CCON Direxion Connected Consumer ETF

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2023

Commission File Number: 000-26533

(678) 420-4000 

(Registrant’s telephone number, including area code) 

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

As of May 15, 2023, there were 34,505,520 shares of the registrant’s Common Stock outstanding.

Mastermind, Inc.

Table of Contents

Form 10-Q

Mastermind, Inc.

Consolidated Balance Sheets

(Unaudited)

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

Mastermind, Inc.

Consolidated Statements of Operations

(Unaudited)

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

Mastermind, Inc.

Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended March 31, 2023 and 2022

(Unaudited)

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

Mastermind, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

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

Mastermind, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Business

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

2. Interim Financial Statements and Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information pursuant to Rule 8-03 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments), which we consider necessary, for a fair presentation of those financial statements. The results of operations for the three and six months ended March 31, 2023 and cash flows for the six months ended March 31, 2023, may not necessarily be indicative of results that may be expected for any succeeding period or for the entire fiscal year. These consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K as of and for the fiscal year ended September 30, 2022 as filed with the Securities and Exchange Commission.

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

There have been no material changes in the Company’s significant accounting policies during the three and six months ended March 31, 2023, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022.

Reclassifications

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

3. Related Party Transactions

On January 3, 2012, we entered into a perpetual license agreement (the “Perpetual License”) with Mastermind Marketing, Inc. (the “Licensor”), which provides for licenses of trademarks, internet domains, and certain intellectual property as defined in the Perpetual License. The Licensor is one of our members and its chief executive officer is also our chief executive officer. The Perpetual License, which may be terminated at any time by either party, is effective January 3, 2012 and provides for aggregate payments of $2,100,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. The Company has recorded expenses related to the license of $15,000 and $30,000 for the three and six months ended March 31, 2023 and 2022, respectively (Note 5).

On January 3, 2014, we entered into a commercial lease agreement (the “Lease”) with 1450 West Peachtree, LLC, a Georgia limited liability company (the “Landlord”), for the lease of our corporate facility in Atlanta, Georgia. The manager of the Landlord is also our chief executive officer. The term of the original lease was for 10 years from the date of the agreement. During the period ended December 31, 2022 the Company gave notice to our landlord for our leased office space to terminate the agreement as of December 31, 2022 with no payments due thereafter. The landlord agreed to the termination of the lease with no penalties and no additional payments required. Through the period of COVID restrictions, we enhanced our remote work tools, technologies, and practices, working with our team to continue to serve our customers and complete projects.  These remote tools and technologies have broadened our available talent pool and removed travel times for our team. The Company has adopted a fully remote work environment and no replacement office space is planned for.  During the three and six months ended March 31, 2023 we made lease payments of $0 and $41,422, respectively, and for the three and six months ended March 31, 2022 $41,422 and $71,422 in satisfaction of our obligation pursuant to the Lease (Note 6).

During the three and six months ended March 31, 2023, and 2022, we made payments to our three members pursuant to the terms of our operating agreement, as amended, for services rendered to us. The Company recorded expenses to our three members during the three and six months ended March 31, 2023, aggregating $275,730 and $551,559 and for the three and six months ended March 31, 2022, aggregating $262,725 and $423,949, respectively. As of March 31, 2023 and September 30, 2022, we owed $0 to our three majority stockholders for consulting services.

4. Property and Equipment

Property and equipment consist of the following:

Depreciation expense for the three and six months ended March 31, 2023 were $3,875 and $9,845, respectively and for the three and six months ended March 31, 2022 were $5,519 and $11,037, respectively.

As of December 31, 2022, the lease pertaining to the leasehold improvements was terminated (Note 6) and the $73,795 cost of leasehold improvements were written off resulting in a loss on disposal of $8,609 included in other income (expense).

During the period ended March 31, 2023, the Company disposed of equipment with a total cost of $85,403 consisting of $83,639 of fully amortized equipment and $1,764 of equipment for $1,200 in cash due to an insurance payout, for a loss on disposal of $329 included in other income (expense).   

5. Licensing Agreements

On January 3, 2012, we entered into a perpetual license agreement (the “Perpetual License”) with Mastermind Marketing, Inc. (the “Licensor”), which provides for licenses of trademarks, internet domains, and certain intellectual property as defined in the Perpetual License. The Licensor is one of our members and its chief executive officer is also our chief executive officer. The Perpetual License, which may be terminated at any time by either party, is effective January 3, 2012 and provides for aggregate payments of $2,100,000 over the calendar years from 2019 through 2039 with no further payments required after December 31, 2039. The Company has recorded expenses of $15,000 and $30,000 for the three and six months ended March 31, 2023, and 2022, respectively.

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

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

Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 5.5%, as the interest rate implicit in our lease is not readily determinable. Operating lease expense is recognized pursuant to ASC Topic 842 Leases (Topic 842) over the lease term. During the three and six months ended March 31, 2023, the Company recorded rent expense of $0 and $41,422, respectively and for the three and six months ended March 31, 2022, the Company recorded rent expense of $41,422 and $71,422, respectively.

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

During the period ended December 31, 2022 the Company gave notice to our landlord for our leased office space to terminate the agreement as of December 31, 2022 with no payments due thereafter. The landlord agreed to the termination of the lease with no penalties and no additional payments required. Through the period of COVID restrictions, we enhanced our remote work tools, technologies, and practices, working with our team to continue to serve our customers and complete projects.  These remote tools and technologies have broadened our available talent pool and removed travel times for our team. The Company has adopted a fully remote work environment and no replacement office space is planned for.

The Right-of-use assets are summarized below:

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

Operating lease liabilities are summarized below:

7. Commitments and Contingencies

              Litigation

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

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

 8. Income Taxes

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

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

There were no unrecognized material tax benefits at March 31, 2023, and September 30, 2022. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the periods presented. We have determined we have no uncertain tax positions.

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

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

As of March 31, 2023, the Company has no net operating loss carryforwards that are available to offset future taxable income. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

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

9. Stockholders’ Equity

Preferred Stock

As of March 31, 2023, and September 30, 2022, we were authorized to issue a total 1,000,000 shares of preferred stock. There were no shares of Preferred Stock issued or outstanding as of March 31, 2023, and September 30, 2022.

Common Stock

As of March 31, 2023, and September 30, 2022, we were authorized to issue a total of 125,000,000 shares of common stock. As of March 31, 2023, and September 30, 2022, there were 34,505,520 shares of common stock issued and outstanding, respectively.

Dividends

During the three and six months ended March 31, 2023 and 2022, there were no dividends declared or paid.

Common Stock Options

A 2018 Equity Incentive Plan consisting of four million (4,000,000) shares of Common Stock was adopted by written consent of holders of 85% of the voting securities. No options or shares have been issued under this plan as of March 31, 2023 and September 30, 2022.

10. Concentration of Credit Risk and Major Customers

For the three months ended March 31, 2023, three customers represented approximately 42%, 34% and 21%, respectively, of our total revenues. For the six months ended March 31, 2023, three customers represented approximately 35%, 32% and 29%, respectively, of our total revenues. As of March 31, 2023, three customers represented approximately 55%, 29% and 16%, respectively of our outstanding accounts receivable and unbilled receivables.

For the three months ended March 31, 2022, three customers represented approximately 39%, 39% and 20%, respectively, of our total revenues. For the six months ended March 31, 2022, three customers represented approximately 46%, 33% and 17%, respectively, of our total revenues.  

As of September 30, 2022, three customers represented approximately 44%, 34% and 17%, respectively of our outstanding accounts receivable and unbilled receivables.

11. Subsequent Events

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

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