AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON July 19, 2019
REGISTRATION
NO. ____________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
MPHASE
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
New
Jersey
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7385
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22-2287503
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(State
or jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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incorporation
or organization)
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Classification
Code Number)
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Identification
No.)
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10306-4933
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9841
Washingtonian Blvd., Suite 390
Gaithersburg,
Md., 20878
Attn:
Anshu Bhatnagar, President
301-329-2700
(Address
and telephone number of principal executive offices)
(Name,
address and telephone number of agent for service)
Copies
to:
Christopher
Cutchens
Edward
Suozzo
9841
Washingtonian Boulevard, #390
Gaithersburg,
MD 20878
Approximate
date of commencement of proposed sale to the public:
From time to time after the effective date of this registration statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
[ ]
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company
CALCULATION
OF REGISTRATION FEE
Title
of each class of
securities to be
registered
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|
Amount
registered
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Proposed
maximum
offering price per share (1)
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Proposed
maximum
aggregate offering price
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Amount
of
registration fee (2)
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Common
Stock
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10,477,800
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(1)
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$
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1.00
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|
|
$
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10,477,800
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|
|
$
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1,269.91
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|
(1)
|
Estimated
solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(c) under the Securities Act
of 1933 based upon the average of the high and low sales prices of the registrant’s common stock on June 25, 2019, as
traded on the pink sheets.
|
|
|
(2)
|
Calculated
pursuant to Rule 457(o) under the Securities Act of 1933, as amended, based on the proposed maximum aggregate offering price
of all securities listed.
|
In
the event of stock splits, stock dividends, or similar transactions involving the Common Stock, the number of Common Shares registered
shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued
pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
The
registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
PRELIMINARY
PROSPECTUS - SUBJECT TO COMPLETION
You
should read this Prospectus Summary together with the more detailed information contained in this prospectus, including the risk
factors and financial statements. This prospectus contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those discussed in the forward-looking statements. Factors that may cause such a difference
include those discussed in the Risk Factors section and elsewhere in this prospectus.
mPhase
Technologies, Inc.
10,477,800
Shares of Common Stock
This
prospectus relates to the resale of up to 10,477,800 shares (the “Common Stock”) of Common Stock, $.01 value
per share, of mPhase Technologies, Inc. (“Company”), a New Jersey Corporation, by the Selling Stockholders set forth
on page 21, the Selling Stockholders may sell Common Stock from time to time in the principal market on which the
stock is traded at the prevailing market price or in negotiated transactions.
We
will not receive any of the proceeds from the sale of Common Stock by the Selling Stockholders.
Investment
in the Common Stock involves a high degree of risk. You should consider carefully the risk factors beginning on page 9 of this
prospectus before purchasing any of the shares offered by this prospectus.
Our
Common Stock is quoted on the Pink Sheets and trades under the symbol “XDSL”. The last reported sale price of our
Common Stock on the Pink Sheets on June 27, 2019, was approximately $1.00 per share.
We
may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the
entire prospectus and any amendments or supplements carefully before you make your investment decision.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this Prospectus is July 19, 2019.
mPhase
Technologies, Inc.
TABLE
OF CONTENTS
You
may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to
provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither
the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any
implication that there has been no change in our affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.
Prospectus
Summary
This
summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully; including
the section entitled “Risk Factors” before deciding to invest in our Common Stock. This prospectus contains product
names, trade names and trademarks of ours as well as those of other organizations. All other brand names and trademarks appearing
in this prospectus are the property of their respective holders.
About
Us
mPhase
Technologies, Inc., a New Jersey corporation (the “Company”, “mPhase”, “we”, “us”,
or “our”) is a publicly-held New Jersey company founded in 1996 with approximately 23,000 shareholders and approximately
11,886,967 shares of Common Stock outstanding as of June 30, 2019. The Company’s Common Stock is traded on
the Pink Sheets under the ticker symbol XDSL. The Company has offices in Gaithersburg, Maryland.
Historically
we have had net operating losses each year since our inception
As
of March 31, 2019, we have an accumulated deficit of ($213,374,998) and a stockholder’s deficit of ($1,793,593)
and a net loss of $1,442,412 for the three months then ended. As of June 30, 2018, we have an accumulated deficit of ($211,676,692)
and a stockholder’s deficit of ($3,992,969). We incurred a net gain of $313,904 and a net loss of $310,765 for the years
ended June 30, 2018 and June 30, 2017, respectively.
The auditors’ report for the fiscal year ended June 30, 2018
includes the statement that “there is substantial doubt of the Company’s ability to continue as a going concern”.
Business
of the Company
mPhase
Technologies, Inc. (the “Company” or “We”) was organized on October 2, 1996. Since 2004 the Company has
been in the business of developing new products through the science of nanotechnology and micro-fluid dynamics. The Company has
made significant progress in developing a reserve battery with an unlimited shelf life prior to initial activation. Our patent
portfolio consists of intellectual property covering the “smart surfaces” that liquids in droplets can be suspended
upon and collapse upon initial activation by either an electrical impulse or a g force. The Company intends to develop other potential
products such as a drug delivery system using such scientific disciplines to monetize its patent portfolio.
In
February 2004 the Company engaged the Bell Labs division of Lucent Technologies, Inc. to develop a new type of power cell energy
storage device through the science of nanotechnology. Taking advantage of a superhydrophobic effect or suspension of a liquid
electrolyte on silicon, Bell Labs created for the Company a reserve battery product with a virtually unlimited shelf-life prior
to initial activation. This result was achieved by causing the suspension, in droplet form, of liquid electrolyte on a “smart
surface” or repellant such as silicon. The phenomenon is based upon the superhydrophobic effect similar to beads of raindrops
forming on a leaf in nature. An electronic impulse is used to trigger the process of “electrowetting” or collapse
of the droplet and the mixing of the electrolyte, thereby providing a low- level source of energy.
The
Company’s first product is its Smart NanoBattery, a reserve battery, having significant potential military applications
for providing low energy power-sources needed to power guidance systems on small munitions as well as reserve sources of power
needed to back up computer-memory systems. The Smart Battery is only activated upon command by either a g force or magnetic pulse
and therefore has a virtually unlimited shelf-life prior to initial activation as a reserve source of energy. The Company believes
there is a significant need for energy storage products that can be activated on command and that are guaranteed to generate reserve
sources of power for mission-critical activities.
From
2004 through the present, mPhase’s research and product development focuses on developing “smart surfaces” using
materials science engineering, nanotechnology science and the principles of microfluidics and microelectromechanical systems (MEMS).
The Company develops products for both commercial and military applications. As noted above, the Company’s first flagship
product is its Smart NanoBattery providing Power on Command™. The new patent pending and patented battery technology, based
on the phenomenon of electrowetting, offers a unique way to store energy and manage power. Features of the Smart NanoBattery include
potentially infinite shelf life, environmentally friendly design, fast ramp to power, programmable control, and direct integration
with microelectronic devices. The platform technology behind the Smart NanoBattery is a porous nanostructured material used to
repel and precisely control the flow of liquids.
In
February 2008, the Company announced that a prototype of its Smart NanoBattery was successfully deployed in a gun-fired test at
the Aberdeen Proving Ground at Maryland. The test was conducted by the U.S. Army Armament Research and Development and Engineering
Center (ARDEC) of Picatinny, New Jersey. The battery not only survived the harsh conditions of deployment at a gravitational force
in excess of 45,000 g, but was also flawlessly activated in the process.
In
March 2008, mPhase announced that it had been invited to submit a proposal for a Phase II STTR grant based upon the successful
work it had performed on the Phase I grant to develop a version of the Smart NanoBattery referred to as the multi-cell, micro-array
reserve battery for a critical memory backup application. The Phase II grant in the gross amount of $750,000 (shared with Rutgers
University which netted $500,000 to mPhase) was granted to the Company in the middle of September 2008. mPhase has completed work
under a Phase II Small Business Technology Transfer Program (STTR) grant of approximately $750,000, as part of the Small Business
Innovation Research (SBIR) program, from the U.S. Army. Under the grant the Company has continued development of its Smart NanoBattery
as a reserve battery for critical mission computer memory. Such reserve battery can be activated by an electronic pulse.
We
have developed and maintain a portfolio of patents and patent applications that form the proprietary base for our research and
development efforts in the area of “smart surfaces.” We believe that our intellectual property portfolio, which currently
includes issued patents either directly owned or licensed by the Company and filed patent applications in various stages of review,
is very strong. Our research and development over the years includes some of the world’s leading institutions including
Alcatel/Lucent Bell Labs. We believe our technology base, combined with our know-how, provides us with a strong competitive advantage
and will facilitate future successful development and commercialization of additional products for use in a variety of potential
military and commercial products.
On
January 4, 2019 the State of New Jersey accepted an Amendment to the Company’s Certificate of Incorporation providing for
1000 shares of a new class of super voting preferred stock. The shares of the new Series A voting preferred stock provide for
51% of the voting authority of all capital stock; feature no dividends, have a Par Value $.001 per share and have a liquidation
preference up to Stated Value (Par) of $.001 per share. All 1,000 shares of the Series A Preferred Stock were issued to
the Company’s New President and CEO to effectuate voting control of the Company on January 11, 2019, pursuant to the Transition
Agreement as described below.
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.
He 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
the Employment Agreement, Mr. Bhatnagar will receive a base salary of $275,000 per annum and granted 13,109,494,031(pre- shares
or approximately 20% of the Common Stock of the Company then outstanding on 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 Common Stock of the Company
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 Common Stock of the
Company not to exceed 80% of the shares outstanding on January 11, 2019 as adjusted for the Reverse Split of the Company’s
Common Stock described below..
The
new management of the Company is positioning the Company to be 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.
The goal is
to generate a faster growth of revenues for the Company.
The
Transition Agreement 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 on December 31, 2018, within six (6) months of January 11, 2019.
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 “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 India division.
On March 7, 2019 the Company announced the
acquisition of the rights, software, and code to the technology platform, Travel Buddhi, a software platform to
enhance travel via ultra-customization tools that tailor a planned trip 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
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 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 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 SEC 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 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. This Registration Statement is being filed on July 19, 2019.
From
July 1, 2018 through May 13, 2019 the Company completed and announced the closing of a Private Placement of shares of its common
stock at $.00005 per share (pre-split), or $.25 on a post-split basis, raising gross proceeds of $115,000. 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.
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 25, 2019 the Company announced
an agreement to acquire all the outstanding stock of AIRobotica Services Limited, a Bangalore, India-based technology company,
(“AIRobotica”) under the terms of a Stock Purchase Agreement (“SPA”) dated April 19, 2019. The purchase
price of $2,500,000 was to be paid over two years in the form of the Company’s common stock, $1,250,000 each anniversary,
contingent upon this division attaining prescribed revenue targets. The agreement also required the Company to provide up to $2,400,000
of working capital over the same two years. Effective June 30, 2019, the Company and AIRobotica mutually agreed under the provisions
of a Termination of Stock Purchase Agreement, to terminate, cancel, and void the SPA as it was determined by each party to the
SPA that each held different strategic visions on conducting the future business of AIRobotica and therefore the termination of
the SPA was in the best interest of both parties. The termination of the SPA did not result in any economic or other penalties
to the Company.
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, the Company entered into
a Share Purchase Agreement (“SPA”) to acquire a controlling interest in Alpha Predictions, LLP, (“Alpha Predictions”)
an India-based technology company, that has developed a suite of commercial data analysis products for use across multiple industries.
Alpha Predictions is comprised of a team of 15 professionals including data specialists who are developing software designed to
provide enhanced levels of data analysis for specific business applications. 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. Alpha Predictions currently
has sales in excess of $2.0 million (USD) and will contribute immediately to mPhase revenues. 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).
On June 30, 2019, the Company entered into
a contract with an IT solutions and services company to provide software, training, and support services. The contract provides
the Company 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.
About
This Offering
Common
stock offered: Up to 10,477,800 shares of common stock, of which 10,477,800 shares are issued and outstanding.
Common
Stock to be outstanding after this offering: Approximately 11,886,967 shares of common stock.
Use
of proceeds: We will not receive any proceeds from the sale and issuance of the common stock included in this offering.
Risk
Factors: An investment in our common stock is subject to significant risks. You should carefully consider the information set
forth in the “Risk Factors” section of this prospectus as well as other information set forth in this prospectus,
including our financial statements and related notes.
Dividend
policy: We do not expect to pay dividends on our common stock in the foreseeable future. We anticipate that all future earnings,
if any, generated from operations will be retained to develop and expand our business.
Plan
of Distribution: The shares of common stock (OTC pink sheet symbol: XDSL.OB) offered for resale may be sold by the selling stockholders
pursuant to this prospectus in the manner described under “Plan of Distribution.”
Estimated
use of proceeds
This
prospectus relates to shares of our Common Stock that may be offered and sold from time to time by the selling stockholders. We
will not receive any of the proceeds resulting from the sale of Common Stock.
Summary
of Shares offered by the Selling Shareholders.
The
following is a summary of the Shares being offered by each of the Selling Shareholders:
Common
Stock outstanding prior to the offering: 11,886,967 based upon the total amount of shares issued as of June 28,
2019.
Common
Stock outstanding after the offering is 11,886,967 shares.
Use
of Proceeds We will not receive any proceeds from sales of stock by the Selling Shareholders.
SUMMARY
FINANCIAL AND OTHER DATA
The
following table sets forth the summary financial and operating data as of the dates and for the periods indicated. The consolidated
statements of operations data for the year ended June 30, 2018, and the consolidated balance sheet data as of June 30, 2017, have
been derived from the audited financial statements of the Company, which are included elsewhere in this prospectus. The statements
of operations data for the Nine months ended March 31, 2019 and 2018 and the balance sheet data as of March 31, 2019 have been
derived from our unaudited financial statements included elsewhere in this prospectus and have been prepared on the same basis
as the audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may
be expected in any future period, and our interim results are not necessarily indicative of the results to be expected for the
full fiscal year.
You
should read the following financial and other data in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this
prospectus.
Balance
Sheet Data
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
Cash
|
|
$
|
25,344
|
|
|
$
|
261
|
|
|
$
|
4,164
|
|
Total
Assets
|
|
$
|
29,830
|
|
|
$
|
1,061
|
|
|
$
|
10,173
|
|
Total
liabilities
|
|
$
|
1,743,423
|
|
|
$
|
4,027,251
|
|
|
$
|
4,519,116
|
|
Total
Stockholders’ Equity
|
|
$
|
(1,793,593
|
)
|
|
$
|
(399,246
|
)
|
|
$
|
(4,508,943
|
)
|
Statement
of Operations
|
|
For
the nine
months
ended
March
31, 2019
|
|
|
For
the nine
months ended
March
31, 2018
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
Income (loss)
|
|
$
|
(1,696,306
|
)
|
|
$
|
942,974
|
|
Statement
of Operations
|
|
Year
Ended
June
30, 2018
|
|
|
Year
Ended
June
30, 2017
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
Income (Loss)
|
|
|
313,904
|
|
|
$
|
(310,765
|
)
|
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 may not achieve future revenues or operating profits
.
We
have generated modest revenue to date from our operations. Historically we have had net operating losses each year since our inception.
The Company has not generated significant revenue outside of STTR grants with respect to its Smart Nano Battery or other potential
products related to Smart Surfaces and artificial intelligence and machine learning. Additionally, even if we are able to commercialize
our technologies or any products or services related to our technologies it is not certain that they will result in profitability.
The
Company has never made an operating profit in its 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 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 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.
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, and
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patents
will not issue to other parties, which may be infringed by our potential products or technologies.
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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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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
As
of March 31, 2019, the Company has estimated by application of a Black Scholes option pricing model that $19,656,741 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 term requisite service or vesting period
to earn the conditions of the warrant. There are an estimated 39,313,000 total shares issuable under the warrant on a post-split
basis that are attainable under the agreement as of March 31, 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
March 31, 2019 the amount recorded in Current Liabilities for convertible note plus accrued interest thereon previously issued
to JMJ Financial was $109,000 and $80,472 respectively. As of March 31, 2019, the aggregate remaining amount of convertible securities
held by JMJ could be converted into 47,370,000 pre-split common shares at the conversion floor price of $.004 or 9,497 shares
on a post-split basis with a conversion price of $26.
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 15
th
day of each month through December 15, 2019 with a final
payment of $190,000 due and payable on January 15, 2020. Failure to pay such amounts enable Fife to immediately enforce the remaining
about of the debt owed by the Company.
Under
the Judgement Settlement Agreement $310,910 is included in the line item “Current Portion, liabilities, in arears,- Judgement
Settlement Agreement” and $580,000 in the line item “Long term portion, liabilities, in arrears,- Judgement Settlement
Agreement” in the liabilities section of the Company’s Balance Sheet as of March 31, 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 $11,532 of finance charges for the fiscal year ended June 30, 2018. As of June 30, 2018, $39,468 remained outstanding
under this note. During the nine months ended March 31, 2019 and 2018 we incurred $7,976 and $8,273, respectively, of finance
charges under this note and at March 31, 2019, $48,392 remained outstanding.
On
June 25, 2019 mPhase Technologies, Inc., a New Jersey corporation (the “Company”), entered into a Securities Purchase
Agreement dated as of June 19, 2019 with Power Up Lending Group, (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 proceeds in the amount of $48,000 and refinance prior indebtedness, of which $48,392 had been recorded
as outstanding, owed to the Lender that had been in default. This note becomes due in full, together with accrued interest in
June 2020 for approximately $86,000. Should we fail to make such payments, the lender can demand shares of our stock, 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 on July 26, 2000 and, despite a significant reverse-split of 5000/1 effective
May 22, 2019 is currently at $1.00 as of June 21, 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
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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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the
price, volatility and trading volume of our common stock;
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future
financial results including sales and revenues generated from operations;
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the
market’s view of the business sector of nanotechnology reserve batteries and emergency flashlights; and
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the
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 in
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 $213,374,998 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 not less than $5 million in
additional cash in the next 12 months through further equity private placements to continue operations and implement the acquisition
plans of the Company’s new management including the completion of the acquisitions of AIRobitca and Travel Buddha as well
as potentially complete a merger with Scepter Commodities LLC. As of March 31, 2019, we have working capital deficit of approximately
($1,234,393) and a stockholders’ deficit of ($1,793,593).
Our
independent auditor’s report expresses doubt about our ability to continue as a going concern.
The
reports of the Company’s outside auditors 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, 2018, 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 March 31,
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 equity periodic
purchases of common stock and bridge loans and 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 corporate officers accumulated
past accrued and unpaid salaries in the aggregate amount of approximately $538,777 certain notes and accrued interest were settled
for stock and an amended conversion feature during the FYE June 30, 2017 and portions of the fiscal year ended June 30, 2018 and
have and 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 General Electric with great resources are currently focusing significant monies for new solutions. Large Companies
such as Microsoft have made significant in- roads 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
presently have members of management and other key employees located in various locations throughout the country which adds complexities
to the operation of the business.
Presently,
we have members of management and other key employees located in both Connecticut and New York and Maryland, which adds complexities
to the operation of our business.
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.
FORWARD-LOOKING
STATEMENTS
This
prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as “may,” “assumes,”
“forecasts,” “positions,” “predicts,” “strategy,” “will,” “expects,”
“estimates,” “anticipates,” “believes,” “projects,” “intends,” “plans,”
“budgets,” “potential,” “continue” and variations thereof, and other statements contained
in this prospectus, regarding matters that are not historical facts and are forward-looking statements. Because these statements
involve risks and uncertainties, as well as certain assumptions, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not
limited to risks inherent in: our early stage of development, including a lack of operating history, lack of profitable operations
and the need for additional capital; the development and commercialization of largely novel and unproven technologies and products;
our ability to protect, maintain and defend our intellectual property rights; uncertainties regarding our ability to obtain the
capital resources needed to continue research and development operations and to conduct research; uncertainty regarding our overall
ability to compete effectively in a highly complex, rapidly developing, capital intensive and competitive industry. See “Risk
Factors” set forth herein for a more complete discussion of these factors. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date that they are made. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking
statements include our plans and objectives for future operations, including plans and objectives relating to our products and
our future economic performance. Assumptions relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, future business decisions, and the time and money required to successfully
complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately
and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements contained
herein are reasonable, any of those assumptions could prove inaccurate and, therefore, we cannot assure you that the results contemplated
in any of the forward-looking statements contained herein will be realized. Based on the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of any such statement should not be regarded as a representation
by us or any other person that our objectives or plans will be achieved.
USE
OF PROCEEDS
We
will receive no proceeds from the sale of shares of Common Stock offered by the selling stockholders.
DETERMINATION
OF OFFERING PRICE
The
selling stockholders may sell their shares in the over-pink sheet market or otherwise, at market prices prevailing at the time
of sale, at prices related to the prevailing market price, or at negotiated prices.
SELLING
SECURITY HOLDERS
The
following table details the name of each selling stockholder, the number of shares owned by that selling stockholder, and the
number of shares that may be offered by each selling stockholder for resale under this prospectus. The selling stockholders may
sell up to 10,477,800 shares of our Common Stock from time to time in one or more offerings under this prospectus. Because
each selling stockholder may offer all, some or none of the shares it holds, and because, based upon information provided to us,
there are currently no agreements, arrangements, or understandings with respect to the sale of any of the shares, no definitive
estimate as to the number of shares that will be held by each selling stockholder after the offering can be provided. The following
table has been prepared on the assumption that all shares offered under this prospectus will be sold to parties unaffiliated with
the selling stockholders.
Name
|
|
Number
of
Shares of
Common Stock
|
|
|
|
|
|
Ace
Fenimore LLC
|
|
|
15,000
|
|
|
|
|
|
|
ADMK
Holdings LLC
|
|
|
221,775
|
|
|
|
|
|
|
American
European Insurance Company
|
|
|
3,000
|
|
|
|
|
|
|
Yehuda
ASSAF
|
|
|
1,750
|
|
|
|
|
|
|
Charlote
Atlas
|
|
|
40,000
|
|
|
|
|
|
|
Belsky
Family Foundation, Inc.
|
|
|
80,000
|
|
|
|
|
|
|
Abraham
Belsky
|
|
|
135,834
|
|
|
|
|
|
|
Anshu
Bhatnager
|
|
|
2,620,899
|
|
|
|
|
|
|
Abraham
Biderman
|
|
|
9,016
|
|
|
|
|
|
|
David
Biderman
|
|
|
5,000
|
|
|
|
|
|
|
Robert
Brantl2
|
|
|
3,75
0
|
|
|
|
|
|
|
Bnos
Devorah Inc.
|
|
|
50,000
|
|
|
|
|
|
|
Colel
Chabad
|
|
|
7,500
|
|
|
|
|
|
|
Congregation
Chazon Avrohom
|
|
|
674,834
|
|
|
|
|
|
|
Congregation
Kahal Minchas Chinuch
|
|
|
1,250
|
|
|
|
|
|
|
Congregation
Torah Utefilah, Inc.
|
|
|
10,000
|
|
|
|
|
|
|
Patricia
J. Dotoli
|
|
|
889,759
|
|
|
|
|
|
|
Karen
A Durando
|
|
|
2,288,955
|
|
|
|
|
|
|
Eagle
Strategic Advisers, LLC
|
|
|
292,204
|
|
Necdet
F. Ergul
|
|
|
4,843
|
|
|
|
|
|
|
Fargil
Realty, LLC
|
|
|
40,000
|
|
|
|
|
|
|
Abraham
Feigenbaum
|
|
|
5,000
|
|
|
|
|
|
|
Melvin
Feigenbaum
|
|
|
10,000
|
|
|
|
|
|
|
Morris
Fuchs
|
|
|
85,000
|
|
|
|
|
|
|
Elyakum
Green
|
|
|
7,500
|
|
|
|
|
|
|
Chaim
Gross
|
|
|
55,000
|
|
|
|
|
|
|
American
European Insurance Group
|
|
|
25,000
|
|
|
|
|
|
|
Alexander
Hasenfeld Inc. Profit Sharing and Retirement Plan
|
|
|
3,00
0
|
|
|
|
|
|
|
Hoch
Family Equities
|
|
|
15,000
|
|
|
|
|
|
|
Joseh
Hoch
|
|
|
32,500
|
|
|
|
|
|
|
HSI
Partnership
|
|
|
5,750
|
|
|
|
|
|
|
Eddie
Hsu
|
|
|
31,000
|
|
|
|
|
|
|
Alex
A Janklowicz
|
|
|
70,000
|
|
|
|
|
|
|
Brian
Kelly
|
|
|
5,000
|
|
|
|
|
|
|
Jacob
Kohn
|
|
|
5,000
|
|
|
|
|
|
|
Levilev
Family Trust/Joseph Levilev TTEE
|
|
|
40,000
|
|
|
|
|
|
|
Levilev
Family Trust/Joseph Levilev TTEE
|
|
|
320,000
|
|
|
|
|
|
|
Eagle
Advisors LLC
|
|
|
154
|
|
|
|
|
|
|
Raizel
Mandelbaum
|
|
|
12,500
|
|
|
|
|
|
|
Beth
Mayer
|
|
|
112,000
|
|
|
|
|
|
|
Timothy
J McCarthy
|
|
|
428
|
|
NCL
Family Trust
|
|
|
20,000
|
|
|
|
|
|
|
J
Michael Parish
|
|
|
1,000
|
|
|
|
|
|
|
RABD
Capital, LLC
|
|
|
7,740
|
|
|
|
|
|
|
257-261
20th Ave Realty, LLC
|
|
|
667
|
|
|
|
|
|
|
George
Rieder
|
|
|
113,775
|
|
|
|
|
|
|
Leslie
Rieder
|
|
|
1,340
|
|
|
|
|
|
|
Yussi
Rieder
|
|
|
1,334
|
|
|
|
|
|
|
Riverside
Properties LLC
|
|
|
52,750
|
|
|
|
|
|
|
Judyr
Rooz
|
|
|
92,000
|
|
|
|
|
|
|
David
Rosenberg
|
|
|
45,034
|
|
|
|
|
|
|
Martin
Smiley
|
|
|
1,047,281
|
|
|
|
|
|
|
David
J Smith
|
|
|
100,000
|
|
|
|
|
|
|
Spraybreak
& Co.
|
|
|
1,520
|
|
|
|
|
|
|
Alan
R Steen
|
|
|
14,370
|
|
|
|
|
|
|
Chaim
Stefansky
|
|
|
10,003
|
|
|
|
|
|
|
Nachum
Stein
|
|
|
52,750
|
|
|
|
|
|
|
Murray
Sternfeld
|
|
|
14,847
|
|
|
|
|
|
|
Philip
Strauss
|
|
|
60,000
|
|
|
|
|
|
|
Edward
Suozzo
|
|
|
88,600
|
|
|
|
|
|
|
688
New Dorp Lane,LLC E.Suozzo Mng. Mbr
|
|
|
46,400
|
|
|
|
|
|
|
EJS
Restoration Trust, E. Suozzo ttee
|
|
|
100,000
|
|
|
|
|
|
|
EJS
Family Trust E. Suozzo ttee
|
|
|
100,000
|
|
|
|
|
|
|
Eliazer
Susna
|
|
|
24,001
|
|
|
|
|
|
|
Tamir
Law Group PC
|
|
|
113,334
|
|
|
|
|
|
|
Tower
50 Partners LP
|
|
|
770
|
|
|
|
|
|
|
Charlotte
Atlas CPA Trust
|
|
|
40,000
|
|
Werdiger
Family Foundation Inc.
|
|
|
1,334
|
|
|
|
|
|
|
Solomon
Werdiger
|
|
|
18,350
|
|
|
|
|
|
|
Rivka
Wolmark
|
|
|
25
|
|
|
|
|
|
|
Joshua
Zeitman
|
|
|
73,374
|
|
(1)
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange
Act of 1934, as amended, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment
power and also any shares, which the selling stockholders has the right to acquire within 60 days. As of June 30, 2019,
the Company had 11,886,987 shares of Common Stock issued and outstanding.
(2)
Assumes the sale of all shares included in this prospectus.
PLAN
OF DISTRIBUTION
Each
selling stockholder and any of its pledges, assignees and successors-in-interest may, from time to time, sell any or all of its
shares of Common Stock on the pink sheets or any other stock exchange, market or trading facility on which our shares are traded
or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of
the following methods when selling shares:
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
|
●
|
privately
negotiated transactions;
|
|
●
|
settlement
of short sales entered into after the effective date of the registration statement of which this prospectus is a part;
|
|
●
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
●
|
a
combination of any such methods of sale; or
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than
under this prospectus.
A
selling stockholder or its pledges, donates, transferees or other successors in interest, may also sell the shares directly to
market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers
may receive compensation in the form of discounts, concessions or commissions from the selling stockholder and/or the purchasers
of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a
particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares
will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares
of Common Stock in block transactions to market makers or other purchasers at a price per share which may be below the then market
price. A selling stockholder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold
by, the selling stockholder. The selling stockholders and any brokers, dealers or agents, upon effecting the sale of any of the
shares offered in this prospectus, may be deemed to be “underwriters” as that term is defined under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the rules and regulations under such acts. In
such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the Securities Act.
We
are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel
to the selling stockholder, but excluding brokerage commissions or underwriter discounts.
The
selling stockholders, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter.
No selling stockholder has entered into any agreement with a prospective underwriter and there is no assurance that any such agreement
will be entered into.
A
selling stockholder may pledge its shares to their brokers under the margin provisions of customer agreements. If a selling stockholder
defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The selling stockholder and any
other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations under such act, including, without limitation, Regulation M. These
provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the selling
stockholder or any other such person. In the event that the selling stockholder is deemed affiliated with purchasers or distribution
participants within the meaning of Regulation M, then the selling stockholder will not be permitted to engage in short sales of
Common Stock. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and certain other activities with respect to such securities for a specified period of time prior to
the commencement of such distributions, subject to specified exceptions or exemptions. Not only is the selling stockholder contractually
restricted from engaging in short sales but in the event any such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our Common Stock. All of these limitations may affect the
marketability of the shares.
If
the selling stockholder notifies us that it has a material arrangement with a broker-dealer for the resale of the Common Stock,
then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement
to describe the agreements between the selling stockholder and the broker-dealer.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
This
prospectus includes 10,477,800 shares of our Common Stock offered by the selling stockholders which constitutes approximately
88% of out currently outstanding Common Stock. The following description of our Common Stock is only a summary. You should
also refer to our certificate of incorporation and bylaws, which have been filed as exhibits to the registration statement of
which this prospectus forms a part.
We
are authorized to issue 25,000,000 shares of Common Stock of $.01 par value per share. Holders of Common Stock are entitled
to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly,
holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive proportionately any dividends as may be declared by our
board of directors. Our outstanding shares of Common Stock are fully paid and non-assessable. Holders of shares of Common Stock
have no conversion, preemptive or other subscription rights, and there is no redemption or sinking fund provisions applicable
to the Common Stock.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
The
validity of the shares offered hereby will be passed upon for us by Martin Smiley, Esq, General Counsel to the Company. With this
exception, no expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having
given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration
or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the offering,
a substantial interest, direct or indirect, in the Company. Nor was any such person connected with the Company as a promoter,
managing or principal underwriter, voting trustee, director, officer or employee.
DESCRIPTION
OF BUSINESS
Overview
mPhase,
a New Jersey corporation founded in 1996, is a publicly-held company with over 23,000 shareholders and 11,886,967 shares
of Common Stock outstanding as of June 30, 2019. The Company’s Common Stock is traded on the pink sheets under the
ticker symbol XDSL. We are headquartered in Gaithersburg, Maryland.
As
of January 11, 2019, the Company has undergone a change of control and management Mr. Anshu Bhatnagar become the new President
and Chief Executive Officer of the Company replacing Mr. Ronald Durando who resigned from such position
.
In addition, all of the former Officers and Directors of the Company have each resigned their positions. On January 28, 2019 Mr.
Smiley, the former CFO of the Company, was reappointed as CFO. On June 6, 2019 Mr. Smiley resigned as CFO of the Company and
Mr. Christopher Cutchens was appointed as CFO.
As
a result of the change in management the Company is commencing entry into the sciences of Artificial Intelligence and Machine
Learning
.
The new management of the
Company believes that this will accelerate the completion and deployment of revenue generating products from the Company’s
existing patent portfolio by modifying and updating such products.
