Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
q
No
x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
q
No
x
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.
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
q
No
x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K.Yes
q
No
x
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 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 Act). Yes
q
No
x
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, Managements 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, including those listed under the section titled Risk Factors.
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. publically
- 3 -
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.
History
The Business Combination
On February 14, 2018 (the Closing Date), we consummated the transactions contemplated by that certain 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).
Pursuant to the Contribution Agreement, the Sellers contributed, transferred, assigned and conveyed to CoConnect all right, title and interest in and to one hundred percent (100%) of such joint venture interest in the Company (the Contributed Joint Venture Interest), together with any and all rights, privileges, benefits, obligations and liabilities appertaining thereto, reserving unto such Seller no rights or interests therein whatsoever, and CoConnect accepted the contribution of the Contributed Joint Venture Interest, and in consideration for such contribution the Sellers collectively were entitled to receive from CoConnect twenty-nine million two hundred thirty-six thousand seven hundred fifty-nine (29,236,759) shares of CoConnect s common stock, $.001 par value (the CoConnect Common Stock) representing eighty-five percent (85%) of the total outstanding CoConnect Common Stock after the issuance of the Contribution Consideration (the Contribution Consideration) with each Seller receiving for its respective percentage of Contributed Joint Venture Interest that same percentage of the Contribution Consideration (such transaction, the Business Combination). As a result of the Business Combination, the Sellers became the controlling shareholders of CoConnect and CoConnect became a wholly-owned subsidiary 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.
Prior to the Business Combination, we were a shell company as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (Exchange Act). As a result of the Business Combination, we have ceased to be a shell company. The information contained in this Report constitutes the information necessary to satisfy the conditions contained in Rule 144(i)(2) under the Securities Act of 1933, as amended (Securities Act).
Contribution Agreement and Related Transactions
The Contribution Agreement
On February 14, 2018 (the Closing Date), we consummated the transactions contemplated by that certain Contribution Agreement by and among the Company, CoConnect, and the Sellers.
Pursuant to the Contribution Agreement the Sellers contributed, transferred, assigned and conveyed to the Company all right, title and interest in and to the Contributed Joint Venture Interest, together with any and all rights, privileges, benefits, obligations and liabilities appertaining thereto, reserving unto such Seller no rights or interests therein whatsoever, and (ii) CoConnect accepted the contribution of the Contributed Joint Venture Interest, and in consideration for such contribution the Sellers collectively received from CoConnect the Contribution Consideration and consisting of an aggregate of eighty-five percent (85%) of the equity of the Company after distribution. As a result of the Business Combination, the Sellers became the controlling shareholders of the Company and received all of the assets and operations of the Company.
In connection with the Business Combination, and as part of the Contribution Agreement, PacificWave Partners and Bennet J. Yankowitz, stockholders of the Company and the Piggyback Parties, have been granted certain piggyback registration allowing the holder to include their shares in such registration, subject to certain marketing and other limitations. As a result, if, commencing one year from the Closing of the Contribution Agreement and ending two (2) years later, whenever we propose to file a registration statement under the Securities Act, other than with respect to a demand registration or a registration statement on Forms S-4 or S-8, the Piggyback Parties are entitled to notice of the registration and have the right to include their shares in the registration, subject to limitations that the underwriters may impose on the number of shares included in the offering and only if their securities are then not tradable pursuant to rule 144.
- 4 -
In connection with the Business Combination, and as part of the Contribution Agreement, Advize and Villanta (each, a Subject Party) made certain covenants regarding non-competition and non-solicitation agreements (the Non-Competition Covenants), in favor of the Company, MM Inc., CoConnect, and their respective successors and subsidiaries (referred to as the Covered Parties). Under the Non-Competition Covenants, the Subject Party and its controlled affiliates will not, without the Companys prior written consent, (a) solicit or attempt to solicit any customer of the Covered Parties, including actively sought prospective customers of Covered Parties as of the Closing, for the purpose of providing products or services that are the same as or similar to the products or services offered or provided by any Covered Parties; (b) act as a director, manager, officer or employee of any business which is the same as or essentially the same as the business conducted by any Covered Parties; or (c) solicit or recruit or attempt to solicit or recruit, directly or by assisting others, any employee of any Covered Parties, whether or not such employee is a full-time employee or a temporary employee of such Covered Parties, whether or not such employment is pursuant to a written agreement and whether or not such employment is for a determined period or is at will, to cease working for such Protected Party; provided that the foregoing will not prevent the placement of any general solicitation for employment not specifically directed towards employees of any Covered Parties or hiring any such person as a result thereof.
