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MASTERMIND, INC. - Quarter Report: 2022 December (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended December 31, 2022

 

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)

 

(678) 420-4000 

(Registrant’s telephone number, including area code) 

 

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

 

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 ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 the extended transition period 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 ☒

 

As of February 21, 2023, there were 34,505,520 shares of the registrant’s Common Stock outstanding.

 

 

 

 

Mastermind, Inc.

 

Table of Contents

Form 10-Q

 

 

 

 

Page

 

Part I

Financial Information

 

 

 

 

 

 

 

 

Item 1

Consolidated Financial Statements (unaudited)

 

 

 

 

Consolidated Balance Sheets at December 31, 2022 and September 30, 2022 (Unaudited)

 

3

 

 

Consolidated Statements of Operations for the three months ended December 31, 2022 and 2021 (Unaudited)

 

4

 

 

Consolidated Statements of Stockholders’ Equity for the three months ended December 31, 2022 and 2021 (Unaudited)

 

5

 

 

Consolidated Statements of Cash Flows for the three months ended December 31, 2022 and 2021 (Unaudited)

 

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

7

 

Item 2

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

 

12

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

15

 

Item 4

Controls and Procedures

 

15

 

 

 

 

 

 

Part II

Other Information

 

 

 

 

 

 

 

 

Item 1

Legal Proceedings

 

16

 

Item 1A

Risk Factors

 

16

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

16

 

Item 3

Defaults Upon Senior Securities

 

16

 

Item 4

Mine Safety Disclosures

 

16

 

Item 5

Other Information

 

16

 

Item 6

Exhibits

 

17

 

 

 

 

 

 

Signatures

 

 18

 

 

 
2

Table of Contents

    

Mastermind, Inc.

Consolidated Balance Sheets

(Unaudited)

 

 

 

December 31,

 

 

September 30,

 

 

 

2022

 

 

2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$1,712,771

 

 

$1,735,140

 

Accounts receivable

 

 

438,085

 

 

 

349,233

 

Unbilled receivables

 

 

1,132,189

 

 

 

1,137,078

 

Prepaid expenses and other current assets

 

 

31,386

 

 

 

27,451

 

Income tax receivable

 

 

77,477

 

 

 

77,477

 

Total Current Assets

 

 

3,391,908

 

 

 

3,326,379

 

 

 

 

 

 

 

 

 

 

Right-of-use asset, net

 

 

-

 

 

 

153,816

 

Property and equipment, net

 

 

40,845

 

 

 

52,004

 

TOTAL ASSETS

 

$3,432,753

 

 

$3,532,199

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$83,140

 

 

$109,263

 

Unearned revenues

 

 

371,755

 

 

 

328,081

 

Lease obligation, current

 

 

-

 

 

 

114,389

 

Total Current Liabilities

 

 

454,895

 

 

 

551,733

 

 

 

 

 

 

 

 

 

 

Lease obligation, net of current portion

 

 

-

 

 

 

39,427

 

Deferred tax liabilities

 

 

297,182

 

 

 

246,705

 

Total Liabilities 

 

 

752,077

 

 

 

837,865

 

 

 

 

 

 

 

 

 

 

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

 

Additional paid in capital

 

 

62,865

 

 

 

62,865

 

Retained earnings

 

 

2,583,305

 

 

 

2,596,963

 

Total Stockholders' Equity

 

 

2,680,676

 

 

 

2,694,334

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$3,432,753

 

 

$3,532,199

 

 

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

 

 
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Table of Contents

 

Mastermind, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Revenues

 

$1,041,847

 

 

$857,114

 

Cost of revenues

 

 

420,592

 

 

 

323,657

 

Gross profit

 

 

621,255

 

 

 

533,457

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Management consulting

 

 

210,725

 

 

 

96,225

 

Wages and benefits

 

 

189,909

 

 

 

198,957

 

General and administrative

 

 

176,458

 

 

 

176,064

 

Total Operating Expenses

 

 

577,092

 

 

 

471,246

 

Income from operations

 

 

44,163

 

 

 

62,211

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

Interest income

 

 

1,265

 

 

 

607

 

Loss on disposal of leasehold improvements

 

 

(8,609)

 

 

-

 

Total other income (expense)

 

 

(7,344)

 

 

607

 

 

 

 

 

 

 

 

 

 

Income before provision for income taxes

 

 

36,819

 

 

 

62,818

 

Provision for income taxes

 

 

50,477

 

 

 

16,383

 

Net income (loss)

 

$(13,658)

 

$46,435

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per common share

 

 

 

 

 

 

 

 

Basic

 

$(0.00)

 

$0.00

 

Diluted

 

$(0.00)

 

$0.00

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

34,505,520

 

 

 

34,505,520

 

Diluted

 

 

34,505,520

 

 

 

34,505,520

 

 

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

 

 
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Mastermind, Inc.

