Forward-Looking Statements
This quarterly report on Form 10-Q contains certain statements that are
"forward-looking" within the meaning of the Private Securities Litigation Reform
Act of 1995 (the "Litigation Reform Act"). These forward-looking statements and
other information are based on our beliefs as well as assumptions made by us
using information currently available.
The words "anticipate," "believe," "estimate," "expect," "intend," "will,"
"should" and similar expressions, as they relate to us, are intended to identify
forward-looking statements. Such statements reflect our current views with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, intended or using other similar expressions.
In accordance with the provisions of the Litigation Reform Act, we are making
investors aware that such forward-looking statements, because they relate to
future events, are by their very nature subject to many important factors that
could cause actual results to differ materially from those contemplated by the
forward-looking statements contained in this quarterly report on Form 10-Q. For
example, we may encounter competitive, technological, financial and business
challenges making it more difficult than expected to continue to develop and
market our products; the market may not accept our existing and future products;
we may not be able to retain our customers; we may be unable to retain existing
key management personnel; and there may be other material adverse changes in our
operations or business. Certain important factors affecting the forward-looking
statements made herein also include, but are not limited to (i) continued
downward pricing pressures in our targeted markets, (ii) the continued
acquisition of our customers by certain of our competitors, and (iii) continued
periods of net losses, which could require us to find additional sources of
financing to fund operations, implement our financial and business strategies,
meet anticipated capital expenditures and fund research and development costs.
In addition, assumptions relating to budgeting, marketing, product development
and other management decisions are subjective in many respects and thus
susceptible to interpretations and periodic revisions based on actual experience
and business developments, the impact of which may cause us to alter our
marketing, capital expenditure or other budgets, which may in turn affect our
financial position and results of operations. For all of these reasons, the
reader is cautioned not to place undue reliance on forward-looking statements
contained herein, which speak only as of the date hereof. We assume no
responsibility to update any forward-looking statements as a result of new
information, future events, or otherwise except as required by law. For further
information, you are encouraged to review our filings with the Securities and
Exchange Commission ("SEC"), including our Current Report on Form 8-K, as filed
with the SEC on February 22, 2018, as amended on April 20, 2018, and risk
factors as discussed therein under Item 2.01.
Overview
Mastermind, Inc. is a digital marketing agency that plans, executes and analyzes
digital marketing initiatives for clients in numerous industries including
Fashion, Automotive, Spirits & Beer, Business-to-business, Consumer Electronics,
Banking & Financial Services, Consumer Packaged Goods, Food & Beverage,
Healthcare, Home Improvement, Restaurants, Retail, Technology, and
Communications. Mastermind offers a unique approach to digital and social
marketing called Involvement Marketing (IM). IM is aimed at involving more
people with each clients' brand in ways that inspire them to take an action
(e.g.- becoming aware of the brand, trying it, purchasing more of it, and/or
even becoming an advocate for the brand through social media). Mastermind's
Involvement Marketing initiatives encompass any one, or combination of tactics
including Content Marketing, Digital/Mobile Marketing, Influencer Marketing,
Social Marketing & Community Management, Promotion Marketing, Digital/Social
Issues Management, UX Analytics & Digital Intelligence, and Augmented Reality
Marketing.
Mastermind has assembled a team of highly experienced, cross-functional
marketing experts to develop and execute Involvement Marketing initiatives (see
key executive bios below). These experts have extensive backgrounds in
digital/social marketing & media, content development, influencer marketing,
promotion, digital contingency communications & PR, research, strategy, creative
message development, and analytics. Mastermind has also developed a disciplined
approach to Involvement Marketing that ensures the right tactic(s) is employed
to best achieve the objective and that it is executed flawlessly. The team is
led by our senior executives described in our 10-K as of and for the fiscal year
ended September 30, 2020.
Mastermind has worked with some of the widely recognized brands in in dozens of
industries. While the agency does not have a client in every industry currently,
its experience provides the confidence of potential major clients to consider
hiring Mastermind. Mastermind works with clients on both a project-basis and
ongoing services basis. Mastermind is developing innovative marketing technology
initiatives with the potential to drive more interest from potential clients in
the next few years. Our senior executives Daniel Dodson (CEO), Michael Gelfond
(President), and Ricardo Rios (SVP) have developed solid reputations and
contacts over their careers that will be instrumental in driving new business
(see below for bios on these officers).
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Mastermind Key Leadership
Daniel Dodson, CEO and founding partner of Mastermind Marketing in 1984. Under
his leadership, Mastermind has grown into a nationally-recognized, award-winning
integrated digital marketing agency that ranks at the top of both Ad Age's and
Chief Marketer's top agencies. Dan is a renowned expert in Involvement Marketing
-- leveraging social, mobile, digital and promotion to get more people involved
with the right brand benefits at the right time to drive revenue and deliver
measurable ROI. He has been published in numerous trade publications and spoken
about Involvement Marketing on dozens of occasions.