The Business Combination was treated as a reverse acquisition of the Company for financial accounting purposes, MIM JV was considered the acquirer for accounting purposes, and the historical financial statements of the Company before the Business Combination were replaced with the historical financial statements of MIM JV and its consolidated entities before the Business Combination in all future filings with the SEC.
The issuance of CoConnect Common Stock to the Sellers, in connection with the Business Combination have not been registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2), which exempts transactions by an issuer not involving any public offering, and Regulation D and/or Regulation S promulgated by the SEC under that section. These shares may not be offered or sold in the United States absent registration or an applicable exemption from registration.
The foregoing description of the Contribution Agreement does not purport to be complete. For further information, please refer to the copy of the Contribution Agreement that is filed with the SEC as Exhibit 2.1 to the Current Report on Form 8-K dated April 20, 2018, as amended. There are representations and warranties contained in the Contribution Agreement that were made by the parties to each other as of specific dates. The assertions embodied in these representations and warranties were made solely for purposes of the Contribution Agreement and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating their terms. Moreover, some representations and warranties may not be accurate or complete as of any specified date because they are subject to a contractual standard of materiality that is different from certain standards generally applicable to shareholders or were used for the purpose of allocating risk between the parties rather than establishing matters as facts. For these reasons, investors should not rely on the representations and warranties in the Contribution Agreement as statements of factual information.
The Lock-Up Agreements
Pursuant to the Business Combination certain individuals were required to enter into lock-up agreements substantially in the form of lock-up agreement that is
filed with the SEC as Exhibit 10.1 to the Current Report on Form 8-K, as amended, dated April 20, 2018.
The Assignment and Assumption Agreements
Pursuant to the Business Combination the Company, CoConnect and the Sellers entered into an assignment and assumption agreement (the JV Assignment Agreement), pursuant to which the Sellers assigned all of their Membership Interest in the Company to CoConnect, and CoConnect assumed all of the duties, obligation and liabilities of the Sellers and the Company. The foregoing description of the JV Assignment Agreement does not purport to be complete. For further information, please refer to the copy of the JV Assignment Agreement that is filed with the SEC as Exhibit 10.2 to the Current Report on Form 8-K dated April 20, 2018, as amended.
Pursuant to the Business Combination the Company, CoConnect and MM Inc., entered into an assignment and assumption agreement (the LLC Assignment Agreement), pursuant to which the Sellers assigned all of their Membership Interest in the Mastermind Involvement Marketing, LLC, a Georgia limited liability company (MIM LLC) to CoConnect, and CoConnect assumed all of the duties, obligation and liabilities of MM Inc., and MIM LLC. The foregoing description of the LLC Assignment Agreement does not purport to be complete. MIM LLC does not have any assets, liabilities or operations. For further information, please refer to the copy of the LLC Assignment Agreement that is filed with the SEC as Exhibit 10.3 to the Current Report on Form 8-K, as amended, dated April 20, 2018.
- 5 -
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.
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
·
Social Contingency 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 5 key groups:
·
Account management;
·
Creative and development services;
·
Strategy, analytics & research;
·
Technology & campaign management; and
·
Agency Management and administration.
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
- 6 -
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 2018 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 ROIs 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.
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 doesnt interrupt the online user experience. Native advertising is a paid advertising placement that is blended seamlessly into a platforms content so that it doesnt interrupt the readers flow. The increasing importance of video is also being heralded. Reports indicate a video can achieve customer conversion
- 7 -
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 reinvention. 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 ExxonMobile; and
·
First omni-channel shopping journey studies for Macys, 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 34 years of experience by management in delivering innovative involvement marketing campaigns, including more than five 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.
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
- 8 -
·
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 industrys 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 clients including:
·
Citigroup Inc.;
·
Bayer Animal Health;
·
Bayer CropScience Ltd;
·
Bayer Drop U.S.;
·
Bayer Drop Global;
·
Harman International Industries, Inc.;
·
Harley-Davidson, Inc.;
·
South University;
·
Dream Center; and
·
Hoffmann-La Roche Ltd.
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
- 9 -
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.
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, 2018, there were no clients individually representing 10% or more of our total revenues. For the fiscal year ended September 30, 2017, three clients represented approximately 47% of our total revenues.
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.
For additional information regarding the laws and regulations that may adversely affect our business, please see the section titled
Risk Factors
below.
Backlog
Our backlog in the ordinary course of business is approximately $2,282,749 at September 30, 2018.
Employees
As of September 30, 2018, we had 26 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.
