UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
|
☒ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
| |
|
| |
For
the fiscal year ended June 30, 2021 |
or
|
☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
| |
|
| |
For
the transition period from ____________________ to
___________________ |
Commission
File Number 000-30202
mPHASE
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
|
New
Jersey |
|
22-2287503 |
|
(State
of incorporation) |
|
(I.R.S.
Employer Identification No.) |
|
9841
Washingtonian Blvd #390 |
|
|
|
Gaithersburg,
MD |
|
20878 |
|
(Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (301) 329-2700
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act: Common stock,
$0.01 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
☐ Yes
☒ No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes
☒ No
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to the filing requirements for
the past 90 days.
☐ Yes
☒ No
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
☒ Yes
☐ No
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act:
|
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
|
Non-accelerated
filer ☐ |
Smaller
reporting company ☒ |
|
|
Emerging
growth company ☐ |
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule12b-2 of the Act).
☐ Yes
☒ No
The
aggregate market value of the voting stock and non-voting common
equity held by non-affiliates of the registrant as of December 31,
2020, the last business day of the registrant’s most recently
completed second fiscal quarter, was approximately $1.7
million.
As of
October 11, 2021, 79,190,821 shares of common stock were
outstanding.
Documents
Incorporated by Reference: None
mPhase
Technologies, Inc.
Form
10-K
TABLE
OF CONTENTS
PART I
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). All
statements other than statements of historical fact could be deemed
forward-looking statements. Statements that include words such as
“may,” “will,” “might,” “projects,” “expects,” “plans,” “believes,”
“anticipates,” “targets,” “intends,” “hopes,” “aims,” “can,”
“should,” “could,” “would,” “goal,” “potential,” “approximately,”
“estimate,” “pro forma,” “continue” or “pursue” or the negative of
these words or other words or expressions of similar meaning may
identify forward-looking statements. For example, forward-looking
statements include any statements of the plans, strategies and
objectives of management for future operations; any statements
concerning proposed new products, services or developments; any
statements regarding future economic conditions or performance;
statements of belief and any statement of assumptions underlying
any of the foregoing.
These
forward-looking statements are found at various places throughout
this Annual Report on Form 10-K and the other documents referred to
and relate to a variety of matters, including, but not limited to,
other statements that are not purely statements of historical fact.
These forward-looking statements are made on the basis of the
current beliefs, expectations and assumptions of management, are
not guarantees of performance and are subject to significant risks
and uncertainty. These forward-looking statements should not be
relied upon as predictions of future events and mPhase
Technologies, Inc. (the “Company”) cannot assure you that the
events or circumstances discussed or reflected in these statements
will be achieved or will occur. Furthermore, if such
forward-looking statements prove to be inaccurate, the inaccuracy
may be material. In light of the significant uncertainties in these
forward-looking statements, you should not regard these statements
as a representation or warranty by the Company or any other person
that the Company will achieve its objectives and plans in any
specified timeframe, or at all.
These
forward-looking statements should, therefore, be considered in
light of various important factors, including those set forth in
“Item 1A. Risk Factors” and elsewhere in this Annual Report on Form
10-K. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
Annual Report on Form 10-K. The Company disclaims any obligation to
publicly update or release any revisions to these forward-looking
statements, whether as a result of new information, future events
or otherwise, after the date of this Annual Report on Form 10-K or
to reflect the occurrence of unanticipated events, except as
required by law.
PART
I
Throughout
this Annual Report on Form 10-K, the “Company,” “mPhase,” “we,”
“us,” and “our” refers to mPhase Technologies, Inc. and its
subsidiaries.
ITEM 1. BUSINESS
General
Description of the Business
mPhase
Technologies, Inc. (“mPhase” or the “Company”) is a publicly-held
New Jersey corporation which was organized on October 2, 1996. The
Company has over 11,000 shareholders and 79,190,821 shares of
common stock outstanding at October 11, 2021. The Company’s common
stock is traded on the OTCQB under the ticker symbol XDSL. The
Company is headquartered in Gaithersburg, Maryland. As of October
1, 2021, the Company employs 20 full-time employees, two of whom are
officers of the Company and 13 consultants, seven of which provide
technology platform development services, four that provide sales
and marketing services, one that provides HR services, and one that
provides accounting services. The Company’s subsidiary in India
employs a total of 16 software engineers and data analysis
experts.
As of
January 11, 2019, the Company underwent a major change in
management and control. The Company entered into an Employment
Agreement with Mr. Anshu Bhatnagar to become the new President and
Chief Executive Officer and a Director of the Company. Mr.
Bhatnagar was also the President and CEO of Verus International,
Inc. (ticker symbol “VRUS”) a publicly-held company. Mr. Bhatnagar
replaced Mr. Ronald Durando who resigned as CEO. Mr. Durando
remained a Director of the Company until his resignation from such
position effective March 20, 2019. Effective January 11, 2019 all
of the other prior Officers and Directors of the Company resigned
their respective positions. On January 28, 2019, Mr. Smiley, the
former CFO of the Company, was reappointed as interim CFO and on
June 6, 2019, Mr. Smiley resigned as CFO of the Company and was
replaced by Christopher Cutchens. Under the terms of Mr.
Bhatnagar’s Employment Agreement, he will receive a base salary of
$275,000 per annum and was granted 2,620,899 shares of Common
Stock, representing 20% of the Company’s Common Stock then
outstanding at January 11, 2019. In addition, Mr. Bhatnagar,
pursuant to the terms of a Transition Agreement shall earn the
right to be issued 4% of additional shares of the Company’s Common
Stock for each $1 million of gross revenue generated by the
Company. Once the Company has achieved gross revenue of not less
than $15,000,000 or is up-listed to a National Securities Exchange,
Mr. Bhatnagar will have earned the remaining amount of the
Company’s Common Stock not to exceed 80% of the shares outstanding
at January 11, 2019 as adjusted for the Reverse Split of the
Company’s Common Stock as described below. As of December 31, 2020,
the Company achieved gross revenue in excess of $15,000,000 and Mr.
Bhatnagar earned the remaining maximum amount of the Company’s
Common Stock in accordance with the terms of the Transition
Agreement.
The
new management of the Company is positioning the Company to become
a leader in software relating to artificial intelligence and
machine learning while pursuing a more rapid commercial development
of its patent portfolio and other intellectual property. Artificial
Intelligence is just simple math executed on an enormous scale. The
more calculations a system can process, the more possible it is for
that system to emulate human-like cognitive abilities. With the
advent of cloud infrastructure, GPU-accelerated processing and deep
learning architectures, it is now commercially viable to perform
this math at such speeds and efficiency that Artificial
Intelligence (human-like cognitive abilities) can be embedded
directly into business operations, platform architectures, business
services and customer experiences. The goal is to generate a faster
growth of revenues for the Company.
On
February 4, 2019, the Company announced the formation of mPhase
Technologies India, Pvt, Ltd to focus on software and technology
development for new and existing projects. On February 6, 2019, the
Company announced that it has commenced discussions with a global
pharmaceutical company to explore the use of mPhase’s “Smart
Surface” technology for transdermal drug delivery. mPhase’s current
technology uses electronic or other external stimulus to dispense
an unattended, predetermined quantity of drug or medical agent
through a smart surface membrane. On February 19, 2019, the Company
announced and began assembling a team in India of highly qualified
software and technology experts in the fields of artificial
intelligence and machine learning to work as part of its newly
formed “Center of Excellence” India division.
On
March 7, 2019, the Company announced the acquisition of Travel
Buddhi, a software platform to enhance travel via
ultra-customization tools that tailor a planned trip experience in
ways not previously available. The Company is moving in a new
strategic direction of modification and modernization of its
existing technology to make it “smart” and “connected” as part of
the internet of things.
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. Alpha
Predictions had 15 professionals comprised of a team of data
specialists who developed a suite of commercial data analysis
products for use across multiple industries. The product offering
included 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.
On
August 27, 2019, the Company’s Board of Directors approved the
filing of an amendment (the “Amendment”) to the Company’s
Certificate of Incorporation to increase the authorized shares of
common stock from 25 million shares to 100 million shares pursuant
to Section 14A:7-2(4) of the Business Corporation Law of the State
of New Jersey. The Amendment was filed with the State of New Jersey
on September 4, 2019.
On
May 11, 2020, the Company entered into an Asset Purchase Agreement
to acquire all assets owned, used or held in connection with the
business, other than excluded assets and assumed certain
liabilities of CloseComms Limited (“CloseComms”). The most
substantial acquired asset was a patented, software application
platform that can be integrated into a retail customer’s existing
Wi-Fi infrastructure, giving the retailer important customer data
and enabling AI-enhanced, targeted promotions to drive store
traffic and sales. Other acquired assets included cash and computer
and office equipment, while assumed liabilities included certain
compensation related liabilities attributed to engaging the
operational team on a consulting basis for a minimum of one (1)
year.
On
June 10, 2020, the Company’s Board of Directors approved the filing
of an amendment (the “Amendment”) to the Company’s Certificate of
Incorporation to increase the authorized shares of common stock
from 100 million shares to 250 million shares pursuant to Section
14A:7-2(4) of the Business Corporation Law of the State of New
Jersey. The Amendment was filed with the State of New Jersey on
July 14, 2020.
On
July 15, 2020, the Company entered into an exchange agreement (the
“Exchange Agreement”) with its Chief Executive Officer (“Holder”),
whereby earned and issued warrants to purchase 37,390,452 shares of
the Company’s Common Stock (the “Cancelled Warrants”) pursuant to
the terms of that certain Transition Agreement (the “Transition
Agreement”) and Warrant Agreement (the “Warrant Agreement”) each
between the Company and Holder and dated as of January 11, 2019
were forfeited and exchanged for (i) 37,390,452 shares of the
Company’s Common Stock (the “Shares”) and (ii) the cancellation and
termination of the Transition Agreement and Warrant Agreement. The
Cancelled Warrants had an exercise price of $0.50 per share and
were not subject to expiration. Such Exchange Agreement is intended
to make the Company’s capitalization more attractive to potential
investors and to remove the uncertainty associated with any future
grants of warrants under the Transition Agreement and Warrant
Agreement, although there can be no assurance of any future
investments on terms that are attractive to the Company, or at all.
Immediately prior to the Company’s entry into the Exchange
Agreement, it was determined that 5,650,708 additional warrants
(the “Additional Warrants”) to purchase the Company’s Common Stock
were due to and issued to the Holder in accordance with the terms
and conditions of the Transition Agreement as the Transition
Agreement required certain liabilities to be eliminated by the
prior management team within six months of the Transition
Agreement’s effective date of January 11, 2019. However, the
Additional Warrants were immediately cancelled and terminated with
the intention of mitigating potential liabilities arising from
certain issuances of the Company’s Common Stock below the minimum
price of $0.50 per share as stated within the Transition
Agreement.
On
August 3, 2020, the Company’s Board of Directors approved the
filing of an amendment (the “Amendment”) to the Company’s
Certificate of Incorporation to increase the authorized shares of
common stock from 250 million shares to 500 million shares pursuant
to Section 14A:7-2(4) of the Business Corporation Law of the State
of New Jersey. The Amendment was filed with the State of New Jersey
on August 4, 2020.
During
2021, the Company announced that it would be adding 5G and EV
charging to its consumer engagement platform as part of a major
strategic initiative to monetize additional points of contact
during consumer travel and travel planning. As of July 2021, mPhase
was actively planning pilot programs in 5G and EV charging, as part
of a larger strategy to build an AI-driven consumer ecosystem. By
late-2021, the Company plans to transition into a “green” consumer
company, serving as an important bridge between consumers,
retailers, and service providers.
The Company can best be described as a technology company focused
on consumer engagement using data analytics and artificial
intelligence to create a monetizable link between consumers and
retailers at opportunistic times and places. The Company is
currently building a connected ecosystem of EV charging, 5G
internet connectivity and software solutions that optimize consumer
engagement within the framework of a SaaS/TaaS model. Branded under
the mPower name, this ecosystem will empower the way people shop,
dine, fuel and interact with the world to create a richer life
experience. The mPower ecosystem is tailored to each individual’s
tastes and needs, with particular emphasis on empowering tomorrow’s
green consumer. The Company also has data driven business units
generating recurring revenue outside of its consumer ecosystem, in
addition to legacy nanobattery technology and a related patent
portfolio that are slated for future development. The Company plans
to expand into other markets, both in the United States and
globally, where it believes its technology and services will
provide a distinct competitive advantage over its competition.
Concurrently,
the Company continues to pursue strategic alternatives to best
monetize its patent portfolio, including partnering to exploit
opportunities for its drug delivery system. The Company continues
seeking to obtain government funding available under the
Departments of Defense and Homeland Security including The
Department of Defense Ordnance Technology Consortium (“DOTC”),
Small Business Innovative Research (“SBIR”), Cooperative Research
and Development Agreements (“CRADA”) and similar programs for
targeted applications for its smart nano-battery
applications.
Description
of Operations
Platform Technology
mPower EV/5G Consumer Engagement Platform
The Company is building an AI-driven, global consumer engagement
platform that incorporates both patented in-house and third-party
technologies to support adoption and use. To create this ecosystem,
the Company is utilizing the technology and teams from its
CloseComms consumer engagement group and its Travel Buddhi trip
planning experts and other engineering teams. The Company recently
onboarded experts in EV charging and 5G communication to create new
points of contact for this emerging platform. The completed
platform will be designed to learn individual consumer preferences
to match retail and other promotional activities to consumer
behavior during travel. The platform will enable travelers to
customize their experience, including tailoring to create a new set
of tools for the “green” consumer.
The consumer engagement portion of the platform has already been
successfully tested at major quick service restaurant chains,
including Subway, while the technology segments in 5G and EV
charging are in the pilot planning phase. The goal is to have a
full ecosystem in pilot mode by the end of 2021. The platform will
the first of its kind, creating multiple monetizable points of
contact under a hybrid SaaS/TaaS model.
The 5G portion of the platform is also being developed to target
municipal and other government entities seeking to develop networks
for education and other public services.
Artificial
Intelligence and Machine Learning
The
Company has a team of 15 software engineers and data analysis
experts capable of enabling the Company to provide products in the
artificial intelligence and machine learning areas. Additionally,
through its recent transaction with CloseComms, the Company has
contracted with 11 software engineer consultants enabling the
Company to provide retail customers important customer data while
enabling AI-enhanced, targeted promotions to drive store traffic
and sales. The Company has in place and is developing proprietary
software to enable customers to enhance their business capabilities
by providing sophisticated digital analysis of large volumes of
data to provide sophisticated solutions to complex
problems.
Smart
Surfaces
The
surface is an important part of virtually every physical object and
often plays an overriding role in many processes, beyond mere
connectivity and structural support, but more deeply into areas
involving chemical and biological interactions. In some instances,
the surface provides an easy entry into the chemical or biological
systems; in others it protects the internal elements of the object,
surrounded by the surfaces.
The
Company’s current technology platform is the Smart Surface. By
being able to control the surface properties of materials down to
the nanometer scale, new and improved devices can be designed and
built that may lead to compelling business opportunities. One type
of smart surface of particular interest allows properties to be
changed in response to an external stimulus.
Initially,
the Company’s development focused on Micro Electronic Mechanic
Systems (MEMS) devices by manipulating the surface of silicon
materials – the same material used to make microelectronic
materials and devices. Using physical and chemical processes, the
surface of the silicon is modified to make solid porous structures
known as membranes. This is where microfluidics comes into play.
These membranes can be used to selectively control the flow of
liquids through the pores or openings at the micrometer length
scale.
Surfaces
may be characterized as hydrophilic or hydrophobic depending on
whether or not they attract or repel water (or other liquids). A
hydrophilic surface can be wet and adsorbs water. A hydrophobic
surface, on the other hand, cannot be wet. Hydrophilic and
hydrophobic surfaces are abundant in nature and in synthetic
materials, both organic and inorganic in chemical composition. A
familiar example of a hydrophilic surface is a sponge that readily
soaks up water. By contrast, many plant leaves and flower petals
are hydrophobic, as are insect parts and bird feathers. Synthetic
hydrophobic surfaces include Scotchgard™ treated fabric, Teflon®
coated metal, or Rain-X® coated glass. On a hydrophobic surface,
water beads up and can move around without being absorbed by the
solid material that it is resting on.
So-called
superhydrophobic surfaces are also found in nature and can now be
replicated in the lab. The lotus leaf and rose petal, for example,
exhibit super-hydrophobicity. Here water droplets form almost
perfect spheres with hardly any contact with the underlying solid
surface. This makes the liquid even easier to move and manipulate.
The synthesis of superhydrophobic surfaces has recently been made
possible by advances in nanotechnology and the Company is leading
the way to better understand and create materials and devices
incorporating these unique surface properties.