Consolidated Statements of Stockholders' Equity

Three Months Ended December 31, 2022 and 2021

(Unaudited)

 

 

 

Common Stock

 

 

Common Stock to be issued

 

 

Additional

 

 

 

 

 

 

 

 

 

  Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

Paid in  

Capital

 

 

 Retained

Earnings

 

 

Total

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - September 30, 2022

 

 

34,505,520

 

 

$34,506

 

 

 

-

 

 

$

-

 

 

$62,865

 

 

$2,596,963

 

 

$2,694,334

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,658)

 

 

(13,658)

Balance - December 31, 2022

 

 

34,505,520

 

 

$34,506

 

 

 

-

 

 

$-

 

 

$62,865

 

 

$2,583,305

 

 

$2,680,676

 

 

 

 

Common Stock

 

 

Common Stock to be issued

 

 

Additional

 

 

 

 

 

 

 

 

 

 Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

 Paid in

Capital

 

 

 Retained

Earnings

 

 

Total

 Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - September 30, 2021

 

 

34,505,520

 

 

$34,506

 

 

 

135,000

 

 

$135

 

 

$76,230

 

 

$1,908,244

 

 

$2,019,115

 

Shares of common stock to be issued for services

 

 

-

 

 

 

-

 

 

 

45,000

 

 

 

45

 

 

 

4,455

 

 

 

-

 

 

 

4,500

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

46,435

 

 

 

46,435

 

Balance - December 31, 2021

 

 

34,505,520

 

 

$34,506

 

 

 

180,000

 

 

$180

 

 

$80,685

 

 

$1,954,679

 

 

$2,070,050

 

 

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

 

 
5

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Mastermind, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$(13,658)

 

$46,435

 

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

 

 

 

 

 

 

 

 

   Stock based compensation

 

 

-

 

 

 

4,500

 

Depreciation

 

 

5,970

 

 

 

5,518

 

Loss on disposal of leasehold improvements

 

 

8,609

 

 

 

-

 

Deferred tax

 

 

50,477

 

 

 

16,383

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(88,852)

 

 

(48,397)

Unbilled receivables

 

 

4,889

 

 

 

-

 

Prepaid expenses and other current assets

 

 

(3,935)

 

 

(28,452)

Accounts payable and accrued expenses

 

 

(26,123)

 

 

(116,300)

Accounts payable and accrued expenses, related party

 

 

-

 

 

 

(100,000)

Unearned revenues

 

 

43,674

 

 

 

286,195

 

        Net cash provided by (used in) operating activities

 

 

(18,949)

 

 

65,882

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,420)

 

 

-

 

       Net cash used in investing activities

 

 

(3,420)

 

 

-

 

 

 

 

 

 

 

 

Net change in cash

 

 

(22,369)

 

 

65,882

 

Cash, beginning of period

 

 

1,735,140

 

 

 

1,075,188

 

Cash, end of period

 

$1,712,771

 

 

$1,141,070

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Income taxes paid

 

$1,417

 

 

$-

 

Interest paid

 

$-

 

 

$-

 

 

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

 

 
6

Table of Contents

 

Mastermind, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

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 communications, promotions, Augmented Reality Marketing, and UX Analytics & Digital Intelligence.

 

2. Interim Financial Statements and Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information pursuant to Rule 8-03 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments), which we consider necessary, for a fair presentation of those financial statements. The results of operations for the three months ended December 31, 2022 and cash flows for the three months ended December 31, 2022, may not necessarily be indicative of results that may be expected for any succeeding period or for the entire fiscal year. These consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K as of and for the fiscal years ended September 30, 2022 as filed with the Securities and Exchange Commission.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments, which are evaluated on an ongoing basis, and that affect the amounts reported in our unaudited financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to revenue recognition, allowance for doubtful accounts, useful lives and valuation of property and equipment.

 

There have been no material changes in the Company’s significant accounting policies during the three months ended December 31, 2022, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022.

 

Reclassifications

 

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

 

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 $15,000 for the three months ended December 31, 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 original lease was for 10 years from the date of the agreement. During the period ended December 31, 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.  During the three months ended December 31, 2022, and 2021, we made lease payments of $41,422 and $30,000, respectively, in satisfaction of our obligation pursuant to the Lease (Note 6).