- 10 -
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. In connection with the Lease, we sublease approximately 9,000 square feet of the total 15,000 square feet of the demised property to an independent third-party. We believe our current leased facility space is adequate for our near-term needs. If or when the need arises for additional space, the Landlord has agreed to make additional space available to us.
Item 3.
Legal Proceedings
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.
- 11 -
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 extreme 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.
The following table sets forth the high and low bid quotations for our common stock for each of the last two fiscal years, as reported on the OTC Market. Quotations from the OTC Market reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
|
|
|
|
|
Fiscal Year Ended 2018
|
|
High
|
|
Low
|
4th Quarter
|
$
6.50
|
|
$
4.00
|
3rd Quarter
|
6.75
|
|
5.49
|
2nd Quarter
|
7.00
|
|
5.00
|
1st Quarter
|
5.50
|
|
5.00
|
|
|
|
|
|
Fiscal Year Ended 2017
|
|
High
|
|
Low
|
4th Quarter
|
$
7.00
|
|
$
5.00
|
3rd Quarter
|
7.00
|
|
2.50
|
2nd Quarter
|
6.00
|
|
1.00
|
1st Quarter
|
5.00
|
|
3.50
|
As of January 9, 2019, there were approximately 4,736 stockholders of record. The last sale price as quoted by the OTCQB tier of The OTC Markets on January 11, 2019, was $2.25 per share.
- 12 -
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
In connection with the Contribution Agreement, CoConnect issued 29,236,759 shares to three entities, each controlled by our three executives: MM Inc. which is owned by Daniel A. Dodson; Villanta, which is owned by Michael Gelfond; and Advize, which is owned by Ricardo Rios. These shares represented approximately eighty-five percent (85%) of the outstanding shares of CoConnect after the offering pursuant to an exemption under Section 4(a)(2) of the Securities Act.
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.
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-
- 13 -
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 34 years of experience in delivering innovative involvement marketing campaigns, including more than five 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 industrys 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 2018 or our 2018 fiscal year refer to the fiscal year ended September 30, 2018.
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.
Results of Operations
Fiscal Year Ended September 30, 2018 vs. September 30, 2017
Revenues
Revenues for the fiscal year ended September 30, 2018 were $5,229,465 as compared with $4,264,923 for the comparable prior year period, an increase of $964,542 or 22.6%. The increase is attributable to incremental project assignments creating increased project revenues from certain significant existing customers during the fiscal year ended September 30, 2018 as compared to the comparable prior year period. It is anticipated that these increased project assignments will be ongoing and recurring in future periods.
Gross Profit
Gross profit for the fiscal year ended September 30, 2018 was $4,484,678 or 85.8% of revenues, compared with $3,283,467 or 77.0% of revenues, for the comparable prior year period. The increase in gross profit dollars and gross
- 14 -
profit as a percentage of revenues is primarily due to certain projects in the comparable prior year period containing greater contractual out of pocket cost requirements as a percentage of the projects in the aggregate thereby adversely affecting our overall gross profit. The current period projects contain less contractually agreed upon out of pocket costs as a percentage of projects in the aggregate thereby having a favorable effect on our gross profit.
General and Administrative Expenses
General and administrative expenses for the fiscal year ended September 30, 2018 were $3,234,450 as compared with $2,267,213 for the comparable prior year period, an increase of $967,237 or 42.7%. Our general and administrative expenses increased as a result of increased (i) personnel and overhead costs in support of our current increase and growth in revenues; and (ii) incremental legal and professional fees in connection with transitioning from a private to public company of approximately $150,000.
Other (Expense), Net
Other (expense), net for the fiscal year ended September 30, 2018 was $56,829 as compared with $22,230 for the comparable prior year period, an increase of $34,599. The increase is primarily due to the merger costs of $50,000 incurred in connection with the Business Combination that was consummated on February 14, 2018. This increase was offset by a decrease in our interest expense on a related party note which was $11,566 for the fiscal year ended September 30, 2018 as compared to $24,648 for the comparable prior year period.
Liquidity and Capital Resources
As of September 30, 2018, we had cash and cash equivalents of $861,371, an increase of $315,467 when compared with a cash and cash equivalents balance of $545,904 as of September 30, 2017.
During the fiscal year ended September 30, 2018, we had net cash of $671,767 provided by operating activities as compared with net cash of $598,873 provided by operating activities 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 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 provided by operating activities increased by $72,894, as compared to the comparable prior year period, primarily due to (i) an increase in net income reported for the fiscal year ended September 30, 2018 and (ii) a decrease in unearned revenues. These increases in net cash flows provided by operating activities were partially offset by increases in accounts receivable and prepaid expense during the fiscal year ended September 30, 2018 as compared to a net loss for the comparable prior year period.