As
the Company’s research and development efforts evolve, in addition
to silicon materials, the ability to control the surface properties
of materials can be extended to other substances such as polymers,
ceramics, metals, and fibers providing opportunities for our
platform technology to be used in a range of potential applications
such as energy storage and power management for portable
electronics and microelectronics, self-cleaning surfaces, filters
for water purification or desalination systems, materials for
environmental remediation that separate liquids or solvents, and
other situations where the control of the interaction of a solid
surface exposed to a liquid is vitally important.
Smart
NanoBattery
Battery
technology has changed little in its fundamentals over the past 150
years. As a result, ordinary batteries begin dissipating energy as
soon as they are assembled and therefore have limited shelf life.
Chemistries are fixed inside the package so the user cannot
interact with the contents to program functionality. The size and
form of batteries have not kept pace with the miniaturization of
electrical components, microprocessors and integrated circuits. As
a result, the optimal implementation of an electronic device is not
always achieved. Some batteries contain chemicals that are not
considered safe or environmentally friendly (“green”). This makes
disposal a potential issue.
The
Company is challenging this convention by using their proprietary
superhydrophobic porous silicon membrane technology as the basis to
build the Smart NanoBattery, a reserve battery providing Power On
Command™ prior to initial activation.
Super-hydrophobicity
initially keeps the liquid electrolyte physically separated from
the solid electrodes of the battery, thus preventing the chemical
reactions from occurring that cause the battery to provide power.
This gives the Smart NanoBattery the benefit of potentially
infinite shelf life.
A
conventional battery loses some capacity while sitting on the shelf
in its package or stored in an electronic or electrical device,
even before being used for the first time. On the other hand, the
Smart NanoBattery is built so that it is inactive and remains that
way indefinitely until it is turned on. No power is lost to
self-discharge or leakage current prior to activation. When needed,
the Smart NanoBattery can be activated on command via the
phenomenon of electrowetting. The surface properties of the porous
silicon membrane are selectively controlled to shift instantly from
a superhydrophobic to hydrophilic state. In other words,
electrowetting acts as the triggering mechanism.
The
Company has successfully fabricated and demonstrated its first
3-volt lithium-based Smart NanoBattery, based on a design allowing
either manual or remote activation by the user, the feature known
as Power on Command™.
By
incorporating the phenomenon of electrowetting on nanostructured
surfaces into a revolutionary way of storing energy, the Smart
NanoBattery provides power to portable electronic and
microelectronic devices exactly when and where it is needed. As a
reserve battery it is an augmentation to conventional primary
batteries. The nanobattery converts stored chemical energy into
usable electrical energy, but in a way that is potentially more
reliable, more versatile, more environmentally friendly, and less
expensive than conventional primary batteries.
Applications
Artificial
Intelligence and Machine Learning
The
Company has recently acquired technologies focused on artificial
intelligence and machine learning. The related proprietary software
enable customers to enhance their business capabilities by
providing sophisticated digital analysis of large volumes of data
to provide sophisticated solutions to complex problems. The current
product offering includes a Learning Management System (“LMS”)
platform that allows customers to customize their training and
become embedded on the platform and a patented, software
application platform that can be integrated into a retail
customer’s existing Wi-Fi infrastructure, giving the retailer
important customer data and enabling AI-enhanced, targeted
promotions to drive store traffic and sales
Smart
Surfaces and NanoBattery
The
Company is exploring military and commercial applications of smart
surfaces in which the properties can be accurately and precisely
controlled down to the nanometer scale. Electrowetting allows the
switching from a hydrophobic to hydrophilic state as a result of an
electronic stimulus.
The
Smart NanoBattery, the Company’s first smart surface product, has a
unique architecture that enables a shelf life of decades, remote
activation, programmable control, scalable manufacturing, and
adaptability to multiple configurations. The value proposition to
the end user is to have a source of energy or power that is
literally always ready – reliable, convenient, low cost – a battery
guaranteed to work at full capacity when and where you need
it.
The
Smart NanoBattery can conceivably supply power “on command” to a
wide variety of portable electronic and microelectronic devices
used in military, medical, industrial, and consumer
applications.
The
Company has demonstrated that the battery works in lab tests as
well as in a significant field test conducted for the U.S. Army as
part of a guided munitions project. The relationship with the Army
also included an $850,000 funded project to develop a battery for a
mission critical computer memory backup application. The target was
a small footprint, 3-volt lithium battery with a minimum shelf life
of 20 years and uninterruptible power output during this time
period. To the best of the Company’s knowledge, no other battery
technology available today can deliver the long-term performance
requirements specified by the U.S. Army for this
application.
The
Smart NanoBattery can potentially be designed to accommodate a
variety of sophisticated portable electronic and microelectronic
devices including next-generation cell phones, handheld gaming
devices, wireless sensor systems, radio frequency identification
tags, high-tech flashlights and beacons, health alert alarms, and
non-implantable and implantable medical devices such as
pacemakers.
Initial
applications will address the need to supply emergency and backup
power to a range of products for defense and security, with future
applications in the commercial and consumer arenas.
Strategic Alliances
Artificial
Intelligence and Machine Learning
The
Company has contracts with three separate customers to provide,
including but not limited to, software, training, and support
services as required. The contracts provide for initial revenue
streams as well as subsequent revenue for training, support,
updates and maintenance services as provided.
Smart
NanoBattery
The
Company continued during 2020, together with Picatinny Arsenal, to
jointly seek federal funding under SBIR grants to develop
additional new products for military small munitions applications.
The Company has a strong historic cooperative relationship for
product development and testing with Picatinny Arsenal having
entered into 3 CRADA’s (Cooperative Research Agreements) with this
small munitions testing facility of the U.S. Army The Company seek
opportunities with various potential academic partners to obtain
further STTR grants for new product research and
development.
In
2007, the Company entered into a Cooperative Research and
Development Agreement (“CRADA”) with Picatinny Arsenal to test the
single cell version of the Smart NanoBattery suitable for future
research and development programs for projectile launched
munitions. From 2007 through the first quarter of calendar year
2010, numerous internal laboratory air gun simulation tests were
performed, including a live-air gun and live gun fired test at the
United States Army’s facility at Aberdeen Proving Grounds,
Aberdeen, Maryland. A prototype of the Smart NanoBattery was the
subject of a live fire test as part of a projectile fired out of an
Abrams Tank. The results of the test indicated that the battery was
activated by 10,000 G forces indicating that it could supply energy
necessary to operate a guidance system for small munitions. In
addition, the Smart NanoBattery demonstrated extreme resiliency to
shock and acceleration since, it survived tests that subjected it
to high acceleration of over 30,000 G forces.
On
February 9, 2011, the Company announced that it had signed a 3-year
CRADA with the U.S. Army Armament Research, Development, and
Engineering Center (ARDEC) at Picatinny, New Jersey, to continue to
cooperatively test and evaluate the mPhase Smart NanoBattery,
including new design features functionally appropriate for DoD
based systems requiring portable power sources. The army
researchers are evaluating the prototypes using the Army’s testing
facilities at Picatinny Arsenal in New Jersey to determine
applicability of the technology to gun fired munitions and
potentially to incorporate the technologies into research and
development and other programs sponsored by Picatinny. The Research
Agreement is supported by the Fuze & Precision Armaments
Technology Directorate. In order for significant further research
and development to be performed with respect to the Smart Nano
Battery the Company will have to be successful in obtaining
additional congressional funding specifically designated for this
type of battery. This CRADA was renewed on March 27, 2014 for an
additional three-year period by the Army. The Company is currently
seeking to enter a new CRADA with the U.S. Army, subject to
availability of funding.
Products and Services
Since
its inception in 1996, the Company has been focused on the
development of intellectual property involving high technology
innovative solutions and products with high-growth potential. The
Company has previously served as an incubator for exploratory
research and initial development for products that are best
characterized as having a high risk/high reward profile since they
involve exploratory research to achieve significant scientific
breakthroughs from existing products that can have a substantial
economic impact and benefit upon successful commercialization.
Since January 11, 20192020, the new management of the Company has
shifted the focus to the rapid expansion of profit centers centered
around the rapid creation, either by acquisition or fast
development of software platforms that will enable the Company to
generate revenue from artificial intelligence and machine learning
technologies.
Competitive Business Conditions
The
industry of artificial intelligence and machine learning software
is highly competitive. Well capitalized companies such as Amazon,
Google, IBM and Microsoft are devoting significant resources and
capital in developing customer products and solutions using this
technology. Such companies have far greater resources than the
Company. The Company believes, however, that it has assembled a
group in India of highly qualified software and technology experts
on a very cost-effective basis. The Company is also acquiring
entities that have already established customer relationships,
revenues and market niches that will enable the Company to leverage
off such capabilities, and where appropriate, enhance its existing
technology in the area of “Smart Surfaces” described
below.
Artificial Intelligence and Machine Learning
Segment
Artificial
intelligence is the use of machines to do cognitive work such as
problem solving, pattern matching and creating new patterns.
Machine learning is a subset of artificial intelligence which
refers to training a machine as opposed to simply programming it.
Artificial intelligence has the potential to revolutionize nearly
all aspects of business across sections and functions. Currently
only a small percentage of organizations have deployed artificial
intelligence but this is changing quickly. There is a high
correlation between organizations that are far along in digitizing
their information and those that are ready for products and
solutions provided by artificial intelligence and machine learning
providers. The Company has acquired and is developing significant
product capabilities in this area.
Battery Segment
The
Company believes that the design and functionality of its lithium
Smart NanoBattery make it unique to the portable electronics
battery market segment. To the best of our knowledge, there is no
existing product that directly competes with the Smart NanoBattery
in terms of its combination of small size and reserve design. As a
reserve battery, the Smart NanoBattery remains dormant until it is
activated on command. It does not self-discharge or die prior to
its first activation, thereby offering extremely long shelf life
prior to use as either a primary or backup battery in a device.
Shelf life is projected to be in excess of twenty years.
There
are numerous thin film batteries based on lithium metal, lithium
ion and lithium polymer, as well as other chemistries, used in
military devices, portable electronics, RFID tags and wireless
sensor networks, that are similar in size to the Smart NanoBattery,
often referred to as microbatteries. None of these designs is based
on reserve battery architectures. Thin film batteries are
manufactured by companies including Cymbet Corporation, Front Edge
Technology, Infinite Power Solutions, ITN Energy Systems, Johnson
Research and Development Company, KSW Microtec, Lithium Technology
Corporation, MPower Solutions, Oak Ridge Micro-Energy, Power Paper,
Solicore, VoltaFlex Corporation. Large companies such as Energizer,
Ultralife, Varta and Proctor & Gamble are also involved with
developing thin film batteries. Thin film battery markets are
anticipated to grow substantially as the result of a wide expansion
of portable devices in that time frame. With 3.5 billion cell phone
users and 67 billion RFID tags per year, it is expected that there
will be substantial commercial demand for thin film
batteries.
Traditional
reserve batteries are distinct from the mPhase Smart NanoBattery in
terms of size and activation mechanism. The market for reserve
batteries has largely been limited to the military for supplying
power to munitions and other mission-critical electronic devices.
The traditional reserve battery tends to be larger and certain
types are built by hand and contain mechanical parts to activate
the battery. The Smart NanoBattery relies on the phenomenon of
electrowetting to initiate activation or a mechanical barrier that
can be broken, in the case of the breakable barrier design.
Traditional reserve batteries for military applications have been
supplied by companies such as EaglePicher, Yardney and Storage
Battery Systems, Inc. The Company believes that it may be able to
significantly reduce the cost of its Smart Nanobattery with the
recent discovery of the potential of “printing” the battery on a
form of graphite rather than traditional silicon surface. The
Company, through its working relationship with Stevens Institute,
began in fiscal year 2012 to investigate the feasibility of the use
of graphite which is much stronger, flexible and inexpensive than
traditional silicon.
Outsourcing
Research
and Development
The
Company has historically practiced an outsourcing model whereby it
contracts with third party vendors to perform research and
development rather than performing the bulk of these functions
internally. From February of 2004 through March of 2007, the
Company engaged Lucent/Bell Labs (now Nokia) to develop, using the
science of nanotechnology, micro power cell arrays creating a
structure for zinc batteries that separated the chemicals or
electrolytes prior to initial activation. This was done by
suspending on nano grass or small spoke-like pieces of silicon a
liquid electrolyte taking advantage of a superhydrophobic effect
that occurs as a result of the ability to manipulate materials of a
very small size or less than 1/50,000 the size of a human hair. The
Company has, as a result of outsourcing, been able to have access
to facilities, equipment and research capabilities that the Company
would not be able to develop on its own given the financial
resources and time that would be required to build or acquire such
research capabilities. The Company has also been able to achieve
key strategic alliances with the U.S. Army to successfully test,
under military combat conditions, its SmartBattery design, leading
to further validation of its path to product development under a
Cooperative Research and Development Agreement (CRADA). In
addition, the Company has formed a relationship with Energy Storage
Research Group, a center of excellence at Rutgers University, in
New Jersey, that has enabled the Company to expand its battery
development from a zinc to a lithium battery capable of delivering
significantly more power. During fiscal years 2009 and 2010, the
Company outsourced considerable foundry work for final development
of the Smart NanoBattery to Silex, a Swedish company.
During
the period from March of 2005 to April of 2007, the Company engaged
the Bell Labs division of Lucent Technologies, Inc. to develop a
magnetometer or electronic sensor also using the science of
nanotechnology. Although the Company has, in order to conserve
financial resources, currently suspended further development of its
magnetometer product line, we believe that the intellectual
property developed from the research to date could be resumed to
develop viable military and industrial products depending upon
future financial resources of the Company and future competitive
market conditions.
Commencing
in fiscal year ended June 30, 2013, the Company has limited product
development of its Smart NanoBattery in order to conserve
resources. The Company continues through the fiscal year ended June
30, 2021, to protect its intellectual property with respect to the
Smart NanoBattery through active management of its patent
portfolio.
Patents and Licenses
The
Company has filed and intends to file United States patents and/or
copyright applications relating to some of our proposed products
and technologies, either with our collaborators, strategic partners
or on our own. There can be no assurance however, that any of the
patents obtained will be adequate to protect our technologies or
that we will have sufficient resources to enforce our
patents.
Because
we may license our technology and products in foreign markets, we
may also seek foreign patent protection for some specific patents.
With respect to foreign patents, the patent laws of other countries
may differ significantly from those of the United States as to the
patentability of our products or technology. In addition, it is
possible that competitors in both the United States and foreign
countries, many of which have substantially greater resources and
have made substantial investments in competing technologies, may
have applied for, or may in the future apply for and obtain,
patents, which will have an adverse impact on our ability to make
and sell our products. There can also be no assurance that
competitors will not infringe on our patents or will not claim that
we are infringing on their patents. Defense and prosecution of
patent suits, even if successful, are both costly and time
consuming. An adverse outcome in the defense of a patent suit could
subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to
cease our operations.
The
Company has intellectual property as follows:
Artificial
Intelligence and Machine Learning:
The
Company is evaluating various aspects of its artificial
intelligence and machine learning technologies and will file for
protective patents and maintain existing patents as determined
appropriate.
Nano
Technology, Micro Electrical Mechanical Systems (MEMS) and Battery
Portfolio:
Various
aspects of the Company’s technology are protected by patents either
owned directly by the Company or with respect to which the Company
has sub-licensing rights. The Company’s current battery related
patent portfolio consists of ten issued or licensed patents, of
which one is jointly owned with Nokia Corporation (formerly Alcatel
Lucent Technologies), and five are licensed from Nokia Corporation.
These cover such aspects of the technology as the ability to use
electrowetting to create a moveable liquid lens, methodology and
apparatus for reducing friction between a fluid and a body,
methodology for etching planar silicon substrates to develop a
reserve battery device, methodology and apparatus for controlling
the flow resistance of a fluid on nanostructured or microstructured
surfaces, methodology for creating a structured membrane with
controllable permeability, methodology for a nanostructured battery
with end of life cells, and methodology for making a multi-cell
battery system with multiple chemistries in each individual cell of
the battery pack. Some of these patents are specific to the
development of a battery device while others are more generalized.
The Company has four patent applications that are subject to
reinstatement, of which three, the Company intends to submit for
reinstatement.
Other
Patents
The
Company has obtained trademark protection for its mPower Emergency
IlluminatorTM and mPower on CommandTM.
In
July of 2009, the Company filed for 3 new patents covering the
unique design features of its manually-activated lithium reserve
battery and emergency flashlight products.
On
May 20, 2011, the Company announced that it had been granted a U.S.
patent for multi-chemistry battery architecture.
On
February 10, 2012 the Company filed a U.S. provisional patent with
the USPTO for a Non-Pump Enabled Drug Delivery System.
On
February 11, 2013 the provisional patent application was converted
to a patent application entitled Drug Delivery System.