 

During the three months ended December 31, 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 three months ended December 31, 2022 and 2021, aggregating $274,840 and $161,224, respectively. As of December 31, 2022 and September 30, 2022, we owed $0 to our three majority stockholders for consulting services.

 

 
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Table of Contents

 

4. Property and Equipment

 

Property and equipment consist of the following:

 

 

 

December 31,

 

 

September 30,

 

 

 

2022

 

 

2022

 

Furniture, fixtures and office equipment

 

$165,060

 

 

161,640

 

Leasehold improvements

 

 

-

 

 

 

73,795

 

Property and equipment, gross

 

 

165,060

 

 

 

235,435

 

Less: accumulated depreciation

 

 

(124,215)

 

 

(183,431)

Property and equipment, net

 

$40,845

 

 

$52,004

 

 

Depreciation expense for the three months ended December 31, 2022 and 2021, was $5,970 and $5,518, respectively.

 

As of December 31, 2022, the lease pertaining to the leasehold improvements was terminated (Note 6) and the leasehold improvements were written off resulting in a loss on disposition of $8,609 included in other income (expense). 

 

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 $15,000 and $15,000 for the three months ended December 31, 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

 

 

 
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6. 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 three months ended December 31, 2022, and 2021, the Company recorded rent expense of $41,422 and $30,000, 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.

 

During the period ended December 31, 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.

 

The Right-of-use assets are summarized below:

 

 

 

December 31,

 

 

September 30,

 

 

 

2022

 

 

2022

 

Office Lease

 

$-

 

 

$461,740

 

Less accumulated amortization

 

 

-

 

 

 

(307,924)

Right-of-use, net

 

$-

 

 

$153,816

 

 

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:

 

 

 

December 31,

 

 

September 30,

 

 

 

2022

 

 

2022

 

Lease liability

 

$-

 

 

$153,816

 

Less: current portion

 

 

-

 

 

 

(114,389)

Long term portion

 

$-

 

 

$39,427

 

 

 
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7. Commitments and Contingencies

 

              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.

 

 8. 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 December 31, 2022, and September 30, 2022. 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.

 

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 and unearned revenues which are not currently deductible for tax purposes. Deferred tax liabilities relating to current assets result from accounts receivables, unbilled receivables and prepaid expenses which are not currently recognized as income for tax reporting purposes.

 

As of December 31, 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.

 

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.

 

 
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9. StockholdersEquity

 

Preferred Stock

 

As of December 31, 2022, and September 30, 2022, 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 December 31, 2022, and September 30, 2022.

 

Common Stock

 

As of December 31, 2022, and September 30, 2022, we were authorized to issue a total of 125,000,000 shares of common stock. As of December 31, 2022, and September 30, 2022, there were 34,505,520 shares of common stock issued and outstanding, respectively.

 

Dividends

 

During the three months ended December 31, 2022 and 2021, there were no dividends declared or paid.

 

Common Stock Options

 

A 2018 Equity Incentive Plan consisting of four million (4,000,000) shares of Common Stock was adopted by written consent of holders of 85% of the voting securities. No options or shares have been issued under this plan as of December 31, 2022 and September 30, 2022.

 

10. Concentration of Credit Risk and Major Customers

 

For the three months ended December 31, 2022, three customers represented approximately 49%, 31% and 14%, respectively, of our total revenues. As of December 31, 2022, three customers represented approximately 60%, 25% and 12%, respectively of our outstanding accounts receivable and unbilled receivables.

 

For the three months ended December 31, 2021, three customers represented approximately 55%, 26%, and 14%, 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.

 

11. Subsequent Events

 

The Company has evaluated subsequent events through the date the financial statements were issued. The Company has determined that there are no such events that warrant disclosure or recognition in the consolidated financial statements presented herein.

 

 
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This quarterly report on Form 10-Q 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.

 

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended or using other similar expressions.

 

In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this quarterly report on Form 10-Q. For example, we may encounter competitive, technological, financial and business challenges making it more difficult than expected to continue to develop and market our products; the market may not accept our existing and future products; we may not be able to retain our customers; we may be unable to retain existing key management personnel; and there may be other material adverse changes in our operations or business. Certain important factors affecting the forward-looking statements made herein also include, but are not limited to (i) continued downward pricing pressures in our targeted markets, (ii) the continued acquisition of our customers by certain of our competitors, and (iii) continued periods of net losses, which could require us to find additional sources of financing to fund operations, implement our financial and business strategies, meet anticipated capital expenditures and fund research and development costs. In addition, assumptions relating to budgeting, marketing, product development and other management decisions are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our marketing, capital expenditure or other budgets, which may in turn affect our financial position and results of operations. For all of these reasons, the reader is cautioned not to place undue reliance on forward-looking statements contained herein, which speak only as of the date hereof. We assume no responsibility to update any forward-looking statements as a result of new information, future events, or otherwise except as required by law. For further information, you are encouraged to review our filings with the Securities and Exchange Commission (“SEC”), including our Current Report on Form 8-K, as filed with the SEC on February 22, 2018, as amended on April 20, 2018, and risk factors as discussed therein under Item 2.01.