During the
fiscal year ended September 30, 2018, we had net cash of $23,935 used in investing activities as compared with net cash of $7,638 used in investing activities for the comparable prior year period. The net cash outflows during the fiscal years ended September 30, 2018 and 2017 are a result of the purchase of computers and office equipment in the amount of $23,935 and $7,638, respectively.
During the fiscal year ended
September 30, 2018, we had net cash of $332,365 used in financing activities as compared to net cash of $421,286 used in financing activities for the comparable prior year period. The net cash used in financing activities during the fiscal years ended September 30, 2018 and 2017, respectively, is primarily due to (i) dividends paid to our members prior to the Business Combination in the amount of $100,000 and $300,000, respectively; and (ii) repayments on the related party note payable and related party advance.
There were no options or warrants exercised during the fiscal years ended September 30, 2018 and 2017.
The ability to attract additional capital investments 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 product introductions and enhancements to existing 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, 2018 our cash position and cash flows from our fiscal 2019 operations will be sufficient to fund our working capital and planned strategic activities 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.
Off-Balance Sheet Arrangements
As of September 30, 2018, we did not have any off-balance sheet arrangements that have, or are reasonably
- 15 -
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 documents are filed as part of this report on Form 10-K:
|
|
|
|
|
|
Page
|
|
Report of
Paritz & Company, P.A., Independent Registered Public Accounting Firm
|
|
F-1
|
|
Report of
Prager Metis CPAs LLC, Independent Registered Public Accounting Firm
|
|
F-2
|
|
Balance Sheets at September 30, 2018 and 2017
|
|
F-3
|
|
Statements of Operations for the fiscal years ended September 30, 2018 and 2017
|
|
F-4
|
|
Statements of Stockholders Deficit for the fiscal years ended September 30, 2018 and 2017
|
|
F-5
|
|
Statements of Cash Flows for the fiscal years ended September 30, 2018 and 2017
|
|
F-6
|
|
Notes to Financial Statements
|
|
F-7
|
|
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
On November 13, 2018, Paritz & Company, P.A. (Paritz), the independent registered public accounting firm of Mastermind, Inc. (the Company), notified the Company that Paritz combined its practice (the Merger) with Prager Metis CPAs LLC (Prager), with Prager being the surviving entity after the Merger. As a result of the Merger, on November 13, 2018, Paritz effectively resigned as the independent registered public accounting firm for the Company, and Prager, as the successor to Paritz, was approved by the Companys Board of Directors to be engaged as the Companys independent registered public accounting firm.
The reports of Paritz on the financial statements of the Company as of and for the fiscal years ended September 30, 2017 and 2016 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
During the Companys fiscal years ended September 30, 2017 and 2016 and the subsequent interim period from October 1, 2017 to the date of this report, and in connection with the audit of the Companys financial statements for such periods, there were no disagreements between the Company and Paritz on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Paritz, would have caused Paritz to make reference to the subject matter of such disagreements in connection with its audit reports on the Companys financial statements.
During the Companys fiscal years ended September 30, 2017 and 2016 and the subsequent interim period from October 1, 2017 to the date of this report, there were no reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K.
During the Company's fiscal years ended September 30, 2017 and 2016 and the subsequent interim period from October 1, 2017 to the date of this report, the Company did not consult with Prager regarding any of the matters set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
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.
Managements 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
- 16 -
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, 2018. 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, 2018 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, 2018, 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. Managements 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 managements 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.
- 17 -
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 11, 2019.
|
|
|
|
|
Name
|
|
Age
|
|
Positions Held with the Registrant
|
Daniel A. Dodson
|
|
59
|
|
Director, Chief Executive Officer
|
Michael Gelfond
|
|
46
|
|
Executive Vice President
|
Ricardo Rios
|
|
42
|
|
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 Ians 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 Bachelors 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 nominees 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., 1450 W. Peachtree St. NW, Atlanta, Georgia 30309.
- 18 -
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.
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 2018.
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.
Item 11.