In order to
conserve financial resources, the Company did not file for patent
protection on any additional technology or products during the
fiscal year ended June 30, 2021. As of the date hereof, the Company
has rights under the following patents:
|
|
● |
Bypass
for telephone system splitter, Filed 3/18/2003 in United States,
Patent Number 6,535,581 |
| |
● |
Signal
splitter with test relays on auxiliary circuit board and system
using same, filed 7/12/2005, Patent Number 6,917,683 |
| |
● |
ALWA-001
Battery System, Filed 3/20/2008 in United States, Patent Number
8,021,773 |
| |
● |
ALWA-004
Tunable Liquid Microlens with Lubrication Assisted Electrowetting,
Filed 9/13/2001in United States, Patent Number
6,545,815 |
| |
● |
ALWA-005
Method and Apparatus for Controlling Friction Between a Fluid and a
Body, Filed 8/27/2003 in United States, Patent Number
7,156,032 |
| |
● |
ALWA-006
Electrowetting Battery Having a Nanostructured Electrode Surface,
Filed 11/18/2003 in United States, Patent Number
7,227,235 |
| |
● |
ALWA-007
Method And Apparatus For Controlling The Flow Resistance Of A Fluid
On Nanostructured Or Microstructured Surfaces, Filed 9/30/2003 in
United States, Patent Number 8,124,423 |
| |
● |
ALWA-009
Method And Apparatus For Controlling The Flow Resistance Of A Fluid
On Nanostructured Or Structured Membrane with Controllable
Permeability, Filed 7/28/2006 in United States, Patent Number
7,695,550 |
| |
● |
ALWA-010
End of Life Cycle, Nanostructured Battery, Filed 3/18/2004 in
United States, Patent Number 7,618,746 |
| |
● |
ALWA-014
Device for Fluid Spreading and Transport, Filed 1/25/2008 in United
States, Patent Number 8,435,397 |
| |
● |
ALWA-019
Modular Device, Filed 9/2/2009 in United States, Patent Number
8,344,543 |
| |
● |
ALWA-034
Reserve Battery System, Filed 3/2/2010 in United States, Patent
Number 8,372,531 |
| |
● |
Controlling
access and accessing a traffic network in high density environment,
Filed 12/7/2017,Patent Number GB2559469 |
We
also rely on unpatented proprietary technology, and we can make no
assurance that others may not independently develop the same or
similar technology or otherwise obtain access to our unpatented
technology.
Research and Development
Artificial
Intelligence and Machine Learning
With
the acquisition of Alpha Predictions and expansion of its
development team located in India, the Company is able to offer a
multitude of services through the use of data analysis. Our team
uses its corporate and business level consulting expertise to
support and enhance the growth of promising enterprises. Our
research team uses the holistic approach that encompasses multiple
facets of a business and has developed a unique approach to problem
solving that is time tested. As consulting is multidisciplinary,
our team is comprised not only of data analysts but also financial
analysts and domain experts allowing us to provide a highly
sophisticated digital analysis capability to our business clients.
The Company is able to leverage its personnel and their expertise
to develop new proprietary software platforms for data analysis
derived from its present experience and expertise gained in
servicing its present customer base.
Smart
Surfaces
Our
Smart NanoBattery and power cell technology research and
development was performed by the Bell Labs division of
Alcatel/Lucent from February of 2004 through March of 2007 at an
aggregate cost of $3.8 million. The Company paid Bell Labs $300,000
covering the period from April 27, 2007 through July 30, 2007, at
which time it determined that, in order to develop a lithium
battery for higher density energy than zinc, it required facilities
capable of handling lithium battery research that Bell Labs does
not have. The Company engaged a number of small foundries during
fiscal year ended June 30, 2008 for commercialization of its Smart
NanoBattery at a cost of approximately $150,000. In fiscal year
ended June 30, 2009, the Company engaged Eagle Picher at a cost of
$75,000 to design and engineer a prototype of its
manually-activated lithium reserve battery and Porsche Design
studio at a cost of $79,123 for design of its emergency flashlight
product. In addition, the Company secured a Co-Branding Agreement
with Porsche Design Studio for its emergency flashlight product. In
fiscal year ended June 30, 2010, the Company paid $950,018 in
connection with producing and bringing this product to market, and
in fiscal year ended June 30, 2011, the Company incurred $33,254 of
expenses in connection with this product. During the fiscal year
ended June 30, 2009, the Company engaged Silex, a silicon foundry
in Sweden, at a cost of $21,200 for further development of its
Smart NanoBattery; payments to Silex for fiscal year ended June 30,
2010 in connection with the Smart NanoBattery amounted to $396,780,
and for fiscal year ended June 30, 2011 they were
$40,800.
During
fiscal years ended June 30, 2008, June 30, 2009, and June 30, 2010,
the Company engaged in joint research with Rutgers University in
connection with a $750,000 STTR Grant from the United States Army
for purposes of developing an emergency reserve battery to back-up
a computer memory application.
Employees
As of
October 1, 2021, the Company employs 20 full-time employees, two of whom are
officers of the Company and 13 consultants, seven of which provide
technology platform development services, four that provide sales
and marketing services, one that provides HR services, and one that
provides accounting services. The Company’s subsidiary in India
employs a total of 16 software engineers and data analysis
experts.
ITEM 1A. RISK FACTORS
An
investment in our securities involves significant risks. Before
deciding to invest in our securities, you should carefully consider
each of the following risk factors and all of the other information
set forth in this Annual Report on Form 10-K. Our business and
results of operations could be seriously harmed by any of the
following risks. The risks set out below are not the only risks we
face. Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition and/or operating
results. If any of the following events occur, our business,
financial condition and results of operations could be materially
adversely affected. In such case, the value and trading price of
our common stock could decline, and you may lose all or part of
your investment.
Risks
Relating to Our Business
Global or regional health pandemics or epidemics, including
COVID-19, could negatively impact our business operations,
financial performance and results of operations.
Our
business and financial results could be negatively impacted by the
recent outbreak of COVID-19 or other pandemics or epidemics. The
severity, magnitude and duration of the current COVID-19 pandemic
is uncertain, rapidly changing and hard to predict. During 2020,
COVID-19 has significantly impacted economic activity and markets
around the world, and it could negatively impact our business in
numerous ways, including but not limited to those outlined
below:
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Purchasing
power of consumers may be reduced thereby affecting demand for our
products and services; |
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● |
Decreased
demand for our products and services due to significant capital
constraints as a result of COVID-19 and the macro-economic
environment; |
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● |
Disruptions
or uncertainties related to the COVID-19 outbreak for a sustained
period of time could result in delays or modifications to our
strategic plans and initiatives and hinder our ability to achieve
our business objectives; |
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|
● |
Illness,
travel restrictions or workforce disruptions could negatively
affect our business processes; |
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● |
Government
or regulatory responses to pandemics could negatively impact our
business. Mandatory lockdowns or other restrictions could
materially adversely impact our operations and results;
and |
|
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● |
The
COVID-19 outbreak has increased volatility and pricing in the
capital markets and volatility is likely to continue which could
have a material adverse effect on our ability to obtain debt or
equity financing to fund operations. |
These
and other impacts of the COVID-19 or other global or regional
health pandemics or epidemics could have the effect of heightening
many of the other risks described in this “Risk Factors” section.
We might not be able to predict or respond to all impacts on a
timely basis to prevent near- or long-term adverse impacts to our
results. The ultimate impact of these disruptions also depends on
events beyond our knowledge or control, including the duration and
severity of any outbreak and actions taken by parties other than us
to respond to them. Any of these disruptions could have a negative
impact on our business operations, financial performance and
results of operations, which impact could be material.
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 $226,000,000 since our
inception in 1996 and cannot be certain when or if we will ever be
profitable. If we continue to incur 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 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, and we may be more vulnerable operationally and
financially to external factors beyond our control.
We
generated net income of $1,666,011 and incurred a net loss of
$14,093,567 for the years ended June 30, 2021 and 2020,
respectively. If we are unable to achieve profitability, we may be
unable to continue our operations.
We will require additional financing in the future to fund our
operations which may cause dilution to our existing stockholders or
restrict our operations.
We
will need additional capital in the future to continue to execute
our business plan. Therefore, we will be dependent upon additional
capital in the form of either debt or equity to continue our
operations. At the present time, we do not have arrangements to
raise all of the needed additional capital, and we will need to
identify potential investors and negotiate appropriate arrangements
with them. Our ability to obtain additional financing will be
subject to a number of factors, including market conditions, our
operating performance and investor sentiment. To the extent that we
raise additional capital through the sale of equity or convertible
debt securities, the ownership interests of our stockholders will
be diluted, and the terms of such financings may include
liquidation or other preferences, anti-dilution rights, and other
provisions that may adversely affect the rights of our
stockholders, including rights, preferences and privileges that are
senior to those of our holders of common stock in the event of a
liquidation. In addition, debt financing, if available, could
include covenants limiting or restricting our ability to take
certain actions, such as incurring additional debt, making capital
expenditures, or declaring dividends and may require us to grant
security interests in our assets. If we are unable to raise
additional capital when required or on acceptable terms we may need
to curtail or cease our operations.
Our indebtedness and liquidity needs could restrict our operations
and make us more vulnerable to adverse economic
conditions.
Our
existing indebtedness may adversely affect our operations and limit
our growth, and we may have difficulty repaying our debt when due.
If market or other economic conditions deteriorate, our ability to
comply with covenants contained in our debt instruments may be
impaired. If we violate any of the restrictions or covenants set
forth in our debt instruments, all or a significant portion of our
indebtedness may become immediately due and payable. Our inability
to make payments on our indebtedness when due may have a material
adverse effect on our operations and financial
condition.
We may not be able to raise the required capital to conduct our
operations and develop and commercialize our
products.
We
require substantial additional capital resources in order to
conduct our operations and develop and commercialize our products
and run our facilities. We will need significant additional funds
or collaborative partners, or both, to finance the research and
development activities of our potential products. Accordingly, we
are continuing to pursue additional sources of financing. Our
future capital requirements will depend upon many factors,
including:
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The
continued progress and cost of our research and development
programs, |
| |
● |
The
costs in preparing, filing, prosecuting, maintaining and enforcing
patent claims, |
| |
● |
The
costs of developing sales, marketing and distribution channels and
our ability to sell the products if developed, |
| |
● |
The
costs involved in establishing manufacturing capabilities for
commercial quantities of our proposed products, |
| |
● |
Competing
technological and market developments, |
| |
● |
Market
acceptance of our proposed products, and |
| |
● |
The
costs for recruiting and retaining employees and
consultants. |
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.
We depend on one customer and the loss of this customer would have
a material adverse effect on our business, financial condition and
results of operations.
At
June 30, 2021 and 2020, approximately 100% and 100%, respectively,
of accounts receivable were concentrated with one customer located
outside the United States. For the years ended June 30, 2021 and
2020, approximately 100% and 100%, respectively, of revenue were
concentrated with the same customer. The loss of this customer, or
a substantial decrease in demand by this customer for our products,
would have a material adverse effect on our business, results of
operations and financial condition.
We depend on one primary vendor and the loss of this vendor would
have a material adverse effect on our business, financial condition
and results of operations.
At
June 30, 2021 and 2020, approximately 90% and 95%, respectively, of
accounts payable were concentrated with one vendor located outside
the United States. For the years ended June 30, 2021 and 2020,
approximately 100% and 100%, respectively, of cost of revenue were
concentrated with the same vendor. The loss of this vendor would
have a material adverse effect on our business, results of
operations and financial condition.
We operate in a highly competitive industry.
The
artificial intelligence and machine learning industry is intensely
competitive and consolidation in this industry continues. We face
competition in the areas of brand recognition, price, convenience
and service. A number of our competitors are larger than us and
have substantial financial, marketing and other resources as well
as substantial operations. In addition, reduced barriers to entry
are creating new competition. Furthermore, in order to protect our
existing market share or capture increased market share in this
highly competitive environment, we may be required to increase
expenditures for advertising and continue to introduce and
establish new products. Due to inherent risks in the marketplace
associated with advertising and new product introductions,
including uncertainties about consumer acceptance, increased
expenditures may not prove successful in maintaining or enhancing
our market share and could impact our operating results. In
addition, we may incur increased credit and other business risks
because we operate in a highly competitive environment.
Our nanotechnology 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.
We depend on certain third parties to assist us in the development
of new products, and any failure of those parties to fulfill their
obligations could result in costs and delays and prevent us from
successfully commercializing our products 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
certain 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. |
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.
We are dependent upon key personnel whose loss may adversely impact
our business.
Due
to 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. Any difficulties in obtaining and retaining qualified
personnel could have a material adverse effect on our results of
operation or financial condition.
We may fail to realize all of the anticipated benefits of any
entities which we acquire, such benefits may take longer to realize
than expected or we may encounter significant difficulties
integrating acquired businesses into our operations. If our
acquisitions do not achieve their intended benefits, our business,
financial condition, and results of operations could be materially
and adversely affected.
We
believe that businesses we acquire will result in certain benefits,
including certain cost synergies and operational efficiencies;
however, to realize these anticipated benefits, the businesses we
acquire must be successfully combined with our business. The
combination of independent businesses is a complex, costly, and
time-consuming process that will require significant management
attention and resources. The integration process may disrupt the
businesses and, if implemented ineffectively, would limit the
expected benefits of these acquisitions to us. The failure to meet
the challenges involved in integrating acquired businesses and
realizing anticipated benefits could cause an interruption of, or a
loss of momentum in, our activities and could adversely affect our
results of operations.
The
overall integration of acquired businesses may result in material
unanticipated problems, expenses, liabilities, competitive
responses, loss of customer and other business relationships, and
diversion of management’s attention. The difficulties of combining
the operations of companies include, among others:
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the
diversion of management’s attention to integration
matters; |
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difficulties
in achieving anticipated cost savings, synergies, business
opportunities, and growth prospects from the
combinations; |
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difficulties
in the integration of operations and systems; and |
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conforming
standards, controls, procedures, accounting and other policies,
business cultures, and compensation structures between the two
companies.
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Many
of these factors are outside of our control and any one of these
factors could result in, among other things, increased costs and
decreases in the amount of expected revenues, which could
materially adversely impact our business, financial condition, and
results of operations. In addition, even if we are able to
successfully integrate acquired businesses, the full benefits,
including the synergies, cost savings, revenue growth, or other
benefits that are expected, may not be achieved within the
anticipated time frame, or at all. All of these factors could
decrease or delay the expected accretive effect of the
acquisitions, and negatively impact our business, operating
results, and financial condition.
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.
Certain aspects of our technology are not protectable by patent or
copyright.
Certain
parts of our know-how and technology are not patentable. To protect
our proprietary position in such know-how and technology, we
require all employees, consultants, advisors and collaborators with
access to our technology to enter into confidentiality and
invention ownership agreements with us. We cannot ensure 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.
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 not be able to protect our proprietary technology, which
could harm our ability to operate profitably.
Patent
and trade secret protection is critical for the new technologies we
utilize, artificial intelligence, machine learning and
nanotechnology and microfluidics, as well as the products and
processes derived through them. Our success will depend, to a
substantial degree, on our ability to obtain and enforce patent
protection for our products, preserve any trade secrets and operate
without infringing the proprietary rights of others. We cannot
assure you that:
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we
will succeed in obtaining any patents in a timely manner or at all,
or that the breadth or degree of protection of any such patents
will protect our interests; |
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the
use of our technology will not infringe on the proprietary rights
of others; |
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patent
applications relating to our potential products or technologies
will result in the issuance of any patents or that, if issued, such
patents will afford adequate protection to us or not be challenged,
invalidated or infringed; |
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patents
will not issue to other parties, which may be infringed by our
potential products or technologies; and |
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we
will continue to have the financial resources necessary to
prosecute our existing patent applications, pay maintenance fees on
patents and patent applications, or file patent applications on new
inventions. |
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.
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.
In
the event litigation over patent matters with one or more of our
competitors 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.
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.
Our current “smart surface technology” is at an early stage of
development and we may not develop products that can be
commercialized.
Our
smart surface technology has derived very limited revenue 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.
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, which, in turn, would result in a loss of
investment.
Our
failure to continue successful commercialization of our new
products in the fields of machine learning and artificial
intelligence or successfully commercialize 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.
Forces
outside our control which cannot be predicted, including, but not
limited to, general economic conditions and other such forces which
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.
Our products may not be accepted in the
marketplace.
The
degree of market acceptance of our 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. |
We
cannot predict or guarantee that either commercial or military
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.
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
Relating to Our Securities
If we fail to comply with the rules under the Sarbanes-Oxley Act of
2002, as amended (“Sarbanes-Oxley”) related to internal controls
and procedures in the future, or, if we discover material
weaknesses and other deficiencies in our internal controls over
financial reporting, our stock price could decline significantly
and raising capital could be more difficult.