Prior
to January 11, 2019, mPhase was a company specializing only in microfluidics, microelectromechanical systems (MEMS)
and nanotechnology. mPhase is commercializing its first nanotechnology-enabled product for military and commercial applications
- The Smart NanoBattery providing Power on Command™. The new patented and patent pending battery technology, based
on the phenomenon of electrowetting, offers a unique way to store energy and manage power. Features of the Smart NanoBattery include
potentially infinite shelf life, environmentally friendly design, fast ramp to power, programmable control, and direct integration
with microelectronic devices.
The
platform technology behind the Smart NanoBattery is a porous nanostructured material used to repel and precisely control the flow
of liquids. The material has a
Smart Surface
that can potentially be designed for self-cleaning applications, water purification/desalination,
liquid filtration/separation, and environmental cleanup. mPhase has completed a Phase II Small Business Technology Transfer Program
(STTR) grant, part of the Small Business Innovation Research (SBIR) program, from the U.S. Army for continued development of a
reserve Smart NanoBattery for a critical computer memory application.
Since
our inception in 1996, we have been a development-stage company and operating activities have related primarily to research and
development, establishing third-party manufacturing relationships and developing product brand recognition. In December 2007 the
Company ceased further activities with respect to its prior telecommunications equipment products which have been treated as a
Discontinued Business effective June 30, 2010. Since January 2008, the Company has focused primarily upon development of our smart
reserve battery, and other battery and illuminator products as well as establishing a patent portfolio of intellectual property
for “smart surfaces” in the field of nanotechnology.
Description
of Operations
Microfluidics,
MEMS, and Nanotechnology
In
February 2004, mPhase entered the business of developing new products based on materials whose properties and behavior are controlled
at the micrometer and nanometer scales. (For reference, a micrometer or micron is equal one millionth (10 -6) of a meter and a
nanometer is one billionth (10 -9) of a meter – the scale of atoms and molecules. A human hair is approximately 50 microns
in diameter, or 50,000 nanometers thick.) The Company has expertise and capabilities in microfluidics, microelectromechanical
systems (MEMS), and nanotechnology. Microfluidics refers to the behavior, precise control and manipulation of fluids that are
geometrically constrained to a small, typically micrometer scale. MEMS is the integration of mechanical elements, sensors, actuators,
and electronics on a common silicon substrate through microfabrication technology. Nanotechnology is the creation of functional
materials, devices and systems through control of matter (atoms and molecules) on the nanometer length scale (1-100 nanometers),
and exploitation of novel phenomena and properties (physical, chemical, biological, mechanical, electrical) at that length scale.
In its Smart NanoBattery, mPhase exploits the physical phenomenon of electrowetting by which a voltage is used to change the wetting
properties of a liquid/solid interface at the nanometer scale. Through electrowetting, mPhase can change a surface from what is
referred to as a hydrophobic (“water repelling”) state to a hydrophilic (“water attracting”) state. In
the hydrophobic state, the water beads up or is repelled by the surface. In the hydrophilic state, the water spreads out or is
absorbed by the surface. The ability to electronically control the wetting characteristics of a surface at the nanometer scale
forms the basis of mPhase’s nanotechnology operations and intellectual property portfolio.
In
the Smart NanoBattery application, mPhase uses electrowetting as a new technique to activate or literally “turn on”
a battery once it is ready to be used for the first time. At the heart of the Smart NanoBattery is a porous, nanostructured superhydrophic
or superlyophobic membrane designed and fabricated by mPhase. The so-called superhydrophobic membrane applies to water and the
superlyophobic membrane applies to nonaqueous or organic liquids such as ethanol or mineral oil. The difference between the two
membrane types lies in the nanoscale architecture at the surface. By virtue of its superhydrophobic or superlyophobic character,
the membrane, although porous, is able to physically separate the liquid electrolyte from the solid electrodes so that the battery
remains dormant or inactive, thus providing no voltage or current until called upon. This electrolyte-electrode separation gives
the battery the feature of potentially unlimited shelf life and the benefit of being always ready when needed, which is not necessarily
the case for conventional batteries. Electrowetting alters the liquid/membrane interface so that the liquid is now able to flow
over the membrane’s surface and rapidly move through the pores where it is able to contact the solid electrode materials
located on the other side of the membrane.
mPhase
uses MEMS to precisely control the machining of silicon-based materials at the micrometer and nanometer scales. This ability has
led to the Company’s proprietary membrane design that controls the wetting and movement of liquids on a solid surface. mPhase
uses microfluidics to control the flow of liquid electrolyte through the porous membrane and this is also the basis for other
possible applications such as self-cleaning surfaces, filtration and separation and liquid delivery systems.
History
of Nanotechnology Operations
Smart
NanoBattery
mPhase
Technologies along with Bell Labs jointly conducted research from February 2004 through April 2007 that demonstrated control and
manipulation of fluids on superhydrophobic and superlyophobic surfaces to create a new type of battery or energy storage device
with power management features obtained by controlling the wetting behavior of a liquid electrolyte on a solid surface. The scientific
research conducted set the ground work for continued development of the Smart NanoBattery and formed a path to commercialization
of the technology for a broad range of market opportunities. During 2005 and 2006, the battery team tested modifications and enhancements
to the internal design of the battery to optimize its power and energy density characteristics, as well as making engineering
improvements that were essential in moving the battery from a zinc-based chemistry to a commercial lithium-based chemistry that
can be manufactured on a large scale. The Company began its efforts by entering into a $1.2 million 12-month Development Agreement
with the Bell Labs division of Alcatel/Lucent for exploratory research of control and manipulation of fluids on superhydrophobic
surfaces to create power cells ( batteries) by controlling wetting behavior of an electrolyte on nanostructured electrode surfaces.
The goal was to develop a major breakthrough in battery technology creating batteries with longer shelf lives as the result of
no direct electrode contact (meaning no power drain prior to activation). The Company extended its development effort twice for
an additional two years ending in March 2007 and for two additional periods thereafter through July 5, 2007. During this
time, the technical focus shifted from trying to separate the liquid electrolyte from nanostructured electrodes to developing
a nanostructured membrane that could physically separate the liquid electrolyte from the solid electrodes. mPhase also began working
with the Rutgers University Energy Storage Research Group (ESRG) in July 2005 to conduct contract research in advanced battery
chemistries involving lithium.
This
work involved characterizing and testing materials that could be used in the mPhase battery. In July 2007, the relationship shifted
to a collaboration focused on developing a memory backup battery needed by the U.S. Army. The work was funded through a Phase
I Small Business Transfer grant.
The
Company decided in September 2007 to transfer its development work out of Bell Labs (Alcatel/Lucent) in order to broaden its nanotechnology
product commercialization efforts. Prior to such time mPhase was limited to development using zinc-based batteries since Bell
Labs did not have facilities to handle lithium chemistry. mPhase continued to work with Rutgers ESRG that has facilities capable
of handling lithium battery development and also engaged in work with other companies to supply essential components, fabricate
prototypes, and plan manufacturing approaches. These companies included a well-respected silicon foundry and battery manufacturer.
In
February 2008, the Company announced that a prototype of its Smart NanoBattery was successfully deployed in a gun-fired test at
the Aberdeen Proving Ground at Maryland. The test was conducted by the U.S. Army Armament Research and Development and Engineering
Center (ARDEC) of Picatinny, New Jersey. The battery not only survived the harsh conditions of deployment at a gravitational force
in excess of 45,000 g, but was also flawlessly activated in the process.
In
March 2008, mPhase announced that it had been invited to submit a proposal for a Phase II STTR grant based upon the successful
work it had performed on the Phase I grant to develop a version of the Smart NanoBattey referred to as the multi-cell, micro-array
reserve battery for a critical U.S. Army memory backup application. The Phase II grant in the gross amount of $750,000 (net $500,000)
was granted to the Company in the middle of September 2008. In March 2008, the Company also announced the successful transfer
to a commercial foundry of certain processes critical to the manufacturing of its Smart NanoBattery. This enabled fabrication
of the porous membranes for the multi-cell, micro-array reserve battery mentioned above. The Company successfully manufactured
nanostructured membranes at the foundry that are essential to commercial production of the battery. By achieving a series of delayed
activations, the shelf-life and continuous run-time of such battery is increased to a period of time in excess of twenty years.
In April 2008, the Company announced that it had successfully activated its first Smart NanoBattery prototype by electrowetting
using a hard-wired configuration and a remotely-activated device. Remote activation plays a key role in providing power to wireless
sensors systems and RFID tags.
Also,
in April 2008, the Company announced that it had successfully produced its first lithium-based reserve battery with a soft or
pouch package and breakable separator (in place of the electrowettable membrane) that relies on mechanical rather than electrical
activation to provide Power on Command™. The Company believes that it is a significant milestone in moving from a low energy
density zinc-based battery to a higher energy density lithium-based battery towards proving that the Smart NanoBattery will eventually
be economically and commercially viable.
In
fiscal years ended June 30, 2009 and June 30, 2010, the Company focused upon further development of its Smart Nano Battery under
a Phase II STTR grant from the U.S. Army as a potential reserve battery for a back-up computer memory application for a weapons
system. The Company completed this Phase II Army grant in the fall of 2010. On November 12, 2010, the Company announced
that it had successfully triggered and activated its first functional multi-cell smart nano battery. Triggering and activation
of the cells of the battery were achieved by using the technique of electrowetting or programmable triggering. Triggering was
accomplished by applying a pulse of electrical energy to a porous, smart surface membrane located inside each cell in the battery
causing the electrolyte to come in contact with the cell’s electrodes, creating the chemical reaction to produce voltage
inside of the multi-cell battery. The multi-cell battery consists of a matrix of 12 individual cells populated with an electrode
stack consisting of lithium and carbon monofluoride materials with each rated at 3.0 volts. Using a custom designed circuit board
for testing, each of the cells in the battery were independently triggered and activated without affecting any of the non-activated
cells in the multi-cell configuration. Each cell in the battery has a very long shelf-life prior to triggering.
On
February 9, 2011, the Company announced that it had signed a 3 year Cooperative Research and Development Agreement (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 in order 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
From
2011 through January 2019 the Company continued to add to and manage its patent portfolio primarily consisting of “Smart
Surfaces” through the sciences of nanotechnology, microfluidics and material science engineering.
Patents
and Trademarks
Our
Intellectual Property
Various
aspects of the mPhase technology are protected by patents either owned directly by the Company or with respect to which the Company
has full sub-licensing rights. 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 Lucent Technologies and four are licensed from
Lucent Technologies. 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 also has four patent applications related to the Smart Surfaces technology that have been filed
with the United States Patent Office and other foreign patent offices and that are in various stages of examiner review, as well
as four additional patent applications related to other Smart Surfaces technologies under review.
Employees
Currently
w
e have two full-time employees. We also use the services
of numerous outside consultants in business and scientific matters. We believe that we have good relations with our employees
and consultants.
Competition
The
nanotechnology and battery industries as well as the disciplines of artificial intelligence and machine learning are characterized
by rapidly evolving technology and intense competition. Our competitors include major multinational companies, specialty nanotechnology
companies and energy storage products companies. Many of these companies, including Microsoft 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 and begin commercial sales of their products before we do.
DESCRIPTION
OF PROPERTY
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).
LEGAL
PROCEEDINGS
From
time to time the Company may be involved in various legal proceedings in the ordinary course of business.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward
Looking Statements
This
prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as “may,” “assumes,”
“forecasts,” “positions,” “predicts,” “strategy,” “will,” “expects,”
“estimates,” “anticipates,” “believes,” “projects,” “intends,” “plans,”
“budgets,” “potential,” “continue” and variations thereof, and other statements contained
in this prospectus, regarding matters that are not historical facts and are forward-looking statements. Because these statements
involve risks and uncertainties, as well as certain assumptions, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not
limited to risks inherent in: our early stage of development, including a lack of operating history, lack of profitable operations
and the need for additional capital; the development and commercialization of largely novel and unproven technologies and products;
our ability to protect, maintain and defend our intellectual property rights; uncertainties regarding our ability to obtain the
capital resources needed to continue research and development operations; uncertainty regarding our overall ability to compete
effectively in a highly complex, rapidly developing, [capital intensive] and competitive industry. See “Risk Factors”
set forth herein for a more complete discussion of these factors. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date that they are made. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Forward-looking
statements include our plans and objectives for future operations, including plans and objectives relating to our products and
our future economic performance. Assumptions relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions, future business decisions, and the time and money required to successfully
complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately
and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements contained
herein are reasonable, any of those assumptions could prove inaccurate and, therefore, we cannot assure you that the results contemplated
in any of the forward-looking statements contained herein will be realized. Based on the significant uncertainties inherent in
the forward-looking statements included herein, the inclusion of any such statement should not be regarded as a representation
by us or any other person that our objectives or plans will be achieved.
OVERVIEW
The
following discussion should be read in conjunction with the financial statements and notes thereto included in this prospectus.
We
are a nanotechnology company focused on developing and commercializing reserve batteries and other products with “smart
surfaces” in the emerging fields of micro fluid dynamics and nanotechnology.
On January 11, 2019 the Company underwent
a major change in management and control and as a result it is also focusing on development of software platforms and other products
associated with the areas of artificial intelligence and machine learning
. Effective May 22, 2019 the Company completed
a 5,000/1 reverse split of its Common Stock reducing its shares of authorized common stock to 25 million shares. As part of the
January 11, 2019 change of control of the Company a new class of 1,000 shares of super voting preferred stock were issued
to the new CEO of the Company.
Plan
of Operations
While
we continue to pursue research and development in connection with our work on smart surfaces, we are increasingly focused on the
identification and development of product candidates utilizing our technology in both commercial and military arenas.
This
now includes broadening our technology to include the areas of artificial intelligence and machine learning
. We cannot,
however, predict the amount and timing of future revenues. We do not expect sufficient revenues to cover our expenses for the
foreseeable future and expect to continue to fund our operations primarily from outside capital investments including debt financings
and private placements of our common stock.
Strategy
The
Company is seeking to identify strategic partners with significant financial resources through the current valuation of its patent
portfolio. The Company believes that its patents as well as its development efforts in the scientific area of microfluidics and
“smart surfaces” may provide compelling solutions as part of products and strategies of other companies in the area
of energy storage related product. Finally, the Company intends to continue to pursue acquisitions of privately-held companies
that have innovative products that are synergistic with the Company’s strategy of introducing new high-growth products in
the areas of artificial intelligence and machine learning to the market that will enhance and accelerate the Company’s growth
of revenues.
In
April 2016 the prior management of the Company determined to discontinue our then primary revenue generating product which
was a Jump Starter for automotive batteries line of products owing to increased competition from China and eroding
margins. We have had limited resources dedicated to protecting our technology and recapitalizing the Company. During
our last two fiscal years ending June 30, 2018 and 2017, we have focused our operating activity primarily at implementing
a plan to monetize our existing intellectual property portfolio and restructuring our debt obligations. On
December 10, 2018, the Company entered into an amendment to the Judgment Settlement Agreement with John Fife which
we believe significantly enhanced the opportunity to complete our Debt restructuring.
On
January 11, 2019, the Company executed contracts including a “Transition Agreement”
,
together with our prior
management and Mr. Bhatnagar whereby Mr. Bhatnagar acquired control of the Company.
The Transition Agreement provides the
protocol that allows our new management to review our intellectual property portfolio and implement its current plan of operation.
The Company is continuing to implement undertakings already in process to extinguish specific debts and settle or reduce other
liabilities outstanding within six (6) months of January 11, 2019. Such effort will enable the Company to be in a position to
continue to implement a plan to monetize our technology and continuing the prior management’s plan to (i) reduce liabilities
to an acceptable level,(ii) streamline internal financial information and update to best practices our corporate governance and
that of our subsidiaries The foregoing will allow us to, formulate and implement a revised plan of operations based upon the status
of each potential application of our legacy intellectual property portfolio as well as estimate cost and time frames to commercial
deployment., including:
(a)-
further development of new “smart surface” products through the sciences of microfluidics, micro-electromechanical
systems (MEMS) and nanotechnology.
(b)-
continued development of our patented Drug Delivery Systems.
(c)
-
completing our first nanotechnology-enabled product for military and commercial applications - the Smart NanoBattery providing
Power on Command™. Our patented and patent-pending battery technology, based on the phenomenon of electrowetting, offers
a unique way to store energy and manage power that could revolutionize the battery industry. Features of the Smart NanoBattery
include potentially infinite shelf life, environmentally friendly design, fast ramp to power, programmable control, and direct
integration with microelectronic devices.
In
addition, Mr. Bhatnagar intends to broaden the Company’s existing lines of business in order to accelerate revenue growth
through acquisitions of companies and products focused upon proprietary software for artificial intelligence and machine learning
applications
.
Subsequent
to March 31, 2019, the Company acquired the rights, software and code to the technology platform utilized by the
Travel Buddhi division in India, for $115,000. Amortization will be computed using the straight-line method over the estimated
useful life of the asset.
Effective
May 22, 2019 the Company completed a 5000/1 Reverse Split of its Common Stock.
CRITICAL
ACCOUNTING POLICIES
The
Company’s critical accounting policies are as follows:
Convertible
Instruments
-
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815.
ASC
815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments in accordance with EITF 00-19. These three criteria include
circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely
related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting
principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as
the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815
also provides an exception to this rule when the host instrument is deemed to be conventional (as that term is described).
The
Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated
from their host instruments) in accordance with the provisions of ASC 470 20 “Debt with Conversion Options” Accordingly,
the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in
debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the
note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized
over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends
for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of
the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the
note.
Transactions
With New Management
On
January 11, 2019 the Company agreed to an employment agreement with Mr. Bhatnagar which includes annual compensation for a period
of five (5) years with annual salary of $275,000. Also included as compensation was the issuance of restricted shares of common
stock of the Company equal to 20% pre-split or 13,109,494,031, of the number of shares outstanding, after giving effect to the
shares reserved under the agreements, (“Signing Shares”) on January 11, 2019 to Mr. Bhatnagar.; And a warrant agreement
(s) with provisions to acquire up to 80% (the warrant cap) of the Company’s common stock based upon the Company increasing
revenues’;
During
the three and nine months ended March 2019, the Company charge to expense $1,310,449, based upon the closing price of the Company’s
common stock on January 11, 2019, for the issuance of 2,621,899 post-split shares of common stock in connection with his employment
contract, as discussed in Note 3.
During
the three-month and nine-month periods ended March 31, 2019 the Company charge to expense and included in accrued expenses at
March 31, 2019, $61,111 and $4,938 of compensation expense and related fringe costs for amounts due under the employment contract
to Mr. Bhatnagar as our President, as well as $3,571 for facility use and support costs at our Maryland office, to Verus International,
Inc. (ticker symbol “VRUS”) a publicly-held company, for which Mr. Bhatnagar is also the President and CEO.
TRANSACTIONS
WITH
OUTGOING MANAGEMENT
TRANSACTIONS
WITH OFFICERS
The
officers of the Company have made working capital loans to the Company from time to time. These loans, together with accrued interest
at 6% totaled $53,712 and $777,912 at March 31, 2019 and June 30, 2018, respectively. The Company recorded $3,724 and $28,545
for interest on these loans during the nine months ended March 31, 2019 and 2018, respectively.
Through
December 31, 2018 the Company had not recorded outgoing officers’ salaries since April 2017. During the nine months ended
March 31, 2019, the three Officers of the Company received 4,000,000,000 pre-split shares, or 800,000 shares (adjusted for the
reverse split described in Note 3), of common stock which were valued at $400,000 and the liability for this award had been included
in accrued expenses at June 30, 2018, pursuant to a resolution of the Company’s Board dated November 28, 2017, that such
shares were issuable upon the availability of sufficient authorized and unissued shares of Common Stock.
In
September 2018, the officers of the Company converted $538,777 accrued wages into 5,387,770,000 pre-split shares, or 1,077,554
shares (adjusted for the reverse split described in Note3), and $702,105 of notes payable and accrued interest into 7,021,050,000
pre-split shares, or 1,404,210 shares (adjusted for the reverse split described in Note 3), of the Company’s common stock.
Effective December 31, 2018, the officers of the Company converted $128,641 of notes payable and accrued interest into 2,572,825,000
shares, or 514,565 shares (adjusted for the reverse split described in Note 3), of the Company’s common stock. The Company’s
officers did not convert any amounts owed by the Company into shares of common stock during the three-month period ending March
31, 2019.
During
the three-month and nine-month periods ended March 31, 2019, the Company charge to expense and included in accrued expenses at
March 31, 2019, $5,000 in fees to Mr. Smiley as the Company’s General Counsel and Chief Financial Officer during the transition
period.
DIRECTOR
Mr.
Biderman received 1,000,000,000 pre-split shares, or 200,000 shares (adjusted for the reverse split described in Note3), of common
stock which were valued at $100,000 and the liability for this award had been included in accrued expenses at June 30, 2018, pursuant
to a resolution of the Company’s Board dated November 28, 2017, issuable when such shares became available.
In
September 2018, Mr. Biderman, an outside Director’s affiliated firms of Palladium Capital Advisors and Eagle Strategic Advisers
converted $186,000 of accrued fees into 1,860,000,000 pre-split shares and $126,364 of a note and accrued interest into 1,263,642,700
pre-split shares, or 372,000 shares (adjusted for the reverse split described in Note 3), of common stock of the Company. Effective
December 31, 2018, this director converted $4,369 of this note into 87,375,000 pre-split shares, or 17,475 shares (adjusted for
the reverse split described in Note 3), of common stock. $1,498 remained outstanding on December 31, 2018. During the nine months
ended March 31, 2019 and 2018 the Company recorded $1,937 and $5,926 of accrued interest on this loan
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 fees remain accrued to this Director’s affiliated firm.
RESEARCH
AND DEVELOPMENT
Research
and development costs are charged to operations as incurred in accordance with Statement of Financial Accounting Standards (“SFAS”),
No.2, “Accounting for Research and Development Cost.”
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 establishes a single
comprehensive model for entities to use in accounting for revenue arising from outside contracts with customers and supersedes
most of the existing revenue recognition guidance and notes that lease contracts with customers are a scope exception. ASU 2014-09
requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the
consideration to which an entity expects to be entitled in exchange for those goods or services and also requires certain additional
disclosures. On August 12, 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09. Public business entities
may elect to adopt the amendments as of the original effective date however, adoption is required for annual reporting periods
beginning after December 15, 2017. The Company will implement this pronouncement on July 1, 2019.
In
January 2016, the FASB issued ASU-2016-01, Financial Instruments- Overall (Subtopic 825-10) Recognition and Measurement of Financial
Assets and Financial Liability Letters. The Company is currently assessing the impact of the guidance on our financial statements
and notes to our financial statements.
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, 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
on the Company’s financial statements.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard changes the
presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents
will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s
financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”
The amendments in this Update clarify 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 amendments in this Update
provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a
business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability
to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. This Update
is the final version of Proposed ASU 2015-330 Business Combinations (Topic 805) – Clarifying the Definition of a Business,
which has been deleted. The amendments in this Update are effective for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material
impact on the Company’s financial statements.
In
May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”
to provide clarity and reduce 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 amendments in
this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This Update is the final version of Proposed ASU 2016-360—Compensation—Stock
Compensation (Topic 718)—Scope of Modification Accounting, which has been deleted. The amendments in this Update are effective
for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early
adoption is permitted. This ASU is not expected to have a material impact on the Company’s 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 abbreviated financial statements.
Patents
and Licenses
We
have 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:
Nano
Technology, Micro Electrical Mechanical Systems (MEMS) and Battery Portfolio:
Various
aspects of the mPhase 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
On
July 12, 2005, mPhase announced that it had been granted a U.S. patent that covers a series of techniques for splitting different
voice and data signals in DSL access networks that is used in its Broadband Loop Watch product. The Company has discontinued further
development and marketing of this product owing to the lack of demand for loop diagnostics systems by telephone service providers.
The
Company has obtained trademark protection for its mPower Emergency Illuminator and mPower on CommandTM.
In
July 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
Fiscal year ended June 30, 2018. 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.
Results
of Operations
|
|
For
the Nine Months Ended
|
|
|
For
the Year Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2019
|
|
|
2,018
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
1,541,960
|
|
|
|
136,896
|
|
|
|
734,343
|
|
|
|
228,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
|
683
|
|
|
|
683
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
1,541,960
|
|
|
|
137,579
|
|
|
|
735,026
|
|
|
|
231,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(1,541,960
|
)
|
|
|
(137,579
|
)
|
|
|
(735,026
|
)
|
|
|
(231,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(155,912
|
)
|
|
|
(184,342
|
)
|
|
|
(246,162
|
)
|
|
|
(302,906
|
)
|
Other
income - gain on debt extinguishments
|
|
|
16,279
|
|
|
|
1,057,249
|
|
|
|
1,107,922
|
|
|
|
152,320
|
|
TOTAL
OTHER (EXPENSE) INCOME
|
|
|
(139,633
|
)
|
|
|
872,907
|
|
|
|
861,760
|
|
|
|
(150,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income From Continuing
Operations, before Income Taxes
|
|
|
(1,681,593
|
)
|
|
|
735,328
|
|
|
|
126,734
|
|
|
|
(381,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income from Discontinued
Operations
|
|
|
(14,713
|
)
|
|
|
207,247
|
|
|
|
187,170
|
|
|
|
71,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
$
|
(1,696,306
|
)
|
|
|
942,575
|
|
|
$
|
313,904
|
|
|
$
|
(310,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net
(Loss) Income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income per share From Continuing Operations
|
|
$
|
(0.22
|
)
|
|
$
|
0.22
|
|
|
$
|
0.04
|
|
|
$
|
(0.11
|
)
|
Income
per share From Discontinued Operations
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
Net
(Loss) Income per share
|
|
$
|
(0.23
|
)
|
|
$
|
0.28
|
|
|
$
|
0.09
|
|
|
$
|
(0.09
|
)
|
Diluted Net
(Loss) Income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income per share From Continuing Operations
|
|
$
|
(0.22
|
)
|
|
$
|
0.20
|
|
|
$
|
0.04
|
|
|
$
|
(0.11
|
)
|
Income
per share From Discontinued Operations
|
|
$
|
0.01
|
|
|
$
|
0.06
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
Net
(Loss) Income per share
|
|
$
|
(0.23
|
)
|
|
$
|
0.26
|
|
|
$
|
0.09
|
|
|
$
|
(0.09
|
)
|
Weighted Average
Number of Shares Outstanding;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,496,294
|
|
|
|
3,388,282
|
|
|
|
3,336,811
|
|
|
|
3,580,911
|
|
Diluted
|
|
|
7,496,294
|
|
|
|
3,600,000
|
|
|
|
3,600,000
|
|
|
|
3,600,000
|
|
NINE
MONTHS ENDED MARCH 31, 2019 VS. MARCH 31, 2018
Continuing
Operations
General
and Administrative Expenses
. General and administrative expenses charged to continuing operations were $154,960 for the
nine months ended March 31, 2019 compared to $136,896 for the nine months ended March 31, 2018 an increase of $18,064 primarily
due to the commencement of a stock award to the President and CEO of the Company resulting in a non-cash charge of $1,310,449
and an additional $60,000 of cash charges in the period.
Other
Income and Expense.
Interest expense charged to continuing operations was $155,912 in the nine months in Fiscal 2019 as
compared to $184,342 for the prior period, a decrease of $28,430
Net
loss
.
mPhase recorded net loss of ($1,681,593) from continuing operations for the nine month period ended March
31, 2019, plus a ($4,713) of loss from discontinued operations, resulting in net loss of ($1,696,306) for the current year
as compared to a net income of $942,975 in the prior relative period, which consisted of a $735,238 income from continuing operations
and $207,247 of income from discontinued operations for the nine months ended March 31, 2018.
Basic
and Diluted Net Income (Loss) per share
. This represents basic and diluted net income (loss) from continuing operations
and basic and diluted net income (loss) per common share of ($.22) and $($.23) for the nine months ended March 31, 2019 as compared
to basic and diluted net income (loss) from continuing operations and basic and diluted net income (loss) per common share of
($.22) and ($.23) for the nine months ended March 31, 2019. The basic and diluted per share computations are based upon weighted
average common shares outstanding of 7,496,294 for basic and diluted, and 3,388,282 and 3,600,000 for basic and diluted during
the respective nine months ended March 31, 2019 and 2018, as adjusted for the May 17, 2019 reverse split.
Discontinued
Operations
Selling
and Marketing Expenses
. Selling and marketing expenses were $0 for the nine months ended March 31, 2019 compared to $2,251
for the nine months ended March 31, 2018, a decrease of $2,251. The decrease is attributable to the wind-down of the Company’s
efforts to service customers of its line of Jump Products.
General
and Administrative Expenses
. General and administrative expenses charged to discontinued operations were $0 for the nine
months ended March 31, 2019 compared to $16,920 for the nine months ended March 31, 2018, a decrease of $16,920.
Other
Income and Expense.
Interest expense charged to discontinued operations was ($27,245) in the nine months ended March 31
2019 as compared to ($31,057) in the same nine months in 2018, a decrease of $ 3,812. During the nine months ended March 31, 2019
the Company recorded $12,532 of gain on debt extinguishments of discontinued liabilities. During the nine months ended March 31,
2018 the Company recorded $257,475 of gain on debt extinguishments of discontinued liabilities.
Net
loss from Discontinued Operations
.
mPhase recorded a net loss from discontinued operations of $(14,713) for the
nine months ended March 31, 2019 as compared to net income of $207,247 for the nine months ended March 31, 2018.
Basic
and Diluted Net Income (Loss) per share
. This represents basic and diluted net income from discontinued operations per
common share of ($0.01) net loss for the nine months ended March 31, 2019 as compared to basic and diluted net income per common
share of ($0.01) for the nine months ended March 31, 2018. The basic and diluted per share computations are based upon weighted
average common shares outstanding of 7,496,294 for basic and diluted, and 3,388,282 and 3,600,000 for basic and diluted during
the respective nine months ended March 31, 2019 and 2018, as adjusted for the May 20, 2019 reverse split.
TWELVE
MONTHS ENDED JUNE 30, 2018 VS. JUNE 30, 2017
YEAR
ENDED JUNE 30, 2018 VS. JUNE 30, 2017
Continuing
Operations
General
and Administrative Expenses.
General and administrative expenses charged to continuing operations were $734,343 for the
fiscal year ended June 30, 2018 compared to $228,386 for the fiscal year ended June 30, 2017, an increase of $505,957.
The Company recorded a $575,000 charge to continuing operations for stock awards for officers, a director and strategic consultants
during the fiscal year ended June 30, 2018 compared to no such awards in fiscal 2017. The Company eliminated the accrual of the
salaries of the three officers of the Company in fiscal year ended June 30, 2018 resulting in lower payroll of approximately $180,000
to executive officers when compared to fiscal year ended June 30, 2017.
Other
Income and Expense.
Interest expense charged to continuing operations was $246,162 in for the fiscal year ended June
30, 2018 compared to $302,905 in fiscal year ended June 30, 2017, a decrease of $56,743 due to reduced liability balances.
During the fiscal year ended June 40, 2018 other income from continuing operations was $1,107,922 on debt extinguishments.
During the the fiscal year ended June 30, 2017 other income from continuing operations included $153,320 of debt extinguishments.
Net
Income (loss)
.
mPhase recorded a net income of $313,904 for the fiscal year ended June 30, 2018 consisting of $126,734
income from continuing operations plus a $187,170 gain from discontinued operations as compared to a net loss of ($381,920) from
continuing operations for the fiscal year ended June 30, 2017, offset by a $71,155 gain from discontinued operations,
resulting in a net loss of $310,765 for the prior year.
This
represents a net income per common share of $0.09 in 2018 as compared to a net loss per common share of $(0.110) in 2017, based
upon weighted average post-split basic common shares outstanding of 3,336,811 and 3,580,911 during the fiscal years
ended June 30, 2018 and June 30, 2017 respectively. The Company had 3,600,000 diluted post-split common shares outstanding
during both periods.
Discontinued
Operations
Revenues
.
Total revenues for the fiscal year ended June 30, 2018 decreased to $0 from $20,516 in fiscal year ended
June 30, 2017, or 100%. The revenue decrease for the current fiscal year was derived solely due to the terminated sales of
the mPower Jump products.
Cost
of sales
.
Cost of sales decreased $20,471 for the year ended June 30, 2018 to $0 from $20,471 in the fiscal year ended
June 30, 2017. This decrease is directly attributable to the termination of sales of our mPower Jump products.
Research
and Development
. Research and development expenses were $0 for the fiscal year ended June 30, 2018 compared
to $38 for the fiscal year ended June 30, 2017.