Executive Compensation
Summary Compensation Table
This section discusses the material components of the fiscal 2018 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, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Fiscal Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Stock Awards ($)
|
|
Option Awards ($)
|
|
All Other Compensation
($) (1)
|
|
Total
($)
|
Daniel J. Dodson
|
|
2018
|
|
$
51,185
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
402,721
|
|
$
453,906
|
Chief Executive Officer
|
|
2017
|
|
56,690
|
|
-
|
|
-
|
|
-
|
|
212,509
|
|
269,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Gelfond
|
|
2018
|
|
$
90,443
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
180,926
|
|
$
271,369
|
Executive Vice President
|
|
2017
|
|
87,458
|
|
-
|
|
-
|
|
-
|
|
95,626
|
|
183,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ricardo Rios
|
|
2018
|
|
$
23,660
|
|
$
-
|
|
$
-
|
|
$
-
|
|
$
190,917
|
|
$
214,577
|
Senior Vice President
|
|
2017
|
|
17,745
|
|
-
|
|
-
|
|
-
|
|
164,467
|
|
182,212
|
(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 J. 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 $384,000 and $201,500, and employee benefits of $18,721 and $11,009 for the fiscal years ended September 30, 2018 and 2017, respectively.
b.
Michael Gelfond: Consulting fees of $180,000 and $88,333, and employee benefits of $926 and $7,293 for the fiscal years ended September 30, 2018 and 2017, respectively.
c.
Ricardo Rios: Consulting fees of $187,240 and $162,081, and employee benefits of $3,677 and $2,386 for the fiscal years ended September 30, 2018 and 2017, respectively.
Employment Agreements and Other Arrangements with Named Executive Officers
None. However, these executives expect to enter into employment agreements during the 2019 fiscal year.
Outstanding Equity Award During Fiscal 2018
None.
Option Exercises and Stock Vested During Fiscal 2018
None.
- 19 -
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 11. 2019, 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., 1450 W. Peachtree Street NW, Atlanta, GA 30309.
|
|
|
|
|
Name of Beneficial Owner
|
|
Amount and Nature of Beneficial Ownership
|
|
Percent of Class
|
|
|
|
|
|
Mastermind Marketing, Inc.
(1)
|
|
17,542,055
|
|
51.0%
|
Digital Advize, LLC
(2)
|
|
2,923,676
|
|
8.5%
|
Villanta Corporation
(3)
|
|
8,771,028
|
|
25.5%
|
|
|
|
|
|
Total
|
|
29,236,759
|
|
85.0%
|
(1) The principle of MM Inc. is Daniel A. Dodson.
(2) The principle of Advize is Ricardo Rios.
(3) The principle of Villanta 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 $2,170,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. During the fiscal year ended and as of September 30, 2018 and 2017, there were no license fee payments required or payable.
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. In connection with the Lease, we have entered into a sublease agreement which provides for the sublease of 9,000 square feet of the total 15,000 of the demised property. The sublessor is not a related party. The manager of the Landlord is Daniel A. Dodson, 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. During the
- 20 -
fiscal year ended September 30, 2018 and 2017, we made lease payments of $120,000 and $120,000, respectively, to the Landlord in satisfaction of our obligation pursuant to the Lease, net of payments made by the sublessee.
During the fiscal year ended September 30, 2016, the sublessee to the Lease remitted $13,550 to us for the benefit of the Landlord. In December 2017, we remitted this payment in full to the Landlord. As of September 30, 2018 and 2017, we recorded $0 and approximately $13,550, respectively, as a related party payable in our balance sheet.
On December 12, 2016, we executed a promissory note (the Note), in the principal amount of $500,000, with Mastermind Marketing, Inc. The principal of the Note, including all accrued interest, is due and payable on December 12, 2018. During the term of the Note, interest is payable monthly at a rate equal to the greater of 3.75% per annum or the prime rate published in the Wall Street Journal on the last day of the month plus one-half percent (1/2%), however the interest rate will not exceed 5.5% per annum. During the fiscal year ended September 30, 2018 and 2017, we recorded interest expense of $11,566 and $24,648, respectively. As of September 30, 2018 and 2017, we recorded no accrued interest. As of September 30, 2018 and 2017, the principal balance outstanding was $0 and $212,290, respectively.
During the fiscal years ended September 30, 2018 and 2017, we made payments to our three executives pursuant to the terms of our operating agreement, as amended, for services rendered to us. The total payments made to our three members during the fiscal years ended September 30, 2018 and 2017 aggregated $751,240 and $451,914, respectively. As of September 30, 2018 and 2017, we had no obligations payable to our three members for consulting services
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, 2018.
