The aggregate market value of the voting stock
and non-voting common equity held by non-affiliates of the registrant as of December 31, 2018, the last business day of the registrant’s
most recently completed second fiscal quarter, was approximately $2.0 million.
As of October 7, 2019, 12,392,102
shares of common stock were issued and outstanding.
PART
I
FORWARD-LOOKING
STATEMENTS
This
report contains “forward-looking statements.” In some cases, you can identify forward-looking statements by terms
such as “may,” “intend,” “might,” “will,” “should,” “could,”
“would,” “expect,” “believe,” “estimate,” “predict,” “potential,”
or the negative of these terms and similar expressions intended to identify forward-looking statements. These statements reflect
the Company’s current views with respect to future events and are based on assumptions and subject to risks and uncertainties.
The Company discusses many of these risks and uncertainties in greater detail in Part I, Item 1A of this 10-K under the heading
“Risk Factors.” These risks and uncertainties may cause the Company’s actual results, performance, or achievements
to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.
You should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent the
Company’s estimates and assumptions as of the date of this report. The Company is under no duty to update any of the forward-looking
statements after the date of this report to conform such statements to actual results or to changes in our expectations.
The
following discussion should be read in conjunction with the financial statements and related notes included elsewhere in this
report.
ITEM
1. BUSINESS
General
Description of the Business
mPhase
Technologies, Inc. (“mPhase” or the “Company”) is a publicly-held New Jersey corporation which was organized
on October 2, 1996. The Company has over 23,000 shareholders and 11,689,078 shares of common stock outstanding at June
30, 2019. The Company’s common stock is traded on the Pink Sheets under the ticker symbol XDSL. The Company is headquartered
in Gaithersburg, Maryland. The Company employs two full-time employees, both of which are officers of the Company and two
part-time consultants who provide legal services and accounting services. Subsidiary companies in India employ a total of 40
software engineers and data analysis experts.
As
of January 11, 2019, the Company underwent a major change in management and control. The Company entered into an Employment Agreement
with Mr. Anshu Bhatnagar to become the new President and Chief Executive Officer and a Director of the Company. Mr. Bhatnagar
is also the President and CEO of Verus International, Inc. (ticker symbol “VRUS”) a publicly-held company. Mr. Bhatnagar
replaced Mr. Ronald Durando who resigned as CEO. Mr. Durando remained a Director of the Company until his resignation from such
position effective March 20, 2019. Effective January 11, 2019 all of the other prior Officers and Directors of the Company resigned
their respective positions. On January 28, 2019, Mr. Smiley, the former CFO of the Company, was reappointed as interim CFO and
on June 6, 2019, Mr. Smiley resigned as CFO of the Company and was replaced by Christopher Cutchens. Under the terms of Mr. Bhatnagar’s
Employment Agreement, he will receive a base salary of $275,000 per annum and was granted 2,620,899 shares of Common Stock, representing
20% of the Company’s Common Stock then outstanding at January 11, 2019. In addition, Mr. Bhatnagar, pursuant to the terms
of a Transition Agreement shall earn the right to be issued 4% of additional shares of the Company’s Common Stock for each
$1 million of gross revenues generated by the Company. Once the Company has achieved gross revenues of not less than $15,000,000
or is up-listed to a National Securities Exchange, Mr. Bhatnagar will have earned the remaining amount of the Company’s
Common Stock not to exceed 80% of the shares outstanding at January 11, 2019 as adjusted for the Reverse Split of the Company’s
Common Stock as described below.
The
new management of the Company is positioning the Company to become a leader in software relating to artificial intelligence and
machine learning to enable a more rapid commercial development of its patent portfolio and other intellectual property. Artificial
Intelligence is just simple math executed on an enormous scale. The more calculations a system can process, the more possible
it is for that system to emulate human-like cognitive abilities. With the advent of cloud infrastructure, GPU-accelerated processing
and deep learning architectures, it is now commercially viable to perform this math at such speeds and efficiency that Artificial
Intelligence (human-like cognitive abilities) can be embedded directly into business operations, platform architectures, business
services and customer experiences. The goal is to generate a faster growth of revenues for the Company.
The
Transition Agreement, as amended, provides for our new management to evaluate, formulate and implement a revised plan of operation.
The Company is implementing undertakings, initiated by outgoing management, to extinguish certain debts and settle or reduce other
liabilities outstanding at December 31, 2018, no later than January 15, 2020.
On
February 4, 2019, the Company announced the formation of mPhase Technologies India, Pvt, Ltd to focus on software and technology
development for new and existing projects. On February 6, 2019, the Company announced that it has commenced discussions with a
global pharmaceutical company to explore the use of mPhase’s “Smart Surface” technology for transdermal drug
delivery. mPhase’s current technology uses electronic or other external stimulus to dispense an unattended, predetermined
quantity of drug or medical agent through a smart surface membrane. On February 19, 2019, the Company announced that it will assemble
a team in India of highly qualified software and technology experts in the fields of artificial intelligence and machine learning
to work as part of its newly formed “Center of Excellence” India division.
On
March 7, 2019, the Company announced the acquisition of Travel Buddhi, a software platform to enhance travel via ultra-customization
tools that tailor a planned trip experience in ways not previously available. The Company is moving in a new strategic direction
of modification and modernization of its existing technology to make it “smart” and “connected” as part
of the internet of things.
On
March 19, 2019, Mr. Durando loaned the Company approximately $5,200 for general working capital purposes, under the terms of previous
agreements for officers’ loans. Separately Messrs. Durando and Bhatnagar each loaned the Company $25,000 on April 17, 2019
and April 24, 2019, respectively, providing an additional $50,000 for general working capital purposes, under the terms of new
notes, which generally provide for 6% interest and short-term repayment.
On
April 10, 2019, the Company filed a preliminary Schedule 14C information statement with the SEC in connection with a 5000/1 reverse
split of its common stock that had been approved by our Board of Directors in March of 2019. The Company under New Jersey law
is reducing its authorized shares of common stock to 25 million shares from the previously authorized 125,000,000,000 shares.
On
April 10, 2010 the Company repaid $3,000 that was accepted as payment, in full, of the convertible promissory note which had been
held by M.H Investment Trust II.
On
April 22, 2019 the Company filed a Definitive Schedule 14C information statement with the Securities and Exchange Commission in
connection with a 5000/1 reverse split of its common stock. The Company under New Jersey law is reducing its authorized shares
of common stock to 25 million shares from the currently authorized 125,000,000,000 shares.
On
April 22, 2019 we extended the obligations of the Company and the CEO to register shares of our Common Stock on a Registration
Statement on Form S-1, which at a minimum include shares held by prior management and strategic vendors referred to as “Related
Parties” as outlined in Section 1(d) of the Transition Agreement of January 11, 2019. The revised time to file a Registration
Statement with the SEC was amended in order to include certain participants in an ongoing private placement of its stock pursuant
to Section 4(a)(2) of the Securities Act of 1933. The Registration Statement was filed on July 19, 2019 and was declared effective
by the Securities and Exchange Commission on August 13, 2019.
During
the fiscal year ending June 30, 2019, the Company completed and announced the closing of a Private Placement of shares of its
common stock at $0.25 per share, raising gross proceeds of $193,000. The Private Placement was executed pursuant to Section 4(a)(2)
of the Securities Act of 1933, as amended, and the proceeds will be used by the Company for working capital and corporate acquisitions.
Effective
May 22, 2019 the Company completed a 5,000/1 reverse split of its Common stock reducing its authorized shares to 25 million shares
of Common Stock.
On
June 30, 2019, Company entered into a Share Purchase Agreement (“SPA”) to acquire a controlling interest in Alpha
Predictions, LLP, (“Alpha Predictions”) an India-based technology company. Alpha Predictions has 15 professionals
comprised of a team of data specialist who developed a suite of commercial data analysis products for use across multiple industries.
The current product offering includes software covering eight categories: inventory, stock management, marketing optimization,
sentiment analysis, customer segmentation and behavior, agro-tech image detection, electrocardiogram automation, and a recommendation
engine with multiple uses. Pursuant to the terms of the SPA, the Company is acquiring 99% of the outstanding stock of Alpha Predictions
from Snehalkumar Santosh Kadam, Smita Dinakar Shinde, Anuj Kumar Saxena, and Dhananjay Rajendra Adik (collectively, the “Sellers”)
in exchange for approximately $1,400 (USD), (99,000 INR). Prior to being acquired by the Company, Alpha Predictions generated
revenue in excess of $2.0 million (USD) and will begin contributing to mPhase revenues on July 1, 2019.
Also,
on June 30, 2019, the Company announced a $2.5 million (USD) contract to provide software, training, and support services to an
IT solutions and services company located in India. The contract provides mPhase with an initial $2.5 million of revenue upon
delivery of the software license and also provides subsequent revenue for training, support, updates and maintenance services
as provided.
On
August 27, 2019, the Company’s Board of Directors approved the filing of an amendment (the “Amendment”) to the
Company’s Certificate of Incorporation to increase the authorized shares of common stock from 25 million shares to 100 million
shares pursuant to Section 14A:7-2(4) of the Business Corporation Law of the State of New Jersey. The Amendment was filed with
the State of New Jersey on September 4, 2019.
Description
of Operations
Platform
Technology
Artificial
Intelligence and Machine Learning
Through
its recent acquisition of Alpha Predictions located in India, the customer has acquired a team of 15 software engineers and data
analysis experts capable of enabling the Company to provide products in the artificial intelligence and machine learning areas.
The company has in place and is developing proprietary software to enable customers to enhance their business capabilities by
providing sophisticated digital analysis of large volumes of data to provide sophisticated solutions to complex problems. The
current product offering includes software covering eight categories: inventory, stock management, marketing optimization, sentiment
analysis, customer segmentation and behavior, agro-tech image detection, electrocardiogram automation, and a recommendation engine
with multiple uses.
Smart
Surfaces
The
surface is an important part of virtually every physical object and often plays an overriding role in many processes, beyond mere
connectivity and structural support, but more deeply into areas involving chemical and biological interactions. In some instances,
the surface provides an easy entry into the chemical or biological systems; in others it protects the internal elements of the
object, surrounded by the surfaces.
The
Company’s current technology platform is the Smart Surface. By being able to control the surface properties of materials
down to the nanometer scale, new and improved devices can be designed and built that may lead to compelling business opportunities.
One type of smart surface of particular interest allows properties to be changed in response to an external stimulus.
Initially,
the Company’s development focused on Micro Electronic Mechanic Systems (MEMS) devices by manipulating the surface of silicon
materials – the same material used to make microelectronic materials and devices. Using physical and chemical processes,
the surface of the silicon is modified to make solid porous structures known as membranes. This is where microfluidics comes into
play. These membranes can be used to selectively control the flow of liquids through the pores or openings at the micrometer length
scale.
Surfaces
may be characterized as hydrophilic or hydrophobic depending on whether or not they attract or repel water (or other liquids).
A hydrophilic surface can be wet and adsorbs water. A hydrophobic surface, on the other hand, cannot be wet. Hydrophilic and hydrophobic
surfaces are abundant in nature and in synthetic materials, both organic and inorganic in chemical composition. A familiar example
of a hydrophilic surface is a sponge that readily soaks up water. By contrast, many plant leaves and flower petals are hydrophobic,
as are insect parts and bird feathers. Synthetic hydrophobic surfaces include Scotchgard™ treated fabric, Teflon® coated
metal, or Rain-X® coated glass. On a hydrophobic surface, water beads up and can move around without being absorbed by the
solid material that it is resting on.
So-called
superhydrophobic surfaces are also found in nature and can now be replicated in the lab. The lotus leaf and rose petal, for example,
exhibit super-hydrophobicity. Here water droplets form almost perfect spheres with hardly any contact with the underlying solid
surface. This makes the liquid even easier to move and manipulate. The synthesis of superhydrophobic surfaces has recently been
made possible by advances in nanotechnology and the Company is leading the way to better understand and create materials and devices
incorporating these unique surface properties.
As
the Company’s research and development efforts evolve, in addition to silicon materials, the ability to control the surface
properties of materials can be extended to other substances such as polymers, ceramics, metals, and fibers providing opportunities
for our platform technology to be used in a range of potential applications such as energy storage and power management for portable
electronics and microelectronics, self-cleaning surfaces, filters for water purification or desalination systems, materials for
environmental remediation that separate liquids or solvents, and other situations where the control of the interaction of a solid
surface exposed to a liquid is vitally important.
Smart
NanoBattery
Battery
technology has changed little in its fundamentals over the past 150 years. As a result, ordinary batteries begin dissipating energy
as soon as they are assembled and therefore have limited shelf life. Chemistries are fixed inside the package so the user cannot
interact with the contents to program functionality. The size and form of batteries have not kept pace with the miniaturization
of electrical components, microprocessors and integrated circuits. As a result, the optimal implementation of an electronic device
is not always achieved. Some batteries contain chemicals that are not considered safe or environmentally friendly (“green”).
This makes disposal a potential issue.
The
Company is challenging this convention by using their proprietary superhydrophobic porous silicon membrane technology as the basis
to build the Smart NanoBattery, a reserve battery providing Power On Command™ prior to initial activation.
Super-hydrophobicity
initially keeps the liquid electrolyte physically separated from the solid electrodes of the battery, thus preventing the chemical
reactions from occurring that cause the battery to provide power. This gives the Smart NanoBattery the benefit of potentially
infinite shelf life.
A
conventional battery loses some capacity while sitting on the shelf in its package or stored in an electronic or electrical device,
even before being used for the first time. On the other hand, the Smart NanoBattery is built so that it is inactive and remains
that way indefinitely until it is turned on. No power is lost to self-discharge or leakage current prior to activation. When needed,
the Smart NanoBattery can be activated on command via the phenomenon of electrowetting. The surface properties of the porous silicon
membrane are selectively controlled to shift instantly from a superhydrophobic to hydrophilic state. In other words, electrowetting
acts as the triggering mechanism.
The
Company has successfully fabricated and demonstrated its first 3-volt lithium-based Smart NanoBattery, based on a design allowing
either manual or remote activation by the user, the feature known as Power on Command™.
By
incorporating the phenomenon of electrowetting on nanostructured surfaces into a revolutionary way of storing energy, the Smart
NanoBattery provides power to portable electronic and microelectronic devices exactly when and where it is needed. As a reserve
battery it is an augmentation to conventional primary batteries. The nanobattery converts stored chemical energy into usable electrical
energy, but in a way that is potentially more reliable, more versatile, more environmentally friendly, and less expensive than
conventional primary batteries.
Applications
Artificial
Intelligence and Machine Learning
The
Company has recently acquired technologies focused on artificial intelligence and machine learning. The related proprietary software
enable customers to enhance their business capabilities by providing sophisticated digital analysis of large volumes of data to
provide sophisticated solutions to complex problems. The current product offering includes software covering eight categories:
inventory, stock management, marketing optimization, sentiment analysis, customer segmentation and behavior, agro-tech image detection,
electrocardiogram automation, and a recommendation engine with multiple uses.
Smart
Surfaces and NanoBattery
The
Company is exploring military and commercial applications of smart surfaces in which the properties can be accurately and precisely
controlled down to the nanometer scale. Electrowetting allows the switching from a hydrophobic to hydrophilic state as a result
of an electronic stimulus.
The
Smart NanoBattery, the Company’s first smart surface product, has a unique architecture that enables a shelf life of decades,
remote activation, programmable control, scalable manufacturing, and adaptability to multiple configurations. The value proposition
to the end user is to have a source of energy or power that is literally always ready – reliable, convenient, low cost –
a battery guaranteed to work at full capacity when and where you need it.
The
Smart NanoBattery can conceivably supply power “on command” to a wide variety of portable electronic and microelectronic
devices used in military, medical, industrial, and consumer applications.
The
Company has demonstrated that the battery works in lab tests as well as in a significant field test conducted for the U.S. Army
as part of a guided munitions project. The relationship with the Army also included an $850,000 funded project to develop a battery
for a mission critical computer memory backup application. The target was a small footprint, 3-volt lithium battery with a minimum
shelf life of 20 years and uninterruptible power output during this time period. To the best of the Company’s knowledge,
no other battery technology available today can deliver the long-term performance requirements specified by the U.S. Army for
this application.