Section
404 of Sarbanes-Oxley requires annual management assessments of the
effectiveness of our internal controls over financial reporting. If
we fail to comply with the rules under Sarbanes-Oxley related to
disclosure controls and procedures in the future, or, if we
discover material weaknesses and other deficiencies in our internal
controls over financial reporting, our stock price could decline
significantly and raising capital could be more difficult. If
material weaknesses or significant deficiencies are discovered or
if we otherwise fail to achieve and maintain the adequacy of our
internal controls, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of
Sarbanes-Oxley. Moreover, effective internal controls are necessary
for us to produce reliable financial reports and are important to
helping prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating
results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our common
stock could drop significantly.
Our common stock is subject to the “penny stock” rules of the SEC
and the trading market in the securities is limited, which makes
transactions in the stock cumbersome and may reduce the value of an
investment in the stock.
Rule
15g-9 under the Exchange Act establishes the definition of a “penny
stock,” for the purposes relevant to us, as any equity security
that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (a) that a broker or dealer approve a
person’s account for transactions in penny stocks; and (b) the
broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In
order to approve a person’s account for transactions in penny
stocks, the broker or dealer must: (a) obtain financial information
and investment experience objectives of the person and (b) make a
reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form: (a) sets forth
the basis on which the broker or dealer made the suitability
determination; and (b) confirms that the broker or dealer received
a signed, written agreement from the investor prior to the
transaction. Generally, brokers may be less willing to execute
transactions in securities subject to the “penny stock” rules. This
may make it more difficult for investors to dispose of our common
stock and cause a decline in the market value of our common
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the
commissions payable to both the broker or dealer and the registered
representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in
penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held
in the account and information on the limited market in penny
stocks.
We have never paid cash dividends and have no plans to pay cash
dividends in the future.
Holders
of shares of our common stock are entitled to receive such
dividends as may be declared by our board of directors. To date, we
have paid no cash dividends on our capital stock and we do not
expect to pay cash dividends in the foreseeable future. We intend
to retain future earnings, if any, to provide funds for operations
of our business. Therefore, any return investors in our capital
stock may have will be in the form of appreciation, if any, in the
market value of their shares of common stock.
If we fail to remain current in our reporting requirements, we
could be removed from the OTCQB which would limit the ability of
broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary
market.
As a
company listed on the OTCQB and subject to the reporting
requirements of the Exchange Act, we must be current with our
filings pursuant to Section 13 or 15(d) of the Exchange Act in
order to maintain price quotation privileges on the OTCQB. If we
fail to remain current in our reporting requirements, we could be
removed from the OTCQB. As a result, the market liquidity of our
securities could be severely adversely affected by limiting the
ability of broker-dealers to trade our securities and the ability
of stockholders to sell their securities in the secondary
market.
Our common stock could be subject to extreme
volatility.
The
trading price of our common stock may be affected by a number of
factors, including events described in the risk factors set forth
in this Annual Report and in our other reports filed with the SEC
from time to time, as well as our operating results, financial
condition and other events or factors. In addition to the
uncertainties relating to future operating performance and the
profitability of operations, factors such as variations in interim
financial results or various, and unpredictable, factors, many of
which are beyond our control, may have a negative effect on the
market price of our common stock. In recent years, broad stock
market indices, in general, and smaller capitalization companies,
in particular, have experienced substantial price fluctuations. In
a volatile market, we may experience wide fluctuations in the
market price of our common stock. In addition, securities markets
have, from time to time, experienced significant price and volume
fluctuations that are not related to the operating performance of
particular companies. These market fluctuations may have a material
adverse effect the market price of our common stock.
Financial reporting obligations of being a public company in the
United States are expensive and time-consuming, and our management
will be required to devote substantial time to compliance
matters.
As a
publicly traded company we incur significant legal, accounting and
other expenses. The obligations of being a public company in the
United States require significant expenditures and places
significant demands on our management and other personnel,
including costs resulting from public company reporting obligations
under the Exchange Act and the rules and regulations regarding
corporate governance practices, including those under the
Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and
Consumer Protection Act. These rules require the establishment and
maintenance of effective disclosure and financial controls and
procedures, internal control over financial reporting and changes
in corporate governance practices, among many other complex rules
that are often difficult to implement, monitor and maintain
compliance with. Our management and other personnel will need to
devote a substantial amount of time to ensure that we comply with
all of these requirements and to keep pace with new regulations,
otherwise we may fall out of compliance and risk becoming subject
to litigation or being delisted from the OTCQB, among other
potential problems.
ITEM 1B. UNRESOLVED STAFF
COMMENTS.
None.
ITEM 2. PROPERTIES
Our
headquarters are located at 9841 Washingtonian Boulevard, Suite
200, Gaithersburg, MD 20878. The lease for this office, which
presently is month to month, is charged at a monthly cost of $1,600
($19,200 annually).
ITEM 3. LEGAL
PROCEEDINGS
From
time to time, we may become involved in various lawsuits and legal
proceedings that arise in the ordinary course of business.
Litigation is subject to inherent uncertainties, and an adverse
result in matters may arise from time to time that may harm our
business. As of the date of this Annual Report on Form 10-K, except
as set forth herein, management believes that there are no claims
against us, which it believes will result in a material adverse
effect on our business or financial condition.
Effective
December 10, 2018, the Company entered into a “Judgment Settlement
Agreement” to satisfy in full the Forbearance Agreement with Fife
that was previously in effect. As a result, under the Judgment
Settlement Agreement, no shares of the Company’s common stock are
issuable or eligible to be converted into. Under the terms of the
Judgment Settlement Agreement, the Company was required to pay
$15,000 per month from January 15, 2019 through and including
February 15, 2020, with a final payment of $195,000 which was due
and payable in March of 2020. The Company made all required
payments with the exception of the final payment of $195,000 which
was due and payable in March of 2020. On August 17, 2020, the
Company entered into a second amendment (the “Second Amendment”) to
the Judgement Settlement Agreement, whereby the Company issued a
convertible promissory note in the principal amount of $300,000
(the “Note”) to repay the amounts still outstanding under the
Judgment Settlement Agreement. The Note matures on August 17, 2021,
bears interest at a rate of 10% per annum, requires certain monthly
minimum cash payments as specified in the Note, and is convertible
into shares of the Company’s common stock, par value $0.01 per
share, at a conversion price as specified in the Note. The Note may
be prepaid by the Company at any time prior to maturity without
penalty. The Company satisfied the initial cash payment as
specified in the Note. On April 13, 2021, the Company entered into
a third amendment (the “Third Amendment”) to the Judgement
Settlement Agreement, whereby the Company issued a convertible
promissory note in the principal amount of $300,000 (the “New
Note”) to replace the Note and repay the amounts still outstanding
under the Judgment Settlement Agreement. The Note matures on April
13, 2022, bears interest at a rate of 10% per annum, requires
certain monthly minimum payments in cash or the Company’s common
stock as specified in the New Note, and is convertible into shares
of the Company’s common stock, par value $0.01 per share, at a
conversion price as specified in the New Note. The New Note may be
prepaid by the Company at any time prior to maturity without
penalty. On April 16, 2021, the Company paid $235,000 to satisfy,
pay in full, and extinguish the New Note and the Judgement
Settlement Agreement, which resulted in a gain on debt settlement
of $549,026 during the year ended June 30, 2021.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market
Information
Our
common stock is currently quoted on the OTCQB tier of the OTC
Markets under the symbol “XDSL”. Our common stock began trading on
the OTCQB during February 2020, and prior to such date traded on
the OTC Pink. Any over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual
transactions.
Stockholders
As of
October 11, 2021, there were approximately 12,000 registered
holders of record of our common stock and the last reported sale
price of our common stock on the OTCPink was $0.29 per
share.
Increase
in Authorized Shares of Common Stock
On
August 27, 2019, the Company’s Board of Directors approved an
amendment to the Company’s Amended and Restated Certificate of
Incorporation, as amended (the “Certificate of Incorporation”) to
increase the number of authorized shares of common stock of the
Company to 100,000,000 shares from 25,000,000 shares. On September
4, 2019, the Company filed a Certificate of Amendment to its
Certificate of Incorporation to increase its authorized common
stock from 25,000,000 shares to 100,000,000 shares.
On
June 10, 2020, the Company’s Board of Directors approved an
amendment to the Company’s Amended and Restated Certificate of
Incorporation, as amended (the “Certificate of Incorporation”) to
increase the number of authorized shares of common stock of the
Company to 250,000,000 shares from 100,000,000 shares. On July 14,
2020, the Company filed a Certificate of Amendment to its
Certificate of Incorporation to increase its authorized common
stock from 100,000,000 shares to 250,000,000 shares.
On
August 3, 2020, the Company’s Board of Directors approved an
amendment to the Company’s Amended and Restated Certificate of
Incorporation, as amended (the “Certificate of Incorporation”) to
increase the number of authorized shares of common stock of the
Company to 500,000,000 shares from 250,000,000 shares. On August 4,
2020, the Company filed a Certificate of Amendment to its
Certificate of Incorporation to increase its authorized common
stock from 250,000,000 shares to 500,000,000 shares.
Dividend
Policy
We
have not paid any dividends on our common stock and do not
anticipate paying any such dividends in the near future. Instead,
we intend to use any earnings for future acquisitions and expanding
our business.
Recent
Sales of Unregistered Securities
The
following securities were issued in reliance on the exemptions from
registration under the Securities Act in Section 4(a)(2) of the
Securities Act and Regulation D thereunder. The sale of these
securities; did not involve any solicitation or advertisement, were
for investment purposes only and not for resale, and did not
include more than 35 non-accredited investors. The securities were
issued with restrictions on the resale of the
securities.
On
September 7, 2021, the Company issued 50,000 shares of common stock
at approximately $0.30 per share for approximately $15,000 in
services.
On
July 30, 2021, the Company issued 11,691 shares of common stock at
approximately $0.43 per share for approximately $5,000 in
services.
On
July 30, 2021, the Company issued 14,493 shares of common stock at
approximately $0.34 per share for approximately $5,000 in
services.
On
July 30, 2021, the Company issued 17,241 shares of common stock at
approximately $0.29 per share for approximately $5,000 in
services.
On
July 30, 2021, the Company issued 250,000 shares of common stock at
approximately $0.21 per share for approximately $54,000 in
services.
On
July 30, 2021, the Company issued 200,000 shares of common stock at
approximately $0.32 per share for approximately $64,000 in
services.
On
April 15, 2021, the Company issued 23,277 shares of common stock at
approximately $0.21 per share for approximately $5,000 in
services.
On
April 15, 2021, the Company issued 18,797 shares of common stock at
approximately $0.27 per share for approximately $5,000 in
services.
On
April 15, 2021, the Company issued 42,772 shares of common stock at
approximately $0.12 per share for approximately $5,000 in
services.
On
April 15, 2021, the Company issued 128,205 shares of common stock
at approximately $0.04 per share for approximately $5,000 in
services.
On
April 15, 2021, the Company issued 450,000 shares of common stock
at approximately $0.22 per share for approximately $97,000 in
services.
On
February 23, 2021, the Company issued 1,032,918 shares of common
stock at approximately $0.10 per share pursuant to a convertible
promissory note.
On
February 9, 2021, the Company issued 450,000 shares of common stock
at approximately $0.27 per share pursuant to the issuance of a
promissory note.
On
January 20, 2021, the Company issued 3,352,066 shares of common
stock at approximately $0.02 per share pursuant to a convertible
promissory note.
On
January 18, 2021, the Company issued 559,076 shares of common stock
at approximately $0.13 per share for approximately $74,000 in
services.
On
January 1, 2021, the Company issued 115,817 shares of common stock
at approximately $0.05 per share for approximately $6,000 in
services.
On
December 2, 2020, the Company issued 2,666,666 shares of common
stock at approximately $0.36 per share pursuant to the CloseComms
transaction.
On
August 11, 2020, the Company issued 2,038,218 shares of common
stock at approximately $0.02 per share pursuant to a convertible
promissory note.
On
August 5, 2020, the Company issued 1,068,973 shares of common stock
at approximately $0.02 per share pursuant to a convertible
promissory note.
On
August 4, 2020, the Company issued 711,180 shares of common stock
at approximately $0.02 per share pursuant to a convertible
promissory note.
On
July 29, 2020, the Company issued 37,390,452 shares of common stock
at approximately $0.03 per share pursuant to a warrant exchange
agreement with the Company’s Chief Executive Officer.
On
July 29, 2020, the Company issued 709,713 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 28, 2020, the Company issued 639,080 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 27, 2020, the Company issued 1,149,425 shares of common stock
at approximately $0.02 per share pursuant to a convertible
promissory note.
On
July 23, 2020, the Company issued 2,275,862 shares of common stock
at approximately $0.02 per share pursuant to a convertible
promissory note.
On
July 23, 2020, the Company issued 726,984 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 22, 2020, the Company issued 1,113,653 shares of common stock
at approximately $0.02 per share pursuant to a convertible
promissory note.
On
July 22, 2020, the Company issued 832,189 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 20, 2020, the Company issued 620,401 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 20, 2020, the Company issued 1,100,432 shares of common stock
at approximately $0.02 per share pursuant to a convertible
promissory note.
On
July 16, 2020, the Company issued 200,000 shares of common stock at
approximately $0.03 per share for approximately $7,000 in
services.
On
July 16, 2020, the Company issued 548,911 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 15, 2020, the Company issued 771,716 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 13, 2020, the Company issued 547,930 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 10, 2020, the Company issued 513,940 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
July 10, 2020, the Company issued 962,529 shares of common stock at
approximately $0.02 per share pursuant to a convertible promissory
note.
On
June 30, 2020, the Company issued 726,560 shares of common stock at
approximately $0.04 per share pursuant to a convertible promissory
note.
On
June 30, 2020, the Company issued 712,365 shares of common stock at
approximately $0.04 per share pursuant to a convertible promissory
note.
On
June 23, 2020, the Company issued 620,161 shares of common stock at
approximately $0.10 per share pursuant to a convertible promissory
note.
On
June 23, 2020, the Company issued 580,724 shares of common stock at
approximately $0.07 per share pursuant to a convertible promissory
note.
On
June 22, 2020, the Company issued 409,946 shares of common stock at
approximately $0.07 per share pursuant to a convertible promissory
note.
On
June 18, 2020, the Company issued 362,214 shares of common stock at
approximately $0.07 per share pursuant to a convertible promissory
note.
On
June 17, 2020, the Company issued 434,749 shares of common stock at
approximately $0.07 per share pursuant to a convertible promissory
note.
On
June 10, 2020, the Company issued 434,110 shares of common stock at
approximately $0.07 per share pursuant to a convertible promissory
note.
On
June 3, 2020, the Company issued 541,724 shares of common stock at
approximately $0.10 per share pursuant to a convertible promissory
note.
On
May 22, 2020, the Company issued 166,666 shares of common stock at
approximately $0.09 per share pursuant to a convertible promissory
note.
On
May 12, 2020, the Company issued 215,053 shares of common stock at
approximately $0.09 per share pursuant to a convertible promissory
note.
On
May 8, 2020, the Company issued 198,150 shares of common stock at
approximately $0.09 per share pursuant to a convertible promissory
note.
On
April 17, 2020, the Company issued 58,651 shares of common stock at
approximately $0.17 per share pursuant to a convertible promissory
note.
On
April 17, 2020, the Company issued 150,000 shares of common stock
at approximately $0.17 per share pursuant to a convertible
promissory note.
On
April 8, 2020, the Company issued 47,713 shares of common stock at
approximately $0.21 per share pursuant to a convertible promissory
note.
On
April 8, 2020, the Company issued 145,933 shares of common stock at
approximately $0.21 per share pursuant to a convertible promissory
note.
On
March 27, 2020, the Company issued 37,634 shares of common stock at
approximately $0.28 per share pursuant to a convertible promissory
note.
On
March 27, 2020, the Company issued 30,459 shares of common stock at
approximately $0.28 per share pursuant to a convertible promissory
note.
On
February 12, 2020, the Company issued 60,000 shares of common stock
at approximately $0.25 per share pursuant to a private placement
memorandum.
On
January 17, 2020, the Company issued 190,000 shares of common stock
at approximately $0.25 per share pursuant to a private placement
memorandum.
On
January 16, 2020, the Company issued 280,000 shares of common stock
at approximately $0.25 per share pursuant to a private placement
memorandum.
On
January 16, 2020, the Company issued 9,147 shares of common stock
at approximately $1.03 per share for approximately $9,400 in
services.
On
January 16, 2020, the Company issued 1,856 shares of common stock
at approximately $1.01 per share for approximately $1,900 in
services.
On
January 15, 2020, the Company issued 174,216 shares of common stock
at approximately $0.72 per share pursuant to a private placement
memorandum.
On
January 14, 2020, the Company issued 35,361 shares of common stock
at approximately $0.71 per share pursuant to a private placement
memorandum.
