Mastermind (MMND) 10-Q2023 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 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 August 14, 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 Nine Months Ended June 30, 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 nine months ended June 30, 2023 and cash flows for the nine months ended June 30, 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 nine months ended June 30, 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.

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. We have taken the initiative to protect funds by investing into a money market fund that holds highly liquid short-term investments managed by the bank.  As of June 30, 2023 and September 30, 2022, cash and cash equivalents consisted of the following:

Periodically, the Company may carry cash balances at financial institutions more than the federally insured limit of $250,000 per institution. The amount in excess of the FDIC insurance as of June 30, 2023, was approximately $121,000. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.

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 cash 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 amortized expenses related to the license of $27,000 and $69,000 for the three and nine months ended June 30, 2023 and $15,000 and $45,000 for the three and nine months ended June 30, 2022 (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 nine months ended June 30, 2023 we made lease payments of $0 and $41,422, respectively, and for the three and nine months ended June 30, 2022 $41,423 and $112,845 in satisfaction of our obligation pursuant to the Lease (Note 6).

During the three and nine months ended June 30, 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 nine months ended June 30, 2023, aggregating $275,934 and $827,493 and for the three and nine months ended June 30, 2022, aggregating $285,759 and $709,708, respectively. As of June 30, 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 nine months ended June 30, 2023 were $3,778 and $13,623, respectively and for the three and nine months ended June 30, 2022 were $5,606 and $16,643, 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 nine months ended June 30, 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 cash 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 amortized expenses related to the license of $27,000 and $69,000 for the three and nine months ended June 30, 2023, and $15,000 and $45,000 for the three and nine months ended June 30, 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 nine months ended June 30, 2023, the Company recorded rent expense of $0 and $41,422, respectively and for the three and nine months ended June 30, 2022, the Company recorded rent expense of $41,423 and $112,845, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2023, and September 30, 2022.

Common Stock

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

Dividends

During the three and nine months ended June 30, 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 June 30, 2023 and September 30, 2022.

10. Concentration of Credit Risk and Major Customers

For the three months ended June 30, 2023, three customers represented approximately 43%, 42% and 14%, respectively, of our total revenues. For the nine months ended June 30, 2023, three customers represented approximately 36%, 34% and 27%, respectively, of our total revenues. As of June 30, 2023, three customers represented approximately 44%, 37% and 19%, respectively of our outstanding accounts receivable and unbilled receivables. As of September 30, 2022, three customers represented approximately 44%, 34% and 17%, respectively of our outstanding accounts receivable and unbilled receivables.

For the three months ended June 30, 2022, three customers represented approximately 31%, 30% and 28%, respectively, of our total revenues. For the nine months ended June 30, 2022, three customers represented approximately 40%, 32% and 22%, respectively, of our total revenues.  

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.

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

Forward-Looking Statements

This quarterly report on Form 10-Q contains certain statements that are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward-looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available.

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

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

Overview

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

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

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

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

Results of Operations

Three Months Ended June 30, 2023 vs. June 30, 2022

Revenues

Revenues for the three months ended June 30, 2023 were $1,319,337 as compared with $1,456,013 for the comparable prior year period, a decrease of $136,676 or 9.4%. The decrease is attributable to the timing of project work being completed, and also the revenue being recognized for direct expenses (media, influencer fees, etc.) attributable to jobs. These fluctuations in work accomplished and revenue being recognized for direct expenses are normal occurrences in our business.

Gross Profit

Gross profit for the three months ended June 30, 2023 was $786,059 or 59.6% of revenues, compared with $1,063,395 or 73% of revenues, for the comparable prior year period. The decrease in gross profit dollars was due to lower revenues and customer projects in the current period. The decrease in gross margin percentage is primarily a result of the Company having more projects with higher direct expenses in the three months ended June 30, 2023, compared to same period of last year. Direct cost includes expenses for media, sponsorship fees, etc. Gross profit will fluctuate from year to year based on the types of work assigned to the Company by its clients.

Operating Expenses

Total operating expenses for the three months ended June 30, 2023 were $579,953 as compared with $615,599 for the comparable prior year period, a decrease of $35,646 or 5.8%. The decrease was primarily a result of a decrease in general and administrative expenses of $79,304 and management consulting of $10,000 for distribution to three members, offset by increase in wages and benefits of $53,658. The distribution is usually decided based on a combination of the Company’s operation results and performance of the Company’s management group and their respective member companies. The decrease in general and administrative expenses primarily consisted of $41,422 in lower rent, repairs and maintenance decrease of $601 and utilities of $4,157 as a result of lease termination on December 31, 2022, decrease in new business development cost of $13,000, offset by increase in mergers and acquisition expense (not including legal fees related to acquisition) of $18,601. In addition, professional fees (including public company expenses, and legal fees related to acquisition), as part of general and administrative costs, decreased by $32,626.

Income from Operations

Income from Operations for the three months ended June 30, 2023 decreased by $241,690 as compared to the same period in the prior year. The decrease was primarily related to decreased gross profit of $277,336 offset by a reduction in operating expenses of $35,646. 

Other Income and Expense

Other income and expense, net for the three months ended June 30, 2023 was an income of $6,559 as compared to income of $930 for the comparable prior year period.  The income was primarily due to interest income. 

Income Before Provision for Income Taxes

Income before provision for income taxes for the three months ended June 30, 2023 was $212,665 as compared to $448,726 for the comparable prior year period. 

Provision for Income Taxes

Provision for income taxes for the three months ended June 30, 2023 was $57,421 as compared to $114,839 for the comparable prior year period.  The decrease in income taxes is primarily due to changes in unbilled receivables, unearned revenues and decreased revenues. Provision for income taxes is estimated quarterly applying both federal and state tax rates.