The
Smart NanoBattery can potentially be designed to accommodate a variety of sophisticated portable electronic and microelectronic
devices including next-generation cell phones, handheld gaming devices, wireless sensor systems, radio frequency identification
tags, high-tech flashlights and beacons, health alert alarms, and non-implantable and implantable medical devices such as pacemakers.
Initial
applications will address the need to supply emergency and backup power to a range of products for defense and security, with
future applications in the commercial and consumer arenas.
Strategic
Alliances
Artificial
Intelligence and Machine Learning
The
Company has recently entered into two contracts with two separate customers to provide, including but not limited to, software,
training, and support services as required. The contracts provide for initial revenue streams as well as subsequent revenue for
training, support, updates and maintenance services as provided.
Smart
NanoBattery
The
Company continued during 2019, together with Picatinny Arsenal, to jointly seek federal funding under SBIR grants to develop additional
new products for military small munitions applications. The Company has a strong historic cooperative relationship for product
development and testing with Picatinny Arsenal having entered into 3 CRADA’s (Cooperative Research Agreements) with this
small munitions testing facility of the U.S. Army The Company seek opportunities with various potential academic partners to obtain
further STTR grants for new product research and development.
In
2007, the Company entered into a Cooperative Research and Development Agreement (“CRADA”) with Picatinny Arsenal to
test the single cell version of the Smart NanoBattery suitable for future research and development programs for projectile launched
munitions. From 2007 through the first quarter of calendar year 2010, numerous internal laboratory air gun simulation tests were
performed, including a live-air gun and live gun fired test at the United States Army’s facility at Aberdeen Proving Grounds,
Aberdeen, Maryland. A prototype of the Smart NanoBattery was the subject of a live fire test as part of a projectile fired out
of an Abrams Tank. The results of the test indicated that the battery was activated by 10,000 G forces indicating that it could
supply energy necessary to operate a guidance system for small munitions. In addition, the Smart NanoBattery demonstrated extreme
resiliency to shock and acceleration since, it survived tests that subjected it to high acceleration of over 30,000 G forces.
On
February 9, 2011, the Company announced that it had signed a 3-year CRADA with the U.S. Army Armament Research, Development, and
Engineering Center (ARDEC) at Picatinny, New Jersey, to continue to cooperatively test and evaluate the mPhase Smart NanoBattery,
including new design features functionally appropriate for DoD based systems requiring portable power sources. The army researchers
are evaluating the prototypes using the Army’s testing facilities at Picatinny Arsenal in New Jersey to determine applicability
of the technology to gun fired munitions and potentially to incorporate the technologies into research and development and other
programs sponsored by Picatinny. The Research Agreement is supported by the Fuze & Precision Armaments Technology Directorate.
In order for significant further research and development to be performed with respect to the Smart Nano Battery the Company will
have to be successful in obtaining additional congressional funding specifically designated for this type of battery. This CRADA
was renewed on March 27, 2014 for an additional three-year period by the Army. The Company is currently seeking to enter a new
CRADA with the U.S. Army, subject to availability of funding.
Products
and Services
Since
its inception in 1996, the Company has been focused on the development of intellectual property involving high technology innovative
solutions and products with high-growth potential. The Company has previously served as an incubator for exploratory research
and initial development for products that are best characterized as having a high risk/high reward profile since they involve
exploratory research to achieve significant scientific breakthroughs from existing products that can have a substantial economic
impact and benefit upon successful commercialization. Beginning on January 11, 2019, the new management of the Company has shifted
the focus to the rapid expansion of profit centers centered around the rapid creation, either by acquisition or fast development
of software platforms that will enable the Company to generate revenue from artificial intelligence and machine learning.
Competitive
Business Conditions
The
industry of artificial intelligence and machine learning software is highly competitive. Well capitalized companies such as Amazon,
Google, IBM and Microsoft are devoting significant resources and capital in developing customer products and solutions using this
technology. Such companies have far greater resources than the Company. The Company believes, however, that it has assembled a
group in India of highly qualified software and technology experts on a very cost-effective basis. The Company is also acquiring
entities that have already established customer relationships, revenues and market niches that will enable the Company to leverage
off such capabilities, and where appropriate, enhance its existing technology in the area of “Smart Surfaces” described
below.
Artificial
Intelligence and Machine Learning Segment
Artificial
intelligence is the use of machines to do cognitive work such as problem solving, pattern matching and creating new patterns.
Machine learning is a subset of artificial intelligence which refers to training a machine as opposed to simply programming it.
Artificial intelligence has the potential to revolutionize nearly all aspects of business across sections and functions. Currently
only a small percentage of organizations have deployed artificial intelligence but this is changing quickly. There is a high correlation
between organizations that are far along in digitizing their information and those that are ready for products and solutions provided
by artificial intelligence and machine learning providers. The Company has acquired and is developing significant product capabilities
in this area.
Battery
Segment
The
Company believes that the design and functionality of its lithium Smart NanoBattery make it unique to the portable electronics
battery market segment throughout the fiscal year ended June 30, 2019. To the best of our knowledge, there is no existing product
that directly competes with the Smart NanoBattery in terms of its combination of small size and reserve design. As a reserve battery,
the Smart NanoBattery remains dormant until it is activated on command. It does not self-discharge or die prior to its first activation,
thereby offering extremely long shelf life prior to use as either a primary or backup battery in a device. Shelf life is projected
to be in excess of twenty years.
There
are numerous thin film batteries based on lithium metal, lithium ion and lithium polymer, as well as other chemistries, used in
military devices, portable electronics, RFID tags and wireless sensor networks, that are similar in size to the Smart NanoBattery,
often referred to as microbatteries. None of these designs is based on reserve battery architectures. Thin film batteries are
manufactured by companies including Cymbet Corporation, Front Edge Technology, Infinite Power Solutions, ITN Energy Systems, Johnson
Research and Development Company, KSW Microtec, Lithium Technology Corporation, MPower Solutions, Oak Ridge Micro-Energy, Power
Paper, Solicore, VoltaFlex Corporation. Large companies such as Energizer, Ultralife, Varta and Proctor & Gamble are also
involved with developing thin film batteries. Thin film battery markets are anticipated to grow substantially as the result of
a wide expansion of portable devices in that time frame. With 3.5 billion cell phone users and 67 billion RFID tags per year,
it is expected that there will be substantial commercial demand for thin film batteries.
Traditional
reserve batteries are distinct from the mPhase Smart NanoBattery in terms of size and activation mechanism. The market for reserve
batteries has largely been limited to the military for supplying power to munitions and other mission-critical electronic devices.
The traditional reserve battery tends to be larger and certain types are built by hand and contain mechanical parts to activate
the battery. The Smart NanoBattery relies on the phenomenon of electrowetting to initiate activation or a mechanical barrier that
can be broken, in the case of the breakable barrier design. Traditional reserve batteries for military applications have been
supplied by companies such as EaglePicher, Yardney and Storage Battery Systems, Inc. The Company believes that it may be able
to significantly reduce the cost of its Smart Nanobattery with the recent discovery of the potential of “printing”
the battery on a form of graphite rather than traditional silicon surface. The Company, through its working relationship with
Stevens Institute, began in fiscal year 2012 to investigate the feasibility of the use of graphite which is much stronger, flexible
and inexpensive than traditional silicon.
Outsourcing
Research
and Development
The
Company practices an outsourcing model whereby it contracts with third party vendors to perform research and development rather
than performing the bulk of these functions internally. For current development of its SmartNano battery, the Company has outsourced
the majority of the work. From February of 2004 through March of 2007, the Company engaged Lucent/Bell Labs (now Nokia) to develop,
using the science of nanotechnology, micro power cell arrays creating a structure for zinc batteries that separated the chemicals
or electrolytes prior to initial activation. This was done by suspending on nano grass or small spoke-like pieces of silicon a
liquid electrolyte taking advantage of a superhydrophobic effect that occurs as a result of the ability to manipulate materials
of a very small size or less than 1/50,000 the size of a human hair. The Company has, as a result of outsourcing, been able to
have access to facilities, equipment and research capabilities that the Company would not be able to develop on its own given
the financial resources and time that would be required to build or acquire such research capabilities. The Company has also been
able to achieve key strategic alliances with the U.S. Army to successfully test, under military combat conditions, its SmartBattery
design, leading to further validation of its path to product development under a Cooperative Research and Development Agreement
(CRADA). In addition, the Company has formed a relationship with Energy Storage Research Group, a center of excellence at Rutgers
University, in New Jersey, that has enabled the Company to expand its battery development from a zinc to a lithium battery capable
of delivering significantly more power. During fiscal years 2009 and 2010, the Company outsourced considerable foundry work for
final development of the Smart NanoBattery to Silex, a Swedish company.
During
the period from March of 2005 to April of 2007, the Company engaged the Bell Labs division of Lucent Technologies, Inc. to develop
a magnetometer or electronic sensor also using the science of nanotechnology. Although the Company has, in order to conserve financial
resources, currently suspended further development of its magnetometer product line, we believe that the intellectual property
developed from the research to date could be resumed to develop viable military and industrial products depending upon future
financial resources of the Company and future competitive market conditions.
Commencing
in fiscal year ended June 30, 2013, the Company has limited product development of its Smart NanoBattery in order to conserve
resources. The Company continues through the fiscal year ended June 30, 2019, to protect its intellectual property with respect
to the Smart NanoBattery through active management of its patent portfolio.
Patents
and Licenses
The
Company has filed and intend to file United States patents and/or copyright applications relating to some of our proposed products
and technologies, either with our collaborators, strategic partners or on our own. There can be no assurance however, that any
of the patents obtained will be adequate to protect our technologies or that we will have sufficient resources to enforce our
patents.
Because
we may license our technology and products in foreign markets, we may also seek foreign patent protection for some specific patents.
With respect to foreign patents, the patent laws of other countries may differ significantly from those of the United States as
to the patentability of our products or technology. In addition, it is possible that competitors in both the United States and
foreign countries, many of which have substantially greater resources and have made substantial investments in competing technologies,
may have applied for, or may in the future apply for and obtain, patents, which will have an adverse impact on our ability to
make and sell our products. There can also be no assurance that competitors will not infringe on our patents or will not claim
that we are infringing on their patents. Defense and prosecution of patent suits, even if successful, are both costly and time
consuming. An adverse outcome in the defense of a patent suit could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to cease our operations.
The
Company has intellectual property as follows:
Artificial
Intelligence and Machine Learning:
The
Company is evaluating various aspects of its artificial intelligence and machine learning technologies and will file for protective
patents as determined appropriate.
Nano
Technology, Micro Electrical Mechanical Systems (MEMS) and Battery Portfolio:
Various
aspects of the Company’s technology are protected by patents either owned directly by the Company or with respect to which
the Company has sub-licensing rights. The Company’s current battery related patent portfolio consists of ten issued or licensed
patents, of which one is jointly owned with Nokia Corporation (formerly Alcatel Lucent Technologies), and five are licensed from
Nokia Corporation. These cover such aspects of the technology as the ability to use electrowetting to create a moveable liquid
lens, methodology and apparatus for reducing friction between a fluid and a body, methodology for etching planar silicon substrates
to develop a reserve battery device, methodology and apparatus for controlling the flow resistance of a fluid on nanostructured
or microstructured surfaces, methodology for creating a structured membrane with controllable permeability, methodology for a
nanostructured battery with end of life cells, and methodology for making a multi-cell battery system with multiple chemistries
in each individual cell of the battery pack. Some of these patents are specific to the development of a battery device while others
are more generalized. The Company has four patent applications that are subject to reinstatement, of which three, the Company
intends to submit for reinstatement.
Other
Patents
The
Company has obtained trademark protection for its mPower Emergency IlluminatorTM and mPower on CommandTM.
In
July of 2009, the Company filed for 3 new patents covering the unique design features of its manually-activated lithium reserve
battery and emergency flashlight products.
On
May 20, 2011, the Company announced that it had been granted a U.S. patent for multi-chemistry battery architecture.
On
February 10, 2012 the Company filed a U.S. provisional patent with the USPTO for a Non-Pump Enabled Drug Delivery System.
On
February 11, 2013 the provisional patent application was converted to a patent application entitled Drug Delivery System.
In
order to conserve financial resources, the Company did not file for patent protection any additional technology or products during
the fiscal year ended June 30, 2019. As of the date hereof, the Company has rights under the following patents:
|
File
Number
|
|
Invention
Title
|
|
Filing
Date
|
|
Issue
Date
|
|
Patent
Number
|
|
Patent
Office
|
|
ALWA-001
|
|
Battery
System
|
|
3/20/2008
|
|
9/20/2011
|
|
8,021,773
|
|
United
States
|
|
ALWA-004
|
|
Tunable
Liquid Microlens With Lubrication Assisted Electrowetting
|
|
9/13/2001
|
|
4/8/2003
|
|
6,545,815
|
|
United
States
|
|
ALWA-005
|
|
Method
And Apparatus For Controlling Friction Between A Fluid And A Body
|
|
8/27/2003
|
|
1/2/2007
|
|
7,156,032
|
|
United
States
|
|
ALWA-006
|
|
Electrowetting
Battery Having A Nanostructured Electrode Surface
|
|
11/18/2003
|
|
6/5/2007
|
|
7,227,235
|
|
United
States
|
|
ALWA-007
|
|
Method
And Apparatus For Controlling The Flow Resistance Of A Fluid On Nanostructured Or Microstructured Surfaces
|
|
9/30/2003
|
|
2/28/2012
|
|
8,124,423
|
|
United
States
|
|
ALWA-009
|
|
Structured
Membrane With Controllable Permeability
|
|
7/28/2006
|
|
4/13/2010
|
|
7,695,550
|
|
United
States
|
|
ALWA-010
|
|
End
Of Life Cycle, Nanostructured Battery
|
|
3/18/2004
|
|
11/17/2009
|
|
7,618,746
|
|
United
States
|
|
ALWA-011
|
|
Adjustable
Barrier For Regulating Flow Of A Liquid
|
|
8/10/2007
|
|
|
|
|
|
United
States
|
|
ALWA-012
|
|
Event
Activated Micro Control Devices
|
|
8/10/2007
|
|
|
|
|
|
United
States
|
|
ALWA-013
|
|
Combined
Wetting/Non-Wetting Element For Low and High Surface Tension Liquids
|
|
1/25/2008
|
|
|
|
|
|
United
States
|
|
ALWA-014
|
|
Device
For Fluid Spreading And Transport
|
|
1/25/2008
|
|
|
|
8,435,397
|
|
United
States
|
|
ALWA-017
|
|
Electrical
Device Having A Reserve Battery Activation System
|
|
9/2/2009
|
|
|
|
|
|
United
States
|
|
ALWA-019
|
|
Modular
Device
|
|
9/2/2009
|
|
1/1/2013
|
|
8,344,543
|
|
United
States
|
|
ALWA-022
|
|
Reserve
Battery
|
|
7/8/2009
|
|
|
|
|
|
United
States
|
|
ALWA-029
|
|
Portable
Battery Booster
|
|
9/17/2010
|
|
|
|
|
|
United
States
|
|
ALWA-034
|
|
Reserve
Battery System
|
|
3/2/2010
|
|
2/12/2013
|
|
8,372,531
|
|
United
States
|
|
ALWA-038
|
|
Adjustable
Barrier for Regulating Flow of a Liquid
|
|
3/10/2010
|
|
|
|
|
|
|
|
*ALWA-043
|
|
Combined
Wetting/Non-Wetting Element For Low and High Surface Tension Liquids (SOUTH KOREA)
|
|
8/18/2010
|
|
|
|
|
|
SOUTH
KOREA
|
|
ALWA-046
|
|
Adjustable
Barrier For Regulating Flow Of A Liquid
|
|
|
|
|
|
|
|
United
States
|
|
ALWA-047
|
|
Drug
Delivery System
|
|
2/11/2013
|
|
|
|
|
|
United
States
|
We
also rely on unpatented proprietary technology, and we can make no assurance that others may not independently develop the same
or similar technology or otherwise obtain access to our unpatented technology.