Selling
and Marketing Expenses
. Selling and marketing expenses were $0 for the fiscal year ended June 30, 2018 compared
to $11,154 for the fiscal year ended June 30, 2017 a decrease of 100%. The decrease is attributable to the elimination
of the Company’s sales force and marketing efforts with respect to its line of Jump Products.
General
and Administrative Expenses
. General and administrative expenses charged to discontinued operations were $19,694 for the
fiscal year ended June 30, 2018 compared to $78,228 for the fiscal year ended June 30, 2017 a decrease of $58,533.
The Company eliminated a portion of the salaries of the three officers of the Company in fiscal year ended June 30, 2018 resulting
in lower payroll expense charged to discontinued operations of approximately $70,000 for executive officers as compared to fiscal
year ended June 30, 2017.
Other
Income and Expense.
Interest expense charged to discontinued operations was $41,957 in the fiscal year ended June 30,
2018 compared to $47,635 in the fiscal year ended June 30, 2017. During the fiscal year ended June 30, 2018
other income from discontinued operations included $2,875 in a Co-exist agreement for trade name rights offset by $2,309 net termination
costs and $250,570 of income from debt extinguishments. During the fiscal year ended June 30, 2017 other income from discontinued
operations included $12,500 from the conditional sale of a patent and $195,664 of debt extinguishments.
Net
Income from Discontinued Operations
.
mPhase recorded a net gain from discontinued operations of $187,170 for the
year ended June 30, 2018 as compared to $71,155 for the fiscal year ended June 30, 2017.
This
represents net income from discontinued operations per common share of $0.00 in the fiscal year ended June 30, 2018 as
compared to $0.00 in 2017, based upon weighted average post-split Basic common shares outstanding of 3,336,811 and 3,580,911 during
the fiscal years ending June 30, 2018 and 2017 respectively.
The Company had 3,600,000 diluted
post-split
common shares outstanding during both periods.
LIQUIDITY
AND CAPITAL RESOURCES
Through
March 31, 2019, the Company had incurred cumulative losses totaling approximately ($213,374,998) and had cash and cash
equivalents of $25,344. At March 31, 2019 mPhase had a working capital deficit of ($1,329,393) compared to working
capital deficit a of ($3,992,269) as of June 30, 2018, an improvement of $2,663,876 as result of material debt conversions by
officers; a director and strategic vendors, as well as further reductions in liabilities and continued debt extinguishments and
settlements (“Debt Restructurings”).
The
auditors’ report for the fiscal year ended June 30, 2018 includes the statement that “there is substantial doubt of
the Company’s ability to continue as a going concern”. As of March 31, 2019, the Company had a negative net worth
of ($1,793,593) compared to a negative net worth of ($3,992,469) as of June 30, 2018, primarily because of progress with our Debt
Restructurings.
The
Company has incurred cumulative losses of ($211,678,692) and a working capital deficit of ($3,993,269) as of June 30, 2018. The
auditors’ report for the fiscal year ended June 30, 2018 includes the statement that “there is substantial doubt of
the Company’s ability to continue as a going concern”. As of June 30, 2018, the Company had a negative net worth of
($3,992,469) compared to a negative net worth of ($4,508,943) as of June 30, 2017 because of continuing net losses.
The
following tables sets forth a summary of our cash flows for the
nine months ended March 31, 2019 and 2018.
|
|
Nine
months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net
cash used in operating activities
|
|
$
|
(149,371
|
)
|
|
$
|
(101,067
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
174,544
|
|
|
|
102,674
|
|
Net
increase in cash and cash equivalents
|
|
|
25,083
|
|
|
|
1,607
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
25,344
|
|
|
$
|
5,770
|
|
Cash
used in operating activities
Cash
used in operating activities was ($149,371) during the nine months ended March 31, 2019. During such period, the cash used by
operating activities consisted principally of the net loss for the nine months ended March 31, 2019 of ($1,696,306) decreased
by the non-cash gain on debt extinguishments ($28,111) and prepaid expenses of ($3,696), increased by adding back a non-cash charge
for stock compensation of $1,310,449 plus an increase of $169,830 of accounts payable and accrued expenses; and further reduced
by debt amortization of $7,976 and beneficial conversion interest expense of $91,177.
Cash
used in operating activities was ($101,067) during the nine months ended March 31, 2018. During such period, the cash used by
operating activities consisted principally of the net income for the nine months ended March 31, 2018; of $942,575 subtracting
the non-cash gain on debt extinguishments ($1,309,069); decreasing cash used by the increase of accounts payable and accrued expenses
of $165,792 and further reduced by debt amortization of $8,273 and beneficial interest expense of $91,179.
Proceeds
from issuance of common stock
During
the nine months ended March 31, 2019 and 2018, the Company issued 440,000 and 200,000 post-split shares of its common stock in
connection with private placements pursuant to Section 4(a) (2) of the Securities Act of 1933, as amended, raising gross proceeds
of $110,000 and $50,000. The proceeds were used by the Company as working capital.
Proceeds
from notes payable - related parties
During
the nine months ended March 31, 2019 and 2018, two prior and one current of the Company’s Officers’ and a former Director
loaned the Company approximately $93,046 and $50,674, net of repayments during those periods, providing the funding needed to
assist with the Company’s efforts to bring its filings current and settle its operating debts, when at that time funding
via the issuance of common stock was either not available or unfavorably dilutive.
The
following tables sets forth a summary of our cash flows for the
- fiscal years ended June 30,2018 and 2017.
|
|
Fiscal
Year ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Net
cash used in operating activities
|
|
$
|
(173,228
|
)
|
|
$
|
(60,331
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
169,326
|
|
|
|
59,777
|
|
Net
decrease in cash and cash equivalents
|
|
|
(3,902
|
)
|
|
|
(554
|
)
|
Cash
and cash equivalents at the end of the period
|
|
$
|
261
|
|
|
$
|
4,163
|
|
During
the twelve months ended June 30, 2018, the Company issued 1,800,000,000 shares of its common stock in connection with private
placements, pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, raising net proceeds of $81,000 and incurred
finder’s fees in the amount of $9,000. The proceeds were used by the Company as working capital.
During
the twelve months ended June 30, 2017, the Company issued 900,000,000 shares of its common stock in connection with private placements,
pursuant to Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act of 1933, as amended, raising net proceeds of $40,500
and incurred finder’s fees in the amount of $4,500. The proceeds were used by the Company as working capital.
Also,
during the twelve months ended June 30, 2017, an unaffiliated shareholder advanced the Company $1,000, and an additional $2,000
in fiscal 2018. Additionally, the Director who had loaned the Company $90,000 in the fourth quarter of the fiscal year ended June
30, 2015 advanced the Company $20,000, net of repayments, in the twelve months ended June 30, 2016, together with $5,486 of accrued
interest resulted in a balance of $115,486 on June 30, 2016. The Director has not demanded repayment, and together with $7,665
and $7,123 of accrued interest for the fiscal years ended June 30, 2018 & 2017 resulted in a balance of $130,274 outstanding
as of June 30, 2018. This director converted $126,364 of this note and accrued interest into 1,263,642,700 shares of the Company’s
common stock in September 2018.
During
the fiscal years ended June 30, 2018 and 2017, the officers advanced $77,326 and $15,880 to provide working capital to the Company
and $44,274 and $37,288 was charged to interest expense on the loans from officers. At June 30, 2018 and 2017 these notes and
accrued interest at the rate of 6% totaled $777,712 and $658,311, respectively. In September 2018 the officers converted $702,105
of notes payable and accrued interest into 7,021,050,000 shares of the Company’s common stock.
The
Company believes that private placements of its common stock to be issued from time to time will fund our short-term capital
needs and in November 2017 the Board of Directors determined it necessary increase its authorized shares of common stock. On August
22, 2018 the Company received approval from New Jersey Secretary of State to Increase authorized Common Shares from 18 billion
to 72 billion shares.
MANAGEMENT’S
PLANS AND CURRENT STATUS
Continue
settlements and Commence New Operations
The
Company had curtailed its efforts with respect to selling its line of automotive jump starter products owing to increased competition
resulting in poor margins because of commodity pricing of such products. The Company has sought to implement alternative products
for development from our existing patent portfolio and intellectual property but is unable to predict the timing and amount of
future revenues. On January 11, 2019 the Company underwent a major change in management and focus to restructure its business
to accelerate the generation of revenue through a combination of raising additional capital to improve its balance sheet and aggressively
pursue mergers and acquisitions.
Conversion
of Prior Management and Strategic Vendor Debts during the nine months ended March 31, 2019
On
September 24, 2018 the officers of the Company converted $538,777 accrued wages into 5,387,770,000 pre-split shares, or 1,077,554
shares on a post-split basis, and $702,105 of notes payable and accrued interest into 7,021,050,000 pre-split shares, or 1,404,210
shares on a post-split basis, and a director converted $186,000 of accrued fees into 1,860,000,000 pre-split shares, or 372,000
shares on a post-split basis, and $126,364 of a note and accrued interest into 1,263,642,700 pre-split shares, or 252,729 shares
on a post-split basis, of the Company’s common stock. Also, on September 24, 2018 accounts payable to strategic vendors
totaling $99,500 were converted into 995,000,000 pre-split shares, or 199,000 shares on a post-split basis, of common stock. The
September conversions were for all debt owed these individuals by as of December 31, 2017, at $.0001 per share on a pre-split
basis, or $.50 per share on a post-split basis, Effective December 31, 2018 the officers and a Director of the Company converted
$133,010 and vendors of the Company converted $15,300 of debt of the Company outstanding on December 31, 2018 into 2,660,200,000
and 306,000,000 pre-split shares respectively, or 532,040 and 61,200 shares on a post-split basis respectively,
of common stock at $.00005 per share on a pre-split basis, or $.25 per share on a post-split basis. Prior Management did not convert
any amounts owed by the Company into common stock during the quarter ended March 31, 2019.
Debt
Conversions by Prior Management and Strategic Vendors
for
the nine months ended March 31, 2019 as adjusted for the May 20, 2019 reverse split, are as follows are as follows:
Liability
Converted by Prior Management and Strategic Vendors
|
|
Amount
of Liability Converted
|
|
|
Post-
split Shares of Common Stock
|
|
Conversion
of accrued wages Officers’
|
|
$
|
538,777
|
|
|
|
1,077,554
|
|
Conversion
of Officers’ loans and accrued interest
|
|
|
830,746
|
|
|
|
1,918,775
|
|
Conversion
of accrued fees to a Director
|
|
|
186,000
|
|
|
|
37,200
|
|
Conversion
of loans and accrued interest due to a Director
|
|
|
130,733
|
|
|
|
270,204
|
|
Conversion
of accounts payable to strategic vendors
|
|
|
114,800
|
|
|
|
260,200
|
|
Totals
conversions by liability into common Stock for Debts owed to Prior Management and Strategic Vendors of the Company during
the Nine Months Ended March 31, 2019
|
|
$
|
1,801,056
|
|
|
|
3,563,933
|
|
Judgement
Settlement Agreement (Formerly Fife Forbearance Obligation)
On
March 31, 2019, the judgement settlement agreement, which satisfies the Fife obligation in full, totaled $890,910. During the
nine months ended March 31, 2019 the Company paid $45,000 applying $28,004 to principle and $16,996 to interest. During
the nine months March 31, 2019 and 2018 the Company recorded a total of $50,546 and $55,886 interest expense respectively
on the preceding forbearance and current judgement settlement agreement.
On
various occasions commencing with August 11, 2015 and then January 19, 2016, June 30, 2016, August 18, 2017 and February 16, 2018
the Company entered into an Amendments No. 1 through 5 to the Forbearance Agreement with Mr. Fife; primarily rescheduling the
monthly payment schedules. On December 15, 2018, the Company paid $15,000 as the execution payment for the judgement settlement
agreement, The Company plans to satisfy this agreement in full by making payments of $15,000 per month through December 30, 2019
and a balloon payment of $195,000 in January 2020 and has included $310,910 in the line item “Current Portion, liabilities
in arears- Judgement Settlement Agreement” for this agreement and $580,000 in the line item “Long term portion, liabilities
in arears- Judgement Settlement Agreement in the liabilities section of the Company’s Balance Sheet as of March 31, 2019.
The
Company has pursued strategic alternatives to best monetize its remaining patent portfolio restructuring and revising its debt
obligations and Capital structure, primarily satisfying prior obligations while it implements its new operating strategy.
River
North Equity, LLC (“River North”); which had purchased notes previously issued to JMJ Financial, commenced a litigation
against the Company, which was dismissed with prejudice on April 17, 2017; and additionally, we were awarded attorney’s
fees. River North failed to appeal a Judgement in favor of the Company negating such Notes by July 17, 2017 and the Judgement
became final. As a result of this proceeding 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
debt during the nine months ended March 31, 2019. The Company been negotiating a settlement for the remaining JMJ notes for an
amount less than the $109,000 of principle and $80,472 of accrued interest thereon we have recorded due to JMJ at March 31, 2019.
The
Company has also settled the amount due to MH Investment Trust II in full for a payment of $3,000 on April 10, 2019.
The
Transition Agreement enables our new management to develop and implement its current plan of operation while the Company finalizes
undertakings already in process to extinguish specific debts and settle or reduce other liabilities outstanding within six (6)
months.
The
Company is focused upon developing a world-class software capability in the core disciplines of artificial intelligence and machine
learning in order to broaden its product line and achieve connectively of its existing technology to become part of the “internet
of things” The Company believes this effort is essential to accelerate and increase rapid growth of its revenues and maximize
shareholder value.
During
March 2019, the Company formed its operating subsidiary in Bangalore, India, mPhase Technologies India Pvt ltd., which leases
office space for approximately 40 employees.
During
April 2019, the Company acquired the rights, software, and code to the technology platform utilized by the Travel Buddhi division
in India, for $115,000 (USD).
During
June 2019, the Company secured a $2.5 million (USD) contract to provide software, training, and support services to an IT solutions
and services company. 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.
During
June 2019, the Company acquired a controlling interest (99%) in Alpha Predictions, LLP, (“Alpha Predictions”) an India-based
technology company, that has developed a suite of commercial data analysis products for use across multiple industries. Alpha
Predictions is comprised of a team of data specialists who are developing software designed to provide enhanced levels of data
analysis for specific business applications. 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. Alpha Predictions currently has annualized revenue in excess of $2.0
million (USD) and will become a consolidated subsidiary effective July 1, 2019.
During
April 2019 the Company announced an agreement to acquire all the outstanding stock of AIRobotica Services Limited, a Bangalore,
India-based technology company, (“AIRobotica”) under the terms of a Stock Purchase Agreement (“SPA”) dated
April 19, 2019. The purchase price of $2,500,000 is to be paid over two years in the form of the Company’s common stock,
$1,250,000 each anniversary, contingent upon this division attaining prescribed revenue targets. The agreement also requires the
Company to provide up to $2,400,000 of working capital over the same two years. Effective June 30, 2019, the Company and AIRobotica
mutually agreed under the provisions of a Termination of Stock Purchase Agreement, to terminate, cancel, and void the SPA as it
was determined by each party to the SPA that each held different strategic visions on conducting the future business of AIRobotica
and therefore the termination of the SPA was in the best interest of both parties. The termination of the SPA did not result in
any economic or other penalties to the Company.
The
Company’s ability to continue as a going concern and its future success is dependent upon its ability to raise capital in
the near term to: (1) satisfy its current obligations, including recently amended settlement agreements, (2) continue its plan
to align partners or other third parties to underwrite any research and development efforts needed to exploit our existing technological
capabilities, or develop new products and (3) allow the successful wide scale development, deployment and marketing of its smart
surface products, or any newly developed, acquired or otherwise obtained product or service line of business. There can be no
assurance the necessary debt or equity financing will be available, or if so, on terms acceptable to the Company.
The
Company believes that its short-term liquidity requirements are between $140,000 and $150,000 per month until the recently
activated Subsidiaries become self-funding from our new operations and any re activation of our existing technologies. In the
longer term, we estimate that the Company will need to raise approximately $5-10 million of additional capital for the next 12
months in order to complete targeted acquisitions of revenue producing companies that focus upon artificial intelligence and machine
learning. Finally, depending upon sales and margins in fiscal year 2020, additional capital may be required to fund a portion
of any growth necessary in operations.
We
believe that it is not possible at this stage to provide a meaningful estimate of the total cost to complete our ongoing projects
and bring any proposed products to market. The development of new products using the science of nanotechnology and the discipline
of microfluidics, artificial intelligence and machine learning are emerging areas and the time for development of future new products
is unknown. Costs to complete could vary substantially depending upon the products selected for development. It is possible that
the completion and commercialization of these new products could be delayed for a variety of reasons, including difficulties in
developing prototypes, delays in manufacturing and the development of new sources of product distribution. Any delay in completion
of a product would increase the cost of that product, which would harm our results of operations. Due to these uncertainties,
we cannot reasonably estimate the size, nature nor timing of the costs to complete, or the amount or timing of the net cash inflows
from our current activities. Until we have developed a larger number of products, we will not be able to estimate our future expenses
related to these programs or when, if ever, and to what extent we will receive cash inflows from resulting products.
Contractual
Obligations The following table illustrates debts convertible into shares of the Company’s Common Stock at March 31, 2019:
|
|
March
31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Split
Shares Convertible
|
|
|
|
Note
Principle
|
|
|
Accrued
Interest
|
|
|
Total
|
|
|
immediately
|
|
|
conditionally
available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrangement
#1 - JMJ Financial, Inc
|
|
$
|
109,000
|
|
|
$
|
80,472
|
|
|
$
|
189,472
|
|
|
|
9,474
|
|
|
|
-
|
|
Arrangement
#3 - MH Investment trust II
|
|
|
3,333
|
|
|
|
3,718
|
|
|
|
6,844
|
(iii)
|
|
|
7,604
|
|
|
|
-
|
|
Total
Liabilities, in arrears, with convertible features
|
|
|
112,333
|
|
|
|
84,190
|
|
|
|
192,577
|
|
|
|
17,078
|
|
|
|
-
|
|
Judgement
Settlement Agreement
|
|
|
890,910
|
|
|
|
-
|
|
|
|
890,910
|
(i)
|
|
|
-
|
|
|
|
|
|
Notes
Payable- Officers
|
|
|
71,275
|
|
|
|
-
|
|
|
|
71,275
|
(ii)
|
|
|
-
|
|
|
|
285,100
|
|
Notes
Payable- Director
|
|
|
1,478
|
|
|
|
-
|
|
|
|
1,478
|
(ii)
|
|
|
-
|
|
|
|
5,912
|
|
Total
|
|
$
|
1,075,996
|
|
|
$
|
84,190
|
|
|
$
|
1,156,240
|
|
|
|
17,078
|
|
|
|
291,012
|
|
(i)
The Judgement Settlement Agreement with Mr. Fife, effective December 10, 2018 has no features whereby the debt is convertible
into our common stock on March 31, 2019.
(SEE NOTE 8 - Judgement Settlement Agreement)
(ii)
Conditionally convertible if available under “Settlements Reserve”, through July 11, 2019 and January 2020.
(SEE NOTE 8 - Reserved Shares)
(iii)
Arrangement #3 - MH Investment trust II was settled in full on April 10, 2019
At
March 31, 2019, our significant contractual obligations for Debt repayments were as follows:
|
|
Less
than
one year
|
|
|
Greater
than
one year
|
|
|
Total
|
|
Convertible
Note-JMJ Financial
|
|
$
|
189,472
|
|
|
$
|
-
|
|
|
$
|
189,472
|
|
Settlement
Agreement -John Fife **
|
|
|
310,910
|
|
|
|
580,000
|
|
|
|
890,910
|
|
Power-Up
Loan* and ***
|
|
|
48,392
|
|
|
|
-
|
|
|
|
48,392
|
|
Total
|
|
$
|
548,774
|
|
|
$
|
580,000
|
|
|
$
|
1,128,774
|
|
**-
if the Company completes the settlement obligation to Fife by January 2020, the Company will realize a gain from Debt Extinguishments
of approximately $580,000
***
On June 25, 2019, the Company entered into a Securities Purchase Agreement dated as of June 19, 2019 with Power Up Lending
Group, a Virginia corporation (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 $48,000 and refinance prior indebtedness
owed to the Lender that had been in default.
We
do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities
that would be expected to have a material current or future effect upon our financial condition or results of operations.
MARKET
PRICE OF AND DIVIDENDS ON REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A)
MARKET PRICES OF COMMON STOCK.
The primary market for mPhase’s common stock is the NASDAQ OTC Bulletin Board, where
it trades under the symbol “XDSL.” The Company became publicly traded through a merger with Lightpaths TP Technologies,
formerly known as Tecma Laboratories, Inc. pursuant to an agreement dated February 17, 1997. The following table sets forth the
high and low closing prices for the shares for the periods indicated as provided by the NASDAQ’s OTCBB System. The quotations
shown reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions.
These figures have been adjusted to reflect a 1 for 10 reverse stock split on March 1, 1997 and a 1 for 5,000 reverse split on
May 22, 2019.
(A)
MARKET PRICES OF COMMON STOCK.
The primary market for mPhase’s common stock is the OTC Pink Quotation System, where
it trades under the symbol “XDSL.” The Company became publicly traded through a merger with Lightpaths TP Technologies,
formerly known as Tecma Laboratories, Inc. pursuant to an agreement dated February 17, 1997. The following table sets forth the
high and low closing prices for the shares for the periods indicated as provided by the NASDAQ’s OTCBB System. The stock
prices have been adjusted to reflect a 5000/1 reverse split of the Common Stock of the Company. The quotations shown reflect inter-dealer
prices, without retail mark-up, markdown, or commission and may not represent actual transactions.
YEAR/QUARTER
|
|
HIGH
|
|
|
LOW
|
|
Fiscal year
ended June 30, 2019
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
1.00
|
|
|
$
|
.005
|
|
Second
Quarter
|
|
|
1.00
|
|
|
|
.05
|
|
Third
Quarter
|
|
|
1.50
|
|
|
|
.50
|
|
Fourth
Quarter
|
|
|
1.50
|
|
|
|
.50
|
|
|
|
|
|
|
|
|
|
|
Fiscal year
ended June 30, 2018
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
.50
|
|
|
|
.05
|
|
Second
Quarter
|
|
|
1.00
|
|
|
|
.25
|
|
Third
Quarter
|
|
|
1.00
|
|
|
|
.25
|
|
Fourth
Quarter
|
|
$
|
.75
|
|
|
$
|
.50
|
|
Penny
Stock Rules
Our
shares of Common Stock are subject to the “penny stock” rules of the Securities Exchange Act of 1934 and various rules
under this Act. In general terms, “penny stock” is defined as any equity security that has a market price less than
$5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless
that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, authorized
for quotation from the NASDAQ stock market, issued by a registered investment company, and excluded from the definition on the
basis of price (at least $5.00 per share), or based on the issuer’s net tangible assets or revenues. In the last case, the
issuer’s net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if
in operation for less than three years or the issuer’s average revenues for each of the past three years must exceed $6,000,000.
Trading
in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons
other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in
excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors.
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the
security and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally,
for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and
the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent
price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in
our Common Stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.
Dividends
We
never paid cash dividends and have no plans to do so in the foreseeable future. Our future dividend policy will be determined
by our board of directors and will depend upon a number of factors, including our financial condition and performance, our cash
needs and expansion plans, income tax consequences, and the restrictions that applicable laws, our current preferred stock instruments,
and our future credit arrangements may then impose.
Currently
under New Jersey law, unless further restricted in its certificate of incorporation, a corporation may declare and pay dividends
out of surplus, or if no surplus exists, out of net profits for the fiscal year in which the dividend is declared and/or the preceding
fiscal year (provided that the amount of capital of the corporation is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the distribution of assets).
Securities
Authorized for Issuance Under Equity Compensation Plan
The
following table shows information with respect to each equity compensation plan under which the Company’s Common Stock is
authorized for issuance as of the fiscal year ended June 31, 2011.
EQUITY
COMPENSATION PLAN INFORMATION
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
Weighted
|
|
|
Number
of
|
|
|
|
to
be issued
|
|
|
average
|
|
|
securities
|
|
|
|
upon
|
|
|
exercise
|
|
|
remaining
|
|
|
|
exercise
of
|
|
|
price
of
|
|
|
available
for
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
issuance
|
|
|
|
options,
|
|
|
options,
|
|
|
under
equity
|
|
|
|
warrants
|
|
|
warrants
|
|
|
compensation
|
|
|
|
and
rights
|
|
|
and
rights
|
|
|
plans
|
|
Plan
Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level
of U.S. interest rates, particularly because a significant portion of our investments are in short term debt securities issued
by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve
principal. Due to the nature of our marketable securities, we believe that we are not exposed to any material market risk. We
do not have any derivative financial instruments or foreign currency instruments. If interest rates had varied by 10% in the three
months ended March 31, 2011, it would not have had a material effect on our results of operations or cash flows for that period.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our
directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing
year or until their successors have been duly elected and qualified. Officers are elected annually by the Board of Directors and
serve at the discretion of the Board. No family relationships exist between any of the executive officers or directors.
The
following table sets forth certain information with respect to each person who is an executive officer or director. mPhase’s
executive officers and directors as of March 31, 2019 are as follows:
NAME
|
|
AGE
|
|
POSITION(S)
|
Anshu
Bhatnagar
|
|
45
|
|
Chief
Executive Officer and Director
|
|
|
|
|
|
Martin
Smiley **
|
|
71
|
|
Chief
Financial Officer
|
(1)
|
Member
of the Audit Committee
|
|
|
(2)
|
Member
of the Compensation Committee
|
ANSHU
BHATNAGAR Anshu Bhatnagar has served as our Chief Executive Officer and Chairman of our board of directors since January 11, 2019.
In addition, Mr. Bhatnagar is a food distribution veteran also CEO and Chairman of the Board of VERUS International, Inc, another
publicly-traded company and previously was the Chief Executive Officer of American Agro Group, an international trading and distribution
company that specialized in exporting agricultural commodities and food products from May 2012 to January 2016. Mr. Bhatnagar
was also a Managing Member of Blue Capital Group, a real estate oriented multi-family office focused on acquiring, developing,
and managing commercial real estate as well as investing in operating businesses from January 2008 to December 2016. He has also
owned NS operated other successful businesses in technology, construction and waste management. We believe Mr. Bhatnagar is qualified
to serve as a member of our board because of his extensive business experience including his experience in the food industry.
MARTIN
SMILEY was elected on June 28, 2006 to the Board of Directors. He joined mPhase as Executive Vice President, Chief Financial Officer
and General Counsel in August 2000. Mr. Smiley has over forty years of experience as a corporate finance and securities attorney
and as an investment banker. Prior to joining the company, Mr. Smiley served as a Principal at Morrison & Kibbey, Ltd., a
mergers and acquisitions and investment banking firm, from 1998 to 2000, and as a Managing Director for CIBC Oppenheimer Securities
from 1994 to 1998. He served as a Vice President of Investment Banking at Chase Manhattan Bank from 1989 to 1994, and as a Vice
President and Associate General Counsel for Chrysler Capital Corporation from 1984 to 1989. Mr. Smiley graduated with a B.A. in
Mathematics from the University of Pennsylvania and earned his law degree from the University of Virginia, School of Law. Mr.
Smiley resigned as the Company’s Chief Financial Officer on June 6, 2019.
Mr.
Christopher Cutchens became the Company’s Chief Financial Officer on June 6, 2019, Since June 2018, Christopher Cutchens
has served as the Managing Partner of Cutchens Group, LLC, a consulting firm specializing in providing operational and financial
services to both public and private companies. From September 2018 until June 2019, Mr. Cutchens served as Chief Operating Officer
and Chief Financial Officer of DirectView Holdings, Inc., a company that provides security and surveillance and video conference
services. From January 2016 until June 2018, Mr. Cutchens served as Executive Vice President, Chief Operating Officer and Financial
Officer of MidAmerica Administrative & Retirement Solutions, LLC, a private company that provides employee benefit programs
to plan sponsors and employees. From January 2013 to January 2016, Mr. Cutchens served as Executive Vice President and Chief Financial
Officer of Aspire Services, LLC (“Aspire”), and from April 2012 to January 2013, he served as Vice President of Accounting
and Finance of Aspire. Aspire is a service provider of retirement solutions. In addition, Mr. Cutchens has served in various other
capacities including Corporate Controller of Watsco, Inc. (NYSE: WSO); Corporate Controller of Carrier Enterprise, LLC; Director
of Corporate Accounting and Financial Reporting and Assistant Corporate Controller of MarineMax, Inc. (NYSE: HZO); and Senior
Auditor at KPMG LLP. Mr. Cutchens received a Bachelor of Science degree in accounting and a master’s degree in accounting
information systems from the University of South Florida. Mr. Cutchens is a CPA in the State of Florida.
EXECUTIVE
COMPENSATION
The
following table sets forth, for the fiscal year ended June 30, 2018 and the previous fiscal year, the compensation earned by mPhase’s
chief executive officer and the other executive officers whose compensation was greater than $100,000 for services rendered in
all capacities to the Company for the year ended June 30, 2018.
ITEM
11. EXECUTIVE COMPENSATION
NAME
&
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-
|
|
|
|
|
|
|
|
|
|
|
PRINCIPAL
|
|
|
|
|
|
|
|
|
|
STOCK
|
|
|
OPTION
|
|
|
EQUITY
|
|
|
PENSION
|
|
|
|
|
|
|
|
POSITION
|
|
YEAR
|
|
SALARY
|
|
|
BONUS
|
|
|
AWARDS
|
|
|
AWARDS
|
|
|
INCENTIVE
|
|
|
VALUE
|
|
|
OTHER
|
|
|
TOTAL
|
|
Ronald
Durando
|
|
2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
200,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,678
|
(1)
|
|
$
|
225,678
|
|
Chief
Executive Officer
|
|
2017
|
|
$
|
100,000
|
(2)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,242
|
(1)
|
|
|
122,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gustave
Dotoli
|
|
2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
100,000
|
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,623
|
(1)
|
|
$
|
108,623
|
|
Chief
Operating Officer
|
|
2017
|
|
$
|
40,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,020
|
(1)
|
|
$
|
48,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Smiley
|
|
2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,973
|
(1)
|
|
$
|
107,973
|
|
CFO
and General Counsel
|
|
2017
|
|
$
|
40,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,026
|
(1)
|
|
$
|
47,026
|
|
FOOTNOTES
(1)
|
Interest
on loans to the Company.
|
|
|
(2)
|
Does
not include $14,500 of fees charged by Karen Durando, the wife of the Company’s president, for product marketing services
during the fiscal years ended June 30, 2017.
|
OUTSTANDING
EQUITY AWARDS at FISCAL YEAR END JUNE 30, 2018
|
|
Number
of
Securities
underlying
Unexercised Options
(Exercisable)
|
|
|
Number
of
Securities
underlying
Unexercised
Options
(Exercisable)
|
|
|
Equity
Incentive
Plan
awards
Number of
Securities
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
|
|
Number
of
shares of
stock that
has not
been
vested
|
|
|
Market
Value of
Shares not
vested
|
|
|
Equity
Incentive
|
|
Ronald
Durando
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
President
CEO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gustave
Dotoli
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
COO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Smiley
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Executive
VP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFO
Chief Legal Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board
Committees
We
presently do not have an audit committee, compensation committee or nominating and corporate governance committee or committee
performing similar functions, as management believes that the Company is in an early stage of development to form an audit, compensation,
or nominating committee. The board of directors’ acts in place of such committees. The Company currently does not have an
audit committee financial expert for the same reason that it does not have board committees.
Employment
Agreements
Mr.
Bhatnagar President and Chief Executive Officer pursuant to the terms of an Employment Contract, Transition Agreement and a Warrant
each dated as of January 11, 2019 for a period of 5 years and at a base cash salary of $275,000 per annum. Under the terms of
the Employment Contract and Transition Agreement Mr. Bhatnagar is to receive 13,109,494,031 Restricted Shares of Common Stock
of the Company.
In
addition, Mr. Bhatnagar is being granted 1,000 shares of a newly-created class of Series A Preferred Stock of the Company that
effectively gives him voting control of the Company. As the holder of one thousand (1,000) shares of Series A Preferred Stock,
Mr. Bhatnagar shall have the number of votes (identical in every other respect to the voting rights of the holders of Common Stock
entitled at any regular or special meeting of shareholders of the Company) equal to such number of shares of Common Stock that
is not less than fifty-one (51%) of the vote required to approve any action that New Jersey law provides may or must be approved
by vote or consent of the holders of Common Stock or any other securities of the Company entitled to vote. Except as otherwise
required by law, the holder of the Series A Preferred Stock shall vote together with the holders of Common Stock on all matters
and shall not vote as a separate class. Notwithstanding the foregoing, should the Company enter into a merger agreement with another
company and such merger is deemed significant as per SEC Regulation SX Section 3.05 and Section 3.06 Requirements, the Company
with seek shareholder approval by a Proxy solicitation in compliance with Federal and State law.