On
November 7, 2019, the Company issued 10,000 shares of common stock
at approximately $0.25 per share pursuant to a private placement
memorandum.
On
October 18, 2019, the Company issued 62,000 shares of common stock
at approximately $0.25 per share for approximately $15,500 in
services.
On
October 9, 2019, the Company issued 231,635 shares of common stock
at approximately $0.89 per share pursuant to the Chief Financial
Officer’s employment agreement.
On
August 19, 2019, the Company issued 140,000 shares of common stock
at approximately $0.25 per share for approximately $35,000 in
services.
On
August 13, 2019, the Company issued 17,204 shares of common stock
at approximately $0.25 per share pursuant to a convertible
promissory note.
On
August 6, 2019, the Company issued 340,000 shares of common stock
at approximately $0.25 per share pursuant to a private placement
memorandum.
On
August 6, 2019, the Company issued 12,000 shares of common stock at
approximately $0.25 per share pursuant to a convertible promissory
note.
On
August 6, 2019, the Company issued 50,150 shares of common stock at
approximately $0.25 per share for approximately $12,500 in
services.
On
July 2, 2019, the Company issued 575,300 shares of common stock at
approximately $0.25 per share for approximately $18,800 in
services.
On
July 2, 2019, the Company issued 40,000 shares of common stock at
approximately $0.25 per share pursuant to a private placement
memorandum.
During
the fiscal quarter ended June 30, 2019, the Company issued 200,000
shares of common stock at approximately $0.25 per share pursuant to
a private placement memorandum.
On
January 16, 2019, the Company issued 2,620,899 shares of common
stock at approximately $0.50 per share pursuant to the Chief
Executive Officer’s employment agreement.
During
the fiscal quarter ended March 31, 2019, the Company issued 320,000
shares of common stock at approximately $0.25 per share pursuant to
a private placement memorandum.
During
the fiscal quarter ended December 31, 2018, the Company issued
593,240 shares of common stock at approximately $0.25 per share
pursuant to convertible promissory notes and services.
During
the fiscal quarter ended December 31, 2018, the Company issued
80,000 shares of common stock at approximately $0.25 per share
pursuant to a private placement memorandum.
During
the fiscal quarter ended September 30, 2018, the Company issued
3,305,492 shares of common stock at approximately $0.50 per share
pursuant to convertible promissory notes and services.
During
the fiscal quarter ended September 30, 2018, the Company issued
1,150,000 shares of common stock at approximately $0.50 per share
for approximately $575,000 in services.
During
the fiscal quarter ended September 30, 2018, the Company issued
40,000 shares of common stock at approximately $0.25 per share
pursuant to a private placement memorandum.
ITEM 6. SELECTED FINANCIAL
DATA
As a
smaller reporting company, we are not required to provide the
information required by this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You
should read this discussion together with the financial statements,
related notes and other financial information included elsewhere in
this Annual Report on Form 10-K. The following discussion contains
assumptions, estimates and other forward-looking statements that
involve a number of risks and uncertainties, including those
discussed under “Risk Factors,” and elsewhere in this Annual Report
on Form 10-K. To the extent that this Annual Report on Form 10-K
contains forward-looking statements regarding the financial
condition, operating results, business prospects or any other
aspect of our Company, please be advised that our actual financial
condition, operating results and business performance may differ
materially from that projected or estimated by us in
forward-looking statements and thus you should not unduly rely on
these statements.
Overview
Since
January 11, 2019, when the Company underwent a complete change in
management and control, the new management has continued to broaden
the Company’s product mix to include artificial intelligence and
machine learning products.
Since
announcing the formation of mPhase Technologies India, Pvt, Ltd
during February 2019, the Company has expanded its focus on
software and technology development for new and existing projects
through the creation and expansion of its “Center of Excellence”
India division. This “Center of Excellence” consists of a team in
India of highly qualified software and technology experts in the
fields of artificial intelligence and machine learning.
In
addition to the foregoing, since our acquisition of Travel Buddhi
during February 2019, we have continued developing the software
platform which enhances travel via ultra-customization tools that
tailor a planned trip experience in ways not previously available
by making it “smart” and “connected” as part of the internet of
things.
Furthermore,
since our acquisition of CloseComms during May 2020, pursuant to
which we acquired certain assets and assumed certain liabilities,
we have continued advancing our patented, software application
platform that can be integrated into a retail customer’s existing
Wi-Fi infrastructure, giving the retailer important customer data
and enabling AI-enhanced, targeted promotions to drive store
traffic and sales.
Recent
Developments
Financings
Evergreen Agreement
On
April 6, 2021, the Company entered into a Securities Purchase
Agreement (the “SPA”) with Evergreen Capital Management LLC (the
“Investor”), pursuant to which the Company sold to the Investor a
15% OID convertible promissory note with a principal amount of
$1,771,000 (the “Note”) and a warrant (the “Warrant”) to purchase
up to 8,855,000 shares of the Company’s common stock, par value
$0.01 per share (the “Common Stock”) for proceeds of $1,540,000.
The
Note matures on April 6, 2022, bears interest at the rate of 5% per
annum and is convertible at any time upon the option of the
Investor into shares of Common Stock at a conversion price equal to
$0.20 per share or, upon the occurrence and during the continuance
of an Event of Default (as defined in the Note), if lower, at a
conversion price equal to 75% of the lowest daily VWAP of the
Common Stock during the 20 consecutive trading days immediately
preceding the applicable conversion date. The Company has the right
to prepay all or any portion of the outstanding balance of the Note
in an amount equal to 115% or 120%, depending on whether such
repayment is made before November 5, 2021 or after November 5,
2021, respectively, multiplied by the portion of the outstanding
balance to be prepaid. The Company is required to prepay all or any
portion of the outstanding balance of the Note upon the occurrence
of a Qualified Financing (as defined in the Note). If at any time
while the Note is outstanding, the Company completes any single
Future Transaction (as defined in the Note), the Investor may, in
its sole discretion, elect to apply all, or any portion, of the
then outstanding principal amount of this Note and any accrued but
unpaid interest, as purchase consideration for such Future
Transaction.
The
Warrant is exercisable at a purchase price of $0.20 per share at
any time on or prior to April 6, 2025, and may be exercised on a
cashless basis, beginning on the six-month anniversary of the
Effective Date, if the shares of Common Stock underlying the
Warrant are not then registered under the Securities Act of 1933,
as amended (the “Securities Act”). The Investor will not have the
right to exercise the Warrant if the Investor, together with its
affiliates, would beneficially own in excess of 4.99% of the number
of shares of the Common Stock outstanding immediately after giving
effect to its conversion and under no circumstances may exercise
the Warrant if the Investor, together with its affiliates, would
beneficially own in excess of 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to its
exercise.
The
SPA contains customary representations, warranties and agreements
by the Company, customary conditions to closing, indemnification
obligations of the Company, other obligations of the parties
thereto, and termination provisions.
Investors’ Agreement
On
May 4, 2021, the Company entered into a Securities Purchase
Agreement (the “SPA”) with two accredited investors (the
“Investors”), pursuant to which the Company sold to the Investors
15% OID convertible promissory notes with an aggregate principal
amount of $2,264,706 (the “Notes”) and warrants (the “Warrants”) to
purchase up to 11,323,530 shares of the Company’s common stock, par
value $0.01 per share (the “Common Stock”) for proceeds of $1,925,000 (the “Purchase
Price”). The Purchase Price was funded on May 5,
2021.
If
the Company files a Registration Statement on Form S-1 for the sale
of shares of its Common Stock in conjunction with an application to
list the Company’s Common Stock on a national securities exchange,
the Investors will be obligated to purchase under the SPA, within
three (3) business days, on a pro rata basis, additional promissory
notes in the aggregate principal amount of $735,294 and warrants to
purchase up to 3,676,471 shares of the Company’s common stock, for
proceeds of $625,001.
The
Notes mature on May 5, 2022, bear interest at the rate of 5% per
annum and are convertible at any time upon the option of the
Investors into shares of Common Stock at a conversion price equal
to $0.20 per share. The Company has the right to prepay all or any
portion of the outstanding balance of the Notes in an amount equal
to 115% or 120%, depending on whether such repayment is made before
November 5, 2021 or after November 5, 2021, respectively,
multiplied by the portion of the outstanding balance to be
prepaid.
The
Warrants are exercisable at a purchase price of $0.20 per share at
any time on or prior to May 5, 2025, and may be exercised on a
cashless basis, beginning on the six-month anniversary of the
Effective Date, if the shares of Common Stock underlying the
Warrants are not then registered under the Securities Act of 1933,
as amended (the “Securities Act”).
The
SPA contains customary representations, warranties and agreements
by the Company, customary conditions to closing, indemnification
obligations of the Company, other obligations of the parties
thereto, and termination provisions.
Officer
Appointments and Departures
On
May 17, 2021, the board of directors the Company appointed Mr.
Venkat Kodumudi as the Company’s Chief Operating Officer (the
“Appointment”).
Venkat
Kodumudi, age 52, combines over 29 years of experience in
information technology industry senior management that includes a
14-year career as software developer and architect. Previously, he
had been involved in over 5 companies and a Federal Government
Agency, in the information technology industry holding positions
including chief technology officer, health product practice lead,
director, and deputy director for IT operations. From 2017 through
May, 2021, Venkat was a Director for CGI, Inc., (NYSE: GIB) IT
services company, with diverse duties including practice lead for
blockchain and intelligent automation technology. From 2016 to
2017, he was CTO for FocalCXM, Inc., a company involved in building
and supporting consumer engagement solutions for the Lifesciences
industry. From 2004 to 2015, he held various director level
positions for the Transportation Security Agency (TSA), including
operating and managing TSA’s Enterprise Learning Management System
(LMS). Mr. Kodumudi has a Master’s degree in Computer Science from
Arizona State University and an MBA from George Mason
University.
In
connection with the Appointment, Mr. Kodumudi entered into an
Employment Agreement (the “Employment Agreement”) with the Company.
The Employment Agreement is for an indefinite term and may be
terminated with or without cause. Mr. Kodumudi will receive an
annual base salary of $200,000.00 (the “Base Salary”) and shall be
eligible to earn a performance bonus in the target amount of up to
50% of the Base Salary, if any, upon the attainment of performance
goals established by the Chief Executive Officer of the Company. In
connection with his Appointment, Mr. Kodumudi was granted 500,000
restricted stock units of the Company’s common stock (the “RSUs”).
The RSUs shall vest in accordance with the following: (i) 125,000
of the RSUs shall vest on the one year anniversary of the Effective
Date; (ii) 125,000 RSUs shall vest on the second year anniversary
of the Effective Date; (iii) 125,000 RSUs shall vest on the third
year anniversary of the Effective Date; and (iv) 125,000 RSUs shall
vest on the fourth year anniversary of the Effective Date. As a
full-time employee of the Company, Mr. Kodumudi will be eligible to
participate in all of the Company’s benefit programs.
Upon
termination of Mr. Kodumudi without cause and provided that Mr.
Kodumudi has been employed by the Company for a minimum of twelve
(12) months but less than twenty-four (24) months, the Company
shall pay or provide to Mr. Kodumudi severance pay equal to his
then current monthly base salary for six months from the date of
termination, during which time Mr. Kodumudi shall continue to
receive all employee benefits and employee benefit plans as
described in the Employment Agreement. Upon termination of Mr.
Kodumudi without cause and provided that Mr. Kodumudi has been
employed by the Company for a minimum of twenty-four (24) months,
the Company shall pay or provide to Mr. Kodumudi severance pay
equal to his then current monthly base salary for twelve months
from the date of termination.
On
August 27, 2021, the Board of Directors the Company appointed Suhas
Subramanyam, Chester White, and Thomas Fore as members of the
Board.
The
terms of the appointments of Subramanyam, White, and Fore commenced
on August 27, 2021 and are in effect for a period of approximately
one year, until the time of the Company’s next Annual Meeting of
Stockholders.
In
connection with the appointments of Subramanyam, White, and Fore,
on August 27, 2021, the Company entered into director agreements
with Mr. Subramanyam, Mr. White and Mr. Fore. Pursuant to such
agreements, the Company will compensate each such director a fee of
$20,000 annually, which is to be paid in quarterly installments of
$5,000. Such quarterly fee will be increased by $1,250 for each
such director who serves as a member of either the Audit,
Compensation, or Nominating Committee. In lieu of cash
consideration, the annual fee will be paid by issuance of the
number of restricted shares of the Company’s common stock
equivalent to the applicable cash amount due as determined based
upon the closing price on the last trading day of such
quarter.
Results
of Operations for the Years Ended June 30, 2021 and
2020
Continuing
Operations
Revenue
Our
revenue increased to $30,672,314 for the year ended June 30, 2021,
compared to $30,276,422 for the year ended June 30, 2020, an
increase of $395,892 or 1%. The increase is the result of
deployment and growth of our learning track technology platform and
services which generated $24,720,000 of subscription revenue,
$3,656,274 of service and support revenue and $2,296,040 of
application development and implementation revenue.
Cost of Revenue
Cost
of revenue totaled $22,501,496 for the year ended June 30, 2021,
compared to $22,579,544 for the year ended June 30, 2020. The
decrease of $78,048 is the result of certain prior year costs not
incurred during the current year.
Operating Expenses
Our
operating expenses decreased to $4,964,910 for the year ended June
30, 2021, compared to $20,273,109 for the year ended June 30, 2020,
a decrease of $15,308,199, or 76%. The decrease is primarily due to
$16,213,606 of stock-based compensation expense recognized during
2020 related to the Company’s Chief Executive Officer and Chief
Financial Officer, coupled with a decrease of $302,096 in general
and administrative expenses, partially offset by an increase of
$1,441,143 in software development costs.
Other Income (Expense)
Our
other expense, net, increased by $22,561, or 1%, for the year ended
June 30, 2021. The increase is primarily the result of increases in
original issue discount, deferred financing costs, debt discount,
interest expense, initial derivative expense, partially offset by a
gain on the change in fair value of derivative liability associated
with the convertible promissory notes, and gain on debt settlements
and extinguishments.
Net Income (Loss) from Continuing Operations
We
generated net income of $1,666,011 for the year ended June 30,
2021, compared to a net loss of $14,093,567 for the year ended June
30, 2020, an increase of $15,759,578. The increase in net income is
primarily driven by the increase in gross profit, coupled with the
decrease in operating expenses, partially offset by the increase in
other income (expense).
Discontinued
Operations
For
the years ended June 30, 2021 and 2020, there are no revenue, cost
of revenue, operating expenses, other income (expense), or net
income (loss) from discontinued operations.
Liquidity and Capital Resources
At
June 30, 2021, we had $2,473,386 of cash on-hand, an increase of
$2,330,973 from $142,413 at June 30, 2020.
Net
cash used in operating activities of continuing operations was
$1,520,703 for the year ended June 30, 2021, an increase of
$176,670 from $1,344,033 used during the year ended June 30, 2020.
This increase was primarily due to increases in accounts receivable
and net income, partially offset by a net decrease in non-cash
charges and an increase in accounts payable and accrued
expenses.
Net
cash used in investing activities of continuing operations was
$3,064 for the year ended June 30, 2021, compared to net cash
provided by investing activities of continuing operations of
$69,447 for the year ended June 30, 2020. The increase was due to
an increase in capital expenditures, coupled with the decrease in
cash acquired from the CloseComms acquisition during the year ended
June 30, 2020.
Financing
activities of continuing operations increased to $3,979,336 for the
year ended June 30, 2021, compared to $1,269,933 for the year ended
June 30, 2020. This increase was primarily due to increased
proceeds from issuances of convertible promissory notes, and
proceeds from notes payable, partially offset by decreases in
proceeds from the sale of common stock and notes payable to related
parties, and coupled with increases in repayments of notes payable
to related parties, repayments under settlement agreement, and
repayments of convertible notes payable.
Going Concern
We
generated net income of $1,666,011 and incurred a net loss of
$14,093,567 for the years ended June 30, 2021 and 2020,
respectively. We used cash in operating activities of $1,520,703
and $1,344,033 for the years ended June 30, 2021 and 2020,
respectively. At June 30, 2021, we had a working capital surplus of
$9,755,907, and an accumulated deficit of $226,061,409. While these
factors alone may raise doubt as to the Company’s ability to
continue as a going concern, management believes the Company’s
present and expected cash flows will enable it to meet its
obligations for a period of twelve months from the date of this
filing. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts nor to the amounts and classification of
liabilities that might be necessary should we be unable to continue
as a going concern.
In the event managements’ plans do not materialize, in order to
meet the Company’s working capital needs through the next twelve
months and to fund the growth of its nanotechnology, artificial
intelligence, and machine learning technologies, as well as our 5G
and EV charging initiatives, we may consider plans to raise
additional funds through the issuance of equity or debt. Although
we intend to obtain additional financing to meet our cash needs, we
may be unable to secure any additional financing on terms that are
favorable or acceptable to us, if at all. Our ability to raise
additional capital may also be impacted by the recent COVID-19
pandemic, which such ability is highly uncertain, cannot be
predicted, and could have an adverse effect on our business and
financial condition.