Research
and Development
Artificial
Intelligence
With
the recent acquisition of Alpha Predictions, located in India, the Company is able to offer a multitude of services through the
use of data analysis. These include; primary and secondary research, business plans, product and application potential, market
potential, demand forecasting, segmentation, targeting, positioning, investment, divestment, data analytics and several optimization
techniques. Alpha Predictions uses its corporate and business level consulting expertise to support and enhance the growth of
promising enterprises. Our research team uses the holistic approach that encompasses multiple facets of a business. We have developed
a unique approach to problem solving that is time tested.
Alpha
Predictions analyzes every problem or situation through various perspectives. Consulting is multidisciplinary, that is why our
team is comprised not only of data analysts but also financial analysts and domain experts. Alpha Predictions provides
a highly sophisticated digital analysis capability to its business clients including Supply Chain Analysis, Pricing Analysis,
Market Entry Analysis and Customer Insight. Alpha Predictions currently has approximately $2.0 million (USD) in revenues. The
Company is able to leverage Alpha Prediction personnel and their expertise to develop new proprietary software platforms for data
analysis derived from its present experience and expertise gained in servicing its present customer base.
Smart
Surfaces
Our
Smart NanoBattery and power cell technology research and development was performed by the Bell Labs division of Alcatel/Lucent
from February of 2004 through March of 2007 at an aggregate cost of $3.8 million. The Company paid Bell Labs $300,000 covering
the period from April 27, 2007 through July 30, 2007, at which time it determined that, in order to develop a lithium battery
for higher density energy than zinc, it required facilities capable of handling lithium battery research that Bell Labs does not
have. The Company engaged a number of small foundries during fiscal year ended June 30, 2008 for commercialization of its Smart
NanoBattery at a cost of approximately $150,000. In fiscal year ended June 30, 2009, the Company engaged Eagle Picher at a cost
of $75,000 to design and engineer a prototype of its manually-activated lithium reserve battery and Porsche Design studio at a
cost of $79,123 for design of its emergency flashlight product. In addition, the Company secured a Co-Branding Agreement with
Porsche Design Studio for its emergency flashlight product. In fiscal year ended June 30, 2010, the Company paid $950,018 in connection
with producing and bringing this product to market, and in fiscal year ended June 30, 2011, the Company incurred $33,254 of expenses
in connection with this product. During the fiscal year ended June 30, 2009, the Company engaged Silex, a silicon foundry in Sweden,
at a cost of $21,200 for further development of its Smart NanoBattery; payments to Silex for fiscal year ended June 30, 2010 in
connection with the Smart NanoBattery amounted to $396,780, and for fiscal year ended June 30, 2011 they were $40,800.
During
fiscal years ended June 30, 2008, June 30, 2009, and June 30, 2010, the Company engaged in joint research with Rutgers University
in connection with a $750,000 STTR Grant from the United States Army for purposes of developing an emergency reserve battery to
back-up a computer memory application.
Employees
The
Company currently employs two full-time employees, both of which are officers of the Company and two part-time consultants
who provide legal services and accounting services. Subsidiary companies in India employ a total of 40 software engineers
and data analysis experts.
ITEM
1A. RISK FACTORS
Risks
Relating to the Company’s Complete Dependence upon the Development of New Products
Prior
to the Company’s change in management on January 11, 2019, the Company has been forced to curtail development of all products
and it is unknown whether the Company will be successful in acquiring and developing products in the fields of artificial intelligence
and machine learning except its Smart NanoBattery in order to conserve financial resources.
The
Company has been forced to focus on commercialization of only one of its products. No assurance can be given that the Company
will have sufficient resources to develop new products in the areas of artificial intelligence and machine learning. The Company’s
lack of financial resources to simultaneously develop multiple products could increase its overall risk profile as a company.
Our
current “smart surface technology” is at an early stage of development and we may not develop products that can be
commercialized.
We
have derived very limited revenues from a Phase I Army Grant of approximately $100,000 and a Phase II Army Grant of approximately
$750,000 with respect to our Smart NanoBattery product from inception of development in February 2004 through the date hereof.
Other material revenue was derived from our series of battery “Jump Starters” in the fiscal years ended 2014 and 2015;
products that the Company discontinued beginning in April 2016 owing to contracting margins and increased competition,
We
have limited manufacturing, marketing, distribution and sales capabilities which may limit our ability to generate revenues.
Due
to the relatively early stage of our products, we have recent, but very limited, investments in software platform, marketing,
distribution or product sales resources. We cannot assure you that we will be able to invest or develop any of these resources
successfully or as expediently as necessary. The inability to do so may inhibit or harm our ability to generate revenues or operate
profitably.
We
have a history of operating losses and we have never generated an operating profit in our history.
If
we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their
entire investment. Our prospects must be considered speculative in light of the risks, expenses and difficulties frequently encountered
by companies with new products in their early stages of development, particularly in light of the uncertainties relating to the
new, competitive and rapidly evolving markets in which we anticipate we will operate. To attempt to address these risks, we must,
among other things, further develop our technologies, products and services, successfully implement our research, development,
marketing and commercialization strategies, respond to competitive developments and attract, retain and motivate qualified personnel.
A substantial risk is involved in investing in us because, as a company we have fewer resources than an established company, our
management may make mistakes with respect to development of new products, and we may be more vulnerable operationally and financially
to any mistakes that may be made, as well as to external factors beyond our control.
We
have limited resources to manage development activities.
Our
limited resources in conducting and managing development activities might prevent us from successfully designing or implementing
new products. If we do not succeed in conducting and managing our development activities, we might not be able to commercialize
our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
Our
ability to generate revenues from our entry into the fields of artificial intelligence and machine learning as well as from our
Smart Nano Battery will depend on a number of factors, including our ability to successfully complete and implement our commercialization
strategy. In addition, even if we are successful in bringing our Smart Nano Battery to market, we will be subject to the risk
that the marketplace will not accept such product. We may, and anticipate that we will need to, transition from a company with
a research and development focus to a company capable of supporting commercial activities and we may not succeed in such a transition.
Because
of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to
predict the extent of our future losses or when or if we will become profitable.
Our
failure to successfully commercialize our new products in the fields of machine learning and artificial intelligence as well as
our Smart Nano Battery or to become and remain profitable could depress the market price of our Common Stock and impair our ability
to raise capital, expand our business, diversify our product offerings and continue our operations.
Because
of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to
predict the extent of our future losses or when or if we will become profitable.
Our
failure to successfully commercialize our products to be developed in the fields of artificial intelligence and machine learning
as well as our Smart Nano Battery, or to become and remain profitable could depress the market price of our Common Stock and impair
our ability to raise capital, expand our business, diversify our product offerings and continue our operations.
Risks
Relating to Technology
We
are dependent on new and unproven technologies.
Our
risks as an early stage company are compounded by our heavy dependence on emerging and sometimes unproven technologies such as
artificial intelligence and machine learning as well as our Smart Nanobattery. If these technologies do not produce satisfactory
results, our business may be harmed.
We
may not be able to commercially develop our technologies and proposed product lines, which, in turn, would significantly harm
our ability to earn revenues and result in a loss of investment.
Our
ability to commercially develop our technologies will be dictated in, large part, by forces outside our control which cannot be
predicted, including, but not limited to, general economic conditions. Other such forces include the success of our research and
field testing, the availability of collaborative partners to finance our work in pursuing applications of artificial intelligence,
machine learning and “smart surfaces” or other developments in the field which, due to efficiencies or technological
breakthroughs may render one or more areas of commercialization more attractive, obsolete or competitively unattractive. It is
possible that one or more areas of commercialization will not be pursued at all if a collaborative partner or entity willing to
fund research and development cannot be located. Our decisions regarding the ultimate products and/or services we pursue could
have a significant adverse effect on our ability to earn revenue if we misinterpret trends, underestimate development costs and/or
pursue wrong products or services. Any of these factors either alone or in concert could materially harm our ability to earn revenues
or could result in a loss of any investment in us.
If
we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.
We
are engaged in activities in the artificial intelligence, machine learning, nanotechnology and microfluidics field, which is characterized
by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological
developments, our ability to operate profitably could suffer. We cannot assure you that research and discoveries by other companies
will not render our technologies or potential products or services uneconomical or result in products superior to those we develop
or that any technologies, products or services we develop will be preferred to any existing or newly-developed technologies, products
or services.
Risks
Related to Intellectual Property
Certain
aspects of our technology are not protectable by patent or copyright.
Certain
parts of our know-how and technology are not patentable. To protect our proprietary position in such know-how and technology,
we require all employees, consultants, advisors and collaborators with access to our technology to enter into confidentiality
and invention ownership agreements with us. We cannot assure you; however, that these agreements will provide meaningful protection
for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further,
in the absence of patent protection, competitors who independently develop substantially equivalent technology may harm our business.
Patent
litigation presents an ongoing threat to our business with respect to both outcomes and costs.
It
is possible that litigation over patent matters with one or more competitors could arise. We could incur substantial litigation
or interference costs in defending ourselves against suits brought against us or in suits in which we may assert our patents against
others. If the outcome of any such litigation is unfavorable, our business could be materially adversely affected. To determine
the priority of inventions, we may also have to participate in interference proceedings declared by the United States Patent and
Trademark Office, which could result in substantial cost to us. Without additional capital, we may not have the resources to adequately
defend or pursue this litigation.
We
may not be able to protect our proprietary technology, which could harm our ability to operate profitably.
Patent
and trade secret protection is critical for the new technologies we utilize, artificial intelligence, machine learning and nanotechnology
and microfluidics, as well as the products and processes derived through them. Our success will depend, to a substantial degree,
on our ability to obtain and enforce patent protection for our products, preserve any trade secrets and operate without infringing
the proprietary rights of others. We cannot assure you that:
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we
will succeed in obtaining any patents in a timely manner or at all, or that the breadth or degree of protection of any such
patents will protect our interests,
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the
use of our technology will not infringe on the proprietary rights of others,
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patent
applications relating to our potential products or technologies will result in the issuance of any patents or that, if issued,
such patents will afford adequate protection to us or not be challenged, invalidated or infringed,
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patents
will not issue to other parties, which may be infringed by our potential products or technologies, and
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we
will continue to have the financial resources necessary to prosecute our existing patent applications, pay maintenance fees
on patents and patent applications, or file patent applications on new inventions.
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The
fields in which we operate have been characterized by significant efforts by competitors to establish dominant or blocking patent
rights to gain a competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors’
purported patent rights and the technologies they actually utilize in their businesses.
Patents
obtained by other persons may result in infringement claims against us that are costly to defend and which may limit our ability
to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential products.
If
third party patents or patent applications contain claims infringed by either our technology or other technology required to make
and use our potential products and such claims are ultimately determined to be valid, there can be no assurance that we would
be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology.
If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some products commercially. We may
be required to defend ourselves in court against allegations of infringement of third-party patents. Patent litigation is very
expensive and could consume substantial resources and create significant uncertainties. Any adverse outcome in such a suit could
subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require
us to cease using such technology.
We
may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
Considerable
research in the areas of micro fluid dynamics is being performed in countries outside of the United States, and a number of potential
competitors are located in these countries. The laws protecting intellectual property in some of those countries may not provide
adequate protection to prevent our competitors from misappropriating our intellectual property. Several of these potential competitors
may be further along in the process of product development and also operate large, company-funded research and development programs.
As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product
commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop
obsolete.
We
may incur substantial expenditures in the future in order to protect our intellectual property.
We
believe that our intellectual property with respect to our Smart NanoBattery and our proprietary rights with respect to the Company’s
permeable membrane design consisting of both micro and nano scale silicon features that are coated with a monolayer chemistry
used to repel liquids is critical to our future success. The Company’s current battery related patent portfolio consists
of seven issued patents, of which one is jointly owned with Rutgers University, two are jointly owned with Nokia (formerly Lucent
Technologies) and four are licensed from Nokia. We also have four patent applications related to the Smart Surfaces technology
that have been filed with the United States Patent Office and other foreign patent offices that are in various stages of examiner
review, as well as four additional patent applications related to other Smart Surfaces technologies under review. Our pending
patent applications may never be granted for various reasons, including the existence of conflicting patents or defects in our
applications. Even if additional U.S. patents are ultimately granted, there are significant risks regarding enforcement of patents
in international markets. There are many patents being filed as the science of nanotechnology develops and the Company has limited
financial resources compared to large, well established companies to bring patent litigation based upon claims of patent infringement.
Our
products may not be accepted in the marketplace.
The
degree of market acceptance of those products will depend on many factors, including:
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Our
ability to manufacture or obtain from third party manufacturers sufficient quantities of our product candidates with acceptable
quality and at an acceptable cost to meet demand, and
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Marketing
and distribution support for our products.
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We
cannot predict or guarantee that either military or commercial entities, in general, will accept or utilize any of our product
candidates. Failure to achieve market acceptance would limit our ability to generate revenue and would have a material adverse
effect on our business. In addition, if any of our product candidates achieve market acceptance, we may not be able to maintain
that market acceptance over time if competing products or technologies are introduced that are received more favorably or are
more cost-effective.
Risks
Related to Third Party Reliance
We
depend on third parties to assist us in the development of new products extensively, and any failure of those parties to fulfill
their obligations could result in costs and delays and prevent us from successfully commercializing our product candidates on
a timely basis, if at all.
We
engage consultants and contract research organizations to help design, develop and manufacture our products. The consultants and
contract research organizations we engage provide us critical skills, resources and finished products for sale that we do not
have within our own company. As a result, we depend on these consultants and contract research and product supply organizations
to deliver our existing automotive products and to perform the necessary research and development to create new products. We may
face delays in developing and bringing new products to market if these parties do not perform their obligations in a timely or
competent fashion or if we are forced to change service providers.
We
depend on our collaborators to help us develop and test our proposed products, and our ability to develop and commercialize products
may be impaired or delayed if collaborations are unsuccessful.
Our
strategy for the development, testing and commercialization of our proposed products requires that we enter into collaborations
with corporate partners, licensors, licensees and others. Some of these collaborators will be located in India and other countries
outside of the United States which pose additional legal and economic risks. We are dependent upon the subsequent success of these
other parties in performing their respective responsibilities and the continued cooperation of our partners. Under agreements
with collaborators, we may rely significantly on such collaborators to, among other things:
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Fund
research and development activities with us;
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Pay
us fees upon the achievement of milestones under STIR and SBIR programs; and
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Market
with us any commercial products that result from our collaborations.
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Our
collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount
and timing of our collaborators’ resources that will be devoted to our research and development activities related to our
collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference
to those being developed in collaboration with us.
The
development and commercialization of potential products will be delayed if collaborators fail to conduct these activities in a
timely manner, or at all.
If
various outside vendors and collaborators do not achieve milestones set forth in our agreements, or if our collaborators breach
or terminate their collaborative agreements with us, our business may be materially harmed.
Our
reliance on the activities of our non-employee consultants, research institutions, and scientific contractors, whose activities
are not wholly within our control, may lead to delays in development of our proposed products.
We
rely extensively upon and have relationships with outside consultants and companies having specialized skills to conduct research.
These consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities
that may limit their availability to us. We have limited control over the activities of these consultants and, except as otherwise
required by our collaboration and consulting agreements to the extent they exist, can expect only limited amounts of their time
to be dedicated to our activities. These research facilities may have commitments to other commercial and non-commercial entities.
We have limited control over the operations of these collaborators and can expect only limited amounts of time to be dedicated
to our research and product development goals.
Risks
Related to Competition
The
market for energy storage products, artificial intelligence and machine learning is highly competitive.
We
expect that our most significant competitors will be large more established companies. These companies are developing products
that compete with ours and they have significantly greater capital resources in research and development, manufacturing, testing,
obtaining regulatory approvals, and marketing capabilities. Many of these potential competitors are further along in the process
of product development and also operate large, company-funded research and development programs. As a result, our competitors
may develop more competitive or affordable products, or achieve earlier patent recognition and filings.
Our
industry is characterized by rapidly evolving technology and intense competition. Our competitors include major multinational
energy-storage device and battery companies as well as nanotechnology companies that specialize in micro fluid dynamics and smart
surfaces.