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, and Paritz & Company, P.A., our predecessor independent registered public accounting firm, for professional services rendered for the fiscal years ended September 30, 2018 and 2017.
|
|
|
|
|
Fee Category
|
|
Fiscal Years Ended September 30,
|
(in thousands)
|
|
2018
|
|
2017
|
Paritz & Company, P.A. Audit fees
|
|
$
33,500
|
|
$
37,500
|
Prager Metis CPAs LLC Audit fees
|
|
-
|
|
-
|
Other audit related fees
|
|
-
|
|
-
|
Tax fees
|
|
-
|
|
-
|
Total fees
|
|
$
33,500
|
|
$
37,500
|
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.
- 21 -
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.
- 22 -
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
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 digital content, designing websites, social media and sharing campaigns, mobile merchandising, and communications and branding.
On February 14, 2018, we consummated a transactions pursuant to a Joint Venture Interest Contribution Agreement (the Contribution Agreement) made and entered into as of February 14, 2018 by and among (i) us, (ii) Mastermind Involvement Marketing, a Georgia joint venture (MIM), 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 or Majority Stockholders).
Pursuant to the Contribution Agreement the Sellers contributed, transferred, assigned and conveyed to us all right, title and interest in and to one hundred percent (100%) of such joint venture interest in MIM (the Contributed Joint Venture Interest), together with any and all rights, privileges, benefits, obligations and liabilities appertaining thereto, reserving unto such Seller no rights or interests therein whatsoever, and (ii) we accepted the contribution of the Contributed Joint Venture Interest, and in consideration for such contribution the Sellers collectively were entitled to receive from us 29,236,759 shares of our common stock, $.001 par value (the Common Stock) representing 85% of our total outstanding Common Stock after the issuance of the Contribution Consideration (the Contribution Consideration) with each Seller receiving for its respective percentage of Contributed Joint Venture Interest that same percentage of the Contribution Consideration (such transaction, the Business Combination). As a result of the Business Combination, the Sellers became our controlling shareholders of and we became a wholly-owned subsidiary. The Business Combination was treated as a reverse acquisition for accounting purposes, whereby MIM is considered the acquirer for accounting purposes, and our historical financial statements before the Business Combination will be replaced with the historical financial statements of MIM and its consolidated entities before the Business Combination in all future filings.
On April 19, 2018, our Board of Directors took action by written consent to approve an amendment to our certificate of incorporation (the Amended Certificate) to change of our name from CoConnect, Inc. to Mastermind, Inc. (the Name Change), subject to stockholder approval. On April 27, 2018, in lieu of a meeting of our stockholders, and pursuant to Section 78.320 of the Nevada Revised Statutes of the State of Nevada, the Majority Stockholders, who represent 85% of our voting securities, approved the Amended Certificate, by written consent. On May 24, 2018, we filed the Certificate of Amendment with the Secretary of State of the State of Nevada to change our name to Mastermind, Inc.
Fiscal Year
Our fiscal year ends on September 30. References herein to fiscal 2018 and/or fiscal 2017 refer to the fiscal years ended September 30, 2018 and/or 2017, respectively.
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.
F-7
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
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, 2018 and 2017, we did not record any bad debts. As of September 30, 2018 and 2017, we evaluated our accounts receivables and determined that an allowance for doubtful accounts was not required.
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.
Revenue Recognition
Our revenue recognition policy follows the guidance from Accounting Standards Codification (ASC) 605, Revenue Recognition, and Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. The Company recognizes revenues when all of the following criteria are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) the service has been performed or the product has been delivered. Reimbursements related to travel and out-of-pocket expenses are also included revenues. Revenue from our involvement marketing services and contracts 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.
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.
F-8
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
Level 3 - Pricing inputs are unobservable for the investment, that is, inputs that reflect the reporting entitys 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.
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, 2018 and 2017 there has not been any impairment of long-lived assets.
Income Taxes
Prior to February 14, 2018, the effective date of the Business Combination, no provision for income taxes was recorded 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.
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.
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;
F-9
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
·
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 options expected term. We do not believe that the future volatility of our common stock over an options 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 options 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.
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.
Recent Accounting Pronouncements
We have evaluated all issued but not yet effective accounting pronouncements and determined that, other than the following, they are either immaterial or not relevant to us.
In February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) ASU 2016 - 02 Leases intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, office equipment and manufacturing equipment. The ASU will require organizations that lease assets - referred to as lessees - to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.
Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP - which requires only capital leases to be recognized on the balance sheet - the new ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The accounting by organizations that own the assets leased by the lessee - also known as lessor accounting - will remain largely unchanged from current GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. We are currently evaluating the impact upon adoption on our results of operations, cash flows and financial condition.