Impact of COVID-19 Pandemic
A
novel strain of coronavirus, COVID-19, surfaced during December
2019 and has spread around the world, including to the United
States. During March 2020, COVID-19 was declared a pandemic by the
World Health Organization. During certain periods of the pandemic
thus far, a number of U.S. states and various countries throughout
the world had been under governmental orders requiring that all
workers remain at home unless their work was critical, essential,
or life-sustaining. As a result of these governmental orders, we
temporarily closed our domestic and international offices and
required all of our employees to work remotely. As economic
activity has begun and continues recovering, the impact of the
COVID-19 pandemic on our business has been more reflective of
greater economic and marketplace dynamics. Furthermore, in light of
variant strains of the virus that have emerged, the COVID-19
pandemic could once again impact our operations and the operations
of our customers and vendors as a result of quarantines, illnesses,
and travel restrictions.
The
full impact of the COVID-19 pandemic on our financial condition and
results of operations will depend on future developments, such as
the ultimate duration and scope of the pandemic, its impact on our
employees, customers, and vendors, in addition to how quickly
normal economic conditions and operations resume and whether the
pandemic impacts other risks disclosed in Item 1A “Risk Factors”
within this Annual Report on Form 10-K. Even after the pandemic has
subsided, we may continue to experience adverse impacts to our
business as a result of any economic recession or depression that
has occurred as a result of the pandemic. Therefore, we cannot
reasonably estimate the impact at this time. We continue to
actively monitor the pandemic and may determine to take further
actions that alter our business operations as may be required by
federal, state, or local authorities or that we determine are in
the best interests of our employees, customers, vendors, and
shareholders.
Critical
Accounting Policies
We
have identified the policies below as critical to our understanding
of the results of our business operations. We discuss the impact
and any associated risks related to these policies on our business
operations throughout Management’s Discussion and Analysis of
Financial Condition and Results of Operations where such policies
affect our reported and expected financial results.
In
the ordinary course of business, we have made a number of estimates
and assumptions in preparing our financial statements in conformity
with accounting principles generally accepted in the United States
of America (“GAAP”). Actual results could differ significantly from
those estimates and assumptions. The following critical accounting
policies are those that are most important to the portrayal of our
consolidated financial statements. For a summary of our significant
accounting policies, including the critical accounting policies
discussed below, refer to Note 3 - “Summary of Significant
Accounting Policies” included in the notes to consolidated
financial statements for the year ended June 30, 2021 included
elsewhere in this Annual Report on Form 10-K.
We
consider the following accounting policies to be those most
important to the portrayal of our results of operations and
financial condition:
Revenue
Recognition
We
recognize revenue in accordance with the Financial Accounting
Standards Board’s (“FASB”), Accounting Standards Codification
(“ASC”) ASC 606, Revenue from Contracts with Customers (“ASC 606”).
Revenues are recognized when control is transferred to customers in
amounts that reflect the consideration the Company expects to be
entitled to receive in exchange for those goods. Revenue
recognition is evaluated through the following five steps: (i)
identification of the contract, or contracts, with a customer; (ii)
identification of the performance obligations in the contract;
(iii) determination of the transaction price; (iv) allocation of
the transaction price to the performance obligations in the
contract; and (v) recognition of revenue when or as a performance
obligation is satisfied.
Revenue
is derived from the sale of artificial intelligence and machine
learning focused technology products and related services. The
Company recognizes revenue when performance obligations under the
terms of a contract with the customer are satisfied. Product sales
occur once control is transferred upon delivery to the customer.
Revenue is measured as the amount of consideration the Company
expects to receive in exchange for transferring products. The
amount of consideration the Company receives and revenue the
Company recognizes varies with changes in customer incentives the
Company offers to its customers and their customers. In the event
any discounts, sales incentives, or similar arrangements are agreed
to with a customer, such amounts are estimated at time of sale and
deducted from revenue. Sales taxes and other similar taxes are
excluded from revenue (see Note 7).
Contract
liabilities include amounts billed to customers in excess of
revenue recognized and are presented as contract liabilities on the
consolidated balance sheets (see Note 7).
Income
Taxes
We
accounts for income taxes using an asset and liability approach to
financial accounting and reporting for income taxes. Accordingly,
deferred tax assets and liabilities arise from the difference
between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements. Deferred tax
amounts are determined using the tax rates expected to be in effect
when the taxes will actually be paid or refunds received, as
provided under currently enacted tax law. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is
the tax payable or refundable, respectively, for the period plus or
minus the change in deferred tax assets and liabilities during the
period. We have recorded a full valuation allowance for our net
deferred tax assets as of June 30, 2021 and 2020 because
realization of those assets is not reasonably assured.
We
will recognize a financial statement benefit of a tax position only
after determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized
in the financial statements is the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate
settlement with the relevant tax authority.
We
believe our income tax filing positions and deductions will be
sustained upon examination and, accordingly, no reserves, or
related accruals for interest and penalties has been recorded at
June 30, 2021 and 2020.
Share-Based
Compensation
We
compute share based payments in accordance with 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.
Restricted
stock awards are granted at the discretion of the compensation
committee of our board of directors (the “Board of Directors”).
These awards are restricted as to the transfer of ownership and
generally vest over the requisite service periods (vesting on a
straight–line basis). The fair value of a stock award is equal to
the fair market value of a share of our common stock on the grant
date.
We
estimate the fair value of stock options and warrants by using the
Black-Scholes option valuation model. The Black–Scholes option
valuation model requires the development of assumptions that are
inputs into the model. These assumptions are the expected stock
volatility, the risk–free interest rate, the expected life of the
option, the dividend yield on the underlying stock and the expected
forfeiture rate. Expected volatility is calculated based on the
historical volatility of our common stock over the expected term of
the option. Risk–free interest rates are calculated based on
continuously compounded risk–free rates for the appropriate
term.
Determining
the appropriate fair value model and calculating the fair value of
equity–based payment awards requires the input of the subjective
assumptions described above. The assumptions used in calculating
the fair value of equity–based payment awards represent
management’s best estimates, which involve inherent uncertainties
and the application of management’s judgment. We are required to
estimate the expected forfeiture rate and recognize expense only
for those shares expected to vest.
We
account for share–based payments granted to non–employees in
accordance with ASC 505–50, “Equity Based Payments to
Non–Employees.” We determine the fair value of the stock–based
payment as either the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more
readily determinable. If the fair value of the equity instruments
issued is used, it is measured using the stock price and other
measurement assumptions as of the earlier of either (1) the date at
which a commitment for performance by the counterparty to earn the
equity instruments is reached, or (2) the date at which the
counterparty’s performance is complete.
Derivative
Instruments
We
enter into financing arrangements that consist of freestanding
derivative instruments or are hybrid instruments that contain
embedded derivative features. We recognize derivative instruments
as either assets or liabilities in the balance sheet and measure
such derivative instruments 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 fair values of derivative
financial instruments are estimated using various techniques (and
combinations thereof) that are considered consistent with the
objective measuring fair values. In selecting the appropriate
technique, the nature of the instrument, the market risks that it
embodies and the expected means of settlement are considered.
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 our 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.
Accounts
Receivable
We
regularly review outstanding receivables and provide for estimated
losses through an allowance for doubtful accounts. In evaluating
the level of established loss reserves, we make judgments regarding
our customers’ ability to make required payments, economic events,
and other factors. As the financial condition of these parties’
change, circumstances develop or additional information becomes
available, adjustments to the allowance for doubtful accounts may
be required. We maintain reserves for potential credit losses, and
such losses traditionally have been within our expectations.
Additionally, to date, the Company has entered into three separate
tri-party settlement and offset agreements with its largest
customer and largest vendor, whereby the Company’s largest customer
has agreed to direct funds due the Company for certain outstanding
invoices, to the Company’s largest vendor to satisfy payment on
behalf of the Company for certain outstanding invoices. To date,
the aggregate amount of the five tri-party settlement and offset
agreements has totaled $41,250,000. At June 30, 2021 and 2020, we
determined there was no requirement for an allowance for doubtful
accounts.
New
Accounting Standards
Refer
to Note 3 to our audited consolidated financial statements
including in this Annual Report on Form 10-K for a discussion of
recently adopted and to be adopted accounting standards.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
As a
smaller reporting company, we are not required to provide the
information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
See
financial statements starting on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of June 30, 2021 to determine whether our disclosure
controls and procedures are effective to provide reasonable
assurance that the information required to be disclosed in our
reports under the Exchange Act, and the rules and regulations
thereunder, is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to our management,
including our principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within a company have been detected. Based on this evaluation,
management concluded that our disclosure controls and procedures
were effective as of June 30, 2021. In designing and evaluating the
disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the
controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud,
if any, within a company have been detected.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control
over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with GAAP.
Our
management, with the participation of our principal executive
officer and principal financial officer, evaluated the
effectiveness of our internal control over financial reporting as
of June 30, 2021. In making this assessment, our management used
the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control — Integrated
Framework. Based on that evaluation, our management concluded that,
as of June 30, 2021, our internal control over financial reporting
was effective based on such criteria.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only
reasonable assurance of achieving their control objectives.
Furthermore, smaller companies face additional limitations. Smaller
companies employ fewer individuals and find it difficult to
properly segregate duties. Smaller companies tend to utilize
general accounting software packages that lack a rigorous set of
software controls.
Attestation
Report on Internal Control Over Financial Reporting
This
Annual Report on Form 10-K does not include an attestation report
of our registered public accounting firm regarding internal control
over financial reporting due to the rules of the SEC for smaller
reporting companies.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial
reporting that occurred during the quarter ended June 30, 2021 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE
Directors,
Executive Officers, and Other Key Employees
The
following table sets forth the names and ages of the members of our
Board of Directors and our executive officers and the positions
held by each as of October 11, 2021.
|
Name |
|
Age |
|
Positions(s) |
| Anshu
Bhatnagar |
|
47 |
|
Chief
Executive Officer and Chairman |
| |
|
|
|
|
| Venkat
Kodumudi |
|
52 |
|
Chief
Operating Officer |
| |
|
|
|
|
| Suhas
Subramanyam |
|
35 |
|
Director |
| |
|
|
|
|
| Chester
White |
|
57 |
|
Director |
| |
|
|
|
|
| Thomas
Fore |
|
55 |
|
Director |
Biographies
for the members of our Board of Directors and our management team
are set forth below.
Anshu Bhatnagar – Chief Executive Officer and
Chairman
Anshu
Bhatnagar has served as our Chief Executive Officer and Chairman of
our board of directors since January 11, 2019. Mr. Bhatnagar has
extensive international business experience, most recently (from
January 2008 through February 2021) managing private and public
international trade and distribution companies specializing in food
products. 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. Moreover, Mr. Bhatnagar was Chief Executive Officer and
Chairman of Verus International Inc., a real estate services
company. He has also owned and operated other successful businesses
in technology, construction and waste management. A computer
scientist and entrepreneur, Anshu began his technology career
working on major federal government projects for Oracle and
Computer Science Corp. He eventually formed his own firm (2Pi
Solutions) in this space, which was ranked as one of the top 100
fastest growing companies in the U.S. before its sale in 2010. We
believe Mr. Bhatnagar is qualified to serve as a member of our
board because of his extensive international business experience
and expertise in large-scale critical technology
deployments.
Venkat Kodumudi - Chief Operating Officer
Mr.
Kodumudi combines over 29 years of experience in information
technology industry senior management that includes a 14-year
career as software developer and architect. Previously, he had been
involved in over 5 companies and a Federal Government Agency, in
the information technology industry holding positions including
chief technology officer, health product practice lead, director,
and deputy director for IT operations. From 2017 through May, 2021,
Venkat was a Director for CGI, Inc., (NYSE: GIB) IT services
company, with diverse duties including practice lead for blockchain
and intelligent automation technology. From 2016 to 2017, he was
CTO for FocalCXM, Inc., a company involved in building and
supporting consumer engagement solutions for the Lifesciences
industry. From 2004 to 2015, he held various director level
positions for the Transportation Security Agency (TSA), including
operating and managing TSA’s Enterprise Learning Management System
(LMS). Mr. Kodumudi has a Master’s degree in Computer Science from
Arizona State University and an MBA from George Mason
University.
Suhas Subramanyam - Director
Mr.
Subramanyam is a public servant, lawyer, and technology policy
expert who currently represents the 87th District in the Virginia
General Assembly, where he was first elected in 2019. He was the
first Indian-American elected in Virginia’s history at either the
state or federal level. He also serves on the Virginia Small
Business Commission and Virginia Minority Business Commission
(August 2020 to present) as well as the Communications, Technology,
and Innovation Committee in the House of Delegates (May 2020 to
present). Previously, he served as a technology policy advisor in
the White House under President Barack Obama between August 2015
through January 2017, where he ran a task force on technology
policy and advised on Artificial Intelligence, cybersecurity,
infrastructure policy, and economic opportunity. Before joining the
White House, as an attorney with Jones Day, where he handled a
range of technology and trade issues. He has also served as an
advisor to Members of the U.S. House of Representatives and U.S.
Senate Judiciary Committee. Mr. Subramanyam also serves as In-House
Counsel at Level, Inc. (March 2021 to present). He is a resident of
Loudoun County, Virginia, and holds a J.D. from Northwestern
University. The Board believes that Mr. Subramanyam’s technology,
regulatory, and government leadership experience will make him a
valuable addition to the Board and is expected to help bring the
Company towards continued growth and success.
Chester White - Director
Mr.
White currently serves as CEO of QuantAI, Inc. (“QuantAI”) (2017 to
present), a leading artificial intelligence FinTech company. He
also serves as portfolio manager of the Helios Alpha 3x Fund, LP.
Previously, Mr. White held executive positions with Paine Webber
(acquired by UBS Financial Services), Dean Witter (acquired by
Morgan Stanley), Wells Fargo
N.A. (1998 to 2002), Merriman, and Curran Ford & Co.
Additionally, Mr. White serves in various positions of increasing
responsibility including a Manager of Griffin Advisors and a
Partner in OneTraction Ventures. The Board believes that Mr.
White’s experience in technology-based leadership roles qualifies
him well to help bring the Company towards continued growth and
success.
Thomas Fore - Director
Mr.
Fore has an extensive background in real estate development,
digital media and entertainment. He founded and is currently the
CEO of Sora Development and Sora Ventures, a mixed-use master
development firm with a focus on Public Private Partnerships (“P3
Projects”), both were founded in January 2006. He is also a
principal at Tiderock Media LLC, a film production company since
January 2010. He has more than 20 years of experience in the
construction and real estate development fields. The Board believes that Mr. Fore’s
experience in leadership roles in the technology, retail and
commercial sections, qualifies him well to help lead the Company
towards continued growth and success.
Family
Relationships
There
are no family relationships among our executive officers and
directors.
Corporate
Governance
Board Committees
The
Company presently does 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 such
committees. 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.
ITEM 11. EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth the compensation paid to our principal
executive officer (“named executive officer”) and the other
executive officers during our fiscal year ended June 30, 2021 and
2020.
|
Name and Position |
|
Year |
|
Salary ($) |
|
Bonus |
|
Stock Awards ($) |
|
Option Awards |
|
Non-
Equity
Incentive
|
|
Other ($) (6) |
|
Total ($) |
| Anshu Bhatnagar |
|
|
2021 |
|
|
$ |
275,000 |
|
|
$ |
- |
|
|
$ |
153,301 |
(1) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
37,453 |
|
|
$ |
465,754 |
|
| Chief Executive
Officer and Director |
|
|
2020 |
|
|
$ |
275,000 |
|
|
$ |
- |
|
|
$ |
16,202,529 |
(2) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,562 |
|
|
$ |
16,479,091 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Christopher Cutchens |
|
|
2021 |
|
|
$ |
37,500 |
|
|
$ |
- |
|
|
$ |
5,559 |
(3) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
43,059 |
|
| Former Chief
Financial Officer |
|
|
2020 |
|
|
$ |
75,000 |
|
|
$ |
- |
|
|
$ |
103,078 |
(4) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
178,078 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Venkat Kodumudi |
|
|
2021 |
|
|
$ |
25,000 |
|
|
$ |
- |
|
|
$ |
9,733 |
(5) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
34,733 |
|
| Chief Operating
Officer |
|
|
2020 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Suhas Subramanyam |
|
|
2021 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Director |
|
|
2020 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Chester White |
|
|
2021 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Director |
|
|
2020 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thomas Fore |
|
|
2021 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Director |
|
|
2020 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
(1)
The amount represents the grant date fair value of awards earned as
computed in accordance with FASB ASC Topic 718. The annual expense
for the 2021 stock awards relates to the fair value of the
37,390,452 shares of the Company’s common stock issued upon
exchange of 37,390,452 warrants in accordance with the Exchange
Agreement. For additional information regarding this exchange,
please refer to Note 12 to our consolidated financial
statements.