Many
of these companies are well-established and possess technical, research and development, financial and sales and marketing resources
significantly greater than ours. In addition, certain smaller nanotechnology companies have formed strategic collaborations, partnerships
and other types of joint ventures with larger, well established industry competitors that afford these companies’ potential
research and development and commercialization advantages. Academic institutions, governmental agencies and other public and private
research organizations are also conducting and financing research activities which may produce products directly competitive to
those we are developing. Moreover, many of these competitors may be able to obtain patent protection, obtain regulatory approvals
and begin commercial sales of their products before we do.
Our
competition includes both public and private organizations and collaborations among academic institutions and large companies,
most of which have significantly greater experience and financial resources than we do.
Private
and public academic and research institutions also compete with us in the research and development of nanotechnology products
based on micro-fluid dynamics. In the past several years, the nanotechnology industry has selectively entered into collaborations
with both public and private organizations to explore the development of new products evolving out of research in micro-fluid
dynamics.
Risks
Related to Financial Aspects of Our Business
We
may not be able to raise the required capital to conduct our operations and develop and commercialize our products.
We
require substantial additional capital resources in order to conduct our operations and develop and commercialize our products
and run our facilities. We will need significant additional funds or collaborative partners, or both, to finance the research
and development activities of our potential products. Accordingly, we are continuing to pursue additional sources of financing.
Our future capital requirements will depend upon many factors, including:
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The
continued progress and cost of our research and development programs,
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The
costs in preparing, filing, prosecuting, maintaining and enforcing patent claims,
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The
costs of developing sales, marketing and distribution channels and our ability to sell the products if developed,
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The
costs involved in establishing manufacturing capabilities for commercial quantities of our proposed products,
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Competing
technological and market developments,
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Market
acceptance of our proposed products, and
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The
costs for recruiting and retaining employees and consultants.
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Additional
financing through strategic collaborations, public or private equity financings or other financing sources may not be available
on acceptable terms, or at all Our prior failure to be timely in our required periodic filings of quarterly and annual financial
reports with the SEC may significantly limit our ability to raise additional capital. Additional equity financing could result
in significant dilution to our shareholders. Further, if additional funds are obtained through arrangements with collaborative
partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products that
we would otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we may be required to
delay, reduce the scope of or eliminate one or more of our programs or potential products, any of which could have a material
adverse effect on our financial condition or business prospects.
Risks
Relating to Earn Out Agreement with the new CEO of the Company
At
June 30, 2019, the Company estimated by application of a Black Scholes option pricing model that $18,695,227 of
unrecognized pre-tax non-cash compensation expense, which the Company expects to recognize, based on a weighted-average period
of 2 years and 5 ½ months. The Company will record the compensation expense over the estimated requisite service term or
vesting period to earn the conditions of the warrant. There are an estimated 37,390,000 total shares issuable under the
warrant that are attainable under the agreement at June 30, 2019. Such issuance will cause periodic dilution of the Company’s
stock during the course of the Earn-Out period and reductions to book income with respect to the first $15 million in revenues
realized by the Company.
Risks
Relating to Our Debt Financings
If
we are required for any reason to repay our outstanding debt, we would be required to deplete our working capital, if available,
or raise additional funds. Our failure to repay the debt, if required, could result in future legal action against us, which could
require y depletion of our working capital.
At
June 30, 2019 the amount recorded in Current Liabilities for convertible note plus accrued interest thereon previously issued
to JMJ Financial was $109,000 and $84,287, respectively. As of June 30, 2019, the aggregate remaining amount of convertible securities
held by JMJ could be converted into 9,664 common shares at the conversion floor price of $20.
As
of December 15, 2014, a Convertible Debenture Holder has a Judgment in the amount of approximately $1.6 million entered into by
the United States District Court of the Northern District of Illinois.
The
Company has entered into a Forbearance Agreement, as amended, with John Fife currently its largest debt holder arising out of
a lawsuit and judgment in connection with the default on a Convertible Note in the original principal amount of $550,000 issued
on September 13, 2011. On December 10, 2018, this agreement was modified to eliminate the conversion feature of the underlying
security. Monthly payments of $15,000 are due and payable on the 15th day of each month through February 15, 2020
with a final payment of $195,000 due and payable on March 15, 2020. Failure to pay such amounts would enable Fife to immediately
enforce the remaining about of the debt owed by the Company. Under the Judgement Settlement Agreement $855,660 is included in
the line item “Current portion, liabilities in arears - judgement settlement agreement” in the current liabilities
section of the Company’s Balance Sheet at June 30, 2019. Should the Company satisfy this liability under the Judgement Settlement
Agreement we would realize a gain on such settlement of approximately $580,000.
The
Company recorded $60,296 of finance charges for the fiscal year ended June 30, 2019. At June 30, 2019, $58,142 of finance charges
remained outstanding under this note.
On
June 19, 2019, the Company entered into a Securities Purchase Agreement dated as of June 19, 2019 with Power Up Lending Group,
(the “Lender”).
The
Company issued an 8% Convertible Promissory Note in the principal amount of $78,000 to the Lender with a maturity date of June
19, 2020. The Company received net proceeds in the amount of $45,800, with $25,000 refinancing
a prior convertible promissory note due to the Lender that had been in default, $3,000 being paid to reimburse the Lender for
legal and due diligence fees incurred with respect to this Securities Purchase Agreement and Convertible Promissory Note, and
$4,200 being paid to the Company’s Transfer Agent to satisfy an outstanding balance. This note becomes due in full,
together with accrued interest in June 2020 for approximately $85,000. Should we fail to make such payments the lender can demand
shares of our common stock to satisfy this obligation at a 38% discount to its then market value resulting in substantial dilution
to satisfy this obligation.
mPhase’s
stock price has suffered significant declines during the past ten years and remains volatile.
The
market price of our common stock closed at $7.88 per share on July 26, 2000 and, despite a significant reverse-split of 5000/1
effective May 22, 2019, it closed at $0.85 per share on June 30, 2019. Stocks in microcap companies having stock values below
$5.00 per share generally have much more volatility than higher priced stocks. Our common stock is a highly speculative investment
and is suitable only for such investors with financial resources that enable them to sustain the loss of their entire investment
in such stock. Because the price of our common stock is less than $5.00 per share and is not traded on the NASDAQ National or
NASDAQ Small Cap exchanges, it is considered to be a “penny stock,” limiting the type of customers that broker/dealers
can sell to. Such customers consist only of “established customers” and “Accredited Investors” (within
the meaning of Rule 501 of Regulation D of the Securities Act of 1933, as amended), generally individuals and entities of substantial
net worth, thereby limiting the liquidity of our common stock. Finally, the OTC markets group has designated our stock a “shell
risk” which causes brokerage firms and their clearing agents to not accept newly issued shares of our common stock for deposit
in street name and allow the holder to sell such stock.
Other
General Risks
We
may not be able to raise sufficient capital to market our new products in the areas of artificial intelligence and machine learning
and our Smart NanoBattery product applications of our technology on any meaningful scale.
We
may not be able to obtain the amount of additional capital needed until the Company has established significant and predictable
sales and revenues from our technology. We have been successful in the past as a micro-cap development stage company in raising
capital; however, recent trends in the capital markets are likely to pose significant challenges for the Company. Factors affecting
the availability of capital include:
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financial results including sales and revenues generated from operations;
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market’s view of the business sector of nanotechnology reserve batteries and emergency flashlights; and
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perception in the capital markets of our ability to execute our business plan
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We
have reported net operating losses for each of our fiscal years from our inception.
We
have reported net operating losses for each of our fiscal years from our inception in 1996 through the present and may not be
able to operate profitability in the future.
We
have had net losses of approximately $213,633,853 since our inception in 1996 and cannot be certain when or if we will
ever be profitable. We expect to continue to have net losses for the foreseeable future. We need to raise at least $5 million
in additional cash during the next 12 months through further equity private placements or debt financings to continue operations
and implement the acquisition plans of the Company’s new management including the completion of the acquisitions of Alpha
Predictions and Travel Buddhi, as well as potentially complete a merger with Scepter Commodities LLC. At June 30, 2019, we have
working capital deficit of $2,440,289 and a stockholders’ deficit of $213,633,853.
Our
independent auditor’s report expresses doubt about our ability to continue as a going concern.
The
reports of the Company’s outside auditor Assurance Dimensions, and its prior auditors D’Arelli Pruzansky, P.A., Demetrius
Berkower, LLC., Rosenberg, Rich, Baker, Berman & Company, and Arthur Andersen & Co., with respect to its latest audited
reports on Form10-K for each of the fiscal years commencing in the fiscal year ended June 30, 2001 through the fiscal year ended
June 30, 2019, stated that “there is substantial doubt of the Company’s ability to continue as a going concern.”
Such opinion from our outside auditors makes it significantly more difficult and expensive for the Company to raise additional
capital necessary to continue our operations.
Risk
Factors Related to Our Operations
We
have not to date had completed final military or commercial development of our flagship product, the Smart NanoBattery.
We
have derived no material revenues from our Smart NanoBattery from inception of development in February 2004 through June 30, 2019.
The
loss of future potential investments by prior officer and directors could adversely affect our business.
Management
and employment contracts with all of our officers prior to January 11, 2019 have expired and no assurances can be given that such
executives will continue to invest in the Company or that the Company will be able to successfully enter into agreements with
such key executives. All of our prior officers have made significant investments in the Company in the form of periodic equity
purchases of common stock and bridge loans and have been granted stock and stock options that are intended to represent a key
component of their compensation. Such grants may not provide the intended incentives to such officers to continue investing in
our common stock if our stock price declines or experiences significant volatility. In addition, our three prior corporate officers
accumulated past accrued and unpaid salaries in the aggregate amount of approximately $539,000 and certain notes and accrued interest
that were settled for common stock and an amended conversion feature during the fiscal year ended June 30, 2017 and portions of
the fiscal years ended June 30, 2018 and 2019, have agreed to convert such amounts into common stock of the Company.
Risks
Related to Our Targeted Markets
The
sale of new high technology products often has a long lead-time and a multiplicity of risks.
Commercialization
of new technology products often has a very long lead time since it is not possible to predict when major companies will license
such technology for sale to their customers. The scientific disciplines of artificial intelligence, machine learning, nanotechnology
and microfluidics used to develop our Smart NanoBattery are each in their very early stages and acceptance and demand for such
products can often be a long evolutionary process.
The
sciences of artificial intelligence, machine learning and nanotechnology is at a very early stage as disciplines and each is subject
to great uncertainty and swift changes in technology.
Microfluid
dynamics and the manipulation of materials of nano size and dimensions is a very new science and the creation of new products
is dependent upon new and different properties of such materials created that will result in many uncertain applications and rapid
change. The evolution of nanotechnology as a new science adds greater uncertainty to new applications and new and improved product
introductions is unpredictable. Artificial intelligence and machine learning are even newer sciences and are subject to many uncertain
future developments.
We
may not be able to create new products from our intellectual property using microfluidics that will be acceptable in water purification,
oil separation from water and other environment markets.
The
market for “green” products and solutions is characterized by changing regulatory standards, new and improved product
introductions, and changing customer demands.
Large
companies such as Amazon, Google, Microsoft, and Facebook have great resources and are currently focusing significant capital
for new solutions using artificial intelligence and machine learning. Such companies have made significant inroads to date in
the areas of artificial intelligence and machine learning owing to their substantial capital resources and focused and committed
research and development.
Our
future success will depend upon our ability to achieve compelling technology innovations that are economic and practical to produce
in large quantities. Success in new technology, products and services is a complex and uncertain process requiring high levels
of innovation, highly skilled engineering and development personnel, and the accurate anticipation of technological and market
trends. We may not be able to identify, develop, market or support new or enhanced technology, products, or services on a timely
basis, if at all, owing to our size and limited financial resources.
The
commercialization of many applications of our technologies will depend on our ability to establish strategic relationships with
commercial partners.
We
are seeking commercial partners with established lines of business and greater financial resources than our own. Such partners
may not place the priority that we do on joint projects because the success or failure of such projects is not as material to
other existing well- developed lines of business.
Our
Smart NanoBattery and our potential applications of our technology are components of end products and therefore our products are
tied to the success of such end products.
The
compelling need for critical mission batteries and other applications of our nanotechnology will depend upon both military and
commercial needs going forward and the demand for our products as components. Thus, the success of our Smart NanoBattery and other
applications of our technology will depend upon the continuing need for the end user products and market demand.
The
sale of new high technology products often has a long lead-time and a multiplicity of risks.
Commercialization
of new technology products often has very long lead time since it is not possible to predict when major companies will license
such technology for sale to their customers. The science of artificial intelligence and machine learning as well as nanotechnology
and microfluidics used to develop our Smart NanoBattery are each in their very early stages and acceptance and demand for such
products can often be a long evolutionary process.
The
science of nanotechnology is at a very early stage as a discipline and is subject to great uncertainty and swift changes in technology.
Microfluid
dynamics and the manipulation of materials of nano size and dimensions is a very new science and the creation of new products
is dependent upon new and different properties of such materials created that will result in many uncertain applications and rapid
change. The evolution of nanotechnology as a new science adds greater uncertainty to new applications and new and improved product
introductions is unpredictable.
Our
future success will depend upon our ability to achieve compelling technology innovations that are economic and practical to produce
in large quantities. Success in new technology, products and services is a complex and uncertain process requiring high levels
of innovation, highly-skilled engineering and development personnel, and the accurate anticipation of technological and market
trends. We may not be able to identify, develop, market or support new or enhanced technology, products, or services on a timely
basis, if at all, owing to our size and limited financial resources.
General
Risks Relating to Our Business
We
depend on key personnel for our continued operations and future success, and a loss of certain key personnel could significantly
hinder our ability to move forward with our business plan.
Because
of the specialized nature of our business, we are highly dependent on our ability to identify, hire, train and retain highly qualified
scientific and technical personnel for the research and development activities we conduct or sponsor. The loss of one or more
certain key executive officers, or scientists, would be significantly detrimental to us. In addition, recruiting and retaining
qualified scientific personnel to perform research and development work is critical to our success. Our anticipated growth and
expansion into areas and activities requiring additional expertise, such as new applications for “smart surfaces”,
manufacturing and marketing, will require the addition of new management personnel and the development of additional expertise
by existing management personnel. Despite the current economic conditions and job market there is significant competition for
qualified personnel in the areas of our present and planned activities, and there can be no assurance that we will be able to
continue to attract and retain the qualified personnel necessary for the development of our business. The failure to attract and
retain such personnel or to develop such expertise would adversely affect our business.
Our
insurance policies are limited in scope and coverage and may potentially expose us to unrecoverable risks.
We
do not carry director and officer insurance and have limited commercial insurance policies. Any significant insurance claims would
have a material adverse effect on our business, financial condition and results of operations. Insurance availability, coverage
terms and pricing continue to vary with market conditions. We endeavor to obtain appropriate insurance coverage for insurable
risks that we identify, however, we may, due to limited financial resources, be unable to correctly cover those risks that we
can anticipate or quantify as insurable risks. We may not be able to obtain appropriate insurance coverage, and insurers may not
respond as we intend to cover insurable events that may occur. We have observed rapidly changing conditions in the insurance markets
relating to nearly all areas of traditional corporate insurance. Such conditions have resulted in higher premium costs, higher
policy deductibles, and lower coverage limits. For some risks, we may not have or maintain insurance coverage because of cost
or availability.
We
have no product liability insurance, which may leave us vulnerable to future claims we will be unable to satisfy.
The
testing, manufacturing, marketing and sale of consumer products entail an inherent risk of product liability claims, and we cannot
assure you that substantial product liability claims will not be asserted against us. We have no product liability insurance.
In the event we are forced to expend significant funds on defending product liability actions, and in the event those funds come
from operating capital, we will be required to reduce our business activities, which could lead to significant losses.
We
cannot assure you that adequate insurance coverage will be available in the future on acceptable terms, if at all, or that, if
available, we will be able to maintain any such insurance at sufficient levels of coverage or that any such insurance will provide
adequate protection against potential liabilities. Whether or not a product liability insurance policy is obtained or maintained
in the future, any product liability claim could harm our business or financial condition.