Nine Months Ended June 30, 2023 vs. June 30, 2022

Revenues

Revenues for the nine months ended June 30, 2023, were $3,498,142 as compared with $3,391,045 for the comparable prior year period, an increase of $107,097 or 3.2%. The increase is attributable to the timing of project work being completed, and also the revenue being recognized for direct expenses (media, influencer fees, etc.) attributable to jobs. These fluctuations in work accomplished and revenue being recognized for direct expenses are normal occurrences in our business.

Gross Profit

Gross profit for the nine months ended June 30, 2023, was $2,119,131 or 60.6% of revenues, compared with $2,273,732 or 67% of revenues, for the comparable prior year period. The decrease in gross profit dollars was a result of lower gross margin in the current period. The decrease in gross margin percentage is primarily a result of the Company having more projects with higher direct expenses in the nine months ended June 30, 2023, compared to same period of last year. Direct cost includes expenses for media, sponsorship fees, etc.  Gross profit will fluctuate from year to year based on the types of work assigned to the Company by its clients.

Operating Expenses

Total operating expenses for the nine months ended June 30, 2023 were $1,710,557 as compared with $1,707,590 for the comparable prior year period, an increase of $2,967 or 0.2%. The increase was primarily a result of an increase in management consulting of $117,400 and wages and benefits of $57,965, offset by a reduction of general and administrative of $172,398. The increase in management consulting of $117,400 is due to distribution to three members of $632,075 in current period as compared to $514,675 distribution for the comparable prior year period. The distribution is usually decided based on a combination of the Company’s operation results and performance of the Company’s management group and their respective member companies. The decrease in general and administrative expenses primarily consisting of $71,422 in lower rent expense, repairs and maintenance of $26,278, and utilities of $30,479 as result of lease termination on December 31, 2022, decrease in new business development cost of $16,746, offset by increase in mergers and acquisition expense (not including legal fees related to acquisition) of $49,817. In addition, professional fees (including public company expenses, and legal fees related to acquisition), as part of general and administrative costs, decreased by $53,294.

Income from Operations

Income from Operations for the nine months ended June 30, 2023 decreased by $157,568 as compared to the same period in the prior year. The decrease was primarily related to decreased gross profit of $154,601 and an increase in operating expenses of $2,967.

Other Income and Expense 

Other income and expense, net for the nine months ended June 30, 2023 was an income of $2,899 as compared to income of $2,239 for the comparable prior year period.  The income of the current period was primarily due to interest income offset by loss on disposal of property and equipment. 

Income Before Provision for Income Taxes

Income before provision for income taxes for the nine months ended June 30, 2023 was $411,473 as compared to $568,381 for the comparable prior year period. 

Provision for Income Taxes

Provision for income taxes for the nine months ended June 30, 2023 was $151,769 as compared to $118,814 for the comparable prior year period.  The increase in income taxes is primarily due to changes in unbilled receivables, unearned revenues and increased revenues. Provision for income taxes is estimated quarterly applying both federal and state tax rates.

Liquidity and Capital Resources

As of June 30, 2023, we had cash of $1,189,583, a decrease of $545,557, or 31.4% when compared with a balance of $1,735,140 as of September 30, 2022.

During the nine months ended June 30, 2023, $536,509 was used in operating activities as compared with net cash provided by operating activities of $906,836 for the comparable prior year period. Our uses of cash for operating activities have primarily consisted of salaries and wages for our employees; costs incurred in connection with performance on client projects; facility and facility-related costs, material, management consulting and professional fees. The sources of our cash flows from operating activities have consisted primarily of payments received from clients in connection with the performance on contractually agreed-upon projects. Net cash flows from operating activities for the current period were a result of the net income, loss on disposition of property and equipment, depreciation expense, change of deferred tax and changes in current assets and liabilities of $869,688.

During the nine months ended June 30, 2022, $906,836 was provided by operating activities, which was a result of the net income, reversal of stock compensation expense, depreciation expense, change of deferred tax and changes in current assets and liabilities of $308,052.

During the nine months ended June 30, 2023 we purchased $10,248 in computer equipment and received $1,200 in insurance payout on equipment, and during the nine months ended June 30, 2022, we purchased $8,520 in computer equipment.

During the nine months ended June 30, 2023, and 2022, the Company did not have any cash flow activity from financing activities.

The ability to attract additional capital investments for more rapid expansion in the future will depend on many factors, including the availability of credit, rate of revenue growth, ability to acquire new client opportunities, the timing of new service product introductions and enhancements to existing services/products, and the opportunities to acquire complimentary businesses that may be made available to us from time-to-time. We believe that as of June 30, 2023, our cash position and cash flows from our operations will be sufficient to fund our working capital and planned strategic activities, excluding acquisitions, if any, for at least the next twelve months.

Any potential future sale of equity or debt securities may result in dilution to our stockholders, and we cannot be certain that additional public or private financing will be available in amounts or on terms acceptable to us, or at all. If we are required to raise additional financing, but are unable to obtain such financing, we may be required to delay, reduce the scope of, or eliminate one or more aspects of our operations or business development activities.

This quarterly report on Form 10-Q contains certain statements that are “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward-looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available.

Off-Balance Sheet Arrangements

As of June 30, 2023, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of June 30, 2023, 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 June 30, 2023, our internal control over financial reporting was not effective due to (i) insufficient segregation of duties in the finance and accounting functions due to limited personnel; and (ii) inadequate corporate governance policies. In the future, subject to working capital limitations, we intend to take appropriate and reasonable steps to make improvements to remediate these deficiencies.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item1. Legal Proceedings

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

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

Item 1A. Risk Factors

Not applicable for smaller reporting companies.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed or furnished with this report:

___________ 

* Included herewith

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

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