Dan has a wealth of experience working with leading brands in almost every
industry including 7/11, AT&T, Bank of America, Bayer, BMW, Chase, Chick-fil-A,
Ciba Vision, Citi, Coors Brewing Company, The Coca-Cola Company, Dreyer's, ESPN,
Fruit-of-the-Loom, Georgia Pacific, Hanes, Harley-Davidson, Harman, The Home
Depot, Johnson & Johnson, Kodak, Kroger, Macy's, Mazda, MTV, Nabisco, NBC,
Nestle, Roche, Saks 5th Avenue, Sears, Sharp Electronics, Shell, UPS, Valvoline,
Verizon, and many others.
Prior to Mastermind, Dan was a certified public accountant at HLB Gross Collins,
P.C. where he worked on a variety of manufacturing and service businesses.
Michael Gelfond, President, is recognized leader in digital marketing with a
deep experience helping clients drive results for clients.
After graduating from the UGA in 1995 Gelfond started his career with iXL, one
of the first global digital agencies. After a successful IPO, Mike and other
colleagues saw an opportunity to spin-off the Atlanta operations private and
launched Creative Digital Group in 2002. After building Creative Digital into
one of the Southeast's fastest-growing interactive agencies, they were acquired
by LBi, the world's premier independent global digital agency, in 2007. After
pioneering this successful venture, Gelfond left LBi in the summer of 2010 and
joined Mastermind Marketing, the Southeast's leading social, mobile, digital and
promotion agency as EVP and Partner.
During his career Mike has helped guide some of the world's most well-known
brands such as ATT, Bayer, Coca-Cola, ING, Pebble Beach Resorts, Roche, The Home
Depot and The NFL Network, to name a few. He is a frequent speaker and
contributor to National and Southeast TV, radio and print on all matters
digital. In 2010, Mike was a recipient of Atlanta Business Chronicle's 40 Under
40 award.
Ricardo Rios, Senior VP, has been with Mastermind for 3 years. He is
results-driven, versatile traditional and digital marketing executive with a
strong business background and 19 years of agency and client-side experience
with clients including Citi, Harley-Davidson, PayPal, The Home Depot, Exxon, and
others.
Prior to Mastermind, Ricardo was Vice President of Digital Marketing for Citi
Retail Services, a division of Citigroup.
During his time at Citi, he successfully built out a digital consultancy
function that provided key marketing services to Citi's retail partners
including The Home Depot, Macy's, Best Buy, Staples and other major retailers.
He started his career with an Agency start-up and was recognized as part of the
"Top 25 WSI Consultant Earners List" from a network of over 1500 digital
marketing consultants worldwide.
Ryan Wofford, VP Strategy, leads strategic planning for Mastermind across a
variety of disciplines, including brand strategy and communications, UX,
analytics, as well as social and digital strategy. He has been with Mastermind
for almost 4 years and is a seasoned strategic marketing leader with two decades
of experience, delivering conversions and measurable results for Fortune 500
global companies and small businesses alike. Ryan has developed and executed
marketing strategies to help clients achieve business goals and communication
objectives through digital execution that increased sales pipelines and
conversions, strengthened brand awareness and loyalty, and positioned companies
as thought leaders within their industries.
Ryan has lead development of social and key event activation strategies and
executions for clients like Bayer Crop Science's corporate and marketing
communications groups for the past two years. In addition to the always-on
social strategy, key campaigns he has helped lead include Feed A Bee, Thankful 4
Ag, Citrus Matters and more. Ryan also leads social media strategic planning for
Bayer's Animal Health division in the US, which includes their key social
campaigns like Share for Shelters, and PAWS - these campaigns help raise
awareness of the lack of domestic abuse shelters that can accept survivors of
domestic abuse and their pets.
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Critical Accounting Policies
Our significant accounting policies are described in Note 2 to the financial
statements which are included in our Annual Report on Form 10-K as of and for
the fiscal years ended September 30, 2020 and 2019. Our discussion and analysis
of our financial condition and results of operations are based upon these
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We evaluate our estimates on an
on an on-going basis. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. In the past, actual results have not been materially different
from our estimates. However, results may differ from these estimates under
different assumptions or conditions.
Results of Operations
Three Months Ended June 30, 2021 vs. June 30, 2020
Revenues
Revenues for the three months ended June 30, 2021 were $895,175 as compared with
$862,246 for the comparable prior year period, an increase of $32,929 or 3.8%.
The increase is attributable to the timing of project work being completed.
These fluctuations in work accomplished for revenue recognition are normal
occurrences in our business.
Gross Profit
Gross profit for the three months ended June 30, 2021 was $596,056 or 66.6% of
revenues, compared with $657,819 or 76.3% of revenues, for the comparable prior
year period. The decrease in gross profit dollars and gross margin percentage is
primarily due to the timing of outside direct costs associated with revenue
being realized projects. Direct cost includes expenses for media, sponsorship
fees, etc.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2021
were $496,797 as compared with $515,323 for the comparable prior year period, a
decrease of $18,526 or 3.6%. The lower expenses were primarily attributable to
lower personnel expenses in the comparable period of a year earlier.