We
face risks related to compliance with corporate governance laws and financial reporting standards.
The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the Securities and Exchange Commission
and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting
standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley
Act of 2002 relating to internal control over financial reporting, referred to as Section 404, have materially increased our legal
and financial compliance costs and made some activities more time-consuming and more burdensome.
We
may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
Considerable
research in the areas of micro fluid dynamics is being performed in countries outside of the United States, and a number of potential
competitors are located in these countries. The laws protecting intellectual property in some of those countries may not provide
adequate protection to prevent our competitors from misappropriating our intellectual property. Several of these potential competitors
may be further along in the process of product development and also operate large, company-funded research and development programs.
As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product
commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop
obsolete.
We
may incur substantial expenditures in the future in order to protect our intellectual property.
We
believe that our intellectual property with respect to our Smart NanoBattery , our proprietary rights with respect to the Company’s
permeable membrane design consisting of both micro and nano scale silicon features that are coated with a monolayer chemistry
used to repel liquids, and our recent entry into the area of artificial intelligence and machine learning are critical to our
future success. The Company’s current battery related patent portfolio consists of Smart Surfaces technologies. Our pending
patent applications may never be granted for various reasons, including the existence of conflicting patents or defects in our
applications. Even if additional U.S. patents are ultimately granted, there are significant risks regarding enforcement of patents
in international markets. There are many patents being filed as the science of nanotechnology develops and the Company has limited
financial resources compared to large, well established companies to bring patent litigation based upon claims of patent infringement.
ITEM
2. PROPERTIES
Our
headquarters is located in 9841 Washingtonian Boulevard, Suite 390, Gaithersburg, MD 20878. The lease for this office, since January
11, 2019; which presently is month to month, is charged at a monthly cost of $1,350 ($16,200 annually).
ITEM
3. LEGAL PROCEEDINGS
Effective
December 10, 2018, the Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement
with Fife that was previously in effect. As a result, under the Judgment Settlement Agreement, no shares of the Company’s
common stock are issuable or eligible to be converted into. Under the terms of the Judgment Settlement Agreement, the Company
is required to pay $15,000 per month from January 15, 2019 through and including February 15, 2020, with a final payment
of $195,000 due and payable in March of 2020. The Company has made all payments required as of the date hereof. Failure
to make any of the payments, when due, will result in an additional debt obligation, inclusive of principal and interest at the
date of default ($570,660 as of June 30, 2019), to be immediately due and payable by the Company.
From
time to time the Company may be involved in various legal proceedings in the ordinary course of business.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
1: ORGANIZATION AND NATURE OF BUSINESS
mPhase
Technologies, Inc. (“mPhase” or the “Company”) was initially incorporated in New Jersey in 1979 under
the name Tecma Laboratory, Inc. In 1987, the Company changed its name to Tecma Laboratories, Inc. As Tecma Laboratories, Inc.,
the Company was primarily engaged in the research, development and exploration of products in the skin care field. On February
17, 1997, the Company acquired Lightpaths, Inc., a Delaware corporation, which was engaged in the development of telecommunications
products incorporating DSL technology, and the Company changed its name to Lightpaths TP Technologies, Inc.
On
May 5, 1997, the Company completed a reverse merger with Lightpaths TP Technologies, Inc. and thereafter changed its name to mPhase
Technologies, Inc. on June 2, 1997.
mPhase,
a New Jersey corporation is a publicly-held company with 11,689,078 shares of common stock outstanding and 461,553 shares
of common stock to be issued at June 30, 2019. The Company’s common stock is traded on the OTC Pink Quotation System
under the ticker symbol XDSL.
The
Company from inception through June 30, 2010 focused much of its efforts in the commercial deployment of its TV+ products for
delivery of broadcast IPTV, and DSL component products which include POTS splitters. Beginning in 2004, the Company added a new
line of power cell batteries and electronic sensors (magnetometers) being developed through the use of nano-technology. The Company
discontinued its TV+ line of products as of June 30, 2010 as well as its electronic sensor products.
In
recent years, the Company has shifted its primary business focus to the development of innovative power cells and related products
through the science of microfluidics, microelectromechanical systems (MEMS) and nano-technology. Using these disciplines, it has
developed a battery that has a significantly longer shelf life prior to activation than conventional batteries. In addition, such
battery product, unlike conventional batteries, is capable of disposal after use without harm to the environment. This technology
is a significant technology and business of the Company today. Presently the Company is pursuing strategic alternatives to best
monetize its patent portfolio, including partnering to exploit its opportunities for its drug delivery system. The Company is
seeking to engage a grant and project proposal consultant to obtain government funding available under the Departments of Defense
and Homeland Security including The Department of Defense Ordnance Technology Consortium (“DOTC”), Small Business
Innovative Research (“SBIR”), Cooperative Research and Development Agreements (“CRADA”) and similar programs
for targeted applications for its smart nano-battery applications.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
1: ORGANIZATION AND NATURE OF BUSINESS (continued)
On
January 11, 2019, the Company underwent a major change in management and control. The new management of the Company is positioning
the Company to be a technology leader in artificial intelligence and machine learning while enabling a more rapid commercial development
of its patent portfolio and other intellectual property. Artificial Intelligence is just simple math executed on an enormous scale.
The more instances and calculations a system can process, the more possible it is for that system to emulate human-like cognitive
abilities. With the advent of cloud infrastructure, GPU-accelerated processing and deep learning architectures, it is now commercially
viable to perform this math at such speeds and efficiency that Artificial Intelligence (human-like cognitive abilities) can be
embedded directly into business operations, platform architectures, business services and customer experiences. The Company’s
goal is to generate significant revenue from its artificial intelligence and machine learning technologies.
mPower
Technologies, Inc. is a New Jersey corporation and is a wholly-owned consumer products subsidiary of mPhase Technologies, Inc.
This subsidiary had its last significant sale of Jump products during the first quarter of fiscal 2017 and this product line is
reflected as discontinued operations within these consolidated financial statements. Medds, Inc., is a Wyoming corporation and
is a wholly-owned subsidiary of mPhase Technologies, Inc. Medds, Inc., was formed to capitalize on opportunities for the Company’s
drug delivery system.
The
Company is presently headquartered 9841 Washingtonian Blvd., Suite 390, Gaithersburg, MD 20878.
NOTE
2: GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company has incurred a net loss of $1,955,161 and has incurred negative cash flows from operations of $203,970 for
the year ended June 30, 2019. At June 30, 2019, the Company had a working capital deficit of $2,440,289, and an accumulated
deficit of $213,633,853. It is management’s opinion that these facts raise substantial doubt about the Company’s
ability to continue as a going concern for a period of twelve months from the date of this filing, without additional debt or
equity financing. The consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts nor to the amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
The
Company was able to enter into convertible debt arrangements and private placements of equity with accredited independent investors
to provide liquidity and capital resources during the preceding two fiscal years. In addition, and from time to time during fiscal
years 2019 and 2018, the Company raised necessary working capital through bridge loans from officers. During the years ended June
30, 2019 and 2018, the Company received net proceeds from private placements with accredited investors of $193,000
and $81,000, respectively.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
2: GOING CONCERN (continued)
In
order to meet its working capital needs through the next twelve months and to fund the growth of our nanotechnology, artificial
intelligence, and machine learning technologies, the Company may consider plans to raise additional funds through the issuance
of equity or debt. Although the Company intends to obtain additional financing to meet its cash needs, the Company may be unable
to secure any additional financing on terms that are favorable or acceptable to it, if at all.
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Consolidation
The
consolidated financial statements for the years ended June 30, 2019 and 2018, include the operations of mPhase and its wholly-owned
subsidiaries, mPower Technologies, Inc., Medds, Inc., mPhase Technologies India Private Limited effective March 19, 2019, and
Alpha Predictions LLP effective June 30, 2019. All significant intercompany accounts and transactions have been eliminated in
the consolidation.
Foreign
Currency Translation and Transactions
The functional currency of our operations
in India is the Indian Rupee. Foreign currency denominated assets and liabilities are translated into U.S. dollars at the exchange
rates in effect at the balance sheet date, and income and expense items are translated at the average exchange rates in effect
during the applicable period. The aggregate effect of foreign currency translation is recorded in accumulated other comprehensive
income/loss in our consolidated balance sheets. Our net investment in our Indian operations is recorded at the historical rate
and the resulting foreign currency translation adjustments are included in accumulated other comprehensive income/loss in our
consolidated balance sheets. From the effective date of our India subsidiaries, mPhase Technologies India Private Limited and
Alpha Predictions LLP, through June 30, 2019, foreign currency translation gains were not significant and did not have a material
impact on the consolidated balance sheets or consolidated statements of operations.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. If actual results
significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could
be materially impacted. Significant estimates include the collectability of accounts receivable, accrued expenses, valuation of
derivative liabilities, stock-based compensation, and the deferred tax asset valuation allowance.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations
of Credit Risk
Credit
Risk
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains cash and cash equivalents with three financial institutions. Deposits held with
the financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation on such deposits,
but may be redeemed upon demand. The Company performs periodic evaluations of the relative credit standing of the financial institutions.
With respect to accounts receivable, the Company monitors the credit quality of its customers as well as maintain an allowance
for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.
Revenue
Risk
Agreements
which potentially subject the Company to concentrations of revenue risk consist principally of one customer agreement. For the
years ended June 30, 2019 and 2018, this one customer accounted for 100% and 0% of our total revenue, respectively. At June 30,
2019 and 2018, this one customer accounted for 99% and 0% of our total accounts receivable, respectively.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money
market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents.
There were no cash equivalents at June 30, 2019 or 2018.
Accounts
Receivable
The
Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts.
In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make
required payments, economic events, and other factors. As the financial condition of these parties change, circumstances develop
or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains
reserves for potential credit losses, and such losses traditionally have been within its expectations. The Company has determined
no allowance for doubtful accounts is required at June 30, 2019 or 2018.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property
and Equipment
All
expenditures on the acquisition for property and equipment are recorded at cost and capitalized as incurred, provided the asset
benefits the Company for a period of more than one year. Expenditures on routine repairs and maintenance of property and equipment
are charged directly to operating expense. The property and equipment is depreciated based upon its estimated useful life after
being placed in service, which is 3 to 5 years. When equipment is retired, sold or impaired, the resulting gain or loss is reflected
in earnings. The Company incurred depreciation expense of $0 and $683 for the years ended June 30, 2019 and 2018, respectively.
Impairment
of Long-Lived Assets
In
accordance with Accounting Standards Codification (“ASC”) 360-10, “Property, Plant, and Equipment”, the
Company periodically reviews its long- lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value. For the years ended June 30, 2019 and 2018, the Company did
not impair any long-lived assets.
Goodwill
and Intangible Assets
Goodwill
is recorded when the purchase price paid for an acquisition exceeds the fair value of the net identified tangible and intangible
assets acquired. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances
change that indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing
the fair value of the reporting unit to its carrying value. If the fair value is determined to be less than the carrying value,
a second step is performed to measure the amount of impairment loss. On June 30, 2020, we will perform our annual evaluation of
goodwill impairment to determine if the estimated fair value of the reporting unit exceeds its carrying value.
Patents and licenses are capitalized when
the Company determines there will be a future benefit derived from such assets and are stated at cost. Amortization is computed
using the straight-line method over the estimated useful life of the asset, generally five years. As of June 30, 2019, and 2018,
the book value of patents and licenses of $214,383, has been fully amortized and no amortization expense was recorded for the
years ended June 30, 2019 and 2018.
Capitalized Software Development
Costs
The Company follows the provisions of ASC
350-40, “Internal Use Software.” ASC 350-40 provides guidance for determining whether computer software is internal-use
software, and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently
sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained
for internal use. The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes
the costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the software
are capitalized if it is determined that these upgrades or enhancements add additional functionality to the software. Costs incurred
to improve and support products after they become available are charged to expense as incurred.
Capitalized software development costs
are amortized on a straight-line basis over the estimated useful lives, currently three years. Management evaluates the useful
lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could
impact the recoverability of these assets.
As of June 30, 2019, the book value of
purchased and developed technology of $3,025,801, included two technology platforms, a machine learning platform and an artificial
intelligence platform. For the year ended June 30, 2019 and 2018, there was no amortization of either purchased technology platforms.
Fair
Value of Financial Instruments
The
Company accounts for the fair value of financial instruments in accordance with ASC topic 820, “Fair Value Measurements
and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value”
as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ASC
820 also describes three levels of inputs that may be used to measure fair value:
Level
1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level
2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level
3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value.
Financial
instruments consist principally of cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities, due to
related parties, and current and long-term debt. The carrying amounts of such financial instruments in the accompanying balance
sheets approximate their fair values due to their relatively short-term nature. The fair value of short and long-term debt is
based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate
fair value with the exception of the fair value of due to related parties as the fair value cannot be determined due to a lack
of similar instruments available to the Company. It is management’s opinion that the Company is not exposed to any significant
currency or credit risks arising from these financial instruments.
Revenue
Recognition
Revenue
is derived from the sale of artificial intelligence and machine learning focused technology products. The Company recognizes revenue
when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control
is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive
in exchange for transferring products. The amount of consideration the Company receives and revenue the Company recognizes varies
with changes in customer incentives the Company offers to its customers and their customers. In the event any discounts, sales
incentives, or similar arrangements are agreed to with a customer, such amounts are estimated at time of sale and deducted from
revenue. Sales taxes and other similar taxes are excluded from revenue (see Note 7).
Share-Based
Compensation
The
Company computes share based payments in accordance with ASC 718-10, Compensation (“ASC 718-10”) and Staff Accounting
Bulletin (“SAB”) No. 107, Share-Based Payment No. 107 (“SAB 107”). The Company has applied the provisions
of SAB 107 in its adoption of ASC 718-10. The Company accounts for non-employee share-based awards in accordance with ASC Topic
505-50, Equity Based Payments to Non-Employees. The Company estimates the fair value of stock options and warrants by using the
Black-Scholes option pricing model.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative
Instruments
The
Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that
contain embedded derivative features. The Company accounts for these arrangements in accordance with ASC topic 815, Accounting
for Derivative Instruments and Hedging Activities as well as related interpretations of this standard. In accordance with this
standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair
values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host
contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings.
The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate
valuation models, considering all of the rights and obligations of each instrument.
The
Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are
considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers,
among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. Estimating
fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and
are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition,
option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price
of the Company’s common stock. Since derivative financial instruments are initially and subsequently carried at fair values,
our income (expense) going forward will reflect the volatility in these estimates and assumption changes.
Convertible
Debt Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards Board
(“FASB”) ASC. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and
as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Income
Taxes
The
Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty
in Income Taxes (“ASC 740”). Under this method, deferred income taxes are determined based on the estimated future
tax effects of differences between the financial statement and tax basis of assets and liabilities and net operating loss and
tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes
to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the
jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax
regulations, operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value of
deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on
the “more likely than not” criteria of ASC 740. At June 30, 2019 and 2018, the Company had a full valuation allowance
against its deferred tax assets.
ASC
740 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not”
threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its
June 30, 2019, 2018, 2017, and 2016 tax years may be selected for examination by the taxing authorities as the statute of limitations
remains open.
The
Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities
upon receiving valid notice of assessments. The Company has received no such notices for the years ended June 30, 2019 and 2018.
Earnings
Per Share
In
accordance with the provisions of FASB ASC Topic 260, Earnings per Share, basic earnings per share (“EPS”) is computed
by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during
the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating EPS
on a diluted basis.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In
computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.
The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported.
Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the year ended June 30, 2019,
as we incurred a net loss for this period. At June 30, 2019, there were outstanding warrants to purchase up to 4,985,394
shares of the Company’s common stock, and notes payable held by a third party and former officer with convertible features
that if converted, would total 232,750 shares of the Company’s common stock, which may dilute future EPS. At June 30, 2018,
the Company had notes payable held by third parties and notes, unpaid wages, and fees due to officers and directors, with convertible
features that if converted, would total 5,524,765 shares of the Company’s common stock, which may dilute future EPS.