 

Overview

 

Mastermind, Inc. is a digital marketing agency that plans, executes and analyzes digital marketing initiatives for clients in numerous industries including Fashion, Automotive, Spirits & Beer, Business-to-business, Consumer Electronics, Banking & Financial Services, Consumer Packaged Goods, Food & Beverage, Healthcare, Home Improvement, Restaurants, Retail, Technology, and Communications. Mastermind offers a unique approach to digital and social marketing called Involvement Marketing (IM). IM is aimed at involving more people with each clients' brand in ways that inspire them to take an action (e.g.- becoming aware of the brand, trying it, purchasing more of it, and/or even becoming an advocate for the brand through social media). Mastermind's Involvement Marketing initiatives encompass anyone, or combination of tactics including Content Marketing, Digital/Mobile Marketing, Influencer Marketing, Social Marketing & Community Management, Promotion Marketing, Digital/Social Issues Management, UX Analytics & Digital Intelligence, and Augmented Reality Marketing.

 

Mastermind has assembled a team of highly experienced, cross-functional marketing experts to develop and execute Involvement Marketing initiatives (see key executive bios below). These experts have extensive backgrounds in digital/social marketing & media, content development, influencer marketing, promotion, digital contingency communications & PR, research, strategy, creative message development, and analytics. Mastermind has also developed a disciplined approach to Involvement Marketing that ensures the right tactic(s) is employed to best achieve the objective and that it is executed flawlessly. The team is led by our senior executives described in our 10-K as of and for the fiscal year ended September 30, 2022.

 

Mastermind has worked with some of the most widely recognized brands in in dozens of industries. While the agency does not have a client in every industry currently, its experience provides the confidence of potential major clients to consider hiring Mastermind. Mastermind works with clients on both a project-basis and ongoing services basis. Mastermind is developing innovative marketing technology initiatives with the potential to drive more interest from potential clients in the next few years.

 

 
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Critical Accounting Policies

 

Our significant accounting policies are described in Note 2 to the financial statements which are included in our Annual Report on Form 10-K as of and for the fiscal years ended September 30, 2022. Our discussion and analysis of our financial condition and results of operations are based upon these financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the past, actual results have not been materially different from our estimates. However, results may differ from these estimates under different assumptions or conditions.

 

Results of Operations

 

Three Months Ended December 31, 2022 vs. December 31, 2021

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

%

 

Revenues

 

$1,041,847

 

 

$857,114

 

 

$184,733

 

 

 

21.6%

Cost of revenues

 

 

420,592

 

 

 

323,657

 

 

 

96,935

 

 

 

29.9%

Gross profit

 

 

621,255

 

 

 

533,457

 

 

 

87,798

 

 

 

16.5%

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management consulting

 

 

210,725

 

 

 

96,225

 

 

 

114,500

 

 

 

119%

Wages and benefits

 

 

189,909

 

 

 

198,957

 

 

 

(9,048)

 

(4.5

)% 

General and administrative

 

 

176,458

 

 

 

176,064

 

 

 

394

 

 

 

0.2%

Total operating expenses

 

 

577,092

 

 

 

471,246

 

 

 

105,846

 

 

 

22.5%

Income from operations

 

 

44,163

 

 

 

62,211

 

 

 

(18,048)

 

(29.0

)% 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,265

 

 

 

607

 

 

 

658

 

 

 

108.4%

Loss on disposal of leasehold improvements

 

 

(8,609)

 

 

-

 

 

 

(8,609)

 

 

-

 

Total other income (expense)

 

 

(7,344)

 

 

607

 

 

 

(7,951

 

 

(1,309.9)%

Income before provision for income taxes

 

$36,819

 

 

$62,818

 

 

$(25,999)

 

(41.4

)% 

 

Revenues

 

Revenues for the three months ended December 31, 2022 were $1,041,847 as compared with $857,114 for the comparable prior year period, an increase of 184,733 or 21.6%. The increase is attributable to 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.