Other Income and Expense
Other income, net for the three months ended June 30, 2021 was $302,132 as
compared to other expense of $2,008 for the comparable prior year period. The
current period includes a gain on PPP loan forgiveness of $301,750.
Nine Months Ended June 30, 2021 vs. June 30, 2020
Revenues
Revenues for the nine months ended June 30, 2021 were $2,905,087 as compared
with $2,876,379 for the comparable prior year period, an increase of $28,708 or
1%. The increase is attributable to the timing of project work being completed.
These fluctuations in work accomplished for revenue recognition are normal
occurrences in our business.
Gross Profit
Gross profit for the nine months ended June 30, 2021 was $1,736,766 or 60% of
revenues, compared with $1,897,954 or 66% of revenues, for the comparable prior
year period. The decrease in gross profit dollars and the gross margin
percentage is primarily due to the timing of outside direct costs associated
with revenue being realized projects. Direct cost includes expenses for media,
sponsorship fees, etc.
General and Administrative Expenses
General and administrative expenses for the nine months ended June 30, 2021 were
$1,582,092 as compared with $1,556,875 for the comparable prior year period, an
increase of $25,217 or 1.6%. Our general and administrative expenses increased
primarily as a result of $65,500 for stock-based compensation expenses related
to shares issued to consultants. This increase was partially offset by reduced
general and administrative costs.
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Other Income and Expense
Other income, net, for the nine months ended June 30, 2021, was $302,720,
compared to other expenses, net of $11,516 for the comparable prior year period.
Other income, net, for the nine months ended June 30, 2021, includes $301,750
related to the gain on the PPP loan forgiveness. The prior year expenses were
primarily related to merger and acquisitions or related activities, and minimal
losses on disposal of equipment as well as minimal interest income.
Liquidity and Capital Resources
As of June 30, 2021, we had cash of $1,120,472, an increase of $313,210 when
compared with a balance of $807,262 as of September 30, 2020.
During the nine months ended June 30, 2021, we used $156,348 in operating
activities as compared to $147,398 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 from operating activities for
the current year were a result of the net income, stock compensation expense and
depreciation expense offset by the gain on the PPP loan forgiveness and changes
in current assets and liabilities of $352,197.
During the nine months ended June 30, 2020, net cash used in operations of
$147,398 was a result of our net income and depreciation expenses, offset by the
changes in current assets and liabilities of $417,606.
During the nine months ended June 30, 2021, we had net cash of $8,980 used in
investing activities as compared to $5,241 for the comparable prior year period.
The net cash outflows during the nine months ended June 30, 2021, and 2020 are a
result of the purchase of computers and office equipment.
During the nine months ended June 30, 2021, and 2020, the Company received
$478,538 and $301,750, respectively. Both amounts were related to amounts
received under the Paycheck Protection Program.
The ability to attract additional capital investments for more rapid expansion
in the future will depend on many factors, including the availability of credit,
rate of revenue growth, ability to acquire new client opportunities, the timing
of new service product introductions and enhancements to existing
services/products, and the opportunities to acquire complimentary businesses
that may be made available to us from time-to-time. We believe that as of June
30, 2021, our cash position and cash flows from our operations will be
sufficient to fund our working capital and planned strategic activities,
excluding acquisitions, if any, for at least the next twelve months.
Any potential future sale of equity or debt securities may result in dilution to
our stockholders, and we cannot be certain that additional public or private
financing will be available in amounts or on terms acceptable to us, or at all.
If we are required to raise additional financing, but are unable to obtain such
financing, we may be required to delay, reduce the scope of, or eliminate one or
more aspects of our operations or business development activities.
The recently declared pandemic related to the coronavirus could adversely impact
our liquidity and capital resources, especially if our customers are negatively
impacted by the decrease in economic activity caused by the virus. If our
customers fail to reach budgeted revenue projections and reduce their
expenditures proportionally, we could experience lower than expected growth in
revenue or lower overall revenue. We could also experience delays or declines in
revenue and new business and or implementations of marketing campaigns if
customers or potential customers delay or cancel their plans due to the economic
slowdown caused by the virus. Additionally, our operations could be impacted,
and we could experience higher costs if, despite our mitigation and prevention
efforts, the virus spread prevents affected employees from performing key
duties.
This quarterly report on Form 10-Q contains certain statements that are
"forward-looking" within the meaning of the Private Securities Litigation Reform
Act of 1995 (the "Litigation Reform Act"). These forward-looking statements and
other information are based on our beliefs as well as assumptions made by us
using information currently available.
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future material effect on
our financial condition, results of operations, liquidity, capital expenditures
or capital resources.
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