Recently
Adopted Accounting Standards
Effective
July 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance
sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and
is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in US
GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the
goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that
were not addressed completely in the prior accounting guidance. The Company adopted ASC 606 using the modified retrospective method,
which did not have an impact on its consolidated financial statements. The Company expects the impact to net income of the new
standard will be immaterial on an ongoing quarterly and annual basis. The comparative information has not been restated and continues
to be reported under the accounting standards in effect for those periods. Refer to Note 7 for additional information regarding
the Company’s adoption of ASC 606.
Effective
July 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides clarification on classifying
a variety of activities within the statement of cash flows. The Company determined the adoption of ASU 2016-15 did not have a
material impact on its consolidated financial statements.
Effective
July 1, 2018, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”), which clarifies the definition of a business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The Company determined
the adoption of ASU 2017-01 did not have a material impact on its consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Effective
July 1, 2018, the Company adopted ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU 2017-09”), which clarifies and reduces both (1) diversity in practice and (2) cost and complexity when applying
the guidance in Topic 718, Compensation – Stock Compensation, to a change to the terms or conditions of a share-based payment
award. The Company determined the adoption of ASU 2017-09 did not have a material impact on its consolidated financial statements.
Recently
Issued Accounting Standards Not Yet Adopted
In
February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The standard amends the existing accounting standards
for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes
to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of fiscal 2020. Early adoption of ASU 2016-02
is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered
into after, the date of initial application, with an option to use certain transition relief. In September 2017, the FASB issued
ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases
(Topic 842, which amends certain aspects of the new lease standard. The Company is currently evaluating the impact of adopting
ASU 2016-02 and ASU 2017-13 on the Company’s financial position, results of operations or cash flows.
In
July 2017, the FASB issued ASU 2017-11, Update to Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part
II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and
Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The amendments in Part I of this update are effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted,
including adoption in an interim period, however, any adjustments should be reflected as of the beginning of the fiscal year that
includes that interim period. The amendments in Part II of this update do not require any transition guidance because those amendments
do not have an accounting effect. The ASU makes limited changes to the guidance on classifying certain financial instruments as
either liabilities or equity. The ASU is intended to improve (1) the accounting for instruments with “down-round”
provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite
deferral of certain pending content with scope exceptions. The standard is effective for the Company as of July 1, 2019, with
early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated
financial statements.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value
Measurement, based on the concepts in the Concept Statement, including the consideration of costs and benefits. The standard is
effective for the Company as of July 1, 2020, with early adoption permitted. The Company does not expect the adoption of this
guidance to have a material impact on its consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13, to modify the disclosure requirements on fair value measurements in Topic 820, Fair
Value Measurement, based on the concepts in the Concept Statement, including the consideration of costs and benefits. The standard
is effective for the Company as of July 1, 2020, with early adoption permitted. The Company does not expect the adoption of this
guidance to have a material impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying consolidated financial statements.
NOTE
4: PROPERTY AND EQUIPMENT
At
June 30, 2019 and 2018, the Company’s property and equipment consist of the following:
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Computer
equipment
|
|
$
|
11,048
|
|
|
$
|
-
|
|
|
Research
equipment
|
|
|
48,383
|
|
|
|
48,383
|
|
|
Office
and marketing
|
|
|
151,118
|
|
|
|
151,118
|
|
|
Property
and equipment, at cost
|
|
|
210,549
|
|
|
|
199,501
|
|
|
Less:
accumulated depreciation
|
|
|
(199,501
|
)
|
|
|
(199,501
|
)
|
|
Property
and equipment, net
|
|
$
|
11,048
|
|
|
$
|
-
|
|
The
Company recorded $0 and $683 of depreciation expense for the years ended June 30, 2019 and 2018, respectively. There was no property
and equipment impairments recorded for the years ended June 30, 2019 and 2018.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
5: BUSINESS ACQUISITION
On
June 30, 2019, the Company acquired 99% of the outstanding common shares of Alpha Predictions LLP (“Alpha Predictions”).
Alpha Predictions is an India-based technology company that has developed a suite of commercial data analysis products for use
across multiple industries. The Company expects the acquisition to result in synergies with its other operating divisions, which
will drive revenue growth and innovation.
The
goodwill of $6,020 arising from the acquisition consists largely of the synergies expected from combining the operations of the
Company and Alpha Predictions.
The
following table summarizes the consideration paid for Alpha Predictions and the fair values of the assets acquired and
liabilities assumed recognized at the acquisition date.
|
Consideration
|
|
|
|
|
|
Cash
|
|
$
|
1,438
|
|
|
Fair
value of total consideration transferred
|
|
|
1,438
|
|
|
|
|
|
|
|
|
Recognized amounts
of identifiable assets acquired and liabilities assumed
|
|
|
|
|
|
Cash
|
|
|
3,127
|
|
|
Accounts receivable
|
|
|
26,155
|
|
|
Prepaid expenses
|
|
|
7,488
|
|
|
Property and equipment
|
|
|
11,048
|
|
|
Intangible asset – purchased software
|
|
|
2,905,668
|
|
|
Accounts payable
|
|
|
(26,067
|
)
|
|
Accrued expenses and other current liabilities
|
|
|
(2,924,288
|
)
|
|
Income tax provision,
current
|
|
|
(7,713
|
)
|
|
Total identifiable
net assets
|
|
|
(4,582
|
)
|
|
Goodwill
|
|
$
|
6,020
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
5: BUSINESS ACQUISITION (continued)
The
Company is currently evaluating the fair values of the assets acquired and liabilities assumed. The preliminary estimates and
measurements are, therefore, subject to change during the measurement period. The acquired intangible asset – developed
software was recognized at fair value as of the acquisition date. It is provisionally subject to a useful life of 3 years, pending
further evaluation of the underlying software.
The
fair value of the one-percent noncontrolling interest in Alpha Predictions was determined to be immaterial, based on extrapolation
of the price paid by the Company for its controlling interest and consideration of any potential control premiums.
Acquisition-related
costs expensed by the Company were immaterial for the fiscal years ended June 30, 2019 and 2018.
The revenue and net loss of the
combined entity had the acquisition date been July 1, 2017, are as follows:
|
|
|
For
the Years Ended
|
|
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Supplemental
pro forma:
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,554,594
|
|
|
$
|
1,245,556
|
|
|
(Loss)
Income
|
|
$
|
(2,959,165
|
)
|
|
$
|
(829,656
|
)
|
Supplemental
pro forma amounts were calculated after applying adjustments to reflect amortization of acquired intangible asset – purchased
software that would have been charged had the acquisition date been July 1, 2017.
NOTE
6: INTANGIBLE ASSET – PURCHASED SOFTWARE, NET
Intangible
asset – Purchased Software, net, is comprised of the following at:
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Purchased
software
|
|
$
|
3,025,801
|
|
|
$
|
-
|
|
|
Less:
accumulated amortization
|
|
|
-
|
|
|
|
-
|
|
|
Purchased
software, net
|
|
$
|
3,025,801
|
|
|
$
|
-
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
6: INTANGIBLE ASSET – PURCHASED SOFTWARE, NET (continued)
Intangible
asset – Purchased Software consists of the following two developed software technologies:
|
Alpha
Predictions purchased software
|
|
$
|
2,905,668
|
|
|
Travel
Buddhi purchased software
|
|
|
120,133
|
|
|
Total
purchased software
|
|
$
|
3,025,801
|
|
The
Alpha Predictions developed software was acquired as further described in Note 5. The Travel Buddhi developed software
was acquired on February 15, 2019, for $115,281 and included all rights, software, and code of the technology
platform. During the fiscal year ended June 30, 2019, $55,000 of the Travel Buddhi purchase price was paid and $60,281
remained outstanding. At June 30, 2019, the Travel Buddhi technology platform has not been placed in service, but is expected to be during fiscal year 2020.
Developed
software costs are amortized on a straight-line basis over three years. Amortization of developed software costs is included in
depreciation and amortization within the consolidated statements of operations.
There
was no amortization expense related to purchased software for the fiscal years ended June 30, 2019 and 2018.
Future
amortization expense related to the existing net carrying amount of developed software at June 30, 2019 is expected to be as follows:
|
Fiscal
year 2020
|
|
$
|
1,008,600
|
|
|
Fiscal
year 2021
|
|
|
1,008,600
|
|
|
Fiscal
year 2022
|
|
|
1,008,601
|
|
|
|
|
$
|
3,025,801
|
|
NOTE
7: REVENUE
The
Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied.
Software and product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount
of consideration the Company expects to receive in exchange for transferring software and products. The amount of consideration
the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers
and their customers. Sales taxes and other similar taxes are excluded from revenue.
The
adoption of ASC 606 resulted in no impact to the individual financial statement line items of the Company’s audited consolidated
statements of operations during the year ended June 30, 2019.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
7: REVENUE (continued)
For
the year ended June 30, 2019, the Company was subject to revenue and accounts receivable concentration risk as one customer
accounted for 100% and 99% of revenue and accounts receivable, respectively. Additionally, for the year ended June 30, 2019, the
Company was subject to geography concentration risk as its single revenue generating customer is located in India.
NOTE
8: ACCRUED EXPENSES
Accrued
expenses is comprised of the following at:
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Accrued
interest
|
|
$
|
104,179
|
|
|
$
|
72,638
|
|
|
Accrued
wages
|
|
|
208,353
|
|
|
|
395,582
|
|
|
Other
expenses
|
|
|
150,601
|
|
|
|
88,154
|
|
|
Accrued
payment for acquired technology intangible asset
|
|
|
2,905,668
|
|
|
|
-
|
|
|
Accrued
stock bonus
|
|
|
-
|
|
|
|
575,000
|
|
|
Total
accrued expenses, continuing operations
|
|
$
|
3,368,801
|
|
|
$
|
1,131,374
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
accrued expenses, discontinued operations
|
|
$
|
-
|
|
|
$
|
142,195
|
|
NOTE
9: SHORT TERM NOTES PAYABLE
Short
term notes payable is comprised of the following:
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Note
payable, John Fife (dba St. George Investors)/Judgment Settlement Agreement [1]
|
|
$
|
855,660
|
|
|
$
|
885,365
|
|
|
Note
payable, former director (Eagle) [2]
|
|
|
-
|
|
|
|
130,274
|
|
|
Note
payable, investor [3]
|
|
|
-
|
|
|
|
3,000
|
|
|
Note
payable, finance company - discontinued liability [4]
|
|
|
-
|
|
|
|
39,468
|
|
|
Total
short-term notes payable
|
|
$
|
855,660
|
|
|
$
|
1,058,107
|
|
[1] effective
December 10, 2018, the Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance
Agreement with Fife that was previously in effect. As a result, under the Judgment Settlement Agreement, no shares of the
Company’s common stock are issuable or eligible to be converted into. Under the terms of the Judgment
Settlement Agreement, the Company is required to pay $15,000 per month from January 15, 2019 through and including February
15, 2020, with a final payment of $195,000 due and payable in March of 2020. The Company has made all payments
required as of the date hereof. Failure to make any of the payments, when due, will result in an additional debt obligation,
inclusive of principal and interest at the date of default ($570,660 as of June 30, 2019), to be immediately due and payable
by the Company.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
9: SHORT TERM NOTES PAYABLE (continued)
[2]
during fiscal year 2019 $132,234 of principal and accrued interest was converted into 276,205 shares of the Company’s
common stock
[3]
during fiscal year 2019 $3,000 of principal was converted into 12,000 shares of the Company’s common stock
[4]
during fiscal year 2019 $25,000 of principal and accrued interest was refinanced by a new convertible note payable dated June
19, 2019 (see Note 10) and the balance of $18,776 was forgiven by the lender and is recognized as income from discontinued operations
within the consolidated statements of operations
NOTE
10: Convertible Debt Arrangements
JMJ
Financial
During
April 2017, the Company received a judgment from the Federal District Court of Northern Illinois Eastern Division in its favor
dismissing a claim by River North Equity which negated two notes River North Equity purchased from JMJ Financial. At June 30,
2017, the amount recorded as a current liability for the two notes and accrued interest thereon subject to the River North Equity
claim was $1,046,416. Such amount was included in the amount recorded as a current liabilities for all three convertible notes
and accrued interest thereon previously issued to JMJ Financial which totaled $1,212,940 on that date. As a result of the proceeding,
on July 17, 2017, the Company recorded the cancellation of the two notes assigned to River North from JMJ Financial for a total
of $693,060 of principal and $358,534 accrued interest thereon. This resulted in a $1,051,594 gain from the extinguishment of
debt during the year ended June 30, 2018. At June 30, 2019, this debt was reclassified to current liabilities as current portion,
liabilities in arrears – judgment settlement agreement.
At
June 30, 2019 and 2018, the amount recorded in current liabilities for the one convertible note and accrued interest thereon due
to JMJ Financial was $193,287 and $178,521, respectively. During the fiscal years ended June 30, 2019 and 2018 the Company recorded
$14,766 and $17,175, respectively of interest for the outstanding convertible note.
As
of June 30, 2019 and 2018, the aggregate remaining amount of convertible securities held by JMJ could be converted into 9,664
and 8,926 shares, respectively, with a conversion price of $20.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
10: Convertible Debt Arrangements (continued)
John
Fife (dba St. George Investors) / Fife Judgment
Effective
December 10, 2018, the Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement
with Fife that was previously in effect. As a result, under the Judgment Settlement Agreement, no shares of the Company’s
common stock are issuable or eligible to be converted into. Under the terms of the Judgment Settlement Agreement, the Company
is required to pay $15,000 per month from January 15, 2019 through and including February 15, 2020, with a final payment
of $195,000 due and payable in March of 2020. The Company has made all payments required as of the date hereof. Failure
to make any of the payments, when due, will result in an additional debt obligation, inclusive of principal and interest at the
date of default ($570,660 as of June 30, 2019), to be immediately due and payable by the Company.
During
the year ended June 30, 2018, the Company did not make any repayments to Fife under the Forbearance obligation, as amended. The
value of the forbearance debt obligation on June 30, 2018 was $885,365.
MH
Investment Trust II
On
April 10, 2019 the Company repaid $3,000 that was accepted as payment, in full, for the convertible promissory note to M.H. Investment
Trust II. At the time of the payment, the outstanding principal balance and accrued interest was $3,333 and $3,737, respectively.
As a result of the settlement payment, the Company recognized a gain on extinguishment of debt of $4,070.
At
June 30, 2018 the note balance was $3,333 and accrued interest was $3,118 accruing at 12% per annum, was due under this convertible
promissory note.
Power
Up Lending
On
June 19, 2019, the Company entered into a Securities Purchase Agreement with Power Up Lending Group (“Lender”) and
issued an 8% convertible promissory note in the principal amount of $78,000 to the Lender with a maturity date of June 19, 2020.
The Company received proceeds in the amount of $45,800, with $25,000 refinancing a prior convertible promissory note due
to the Lender that had been in default, $3,000 being paid to reimburse the Lender for legal and due diligence fees incurred
with respect to this Securities Purchase Agreement and Convertible Promissory Note and $4,200 being paid to the Company’s
Transfer Agent to satisfy an outstanding balance. This convertible debenture converts at 62% of the lowest trading price during
the 20 days prior to conversion. Due to certain ratchet provisions contained in the convertible promissory note the Company accounted
for this conversion feature as a derivative liability. In connection herewith, the Company recorded a derivative liability of
$103,161, deferred financing costs of $3,000 and debt discount of $75,000. The deferred financing costs and debt discount are
being amortized over the term of the note. The aggregate balance of the convertible promissory note and accrued interest
was $78,000 and $188, respectively, at June 30, 2019. The aggregate balance of the convertible promissory note, net
of deferred financing costs and debt discount at June 30, 2019 was $2,351.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
10: Convertible Debt Arrangements (continued)
Notes
payable under convertible debt and debenture agreements, net is comprised of the following:
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
JMJ
Financial
|
|
$
|
109,000
|
|
|
$
|
109,000
|
|
|
John
Fife (dba St. George Investors) / Fife Judgment
|
|
|
-
|
|
|
|
885,365
|
|
|
MH
Investment Trust II
|
|
|
-
|
|
|
|
3,000
|
|
|
Power
Up Lending
|
|
|
2,351
|
|
|
|
-
|
|
|
Total
convertible debt arrangements, net
|
|
$
|
111,351
|
|
|
$
|
997,365
|
|
At
June 30, 2019 and 2018, accrued interest on these convertible notes of $84,475 and $72,638, respectively, is included within accrued
expenses of the consolidated balance sheets.
