422.

  

Litigation

 

On February 11, 2022, a Complaint and Demand for Jury Trial (the “Complaint”) was filed by a plaintiff (the “Plaintiff”) in the United States District Court for the Eastern District of Pennsylvania. The Complaint named Mastermind, Inc. (“the Company”) and Daniel Dodson, the Company’s Chief Executive Officer, (the “CEO”). The Company and the CEO are collectively referred to herein as “Defendants”. The Complaint includes alleged breach of contract and alleged breach of implied contract by the Defendants related to the Plaintiff’s allegations that he was entitled to 3,000,000 shares of common stock of the Company from the reverse merger transaction completed on February 14, 2018. The Defendants successfully got the Complaint transferred to the United States District Court for the Northern District of Georgia. The Defendants will contest the complaint and believe they will prevail.

 

Other than the above we are not a party to any other legal proceedings, other than ordinary routine litigation incidental to our business, which we believe will not have a material effect on our financial position or results of operations.

 

 
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9. Income Taxes

 

Prior to February 14, 2018, the effective date of the Business Combination, no provision for income taxes was made since we were treated as a partnership for income tax purposes and the income or loss was passed through to our members.

 

We are required to file federal and state income tax returns in the United States. The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. In consultation with our tax advisors, we base our tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various federal and state taxing authorities in the jurisdictions in which we file tax returns. As part of these reviews, a taxing authority may disagree with respect to the income tax positions taken by us (“uncertain tax positions”) and, therefore, may require us to pay additional taxes. As required under applicable accounting rules, we accrue an amount for our estimate of additional income tax liability, including interest and penalties, which we could incur as a result of the ultimate or effective resolution of the uncertain tax positions. We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

 

There were no unrecognized material tax benefits at September 30, 2022, and 2021. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the periods presented. We have determined we have no uncertain tax positions.

 

Tax returns are subject to examination by the federal and state taxing authorities for generally three years after filed. There are no income tax examinations currently in process.

 

Reconciliation between our effective tax rate and the United States statutory rate is as follows for the years ended September 30, 2022 and 2021:

  

 

 

2022

 

 

2021

 

Statutory federal tax rate

 

 

21.00%

 

 

21.00

State income tax rate

 

 

5.45%

 

 

5.70

Permanent differences

 

 

(19.52)%

 

 

(26.70)%

Effective tax rate

 

 

6.93%

 

 

0.00

 

Significant components of our deferred tax assets and deferred tax liabilities consist of the following at September 30,

 

 

 

2022

 

 

2021

 

Deferred Tax Assets:

 

 

 

 

 

 

Future net operating loss benefit

 

$(65,116)

 

$116,515

 

Current liabilities

 

 

27,589

 

 

 

65,144

 

Deferred tax assets

 

 

(37,527)

 

 

181,659

 

Deferred Tax Liabilities:

 

 

 

 

 

 

 

 

Current assets

 

 

95,112

 

 

 

326,343

 

Deferred depreciation

 

 

114,066

 

 

 

23,490

 

Deferred tax liabilities

 

 

209,178

 

 

 

349,833

 

Net deferred tax liabilities

 

$246,705

 

 

$168,174

 

 

The Company files it’s income tax returns on the cash basis of accounting utilizing a December 31 tax year end. Deferred tax assets relating to current liabilities result from accounts payable and accrued expenses which are not currently deductible for tax purposes. Deferred tax liabilities relating to current assets result from accounts receivables and prepaid expenses which are not currently recognized as income for tax reporting purposes.

 

As of September 30, 2022, the Company has no net operating loss carryforwards that are available to offset future taxable income. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

 

 
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On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. We have estimated our provision for income taxes in accordance with the Tax Act and guidance available as of the date of this filing.

 

10. StockholdersEquity

 

Preferred Stock

 

As of September 30, 2022 and 2021, we were authorized to issue a total 1,000,000 shares of preferred stock. There were no shares of Preferred Stock issued or outstanding as of September 30, 2022 and 2021.

 

Common Stock

 

As of September 30, 2022 and 2021, we were authorized to issue a total of 125,000,000 shares of common stock. As of September 30, 2022, and 2021, there were 34,505,520 shares of common stock issued and outstanding, respectively.

 

During the year ended September 30, 2022, the Company did not issue any shares of common stock.

 

During the year ended September 30, 2021, the Company issued 635,000 shares of restricted common stock to three consultants in exchange for consulting services provided to the Company. The shares were valued at $0.10 per share.

 

Common Stock to be Issued 

 

As per a vendor agreement entered into in October 2019, the Company paid in January of 2021 235,000 shares as compensation. The Company thereafter accrued 15,000 shares of $1,500 as common stock to be issued per month. As of September 30, 2022, the Company and the vendor have agreed that the total accrued shares of 225,000 valued at $22,500 (including 135,000 shares of $13,500 previously accrued as of September 30, 2021) are not payable and have been reversed. No further share issuances or accruals for the agreement are required.

 

Dividends

 

During the years ended September 30, 2022 and 2021, there were no dividends declared or paid.

 

Common Stock Options

 

As of September 30, 2022 there were no stock options outstanding or exercisable.  As of September 30, 2022 the 525,667 options held by our former chief executive officer and sole director expired unexercised.  

 

As of September 30, 2021, there were fully-vested, non-qualified stock options exercisable by our former chief executive officer and sole director into 525,667 shares of our common stock at an exercise price of $0.15 per share with an expiration date of November 20, 2021.

 

There were no stock options exercised or issued during the years ended September 30, 2022 and 2021.

 

A 2018 Equity Incentive Plan consisting of four million (4,000,000) shares of Common Stock was also adopted by written consent of holders of 85% of the voting securities. No options or shares have been issued under this plan as of September 30, 2022 and 2021.

 

11. Concentration of Credit Risk and Major Customers

 

For the fiscal year ended September 30, 2022, three customers represented approximately 42%, 34% and 16%, respectively, of our total revenues. As of September 30, 2022, three customers represented approximately 44%, 34% and 17%, respectively of our outstanding accounts receivable and unbilled receivables.

 

For the fiscal year ended September 30, 2021, three customers represented approximately 35%, 30% and 20%, respectively, of our total revenues. As of September 30, 2021, two customers represented approximately 79% and 11%, respectively of our outstanding accounts receivable and unbilled receivables.

 

12. Subsequent Events

 

The Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that the below event warrants disclosure or recognition in the consolidated financial statements presented herein.

 

Subsequent to September 30, 2022, the Company gave notice to our landlord for our leased office space to terminate the agreement as of December 31, 2022 with no payments due thereafter. The landlord agreed to the termination of the lease with no penalties and no additional payments required. The Company has adopted a fully remote work environment and no replacement office space is planned for.

 

 
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