Mr.
Bhatnagar has been elected to the Board of Directors of the Company. Under the terms of the Transition Agreement and a cashless
Warrant, Mr. Bhatnagar is able to earn an additional 4% of the outstanding Common Stock of the Company for each $1 million of
gross revenues of the Company up to $15 million in such revenues and for a total (including his original grant of the Company’s
common stock) not to exceed 80% of the total outstanding Common Stock of the Company. The purpose of this transaction is to bring
in new management to the Company replacing its existing management to continue development of the Company’s patented and
patent pending Smart NanoBattery and Drug Delivery Systems. Either directly or through wholly- owned subsidiaries. In addition,
Mr. Bhatnagar intends to broaden the Company’s existing lines of business to include diverse lines of business that the
Company can manage profitably within reasonable time frames within the Company’s resources.
On
June 1, 2019 (the “Effective Date”), the Company entered into an employment agreement (the “Employment Agreement”)
with Christopher Cutchens pursuant to which Mr. Cutchens will serve as Chief Financial Officer of the Company. Pursuant to the
terms of the Employment Agreement, Mr. Cutchens will receive a base salary of $75,000 per year. Mr. Cutchens’ base salary
shall be subject to annual review and increase by the Company beginning on November 1, 2020. Mr. Cutchens shall also be eligible
to receive an annual performance-based bonus based upon the attainment of certain goals established by the Company. The bonus
shall not exceed 50% of Mr. Cutchens’ then base salary. In addition to the foregoing, Mr. Cutchens received 231,635 shares
of the Company’s common stock which shall vest 25% on the six-month, 1 year, 2 year and 3-year anniversaries of the Effective
Date. Mr. Cutchens is also entitled to participate in any and all benefit plans in effect for senior executives of the Company,
along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time
to time.
The
Company or Mr. Cutchens may terminate the Employment Agreement at any time and for any reason; provided, however, Mr. Cutchens
must provide at least 30 days prior written notice of his termination. In addition, the Company may terminate Mr. Cutchens’
employment with or without Cause (as defined in the Employment Agreement). In the event the Company terminates Mr. Cutchens’
employment without Cause (as defined in the Employment Agreement) and if Mr. Cutchens executes a general release of all claims
against the Company and its affiliates, which release is not revoked, then, Mr. Cutchens shall receive the following: (i) if Mr.
Cutchens has been employed by the Company between 12 and 23 months, six months of his then base salary; (ii) if Mr. Cutchens has
been employed by the Company for at least 24 months, twelve months of his then based salary; and (iii) COBRA benefits. In the
event Mr. Cutchens terminates his employment with the Company for any reason, he shall be entitled to receive (i) any portion
of his then base salary not paid through the date of termination; (ii) reimbursement of expenses incurred on or prior to the termination
date; (iii) any accrued but unused vacation pay; (iii) any pro-rated and unpaid portion of the annual bonus Mr. Cutchens is entitled
to as of the termination date; and any amount arising from Mr. Cutchens’ participation in, or benefits under, any benefit
plans.
Director
Compensation Arrangements
None
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of June 28, 2019 certain information regarding the beneficial ownership of our shares:
1
|
by
each person who is known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock;
|
|
|
2
|
each
of our directors;
|
|
|
3
|
by
each executive officer named in the Summary Compensation Table; and
|
|
|
4
|
by
all of our directors and executive officers as a group.
|
AFFILIATES
(1 & 2)
|
|
Shares
|
|
|
Warrants
|
|
|
Options
|
|
|
TOTAL
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anshu
Bhatnagar
President
and CEO and Director (1)
|
|
|
2,620,899
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,620,899
|
|
|
|
22.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher
Cutchens
Chief
Financial Officer (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abraham
Biderman Director (3)
|
|
|
301,220
|
|
|
|
5,960
|
|
|
|
-
|
|
|
|
307,180
|
|
|
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gustave
Dotoli
Chief
Operating Officer and Director (3)(4)
|
|
|
889,759
|
|
|
|
17,100
|
|
|
|
-
|
|
|
|
906,859
|
|
|
|
7.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
Durando
President
and CEO and Director (3)(4)
|
|
|
2,288,996
|
|
|
|
270,748
|
|
|
|
-
|
|
|
|
2,559,703
|
|
|
|
21.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor
Lawrence
Director
|
|
|
2,020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,020
|
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Smiley
EVP,
Chief Financial Officer and Director
|
|
|
1,047,281
|
|
|
|
|
|
|
|
|
|
|
|
1,047,281
|
|
|
|
8.81
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
Affiliates
|
|
|
7,150,134
|
|
|
|
293,808
|
|
|
|
-
|
|
|
|
7,443,942
|
|
|
|
62.13
|
|
(1)
Doesn’t include warrants for earn out of shares - See page 14
(2)
Does not include non-vested shares set forth in Employment Contract
(3)
Includes as warrants 5,960 shares, 17,100shares and 270,748 shares respectively due to Messrs. Biderman, Dotoli and Durando
at June 28, 2019 valued at $.25 per share consistent with the price of then current private placements by the Company.
(4)
Includes 889,770 shares owned by Patricia Dotoli wife of Gustave Dotoli and 2,288,995 shares owned by Karen Durando wife of Ronald
Durando
(5)
Unless otherwise indicated the Company believes that all persons named in the table have sole voting and investment power with
respect to all shares of the Company beneficially owned by them. The percentage of each beneficial owner listed above is based
on 11,886,967 shares of stock outstanding on June 28, 2019 and ,with respect to each person holding options or warrants to purchase
shares that are exercisable within 60 days after June 28, 2019 the number of warrants and options are deemed to be outstanding
and beneficially owned by the person for the purpose of computing such person’s percentage ownership, but are not deemed
to be outstanding for the purpose of computing the ownership of any other person.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND CORPORATE GOVERNANCE
Material
Related Party Transactions
Transactions
with Microphase Corporation
The
Company has material related party transactions. The Company has incurred costs for engineering, design and production of prototypes
and certain administrative functions from Microphase Corporation in the past through fiscal year ended June 30, 2015.During a
portion of the fiscal year ended June 30, 2016, the Company leased office space from Microphase at its Norwalk location. Rental
expense charged by Microphase was $4,500 from July 1, 2015 through June 30, 2016. In April 2016 mPhase ceased to be a tenant of
Microphase establishing its own independent office. At June 30, 2016, 2017 and 2018 and March 31, 2019, $32,545 remains
outstanding to Microphase Corporation. Mr. Durando, President and CEO of mPhase, was an officer of Microphase Corporation until
January 22, 2015. Mr. Ergul was a director of Microphase Corporation until December 1, 2016.
Conversion
of Prior Management and Strategic Vendor Debts during the nine months ended March 31, 2019
On
September 24, 2018 the officers of the Company converted $538,777 accrued wages into 5,387,770,000 pre-split shares, or 1,077,554
shares on a post-split basis, and $702,105 of notes payable and accrued interest into 7,021,050,000 pre-split shares, or 1,404,210
shares on a post-split basis, and a director converted $186,000 of accrued fees into 1,860,000,000 pre-split shares, or 372,000
shares on a post-split basis, and $126,364 of a note and accrued interest into 1,263,642,700 pre-split shares, or 252,729 shares
on a post-split basis, of the Company’s common stock. Also, on September 24, 2018 accounts payable to strategic vendors
totaling $99,500 were converted into 995,000,000 pre-split shares, or 199,000 shares on a post-split basis, of common stock. The
September conversions were for all debt owed these individuals by as of December 31, 2017, at $.0001 per share on a pre-split
basis, or $.50 per share on a post-split basis, Effective December 31, 2018 the officers and a Director of the Company converted
$133,010 and vendors of the Company converted $15,300 of debt of the Company outstanding on December 31, 2018 into 2,660,200,000
and 306,000,000 pre-split shares, or 532,040 and 61,200 shares on a post-split basis, of common stock at $.00005 per share on
a pre-split basis, or $.25 per share on a post-split basis. Prior Management did not convert any amounts owed by the Company into
common stock during the quarter ended March 31, 2019.
During
fiscal year ended June 30, 2015 the three officers of the Company received a total of $346,147 of their aggregate salaries and
a total of $58,333 of their respective aggregate unpaid salaries of $400,000 was accrued as unpaid compensation owed to such officers.
Such action was necessary for the Company to conserve financial resources to continue minimal operations. Such unpaid salary is
convertible into common stock of the Company at $.0004 per share at the option of each of such officers. During the fiscal year
ended June 30, 2015, no such debt conversions have been exercised by any of the officers. During fiscal years ended June 30, 2016
and 2017, an additional $308,000 and $180,000 was accrued and reduced by $7,556 of payments in fiscal 2016 and $538,777 remained
as unpaid compensation owed to such officers at June 30, 2017. During fiscal year ended June 30, 2018 the three officers of the
Company received a total of $0 cash payments and no additional amounts were accrued toward their respective aggregate unpaid salaries
of $538,777. The Company amended the conversion price that unpaid salary is convertible into common stock of the Company to $.0001
per share for the officers in November 2017. Such action was necessary for the Company to conserve financial resources to continue
minimal operations and ultimately in September 2018 the officers converted their respective aggregate unpaid salaries of $538,777
into 5,387,770,000 pre-split shares of the Company’s common stock.
During
the years ended June 30, 2018 and 2017, a firm owned by Mr. Biderman charged finders’ fees of $9,000 and $4,500 in connection
with raising $81,000 and $40,500 in private placements for the Company which funds were used for working capital purposes. Mr.
Biderman converted $186,000 of unpaid fees into 1,860,000,000 shares of the Company’s common stock in September 2018.
Additionally,
Mr. Biderman loaned the Company $90,000 in the fourth quarter of the fiscal year ended June 30, 2015 advanced the Company $20,000,
net of repayments, in the twelve months ended June 30, 2016, together with $5,486 of accrued interest resulted in a balance of
$115,486 on June 30, 2016. Mr. Biderman has not demanded repayment, and together with $7,665 and $7,123 of accrued interest for
the fiscal years ended June 30, 2018 & 2017 resulted in a balance of $130,274 outstanding as of June 30, 2018. Mr. Biderman
converted $126,364 of this note and accrued interest into 1,263,642,700 pre-split shares of the Company’s common stock in
September 2018.
Conversion
Feature and Conversions of Debt to Officers’
The
Company amended the conversion feature to provide for the conversion of the remaining Officers’ loans into shares of common
stock at a conversion price of $.0004 for a term of five years effective March 31, 2014. The Company amended the conversion price
that the remaining Officers’ loans are convertible into common stock of the Company to $.0001 per share in November 2017.
During
fiscal year ended June 30, 2016, officers of the Company did not convert any of the officer notes into common stock. The Company
amortized $121,570 of the approximately $455,894 previously deferred charge to beneficial conversion feature interest expense
for the year ended June 30, 2016. At June 30, 2016 $334,318 of deferred charges for beneficial conversion feature interest expense
remain as a reduction of additional paid in capital which will be amortized on a straight-line basis over the life of the warrant
or sooner if and when converted.
At
June 30, 2016 these notes and accrued interest at the rate of 6% totaled $597,331. On June 30, 2016, these Notes are convertible
into approximately 1,493,326,550 pre-split shares of common stock, if available.
During
fiscal year ended June 30, 2018, officers of the Company did not convert any of the officer notes into common stock. The Company
amortized $121,570 of the approximately $212,746 previously deferred charges remaining to beneficial conversion feature interest
expense for the year ended June 30, 2018. At June 30, 2018 $91,176 of deferred charges for beneficial conversion feature interest
expense remain as a reduction of additional paid in capital which will be amortized on a straight-line basis over the life of
the warrant or sooner if and when converted.
During
the fiscal years ended June 30, 2018 and 2017, the officers advanced $77,326 and $15,880 to provide working capital to the Company
and $44,274 and $37,288 was charged to interest expense on the loans from officers. At June 30, 2018 and 2017 these notes and
accrued interest at the rate of 6% totaled $777,712 and $658,311, respectively. In September 2018 the officers converted $702,105
of notes payable and accrued interest into 7,021,050,000 pre-split shares of the Company’s common stock.
Conversion
of Related Party and Strategic Vendor Debts
On
September 24, 2018 the officers converted $538,777 accrued wages into 5,387,770,000 pre-split shares, or 1,077,554 shares on a
post-split basis, and $702,105 of notes payable and accrued interest into 7,021,050,000 pre-split shares, or 1,404,210 shares
on a post-split basis, and a director converted $186,000 of accrued fees into 1,860,000,000 pre-split shares, or 372,000 shares
on a post-split basis, and $126,364 of a note and accrued interest into 1,263,642,700 pre-split shares, or 252,729 shares on a
post-split basis, of the Company’s common stock. Also, on September 24, 2018 accounts payable to strategic vendors totaling
$99,500 were converted into 995,000,000 pre-split shares, or 199,000 shares on a post-split basis, of common stock. These conversions
were for 100 % of the debt to these individuals owed by Company on December 31, 2017, pursuant to a resolution, of the Company’s
Board dated November 28, 2017, issuable when such shares became available, at $.0001 per share on a pre-split basis, or $.50 per
share on a post-split basis.
Effective
December 31, 2018 the officers and a Director of the Company converted $133,010 and vendors of the Company converted $15,300 of
debt of the Company outstanding on December 31, 2018 into 2,660,200,000 and 306,000,000 pre-split shares, or 532,040 and 61,200
shares on a post-split basis, of common stock at $.00005 per share on a pre-split basis, or $.25 per share on a post-split basis.
These shares were issued as a prerequisite to the Transition Agreement which was part of the “Change in Control Agreements”
culminating in the change in the Management of the Company.
There
were no conversions into common stock by former and present Officers and Directors of the Company during the quarter ended March
31, 2019.
During
the nine-month periods ended March 31, 2019, the Company charge to expense and included in accrued expenses at March 31, 2019,
$5,000 in fees to Mr. Smiley as the Company’s General Counsel and Chief Financial Officer.
During
the nine months ended March 2019, the Company charge to expense $1,310,449, based upon the closing price of the Company’s
common stock on January 11, 2019, for the issuance of 2,620,899 post-split shares of common stock to our New President in connection
with his employment contract.
During
the nine-month periods ended March 31, 2019 the Company charged to expense and included in accrued expenses at March 31,
2019, $61,111 and $4,938 of compensation expense and related fringe costs for amounts due under the employment contract to Mr.
Bhatnagar as our President, as well as $3,571 for facility use and support costs at our Maryland office, to Verus International,
Inc. (ticker symbol “VRUS”) a publicly-held company, for which Mr. Bhatnagar is also the President and CEO.
Director
Independence
The
Company complies with the standards of “independence” prescribed by rules set forth by the National Association of
Securities Dealers (“NASD”). Accordingly, a director will only qualify as an “independent director” if,
in the opinion of our Board of Directors, that person does not have a material relationship with our company which would interfere
with the exercise of independent judgment in carrying out the responsibilities of a director. A director who is, or at any time
during the past three years, was employed by the Company or by any parent or subsidiary of the Company, shall not be considered
independent. Accordingly, there are no Directors of the Company that meet the definition of “independent director”
under Rule 4200(A)(15) of the NASD Manual; Anshu Bhatnagar does not.
ADDITIONAL
INFORMATION
Federal
securities laws require us to file information with the Commission concerning our business and operations. Accordingly, we file
annual, quarterly, and special reports, and other information with the Commission. You can inspect and copy this information at
the public reference facility maintained by the Commission at 100 F Street, NE, Washington, D.C. 20549.
You
can get additional information about the operation of the Commission’s public reference facilities by calling the Commission
at 1-800-SEC-0330. The Commission also maintains a web site (http://www.sec.gov) at which you can read or download our reports
and other information.
We
have filed with the Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the Common
Stock being offered hereby. As permitted by the rules and regulations of the Commission, this prospectus does not contain all
the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect
to mPhase and the Common Stock offered hereby, reference is made to the registration statement, and such exhibits and schedules.
A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at the addresses set forth above, and copies of all or any part of the registration statement
may be obtained from such offices upon payment of the fees prescribed by the Commission. In addition, the registration statement
may be accessed at the Commission’s web site.
Other
Expenses of Issuance and Distribution.
The
following table sets forth the costs and expenses payable by the Company in connection with the issuance and distribution of the
securities being registered hereunder. All amounts are estimates except the SEC registration fee.
SEC
registration fees
|
|
$
|
1,270
|
|
Printing
expenses
|
|
$
|
3,000
|
|
Accounting
fees and expenses
|
|
$
|
5,000
|
|
Legal
fees and expenses
|
|
$
|
6,000
|
|
Outside
Consultants
|
|
$
|
10,000
|
|
Miscellaneous
|
|
$
|
1,000
|
|
Total
|
|
$
|
26,270
|
|
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our
directors and officers are indemnified by our bylaws against amounts actually and necessarily incurred by them in connection with
the defense of any action, suit or proceeding in which they are a party by reason of being or having been directors or officers
of the Company. Our certificate of incorporation provides that none of our directors or officers shall be personally liable for
damages for breach of any fiduciary duty as a director or officer involving any act or omission of any such director or officer.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to such directors,
officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid
by such director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication
of such issue.
RECENT
SALES OF UNREGISTERED SECURITIES
From
April 1, 2019 through July 10, 1019, the Company issued 500,000 post-split shares of its common stock in connection with private
placements pursuant to Section 4(a) (2) of the Securities Act of 1933, as amended, raising gross proceeds of $125,000. The proceeds
were used by the Company as working capital.
LEGAL
MATTERS
The
validity of the shares offered hereby will be passed upon for us by Martin Smiley, General Counsel of the Company.
EXPERTS
The
financial statements of mPhase Technologies, Inc. for the year ended June 30, 2018 and June 30, 2017 have been included
herein in reliance upon the reports of Assurance Dimensions, independent registered public accounting firm, upon the authority
of said firm as experts in accounting and auditing.
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Form S-1
(1)
Consolidated Financial Statements
|
PAGE
|
|
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated Balance Sheets as of June 30, 2018 and 2017
|
F-2
|
Consolidated Statements of Operations for the Years Ended June 30, 2018 and 2017
|
F-3
|
Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended June 30, 2018 and 2017
|
F-4
|
Consolidated Statements of Cash Flows for the Years Ended June 30, 2018 and 2017
|
F-5
|
Notes to Consolidated Financial Statements for the Years Ended June 30, 2018 and 2017
|
F-6
|
|
|
Consolidated
Balance Sheets as of March 31, 2019 and June 30, 2018 (unaudited)
|
F-23
|
Consolidated Statements of Operations for the Three Months ended March 31, 2019 and 2018 (unaudited)
|
F-24
|
Consolidated Statements of Operations for the Nine Months ended March 31, 2019 and 2018 (unaudited)
|
F-25
|
Consolidated
Statements of Changes in Stockholders’ Deficit for the Nine months ended March 31, 2019 and 2018 (unaudited)
|
F-26
|
Consolidated
Statements of Cash Flows for the Nine Months ended March 31, 2019 and 2018 (unaudited)
|
F-27
|
Notes
to Consolidated Financial Statements for the Nine Months ended March 31, 2019 and 2018 (unaudited)
|
F-28
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of mPhase Technologies, Inc.
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of mPhase Technologies, Inc. (the Company) as of June 30, 2018 and 2017,
and the related statements of operations, changes in stockholders’ deficit, and cash flows for each of the years in the
two-year period ended June 30, 2018, and the related notes (collectively referred to as the financial statements). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and
2017, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2018, in
conformity with accounting principles generally accepted in the United States of America.
Explanatory
Paragraph – Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has no revenues, has negative working capital at June 30, 2018, has incurred
recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt to continue
as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
Assurance Dimensions
|
|
Assurance
Dimensions, Inc.
|
|
We
have served as the Company’s auditor since 2016.
|
|
Coconut
Creek, FL
|
|
October
15, 2018
|
|
mPHASE
TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
June
30,
2018
|
|
|
June
30,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
261
|
|
|
$
|
4,163
|
|
Assets
of discontinued operations
|
|
|
-
|
|
|
|
4,527
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
261
|
|
|
|
8,690
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
1,061
|
|
|
$
|
10,173
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
421,056
|
|
|
$
|
442,746
|
|
Accrued
expenses
|
|
|
1,273,569
|
|
|
|
894,930
|
|
Due
to related parties
|
|
|
226,045
|
|
|
|
217,045
|
|
Notes
payable, Officers’
|
|
|
777,912
|
|
|
|
658,311
|
|
Notes
payable, Director & Investor
|
|
|
133,274
|
|
|
|
123,609
|
|
Current
Portion, Long term convertible debentures
|
|
|
997,698
|
|
|
|
1,615,266
|
|
Liabilities
of discontinued operations
|
|
|
163,976
|
|
|
|
567,209
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
3,993,530
|
|
|
|
4,519,116
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
Common
stock, par value $.001, 18,000,000,000 shares authorized, 16,860,514,523 and 17,764,713,048 shares issued and outstanding
at June 30, 2018 & 2017, respectively
|
|
|
16,860,514
|
|
|
|
17,764,712
|
|
Additional
paid in capital
|
|
|
190,825,709
|
|
|
|
189,718,941
|
|
Accumulated
deficit
|
|
|
(211,678,692
|
)
|
|
|
(211,992,596
|
)
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
(3,992,469
|
)
|
|
|
(4,508,943
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
1,061
|
|
|
$
|
10,173
|
|
The
accompanying notes are an integral part of these consolidated financial statements
.
mPHASE
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the Year Ended
|
|
|
|
June
30,
2018
|
|
|
June
30,
2017
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative (including $575,000 non-cash stock related charges in 2018)
|
|
|
734,343
|
|
|
|
228,386
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
683
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
735,026
|
|
|
|
231,334
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(735,026
|
)
|
|
|
(231,334
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(246,162
|
)
|
|
|
(302,906
|
)
|
Other
income - gain on debt extinguishments
|
|
|
1,107,922
|
|
|
|
152,320
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
861,760
|
|
|
|
(150,586
|
)
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Continuing Operations, before Income Taxes
|
|
|
126,734
|
|
|
|
(381,920
|
)
|
|
|
|
|
|
|
|
|
|
Income
From Discontinued Operations
|
|
|
187,170
|
|
|
|
71,155
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
313,904
|
|
|
$
|
(310,765
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Net Income (Loss) per share:
|
|
|
|
|
|
|
|
|
Income
(Loss) per share From Continuing Operations
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Income
per share From Discontinued Operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
Net
Income (Loss) per share
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Weighted
Average Number of Shares Outstanding;
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,684,055,107
|
|
|
|
17,904,555,752
|
|
Diluted
|
|
|
18,000,000,000
|
|
|
|
18,000,000,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR
THE TWO YEARS ENDED JUNE 30, 2018
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
$.001
Par
Value
|
|
|
Paid
in
Capital
|
|
|
Accumulated
Deficit
|
|
|
Stockholders’
Deficit
|
|
Balance
June 30, 2016
|
|
|
17,772,643,845
|
|
|
$
|
17,772,643
|
|
|
$
|
189,533,940
|
|
|
$
|
(211,681,831
|
)
|
|
$
|
(4,375,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to accredited investors in private placements, net of $4,500 fees
|
|
|
900,000,000
|
|
|
|
900,000
|
|
|
|
(859,500
|
)
|
|
|
-
|
|
|
|
40,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for the Conversion on a Convertible Debenture & accrued interest thereon
|
|
|
187,500,000
|
|
|
|
187,500
|
|
|
|
(172,500
|
)
|
|
|
-
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Conversion Feature Interest Expense Charged to Additional Paid in Capital
|
|
|
-
|
|
|
|
-
|
|
|
|
121,570
|
|
|
|
-
|
|
|
|
121,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
to treasury of shares cancelled by significant shareholders
|
|
|
(1,095,430,797
|
)
|
|
|
(1,095,431
|
)
|
|
|
1,095,431
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss for the Year Ended June 30, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(310,765
|
)
|
|
|
(310,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2017
|
|
|
17,764,713,048
|
|
|
$
|
17,764,712
|
|
|
$
|
189,718,941
|
|
|
$
|
(211,992,596
|
)
|
|
$
|
(4,508,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to accredited investors in private placements, net of $9,000 fees
|
|
|
1,800,000,000
|
|
|
|
1,800,000
|
|
|
|
(1,719,000
|
)
|
|
|
-
|
|
|
|
81,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Conversion Feature Interest Expense Charged to Additional Paid in Capital
|
|
|
-
|
|
|
|
-
|
|
|
|
121,570
|
|
|
|
-
|
|
|
|
121,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
to treasury of shares cancelled by significant shareholders
|
|
|
(2,704,198,525
|
)
|
|
|
(2,704,198
|
)
|
|
|
2,704,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income for the Year Ended June 30, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
313,904
|
|
|
|
313,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2018
|
|
|
16,860,514,523
|
|
|
$
|
16,860,514
|
|
|
$
|
190,825,709
|
|
|
$
|
(211,678,692
|
)
|
|
$
|
(3,992,469
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Year Ended
|
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash Flow From Operating Activities:
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
313,904
|
|
|
$
|
(310,765
|
)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
683
|
|
|
|
2,948
|
|
(Gain) on debt extinguishments
|
|
|
(1,107,922
|
)
|
|
|
(152,320
|
)
|
Other non-cash charges including amortization of deferred compensation and beneficial conversion
interest expense
|
|
|
121,570
|
|
|
|
121,570
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
-
|
|
|
|
(800
|
)
|
Accounts payable & Accrued expenses
|
|
|
755,048
|
|
|
|
261,859
|
|
Due to/from related parties Officers
|
|
|
-
|
|
|
|
130,000
|
|
Net cash provided by continuing operating activities
|
|
|
83,283
|
|
|
|
52,492
|
|
Net cash used in discontinued operating activities
|
|
|
(256,511
|
)
|
|
|
(112,823
|
)
|
Net cash used in operating activities
|
|
$
|
(173,228
|
)
|
|
$
|
(60,331
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flow Used in Investing Activities:
|
|
|
|
|
|
|
|
|
Net Cash used in investing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of finder’s fees
|
|
|
81,000
|
|
|
|
40,500
|
|
Due from related party - Eagle
|
|
|
9,000
|
|
|
|
4,500
|
|
Proceeds of demand note - investor
|
|
|
2,000
|
|
|
|
1,000
|
|
Proceeds from notes payable officers’
|
|
|
78,404
|
|
|
|
32,784
|
|
Repayment of notes payable officers’
|
|
|
(1,078
|
)
|
|
|
(16,904
|
)
|
Net cash provided by continuing financing activities
|
|
|
169,326
|
|
|
|
61,880
|
|
Net cash used in discontinued financing activities
|
|
|
-
|
|
|
|
(2,103
|
)
|
Net cash provided by financing activities
|
|
$
|
169,326
|
|
|
$
|
59,777
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(3,902
|
)
|
|
|
(554
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
4,163
|
|
|
|
4,717
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
261
|
|
|
$
|
4,163
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
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 approximately 16.9 billion shares of common stock outstanding as of June
30, 2018. 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 the primary 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 our 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
& Homeland Security including
The Department of Defense Ordnance Technology Consortium
“DO
TC”, Small Business Innovative Research “SBIR”, Cooperative Research and Development Agreements
(CRADA) and similar programs for targeted applications for its smart nano-battery applications.
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
treated as Discontinued Operations in these financial statements. Medds, Inc is a Wyoming Corporation that was formed to capitalize
on opportunities for our drug delivery system.
We
are presently headquartered in New Dorp Lane, Staten Island, New York.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
2.
GOING CONCERN AND MANAGEMENT’S PLANS
Through
June 30, 2018, the Company incurred cumulative losses reflected in its accumulated deficit of $211,678,692 and at June 30, 2018
had a working capital deficit of $3,993,269. Funding in our traditional capital markets was difficult during FYE 2016, 2017 and
2018. These matters raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months
from the issue date of this report.
The
Company was able to enter into convertible debt arrangements and private placements of equity with independent investors to provide
liquidity and capital resources during the preceding two fiscal years. In addition, and from time to time during FYE 2018 and
2017, the Company raised necessary working capital via bridge loans from officers. During FYE June 30, 2018 and 2017, the Company
received net proceeds from private placements with accredited investors of approximately $81,000 and $40,500 respectively.
The
Company is currently focused on preserving the ability to continue the development and commercialization of its battery products
using the science of nanotechnology. Presently the Company is pursuing strategic alternatives to best monetize its patent portfolio,
including partnering with to exploit its opportunities for our drug delivery system in the medical device industry and pursuing
development programs in the Defense & Homeland Security departments for targeted applications for our smart nano-battery applications.
In April of 2016, the Company began the wind-down of its entire line of mPower Jump products owing to increased competition and
erosion of pricing in the market. The Company had its last significant sale of Jump products during the first Quarter of Fiscal
2017 and this product line is treated as Discontinued Operations in these financial statements.
The
Company’s ability to continue as a going concern and its future success is dependent upon its ability to raise capital in
the near term to: (1) satisfy its current obligations, (2) continue its research and development efforts, and (3) successfully
develop, market and sell its products. The Company believes that it will be able to complete the necessary steps in order to meet
its cash flow requirements throughout fiscal 2018 and continue its development and commercialization efforts.
However,
there can be no assurance that mPhase will generate sufficient revenue to provide positive cash flows from operations or that
sufficient capital will be available, when required, to permit the Company to realize its plans. The accompanying consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of mPhase and its wholly-owned owned subsidiaries, mPower Technologies,
Inc. & Medds, Inc. Significant inter-company accounts and transactions have been eliminated in consolidation.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. These include
net realizable inventories, prepaid expenses, accrued expenses and stock based compensation expense. Actual results could differ
from those estimates.
ESTIMATED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company’s financial instruments include cash, accounts payable, current and long-term debt, line of credit, convertible
debt and due to related parties. Management believes the estimated fair value of cash, accounts payable and debt instruments at
June 30, 2018 and 2017 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these
instruments or the use of market interest rates for debt instruments. Fair value of due to related parties cannot be determined
due to lack of similar instruments available to the Company.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
DEBT
DISCOUNTS
Costs
incurred with parties who are providing the actual long-term financing, which generally may include loan fees, the value of warrants,
fair value of the derivative conversion feature, or the intrinsic value of conversion features associated with the underlying
debt, are reflected as a debt discount. These costs and discounts are generally amortized to interest expense generally over the
life of the related debt.
DERIVATIVE
FINANCIAL INSTRUMENTS
Derivative
instruments are accounted for 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. Increases in the trading
price of the Company’s common stock and increases in fair value during a given financial quarter result in the application
of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s common stock and decreases in
trading fair value during a given financial quarter result in the application of non-cash derivative income. The Company determined
that due to the lack of an active market for the Company’s common stock that there was no derivative liability associated
with the convertible notes outstanding at June 30, 2018 and 2017. (See Note 8)
LONG-LIVED
ASSETS
The
Company reviews long-term assets for impairment whenever events or circumstances indicate that the carrying amount of those assets
may not be recoverable. The Company also assesses these assets for impairment based on their estimated future cash flows.
PROPERTY
AND EQUIPMENT
Property
and equipment is recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of three
to five years.
RESEARCH
AND DEVELOPMENT -Discontinued Operations
Research
and Development cost are charged to operations when incurred. The amounts charged to expense for the years ended June 30, 2018
and 2017 were $0 and $38, respectively.
PATENTS
AND LICENSES
Patents
and licenses are capitalized when mPhase 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, 2018, and 2017, the book value of such assets, or $214,383, has been fully amortized and no amortization expense
was recorded for the years ended June 30, 2018 and 2017, respectively. During the years ended June 30, 2018 and 2017 the Company
included in other income $0 and $12,500 for the conditional sale of a patent which had no capitalized costs associated with the
patent.
INVENTORIES
-Discontinued Operations
The
Company uses the First-In First Out method (FIFO) to account for inventory which is carried at the lower of cost and net realizable
value. As of June 30, 2018, and 2017, inventory was valued at $0 and $3,477, net of a $72,503 and $69,106 reserve, respectively.