In March 2016, the FASB issued ASU 2016 - 09 Improvements to Employee Share-Based Payment Accounting which is intended to improve the accounting for employee share-based payments. The ASU affects all
F-10
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
organizations that issue share-based payment awards to their employees. The ASU, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including; the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The ASU simplifies two areas specific to private companies, with regards to the expected term and intrinsic value measurements. The ASU simplifies the following areas to private and public companies; (a) tax benefits and tax deficiencies with regards to the differences between book and tax deductions, (b) changes in the excess tax benefits classification in the statement of cash flows, (c) make an entity wide accounting policy election for accrual of vested awards verses individual awards, (d) changes in the amount qualifying as an equity award classification subject to statutory tax withholdings, (e) clarification in the classification of shares withheld for statutory tax withholdings on the statement of cash flows. For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any organization in any interim or annual period. It is not anticipated that this guidance will have a material impact on our results of operations, cash flows or financial condition.
In January 2016, the FASB issued ASU 2016 - 01 Recognition and Measurement of Financial Assets and Financial Liabilities, intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities. The new guidance makes targeted improvements to existing GAAP by:
Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;
Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements;
Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities;
Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and
Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as own credit) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
The ASU on recognition and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For private companies, not-for-profit organizations, and employee benefit plans, the standard becomes effective for fiscal years beginning after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019. The ASU permits early adoption of the own credit provision (referenced above). Additionally, it permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost. It is not anticipated that this guidance will have a material impact on our results of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU 2016 - 10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entitys promise to grant a
F-11
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
license provides a customer with either a right to use the entitys intellectual property (which is satisfied at a point in time) or a right to access the entitys intellectual property (which is satisfied over time). The amendments in this Update are intended to render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update2014-09 by one year. It is not anticipated that this updated guidance will have a material impact on our results of operations, cash flows or financial condition.
In November 2016, the FASB issued ASU 2016-20, an amendment to ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU addressed several areas related to contracts with customers. This topic is not yet effective and will become effective with Topic 606. We are currently evaluating the impact this topic will have on our financial statements.
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 $2,170,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. During the fiscal year ended and as of September 30, 2018 and 2017, there were no license fee payments required or payable.
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. In connection with the Lease, we have entered into a sublease agreement which provides for the sublease of 9,000 square feet of the total 15,000 of the demised property. The sublessor is not a related party. 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. During the fiscal year ended September 30, 2018 and 2017, we made lease payments of $120,000 and $120,000, respectively, to the Landlord in satisfaction of our obligation pursuant to the Lease, net of payments made by the sublessee.
During the fiscal year ended September 30, 2017, the sublessee to the Lease remitted $13,486 to us for the benefit of the Landlord. In December 2017, we remitted this payment in full to the Landlord. As of September 30, 2018 and 2017, we recorded $6,589 as a receivable associated with the lease and $13,486 as a related party payable in our balance sheet, respectively.
On December 12, 2016, we executed a promissory note (the Note), in the principal amount of $500,000, with Mastermind Marketing, Inc. The principal of the Note, including all accrued interest, is due and payable on December 12, 2018. During the term of the Note, interest is payable monthly at a rate equal to the greater of 3.75% per annum or the prime rate published in the Wall Street Journal on the last day of the month plus one-half percent (1/2%), however the interest rate will not exceed 5.5% per annum. During the fiscal year ended September 30, 2018 and 2017, we recorded interest expense of $11,566 and $24,648, respectively. As of September 30, 2018 and 2017, we recorded no accrued interest. As of September 30, 2018 and 2017, the principal balance outstanding was $0 and $212,290, respectively.
During the fiscal years ended September 30, 2018 and 2017, we made payments to our three members pursuant to the terms of our operating agreement, as amended, for services rendered to us. The total payments made to our three members during the fiscal years ended September 30, 2018 and 2017 aggregated $751,240 and $451,914, respectively. As of September 30, 2018 and 2017, we had no obligations payable to our three members for consulting services.
F-12
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
4.
Property, Plant and Equipment
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
September 30,
|
(in thousands)
|
|
2018
|
|
2017
|
Furniture, fixtures and office equipment
|
|
$
131,487
|
|
$
107,552
|
Leasehold improvements
|
|
73,795
|
|
73,795
|
|
|
205,282
|
|
181,347
|
Less: accumulated depreciation
|
|
(112,597)
|
|
(83,535)
|
|
|
$
92,685
|
|
$
97,812
|
Depreciation expense for the fiscal years ended September 30, 2018 and 2017 was $29,062 and $27,945, 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 $2,170,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. During the fiscal year ended and as of September 30, 2018 and 2017, there were no license fee payments required or payable.