NOTE
11: DERIVATIVE LIABILITY
The
Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and
Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the statement of operation as other income (expense). Upon conversion or exercise of a derivative instrument, the
instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that
are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities
at the fair value of the instrument on the reclassification date.
The
following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) from June 30, 2018 to June 30, 2019, as there was no derivative liability at June 30, 2017:
|
|
|
Conversion
feature derivative liability
|
|
|
June 30, 2018
|
|
$
|
-
|
|
|
Initial
fair value of derivative liability recorded as debt discount
|
|
|
75,000
|
|
|
Initial
fair value of derivative liability recorded as deferred financing costs
|
|
|
3,000
|
|
|
Initial
fair value of derivative liability charged to other expense
|
|
|
25,161
|
|
|
Loss
on change in fair value included in earnings
|
|
|
30,508
|
|
|
June
30, 2019
|
|
$
|
133,669
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
11: DERIVATIVE LIABILITY (continued)
Total
derivative liability at June 30, 2019 and June 30, 2018 amounted to $133,669 and $0, respectively. The change in fair value included
in earnings of $30,508 is due in part to the quoted market price of the Company’s common stock decreasing from $1.00 at
June 30, 2018 to $0.85 at June 30, 2019, coupled with substantially reduced conversion prices due to the effect of “ratchet”
provisions incorporated within the convertible notes payable.
The
Company used the following assumptions for determining the fair value of the convertible instruments granted under the binomial
pricing model with Binomial simulations at June 30, 2019:
|
Expected
volatility
|
|
|
1,872.2
|
%
|
|
Expected
term
|
|
|
11.5
months
|
|
|
Risk-free
interest rate
|
|
|
1.92
|
%
|
|
Stock price
|
|
$
|
0.85
|
|
NOTE
12: STOCKHOLDERS’ EQUITY (DEFICIT)
The total number of shares of all classes
of stock that the Company shall have the authority to issue is 100,001,000 shares consisting of 100,000,000 shares of common stock,
$0.01 par value per share, of which 11,689,078 are issued and outstanding and 461,553 are to be issued at June 30,
2019 and 1,000 shares of preferred stock, par value $0.01 per share of which 1,000 shares have been designated as Series A Super
Voting Preferred of which 1,000 are issued and outstanding at June 30, 2019.
On
January 4, 2019 the State of New Jersey accepted an Amendment to the Company’s Certificate of Incorporation providing for
the increase in authorized shares of common stock to 125 billion shares and the change to no par value.
On
March 21, 2019, the Company’s Board of Directors approved 1) an amendment to the Company’s Amended and Restated Certificate
of Incorporation, as amended (the “Certificate of Incorporation”) to i) decrease the number of authorized shares of
common stock of the Company to 25,000,000 shares from 125,000,000,000 shares and ii) increase the par value to $0.01 per share,
and 2) granting discretionary authority to the Company’s Board of Directors to amend the Certificate of Incorporation to
effect one or more consolidations of the issued and outstanding shares of common stock of the Company, pursuant to which the shares
of common stock would be combined and reclassified into one share of common stock at a ratio of 1-for-5,000 (the “Reverse
Stock Split”). On May 17, 2019, the Company filed a Certificate of Amendment to its Certificate of Incorporation to decrease
its authorized common stock from 125,000,000,000 shares to 25,000,000 shares. Effective May 22, 2019 the Company completed a 1-for-5,000
reverse split of its common stock.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
12: STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
On
August 27, 2019, the Company’s Board of Directors approved an amendment to the Company’s Amended and Restated Certificate
of Incorporation, as amended (the “Certificate of Incorporation”) to increase the number of authorized shares of common
stock of the Company to 100,000,000 shares from 25,000,000 shares. On September 4, 2019, the Company filed a Certificate of Amendment
to its Certificate of Incorporation to increase its authorized common stock from 25,000,000 shares to 100,000,000 shares.
Common
Stock
Private
Placements
During
the year ended June 30, 2019, the Company received $193,000 of net proceeds from the issuance of 640,000 shares of common
stock and 132,000 shares of common stock to be issued in private placements with accredited investors, incurring no finder’s
fees.
During
the year ended June 30, 2018, the Company received $81,000 of net proceeds from the issuance of 360,000 shares of common stock
in private placements with accredited investors, incurring finder’s fees of $9,000.
Stock
Award Payable
During
the year ended June 30, 2019, Messrs. Durando, Dotoli and Smiley received 800,000 shares of common stock, which were valued at
$400,000, Mr. Biderman a former outside Director received 200,000 shares of common stock, which were valued at $100,000 and strategic
consultants received 150,000 shares of common stock, which were valued at $75,000. In the aggregate, this group received a total
of 1,150,000 shares of common stock, which were valued at $0.50 per share or $575,000, based on the closing price
of the Company’s common stock on September 24, 2018. At June 30, 2018, the $575,000 was included in accrued expenses.
Stock
Based Compensation
During
the year ended June 30, 2019, the Company issued 2,620,899 (“Signing Shares”) shares of common stock to its President
and CEO, Mr. Bhatnagar, in connection with the commencement of his employment with the Company. The grant date fair value of $1,310,449
is based upon the closing price of the Company’s common stock on January 11, 2019, and is included in stock-based compensation
expense within the consolidated statement of operations.
On
June 1, 2019, the Company granted 231,635 shares of common stock to Mr. Cutchens, the Company’s Chief Financial Officer.
The common stock will vest 25% on the six month, 1 year, 2 year, and 3 year anniversaries of the grant date. The Company recorded
$16,464 of stock-based compensation expense during the year ended June 30, 2019, related to this common stock grant.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
12: STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
During
the year ended June 30, 2018, the Company did not issue any common stock to employees or officers.
Conversion
of Debt Securities
During
the fiscal year ended June 30, 2019, the Company issued 3,898,733 shares of common stock and had 329,553 shares of common
stock to be issued to a number of related parties and strategic consultants in connection with prior services provided to
the Company. The shares issued were valued at $1,883,445. During the fiscal year ended June 30, 2018, there were no shares of
common stock issued to related parties or strategic consultants.
During
the fiscal years ended June 30, 2019 and 2018, there were no conversions by JMJ Financial, John Fife (dba St. George Investors)
/ Fife Judgment, MH Investment Trust II, or Power Up Lending.
Reserved
Shares
The
convertible promissory note entered into with Power Up Lending by the Company on June 19, 2019, requires the Company to reserve
1,258,064 shares of its Common Stock for potential future conversions under such instruments.
At
June 30, 2019, 7,202 shares of the Company’s Common Stock remain subject to be returned to the Company’s treasury
for cancellation. Such shares were not sold as part of 8,000 shares of the Company’s Common Stock that was advanced during
fiscal year 2014 under an Equity Line of Credit.
Retired
Shares
During
the year ended June 30, 2019, there were no shares of the Company’s Common Stock returned for retirement or otherwise.
During
the year ended June 30, 2018, 540,840 outstanding shares of the Company’s Common Stock were returned to the Company by Mr.
Smiley (273,445 shares) and Patricia Dotoli, the spouse of Gus Dotoli (267,395 shares) to provide the Company with sufficient
authorized but unissued shares of stock and enable the Company to have additional authorized shares of its Common Stock to complete
present private placements to provide operating capital for the Company.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
12: STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
Common
Stock Warrants
Warrant
Agreement – Earned Warrants
Mr.
Bhatnagar, the Company’s President and CEO, is entitled to receive warrants to acquire 4% of the outstanding fully diluted
common stock of the Company (the “Earned Warrants”) each time the Company’s revenue increases by $1,000,000.
The exercise price of the Earned Warrants is equal to $0.50 per share and he may not receive shares whereby Signing Shares and
Earned Warrants exceed 80% of the fully diluted common stock of the Company (“Warrant Cap”).
Warrant
Agreement – Accelerated Warrants
Mr.
Bhatnagar, the Company’s President and CEO, shall immediately receive the remaining amount of warrants necessary to acquire
up to 80% of the outstanding fully diluted common stock of the Company (“Accelerated Warrants”) when either of the
following occur:
|
a)
|
the
Company completes a stock or asset purchase of Scepter Commodities, LLC; or
|
|
|
|
|
b)
|
the
Company completes a stock or asset purchase of any other entity, either of which, in the aggregate, together with prior revenue
increases achieved by the Company, results in the consolidated revenues of the Company being not less than $15,000,000; or
|
|
|
|
|
c)
|
the
Company grows a similar business organically within mPhase to include contracts generating revenues in excess of $15,000,000;
or
|
|
|
|
|
d)
|
the
Company meets the listing requirements of either the NYSE or NASDAQ
|
As
of the year ended June 30, 2019, as the Company’s revenue achieved $2,500,000, Mr. Bhatnagar earned warrants to acquire
4,985,394 shares of the Company’s common stock under the provisions of the Warrant Agreement. At June 30, 2019, there
remains approximately 32,400,000 shares of the Company’s common stock that Mr. Bhatnagar can earn.
For the year ended June 30, 2019, the Company
recognized $2,492,697 of stock-based compensation expense related to the earned warrants. At June 30, 2019, there remains approximately
$16,200,000 of stock-based compensation expense that the Company expects to recognize over the next six months.
The Company estimates the fair value of
each option award on the date of grant using a black-scholes option valuation model that uses the assumptions noted in the table
below. Because black-scholes option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed.
Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to
estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical
exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output
of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range
given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The following assumptions
were utilized during 2019:
|
Expected volatility
|
|
|
21,779.77
|
%
|
|
Weighted-average volatility
|
|
|
21,779.77
|
%
|
|
Expected dividends
|
|
|
0
|
%
|
|
Expected term (in years)
|
|
|
5.0
|
|
|
Risk-free rate
|
|
|
2.52
|
%
|
The following table sets forth common stock
purchase warrants outstanding at June 30, 2019:
|
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Intrinsic Value
|
|
|
Outstanding, June 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Warrants earned
|
|
|
4,985,394
|
|
|
|
0.50
|
|
|
|
-
|
|
|
Warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, June 30, 2019
|
|
|
4,985,394
|
|
|
$
|
0.50
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuable upon exercise of warrants
|
|
|
4,985,394
|
|
|
$
|
0.50
|
|
|
$
|
-
|
|
|
|
|
|
Common
Stock Issuable Upon Exercise of Warrants Outstanding
|
|
|
Common
Stock Issuable Upon Warrants Exercisable
|
|
|
Range
of Exercise
Prices
|
|
|
Number
Outstanding at June 30, 2019
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable at June 30, 2019
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.50
|
|
|
|
4,985,394
|
|
|
|
4.75
|
|
|
$
|
0.50
|
|
|
|
4,985,394
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
4,985,394
|
|
|
|
4.75
|
|
|
$
|
0.50
|
|
|
|
4,985,394
|
|
|
$
|
0.50
|
|
Settlement
and New Funding Share Reserves
The
Company agreed to reserve a total of 3,000,000 shares of its common stock of which 532,040 shares of common stock were reserved
for and issued concurrently for the conversion of 75% of outstanding accounts payables to officers’ and a director (discussed
below), 1,967,960 shares of common stock were reserved to reduce liabilities outstanding December 31, 2018 (“Settlement
Reserve”), and 500,000 shares of common stock were reserved to fund continuing operations (“Funding Reserve”).
At June 30, 2019, 1,225,949 shares of common stock remained available from the initial Settlement Reserve to settle prior liabilities
and 185,063, shares of common stock remained available from the Funding Reserve to fund continuing operations.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
12: STOCKHOLDERS’ DEFICIT (Continued)
|
|
|
Settlement
Reserve
|
|
|
Funding
Reserve
|
|
|
Initial
Shares of Common Stock to Establish Reserve
|
|
|
1,967,960
|
|
|
|
500,000
|
|
|
Shares
issued concurrently to transition agreement for the conversion of 75% strategic vendors, outstanding December 31, 2018
|
|
|
(61,200
|
)
|
|
|
-
|
|
|
Shares
available upon execution of the Transition Agreement dated January 11, 2019
|
|
|
1,906,760
|
|
|
|
500,000
|
|
|
Shares
issued subsequent to a “Change in Control” to accredited investors in private placements through June 30, 2019
|
|
|
(680,811
|
)
|
|
|
(314,937
|
)
|
|
Shares
of Common Stock available at June 30, 2019
|
|
|
1,225,949
|
|
|
|
185,063
|
|
Prior
Liabilities – Settlement Reserve
1,967,960
shares of the Company’s common stock have been reserved to settle the debts of the Company that were outstanding at December
31, 2018, in the following priority; the Judgement Settlement Agreement (formerly Fife forbearance Agreement), JMJ Financial,
Inc., MH Investment Trust, Power Up Lending Ltd, as well as other liabilities satisfactory to the CEO of the Company and the Company
(as per Section 2(a) of the Reserve Agreement concurrent with “Change in Control Agreements”, dated January 11, 2019).
At June 30, 2019, 1,225,949 shares of common stock remain available under this reserve category.
Officer’s
and Director’s – Conversion Share Reserve
532,040
shares of the Company’s common stock were reserved for the conversion of 75% of payables to officers’ and a director
that were outstanding December 31, 2018, (as per Section 2(a) of the Reserve Agreement concurrent with “Change in Control
Agreements”, dated January 11, 2019). All these shares were issued effective December 31, 2018 and no shares remain available
under this reserve category.
Continuing
Operations Share Reserve
500,000
shares of the Company’s common stock were reserved as per Section 2(c) to be sold at a price, not less than $0.25 per share
in periodic Private Placements, (as per Section 2(a) of the Reserve Agreement concurrent with “Change in Control Agreements”,
dated January 11, 2019). At June 30, 2019, 185,063 shares of common stock remain available under this reserve category.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
12: STOCKHOLDERS’ DEFICIT (Continued)
Final
Adjustment for Liabilities Eliminated by Settlement Reserve
To
the extent Company does not eliminate the above-mentioned liabilities by July 11, 2019, or the cost to do so requires more than
the funding provided by the Warrant Cap pertaining to Warrants to be issued to Mr. Bhatnagar, the Settlement Reserve shares shall
be increased by that number of shares at $0.25, which equals the amount of the remaining liabilities.
Series
A Preferred Stock
On
January 11, 2019, the Company issued 1,000 shares of Series A Preferred Stock to Mr. Bhatnagar as the Company’s new President
and CEO, to effectuate voting control of the Company pursuant to the terms of the Transition Agreement. The Series A Preferred
shares were recorded at par value, are not tradeable, and have a nominal liquidation value.
NOTE
13: RELATED PARTY TRANSACTIONS
Microphase
Corporation
At
June 30, 2019, the Company owed $32,545 to Microphase for previously leased office space at its Norwalk location and for certain
research and development services and shared administrative personnel from time to time, all through December 31, 2015.
Former
Director
Mr.
Biderman, a former outside Director, received 200,000 shares of the Company’s common stock valued at $100,000 pursuant to
a resolution of the Company’s Board dated November 28, 2017, whereby such shares would be issued when enough authorized
shares became available. The liability for this award was included in accrued expenses at June 30, 2018. The shares of the Company’s
common stock were issued during the year ended June 30, 2019.
During
the year ended June 30, 2019, Mr. Biderman, a former outside Director’s affiliated firms of Palladium Capital Advisors and
Eagle Strategic Advisers converted $186,000 of accrued fees into 372,000 shares and $132,234 of a note and accrued interest into
276,205 shares of the Company’s common stock. At June 30, 2019, there was no outstanding balance for accrued fees or for
a note with accrued interest.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
13: RELATED PARTY TRANSACTIONS (continued)
Effective
October 1, 2018, the Company reversed to additional paid in capital $7,500 of accrued finders’ fees waved by Eagle Strategic
Advisers and no amount of such fees was accrued to this former outside Director’s affiliated firm at June 30, 2019.