(2)
The amount represents the
grant date fair value of awards earned as computed in accordance
with FASB ASC Topic 718. The annual expense for the 2020 stock
awards relates to warrants to purchase shares of the Company’s
common stock that are granted under the provisions of the Chief
Executive Officer’s employment agreement and are immediately vested
upon being earned. For additional information regarding assumptions
underlying the valuations of these stock awards and the calculation
method, please refer to Note 12 to our consolidated financial
statements.
(3)
The amount represents the grant date fair value of awards earned as
computed in accordance with FASB ASC Topic 718. The annual expense
for the 2021 stock awards relates to the unvested common stock
granted on June 1, 2019 under the provisions of the former Chief
Financial Officer’s employment agreement that were immediately
vested upon resignation during January 2021.
(4)
The amount represents the grant date fair value of awards earned as
computed in accordance with FASB ASC Topic 718. The annual expense
for the 2020 stock awards relates to common stock granted on June
1, 2019 under the provisions of the Chief Financial Officer’s
employment agreement and are immediately vested upon being
earned.
(5)
The amount represents the grant date fair value of awards earned as
computed in accordance with FASB ASC Topic 718. The annual expense
for the 2021 stock awards relates to restricted common stock
granted on May 17, 2021 under the provisions of the Chief Operating
Officer’s employment agreement and are immediately vested upon
being earned.
(6)
Amounts represent interest on a loan to the Company.
Outstanding
Equity Awards at Fiscal Year End
None.
Employment
Agreements
Anshu
Bhatnagar Employment Agreement
Mr.
Bhatnagar, President and Chief Executive Officer, pursuant to the
terms of an Employment Agreement, Transition Agreement and a
Warrant Agreement, 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 Agreement and Transition Agreement, Mr.
Bhatnagar received 2,620,899 restricted shares of the Company’s
Common Stock.
In
addition, Mr. Bhatnagar was 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%) percent 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 Agreement, 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 develop and expand its offerings into the artificial
intelligence and machine learning industries while continuing
development of the Company’s patented and patent pending Smart
NanoBattery and Drug Delivery Systems. 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.
On
July 15, 2020, the Company entered into an exchange agreement (the
“Exchange Agreement”) with its Chief Executive Officer, Anshu
Bhatnagar (“Holder”), whereby earned and issued warrants to
purchase 37,390,452 shares of the Company’s Common Stock (the
“Cancelled Warrants”) pursuant to the terms of that certain
Transition Agreement (the “Transition Agreement”) and Warrant
Agreement (the “Warrant Agreement”) each between the Company and
Holder and dated as of January 11, 2019 were forfeited and
exchanged for (i) 37,390,452 shares of the Company’s Common Stock
(the “Shares”) and (ii) the cancellation and termination of the
Transition Agreement and Warrant Agreement. The Cancelled Warrants
had an exercise price of $0.50 per share and were not subject to
expiration. Such Exchange Agreement is intended to make the
Company’s capitalization more attractive to potential investors and
to remove the uncertainty associated with any future grants of
warrants under the Transition Agreement and Warrant Agreement,
although there can be no assurance of any future investments on
terms that are attractive to the Company, or at all. Immediately
prior to the Company’s entry into the Exchange Agreement, it was
determined that 5,650,708 additional warrants (the “Additional
Warrants”) to purchase the Company’s Common Stock were due to and
issued to the Holder in accordance with the terms and conditions of
the Transition Agreement as the Transition Agreement required
certain liabilities to be eliminated by the prior management team
within six months of the Transition Agreement’s effective date of
January 11, 2019. However, the Additional Warrants were immediately
cancelled and terminated with the intention of mitigating potential
liabilities arising from certain issuances of the Company’s Common
Stock below the minimum price of $0.50 per share as stated within
the Transition Agreement. The Shares to be issued and sold to the
Holder pursuant to the Exchange Agreement were issued in reliance
upon the exemption from registration under Section 4(a)(2) of the
Securities Act and Rule 506 of Regulation D promulgated
thereunder.
Venkat
Kodumudi Employment Agreement
On
May 17, 2021 (the “Effective Date”), the board of directors (the
“Board”) of mPhase Technologies, Inc. (the “Company”) appointed Mr.
Venkat Kodumudi as the Company’s Chief Operating Officer (the
“Appointment”). In connection with the Appointment, Mr. Kodumudi
entered into an Employment Agreement (the “Employment Agreement”)
with the Company. The Employment Agreement is for an indefinite
term and may be terminated with or without cause. Mr. Kodumudi will
receive an annual base salary of $200,000.00 (the “Base Salary”)
and shall be eligible to earn a performance bonus in the target
amount of up to 50% of the Base Salary, if any, upon the attainment
of performance goals established by the Chief Executive Officer of
the Company. In connection with his Appointment, Mr. Kodumudi was
granted 500,000 restricted stock units of the Company’s common
stock (the “RSUs”). The RSUs shall vest in accordance with the
following: (i) 125,000 of the RSUs shall vest on the one year
anniversary of the Effective Date; (ii) 125,000 RSUs shall vest on
the second year anniversary of the Effective Date; (iii) 125,000
RSUs shall vest on the third year anniversary of the Effective
Date; and (iv) 125,000 RSUs shall vest on the fourth year
anniversary of the Effective Date. As a full-time employee of the
Company, Mr. Kodumudi will be eligible to participate in all of the
Company’s benefit programs.
Upon
termination of Mr. Kodumudi without cause and provided that Mr.
Kodumudi has been employed by the Company for a minimum of twelve
(12) months but less than twenty-four (24) months, the Company
shall pay or provide to Mr. Kodumudi severance pay equal to his
then current monthly base salary for six months from the date of
termination, during which time Mr. Kodumudi shall continue to
receive all employee benefits and employee benefit plans as
described in the Employment Agreement. Upon termination of Mr.
Kodumudi without cause and provided that Mr. Kodumudi has been
employed by the Company for a minimum of twenty-four (24) months,
the Company shall pay or provide to Mr. Kodumudi severance pay
equal to his then current monthly base salary for twelve months
from the date of termination.
Director
Compensation
On
August 27, 2021, the Board of Directors the Company appointed Suhas
Subramanyam, Chester White, and Thomas Fore as members of the Board
(such appointments, collectively, the “Appointments”).
The
terms of the Appointments commenced on August 27, 2021 and are in
effect for a period of approximately one year, until the time of
the Company’s next Annual Meeting of Stockholders.
In
connection with the Appointments, on August 27, 2021, the Company
entered into director agreements with Mr. Subramanyam, Mr. White
and Mr. Fore (such director agreements, collectively, the “Director
Agreements”).
Pursuant
to the Director Agreements, the Company will compensate each such
director a fee of $20,000 annually, which is to be paid in
quarterly installments of $5,000. Such quarterly fee will be
increased by $1,250 for each such director who serves as a member
of either the Audit, Compensation, or Nominating Committee. In lieu
of cash consideration, the annual fee will be paid by issuance of
the number of restricted shares of the Company’s common stock
equivalent to the applicable cash amount due as determined based
upon the closing price on the last trading day of such
quarter.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth information as of October 11, 2021, as
to each person or group who is known to us to be the beneficial
owner of more than 5% of our outstanding voting securities and as
to the security and percentage ownership of each of our executive
officers and directors and of all of our officers and directors as
a group. As of October 11, 2021, we had 79,190,821 shares of common
stock outstanding, and 1,000 shares of Series A Preferred Stock
issued and outstanding.
Beneficial
ownership is determined under the rules of the SEC and generally
includes voting or investment power over securities. Except in
cases where community property laws apply or as indicated in the
footnotes to this table, we believe that each stockholder
identified in the table possesses sole voting and investment power
over all shares of common stock shown as beneficially owned by the
stockholder.
Shares
of common stock that are currently exercisable or convertible
within 60 days of October 11, 2021, are deemed to be beneficially
owned by the person holding such securities for the purpose of
computing the percentage beneficial ownership of that person, but
are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
|
Amount and
Nature of Beneficial Ownership |
|
Name and
Address (1) |
|
Common
Stock Ownership |
|
|
Percentage
of
Common
Stock
Ownership
|
|
|
Series A
Preferred Stock Ownership |
|
|
Percentage
of Series A Preferred Stock |
|
|
Percentage
of Total Voting Power(2) |
|
|
Officers
and Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anshu
Bhatnagar (3) |
|
|
37,324,285 |
|
|
|
47.1 |
% |
|
|
1,000 |
|
|
|
100 |
% |
|
|
51.0 |
% |
|
Venkat
Kodumudi (4) |
|
|
- |
|
|
|
0 |
% |
|
|
- |
|
|
|
0 |
% |
|
|
0 |
% |
|
Suhas
Subramanyam (3) |
|
|
21,053 |
|
|
|
* |
|
|
|
- |
|
|
|
0 |
% |
|
|
* |
|
|
Chester
White (3) |
|
|
21,053 |
|
|
|
* |
|
|
|
- |
|
|
|
0 |
% |
|
|
* |
|
|
Thomas
Fore (3) |
|
|
21,053 |
|
|
|
* |
|
|
|
- |
|
|
|
0 |
% |
|
|
* |
|
|
All
Officers and Directors as a Group (5 Persons) |
|
|
37,387,443 |
|
|
|
47.2 |
% |
|
|
1,000 |
|
|
|
100 |
% |
|
|
51.9 |
% |
|
5%
Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Less than one percent.
(1)
Unless otherwise indicated, the address of the stockholder is c/o
mPhase Technologies, Inc., 9841 Washingtonian Blvd., Suite 200,
Gaithersburg, MD 20878.
(2)
Holders of our Common Stock are entitled to one vote per share,
holders of our Series A Convertible Preferred Stock are entitled to
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.
(3)
Member of the Board of Directors.
(4)
Excludes 500,000 shares of common stock which vests in four equal
installments on May 17, 2022, May 17, 2023, May 17, 2024, and May
17, 2025.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS; DIRECTOR INDEPENDENCE
Related
Party Transactions
Transactions
with Microphase Corporation
At
June 30, 2021, the Company owed $32,545 to Microphase for
previously leased office space at its Norwalk location and for
certain research and development services and shared administrative
personnel from time to time, all through December 31,
2015.
Transactions
With Officers
Note
Payable Issuances
At
various points during past fiscal years certain officers and former
officers of the Company provided bridge loans to the Company
evidenced by individual promissory notes and deferred compensation
so as to provide working capital to the Company. During the year
ended June 30, 2021, the Company’s Chief Executive Officer
converted his deferred compensation from fiscal years 2019 and
2020, totaling $381,566, and the fair value of his cancelled shares
of the Company’s common stock of $496,106, into separate promissory
notes. All of these notes accrue interest at the rate of 6% per
annum, and are payable on demand. During the years ended June 30,
2021 and 2020, the officers and former officers advanced $0 and
$48,052 to provide working capital to the Company and $40,656 and
$4,792 has been charged for interest on loans from officers and
former officers.
On October 22, 2020, the Company received a notice of event of
default and demand letter (“Demand Letter”) from a former officer
and promissory note holder (the “Note Holder”). The promissory note
was issued on November 1, 2019, in the original principal amount of
$40,739.31, accrued
interest at a rate of 6% per annum, and matured on April 18, 2020.
The Demand Letter stated an aggregate of $51,940.09 of principal and interest was
immediately due. The promissory note does not have a convertible
feature and is not convertible into shares of the Company’s common
stock. Additionally, the promissory note does not contain any
cross-default provisions with any other promissory notes issued by
the Company. The Company expects to work with the Note Holder to
negotiate a repayment structure whereby the Company can repay the
Note Holder the balance due as quickly as possible based upon its
available capital.
At
June 30, 2021 and 2020, these outstanding notes including accrued
interest totaled $747,086 and $78,758, respectively. At June 30,
2021, these promissory notes are not convertible into shares of the
Company common stock.
Common
Stock Issuances
During
the year ended June 30, 2021, the Company recorded $21,474 of
stock-based compensation expense related to a June 1, 2019 grant of
231,635 shares of common stock to the Company’s former Chief
Financial Officer, which vested 25% on the six month and 1 year
anniversaries of the grant date. Upon Mr. Cutchens’ employment
ceasing during January 2021, 115,818 unvested shares of common
stock were forfeited resulting in the reversal of $68,003 of
previously recognized stock-based compensation expense.
Additionally,
during the year ended June 30, 2021, the Company granted 500,000
restricted shares of common stock to its Chief Operating Officer.
The restricted shares of common stock vest 25% on the 1 year, 2
year, 3 year, and 4 year anniversaries of the grant date. At June
30, 2021, no shares of common stock have vested and 500,000 shares
remain unvested. During the year ended June 30, 2021, the Company
recorded $9,733 of stock-based compensation expense.
During
the year ended June 30, 2020, the Company issued 231,635 restricted
shares of its common stock to Mr. Cutchens, the Company’s Chief
Financial Officer, which were granted on June 1, 2019 (the “Grant
Date”), pursuant to the terms of an employment agreement with the
Company. The restricted shares of common stock vest 25% on the
six-month, 1 year, 2 year, and 3 year anniversaries of the Grant
Date. At June 30, 2020, 115,818 shares of common stock have vested
and 115,817 shares remain unvested. During the years ended June 30,
2020 and 2019, the Company recorded $133,142 and $16,464,
respectively, of stock-based compensation expense related to the
vested portion of this award.
During
the year ended June 30, 2020, the Company incurred $15,500 of
expense related to legal and consulting services provided by Mr.
Smiley, the Company’s former Chief Financial Officer and legal
counsel. During October 2019, the entire balance of $15,500 was
converted into 62,000 shares of common stock. During the year ended
June 30, 2021, the Company did not incur any expense or utilize any
services by Mr. Smiley, the Company’s former CFO and legal
counsel.
Office
Lease
Effective
February 8, 2021, the Company relocated its corporate office to
9841 Washingtonian Blvd., Suite 200, Gaithersburg, MD 20878, and
incurred rent expense of $1,350 per month through March 31, 2021,
which was payable to a related party. The current lease payment is
$1,600 per month and the lease term is a month-to-month
arrangement. For the year ended June 30, 2021 and 2020, $12,150 and
$7,621, respectively, was recognized as rent expense. At June 30,
2021 and 2020, $35,971 and $23,821, respectively, was accrued as
payable to the related party.
Director
Independence
Although
our common stock is not listed on any national securities exchange,
for purposes of independence we use the definition of independence
applied by The Nasdaq Stock Market. Our board of directors has
determined that its sole member, Anshu Bhatnagar, is not
“independent” in accordance with such definition.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
The
aggregate fees billed by our principal independent registered
public accounting firm for the indicated services for each of the
last two fiscal years were as follows:
|
|
|
2021 |
|
|
2020 |
|
|
Audit
fees |
|
$ |
30,000 |
|
|
$ |
48,500 |
|
|
Audit
related fees |
|
|
15,000 |
|
|
|
21,550 |
|
|
Tax
fees |
|
|
- |
|
|
|
- |
|
|
All other
fees |
|
|
- |
|
|
|
- |
|
|
Total |
|
$ |
45,000 |
|
|
$ |
70,050 |
|
Audit
Fees. The fees identified under this caption were for
professional services rendered by our independent public registered
accounting firm for the 2021 and 2020 fiscal years in connection
with the audit of our annual financial statements. The amounts also
include fees for services that are normally provided by the
independent registered public accounting firm in connection with
statutory and regulatory filings and engagements for the years
identified. Effective December 8, 2020, Boyle CPA, LLC (“Boyle
CPA”), was appointed by our board of directors as the Company’s
independent registered public accounting firm, replacing RBSM, LLP
(“RBSM”) the Company’s prior independent registered public
accounting firm since August 19, 2020. Effective August 19, 2020,
RBSM, LLP (“RBSM”), was appointed by our board of directors as the
Company’s independent registered public accounting firm, replacing
Assurance Dimensions, Inc. (“AD”), the Company’s prior independent
registered public accounting firm since November 3, 2016. All audit
fees billed for professional services rendered for the 2021 fiscal
year were billed solely by Boyle CPA. Audit fees billed by Boyle
CPA, RBSM and AD for professional services rendered for the 2020
fiscal year were $30,000, $15,000, and $3,500,
respectively.
Audit-Related
Fees. The fees identified under this caption were for review of
our financial statements included in our quarterly reports on Form
10-Q and were not reported under the caption “Audit Fees.” This
category may include fees related to the performance of audits and
attestation services not required by statute or regulations, and
accounting consultations about the application of generally
accepted accounting principles to proposed transactions. All
audit-related fees billed for the 2021 and 2020 fiscal years were
billed solely by Boyle CPA and AD, respectively.