The amounts of inventory write downs charged to the reserve for the year ended June 30, 2018 was $2,000.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
LOSS
PER COMMON SHARE, BASIC AND DILUTED
mPhase
accounts for net loss per common share in accordance with the requirements FASB ASC 260 Earnings Per Share. Basic loss per share
is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net loss adjusted for income or loss that would result from the assumed conversion
of potential common shares from contracts that may be settled in stock or cash by the weighted average number of shares of common
stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company has convertible
securities held by third parties and convertible notes plus accrued interest thereon held by officers of the Company, subject
to availability, convertible into approximately 765,042,167 shares immediately, and up to 11,219,196,667 shares if the forbearance
agreement discussed in Note 8 is settled entirely in stock, for convertible notes held by third parties; and 16,404,630,000 shares,
if available, for officer and director notes and unpaid wages and fees of the Company’s common stock based upon the conversion
terms at June 30, 2018. If all were fully converted at June 30, 2018 based upon the terms at that date it would total 27,623,826,667
shares of the Company’s Common Stock.
In
periods reporting a loss the inclusion of warrants and potential common shares to be issued in connection with convertible debt
have an anti-dilutive effect on diluted loss per share and have been omitted in such computation.
The
following Table Illustrates shares of the Company’s Common Stock subject to Convertible Obligations as of June 30, 2018
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Convertible
|
|
|
|
Note
Principle
|
|
|
Accrued
Interest
|
|
|
Total
|
|
|
immediately
|
|
|
over
full term, when available
|
|
Arrangement
#1 - JMJ Financial, Inc
|
|
$
|
109,000
|
|
|
$
|
69,520
|
|
|
$
|
178,520
|
|
|
|
44,630,000
|
|
|
|
44,630,000
|
|
Arrangement
#2 - St. George Investments/Fife Forbearance Obligation
|
|
|
885,364
|
|
|
|
-
|
|
|
|
885,364
|
|
|
|
625,000,000
|
|
|
|
11,067,050,000
|
|
Arrangement
#3 - MH Investment trust II
|
|
|
3,333
|
|
|
|
3,118
|
|
|
|
6,451
|
|
|
|
107,516,667
|
|
|
|
107,516,667
|
|
Total
Convertible Notes payable
|
|
|
997,697
|
|
|
|
72,638
|
|
|
|
1,070,335
|
|
|
|
777,146,667
|
|
|
|
11,219,196,667
|
|
Notes
Payable- Officers (1) (2)
|
|
|
531,932
|
|
|
|
245,980
|
|
|
|
777,912
|
|
|
|
-
|
|
|
|
7,779,120,000
|
|
Accrued
Wages-Officers (1) (2)
|
|
|
538,777
|
|
|
|
-
|
|
|
|
538,777
|
|
|
|
-
|
|
|
|
5,387,770,000
|
|
Fees
Payable- Director (1) (2)
|
|
|
193,500
|
|
|
|
-
|
|
|
|
193,500
|
|
|
|
-
|
|
|
|
1,935,000,000
|
|
Notes
Payable- Director (1) (2)
|
|
|
130,274
|
|
|
|
-
|
|
|
|
130,274
|
|
|
|
-
|
|
|
|
1,302,740,000
|
|
Total
|
|
$
|
2,392,180
|
|
|
$
|
318,618
|
|
|
$
|
2,710,798
|
|
|
|
777,146,667
|
|
|
|
27,623,826,667
|
|
(1)
|
Shares
convertible at $.0001 when available pursuant to November 28, 2017 Board resolution to
increase authorized common shares to 72 billion
|
(2)
|
On
August 22, 2018 the Company received approval from New Jersey Secretary of State to Increase authorized Common Shares to 72
billion. In September 2018 a.) the officers converted $538,777 accrued wages into 5,387,770,000 shares and $702,105 of notes
payable and accrued interest into 7,021,050,000 shares, &; b.) a director converted $186,000 of accrued fees into 1,860,000,000
shares and $126,364 of a note and accrued interest into 1,263,642,700 shares, of the Company's common stock.
|
REVENUE
RECOGNITION
As
required, mPhase has adopted the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”)
No. 104, “Revenue Recognition in Financial Statements,” which provides guidelines on applying generally accepted accounting
principles to revenue recognition based on the interpretations and practices of the SEC. The Company has recognized revenue on
it JUMP products (SEE Discontinued Operation caption herein) when the products were shipped, and title passed to the customer.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
DISCONTINUED
OPERATIONS
The
Company has classified the operating results and associated assets and liabilities from its Jump line of products, which ceased
having material sales in the first quarter of Fiscal 2017, as Discontinued Operations in the Consolidated Financial Statements
for the Fiscal Years ended June 30, 2018 and 2017.
THE
ASSETS AND LIABILITIES ASSOCIATED WITH DISCONTINUED OPERATIONS INCLUDED IN OUR CONSOLIDATED BALANCE SHEET WERE AS FOLLOWS:
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
261
|
|
|
$
|
-
|
|
|
$
|
261
|
|
|
$
|
4,163
|
|
|
$
|
-
|
|
|
$
|
4,163
|
|
Inventory,
net
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
3,477
|
|
|
|
3,477
|
|
|
|
|
|
Prepaid
and other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
1,050
|
|
|
|
1,050
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
261
|
|
|
|
-
|
|
|
|
261
|
|
|
|
8,690
|
|
|
|
4,527
|
|
|
|
4,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
683
|
|
|
|
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
1,061
|
|
|
$
|
-
|
|
|
$
|
1,061
|
|
|
$
|
10,173
|
|
|
$
|
4,527
|
|
|
$
|
5,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
421,056
|
|
|
$
|
124,508
|
|
|
$
|
421,056
|
|
|
$
|
839,825
|
|
|
$
|
397,078
|
|
|
$
|
442,746
|
|
Accrued
expenses
|
|
|
1,273,569
|
|
|
|
142,195
|
|
|
|
1,131,374
|
|
|
|
1,037,124
|
|
|
|
142,195
|
|
|
|
894,930
|
|
Due
to related parties
|
|
|
226,045
|
|
|
|
-
|
|
|
|
226,045
|
|
|
|
217,045
|
|
|
|
-
|
|
|
|
217,045
|
|
Notes
payable, Officers’
|
|
|
777,912
|
|
|
|
-
|
|
|
|
777,912
|
|
|
|
658,311
|
|
|
|
-
|
|
|
|
658,311
|
|
Notes
payable, Director & Investor
|
|
|
133,274
|
|
|
|
-
|
|
|
|
133,274
|
|
|
|
123,609
|
|
|
|
-
|
|
|
|
123,609
|
|
Note
Payable, Finance Company
|
|
|
39,468
|
|
|
|
39,468
|
|
|
|
-
|
|
|
|
27,936
|
|
|
|
27,936
|
|
|
|
-
|
|
Current
Portion, Long term convertible debentures
|
|
|
997,698
|
|
|
|
-
|
|
|
|
997,698
|
|
|
|
1,615,266
|
|
|
|
-
|
|
|
|
1,615,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
3,993,530
|
|
|
|
306,171
|
|
|
|
3,687,359
|
|
|
|
4,519,116
|
|
|
|
567,209
|
|
|
|
3,951,907
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
DISCONTINUED
OPERATIONS - (Continued)
Revenue
and Expense Recognition for Discontinued Operations
The
Company has recognized revenue on its JUMP products when the products were shipped, and title passed to the customer.
The
results of discontinued operations include specifically identified and allocated common overhead expenses.
THE
REVENUES AND EXPENSES ASSOCIATED WITH DISCONTINUED OPERATIONS INCLUDED IN OUR CONSOLIDATED STATEMENTS OF OPERATIONS WERE AS FOLLOWS:
|
|
For
the Year Ended
|
|
|
|
June
30,
2018
|
|
|
June
30,
2017
|
|
|
|
Discontinued
|
|
|
Discontinued
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
20,516
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales
|
|
|
-
|
|
|
|
20,471
|
|
|
|
|
|
|
|
|
|
|
Research
and Development
|
|
|
-
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Selling
and Marketing
|
|
|
2,315
|
|
|
|
11,154
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
19,694
|
|
|
|
78,228
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
22,009
|
|
|
|
109,891
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(22,009
|
)
|
|
|
(89,375
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(41,957
|
)
|
|
|
(47,635
|
)
|
Other
income, including gain on debt extinguishments of $250,570 in 2018 and $195,664 in 2017
|
|
|
251,136
|
|
|
|
208,164
|
|
|
|
|
|
|
|
|
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
209,179
|
|
|
|
160,529
|
|
|
|
|
|
|
|
|
|
|
Income From
Discontinued Operations, before Income Taxes
|
|
|
187,170
|
|
|
|
71,155
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Income from Discontinued Operations
|
|
$
|
187,170
|
|
|
$
|
71,155
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
INCOME
TAXES
The
Company accounts for income taxes in accordance with accounting guidance now codified as Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. At June 30, 2018 and 2017, the Company had a full valuation allowance
against its deferred tax assets.
Effective
July 1, 2007, the Company adopted the provisions of FASB ASC 740-10-05, “Accounting for Uncertainties in Income Taxes.”
The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The
ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return.
The
Company files U.S. and state income tax returns with various statutes of limitations. The 2015 through 2018 tax years generally
remain subject to examination by federal and most state tax authorities.
The
Company recognizes interest accrued and penalties related to unrecognized tax benefits, if any, in interest and operating expenses.
No interest or penalties were recorded for the years ended June 30, 2018 and 2017.
BUSINESS
CONCENTRATIONS AND CREDIT RISK
To
date, the Company’s products have been sold to a limited number of wholesale customers, earlier primarily in the primarily
in the automotive consumer products industry. During the fiscal year ended 2018 and 2017 sales consisted primarily of the Company’s
new Jump products. Sales of individual Jump products are prepaid in advance and sales to distributors have terms of net 15 days
or less while sales to retail chains have terms of 60 days. Sales through corporate office headquarters of major distributors
can have payment terms of up to net 360 days to which the Company has not yet experienced. Throughout the year, cash balances
that the Company maintains at financial institutions may exceed the Federal Deposit Insurance Corporation insurance limitation
of up to $250,000. Cash balances exceeded FDIC did not exceed such amount during fiscal year ended June 30, 2018 and 2017.
RECLASSIFICATIONS
Certain
reclassifications have been made in the prior period consolidated financial statements to conform to the current period presentation.
The Company reclassified accrued fees to Eagle Advisors to a source of funds from financing activities previously included as
a source of funds in operating activities in the Statement of Cash Flows. The reclassified financial statement items had no effect
on Net Income (Loss) for the Year, Total Stockholders’ Deficit or Total Assets for the fiscal years ended June 30, 2018
and 2017.
NEW
ACCOUNTING PRONOUNCEMENTS
The
Company is evaluating several pronouncements issued by the FASB which have recently or may result in the adoption by the Company
of these standards in upcoming accounting periods as follows:
ASU
2016-02 — In February 2016, the FASB issued a new lease standard that supersedes existing lease guidance under GAAP. This
standard requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a
manner similar to existing lease guidance under GAAP. Entities are required to use a modified retrospective approach for leases
that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with the option
to use certain relief. Full retrospective application is prohibited. This standard is effective for fiscal years, and interim
reporting periods within those years, beginning after December 15, 2018, which for us is our fiscal 2019. We are currently evaluating
the impact this standard will have on our financial position, results of operations and cash flows.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
NEW
ACCOUNTING PRONOUNCEMENTS - (Continued)
ASU
2016-15
The FASB recently issued ASU 2016-15 to clarify whether the
certain items should be categorized as operating, investing or financing in the statement of cash flows.
For public
business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after
December 15, 2017, and interim periods within those fiscal years, which for us is our fiscal 2019. Early adoption is permitted
in any annual or interim period, but all of the guidance is required to be adopted in the same period and any adjustments must
be reflected as of the beginning of the fiscal year. We are currently evaluating the impact this accounting standards update will
have on our financial position, results of operations and cash flows.
ASU
2016-18 Statement of Cash Flows (Topic 230) : Restricted Cash (A Consensus of the FASB Emerging Issues Task Force) : The new standard
requires the statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally
described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts
on the balance sheet and disclose the nature of the restrictions. The Company has a restricted cash balance of $0 on the Condensed
Consolidated Balance Sheet.
4. SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
For the Years Ended
|
|
|
|
June
30,
2018
|
|
|
June
30,
2017
|
|
Cash
Paid for:
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
9,684
|
|
|
$
|
98,078
|
|
Non-Cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Conversion
of $9,460 convertible debt and $5,540 accrued interest to common stock in 2017.
|
|
$
|
-
|
|
|
$
|
15,000
|
|
5.
PROPERTY AND EQUIPMENT
Property
and equipment, at cost, consist of the following:
|
|
June
30,
|
|
|
|
2018
|
|
|
2017
|
|
Research
Equipment
|
|
$
|
48,383
|
|
|
$
|
48,383
|
|
Office
and Marketing
|
|
|
151,118
|
|
|
|
151,118
|
|
Gross
Cost
|
|
|
199,501
|
|
|
|
199,501
|
|
Less
Accumulated Depreciation
|
|
|
(199,501
|
)
|
|
|
(198,818
|
)
|
|
|
|
|
|
|
|
|
|
Net
Property and Equipment
|
|
$
|
-
|
|
|
$
|
683
|
|
Depreciation
expense for the years ended June 30, 2018 and 2017 was $683 and $2,948, respectively, none of which relates to research laboratory
and testing equipment included in research and development expense.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
6.
ACCRUED EXPENSES
Accrued
expenses consist of the following as of each Balance Sheet date:
|
|
June
30,
|
|
|
|
2018
|
|
|
2017
|
|
Accrued
Interest - Convertible Debentures
|
|
$
|
72,638
|
|
|
$
|
413,271
|
|
Accrued
Wages - Officers’- continuing operations
|
|
|
395,582
|
|
|
|
396,582
|
|
Other
Expenses
|
|
|
89,044
|
|
|
|
85,077
|
|
Accrued
Stock Bonus
|
|
|
575,000
|
|
|
|
-
|
|
Total
- continuing operations
|
|
$
|
1,273,569
|
|
|
$
|
894,930
|
|
Accrued
Wages - Officers’- discontinued operations
|
|
$
|
142,195
|
|
|
$
|
142,195
|
|
7.
SHORT TERM NOTES PAYABLE
Short
term notes payable is comprised of the following:
Other
Short-Term Notes
Note
Payable, Director (Eagle)
A
Director of the Company loaned the Company and was owed $115,486. The Company recorded $7,123 of accrued interest during FYE 2017
and $7,655 of accrued interest during FYE 2018 which resulted in $130,274 and $122,609 outstanding at June 30, 2018 and 2017,
respectively.
On
September 26, 2018 the Director converted $126,364 of this note into 1,263,642,700 shares of the Company’s Common Stock.
Other
Note payable (Investor)
During
the fourth quarter fiscal 2017 a shareholder advanced the Company $1,000. During FYE June 30, 2018 the shareholder advanced an
additional $2,000. At June 30, 2018 $3,000 remains outstanding under this note.
Note
Payable Finance Company (Power Up)- Discontinued Liability
The
Company borrowed approximately $66,000 under two advances commencing January 2016, with scheduled repayments of approximately
$87,500 originally due through July 2016. During fiscal year ended June 30, 2016 we made $75,012 of payments, which included $38,819
of principal and $36,193 of finance charges which are included in interest expense for the period. At June 30, 2016, $27,210 remained
outstanding under this note. During the FYE June 30, 2017 we made $12,300 of repayments which included $2,103 of principal and
$10,197 of finance charges which are included in interest expense for the period. At June 30, 2017, $27,936 remained outstanding
under this note. The Company recorded $11,532 of finance charges for the fiscal year ended June 30, 2018. As of June 30, 2018
$39,468 remained outstanding under this note.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
8.
STOCKHOLDERS’ EQUITY
and Convertible Debt Arrangements
Long
Term Convertible Debentures / Debt Discount
The
Company had three separate convertible debt arrangements with independent investors that were in effect at various times during
the two fiscal years ended June 30, 2018 and 2017.
During
the fiscal year ended June 30, 2017 a lender converted $15,000 of Convertible Debt which included $9,460 principal and $5,540
accrued interest thereon relating to the forbearance agreement into 187,500,000 shares of the Company’s Common stock.
These
transactions are intended to provide liquidity and capital to the Company and are summarized below.
Arrangement
#1
The
Company entered into a convertible note on November 17, 2009, whereby the Company received a total of $186,000 of proceeds in
connection with a new financing agreement with JMJ Financial. This transaction consists of the following: 1) a convertible note
in the amount of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity date of September 23, 2012 and (2)
a secured promissory note in the amount of $1,100,000 plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity
date of September 23, 2012 due from the holder of the convertible note, of which the Company received a total of $150,000 of proceeds
in connection with the second promissory note under this agreement. The convertible debenture converts into the Company’s
common stock at 75% of the lowest trading price during the 20 trading days prior to conversion. Due to certain ratchet provisions
contained in the convertible note the Company accounted for this conversion feature as a derivative liability. In connection herewith,
at the commitment date, the Company recorded a derivative liability of $536,000 and a debt discount of $636,000. The debt discount
was amortized over the term of the convertible note. At June 30, 2012, the outstanding convertible note balance of $372,060 was
combined with the April 5, 2010 arrangement with JMJ Financial, Inc.
On
December 15, 2009 the Company entered into a new financing agreement with JMJ Financial that consisted of the following: 1) a
convertible note issued by the Company in the amount of $1,500,000 plus a one-time interest factor of 12% ($180,000) and a maturity
date of December15, 2012 and (2) a secured promissory note in the amount of $1,400,000 plus a one-time interest rate factor of
13.2% ($180,000) and a maturity date of December 15, 2012 due from the holder of the convertible note. To date the Company has
received a total of $300,000 of proceeds in connection with this promissory note and has issued no shares of common stock to the
holder upon conversions. The convertible debenture converts into the Company’s common stock at 75% of the lowest trading
price during the 20 trading days prior to conversion. Due to certain ratchet provisions contained in the convertible note the
Company accounted for this conversion feature as a derivative liability. In connection herewith, at the commitment date, the Company
recorded a derivative liability of $542,714 and debt discount of $642,714. The debt discount was amortized over the term of the
convertible note. The Company and the holder entered into a Forbearance Agreement amendment, as amended, and additional funding
and conversions have not occurred since April 2011. At June 30, 2012, the convertible note balance of $321,000 was combined with the
April 5, 2010 arrangement with JMJ Financial, Inc.
On
April 5, 2010, the Company entered into a financing agreement with JMJ Financial that consisted of the following: 1) a convertible
note issued by the Company in the principal amount of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity
date of December 15, 2012, and (2) a secured promissory note from the holder of the convertible note in the amount of $1,100,000
plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity date of December 15, 2012. To date the Company has
received a total of $100,000 of proceeds in connection with this promissory note and has issued no shares of common stock to the
holder upon conversions. The remaining $1,144,000 of proceeds to be received from the holder plus accrued and unpaid interest
is convertible into shares of the Company’s common stock at the option of the holder. The convertible debenture converts
into the Company’s common stock at 75% of the lowest trading price during the 20 trading days prior to conversion. Due to
certain ratchet provisions contained in the convertible note the Company accounted for this conversion feature as a derivative
liability. In connection herewith, at the commitment date, the Company recorded a derivative liability of $421,891 and debt discount
of $521,891. The debt discount was amortized over the term of the convertible note. At June 30, 2012, the outstanding convertible
note balance of $109,000 was combined with the November 17, 2009 and December 15, 2009 financing arrangements with JMJ Financial,
Inc., for a total outstanding convertible note balance of $802,060. The Company has no promissory notes receivable from JMJ as
of June 30, 2012.
In
April of 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 effectively negated two notes River North Equity purchased from JMJ Financial.
At June 30, 2017 the amount recorded in Current Liabilities for the two notes and accrued interest thereon subject to the River
North Equity claim was $1,046,416. Such amount is included in the amount recorded in Current Liabilities for all three convertible
notes and accrued interest thereon previously issued to JMJ Financial which totaled $1,212,940 on that date. River North failed
to appeal the Judgement by July 17, 2017 and the Judgement become final. As a result of this proceeding 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 cancellation of debt which is included in other income for the fiscal
year ended June 30, 2018.
The
Company recorded $17,175 and $92,958 of interest expense on its arrangement with JMJ for the years ended June 30, 2018 and 2017,
respectively.
As
of June 30, 2018 and 2017, the combined arrangements with JMJ in this note would be convertible into 44,630,000 and 303,234,810
common shares at the conversion floor price of $.004, respectively. At June 30, 2018 and 2017, there was no derivative liability
associated with this convertible note payable. (See Note 3)
The
Company has not made any payments of the $37,018 installment payments commencing October 1, 2012 and the holder has continued
to accrue interest on the outstanding balance. At June 30, 2017 the amount recorded in Current Liabilities for all three convertible
notes and accrued interest thereon previously issued to JMJ Financial was $802,060 and $410,879, respectively. At June 30, 2018
the amount in Current Liabilities for notes issued to JMJ Financial was $109,000 and $69,520, for all three convertible notes
and accrued interest thereon, respectively.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
8.
STOCKHOLDERS’ EQUITY and Convertible Debt Arrangements -
(Continued)
Arrangement
#2 (John Fife dba St. George Investors)/Fife Forbearance
The
Company entered into an amended agreement on June 1, 2012, in the amount of $719,499, consisting of principle of $557,500, accrued
interest of $66,338, and $95,611 of contractual charges for previous notes with John Fife, whereby, the Company agreed to make
principal and interest payments of $33,238 per month commencing October 1, 2012 through September 1, 2014 at 8% interest per annum.
As long as the monthly payments are not in default, no conversions into the Company’s common stock would be available to
the convertible note holder. The convertible debenture converts into the Company’s common stock at 75% of the three lowest
volume weighted average trading prices during the 20 trading days prior to conversion. Due to certain ratchet provisions contained
in the convertible note the Company accounted for this conversion feature as a derivative liability. In connection herewith, at
the commitment date, the Company recorded a derivative liability of $137,481 and debt discount of $194,981. The debt discount
was amortized over the term of the convertible note.
On
November 20, 2012, mPhase Technologies, Inc. (the “Company”) formally received an Event of Default and Redemption
Notice dated November 16, 2012 with respect to an 8% Convertible Note (“Convertible Note”) dated September 13, 2011
issued by the Company to St. George Investments LLC and assigned to John Fife. The notice included alleged defaults with respect
to payments owed by the Company under the Convertible Note and the failure to convert the Note into shares of the Company’s
common stock. The alleged amount owed according to the notice is approximately $902,279.
On
December 15, 2014, a Memorandum Opinion and Order was issued by the United States District Court Northern District of Illinois
Eastern Division granting the motion of John Fife, plaintiff (“Plaintiff”), for summary judgment against mPhase Technologies,
Inc. (the “Company”) for breach of contract (the “Opinion”). All other claims and counterclaims were dismissed.
The Company commenced settlement negotiations with the Plaintiff after we explored options with regard to an appeal and other
alternatives, which there is no guarantee of success. As discussed in Note 7, effective February 10, 2015, the Company entered
into a Forbearance Agreement with the Holder. The agreement provides that the Holder would forego his right to enforce its remedies
pursuant to the judgment, which include demand for immediate payment of approximately $1.6 million, provided the Company satisfy
its forbearance obligation of $1,003,943, and after accounting for a payment of $15,000 the Company paid, under the terms of the
agreement.
The
terms of the agreement, as amended, provide for interest to accrue on the unpaid portion at 9% per annum with monthly payments
in cash or conversions into common stock of the Company; commencing with an initial $15,000 payment due on February 15, 2015,
and thereafter and on or before the 15
th
day of each month thereafter the Company agrees to pay to Holder the
following amounts ; $30,000.00 per month on each of the following dates: March 15, 2015, April 15, 2015, May 15, 2015, June 15,
2015, and July 15, 2015; $15,000.00 per month on each of the following dates: August 15, 2015 and September 15, 2015; $20,000.00
per month on each of the following dates: October 15, 2015, November 15, 2015, and December 15, 2015; $35,000.00 per month on
each of the following dates: January 15, 2016 and February 15, 2016 and March 15, 2016; and $50,000.00 per month thereafter until
the Forbearance Amount has been paid in full
.
During
the year ended June 30, 2016 the Company repaid $146,035 of principle and $72,465 of interest under the agreement, which included
non-cash conversions of 812,500,000 shares of the Company’s common stock valued at $70,000 of which $17,812 represented
accrued interest and $52,188 represented principle. The value of the forbearance debt obligation on June 30, 2016 was $756,218.
As
of August 11, 2015 the Company entered into an Amendment No. 1 with Fife to the Forbearance Agreement rescheduling the monthly
payment schedules.
As
of January 19, 2016 the Company entered into a Second Amendment to the Forbearance Agreement again rescheduling certain of the
monthly payments.
As
of June 30, 2016 this forbearance obligation, as amended, would only be convertible for monthly obligations the Company elects
to/or does not pay in cash in part or in full, for: (i) up to 625,000,000 shares, for the satisfaction of the next required monthly
payment, and (ii) up to 9,452,725,000 shares of our common stock should the entire obligation be converted.
On
August 18, 2017 the Company entered into a Judgment Settlement Agreement with John Fife with respect to the Judgment in favor
of Fife, which reduces the balance under the amended agreement to $360,000, without conversion rights, in connection with the
default by the Company under a Convertible Debenture dated September 13, 2011.
On
February 16, 2018 the Company entered into a Third Amendment to the Forbearance Agreement with John Fife modifying the payment
schedule for repayment of the Convertible Debenture issued on September 11, 2013 that was the subject of a Summary Judgment in
favor of Fife on December 15, 2015. Under the amendment the Company is obligated to pay beginning on October 16, 2018 either a
lump sum payment of $275,000 or $375,000 in monthly installments of $15,000 each.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
8.
STOCKHOLDERS’ EQUITY and Convertible Debt Arrangements -
(Continued)
During
the fiscal year ended June 30, 2017 this lender converted $15,000 of Convertible Debt which included $9,460 principal and $5,540
accrued interest thereon relating to the forbearance agreement into 187,500,000 shares of the Company’s Common stock. The
Company recorded $68,655 interest on this obligation for the fiscal year ended June 30, 2017, of which $63,115 was accrued and
unpaid bringing the value of the forbearance debt obligation on June 30, 2017 to $809,873. At June 30, 2017, there was no derivative
liability associated with this convertible note payable. (See Note 3)
During
fiscal year ended June 30, 2018 the lender did not make any conversions of this note. The Company recorded $75,492 interest on
this obligation for the fiscal year ended June 30,2018 that was accrued and unpaid bringing the value of this forbearance debt
obligation for the fiscal year ended June 30, 2018 to $885,364.
As
of June 30, 2018 this forbearance obligation, as amended, would only be convertible for monthly obligations the Company elects
to/or does not pay in cash in part or in full, for: (i) up to 625,000,000 shares, for the satisfaction of the next required monthly
payment, and (ii) up to 11,067,050,000 shares of our common stock should the entire obligation be converted. At June 30, 2018,
there was no derivative liability associated with this convertible note payable. (See Note 3)
Arrangement
#3 (MH Investment trust II)
On
August 26, 2014, the Company issued to the MH Investment Trust, a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 in which the Company received $40,000 in gross proceeds on September 1, 2014. The instrument
is in the principal amount of $40,000 and matured on May 1, 2015. Interest only was payable at the rate of 12% per annum by the
Company to the holder until maturity. The convertible debenture converts into the Company’s common stock at 60% of the volume
weighted average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately
preceding such conversion, or 65 % when the trading price exceeds $.0020 for the five days before such conversion. Due to certain
ratchet provisions contained in the convertible note the Company accounted for this conversion feature as a derivative liability.
In connection herewith, at the commitment date, the Company recorded a derivative liability of $37,778 and debt discount of $37,778.
The debt discount was amortized over the term of the convertible note. All proceeds received in connection with the above financing
have been used by the Company as working capital.
At
June 30, 2016 the note balance was $3,333 and accrued interest of $1,747, at 12% per annum, remained due under this agreement.
Based upon the price of the Company’s common stock on June 30, 2016 this Note was convertible into approximately 84,672,667
shares of common stock. At June 30, 2017 the note balance was $3,333 and accrued interest of $2,392, at 12% per annum, remained
due under this agreement. Based upon the price of the Company’s common stock on June 30, 2017 this Note was convertible
into approximately 95,412,167 shares of common stock. Based upon the price of the Company’s common stock this note is convertible
into approximately 107,516,667 shares of common stock as of June 30, 2018. As of June 30, 2018 the note balance was $3,333 and
accrued interest of $3,118 at 12% per annum, remained due under this agreement. At June 30, 2017 and 2018, there was no derivative
liability associated with this convertible note payable. (See Note 3)
The
Company recorded $726 and $644 interest expense for this agreement for the years ended June 30, 2018 and 2017, respectively.
The
following table summarizes notes payable under convertible debt and debenture agreements as of:
|
|
June
30,
|
|
|
|
2018
|
|
|
2017
|
|
Arrangement
#1 - JMJ Financial, Inc
|
|
$
|
109,000
|
|
|
$
|
802,060
|
|
Arrangement
#2 - St. George Investments/Fife Forbearance Obligation
|
|
|
885,365
|
|
|
|
809,873
|
|
Arrangement
#3 - MH Investment trust II
|
|
|
3,333
|
|
|
|
3,333
|
|
Total
notes payable
|
|
|
997,698
|
|
|
|
1,615,266
|
|
Convertible
Notes payable-short-term portion
|
|
$
|
997,698
|
|
|
$
|
1,615,266
|
|
Included
in accrued expenses is $72,638 and $413,271 interest accrued on these notes at June 30, 2018 and June 30, 2017, respectively.
During
the fiscal year ending June 30, 2018 and 2017, the following transactions impacted stockholders’ equity
Private
Placements
During
the fiscal year ended June 30, 2018, the Company received $81,000 of net proceeds from the issuance of 1,800,000,000 shares of
common stock in private placements with accredited investors, incurring finder’s fees of $9,000.
During
the fiscal year ended June 30, 2017, the Company received $40,500 of net proceeds from the issuance of 900,000,000 shares of common
stock in private placements with accredited investors, incurring finder’s fees of $4,500.
Conversion
of debt securities
During
the fiscal year ended June 30, 2018 there were no conversions by John Fife (dba St George Investors) under the Forbearance Agreement
During
the fiscal year ended June 30, 2017, $15,000 of debt including of accrued interest and fees thereon was converted into 187, 500,000
shares of the Company’s common stock to the forbearance agreement referred to as Arrangement #2 (John Fife dba St. George
Investors) discussed above. This conversion consisted of $9,460 principal and $5,540 accrued interest.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
8.
STOCKHOLDERS’ EQUITY and Convertible Debt Arrangements -
(Continued)
Stock
Based Compensation
No
awards of shares were issued to employees and consultants during the fiscal year ended June 30, 2017. No stock-based compensation
was issued to Officers of the Company during the fiscal years ended June 30, 2017. During fiscal year ended June 30, 2018 the
Company accrued $575,000 for grants of 5,750,000,000 shares of common stock pursuant to the stock award the Board approved November
28, 2017, which were issued in when such shares were available in September 2018.
RESERVED
SHARES
The
Forbearance agreement connected with arrangement #2 above requires the Company to place, and the Company has done so, 1,000,000,000
shares in reserve with its transfer agent, to satisfy the conversion provisions for any unpaid monthly cash payments. During the
year ended June 30, 2016, 812,500,000 shares from this reserve have been issued to satisfy the conversion provisions. Through
June 30, 2017, to satisfy the conversion provisions, 187,500,000 shares were issued from this reserve and no amounts remain under
the reserve agreement with our transfer agent. During the Fiscal Year Ended June 30, 2018 there were no conversions under
the Forbearance Agreement by John Fife and there were no additions by the Company to the reserve agreement.
During
the Fiscal Year Ended June 30, 2014 the Company advanced 40,000,000 shares distributable under the Equity Line of Credit discussed
above, of which 3,990 shares of the Company’s common stock were resold and 36,010,000 shares were unsold when the agreement
expired in February 2015 and remain subject to be returned to the Company’s treasury for cancellation.
RETIRED
SHARES
Effective
June 26, 2016, November 25, 2016 and June 26, 2017, Karen Durando, the wife of Ron Durando, returned 299,569,203, 800,000,000
and 295,430,797, for a total of 1,395,000,000 shares of common stock returned to the Company during the fiscal year ended June
30, 2017.
Effective
October 19, 2017 Mr. Smiley returned 1,367,226,450 to the Company. Effective December 31, 2017 Patricia Dotoli, the wife
of, Gus Dotoli, returned 1,336,972,075 shares of common stock to the Company. This represents a total of 2,704,198,525 shares
of common stock returned to the Company during the fiscal year ended June 30, 2018.