During
the fiscal years ended June 30, 2019 and 2018 the Company recorded $1,959 and $7,895 of accrued interest on this loan.
Transactions
With Officers
At
various points during past fiscal years certain officers of the Company provided bridge loans to the Company evidenced by individual
promissory notes and deferred compensation so as to provide working capital to the Company. All of these notes accrue interest
at the rate of 6% per annum, and are payable on demand. During the fiscal years ended June 30, 2019 and 2018, the officers advanced
$144,507 and $77,326 to provide working capital to the Company and $15,467 and $44,274 has been charged for interest on loans
from officers.
At
June 30, 2019 and 2018, these outstanding notes including accrued interest totaled $58,165 and $777,712, respectively. At June
30, 2019 and 2018, these promissory notes are convertible into shares of the Company common stock, if available.
During
the fiscal year ended June 30, 2019, Messrs. Durando, Dotoli and Smiley received 800,000 shares of common stock, which were valued
at $400,000, Mr. Biderman a former outside Director received 200,000 shares of common stock, which were valued at $100,000 and
strategic consultants received 150,000 shares of common stock, which were valued at $75,000. In the aggregate, this group received
a total of 1,150,000 shares of common stock, which was valued at $575,000 and included in accrued expenses at June 30, 2018.
During
the fiscal year ended June 30, 2019, the Company issued 3,898,733 shares of common stock and had 329,553 shares to be
issued to a number of related parties and strategic consultants in connection with prior services provided to the Company.
The shares issued were valued at $1,883,445. During the fiscal year ended June 30, 2018, there were no shares of common stock
issued to related parties or strategic consultants.
During
the fiscal year ended June 30, 2019, the Company incurred $9,000 of expense related to legal and consulting services provided
by Mr. Smiley, the Company’s former CFO and legal counsel.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
13: RELATED PARTY TRANSACTIONS (Continued)
During
the fiscal year ended June 30, 2019, the Company issued 2,620,899 (“Signing Shares”) shares of common stock to its
President and CEO, Mr. Bhatnagar, in connection with the commencement of his employment with the Company. The grant date fair
value of $1,310,449 is based upon the closing price of the Company’s common stock on January 11, 2019, and is included in
stock-based compensation expense within the consolidated statement of operations.
On
June 1, 2019, the Company granted 231,635 shares of common stock to Mr. Cutchens, the Company’s Chief Financial Officer.
The common stock will vest 25% on the six month, 1 year, 2 year, and 3 year anniversaries of the grant date. The Company recorded
$16,464 of stock-based compensation expense during the year ended June 30, 2019, related to this common stock grant.
During
the year ended June 30, 2018, the Company did not issue any common stock to employees or officers.
Conversion
Feature and Conversions of Debt to Officers’
The
Company amortized the remaining $91,177 deferred charge balance to beneficial conversion feature interest expense for the year
ended June 30, 2019. At June 30, 2019, there is no deferred charges for beneficial conversion feature interest expense remaining.
NOTE
14: INCOME TAXES
The
Company accounts for income taxes taking into account deferred tax assets and liabilities which represent the future tax consequences
of the differences between financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities.
Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit
carryforwards. Deferred liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will
not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year the change is
enacted. Due to recurring losses, the Company’s tax provision for the years ended June 30, 2019 and 2018 was $0.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
14: INCOME TAXES (continued)
At
June 30, 2019 and 2018, the difference between the effective income tax rate and the applicable statutory federal income tax rate
is summarized as follows:
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Statutory
federal rate
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
|
State
income tax rate, net of federal benefit
|
|
|
(7.2
|
)%
|
|
|
(7.2
|
)%
|
|
Permanent
differences, including stock based compensation and beneficial conversion interest expense
|
|
|
28.9
|
%
|
|
|
29.0
|
%
|
|
Change
in valuation allowance
|
|
|
(0.7
|
)%
|
|
|
(0.8
|
)%
|
|
Effective
tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
At
June 30, 2019 and 2018, the Company’s deferred tax assets were as follows:
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Deferred
tax liability
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Total
deferred tax liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
Federal and state net operating loss carry forward
|
|
$
|
26,156,755
|
|
|
$
|
27,672,065
|
|
|
Other temporary differences
|
|
|
-
|
|
|
|
-
|
|
|
Total deferred tax asset
|
|
|
26,156,755
|
|
|
|
27,672,065
|
|
|
Net deferred tax asset
|
|
|
26,156,755
|
|
|
|
27,672,065
|
|
|
Less: valuation allowance
|
|
|
(26,156,755
|
)
|
|
|
(27,672,065
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
In assessing
the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all 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 will become deductible. The Company considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The
Company has recorded a full valuation allowance against its net deferred tax assets because it is not currently able to conclude
that it is more likely than not that these assets will be realized. The amount of deferred tax assets considered to be realizable
could be increased in the near term if estimates of future taxable income during the carryforward period are increased. The valuation
allowance decreased by $1,515,310 and $14,977,935 during the fiscal years ended June 30, 2019 and 2018, respectively,
as a result of a reduction in the total NOL carry forwards due to expiring loss years.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
14: INCOME TAXES (continued)
As of
June 30, 2019, the Company has federal net operating loss carryforwards of approximately $105,200,000 and approximately
$56,500,000 to offset future federal and state income taxes. Net operating loss carryforwards expire through 2038. Under
the Internal Revenue Code Section 382, certain stock transactions which significantly change ownership, including the sale of
stock to new investors, the exercise of options to purchase stock, or other transactions between shareholders could limit the
amount of net operating loss carryforwards that may be utilized on an annual basis to offset taxable income in future periods.
At June 30, 2019
and 2018, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.
The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company
did not recognize any interest or penalties related to uncertain tax positions at June 30, 2019 and 2018.
NOTE
15: COMMITMENTS AND CONTINGENCIES
Commitments
Effective
May 1, 2019, the Company relocated its corporate office to 9841 Washingtonian Blvd., Suite 390, Gaithersburg, MD 20878, and incurs
rent expense of $1,350 per month, which is payable to a related party. The lease term with the related party is a month-to-month
arrangement.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
15: COMMITMENTS AND CONTINGENCIES (continued)
Judgement
Settlement Agreement
Effective
December 10, 2018, the Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement
with Fife that was previously in effect. As a result, under the Judgment Settlement Agreement, no shares of the Company’s
common stock are issuable or eligible to be converted into. Under the terms of the Judgment Settlement Agreement, the Company
is required to pay $15,000 per month from January 15, 2019 through and including February 15, 2020, with a final payment
of $195,000 due and payable in March of 2020. The Company has made all payments required as of the date hereof.
Failure to make any of the payments, when due, will result in an additional debt obligation, inclusive of principal and interest
at the date of default ($570,660 as of June 30, 2019), to be immediately due and payable by the Company (see Note 10).
Contracts
and Commitments Executed Pursuant to the Transition Agreement
In
the transaction whereby, Mr. Bhatnagar acquired control of the Company on January 11, 2019, the Company entered into material
commitments including an employment agreement and a warrant agreement (see Note 12).
Contingencies
Judgment
Settlement Agreement
Effective
December 10, 2018, the Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement
with Fife that was previously in effect. As a result, under the Judgment Settlement Agreement, no shares of the Company’s
common stock are issuable or eligible to be converted into. Under the terms of the Judgment Settlement Agreement, the Company
is required to pay $15,000 per month from January 15, 2019 through and including February 15, 2020, with a final payment
of $195,000 due and payable in March of 2020. The Company has made all payments required as of the date hereof.
Failure to make any of the payments, when due, will result in an additional debt obligation, inclusive of principal and interest
at the date of default ($570,660 as of June 30, 2019), to be immediately due and payable by the Company (see Note 10).
Should
the Company satisfy the liability as described within the Judgement Settlement Agreement above, the Company would realize a gain
on such settlement of approximately $580,000.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
15: COMMITMENTS AND CONTINGENCIES (continued)
Amounts
Contingent upon Certain Terms of Change in Control Agreements Effective January 11, 2019
To
the extent Company does not eliminate the certain liabilities within six months of the effective date, the Warrant Cap for warrants
issued to Mr. Bhatnagar shall increase by such number of shares at a price of $0.25 to equal the amount of the remaining liability.
The
Change in Control Agreements, effective January 11, 2019, also have certain provisions that may accelerate the warrant “earn
out” formula contained in the Transition Agreement.
NOTE
16: DISCONTINUED OPERATIONS
The
Company has classified the operating results and associated assets and liabilities from its Jump line of products, which ceased
generating material revenue during the first quarter of fiscal year 2017, as Discontinued Operations in the Consolidated Financial
Statements for the Fiscal Years ended June 30, 2019 and 2018.
The
assets and liabilities associated with discontinued operations included in our Consolidated Balance Sheets were as follows:
|
|
|
June
30, 2019
|
|
|
June
30, 2018
|
|
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
33,996
|
|
|
$
|
33,996
|
|
|
$
|
-
|
|
|
$
|
261
|
|
|
$
|
261
|
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
2,526,155
|
|
|
|
2,526,155
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
8,820
|
|
|
|
8,820
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Current Assets
|
|
|
-
|
|
|
|
2,568,971
|
|
|
|
2,568,971
|
|
|
|
-
|
|
|
|
261
|
|
|
|
261
|
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
11,048
|
|
|
|
11,048
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Goodwill
|
|
|
-
|
|
|
|
6,020
|
|
|
|
6,020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Intangible asset - developed software,
net
|
|
|
-
|
|
|
|
3,025,801
|
|
|
|
3,025,801
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other assets
|
|
|
-
|
|
|
|
3,058
|
|
|
|
3,058
|
|
|
|
-
|
|
|
|
800
|
|
|
|
800
|
|
|
Total
Assets
|
|
$
|
-
|
|
|
$
|
5,614,898
|
|
|
$
|
5,614,898
|
|
|
$
|
-
|
|
|
$
|
1,061
|
|
|
$
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
82,795
|
|
|
$
|
366,274
|
|
|
$
|
449,069
|
|
|
$
|
124,508
|
|
|
$
|
421,056
|
|
|
$
|
545,564
|
|
|
Accrued expenses
|
|
|
-
|
|
|
|
3,368,801
|
|
|
|
3,368,801
|
|
|
|
-
|
|
|
|
1,273,569
|
|
|
|
1,273,569
|
|
|
Due to related parties
|
|
|
-
|
|
|
|
65,459
|
|
|
|
65,459
|
|
|
|
-
|
|
|
|
226,045
|
|
|
|
226,045
|
|
|
Notes payable to officers
|
|
|
-
|
|
|
|
25,251
|
|
|
|
25,251
|
|
|
|
-
|
|
|
|
777,912
|
|
|
|
777,912
|
|
|
Convertible notes payable, net
|
|
|
-
|
|
|
|
2,351
|
|
|
|
2,351
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Notes payable to director and investor
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,274
|
|
|
|
133,274
|
|
|
Note payable to finance company
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,468
|
|
|
|
-
|
|
|
|
39,468
|
|
|
Liabilities
in arrears with convertible features
|
|
|
-
|
|
|
|
109,000
|
|
|
|
109,000
|
|
|
|
-
|
|
|
|
997,698
|
|
|
|
997,698
|
|
|
Liabilities
in arrears - judgement settlement agreement (Note 9)
|
|
|
-
|
|
|
|
855,660
|
|
|
|
855,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Derivative liability
|
|
|
-
|
|
|
|
133,669
|
|
|
|
133,669
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
Current Liabilities
|
|
$
|
82,795
|
|
|
$
|
4,926,465
|
|
|
$
|
5,009,260
|
|
|
$
|
163,976
|
|
|
$
|
3,829,554
|
|
|
$
|
3,993,530
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
16: DISCONTINUED OPERATIONS (Continued)
The
revenues and expenses associated with discontinued operations included in our Consolidated Statements of Operations were as follows:
|
|
|
Year
Ended
|
|
|
|
|
June
30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
2,500,000
|
|
|
$
|
2,500,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gross Profit
|
|
|
-
|
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
General and administrative
expenses
|
|
|
-
|
|
|
|
4,265,886
|
|
|
|
4,265,886
|
|
|
|
22,009
|
|
|
|
735,026
|
|
|
|
757,035
|
|
|
Operating
loss
|
|
|
-
|
|
|
|
(1,765,886
|
)
|
|
|
(1,765,886
|
)
|
|
|
(22,009
|
)
|
|
|
(735,026
|
)
|
|
|
(757,035
|
)
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(11,508
|
)
|
|
|
(210,594
|
)
|
|
|
(222,102
|
)
|
|
|
(41,957
|
)
|
|
|
(246,162
|
)
|
|
|
(288,119
|
)
|
|
Loss on change in fair value of derivative
liability
|
|
|
-
|
|
|
|
(30,508
|
)
|
|
|
(30,508
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Initial derivative expense
|
|
|
-
|
|
|
|
(25,161
|
)
|
|
|
(25,161
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
(2,260
|
)
|
|
|
(2,260
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Amortization of deferred financing costs
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
(90
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gain on extinguishment of debt
|
|
|
30,448
|
|
|
|
60,398
|
|
|
|
90,846
|
|
|
|
250,570
|
|
|
|
1,107,922
|
|
|
|
1,358,492
|
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
566
|
|
|
|
-
|
|
|
|
566
|
|
|
Total
Other Income (Expense)
|
|
|
18,940
|
|
|
|
(208,215
|
)
|
|
|
(189,275
|
)
|
|
|
209,179
|
|
|
|
861,760
|
|
|
|
1,070,939
|
|
|
Income (Loss) before
income taxes
|
|
|
18,940
|
|
|
|
(1,974,101
|
)
|
|
|
(1,955,161
|
)
|
|
|
187,170
|
|
|
|
126,734
|
|
|
|
313,904
|
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net
income (loss)
|
|
$
|
18,940
|
|
|
$
|
(1,974,101
|
)
|
|
$
|
(1,955,161
|
)
|
|
$
|
187,170
|
|
|
$
|
126,734
|
|
|
$
|
313,904
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2019
NOTE
17: SUBSEQUENT EVENTS
From
July 1, 2019 through September 30, 2019, the Company issued 64,800 shares of its common stock to a number of related parties
and strategic consultants in connection with prior services provided to the Company. The shares issued were valued at $16,200.
On
July 30, 2019, the Company entered into a Securities Purchase Agreement dated as of July 30, 2019 with Power Up Lending Group
(“Lender”), and issued an 8% Convertible Promissory Note in the principal amount of $53,000 to the Lender
with a maturity date of July 30, 2020. The Company received net proceeds in the amount of $50,000 as a result of $3,000 being
paid to reimburse the Lender for legal and due diligence fees incurred with respect to this Securities Purchase Agreement and
Convertible Promissory Note.
On
August 27, 2019, the Company’s Board of Directors approved the filing of an amendment (the “Amendment”) to the
Company’s Certificate of Incorporation to increase the authorized shares of common stock from 25 million shares to 100 million
shares pursuant to Section 14A:7-2(4) of the Business Corporation Law of the State of New Jersey. The Amendment was filed with
the State of New Jersey on September 4, 2019.
On
September 5, 2019, the Company entered into a Securities Purchase Agreement dated as of September 5, 2019 with Power Up Lending
Group (“Lender”), and issued an 8% Convertible Promissory Note in the principal amount of $53,000 to the Lender with
a maturity date of September 5, 2020. On September 9, 2019, the Company received net proceeds in the amount of $46,800 as a result
of $3,000 being paid to reimburse the Lender for legal and due diligence fees incurred with respect to this Securities Purchase
Agreement and Convertible Promissory Note and $3,200 being paid to the Company’s Transfer Agent to satisfy an outstanding
balance.
On
September 24, 2019, the Company entered into a Securities Purchase Agreement dated as of September 24, 2019 with accredited investors
(“Lenders”), and issued 8% Convertible Promissory Notes in the principal amount of $124,200 (including an aggregate
of $9,200 in original issue discounts) to the Lenders with maturity dates of September 24, 2020. On September 27, 2019, the Company
received net proceeds in the amount of $112,000 as a result of $3,000 being paid to reimburse the Lender for legal and due diligence
fees incurred with respect to this Securities Purchase Agreement and Convertible Promissory Notes.
