MMND Mastermind Inc (QB)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2024

Commission File Number: 000-26533

(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.:

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 November 8, 2024, there were 34,505,520 shares of the registrant’s Common Stock outstanding.

Mastermind, Inc.

Table of Contents

Form 10-Q

Mastermind, Inc.

Consolidated Balance Sheets

(Unaudited)

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

Mastermind, Inc.

Consolidated Statements of Operations

(Unaudited)

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

Mastermind, Inc.

Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2024 and 2023

(Unaudited)

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

Mastermind, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

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

Mastermind, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This 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 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). 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, 2023.

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.

Change in Year End

On February 1, 2024, the Board of Directors of Mastermind, Inc. (the “Company”) approved a change in the Company’s fiscal year end from September 30 to December 31, effective for the fiscal year beginning January 1, 2024 and ending December 31, 2024. As a result of the change in fiscal year end, the Company filed on February 16^th, 2024 a Transition Report on Form 10-QT for the period from October 1, 2023 through December 31, 2023. The Company’s 2024 fiscal year will run from January 1, 2024 through December 31, 2024.

Critical Accounting Policies and Estimates

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 year ended September 30, 2023. 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-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 September 30, 2024 vs. September 30, 2023

Revenues

Revenues for the three months ended September 30, 2024 were $267,345 as compared with $1,208,758 for the comparable prior year period, a decrease of $941,413 or 78%. The decrease is attributable to a delay in the execution of a significant initiative of a major client due to its reorganization and restructuring of the client, as well as 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. During this period, the Company primarily worked on completing current projects while awaiting finalized client workorders and statements of work for upcoming projects of which we have approximately $2.2 million in our backlog. 

Gross Profit

Gross profit for the three months ended September 30, 2024 was $44,478 or 17% of revenues, compared with $761,915 or 63% of revenues, for the comparable prior year period. The decrease in gross profit dollars was due to lower revenues and customer projects in the current period. The decrease in gross margin percentage is primarily a result of the Company having more projects with higher direct expenses in the three months ended September 30, 2024, compared to same period of last year. Outside services as they related to client projects, will fluctuate based on client work being performed. Direct cost includes expenses for media, sponsorship fees, etc. Gross profit 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 three months ended September 30, 2024 were $352,948 as compared with $600,392 for the comparable prior year period, a decrease of $247,444 or 41%. The decrease was primarily a result of decreases in management consulting, professional fees, and wages and benefits of $112,500, $65,036 and $60,302, respectively.  The distribution to management decreased by $112,500, which 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. The decrease in professional fees (including public company expenses) of $65,036 is primarily related to reduced work regarding legal filings and merger related work. Salaries and wages decreased by $60,302 due to employee turnover.

Income (Loss) from Operations

Loss from operations was $308,470 for the three months ended September 30, 2024 as compared to an income of $161,523 for the comparable prior year period. The decrease in income from operations of $469,993 was primarily related to decreased revenue recognized by $941,413. 

Other Income and Expense, Net

Other income and expense, net for the three months ended September 30, 2024 was an income of $5,432 as compared to an income of $16,267 for the comparable prior year period.  The income was primarily due to interest income.

Income (Loss) Before Provision (Benefit) for Income Taxes

Loss before benefit from income taxes for the three months ended September 30, 2024 was $303,038 as compared to an income of $177,790 for the comparable prior year period. The decrease in income before taxes was primarily due to decreased revenue and gross profit, offset by the decrease in operating expenses. 

Provision (Benefit) for Income Taxes

Benefit from income taxes for the three months ended September 30, 2024 was $79,360 as compared to a provision of $48,193 for the comparable prior year period.  The benefit from income taxes is primarily a result of decreased revenues. Provision (benefit) for income taxes is estimated quarterly applying both federal and state tax rates.

Nine Months Ended September 30, 2024 vs. September 30, 2023

Revenues

Revenues for the nine months ended September 30, 2024 were $1,878,272 as compared with $3,665,053 for the comparable prior year period, a decrease of $1,786,781 or 49%. The decrease is attributable to a delay in the execution of a significant initiative of a major client due to its reorganization and restructuring of the client, as well as 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. During this period, the Company primarily worked on completing current projects while awaiting finalized client workorders and statements of work for upcoming projects of which we have approximately $2.2 million in our backlog. 