In consideration for the Perpetual License, we agreed to pay the following fees through calendar year 2039:
|
|
Fiscal Years Ending September 30,
|
|
2019
|
$
45,000
|
2020
|
60,000
|
2021
|
60,000
|
2022
|
60,000
|
2023
|
60,000
|
Thereafter
|
1,885,000
|
|
$
2,170,000
|
6.
Commitments
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. In connection with the Lease, we have entered into a sublease agreement which provides for the sublease of 9,000 square feet of the total 15,000 of the demised property. The sublessor is not a related party. 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. During the fiscal year ended September 30, 2018 and 2017, we made lease payments of $120,000 and $120,000, respectively, in satisfaction of our obligation pursuant to the Lease, net of payments made by the sublessee.
F-13
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
The Lease provides for the following total lease commitments pursuant to the Lease and our portion of the lease commitments net of the sublease:
|
|
|
|
|
Fiscal Years Ending September 30,
|
|
Total Lease Commitment
|
|
Lease Commitment Net of Sublease
|
2019
|
|
$
302,550
|
|
$
120,000
|
2020
|
|
324,000
|
|
120,000
|
2021
|
|
348,000
|
|
120,000
|
2022
|
|
363,000
|
|
120,000
|
2023
|
|
384,000
|
|
120,000
|
Thereafter
|
|
97,500
|
|
30,000
|
|
|
$
1,819,050
|
|
$
630,000
|
7.
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.
As of September 30, 2018, we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.
Tax years 2016 through 2018 are subject to examination by the federal and state taxing authorities. 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 period from the date of the business combination to September 30, 2018:
|
|
|
Expected federal tax rate
|
|
21.0%
|
State income taxes, net of federal tax benefit
|
|
6.0%
|
Utilization of net operating loss
|
|
(3.7%)
|
Effective tax rate
|
|
23.3%
|
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.
F-14
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
Significant components of our deferred tax assets and deferred tax liabilities consist of the following:
|
|
|
|
|
September 30,
2018
|
Deferred Tax Assets:
|
|
|
Current liabilities
|
|
28,718
|
Deferred tax assets
|
|
28,718
|
Deferred Tax Liabilities:
|
|
|
Current assets
|
|
138,442
|
Deferred tax liabilities
|
|
138,442
|
Net deferred tax liabilities
|
|
$
109,724
|
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 but have kept the full valuation allowance.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The deferred tax expense recorded in connection with the remeasurement of deferred tax assets is a provisional amount and a reasonable estimate at December 31, 2017 based upon the best information currently available. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete. The accounting is expected to be complete when the 2018 U.S. corporate income tax return is filed in 2019.
8.
Stockholders Equity
Preferred Stock
We are authorized to issue 1,000,000 shares of preferred stock and we have designated among that preferred stock 100,000 shares of Series A Preferred Stock and 100,000 shares of Series B Preferred Stock. There are no shares of Series A or Series B Preferred Stock issued or outstanding as of September 30, 2018 and 2017.
Common Stock
Pursuant to the Contribution Agreement, we issued 29,236,759 shares of our common stock, in the aggregate, to Mastermind Marketing, Inc, a Georgia Corporation, Digital Advize, LLC, a Georgia limited liability company, and Villanta Corporation, a Georgia Corporation. These three entities are controlled by Daniel A. Dodson, Ricardo Rios, and Michael Gelfond; respectively. Messrs, Dodson, Rios and Gelfond were appointed as our executive officers upon the consummation of the Business Consummation.
Distributions
During the fiscal years ended September 30, 2018 and 2017, we made cash distributions, in the aggregate, of $100,000 and $300,000, respectively, to our members prior to the Business Combination.
Common Stock Options
As of September 30, 2018, there were fully-vested, non-qualified stock options exercisable by Mr. Bennett Yankowitz, 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. There were no stock options exercised during the fiscal year ended September 30, 2018.
F-15
MASTERMIND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
9.
Contingencies
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.
10.
Concentration of Credit Risk and Major Customers and Suppliers
For the fiscal year ended September 30, 2018, there were no clients individually representing 10% or more of our total revenues. For the fiscal year ended September 30, 2017, three clients represented approximately 47% of our total revenues.
As of September 30, 2018 and 2017, we had accounts receivable of $507,031, or approximately 62%, due from four customers; and $578,066, or 64%, due from two customers, respectively.
11.
Subsequent Events
We evaluated all events or transactions that occurred after the balance sheet date through the date when these financial statements were available to be issued and we determined that we did not have any material recognizable or disclosable subsequent events.
F-16