Such
shares were previously issued common stock of the Company. The return of common stock was to provide the Company with sufficient
authorized but unissued shares of stock to enable the Company to have additional authorized shares of its common stock to complete
present private placements to provide operating capital for the Company.
See
Also - Subsequent events
9.
RELATED PARTY TRANSACTIONS
MICROPHASE
During
a portion of the fiscal year ended June 30, 2016, the Company leased office space from Microphase at its Norwalk location. Rental
expense charged by Microphase was $4,500 from July 1, 2015 through June 30, 2016. In April of 2016 mPhase ceased to be a tenant
of Microphase establishing its own independent office in Norwalk, Connecticut At June 30, 2016, 2017 and 2018 $32,545 remains
outstanding to Microphase Corporation.
During
the years ended June 30, 2018 and 2017, Mr. Biderman’s (a Director of the Company) firm charged finders’ fees of $9,000
and $4,500.
During
the fiscal years ended June 30, 2018 and 2017, the Company paid $0 and $14,500 of fees to Karen Durando, the wife of the Company’s
president, for product marketing services.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
9.
RELATED PARTY TRANSACTIONS - (Continued)
Transactions
with Officers
At
various points during past fiscal years the Messrs. Durando, Dotoli and Smiley 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 are
payable on demand. These notes have been convertible into shares of the Company’s common stock since 2009. The Company amended
the conversion feature to provide for the conversion of the remaining Officers’ loans into shares of common stock at a conversion
price of $.0004, representing the concurrent terms of private placements with accredited investors, for a term of five years effective
March 31, 2014.
During
the fiscal years ended June 30, 2018 and 2017, the officers advanced $77,326 and $15,880 to provide working capital to the Company
and $44,274 and $37,288 have been charged for interest on loans from officers.
At
June 30, 2018 and 2017 these notes and accrued interest at the rate of 6% totaled $777,712 and $658,311, respectively. On June
30, 2018 and 2017, these Notes are convertible into approximately 7,779,120,000 and 645,777,500 shares of common stock, respectively,
if available.
Conversion
Feature and Conversions of Debt to Officers’
The
Company amortized $121,570 of the approximately $212,748 previously deferred charge to beneficial conversion feature interest
expense for the year ended June 30, 2018. At June 30, 2018 $91,176 of deferred charges for beneficial conversion feature interest
expense remain as a reduction of additional paid in capital which will be amortized on a straight-line basis over the life of
the warrant or sooner if and when converted.
On
November 28, 2017 the conversion price for notes and accrued interest due to the officers was amended to $.0001, by the Board
of Directors, subject to such shares being available.
See
Also - Subsequent events
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
10.
INCOME TAXES
Due
to recurring losses for the years ended June 30, 2018 and 2017, the Company’s net tax provision was zero.
The
difference between the effective income tax rate and the applicable statutory federal income tax rate is summarized as follows:
|
|
2018
|
|
|
2017
|
|
Statutory
federal rate
|
|
|
(28.1
|
)%
|
|
|
(35.0
|
)%
|
State
income tax rate, net of federal benefit
|
|
|
(5.6
|
)%
|
|
|
(5.6
|
)%
|
Permanent
differences, including stock based compensation & beneficial conversion interset expense
|
|
|
34.5
|
%
|
|
|
15.9
|
%
|
Change
in valuation allowance
|
|
|
(0.8
|
)%
|
|
|
24.7
|
%
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
At
June 30, 2018 and 2017, the Company’s deferred tax assets were as follows:
Deferred
Tax Liability
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
-
|
|
|
|
-
|
|
Total
deferred tax liability
|
|
|
-
|
|
|
|
-
|
|
Deferred
Tax Assets
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Federal
and state net operating loss carry forward
|
|
|
34,752,000
|
|
|
|
42,650,000
|
|
Other
temporary differences
|
|
|
-
|
|
|
|
-
|
|
Total
deferred tax asset
|
|
|
34,752,000
|
|
|
|
42,650,000
|
|
Net
deferred tax asset
|
|
|
34,752,000
|
|
|
|
42,650,000
|
|
Less
valuation allowance
|
|
|
(34,752,000
|
)
|
|
|
(42,650,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
valuation allowance at June 30, 2018 and 2017 was $34,752,000 and $42,650,000, respectively. The valuation was reduced for a reduction
in the total NOL carry forwards due to expiring loss years and the change in tax rate.
At
June 30, 2018, the Company has federal net operating loss carry forwards of approximately $112.9 million and $56 million to offset
future federal and state income taxes, respectively, which expire at various times from 2019 through 2037. The federal net operating
loss carry forwards may be subject to the separate return loss limitation rules and IRC section 382 limitations due to changes
in ownership. The Company has assessed the evidence of its forecasted future operations against the potential likelihood of the
realization of the deferred tax assets to make the determination that the Company will not utilize these carry forwards and has
recorded a valuation allowance against the net deferred tax asset.
Effective
December 22, 2017 a new tax bill was signed into law that reduced the federal income tax rate for corporations from 35% to 21%.
The new bill reduced the blended tax rate for the Company from 35.0% to 28.1%. The change in blended tax rate reduced the 2018
net operating loss carry forward deferred tax assets by approximately $5.1 million.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
10.
INCOME TAXES - (Continued)
The
provision for income taxes from continuing operations differs from taxes that would result from applying Federal statutory rates
to Book Income because of the following:
The
Company had estimated net tax losses of $352,500 and $173,191 in 2018 and in 2017. Deferred income taxes relate principally to
the use of net operating loss carry forwards; these can differ from computations based upon book losses for the use for tax purposes
of accelerated depreciation methods and the difference in the book and tax basis of certain stock-based compensation, beneficial
conversion interest expense and the effect of debt cancellation income.
At
June 30, 2018 and 2017, 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, 2018 and 2017.
11.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The
Company had leased a warehouse and limited office space in Norwalk, Connecticut, commencing in April of 2015 with a monthly rental
of $2,200 per month. The Company vacated the Norwalk premise in April 2016 and the Company moved its warehouse contents, primarily
inventory and associated shipping materials of its mPower battery products into the Clifton premise. The Company had $22,000 of
unpaid rent in accounts payable at June 30, 2018 and 2017.
Presently
the Company has relocated its office, which includes modest office space, limited storage and utilities, to 688 New Dorp Lane,
Staten Island, New York, on May 1, 2017, the rental terms included a three-month commitment; renewable 3 months at a time, with
monthly rent of $400 plus limited utilities.
CONTINGENCIES
The
Company had been in litigation with John Fife with respect to a Convertible Note originally issued on September 13, 2011 in the
principal amount of $557,000. Fife sought damages on a Motion for Summary Judgment in the amount in excess of $1,300,000 attorney’s
fees. On December 15, 2014 the federal district court in the North East District of Illinois found in favor of Fife on a motion
for Summary Judgment. The Company has entered into a Forbearance Agreement with Fife as a result of negotiations to settle such
Judgment.
The
value of the forbearance obligation on June 30, 2018 is $885,364 (See Note 8), all of which are included in current liabilities
at that date. The value of the judgment totaled approximately $1.6 million as of December 31, 2014 and bears a punitive interest
rate of 16% and would become payable in full if the Company defaults under the forbearance obligation reduced by payments under
the Forbearance Agreement, which through June 30, 2018 totals $250,000 or approximately, $1.35 million. Through June 30, 2018
the Company has not been notified it has defaulted under the agreement. The Forbearance agreement requires the Company to place,
and the Company has done so, 1,000,000,000 shares in reserve with its transfer agent, to satisfy the conversion provisions for
any unpaid monthly cash payments, which through June 30, 2016, 812,500,000 shares from this reserve have been issued to satisfy
the conversion provisions. During the first quarter of fiscal year ended June 30, 2017 187,500,000 shares were issued from this
reserve and no amounts remain under the reserve agreement with our transfer agent. There were no conversions by Fife in the fiscal
year ended June 30, 2018 or additions to the reserve in such period.
On
August 18, 2017 the Company entered into a Judgment Settlement Agreement with John Fife with respect to the Judgment in favor
of Fife, which reduces the balance under the amended agreement to $360,000, without conversion rights, in connection with the
default by the Company under a Convertible Debenture dated September 13, 2011.
On
February 16, 2018 the Company entered into a Third Amendment to the Forbearance Agreement with John Fife modifying the payment
schedule for repayment of the Convertible Debenture issued on September 11, 2013 that was the subject of a Summary Judgment in
favor of Fife on December 15, 2015. Under the amendment the Company is obligated to pay beginning on October 16, 2018 either a
lump sum payment of $275,000 or $375,000 in monthly installments of $15,000 each.
As
of June 30, 2018, this forbearance obligation would only be convertible for monthly obligations the Company elects to/or does
not pay in cash in part or in full, for: (i) up to 625,000,000 shares immediately for the satisfaction of the next required monthly
payment, and (ii) up to 11,067,050,000 shares of our common stock should the entire obligation be converted.
(See
Note 8)
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
12.
FAIR VALUE MEASUREMENTS
Effective
July 1, 2008, we adopted Statement of Financial Accounting Standards No. 157,
Fair Value Measurements,
now known
as FASB ASC 820 Fair Value Measurements and Disclosures (ASC 820), which provides a framework for measuring fair value under GAAP.
ASC 820 defines fair value as the exchange 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. ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use
of unobservable inputs. ASC 820 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad
levels.
Financial
instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is input is unobservable. Level 3 financial instruments
also include those for which the determination of fair value requires significant management judgment or estimation.
13.
SUBSEQUENT EVENTS
|
●
|
From
July 1, 2018 through October 12, 2018, the Company issued 400,000,000 shares of its common
stock in private placements pursuant to Section 4(a)(2) of the Securities Act of 1933
raising gross proceeds of $20,000 subject to $2,000 of accrued finder’s fees, all
of which was used for working capital and general corporate purposes.
|
|
●
|
From
July 1, 2018 through October 12, 2018, Messrs. Durando, Dotoli and Smiley loaned the Company approximately $27,900,
$10,000 and $15,000 respectively to provide general working capital
|
|
●
|
Effective
August 22, 2018 the Company increased its authorized shares of common stock from 18 billion
shares to 72 billion shares.
|
|
●
|
In
September 2018:
|
|
|
|
|
|
|
a.)
|
the
officers converted $538,777 accrued wages into 5,387,770,000 shares and $702,105 of notes payable and accrued interest into
7,021,050,000 shares,
|
|
|
|
|
|
|
b.)
|
a
director converted $186,000 of accrued fees into 1,860,000,000 shares and $126,364 of a note and accrued interest into 1,263,642,700
shares, &;
|
|
|
|
|
|
|
c.)
|
Strategic
vendors converted $99,500 of accounts payable into 990,500,000 shares, of the Company's common stock.
|
|
●
|
In
September 2018 the Company issued the 5,750,000 shares of its common stock pursuant to
the stock award the Board approved November 28, 2017, extinguishing an accrued expense
at June 30, 2018 of $575,000 for the same.
|
mPHASE
TECHNOLOGIES, INC.
Condensed
Consolidated Balance Sheets
(Unaudited)
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
25,344
|
|
|
$
|
261
|
|
Prepaid
expenses
|
|
|
3,686
|
|
|
|
-
|
|
TOTAL
CURRENT ASSETS
|
|
|
29,030
|
|
|
|
261
|
|
Other
assets
|
|
|
800
|
|
|
|
800
|
|
TOTAL
OTHER ASSETS
|
|
|
800
|
|
|
|
800
|
|
TOTAL
ASSETS
|
|
$
|
29,830
|
|
|
$
|
1,061
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
359,713
|
|
|
$
|
421,056
|
|
Accrued
expenses
|
|
|
235,864
|
|
|
|
1,131,374
|
|
Due
to related parties
|
|
|
32,545
|
|
|
|
226,045
|
|
Notes
payable, Officers’
|
|
|
53,712
|
|
|
|
777,912
|
|
Notes
payable, Director & Investor
|
|
|
4,478
|
|
|
|
133,274
|
|
Current
Portion, Liabilities, in arrears, with convertible features
|
|
|
112,333
|
|
|
|
997,698
|
|
Current
Portion, Liabilities, in arrears, - Judgement Settlement Agreement (Notes 3 and 5)
|
|
|
310,910
|
|
|
|
-
|
|
Liabilities
of discontinued operations
|
|
|
133,868
|
|
|
|
306,171
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
1,243,423
|
|
|
|
3,993,530
|
|
|
|
|
|
|
|
|
|
|
Long
term portion, Liabilities, in arrears, - Judgement settlement agreement (Notes 3 and 5)
|
|
|
580,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
OTHER
OBLIGATIONS CONVERTIBLE TO EQUITY
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, 25,000,000 shares authorized, 11,481,734 and 3,372,103 shares issued and outstanding at March 31, 2019
and June 30, 2018, respectively (as adjusted for reverse split of 5,000 to 1 discussed in note 3)
|
|
|
114,817
|
|
|
|
33,721
|
|
Additional
Paid in Capital
|
|
|
211,466,587
|
|
|
|
207,652,502
|
|
Preferred
stock, par value $.01 per share, 1,000 shares authorized, 1,000 and no shares issued and outstanding at March 31, 2019 (unaudited)
and June 30, 2018, respectively
|
|
|
1
|
|
|
|
-
|
|
Accumulated
deficit
|
|
|
(213,374,998
|
)
|
|
|
(211,678,692
|
)
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
(1,793,593
|
)
|
|
|
(3,992,469
|
)
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
29,830
|
|
|
$
|
1,061
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements
mPHASE
TECHNOLOGIES, INC.
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,422,737
|
|
|
|
65,092
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
1,422,737
|
|
|
|
65,092
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(1,422,737
|
)
|
|
|
(65,092
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(15,870
|
)
|
|
|
(61,094
|
)
|
Gain
on debt extinguishments
|
|
|
-
|
|
|
|
5,655
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
(15,870
|
)
|
|
|
(55,439
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from Continuing Operations, before Income Taxes
|
|
$
|
(1,438,607
|
)
|
|
$
|
(120,531
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from Discontinued Operations
|
|
|
(3,805
|
)
|
|
|
(18,741
|
)
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,442,412
|
)
|
|
$
|
(139,272
|
)
|
|
|
|
|
|
|
|
|
|
Loss
per share From Continuing Operations
|
|
$
|
(0.13
|
)
|
|
$
|
(0.03
|
)
|
Loss
per share From Discontinued Operations
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Net
Loss per share
|
|
$
|
(0.13
|
)
|
|
$
|
(0.04
|
)
|
Weighted
Average Number of Shares Outstanding;
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,943,154
|
|
|
|
3,523,071
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
m
PHASE
TECHNOLOGIES, INC.
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
For
the Nine Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,541,960
|
|
|
|
136,896
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
1,541,960
|
|
|
|
137,579
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(1,541,960
|
)
|
|
|
(137,579
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(155,912
|
)
|
|
|
(184,342
|
)
|
Gain
on debt extinguishments
|
|
|
16,279
|
|
|
|
1,057,249
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
$
|
(139,633
|
)
|
|
$
|
872,907
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Continuing Operations, before Income Taxes
|
|
$
|
(1,681,593
|
)
|
|
$
|
735,328
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) From Discontinued Operations
|
|
|
(14,713
|
)
|
|
|
207,247
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(1,696,306
|
)
|
|
$
|
942,575
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Net Income (Loss) per share:
|
|
|
|
|
|
|
|
|
Income
(Loss) per share From Continuing Operations
|
|
$
|
(0.22
|
)
|
|
$
|
0.22
|
|
Income
(Loss) per share From Discontinued Operations
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
Net
Income (Loss) per share
|
|
$
|
(0.23
|
)
|
|
$
|
0.28
|
|
Weighted
Average Number of Shares Outstanding;
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,496,294
|
|
|
|
3,388,282
|
|
Diluted
|
|
|
7,496,294
|
|
|
|
3,600,000
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
Condensed
Consolidated Statement of Changes in Stockholders’ Deficit
For
the Nine Months Ended March 31, 2019 and 2018 (Unaudited)
|
|
Common
Stock
|
|
|
Additional
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
$.01 Par
Value
|
|
|
Paid
in
Capital
|
|
|
Shares
|
|
|
$01 Par
Value
|
|
|
Accumulated
Deficit
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2017
|
|
|
3,552,943
|
|
|
$
|
35,529
|
|
|
$
|
207,448,124
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(211,992,596
|
)
|
|
$
|
(4,508,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to accredited investors in private placements, net of $5,000 fees
|
|
|
200,000
|
|
|
|
2,000
|
|
|
|
43,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
91,179
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
to treasury of shares cancelled by significant shareholders
|
|
|
(540,840
|
)
|
|
|
(5,408
|
)
|
|
|
5,408
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income for the Nine Months Ended March 31, 2018 (Unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
942,575
|
|
|
|
942,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
March 31, 2018
|
|
|
3,212,103
|
|
|
$
|
32,121
|
|
|
$
|
207,587,711
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(211,050,021
|
)
|
|
$
|
(3,430,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2018
|
|
|
3,372,103
|
|
|
$
|
33,721
|
|
|
$
|
207,652,502
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(211,678,692
|
)
|
|
$
|
(3,992,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of accrued fees, accrued from January 1, 2018 to June 30, 2018, in connection with private placements to accredited investors
|
|
|
-
|
|
|
|
-
|
|
|
|
7,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to accredited investors in private placements
|
|
|
440,000
|
|
|
|
4,400
|
|
|
|
105,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
91,177
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of 5,750,000,000 shares of Common Stock for Stock awards for services valued at $575,000, accrued through June 30, 2018
|
|
|
1,150,000
|
|
|
|
11,500
|
|
|
|
563,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
575,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for the conversion of Related Party debts & Strategic Vendor payables
|
|
|
3,898,732
|
|
|
|
38,987
|
|
|
|
1,762,069
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,801,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock in connection with employment contract
|
|
|
2,620,899
|
|
|
|
26,209
|
|
|
|
1,284,240
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,310,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Preferred Stock in connection with employment contract
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1,000
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) for the Nine Months Ended March 31, 2019 (Unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,696,306
|
)
|
|
|
(1,696,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
March 31, 2019
|
|
|
11,481,734
|
|
|
$
|
114,817
|
|
|
$
|
211,466,587
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
$
|
(213,374,998
|
)
|
|
$
|
(1,793,593
|
)
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash Flow From Operating Activities:
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
$
|
(1,696,306
|
)
|
|
$
|
942,575
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
683
|
|
Gain on debt extinguishments
|
|
|
(16,279
|
)
|
|
|
(1,057,249
|
)
|
Non-cash charges relating to common stock compensation
|
|
|
1,310,449
|
|
|
|
-
|
|
Other non-cash charges including beneficial conversion interest expense
|
|
|
91,177
|
|
|
|
91,179
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and Other current assets
|
|
|
(3,686
|
)
|
|
|
-
|
|
Accounts payable & accrued expenses
|
|
|
196,330
|
|
|
|
158,049
|
|
Net cash (used in) provided by continuing operating activities
|
|
|
(118,315
|
)
|
|
|
135,237
|
|
Net cash used in discontinued operating activities
|
|
|
(31,056
|
)
|
|
|
(236,304
|
)
|
Net cash used in operating activities
|
|
$
|
(149,371
|
)
|
|
$
|
(101,067
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flow Used in Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
-
|
|
|
|
-
|
|
Net Cash used in investing activities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
110,000
|
|
|
|
50,000
|
|
Proceeds of demand note
|
|
|
-
|
|
|
|
2,000
|
|
Repayments of settlement agreement
|
|
|
(28,004
|
)
|
|
|
-
|
|
Proceeds from notes payable related parties
|
|
|
93,046
|
|
|
|
51,400
|
|
Repayment of notes payable related parties
|
|
|
(588
|
)
|
|
|
(726
|
)
|
Net cash provided by continuing financing activities
|
|
|
174,454
|
|
|
|
102,674
|
|
Net cash provided by discontinued financing activities
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
$
|
174,454
|
|
|
$
|
102,674
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
25,083
|
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
|
261
|
|
|
|
4,163
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
25,344
|
|
|
$
|
5,770
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
(Unaudited)
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE
OF OPERATIONS
EXPLANATORY
NOTE
The
financial statements contained herein have been adjusted to reflect a 5000/1 reverse split of the Common Stock of the Company
effective on May 20, 2019.
mPhase
Technologies, Inc. (the “Company” or “We”) was organized on October 2, 1996. Since 2007 the Company has
been in the business of developing new products through the science of nanotechnology and micro-fluid dynamics. The Company has
made significant progress in developing a reserve battery with an unlimited shelf life prior to initial activation. Our patent
portfolio consists of intellectual property covering the “smart surfaces” that liquids in droplets can be suspended
upon and collapse upon initial activation by either an electrical impulse or a g force. The Company intends to develop other potential
products such as a drug delivery system using such scientific disciplines to monetize its patent portfolio.
On
January 4, 2019, the Company filed an Amendment to its Certificate of Incorporation in the State of New Jersey, pursuant to approval
by its Board of Directors, to increase its authorized shares of common stock from 72 billion shares to 125 billion shares of no-par
stock. In addition, the Company in such Amendment created a new class of 1000 shares of a Series A super voting preferred Stock
On
January 11, 2019, the Company underwent a major change in management and focus to restructure its business. The Company intends
to broaden and diversify its existing lines of business. The Company will implement its revised plan of operations either directly
or through wholly-owned subsidiaries. Such restructuring will include a combination of raising additional capital to improve our
balance sheet and aggressive pursuit of mergers and acquisitions.
On
January 11, 2019, the Company, Prior Management and Mr. Anshu Bhatnagar executed contracts including a transition agreement (the
“Transition Agreement”) under which the Company’s prior management was largely replaced. Mr. Bhatnagar is also
the President and CEO of Verus International, Inc. (ticker symbol “VRUS”) a publicly-held company.
Messrs.
Dotoli, and Smiley each resigned as Directors and Officers of the Company, Mr. Biderman and Mr. Lawrence resigned as outside Directors.
Mr. Bhatnagar became a Director, and new President and CEO, and acquired control of the Company. Mr. Durando remained as a Director
of the Company through March 15, 2019 at which time he resigned. Mr. Smiley was reappointed on January 28, 2018, as our Chief
Financial Officer. It is expected that Mr. Smiley will hold the foregoing position on an interim basis to provide continuity during
the Transition period.
The
Transition Agreement 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 on December 31, 2018, within six (6) months of January 11, 2019.
(See Notes 4 and 5)
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 “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 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 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
April 22, 2019 (see also “Subsequent Events”) the Company filed a Definitive Schedule 14C information statement with
the SEC 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. The purpose of the Reverse Split
is as follows:
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
Raise
our stock price to more attractive levels:
A
higher stock price would return our share price to a price level typical of share prices of other widely owned public companies.
The Board of Directors believes that a higher share price of the Company’s common stock may meet investment guidelines for
certain institutional investors and investment funds.
Reduce
transaction costs to our shareowners:
Our
shareowners may benefit from relatively lower trading costs for a higher priced stock. We believe many investors pay commissions
when they buy or sell the Company’s common stock based upon the number of shares traded. Because of our relatively low stock
price, investors are required to pay more commissions to trade a fixed dollar amount than they would have to pay if our stock
price was higher. In addition, shareowners owning very few shares may not have an economic way to sell their shares. If these
shareowners are left with only fractional shares as a result of a reverse stock split, their interests can be liquidated without
transaction costs, as we would absorb those costs.
Allow
Shareholders to Deposit with their Broker newly issued shares of the Company’s common stock
Brokers
and their Clearing Agents are not currently accepting deposits of newly issued shares of sub-penny stocks. Very few brokers will
accept such deposits of a stock with a price less than $1.00 per share. This inhibits the ability of the Company to raise additional
capital through sales of its common stock since investors face the uncertainty of when and if the share price of the Company’s
common stock will become eligible for deposit and sale.
The
reverse split became effective on May 20, 2019.
BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the regulations of the Securities Exchange Commission. Accordingly,
they do not include all the information and footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (normal and recurring in nature) considered necessary for a fair presentation
have been included. Operating results for the nine months ended ending March 31, 2019 are not necessarily indicative of the results
that may be expected for a full fiscal year. The accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report
on Form 10-K, as amended, for the year ended June 30, 2018.
GOING
CONCERN
The
Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business.
Through
March 31, 2019, the Company had incurred (a) cumulative losses totaling ($213,374,998) and (b) a stockholders’ deficit of
($1,793,593). At March 31, 2019, the Company had $25,334 of cash to fund short-term working capital requirements and cash used
in operating activities was ($149,371) for the nine months ended March 31, 2019. In addition, the Company relies on the continuation
of funding through private placements of its common stock. These matters raise substantial doubt about the Company’s ability
to continue as a going concern for a period of twelve months from the issuance date of this quarterly report. The accompanying
condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The
Company’s ability to continue as a going concern and its future success is dependent upon its ability to raise capital in
the near term to: (1) satisfy its current obligations, including recently amended settlement agreements, (2) continue its plan
to align partners or other third parties to underwrite any research and development efforts needed to exploit our existing technological
capabilities, or develop new products and (3) allow the successful wide scale development, deployment and marketing of its smart
surface products, or any newly developed, acquired or otherwise obtained product or service line of business. There can be no
assurance the necessary debt or equity financing will be available, or if so, on terms acceptable to the Company.
RECLASSIFICATIONS
Certain
reclassifications have been made in the prior period consolidated financial statements to conform to the current period presentation.
The Company reclassified accrued fees of $5,000 to Eagle Advisors to a source of funds from financing activities previously included
as a source of funds in operating activities in the Statement of Cash Flows in 2018. The reclassified financial statement items
had no effect on Net Income (Loss) for the Quarter, Total Stockholders’ Deficit or Total Assets for the three or nine months
ended March 31, 2018.
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting periods. These
estimates include net realizable value of inventories, estimated value of stock-based compensation and changes in and the ending
fair value of derivative liability. Actual results could differ from those estimates.
LOSS
PER COMMON SHARE, BASIC AND DILUTED
Basic
income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share is computed by dividing net loss adjusted for income or loss that would result from
the assumed conversion of potential common shares from contracts that may be settled in stock or cash by the weighted average
number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
The Company had no warrants or options to purchase shares of its common stock outstanding at March 31, 2019.
At
March 31, 2019 the Company has convertible securities held by third parties that are immediately convertible into 17,078 shares
of common stock. In addition, the Company has convertible notes plus accrued interest thereon held by officers and a Director
of the Company, subject to availability from the settlement reserve, convertible into approximately 291,012 shares of common stock,
immediately.
There are an estimated 39,313,000 total
shares on a post-split basis issuable under the warrant that are attainable under the agreement with Mr. Anshu Bhatnagar as of
March 31, 2019.
The
following table illustrates debts convertible into shares of the Company’s Common Stock at March 31, 2019:
|
|
March
31, 2019
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Convertible
|
|
|
|
Note
Principle
|
|
|
Accrued
Interest
|
|
|
Total
|
|
|
immediately
|
|
|
conditionally
available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arrangement
#1 - JMJ Financial, Inc
|
|
$
|
109,000
|
|
|
$
|
80,472
|
|
|
$
|
189,472
|
|
|
|
9,474
|
|
|
|
-
|
|
Arrangement
#3 - MH Investment trust II
|
|
|
3,333
|
|
|
|
3,718
|
|
|
|
6,844
|
(iii)
|
|
|
7,604
|
|
|
|
-
|
|
Total
Liabilities, in arrears, with convertible features
|
|
|
112,333
|
|
|
|
84,190
|
|
|
|
192,577
|
|
|
|
17,078
|
|
|
|
-
|
|
Judgement
Settlement Agreement
|
|
|
890,910
|
|
|
|
-
|
|
|
|
890,910
|
(i)
|
|
|
-
|
|
|
|
|
|
Notes
Payable- Officers
|
|
|
71,275
|
|
|
|
-
|
|
|
|
71,275
|
(ii)
|
|
|
-
|
|
|
|
285,100
|
|
Notes
Payable- Director
|
|
|
1,478
|
|
|
|
-
|
|
|
|
1,478
|
(ii)
|
|
|
-
|
|
|
|
5,912
|
|
Total
|
|
$
|
1,075,996
|
|
|
$
|
84,190
|
|
|
$
|
1,156,240
|
|
|
|
17,078
|
|
|
|
291,012
|
|
(i)
The Judgement Settlement Agreement with Mr. Fife, effective December 10, 2018 has no features whereby the debt is convertible
into our common stock on March 31, 2019.
(SEE NOTE 3 - Judgement Settlement Agreement)
(ii)
Conditionally convertible if available under “Settlements Reserve”, through July 11, 2019.
(SEE NOTE 3 - Reserved
Shares)
(iii)
Arrangement #3 - MH Investment trust II was settled in full on April 10, 2019
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
DISCONTINUED
OPERATIONS
The
Company has classified the operating results and associated assets and liabilities from its Jump line of products, which ceased
having material sales in the first quarter of Fiscal 2017, as Discontinued Operations in the Consolidated Financial Statements
for the Fiscal Years ended June 30, 2018 and 2019.
The
Assets and Liabilities associated with discontinued operations included in our Consolidated Balance Sheet were as follows:
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Discontinued
|
|
|
Continuing
|
|
|
Total
|
|
|
|
|
|
Continuing
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
25,344
|
|
|
|
-
|
|
|
|
25,344
|
|
|
$
|
261
|
|
|
|
-
|
|
|
|
261
|
|
Prepaid
expenses
|
|
|
3,686
|
|
|
|
-
|
|
|
|
3,686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL
CURRENT ASSETS
|
|
|
29,030
|
|
|
|
-
|
|
|
|
29,030
|
|
|
|
261
|
|
|
|
|
|
|
|
261
|
|
Other
assets
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
TOTAL
OTHER ASSETS
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
|
|
800
|
|
|
|
-
|
|
|
|
800
|
|
TOTAL
ASSETS
|
|
$
|
29,830
|
|
|
|
-
|
|
|
|
29,830
|
|
|
$
|
1,061
|
|
|
|
-
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
445,189
|
|
|
|
85,476
|
|
|
|
359,713
|
|
|
$
|
545,564
|
|
|
|
124,508
|
|
|
|
421,056
|
|
Accrued
expenses
|
|
|
235,864
|
|
|
|
-
|
|
|
|
235,864
|
|
|
|
1,273,569
|
|
|
|
142,195
|
|
|
|
1,131,374
|
|
Due
to related parties
|
|
|
32,545
|
|
|
|
-
|
|
|
|
32,545
|
|
|
|
226,045
|
|
|
|
-
|
|
|
|
226,045
|
|
Notes
payable, Officers’
|
|
|
53,712
|
|
|
|
-
|
|
|
|
53,712
|
|
|
|
777,912
|
|
|
|
-
|
|
|
|
777,912
|
|
Notes
payable, Director and Investor
|
|
|
4,478
|
|
|
|
-
|
|
|
|
4,478
|
|
|
|
133,274
|
|
|
|
-
|
|
|
|
133,274
|
|
Note
Payable, Finance Company
|
|
|
48,392
|
|
|
|
48,392
|
|
|
|
-
|
|
|
|
39,468
|
|
|
|
39,468
|
|
|
|
-
|
|
Current
Portion, Liabilities, in arrears, with convertible features
|
|
|
112,333
|
|
|
|
-
|
|
|
|
112,333
|
|
|
|
997,698
|
|
|
|
-
|
|
|
|
997,698
|
|
Current
Portion, Judgement Settlement Agreement (Notes 3 and 5)
|
|
|
310,910
|
|
|
|
-
|
|
|
|
310,910
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
1,243,423
|
|
|
|
133,868
|
|
|
|
1,109,555
|
|
|
|
3,993,530
|
|
|
|
306,171
|
|
|
|
3,687,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term portion, Convertible debenture
(under settlement agreement-Note 5)
|
|
|
580,000
|
|
|
|
-
|
|
|
|
580,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL
LIABILITIES
|
|
$
|
1,823,423
|
|
|
|
133,868
|
|
|
|
1,689,555
|
|
|
$
|
3,993,530
|
|
|
|
306,171
|
|
|
|
3,687,359
|
|
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
DISCONTINUED
OPERATIONS – (continued)
Revenue
and Expense Recognition for Discontinued Operations
The
Company had recognized revenue on its JUMP products when the products were shipped, and title passed to the customer.
The
results of discontinued operations include only specifically identified in the three-month and nine-month periods ended March
31, 2019 and both specifically identified and allocated common overhead expenses in the period ended March 31, 2018.