Gross Profit

Gross profit for the nine months ended September 30, 2024 was $1,077,362 or 57% of revenues, compared with $2,259,791 or 62% of revenues, for the comparable prior year period. The decrease in gross profit dollars was due to lower revenues and customer projects completing in the current period. The decrease in gross margin percentage is primarily a result of the Company having more projects with higher direct expenses in the nine months ended September 30, 2024, compared to same period of last year. Outside services as they related to client projects, will fluctuate based on client work being performed. Direct cost includes expenses for media, sponsorship fees, etc. Gross profit 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 nine months ended September 30, 2024 were $1,255,101 as compared with $1,733,857 for the comparable prior year period, a decrease of $478,756 or 27.6%. The decrease was primarily a result of a decrease in management consulting expense of $226,150 and mergers and acquisition expenses of $79,441. Mergers and acquisition expenses for the nine months ended September 30, 2023 included a reclass of expenses from professional fees of $45,177. The distribution to management decreased by $226,150, which 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. In addition, professional fees (including public company expenses) decreased by $59,755. Salaries and wages decreased by $100,700 due to employee turnover.

Income (Loss) from Operations

Loss from operations was $177,739 for the nine months ended September 30, 2024 as compared to an income of $525,934 for the comparable prior year period. The decrease in income from operations of $703,673 was primarily related to decreased revenue recognized by $1,786,781. 

Other Income and Expense, Net

Other income and expense, net for the nine months ended September 30, 2024 was an income of $21,498 as compared to an income of $26,510 for the comparable prior year period.  The income was primarily due to interest income, offset by the loss on disposal of property and equipment in the same period last year.

Income (Loss) Before Provision (Benefit) for Income Taxes

Loss before benefit from income taxes for the nine months ended September 30, 2024 was $156,241 as compared to an income of $552,444 for the comparable prior year period. The decrease in income before taxes was primarily due to decreased revenue and gross profit, offset by the decrease in operating expenses. 

Provision (Benefit) for Income Taxes

Benefit from income taxes for the nine months ended September 30, 2024 was $38,751 as compared to a provision of $149,485 for the comparable prior year period.  The benefit from income taxes is primarily a result of decreased revenues. Provision (benefit) for income taxes is estimated quarterly applying both federal and state tax rates.

Liquidity and Capital Resources

As of September 30, 2024, we had cash and cash equivalents of $510,541, a decrease of $626,469, or 55% when compared with a balance of $1,137,010 as of December 31, 2023.

During the nine months ended September 30, 2024, $626,469 was used in operating activities as compared with net cash used in operating activities of $310,247 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; 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 of $117,490, depreciation expense of $9,656, change of deferred tax of $38,751 and changes in current assets and liabilities of $479,884.

During the nine months ended September 30, 2023, $310,247 was used in operating activities, which was a result of the net income of $402,959, depreciation expense of $11,288, loss on disposal of equipment of $329, change of deferred tax of $48,630 and changes in current assets and liabilities of $773,453.

During the nine months ended September 30, 2024 and 2023 we purchased $0 and $8,646 in computer equipment, respectively. During the nine months ended September 30, 2023, the Company also received $1,200 in an insurance payout on equipment.

During the nine months ended September 30, 2024 and 2023, 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 September 30, 2024, 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 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 September 30, 2024, 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 September 30, 2024, 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, 2024, 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. 

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.

In September of 2023, the court dismissed in part the breach of contract claims against the CEO and the Company. The alleged breach of implied contract by the Defendants is pending further litigation. The Defendants will contest the complaint and strongly believe they will prevail.

As of March 11, 2024 Mastermind was successful at getting the lawsuit dismissed. On March 8, 2024 Cimino’s attorney filed a stipulation of dismissal with prejudice, and the clerk accepted the stipulation and dismissed and closed the case. The dismissal with prejudice (as opposed to without) would make it extremely difficult, if not impossible for Cimino to revive an action against Mastermind based upon the same facts/transactions.

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.

Item 6. Exhibits

The following exhibits are filed or furnished with this report:

___________ 

* 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.

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.