 

Gross Profit

 

Gross profit for the three months ended December 31, 2022 was $621,255 or 59.6% of revenues, compared with $533,457 or 62.2% of revenues, for the comparable prior year period. The increase in gross profit dollars was a result of higher revenues in the current period. The decrease in gross margin percentage is primarily a result of the Company having fewer projects with lower direct expenses achieving billing milestones in the three months ended December 31, 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.

 

 
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Operating Expenses

 

Total operating expenses for the three months ended December 31, 2022 were $577,092 as compared with $471,246 for the comparable prior year period, an increase of $105,846 or 22.5%. The increase was primarily a result of an increase in management consulting of $114,500 due to distribution to three members of $110,000 in current period as compared to $0 distribution for the comparable prior year period. The distribution is usually decided based on a combination of the Company’s operation results and performance of the Company's management group and their respective member companies. There was also a decrease in wages and benefits of $9,048 and an increase of other general and administrative costs of $394. Professional fees (including public company expenses), as part of general and administrative costs, remained relatively consistent increasing by $1,862.  

  

Income from Operations

 

Income from Operations for the three months ended December 31, 2022 decreased by $18,048 as compared to the same period in the prior year. The decrease was primarily related to the increase in management consulting of $114,500, offsetting by the increase in gross profit dollars of $87,798.   

 

Other Income and Expense

 

Other income and expense, net for the three months ended December 31, 2022 was an expense of $7,344 as compared to income of $607 for the comparable prior year period.  The expense was primarily due to the loss on disposition of the leasehold improvements upon the early termination of the lease. 

 

Income Before Provision for Income Taxes

  

Income before provision for income taxes for the three months ended December 31, 2022 was $36,819 as compared to $62,818 for the comparable prior year period. 

 

Provision for Income Taxes

 

Provision for income taxes for the three months ended December 31, 2022 was $50,477 as compared to $16,383 for the comparable prior year period.  The increase is primarily due to changes in unbilled receivables, unearned revenues, updates for disposition of leasehold improvements and other capital asset updates. Provision for income taxes is estimated quarterly applying both federal and state tax rates.

 

Liquidity and Capital Resources

 

 

 

December 31,

 

 

September 30,

 

 

 

 

 

 

 

 

 

2022

 

 

2022

 

 

Change

 

 

%

 

Cash

 

$1,712,771

 

 

$1,735,140

 

 

$(22,369)

 

(1.3

)% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

$3,391,908

 

 

$3,326,379

 

 

$65,529

 

 

 

2.0%

Current liabilities

 

$454,895

 

 

$551,733

 

 

$(96,838)

 

(17.6

)% 

Working capital

 

$2,937,013

 

 

$2,774,646

 

 

$162,367

 

 

 

5.9%

 

As of December 31, 2022, we had cash of $1,712,771, a decrease of $22,369, or 1.3% when compared with a balance of $1,735,140 as of September 30, 2022.

 

 

 

Three Months Ended

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

%

 

Cash provided by (used in) operating activities

 

$(18,949)

 

$65,882

 

 

$(84,831)

 

 

(129)%

Cash used in investing activities

 

$(3,420)

 

$-

 

 

$(3,420)

 

 

-

 

Net Change in Cash During Period

 

$(22,369)

 

$65,882

 

 

$(88,251)

 

 

(134)%

 

During the three months ended December 31, 2022, $18,949 was used in operating activities as compared with net cash provided by operating activities of $65,882 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 period were a result of the net loss, loss on disposition of assets, depreciation expense, change of deferred tax and changes in current assets and liabilities of $70,347.

  

 
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During the three months ended December 31, 2021, $65,882 was provided by operating activities, which were a result of the net income, stock compensation expense, depreciation expense, change of deferred tax and changes in current assets and liabilities of $6,954.

  

During the three months ended December 31, 2022 we purchased $3,420 in computer equipment, and during the three months ended December 31, 2021, there were no investing activities.

 

During the three months ended December 31, 2022, and 2021, the Company did not have any cash flow activity from financing activities.

 

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 December 31, 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.

 

This quarterly report on Form 10-Q 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 December 31, 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 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Based 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 December 31, 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 December 31, 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.

 

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.

 

 
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Part II. Other Information

 

Item1. 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 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 1A. Risk Factors

 

Not applicable for smaller reporting companies.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

 
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Item 6. Exhibits

 

The following exhibits are filed or furnished with this report:

 

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)

___________ 

* Included herewith

 

**   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.

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Mastermind, Inc.

 

 

 

 

Date: February 21, 2023

By:

/s/ Daniel A. Dodson

 

 

 

Daniel A. Dodson

Chief Executive Officer

(Principal Executive, Financial and Accounting Officer)

 

 

 
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