The
expenses and items of other income associated with discontinued operations included in our QUARTERLY condensed Consolidated Statements
of operations were as follows:
|
|
For
the Three Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
|
|
Discontinued
|
|
|
Discontinued
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and Marketing
|
|
|
-
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
-
|
|
|
|
8,045
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
-
|
|
|
|
8,202
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
-
|
|
|
|
(8,202
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(3,805
|
)
|
|
|
(10,539
|
)
|
Gain
on debt extinguishments
|
|
|
-
|
|
|
|
-
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
$
|
(3,805
|
)
|
|
$
|
(10,539
|
)
|
|
|
|
|
|
|
|
|
|
Loss
from Discontinued Operations
|
|
$
|
(3,805
|
)
|
|
$
|
(18,741
|
)
|
PATENTS
AND LICENSES
Patents
and licenses are capitalized when mPhase 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 March 31, 2019, the book value of such assets, or $214,383, has been fully amortized.
Share-Based
Payments
The
Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations.
As such, compensation cost is measured on the date of grant at the fair value of the share-based payments. Such compensation amounts,
if any, are amortized over the respective vesting periods of the grants. (SEE NOTE 3 and 5 ‘Warrant(s)” and “Stock
Based Compensation”)
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
DISCONTINUED
OPERATIONS – (continued)
The
expenses and items of other income associated with discontinued operations included in our NINE-MONTH CONDENSED Consolidated Statements
of operations were as follows:
|
|
For
the Nine Months Ended
|
|
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
|
|
Discontinued
|
|
|
Discontinued
|
|
REVENUES
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and Marketing
|
|
|
-
|
|
|
|
2,251
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
-
|
|
|
|
16,920
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
-
|
|
|
|
19,171
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
-
|
|
|
|
(19,171
|
)
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
(Expense)
|
|
|
(27,245
|
)
|
|
|
(31,057
|
)
|
Gain
on debt extinguishments
|
|
|
12,532
|
|
|
|
257,475
|
|
TOTAL
OTHER INCOME (EXPENSE)
|
|
|
(14,713
|
)
|
|
$
|
226,418
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from Discontinued Operations
|
|
$
|
(14,713
|
)
|
|
$
|
207,247
|
|
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 establishes a single
comprehensive model for entities to use in accounting for revenue arising from outside contracts with customers and supersedes
most of the existing revenue recognition guidance and notes that lease contracts with customers are a scope exception. ASU 2014-09
requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the
consideration to which an entity expects to be entitled in exchange for those goods or services and also requires certain additional
disclosures. On August 12, 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09. Public business entities
may elect to adopt the amendments as of the original effective date however, adoption is required for annual reporting periods
beginning after December 15, 2017. The Company will implement this pronouncement on July 1, 2019.
In
January 2016, the FASB issued ASU-2016-01, Financial Instruments- Overall (Subtopic 825-10) Recognition and Measurement of Financial
Assets and Financial Liability Letters. The Company is currently assessing the impact of the guidance on our financial statements
and notes to our financial statements.
1.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)
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, 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
on the Company’s financial statements.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard changes the
presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents
will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s
financial statements.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”
The amendments in this Update clarify 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 amendments in this Update
provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a
business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability
to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. This Update
is the final version of Proposed ASU 2015-330 Business Combinations (Topic 805) – Clarifying the Definition of a Business,
which has been deleted. The amendments in this Update are effective for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material
impact on the Company’s financial statements.
In
May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”
to provide clarity and reduce 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 amendments in
this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. This Update is the final version of Proposed ASU 2016-360—Compensation—Stock
Compensation (Topic 718)—Scope of Modification Accounting, which has been deleted. The amendments in this Update are effective
for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early
adoption is permitted. This ASU is not expected to have a material impact on the Company’s 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 abbreviated financial statements.
2.
SUPPLEMENTAL CASH FLOW INFORMATION
Statement
of Operation Information:
|
|
|
|
|
|
|
Interest
paid (net interest income)
|
|
$
|
21,393
|
|
|
$
|
2,364
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Conversion
of accrued wages Officers’ into 1,077,554 post-split shares of common stock
|
|
$
|
538,777
|
|
|
$
|
-
|
|
Conversion
of Officers’ loans and accrued interest thereon into 1,918,775 post-split shares of common stock
|
|
$
|
830,746
|
|
|
$
|
-
|
|
Conversion
of accrued fees to a Director into 372,000 post-split shares of common stock
|
|
$
|
186,000
|
|
|
$
|
-
|
|
Conversion
of loans and accrued interest thereon into 270,204 post-split shares of common stock
|
|
$
|
130,733
|
|
|
$
|
-
|
|
Conversion
of accounts payable to strategic vendors into 260,200 post-split shares of common stock
|
|
$
|
114,800
|
|
|
$
|
-
|
|
Conversion
of accrued stock award’ into 1,150,000 post-split shares of common stock
|
|
$
|
575,000
|
|
|
$
|
-
|
|
3.
EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT
Common
Stock
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. Effective on or about
May 20, 2019 the Company will have completed a 5,000/1 reverse split of its common stock and upon completion the Company will
have 25,000,000 shares of authorized common stock (See “Subsequent Events”).
Preferred
Stock
On
January 4, 2019 the State of New Jersey accepted an Amendment to the Company’s Certificate of Incorporation providing for
1000 shares of a new class of super voting preferred stock. The shares of the new Series A voting preferred stock provide for
51% of the voting authority of all capital stock; feature no dividends, have a Par Value $.001 per share and have a liquidation
preference up to Stated Value (Par) of $.001 per share. All the 1000 shares of the Series A Preferred Stock were issued to the
Company’s New President and CEO to effectuate voting control of the Company on January 11, 2019, pursuant to the Transition
Agreement.
Private
Placements
During
the nine months ended March 31, 2019, the Company issued 440,000 shares (adjusted for the reverse split described above) of its
common stock in connection with private placements pursuant to Section 4(a) (2) of the Securities Act of 1933, as amended, raising
gross proceeds of $110,000. The proceeds were used by the Company as working capital.
During
the nine months ended March 31, 2018, the Company issued 200,000 shares (also adjusted for the reverse split) of its common stock
in connection with private placements pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, raising gross proceeds
of $50,000 and incurring finder’s fees of $5,000. The proceeds were used by the Company as working capital.
Stock
Award Payable
During
the nine months ended March 31, 2019, Messrs. Durando, Dotoli and Smiley received 800,000 shares of common stock (adjusted for
the reverse split described above), which were valued at $400,000, Mr. Biderman an outside Director received 200,000 shares of
common stock (adjusted for the reverse split described above), which were valued at $100,000 and strategic consultants received
150,000 shares of common stock (adjusted for the reverse split described above), which were valued at $75,000, and in total this
group received a total of 1,150,000 shares of common stock (adjusted for the reverse split described above), which was valued
at $575,000 and this liability had been included in accrued expenses at June 30, 2018. Mr. Bhatnagar, President and CEO of the
Company received 2,620,899 shares of common stock (adjusted for the reverse split described above), in connection with the commencement
of his employment with the Company.
Stock
Based Compensation
During
the nine months ended March 2019, the Company issued 2,620,899 shares of common stock as discussed above valued at $1,310,449
(included in General and Administrative expense in the accompanying Condensed Consolidated Statement of Operations) based upon
the closing price of the Company’s common stock on January 11, 2019.
During
the nine months ended March 31, 2018, the Company did not issue any common stock, warrants or options to employees or officers.
3.
EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT – (continued)
Warrant
agreement (s) and warrant cap compensation costs
The
Company entered into warrant agreement (s) with Mr. Bhatnagar containing provisions to acquire up to 80% (the warrant cap) of
the Company’s common stock based upon the generation of new revenues by the Company. The Company follows the provisions
of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations. As such, compensation cost
is measured on the date of grant at the fair value of the share-based payments, and for accounting purposes the warrant has the
characteristics of a Non- Qualified stock option. The agreement provides defined revenue targets and the generally provide for
milestones equivalent to options for 4% of the Company’s common stock for qualified revenue attained subsequent to
January 11, 2019; the commencement date of Mr. Bhatnagar’s employment with the Company.
The
Earned Warrants represent equity-based compensation given to an employee and is in the scope of ASC 718. The accounting treatment
of such awards requires an evaluation as to the timing of the employee’s requisite service period (“RSP”) and
the grant date: With respect to these warrants, the grant date is when i.) A mutual understanding of the award’s key terms
and conditions has been reached; ii.) The Company is contingently obligated to issue shares to employees who fulfill vesting conditions;
iii.) An employee begins to benefit from, or be adversely affected by, subsequent changes in stock price; iv.) Awards are approved
by the board of directors or management, as required; and v.) The recipient meets the definition of an employee. The Company has
used Mr. Bhatnagar’s employment date as the grant date for valuation purposes and the obligation is contingent upon the
attainment of revenue which is a vesting condition yet to commence. Through March 31, 2019 no warrants have been “earned”
nor have become issuable under the agreement; and as such no estimated expense for amortization of the unvested and unrecognized
compensation estimated should the agreement become fulfilled. For the three months ended March 31, 2019 we recognized no non-cash
compensation expense in connection with this agreement.
As
of March 31, 2019, the Company has estimated. by application of a Black Scholes option pricing model that approximately $19,656,741
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 term requisite service or
vesting period to earn the conditions of the warrant. There are an estimated 39,313,000 total shares issuable under the warrant
on a post-split basis that are attainable under the agreement as of March 31, 2019.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards and warrant issuances.
The calculation of the fair value of the awards using the Black - Scholes option-pricing model is affected by the Company’s
stock price on the date of grant as well as assumptions regarding the following:
|
|
Three
months ended March 31,
|
|
|
|
2019
|
|
Expected
volatility
|
|
|
544
|
%
|
Expected
term
|
|
|
5
Years
|
|
Risk-free
interest rate
|
|
|
2%
- 2.4
|
%
|
Forfeiture
Rate
|
|
|
0.00
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
The
expected volatility was determined with reference to the historical volatility of the Company’s stock. The Company uses
historical data to estimate option exercise and employee termination within the valuation model. The expected term of options
granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods
within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. The shares are only
issuable upon the attainment of revenue.
Other
Short-Term Notes
Note
Payable, Director
A
Director of the Company loaned the Company funds for working capital and through June 30, 2018 $130,274 remained outstanding.
On September 24, 2018 and December 31, 2018, this director converted $126,364 and $4,369 of this note into 252,729 and 17,475
shares of common stock (adjusted for the reverse split described above), on the respective dates; and as a result, $1,478 remained
outstanding on March 31, 2019. During the nine months ended March 31, 2019 and 2018 the Company recorded $1,937 and $5,926 of
accrued interest on this loan.
Note
payable – Investor
During
the fourth quarter fiscal 2017 an unaffiliated shareholder advanced the Company $1,000. During fiscal 2018 the shareholder advanced
an additional $2,000. At March 31, 2019 and June 30, 2018 $3,000 remained outstanding under this note.
3.
EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT – (continued)
Note
Payable, Finance Company- Discontinued Operations
The
Company borrowed approximately $66,000 from a finance company under two advances commencing January 2016, with scheduled repayments
of approximately $87,500 originally due through July 2016. This note is in arrears and the Company is negotiating settlement terms
with the Note Holder. During the nine months ended March 31, 2019 and 2018 we incurred $7,976 and $8,273 of finance charges under
this note and at March 31, 2019, $48,392 remained outstanding.
Liabilities,
in arrears, with Convertible Features / Judgement Settlement Agreement
The
Company had three separate convertible debt arrangements with independent investors that still, had convertible features as of
June 30, 2018, The Company had two separate convertible debt arrangements with independent investors that still, had convertible
features as of March 31, 2019. During the nine months ended March 31, 2019 no conversions were made under any Convertible Debentures.
During
the nine months ended March 31, 2018, no conversions were made under any Convertible Debentures.
The
following table summarizes Liabilities, in arrears, with current or past convertible features:
|
|
March
31, 2019
|
|
|
June
30, 2018
|
|
|
|
|
|
|
|
|
Arrangement
#1 – JMJ Financial, Inc
|
|
$
|
109,000
|
|
|
$
|
109,000
|
|
Arrangement
#2 – St. George Investments/Fife Forbearance Obligation
|
|
|
-
|
|
|
|
885,365
|
|
Arrangement
#3 – MH Investment trust II
|
|
|
3,333
|
|
|
|
3,333
|
|
Total
Liabilities, in arrears, with convertible features
|
|
|
112,333
|
|
|
|
997,698
|
|
Liabilities,
in arrears, -Judgement Settlement Agreement (Formerly Fife Forbearance Obligation)
|
|
|
890,910
|
|
|
|
-
|
|
Total
Liabilities, in arrears, with convertible features (or formerly convertible)
|
|
$
|
1,003,243
|
|
|
$
|
997,698
|
|
Liabilities,
in arrears, -short term portion
|
|
$
|
423,243
|
|
|
$
|
997,698
|
|
Long
Term Portion, Liabilities, in arrears, -Judgement Settlement Agreement
|
|
$
|
580,000
|
|
|
$
|
-
|
|
Included
in accrued expenses is $84,190 and $72,638 of interest accrued on the liabilities, in arrears, with convertible features at March
31, 2019 and June 30, 2018, respectively.
These
transactions were initially intended to provide liquidity and capital to the Company and are summarized below.
Arrangement
#1 (JMJ Financial, Inc.)
The
Company entered into a convertible note on November 17, 2009, whereby the Company received a total of $186,000 of proceeds in
connection with a new financing agreement with JMJ Financial. This transaction consists of the following: 1) a convertible note
in the amount of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity date of September 23, 2012 and (2)
a secured promissory note in the amount of $1,100,000 plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity
date of September 23, 2012 due from the holder of the convertible note, of which the Company received a total of $150,000 of proceeds
in connection with the second promissory note under this agreement. The convertible debenture converts into the Company’s
common stock at 75% of the lowest trading price during the 20 trading days prior to conversion. Due to certain ratchet provisions
contained in the convertible note the Company accounted for this conversion feature as a derivative liability. In connection herewith,
at the commitment date, the Company recorded a derivative liability of $536,000 and a debt discount of $636,000. The debt discount
was amortized over the term of the convertible note. At June 30, 2012, the outstanding convertible note balance of $372,060 was
combined with the April 5, 2010 arrangement with JMJ Financial, Inc. JMJ Financial sold this Note to River North Equity LLC.
On
December 15, 2009 the Company entered into a new financing agreement with JMJ Financial that consisted of the following: 1) a
convertible note issued by the Company in the amount of $1,500,000 plus a one-time interest factor of 12% ($180,000) and a maturity
date of December 15, 2012 and (2) a secured promissory note in the amount of $1,400,000 plus a one-time interest rate factor of
13.2% ($180,000) and a maturity date of December 15, 2012 due from the holder of the convertible note. To date the Company has
received a total of $300,000 cash under this note and has issued no shares of common stock to the holder upon conversions. The
convertible debenture converts into the Company’s common stock at 75% of the lowest trading price during the 20 trading
days prior to conversion. Due to certain ratchet provisions contained in the convertible note the Company accounted for this conversion
feature as a derivative liability. In connection herewith, at the commitment date, the Company recorded a derivative liability
of $542,714 and debt discount of $642,714. The debt discount was amortized over the term of the convertible note.
The
Company and the holder entered into a Forbearance Agreement amendment, as amended, and additional funding and conversions have
not occurred since April 2011. At June 30, 2012, the convertible note balance of $321,000 was combined with the April 5, 2010
arrangement with JMJ Financial, Inc. JMJ Financial also sold this Note to River North Equity LLC.
3.
EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT – (continued)
Arrangement
#1 (JMJ Financial, Inc.) – (continued)
On
April 5, 2010, the Company entered into a financing agreement with JMJ Financial that consisted of the following: 1) a convertible
note issued by the Company in the principal amount of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity
date of December 15, 2012, and (2) a secured promissory note from the holder of the convertible note in the amount of $1,100,000
plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity date of December 15, 2012. To date the Company has
received a total of $100,000 of proceeds in connection with this promissory note and has issued no shares of common stock to the
holder upon conversions.
The
remaining $1,144,000 of proceeds to be received from the holder plus accrued and unpaid interest is convertible into shares of
the Company’s common stock at the option of the holder. The convertible debenture converts into the Company’s common
stock at 75% of the lowest trading price during the 20 trading days prior to conversion. Due to certain ratchet provisions contained
in the convertible note the Company accounted for this conversion feature as a derivative liability. In connection herewith, at
the commitment date, the Company recorded a derivative liability of $421,891 and debt discount of $521,891. The debt discount
was amortized over the term of the convertible note. At of June 30, 2012, the outstanding convertible note balance of $109,000
was combined with the November 17, 2009 and December 15, 2009 financing arrangements with JMJ Financial, Inc., for a total outstanding
convertible note balance of $802,060. The Company has no promissory notes receivable from JMJ as of June 30, 2012.
In
April of 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 effectively negated two notes River North Equity purchased from JMJ Financial.
At June 30, 2017 the amount recorded in Current Liabilities for the two notes and accrued interest thereon subject to the River
North Equity claim was $1,046,416. Such amount is included in the amount recorded in Current Liabilities for all three convertible
notes and accrued interest thereon previously issued to JMJ Financial which totaled $1,212,940 on that date. River North failed
to appeal the Judgement by July 17, 2017 and the Judgement become final. As a result of this proceeding 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 debt during the nine months ended March 31, 2018.
As
of March 31, 2019, and as of June 30, 2018, the aggregate remaining amount of convertible securities held by JMJ could be converted
into 47,370,000 and 44,630,000 pre-split common shares at the conversion floor price of $.004 or 9,497 and 8,926 shares on a post-split
basis with a conversion price of $26. At March 31, 2019 and June 30, 2018, there was no derivative liability associated with this
convertible note payable.
At
June 30, 2018 the amount recorded in Current Liabilities for all three convertible notes and accrued interest thereon previously
issued to JMJ Financial was $109,000 and $69,520, respectively. At March 31, 2019 the amount recorded in Current Liabilities for
convertible note plus accrued interest thereon previously issued to JMJ Financial was $109,000 and $80,472 respectively. During
the nine months ended March 31, 2019 and 2018 the Company recorded $10,952 and $12,651 interest on this agreement.
Arrangement
#2 (John Fife dba St. George Investors)/Fife Forbearance
The
Company entered into an amended agreement on June 1, 2012, in the amount of $719,499, consisting of principle of $557,500, accrued
interest of $66,338, and $95,611 of contractual charges for previous notes with John Fife, whereby, the Company agreed to make
principal and interest payments of $33,238 per month commencing October 1, 2012 through September 1, 2014 at 8% interest per annum.
As long as the monthly payments are not in default, no conversions into the Company’s common stock would be available to
the convertible note holder. The convertible debenture converts into the Company’s common stock at 75% of the three lowest
volume weighted average trading prices during the 20 trading days prior to conversion. Due to certain ratchet provisions contained
in the convertible note the Company accounted for this conversion feature as a derivative liability. In connection herewith, at
the commitment date, the Company recorded a derivative liability of $137,481 and debt discount of $194,981. The debt discount
was amortized over the term of the convertible note.
On
November 20, 2012, mPhase Technologies, Inc. (the “Company”) formally received an Event of Default and Redemption
Notice dated November 16, 2012 with respect to an 8% Convertible Note dated September 13, 2011 issued by the Company to St. George
Investments LLC and assigned to John Fife. The notice included alleged defaults with respect to payments owed by the Company under
the Convertible Note and the failure to convert the Note into shares of the Company’s common stock. The alleged amount owed
according to the notice at that time was approximately $902,279. This proceeding resulted a Memorandum Opinion and Order which
was issued on December 15, 2014 by the United States District Court Northern District of Illinois Eastern Division granting the
motion of John Fife, plaintiff (“Plaintiff”), for summary judgment against mPhase Technologies, Inc. (the “Company”)
for breach of contract (the “Opinion”). All other claims and counterclaims were dismissed. Effective February 10,
2015, the Company entered into a Forbearance Agreement with the Holder. The agreement provided that the Holder would forego his
right to enforce its remedies pursuant to the Judgment, which include demand for immediate payment of approximately $1.6 million,
provided the Company satisfy its forbearance obligation of $1,003,943, (after accounting for a payment of $15,000 the Company
paid, under the terms of the agreement).
The
Forbearance agreement required the Company to place, and the Company had done so, 1,000,000,000 pre-split shares; or 200,000 shares
of common stock (adjusted for the reverse split described above), in reserve with its transfer agent, to satisfy the conversion
provisions for any unpaid monthly cash payments. The original agreement also provided that the Company file a Proxy statement
before June 1, 2015 should additional shares be needed for the conversion reserve. The Company has not filed such a proxy statement
due to cost prohibitions. As of June 30, 2018, 1,000,000,000 pre-split shares; or 200,000 shares of common stock (adjusted for
the reverse split described above), have been issued with respect to payment obligations under the forbearance agreement, as amended
and no amounts remain, in reserve.
3.
EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT – (continued)
Arrangement
#2 (John Fife dba St. George Investors)/Fife Forbearance – (continued)
On
the following dates August 11, 2015, January 19, 2016, June 30, 2016, August 18, 2017 and February 16, 2018 the Company entered
into an Amendments No. 1 through 5 to the Forbearance Agreement with Mr. Fife; primarily rescheduling the monthly payment schedules.
As
of June 30, 2017, this forbearance obligation, as amended, would had only been convertible for monthly obligations the Company
elects to/or does not pay in cash in part or in full, for: (i) up to 625,000,000 pre-split shares, or 125,000 shares on a post-split
basis, for the satisfaction of the next required monthly payment, and (ii) up to 10,123,399,750 pre-split shares, or 2,024,680
shares on a post-split basis, of our common stock had the entire obligation been converted. At June 30, 2017, there was no derivative
liability associated with this convertible note payable.
During
the year ended June 30, 2018 the Company did not make any repayments to Fife under the Judgment Settlement Agreement, as amended.
The value of the forbearance debt obligation on June 30, 2018 was $885,365.
As
of, June 30, 2018, this forbearance obligation, as amended, would only be convertible for monthly obligations the Company elects
to/or does not pay in cash in part or in full, for: (i) up to 625,000,000 pre-split shares, or 125,000 shares on a post-split
basis, for the satisfaction of the next required monthly payment, and (ii) up to 11,067,050,000 pre-split shares, or 2,213,410
shares on a post-split basis, of our common stock had the entire obligation been converted. At June 30, 2018, there was no derivative
liability associated with this convertible note payable.
The
Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement with Fife discussed
above, effective December 10, 2018. As a result, the Forbearance agreement is no longer in effect and no shares of our common
stock are issuable or eligible to be converted to under this obligation.
Arrangement
#3 (MH Investment trust II)
On
August 26, 2014, the Company issued to the MH Investment Trust, a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 in which the Company received $40,000 in gross proceeds on September 1, 2014. The instrument
is in the principal amount of $40,000 and matured on May 1, 2015. Interest only was payable at the rate of 12% per annum by the
Company to the holder until maturity. The convertible debenture converts into the Company’s common stock at 60% of the volume
weighted average price of the stock based upon the average of the three lowest trading days in the 10day trading period immediately
preceding such conversion, or 65 % when the trading price exceeds $.0020 for the five days before such conversion. Due to certain
ratchet provisions contained in the convertible note the Company accounted for this conversion feature as a derivative liability.
In connection herewith, at the commitment date, the Company recorded a derivative liability of $37,778 and debt discount of $37,778.
The debt discount was amortized over the term of the convertible note. All proceeds received in connection with the proceeds of
the financing used by the Company as working capital.
During
the nine months ended March 31, 2019 and 2018 the Company recorded $600 and $536 interest on this agreement.
At
March 31, 2019 the note balance was $3,339 and accrued interest of $3,718 at 12% per annum, remained due under this agreement.
At June 30, 2018 the note balance was $3,333 and accrued interest of $3,118, at 12% per annum; remained due under this agreement.
Based upon the price of the Company’s common stock on March 31, 2019 and June 30, 2018 this Note is convertible into approximately
36,022,222 and 107,516,667 pre-split shares of common stock or 7,604 and 21,503 shares of common stock on a post-split basis,
respectively. At March 31, 2019 and June 30, 2018, there was no derivative liability associated with this convertible note payable.
On
April 10, 2019 the Company repaid $3,000 that was accepted as payment, in full, of the Convertible Note by M.H Investment Trust
II (See “Subsequent Events”)
Judgement
Settlement Agreement
The
Company entered into a “Judgment Settlement Agreement” effective December 10, 2018 by and between John M. Fife, an
individual (“Lender”), and mPhase Technologies, Inc. The Judgment Settlement Agreement supersedes all other prior
oral or written agreements between Borrower. The agreement required a $15,000 execution payment, which we paid in December 2018;
and subsequently the agreement offers three payment options- the first two options have material settlements amounts which would
be due during the Quarter ending March 31, 2019 –(short term options); Or the 3
rd
option which calls for $15,000
monthly payments throughout calendar 2019 and a January 15, 2020 lump sum final payment (long term option);
The
initial and revised payment schedule of the Judgement Settlement Agreement are as follows:
(a)
$15,000, which amount has been paid upon execution of this Agreement, plus (b) either
(i)
$265,000, provided such amount is received by Lender on or before January 15, 2019, -(expired) as revised to
(ii)
$280,000, provided such amount is received by Lender on or before February 15, 2019,
(expired))
or
Judgement
Settlement Agreement – (continued)
iii)
$375,000, which amount, if Borrower elects this option, shall be payable as follows:
(1)
Borrower shall make a payment to Lender in the amount of $15,000. On or before January 15, 2019, and
(2)
Borrower shall continue making payments of $15,000 each month until January 15, 2020, when Borrower shall pay to Lender the entire
unpaid portion of the Settlement Amount (which would be equal to $195,000).
During
the nine months ended March 31, 2019, the Company paid $45,000 applying $28,004 to principle and $16,996 to interest. During the
nine months March 31, 2019 and 2018 recorded a total of $50,546 and $58,886 interest expense on the preceding forbearance and
current judgement settlement agreement. On March 31, 2019 the judgement settlement agreement, which satisfies the Fife obligation
in full, totaled $890,910. The Company has foregone the short-term option and the agreement reverted to the long option of the
Judgement Settlement Agreement during the quarter ending March 31, 2019.
Under
the Judgement Settlement Agreement $310,910 is included in the line item “Current Portion, liabilities, in arears,- Judgement
Settlement Agreement” and $580,000 in the line item “Long term portion, liabilities, in arrears,- Judgement Settlement
Agreement” in the liabilities section of the Company’s Balance Sheet as of March 31, 2019.
Should
the Company satisfy this liability under the Judgement Settlement Agreement we would realize a gain on such settlement of approximately
$580,000.
Conversion
of Related Party and Strategic Vendor Debts
On
September 24, 2018 the officers converted $538,777 accrued wages into 5,387,770,000 pre-split shares, or 1,077,554 shares on a
post-split basis, and $702,105 of notes payable and accrued interest into 7,021,050,000 pre-split shares, or 1,404,210 shares
on a post-split basis, and a director converted $186,000 of accrued fees into 1,860,000,000 pre-split shares, or 372,000 shares
on a post-split basis, and $126,364 of a note and accrued interest into 1,263,642,700 pre-split shares, or 252,729 shares on a
post-split basis, of the Company’s common stock. Also, on September 24, 2018 accounts payable to strategic vendors totaling
$99,500 were converted into 995,000,000 pre-split shares, or 199,000 shares on a post-split basis, of common stock. These conversions
were for 100 % of the debt to these individuals owed by Company on December 31, 2017, pursuant to a resolution, of the Company’s
Board dated November 28, 2017, issuable when such shares became available, at $.0001 per share on a pre-split basis, or $.50 per
share on a post-split basis,
Effective
December 31, 2018 the officers and a Director of the Company converted $133,010 and vendors of the Company converted $15,300 of
debt of the Company outstanding on December 31, 2018 into 2,660,200,000 and 306,000,000 pre-split shares, or 532,040 and 61,200
shares on a post-split basis, of common stock at $.00005 per share on a pre-split basis, or $.25 per share on a post-split
basis.
These
shares were issued as a prerequisite to the Transition Agreement which was part of the “Change in Control Agreements”
culminating in the change in the Management of the Company.
Registration
of Common Stock of Related Parties
Mr.
Bhatnagar agrees that not later than 90 days from the date hereof under the supervision of Mr. Ronald Durando, on behalf and at
the expense of the Company, will cause the Company to draft and file with the Securities and Exchange Commission a Registration
Statement on Form S-1 registering all of the shares of Common Stock of the Company held by the prior officers, directors, consultants
and Related Parties. On April 21, 2019 the Company announced an extension of such date to not earlier than May 17, 2019 or later
than June 26, 2019 (See also “Subsequent Events”).
Preferred
Stock
We
issued one thousand (1,000) shares of the Company’s recently created new class of Series A Preferred Stock to Mr. Bhatnagar
as New President and CEO of the Company to effectuate voting control of the Company as of January 11, 2019, 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.
Common
Stock
Signing
Shares
The
Company issued to Mr. Bhatnagar common stock (“Signing Shares”) equal to 20% or 2,621,899 shares of common stock (adjusted
for the reverse split described in Note 3), of the number of shares outstanding, after giving effect for the shares reserved under
the transition agreement also executed on the Effective Date.
3
.
EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT – (continued)
Reserved
shares
Warrant
agreement (s) & warrant cap
Mr.
Bhatnagar was issued a warrant with provisions to acquire up to 80% (the warrant cap) of the Company’s common stock upon
the generation by the Company of up to $15 million of qualified revenues
Settlement
and New funding share reserve(s)
The
Company agreed on reserve a total of 15,000,000,000 newly issued pre-split shares, or 3,000,000 shares of our common stock (adjusted
for the reverse split described in Note 3) of which 2,660,200,000 pre-split shares, or 532,040 shares of our common stock (adjusted
for the reverse split described in Note 3) were reserved for and issued concurrently for the conversion of 75% payables to officers’
and a director;(discussed below); and 9,839,800,000 pre-split shares; or 1,967,960 shares as adjusted for the 5000 to 1 reverse
split; were reserved to reduce liabilities outstanding December 31, 2018 ( “Settlement Reserve”), and 2,500,000,000
pre-split shares; or 500,000 shares as adjusted for the 5000 to 1 reverse split; were reserved to fund continuing operations “Funding
Reserve”. 1,587,551 shares, as adjusted for the 5000 to 1 reverse split, remained available from the initial share reserve
to settle prior liabilities and 499,209, shares as adjusted for the 5000 to 1 reverse split, remained available from the initial
share reserve to fund continuing operations as of March 31, 2019.
|
|
SETTLEMENT
RESERVE
|
|
|
FUNDING
RESERVE
|
|
|
|
Shares
of Common Stock
|
|
|
Shares
of Common Stock
|
|
Initial
Shares 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-January 11, 2019
|
|
|
1,906,760
|
|
|
|
500,000
|
|
Shares
issued subsequent to “Change in Control” to accredited investors in private placements through March 31, 2019
|
|
|
(319,209
|
)
|
|
|
(791
|
)
|
Shares
available per Reserve on March 31, 2019
|
|
|
1,587,551
|
|
|
|
499,209
|
|
PRIOR
LIABILITIES -SETTLEMENT RESERVE
1.
9,839,800,000 pre-split shares; or 1,967,960 shares as adjusted for the 5000 to 1 reverse split described in Note 3, of Common
Stock of the Company has been reserved to settle the Debts of the Company outstanding 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 “change in control agreements”, dated January 11, 2019
);
As of March 31, 2019
1,587,551 shares, as adjusted for the 5000 to 1 reverse split, remain available under this reserve.
OFFICER’S
AND DIRECTOR -CONVERSION SHARE RESERVE
2.
2,660,200,000 shares, or 532,040 shares adjusted for the reverse split described in Note 3, of Common Stock of the Company were
reserved for the conversion of 75% payables to officers’ and a director outstanding December 31, 2018, (as per Section 2
(a) of the Reserve Agreement concurrent “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.
CONTINUING
OPERATIONS SHARE RESERVE
3.
2,500,000,000 pre-split shares; or 500,000 shares as adjusted for the 5000 to 1 reverse split described in Note 3, of common stock
have been reserved as per section 2 © to be sold at a price, not less than $.00005 per share in periodic Private Placements,
(as per Section 2 (a) of the Reserve Agreement concurrent “change in control agreements”, dated January 11, 2019).
As of March 31, 2019 499,209 shares, as adjusted for the 5000 to 1 reverse split, remain available under this reserve.
FINAL
ADJUSTMENT FOR LIABILITIES ELIMINATED IN 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 the Warrant Cap pertaining to Warrants to be issued to Mr. Bhatnagar shall be increased by that number of
shares at a pre-split price of $.00005, or $.25 adjusted for the split, which equals the amount of remaining liability.
4.
COMMITMENTS
Judgement
Settlement Agreement
The
Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement with Fife discussed
above, effective December 10, 2018, by and between John M. Fife, an individual (“Lender”), and mPhase Technologies,
Inc; The Company plans to satisfy this agreement in full by completing payments to Mr. Fife of $15,000 per month through January
15, 2020 plus a balloon payment of $195,000 on such date. As of the date hereof, the Company has made $45,000 in payments, of
which $28,004 was applied to principal and $16,906 has been applied to interest. The Company has reverted to the long term-obligation
and is required to the amounts set-forth above.
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;
-Significant
Terms of Contracts and Commitments Pursuant to the Transition Agreement:
Employment
Agreement
Under
the terms of the Employment Agreement, Mr. Bhatnagar will receive a base salary of $275,000 per annum for a period of five (5)
years. As initial compensation, Mr. Bhatnagar received restricted shares of Common Stock (“Signing Shares”), in January
2019, of the Company equal to 13,109,494,031 pre-split Shares or approximately 20%, of the number of pre-split shares or 2,621,899
shares of common stock (adjusted for the reverse split described in Note 3) of our Common Stock outstanding, (after giving effect
to the shares reserved under the agreements), on January 11, 2011.
Warrant
(s) and Warrant C–p -
Earned
Warrants -
Mr. Bhatnagar shall be 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 shall be equal to $.50/share (adjusted for the reverse split) 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”).
Accelerated
Warrants
– Mr. Bhatnagar 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:
|
a.
|
-
The Company completes a stock or asset purchase of Scepter Commodities LLC or
|
|
|
|
|
b.
|
-
a stock or asset purchase of any other entity, either of which, in the aggregate, together with prior revenue increases achieved
by the Company, shall result in the consolidated revenues of the Company being not less than $15,000,000 or
|
|
|
|
|
c.
|
-
grows a similar business organically in mPhase to include contracts generating revenues in excess of $15,000,000 or
|
|
|
|
|
d.
|
-
The Company meets the listing requirement of either the NYSE or NASDAQ.
|
Board
and Managements Transition Period Operational Guidelines:
The
Transition Agreement provides for changes in the Board of Directors of the Company and the authorization of a new class of Preferred
Stock. Bhatnagar was issued one thousand (1,000) shares of the Company’s recently created new class of Series A Preferred
Stock to effectuate voting control of the Company on January 11, 2019.
The
Company agreed to finalize undertakings already in process to extinguish specific debts and settle or reduce other liabilities
outstanding on December 31, 2018, within six (6) months. The result of our settlements, when finalized, will be evaluated and
to the extent that a portion of the liabilities have not been satisfied by the Company Mr. Bhatnagar will be entitled to additional
warrants to purchase stock in the Company.
Purchase
Commitment
Subsequent
to March 31, 2019 the Company committed to acquire the rights, software and code to the technology platform which is expected
be utilized by the Travel Buddhi division in India, for $115,000 and is expected to be put into use during the quarter ending
June 30, 2019
5.
CONTINGENCIES
The
Company had been in litigation with John Fife with respect to a Convertible Note originally issued on September 13, 2011 in the
principal amount of $557,000. Fife sought damages on a Motion for Summary Judgment in an amount in excess of $1,300,000 and attorney’s
fees. On December 15, 2014 the federal district court in the North East District of Illinois found in favor of Fife on a motion
for Summary Judgment. The Company had entered into a Forbearance Agreement with Fife as a result of negotiations to settle such
Judgment. The convertible provisions with respect to the Debt of Mr. Fife are no longer in effect and no shares of our common
stock are eligible to be converted.
Judgement
Settlement Agreement
The
Company entered into a “Judgment Settlement Agreement” to satisfy, in full, the Forbearance Agreement with Mr. Fife
discussed above, effective December 10, 2018, by and between John M. Fife, an individual (“Lender”), and mPhase Technologies,
Inc. The Agreement supersedes all other prior oral or written agreements between the Company and Mr. Fife. The Company has reverted
to the long term option under this Agreement, as revised, in full, by paying Mr. Fife the gross payments of $15,000 per month,
which commenced in December 2018, and continue each month thereafter from January 2019 through December 2019 with a lump sum balloon
payment of $195,000 due in January 2020. Through March 31, 2019 the Company has made payments of $45,000 towards this Agreement.
The “Current Portion, liabilities in arears- Judgement Settlement Agreement” is $310,910 and $580,000 is included
on the line item “Long term portion, liabilities in arears- Judgement Settlement Agreement” in the liabilities section
of the Company’s Balance Sheet as of March 31, 2019.
Should
the Company satisfy this Fife liability as described above of the Judgement Settlement Agreement we would realize a gain on such
settlement of approximately $580,000 (see also note 3).
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 be increased by such number of shares at a pre-split price of $.00005, or $.25 on a post-split
basis, equal to 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.
6.
FAIR VALUE MEASUREMENTS
Effective
July 1, 2008, we adopted Accounting Standards Codification (“ASC”) 820-10-20,
Fair Value Measurements,
which
provides a framework for measuring fair value under generally accepted accounting principles. ASC 820-10-20 defines fair value
as the exchange 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.
ASC 820-10-20 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
ASC 820-10-20 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels. Financial
assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets. Financial
assets and liabilities valued using level 2 inputs are based primarily on quoted prices for similar assets or liabilities in active
or inactive markets. For certain long-term debt, the fair value was based on present value techniques using inputs derived principally
or corroborated from market data. Financial assets and liabilities using level 3 inputs were primarily valued using management’s
assumptions about the assumptions market participants would utilize in pricing the asset or liability. Valuation techniques utilized
to determine fair value are consistently applied.
Financial
instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also
include those for which the determination of fair value requires significant management judgment or estimation.
Some
of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that
approximate fair value due to their liquid or short-term nature, such as cash and cash equivalents, receivables and payables.
At
March 31, 2019, the carrying value of the notes payable and accrued interest for convertible agreements, the Judgement Settlement
Agreement and officers’ notes was approximately $1,195,000, of which $580,000 would be extinguished resulting in gain on
debt extinguishments if the Company completes the Judgement Settlement agreement on its currently revised terms. The JMJ convertible
notes, which were originally due at various times through December 31, 2012, are accruing at a revised interest rate of 8%. Refer
to Note 3 of these unaudited condensed consolidated financial statements for more information about the Company’s notes
payable as of March 31, 2019.
7.
RELATED PARTY TRANSACTIONS
MICROPHASE
CORPORATION
The
Company previously leased office space from Microphase at its Norwalk location and Microphase had also provided certain research
and development services and shares administrative personnel from time to time, all through December 31, 2015. As of March 31,
2019, the Company owed $32,545 to Microphase.
DIRECTOR
Mr.
Biderman, an outside Director, received 1,000,000,000 pre-split shares, or 200,000 shares (adjusted for the reverse split described
in Note3), of common stock which were valued at $100,000 and the liability for this award was included in accrued expenses at
June 30, 2018, pursuant to a resolution of the Company’s Board dated November 28, 2017, that such shares would be awarded
when enough authorized shares became available.
In
September of 2018, Mr. Biderman, an outside Director’s affiliated firms of Palladium Capital Advisors and Eagle Strategic
Advisers converted $186,000 of accrued fees into 1,860,000,000 pre-split shares, or 372,000 shares (adjusted for the reverse split
described in Note3), and $126,364 of a note and accrued interest into pre-split 1,263,642,700 shares, or 252,729 shares (adjusted
for the reverse split described in Note3), of common stock of the Company. Effective December 31, 2018, this director converted
$4,369 of this note into 87,375,000 pre-split shares, or 17,475 shares (adjusted for the reverse split described in Note3), of
common stock. As of March 31, 2019, $1,478 remained outstanding.
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 fees remain accrued to this Director’s affiliated firm.
During
the nine months ended March 31, 2019 and 2018 the Company recorded $1,931 and $5,921 of accrued interest on this loan.
TRANSACTIONS
WITH OFFICERS
Officers
of the Company have made working capital loans to the Company from time to time. These loans, together with accrued interest at
6% totaled $53,712 and $777,712 at March 31, 2019 and June 30, 2018, respectively. The Company recorded $38,545 and $3,724 for
interest on these loans during the nine months ended March 31, 2019 and 2018, respectively.
7.
RELATED PARTY TRANSACTIONS – (continued)
Through
December 31, 2018 the Company officers had not recorded salaries since April 2017. During the nine months ended March 31, 2019
the three Officers of the Company received 4,000,000,000 pre-split shares, or 800,000 shares (adjusted for the reverse split described
in Note3), of common stock which were valued at $400,000 and the liability for this award was included in accrued expenses at
June 30, 2018, pursuant to a resolution of the Company’s Board dated November 28, 2017 that such shares were issuable when
sufficient authorized shares became available.
In
September 2018, the officers of the Company converted $538,777 accrued wages into 5,387,770,000 pre-split shares, or 1,077,554
shares (adjusted for the reverse split described in Note3), and $702,105 of notes payable and accrued interest into 7,021,050,000
pre-split shares, or 1,404,210 shares (adjusted for the reverse split described in Note3), of the Company’s common stock.
Effective
December 31, 2018, the officers of the Company converted $128,641 of notes payable and accrued interest into 2,572,825,000 shares,
or 514,565 shares (adjusted for the reverse split described in Note3), of the Company’s common stock.
During
the three-month period ending March 31, 2019 Officers of the Company did not convert and debt owed by the Company into shares
of common stock.
During
the three-month and nine-month periods ended March 31, 2019, the Company charge to expense and included in accrued expenses at
March 31, 2019, $5,000 in fees to Mr. Smiley as the Company’s General Counsel and Chief Financial Officer.
During
the three and nine months ended March 2019, the Company charge to expense $1,310,449, based upon the closing price of the Company’s
common stock on January 11, 2019, for the issuance of 2,620,899 post-split shares of common stock in connection with his employment
contract, as discussed Note 3.
During
the three-month and nine-month periods ended March 31, 2019 the Company charge to expense and included in accrued expenses at
March 31, 2019, $61,111 and $4,938 of compensation expense and related fringe costs for amounts due under the employment contract
to Mr. Bhatnagar as our President, as well as $3,571 for facility use and support costs at our Maryland office, to Verus International,
Inc. (ticker symbol “VRUS”) a publicly-held company, for which Mr. Bhatnagar is also the President and CEO.
8.
SUBSEQUENT EVENTS
1.
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.
2.
On April 10, 2010 the Company repaid $3,000 that was accepted as payment, in full, of the Convertible Note which had been held
by M.H Investment Trust II, or Arrangement #3, further discussed in Note3.
3.
On April 22, 2019 we extended the obligations of 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 Company now expects to file such Registration Statement not later than June
26, 2019.
4.
On April 25, 2019 we announced that
the Company agreed to acquire all the outstanding stock of AIRobotica Services, a Bangalore, India, based technology company,
(“AIRobotica”) under the terms of a Stock Purchase Agreement dated April 19, 2019. The purchase price is $2,500,000
to be paid over two years in the form of the Company’s common stock, $1,250,000 each anniversary, contingent upon this division
attaining prescribed revenue targets. The agreement also requires the Company to provide up to $2,400,000 of working capital over
the same two years.
AIRobotica
is focused on artificial technology and machine learning. AIRobotica has material executed contracts with significant third parties
which we expect to begin to performance on during our 4
th
quarter ending June 30, 2019 and these will contribute material
revenues during our 1st quarter of fiscal 2020; ending September 30, 2019.
In addition to
third-party contracts, the implementation of this new division will support the commercialization of existing and future mPhase
technology. The division’s goal is to expand its core team to encompass a wide range of applications, creating a one-stop
shop for custom solutions in AI/ MI, robotic process automation (RPA), AI/ML solutions for SAP and Enterprise Resource Planning
(ERP). One of the company’s initial commercial technologies is a Chatbot that can mimic human interaction as the front-end
of customer service applications, but this is just the first in a long-term plan to develop technologies targeting multiple industries.
5.
From July 1, 2018 through May 13, 2019 the Company completed and announced the closing of a Private Placement of shares of its
common stock at $.00005 per share (pre-split), or $.25 on a post-split basis as adjusted for the reverse split described in Note3,
raising gross proceeds of $115,000. 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.
6.
Subsequent to March 31, 2019 and through the date of this filing, Mr. Durando loaned the Company approximately $5,200 to
provide general working capital purposes, under the terms of previous agreements for officers’ loans. Separately Messrs.
Durando and Bhatnagar each loaned the Company $25,000, 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.
7.
Subsequent to March 31, 2019 the Company committed to acquire the rights, software and code to the technology platform which is
expected be utilized by the Travel Buddhi division in India, for $115,000 and is expected to be put into use during the quarter
ending June 30, 2019. Amortization is expected to be computed using the straight-line method over the estimated useful life of
the asset.
ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
(2)
Financial Statement Schedules None.
All
schedules have been omitted because the information required to be set forth in the schedules is either not applicable or is shown
in the financial statements or notes thereto.
(3) The
Exhibits filed with this Form 10-K or, where so indicated by footnote in the case of previously filed exhibits, incorporated by
reference are as set forth below:
2.1*
|
Exchange
of Stock Agreement and Plan of Reorganization (incorporated by reference to Exhibit 2(a) to our registration statement on
Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).
|
|
|
2.2*
|
Exchange
of Stock Agreement and Plan of Reorganization dated June 25, 1998 (incorporated by reference to Exhibit 2(b) to our registration
statement on Form 10SB-12G filed on May 6, 1999 (file no. 000-24969)).
|
|
|
3.1
|
Certificate
of Incorporation of the Company.
|
|
|
3.2**
|
Amendment
to Certificate of Incorporation of the Company creating a new class of Series A Super voting - Preferred Stock of the Company
and increase of authorized shares of common stock to 125 billion shares (Exhibit 10.1 to Form 8k filed January 4, 2019 Commission
File No. 00024969)
|
|
|
3.3
|
By
Laws of the Company
|
|
|
4.1*
|
3.3 Definitive
Schedule 14C Information Statement for a 5000/1 Reverse Split of the Company’s Common stock (filed April 22,2019)
|
|
|
5.1****
|
Opinion
regarding Legality
|
|
|
10.1***
|
Development
Agreement effective February 3, 2004 between Lucent Technologies, Inc. and mPhase Technologies, Inc. for development of micro
fuel cell Nano Technology.
|
|
|
10.2***
|
Development
Agreement effective March 1, 2005 between Lucent Technologies Inc and mPhase Technologies relating to development of Magnetometers.
|
|
|
10.3***
|
Amendment
No. 2 to Development Agreement executed as of March 9, 2005 amending Development Agreement effective as of February 5, 2004,
as amended relating to Micro Power Source Cells between mPhase Technologies, Inc. and Lucent Technologies, Inc.
|
|
|
10.4***
|
Amendment
No. 3 dated May 19, 2006 to Development Agreement between Lucent Technologies, Inc. and mPhase Technologies, Inc. effective
February 3, 2004 for Development of micro fuel cell Nanotechnology.
|
|
|
10.5***
|
Amendment
No. 4 dated February 3, 2007 to Development Agreement between Lucent Technologies, Inc. and mPhase Technologies, Inc. effective
February 3, 2004 for Development of micro fuel cell Nanotechnology.
|
10.6***
|
Cooperative
Research Agreement Rutgers University and mPhase Technologies, Inc. executed October 18, 2005.
|
|
|
10.7***
|
Modification
No. 1 to Cooperative Research Agreement with Rutgers University dated February 22, 2006.
|
|
|
10.8***
|
Modification
No. 2 to Cooperative Research Agreement with Rutgers University dated September 22, 2006.
|
|
|
10.9***
|
Modification
No. 3 to Cooperative Research Agreement with Rutgers University dated February 7, 2007.
|
|
|
10.10***
|
CT
NanoBusiness Alliance Consulting Agreement dated May 10, 2007.
|
|
|
10.11***
|
Amendment
No.5 dated April 28, 2007 to Development Agreement between Lucent Technologies, Inc. and mPhase Technologies, Inc. effective
February 3, 2004 for Development of micro fuel cell Nanotechnology.
|
|
|
10.12*
|
Cooperative
Research and Development Agreement between US Army Picatinny Arsenal and mPhase Technologies, Inc. dated December 20,
2006. (Exhibit 43 to Form S-1 filed July 12, 2007, File No. 333-144527).
|
|
|
10.13***
|
Small
Business Technology Transfer Collaboration Agreement between Rutgers University and mPhase Technologies, Inc. dated June 25,
2007.
|
|
|
10.14*
|
Phase
I Army Grant dated July 7, 2007 (Form 10-K filed October 7, 2009, Commission File No. 000-24969)
|
|
|
10.15*
|
Securities
Purchase Agreement dated December 11, 1007 between mPhase Technologies, Inc. and Golden Gate Investors and Related Documents
in connection with $1,500,000 Convertible Debenture Financing (Form 10-K filed October 7, 2009, Commission File No. 000-24969)
|
|
|
10.16*
|
Securities
Purchase Agreement dated February 29, 2008 between St. George Investments and mPhase Technologies, Inc and Related Documents
in connection with $550,000 Convertible Debenture Financing. (Form 10-K filed October 7, 2009, Commission File No. 000-24969)
|
|
|
10.17*
|
Documentation
including $350,000 Convertible Note and $1,000,000 Convertible Note and Secured Note for $1,000,000 Financing between mPhase
Technologies, Inc. and JMJ Financial dated March 25, 2008 (Form 10-K filed October 7, 2009, Commission File No. 000-24969)
|
|
|
10.18*
|
Phase
II Army Grant dated August 29, 2008 (Form 10-K filed October 7, 2009, Commission File No. 000-24969)
|
|
|
10.19*
|
Securities
Purchase Agreement dated September 12, 2008 between mPhase Technologies, Inc. and La Jolla Cove Investors and Related Documents
in connection with $2,000,000 Convertible Debenture Financing (Form 8K filing dated September 18, 2008)
|
|
|
10.20*
|
Design
Development Agreement between mPhase Technologies, Inc. and Porsche Design Studio for Emergency Flashlight dated November
3, 2008. (Form 8K filed on March 12, 2009) **
|
|
|
10.21*
|
Documentation
dated December 31, 2008 for $1,100,000 Convertible Note and Secured Note Financing between mPhase Technologies, Inc. and JMJ
Financial and Amendment to $350,000 Convertible Note Financing (Form 8K Filing dated January 21, 2009, Commission File No.
000-24969)
|
|
|
10.22*
|
Eagle
Picher Proposal for mPhase Technologies, Inc. dated January 26, 2009 for design and development of mechanically- activated
Reserve Battery to be used in Emergency Flashlight. (Form 8-K filed January 30, 2009) **
|
|
|
10.23*
|
Termination
Agreement with Golden Gate Investors dated March 17, 2009 with respect to Convertible Debenture Financing dated December 11,
2007 (Form 10-K filed October 7, 2009, Commission File No. 000-24969)
|
|
|
10.24*
|
Documentation
including $1,870,000 Convertible Note and Secured Note for Financing with JMJ Financial dated August 21, 2009 (Form 8K dated
August 21, 2009, Commission File No. 000-24969)
|
10.25*
|
Documentation
including two $1,200,00 Convertible Notes executed September 23, 2009 and November 17, 2009 and Secured Notes in connection
with financing with JMJ Financial (Forms 8k dated December 23, 2009 and December 30, 2009 respectively each Commission File
No. 000-25969))
|
|
|
10.26*
|
Promissory
Notes Payable to Mr. Durando (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 30202))
|
|
|
10.27*
|
Promissory
Notes Payable to Mr. Dotoli (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 (fil
10.63*Promissory Notes Payable to Mr. Smiley (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January
11, 2011 (fi 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
10.28*
|
Promissory
Notes Payable to Mr. Smiley (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 (Commission
File No. 000-30202))
|
|
|
10.29*
|
Forbearance
Agreement dated as of September 13, 2011 between mPhase Technologies, Inc. and John Fife (Exhibit 99.1 to Form 8k filed
September 16, 2011, (Commission file No. 000-24969))
|
|
|
10.30*
|
Securities
Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies, Inc and John Fife (Exhibit 99.2 to
Form 8k filed September 16, 2011, (Commission file No. 000-24969))
|
|
|
10.31*
|
Officer’s
Certificate delivered pursuant to Securities Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies,
Inc. and John Fife (Exhibit 99.3 to Form 8k filed September 16, 2011, (Commission file No. 000- 24969))
|
|
|
10.32*
|
Confession
of Judgment 1 delivered pursuant to Securities Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies,
Inc. and John Fife (Exhibit 99.4 to Form 8k filed September 16, 2011, (Commission file No. 000- 24969))
|
|
|
10.33*
|
Confession
of Judgment 2 delivered pursuant to Securities Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies,
Inc. and John Fife (Exhibit 99.5 to Form 8k filed September 16, 2011, (Commission file No. 000- 24969))
|
|
|
10.34*
|
Registration
Rights Agreement dated as of September 13, 2011 between mPhase Technologies, Inc. and John Fife (Exhibit 99.6 to Form 8k filed
September 16, 2011, (Commission file No. 000-24969))
|
|
|
10.35*
|
Convertible
Note dated September 13, 2011issued by mPhase Technologies, Inc. to John Fife (Exhibit 99.7 to Form 8k filed September 16,
2011, (Commission file No. 000-24969))
|
|
|
10.36*
|
Securities
Purchase Agreement dated as of November 17, 2011 between Asher Enterprises, Inc. and mPhase Technologies, Inc. (Exhibit
99.1 to Form 8K filed November 30, 2011 (Commission file No. 000-24969))
|
|
|
10.37*
|
8%Convertible
Note issued to Asher Enterprises, Inc. dated November 17, 2011 by mPhase Technologies, Inc. (Exhibit 99.2 to Form 8K
filed November 30, 2011 (Commission file No. 000-24969))
|
|
|
10.38*
|
Securities
Purchase Agreement dated as of January 5, 2012 between Asher Enterprises, Inc. and mPhase Technologies, Inc. (Exhibit
99.1 to Form 8K filed January 17, 2012 (Commission file No. 000-24969))
|
|
|
10.39*
|
8%
Convertible Note issued to Asher Enterprises, Inc. dated January 5, 2012 by mPhase Technologies, Inc. (Exhibit 99.2
to Form 8K filed January 17, 2012 (Commission file No. 000-24969))
|
|
|
10.40*
|
Securities
Purchase Agreement dated as of May 4, 2012 between Asher Enterprises, Inc. and mPhase Technologies, Inc. (Exhibit 10.79
to Form 10K for the fiscal year ended June 30, 2012 filed September 24, 2012 (Commission file No. 000-24969))
|
|
|
10.41*
|
8%
Convertible Note issued to Asher Enterprises, Inc. dated May 4, 2012 by mPhase Technologies, Inc. (Exhibit 10.80 to Form
10K for the fiscal year ended June 30, 2012 filed September 24, 2012 (Commission file No. 000-30202))
|
10.42*
|
Stand
Still and Restructuring Agreement entered into as of May 31,2012 with John Fife (Exhibit 99.1 to Form 8K filed June 5, 2012
(Commission file No. 000-24969))
|
|
|
10.43*
|
Stand
Still and Restructuring Agreement entered into as of June 1,2012 with JMJ Financial (Exhibit 99.2 to Form 8K filed
June 5, 2012 (Commission file No. 000-24969))
|
|
|
10.44*
|
Securities
Purchase Agreement, dated as of December 4, 2012 between mPhase Technologies, Inc and Asher Enterprises, Inc. (Exhibit 99.1
to Form 8K dated December 13, 2012(Commission File No. 000-24969))
|
|
|
10.45*
|
Securities
Purchase Agreement dated as of January 18, 2003 between mPhase Technologies, Inc. and Black Arch Opportunity Fund L.P. (Exhibit
99.1 to Form 8K dated January 22, 2013 (Commission File No. 000-24969))
|
|
|
10.46*
|
12%
Convertible Promissory Note with an issue date of January 14, 2013 issued by mPhase Technologies, Inc. to Black Arch Opportunity
Fund L.P. (Exhibit 99.2 to Form 8K dated January 22, 2013 (Commission File No. 000-24969))
|
|
|
10.47
*
|
Securities
Purchase Agreement dated as of January 31, 2013 between mPhase Technologies, Inc. and Asher Enterprises, Inc. (Exhibit 99.1
to Form 8K dated February 15, 2013 (Commission File No. 000-24969))
|
|
|
10.48*
|
8%
Convertible Promissory Note dated as of January 31, 2013 issued by mPhase Technologies, Inc. to Asher Enterprises, Inc. (Exhibit
99,2 to Form 8k dated February 15, 2013 (Commission File No. 000-24969))
|
|
|
10.49*
|
Securities
Purchase Agreement dated as of June 26, 2013 between mPhase Technologies, Inc. and Asher Enterprises, Inc. (Exhibit 99.1 to
Form 8k dated July 18, 2013 (Commission File No. 000-24969))
|
|
|
10.50*
|
8%
Convertible Promissory Note dated as of June 26, 2013 (Exhibit 99.2 to Form 8K dated July 18, 2013 (Commission File No. 000-24969))
|
|
|
10.51*
|
Securities
Purchase Agreement dated as of January 10, 2014 between mPhase Technologies, Inc. and M H Investment Trust (Exhibit 99.1 to
Form 8K dated January 10, 2014 (Commission File No 000-24969))
|
|
|
10.52*
|
12%
Convertible Promissory Note dated as of January 10, 2014 between mPhase Technologies, Inc. and M H Investment Trust (Exhibit
99.2 to Form 8K dated January 10, 2014 (Commission File No 000-24969))
|
|
|
|
12%
Convertible Promissory Note dated as of August 26, 2014 between mPhase Technologies, Inc. and M H Investment Trust (Exhibit
99.1 to Form 8K dated September 5, 2014 (Commission File No. 000-24969))
|
|
|
10.53*
|
Forbearance
Agreement and Amendment thereto dated February 15, 2015 as amended on August 11, 2015 with John Fife (Exhibits 99.1 and 99.2
to form 8K filed August 12, 2015, Commission File No. 000-24969)
|
|
|
10.54*
|
Second
Modification to Forbearance Agreement with John Fife (Exhibit 99.1 to Form 8k filed January 29, 2016, Commission File No.
000-30202))
|
|
|
10.55*
|
Third
Modification to Forbearance Agreement with John Fife (Exhibit 99.1 to Form 8k filed May 23
rd
, 2016, Commission
File No. 000-24969)
|
|
|
10.56*
|
Amendment
to Judgment Settlement Agreement with John Fife (Exhibit 10.1 to Form 8k filed February 23, 2018, Commission File No. 000-24969)
|
|
|
10.57*
|
Debt/Equity
Conversion Agreements of Related Parties, dated as of January 1, 2018 (Exhibit 10.97 to Form 10K filed October 15, 2018, Commission
File No. 000-30202)
|
|
|
10.58(a)*
|
Employment
Agreement dated as of January 11, 2019with Mr. Anshu Bhatnagar (Exhibit 10.1 to Form
8k filed January 14, 2019, Commission File No. 000-30202)
|
10.58(b)*
|
Transition
Agreement dated as of January 11, 2019(Exhibit 10.2 to Form 8k filed January 14, 2019,
Commission File No. 000-30202)
|
10.58(c)*
|
Warrant
granted to Mr. Anshu Bhatnagar (Exhibit 10.3 to Form 8k filed January 14, 2019, Commission
File No. 000-30202)
|
10.58(d)*
|
Series
A Super Voting Preferred Stock (Exhibit 10.4 to Form 8k filed January 14, 2019, Commission
File No. 000-30202)
|
10.58(e)*
|
Reserve
Agreement (Exhibit 10.5 to Form 8k filed January 14, 2019, Commission File No. 000-30202)
|
10.58(f)*
|
Debt
Conversion Agreement (Exhibit 10.6 to Form 8k filed January 14, 2019, Commission File No. 000-30202)
|
|
|
10.58(g)*
|
Officers
and Directors Resignation Letters (Exhibit 10.7 to Form 8k filed January 14, 2019, Commission
File No. 000-30202)
|
10.59*
|
Amendment
to Judgment Settlement Agreement with John Fife (Exhibit 10.1 to Form 8K filed February
11, 2019, Commission File No. 000-24969)
|
10.60*
|
Announcement
of Amendment to Transition Agreement (Form 8k filed April 15, 2019, Commission File No.
000-30202)
|
10.61*
|
Stock
Purchase Agreement with AI Robotics (Form 8k Exhibit 1, Commission File No. 000-30202)
|
|
|
10.62
|
Employment
Agreement effective June 1, 2019 between Christopher Cutchens and the Company (Exhibit 10,1 to Form 8K filed June 6, 2019
(Commission File No. 000-30202)
|
|
|
10.63*
|
Stock
Purchase Agreement dated as of June 19, 2019 between the Company and Power Up Lending Group LLP (Form 8k Exhibit 1, Filed
July 1, 2019, Commission File Number 000-30202)
|
|
|
21.
|
Subsidiaries
of the Registrant
|
|
|
23.1
|
Consent of Assurance Dimensions
|
|
|
23.2
****
|
Consent of Counsel
|
24.
|
Power
of Attorney (Included in the Signature Page of this Form S-1)
|
99.1
|
Minutes
of Board of Directors meeting electing Anshu Bhatnagar to the Board of Directors of the Company
|
|
|
99.2*
|
Announcement
of James Largotta declining to serve on Board of Directors of the Company (Form 8k filed
February 19, 2019, Commission File No. 000-30202)
|
99.3*
|
Minutes
of Board of Directors Meeting electing Martin Smiley as Interim CFO of the Company (Exhibit 10.1 to Form 8k filed February
1, 2019, Commission File No. 000-30202)
|
|
|
99.4*
|
Resignation
of Ronald Durando as a member of the Board of Directors of the Company (Form 8k
filed March 20, 2019, Commission File No. 000-30202)
|
99.5*
|
Resignation
Letter of Martin Smiley as Interim CFO of the Company (Exhibit 10.2 to Form 8k filed June 6, 2019, Commission File No. 000-30202)
|
|
|
99.6*
|
Minutes
of Board of Directors Meeting electing Christopher Cutchens as Chief Financial Officer of the Company (Exhibit 10.3 to Form
8k filed June 6, 2019. Commission File No. 000-30202)
|
*
|
Incorporated
by reference.
|
|
|
**
|
All
or portions of such Agreements have been omitted and the Company has requested that the omitted sections be treated as “Confidential
Information” pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended and has been filed with the Securities
and Exchange Commission separately.
|
|
|
***
|
Incorporated
by reference from Amendment No. 6 to Form 10K for the period ended June 30, 2009 file on August 13, 2009.
|
|
|
****
|
To
be provided by Amendment
|
I
tem
17. Undertakings
The
undersigned Registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(a)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(b)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(c)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
Provided
however, that:
(i)
Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement; and
(ii)
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or
Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports
filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant
to Rule 424(b) that is part of the registration statement.
2.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post- effective amendment shall
be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at
that time to be the initial bona fide offering thereof.
3.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
4.
That, for determining liability of the undersigned registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities;
The
undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser
and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424;
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Since
the registrant is subject to Rule 430, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating
to an offering, other than registration statements relying on Rule 430(B) or other than prospectuses filed in reliance on Rule
430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided
;
however
, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede
or modify any statement that was made in the registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized to July 19, 2019
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mPhase
Technologies, Inc.
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By:
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/s/Anshu
Bhatnagar
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Anshu
Bhatnagar
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President
and Chief Executive
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Officer
and Director
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(Principal
Chief Executive Officer)
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By:
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/s/
Christopher Cutchens
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Christopher
Cutchens
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Chief
Financial Officer
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Principal
Accounting Officer
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Each
person whose signature appears below constitutes and appoints Anshu Bhatnagar his true and lawful attorney in fact and agent,
with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments (including post effective amendments) to the Registration Statement, and to sign any registration statement
for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and all post effective amendments thereto, and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons
in the capacities and on the dates indicated.
By:
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/s/
Anshu Bhatnagar
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July
19, 2019
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Anshu
Bhatnagar
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Chief
Executive Officer, Director
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By:
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/s/Christopher
Cutchens
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July
19, 2019
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Christopher
Cutchens
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|
|
|
Chief
Financial Officer
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