Tax
Fees. The fees identified under this caption were for tax
compliance, tax planning, tax advice and corporate tax services.
Corporate tax services encompass a variety of permissible services,
including technical tax advice related to tax matters; assistance
with withholding-tax matters; assistance with state and local
taxes; preparation of reports to comply with local tax authority
transfer pricing documentation requirements; and assistance with
tax audits.
Approval
Policy. Our board of directors approves in advance all services
provided by our independent registered public accounting firm. All
engagements of our independent registered public accounting firm in
fiscal years 2021 and 2020 were pre-approved by the board of
directors.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
Financial Statements
|
Exhibit
Number |
|
Description
|
| 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). |
| 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). |
| 3.1 |
|
Certificate
of Incorporation of the Company. (Incorporated by reference to
Exhibit 3.1 to Form S-1 filed July 19, 2019, Registration No.
333-23273). |
| 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
(Incorporated by reference to Exhibit 10.1 to Form 8-K filed
January 4, 2019). |
| 3.3 |
|
By
Laws of the Company (Incorporated by reference to Exhibit 3.3 to
Form S-1 filed July 19, 2019, Registration No.
333-23273). |
| 3.4 |
|
Amendment
to Certificate of Incorporation of the Company increasing the
authorized shares of common stock to 100 million shares from 25
million shares (Incorporated by reference to Form 8-K filed
September 9, 2019). |
| 3.5 |
|
Amendment
to Certificate of Incorporation of the Company increasing the
authorized shares of common stock to 250 million shares from 100
million shares (Incorporated by reference to Form 8-K filed July
17, 2020). |
| 3.6 |
|
Amendment
to Certificate of Incorporation of the Company increasing the
authorized shares of common stock to 500 million shares from 250
million shares (Incorporated by reference to Form 8-K filed August
6, 2020). |
| 4.1 |
|
Definitive
Schedule 14C Information Statement for a 5000/1 Reverse Split of
the Company’s Common stock (filed April 22, 2019). |
| 10.1 |
|
Development
Agreement effective February 3, 2004 between Lucent Technologies,
Inc. and mPhase Technologies for development of micro fuel cell
Nano Technology (Incorporated by reference to Exhibit 10.18 to
Amendment No. 6 to Form 10-K filed August 13,
2010). |
| 10.2 |
|
Amendment
No.2 to Development Agreement executed as of March 9, 2005 amending
Development Agreement effective as of February 3, 2004, as amended
relating to Micro Power Source Cells between mPhase Technologies,
Inc. and Lucent Technologies, Inc. (Incorporated by reference to
Exhibit 10.22 to Amendment No. 6 to Form 10-K filed August 13,
2010). |
| 10.3 |
|
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
(Incorporated by reference to Exhibit 10.33 to Amendment No. 1 to
Form 10-K filed August 13, 2010). |
| 10.4 |
|
Amendment
No. 4 dated February 3, 2007 to Development Agreement effective
February 3, 2004 for development of Micro Fuel Cell Nanotechnology
(Incorporated by reference to Exhibit 10.34 to Amendment No. 6 to
Form 10-K filed August 13, 2010). |
|
10.5 |
|
Phase
I U.S. Army Grant dated July 7, 2007 (Incorporated by reference to
Exhibit 10.46 to Form 10-K filed October 7, 2009). |
| 10.6 |
|
Documentation
including $350,000 Note and $1,000,000 Secured Note for financing
between the Company and JMJ Financial dated March 25, 2008
(Incorporated by reference to Exhibit 10.49 to Form 10-K filed
October 7, 2009). |
| 10.7 |
|
Phase
II U.S. Army grant dated August 29, 2008 (Incorporation by
reference to Exhibit 10.52 to Form 10-K filed October 6,
2009). |
| 10.8 |
|
Forbearance
Agreement dated as of September 13, 2011 between mPhase
Technologies, Inc. and John Fife (Incorporated by reference to
Exhibit 99.1 to Form 8-K filed September 16, 2011). |
| 10.9 |
|
Securities
Purchase Agreement, dated as of September 13, 2011 between mPhase
Technologies, Inc and John Fife (Incorporated by reference to
Exhibit 99.2 to Form 8-K filed September 16, 2011). |
| 10.10 |
|
Officer’s
Certificate delivered pursuant to Securities Purchase Agreement,
dated as of September 13, 2011 between mPhase Technologies, Inc.
and John Fife (Incorporated by reference to Exhibit 99.3 to Form
8-K filed September 16, 2011). |
| 10.11 |
|
Confession
of Judgment 1 delivered pursuant to Securities Purchase Agreement,
dated as of September 13, 2011 between mPhase Technologies, Inc.
and John Fife (Incorporated by reference to Exhibit 99.4 to Form
8-K filed September 16, 2011). |
| 10.12 |
|
Confession
of Judgment 2 delivered pursuant to Securities Purchase Agreement,
dated as of September 13, 2011 between mPhase Technologies, Inc.
and John Fife (Incorporated by reference to Exhibit 99.5 to Form
8-K filed September 16, 2011). |
| 10.13 |
|
Registration
Rights Agreement dated as of September 13, 2011 between mPhase
Technologies, Inc. and John Fife (Incorporated by reference to
Exhibit 99.6 to Form 8-K filed September 16, 2011). |
| 10.14 |
|
Convertible
Note dated September 13, 2011 issued by mPhase Technologies, Inc.
to John Fife (Incorporated by reference to Exhibit 99.7 to Form 8-K
filed September 16, 2011). |
| 10.15 |
|
Stand
Still and Restructuring Agreement entered into as of May 31,2012
with John Fife (Incorporated by reference to Exhibit 99.1 to Form
8-K filed June 5, 2012). |
| 10.16 |
|
Stand
Still and Restructuring Agreement entered into as of June 1,2012
with JMJ Financial (Incorporated by reference to Exhibit 99.2 to
Form 8-K filed June 5, 2012). |
| 10.17 |
|
Forbearance
Agreement and Amendment thereto dated February 15, 2015 as amended
on August 11, 2015 with John Fife (Incorporated by reference to
Exhibits 99.1 and 99.2 to form 8-K filed August 12,
2015). |
| 10.18 |
|
Second
Modification to Forbearance Agreement with John Fife (Incorporated
by reference to Exhibit 99.1 to Form 8-K filed January 29,
2016). |
| 10.19 |
|
Third
Modification to Forbearance Agreement with John Fife (Incorporated
by reference to Exhibit 99.1 to Form 8-K filed May 23rd,
2016). |
| 10.20 |
|
Amendment
to Judgment Settlement Agreement with John Fife (Incorporated by
reference to Exhibit 10.1 to Form 8-K filed February 23,
2018). |
| 10.21 |
|
Debt/Equity
Conversion Agreements of Related Parties, dated as of January 1,
2018 (Incorporated by reference to Exhibit 10.97 to Form 10-K filed
October 15, 2018). |
| 10.22+ |
|
Employment
Agreement dated as of January 11, 2019 between Mr. Anshu Bhatnagar
and mPhase Technologies, Inc. (Incorporated by reference to Exhibit
10.1 to Form 8-K filed January 14, 2019). |
| 10.23 |
|
Transition
Agreement dated as of January 11, 2019 (Incorporated by reference
to Exhibit 10.2 to Form 8-K filed January 14,
2019). |
| 10.24+ |
|
Warrant
granted to Mr. Anshu Bhatnagar (Incorporated by reference to
Exhibit 10.3 to Form 8-K filed January 14, 2019). |
| 10.25 |
|
Series
A Super Voting Preferred Stock (Incorporated by reference to
Exhibit 10.4 to Form 8-K filed January 14, 2019). |
| 10.26 |
|
Reserve
Agreement (Incorporated by reference to Exhibit 10.5 to Form 8-K
filed January 14, 2019). |
| 10.27 |
|
Debt
Conversion Agreement (Incorporated by reference to Exhibit 10.6 to
Form 8-K filed January 14, 2019). |
| 10.28 |
|
Officers
and Directors Resignation Letters (Incorporated by reference to
Exhibit 10.7 to Form 8-K filed January 14, 2019). |
| 10.29 |
|
Amendment
to Judgment Settlement Agreement with John Fife (Incorporated by
reference to Exhibit 10.1 to Form 8-K filed February 11,
2019). |
|
10.30+ |
|
Employment
Agreement effective June 1, 2020 between Christopher Cutchens and
the Company (Incorporated by reference to Exhibit 10.1 to Form 8-K
filed June 6, 2019). |
| 10.31 |
|
Product
License and Content Agreement (“Agreement”) between the Company and
iLearningEngines, Inc., a Delaware corporation (“ILE”).
(Incorporated by reference to Exhibit 1 to Amendment No. 1 to Form
8-K, filed August 12, 2019). |
| 10.32 |
|
Amendment
to Reserve Agreement dated October 9, 2020 (Incorporated by
reference to Exhibit 10.37 to Form 10-K filed October 15,
2019). |
| 10.33 |
|
Asset
Purchase Agreement dated as of May 11, 2020 between the Company and
CloseComms Limited (Incorporated by reference to Form 8-K Exhibit
10.1 filed May 15, 2020). |
| 10.34 |
|
Common
Stock Purchase Agreement and Registration Rights Agreement, by and
among mPhase Technologies, Inc. and White Lion Capital, LLC, dated
July 13, 2020 (Incorporated by reference to Form 8-K Exhibits
10.1 and 10.2 filed July 17,
2020). |
| 10.35+ |
|
Exchange
Agreement dated as of July 15, 2020 between Mr. Anshu Bhatnagar and
mPhase Technologies, Inc. (Incorporated by reference to Form 8-K
Exhibit 10.3 filed July 17, 2020). |
|
10.36 |
|
Second
Amendment to Judgment Settlement Agreement with John Fife and
Convertible Promissory Note each dated August 17, 2020
(Incorporated by reference to Exhibit 10.1 to Form 8-K filed August
21, 2020). |
| 10.37 |
|
Securities
Purchase Agreement, Convertible Promissory Note, and Warrant
Agreement each dated April 6, 2021 between the Company and
Evergreen Capital Management LLC (Incorporated by reference to Form
8-K Exhibits 10.1, 4.1, and 4.2, respectively, filed April
13, 2021). |
| 10.38 |
|
Securities
Purchase Agreement, Convertible Promissory Note, and Warrant
Agreement each dated May 4, 2021 between the Company and two
Accredited Investors (Incorporated by reference to Form 8-K
Exhibits 10.1, 4.1, and 4.2, respectively, filed May 11,
2021). |
| 10.39 |
|
Third
Amendment to Judgment Settlement Agreement with John Fife and
Convertible Promissory Note each dated as of April 13, 2021
(Incorporated by reference to Form 10-Q Exhibit 10.1 filed May 17,
2021). |
| 10.40+ |
|
Employment
Agreement effective May 17, 2021 between Venkat Kodumudi and the
Company (Incorporated by reference to Form 8-K Exhibit 10.1 filed
May 21, 2021). |
| 10.41 |
|
Form
of Director Agreement effective August 27, 2021 between Suhas
Subramanyam, Chester White, and Thomas Fore and the Company
(Incorporated by reference to Form 8-K Exhibit 10.1 filed September
2, 2021). |
| 16.1 |
|
Letter
from Assurance Dimensions, Inc. (Incorporated by reference to Form
8-K Exhibit 16.1 filed August 25, 2020). |
| 20.1 |
|
Financial
Statements of Alpha Predictions (Incorporated by reference to
Exhibits 99.1 and 99.2 to Form 8-K/A Amendment No.
1 filed September 13, 2019). |
| 21.1* |
|
List of subsidiaries. |
| 31.1* |
|
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act
of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
| 32.1* |
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
| 101.INS* |
|
XBRL
Instance Document |
| 101.CAL* |
|
XBRL
Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* |
|
XBRL
Taxonomy Extension Definition Linkbase Document |
| 101.LAB* |
|
XBRL
Taxonomy Extension Label Linkbase Document |
| 101.PRE* |
|
XBRL
Taxonomy Extension Presentation Linkbase Document |
| 101.SCH* |
|
XBRL
Taxonomy Extension Schema Document |
+
Each of these Exhibits constitutes a management contract,
compensatory plan, or arrangement.
*
Filed herewith.
SIGNATURES
Pursuant
to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized on this 13th day of October
2021.
| |
mPhase
Technologies, Inc. |
|
|
|
|
| |
By: |
/s/
Anshu Bhatnagar |
| |
|
Anshu
Bhatnagar |
| |
|
Chief
Executive Officer (Principal Executive, Financial and Accounting
Officer) |
Pursuant
to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K has been signed below by
the following persons on behalf of the registrant and in the
capacities indicated.
|
Name |
|
Title |
|
Date |
|
|
|
|
|
|
|
/s/
Anshu Bhatnagar |
|
Chief
Executive Officer and Chairman of the Board |
|
October
13, 2021 |
| Anshu
Bhatnagar |
|
(Principal
Executive, Financial and Accounting Officer) |
|
|
|
|
|
|
|
|
|
/s/
Suhas Subramanyam |
|
Director |
|
October
13, 2021 |
| Suhas
Subramanyam |
|
|
|
|
|
|
|
|
|
|
|
/s/
Chester White |
|
Director |
|
October
13, 2021 |
| Chester
White |
|
|
|
|
|
|
|
|
|
|
|
/s/
Thomas Fore |
|
Director |
|
October
13, 2021 |
| Thomas
Fore |
|
|
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To
the Shareholders and
Board
of Directors of mPhase Technologies, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of mPhase
Technologies, Inc. (the “Company”) as of June 30, 2021 and 2020,
the related consolidated statements of operations and other
comprehensive income (loss), changes in stockholders’ equity, and
cash flows for each of the two-years in the period ended June 30,
2021, 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, 2021 and 2020, and the results of its
operations and its cash flows for each of the two years in the
period ended June 30, 2021, in conformity with accounting
principles generally accepted in the United States of
America.
Basis
of 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 audit. 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 U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with 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 fraud or error.
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 audit, 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
audit 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 audit 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 audit provides a reasonable basis
for our opinion.
Critical
Audit Matters
The
critical audit matters communicated below are matters arising from
the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or
disclosures to which they relate.
Going
Concern Considerations
As
discussed in Note 2 to the financial statements, the financial
statements were prepared on a going concern basis, which
contemplated the realization of assets and the satisfaction of
liabilities in the normal course of business. At June 30, 2020,
conditions existed which raised substantial doubt about an entity’s
ability to continue as a going concern. At June 30, 2021, this
uncertainty was alleviated by Management’s plans, including the
Company’s existing working capital, current net income and expected
future cash flows.
Auditing
management’s evaluation of a going concern can be a significant
judgment given the fact that the Company uses management estimates
on future revenues and expenses which are not able to be
substantiated.
To
evaluate the appropriateness of the mitigation of the going concern
uncertainty, we examined and evaluated the financial information
that was the initial cause along with managements’ plans to
mitigate the going concern and managements’ disclosure of going
concern.
/s/
Boyle CPA, LLC
We
have served as the Company’s auditor since 2020
Red
Bank, NJ
October 13, 2021
|
331 Newman Springs Road |
|
P (732) 784-1582 |
|
Building 1, 4th Floor, Suite 143 |
|
F
(732) 510-0665 |
| Red
Bank, NJ 07701 |
|
|
mPHASE
TECHNOLOGIES, INC.
CONSOLIDATED BALANCE
SHEETS
| |
|
June 30,
2021 |
|
|
June 30,
2020 |
|
|
Assets |
|
|
|
|
|
|
|
|
|
Current
Assets |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,473,386 |
|
|
$ |
142,413 |
|
|
Accounts
receivable, net |
|
|
15,784,081 |
|
|
|
14,048,095 |
|
|
Prepaid
expenses |
|
|
238,927 |
|
|
|
4,477 |
|
|
Other
assets |
|
|
422,254 |
|
|
|
30,879 |
|
|
Total
Current Assets |
|
|
18,918,648 |
|
|
|
14,225,864 |
|
|
Property
and equipment, net |
|
|
16,518 |
|
|
|
32,669 |
|
| Goodwill |
|
|
3,669 |
|
|
|
3,636 |
|
|
Intangible
asset - purchased software, net |
|
|
2,079,047 |
|
|
|
2,835,117 |
|
|
Other
assets |
|
|
3,645 |
|
|
|
11,670 |
|
|
Total
Assets |
|
$ |
21,021,527 |
|
|
$ |
17,108,956 |
|
| |
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Current
Liabilities |
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
4,158,006 |
|
|
$ |
7,897,887 |
|
|
Accrued
expenses |
|
|
1,368,367 |
|
|
|
1,123,842 |
|
|
Contract
liabilities |
|
|
350,689 |
|
|
|
219,652 |
|
|
Due to
related parties |
|
|
87,688 |
|
|
|
84,485 |
|
|
Note
payable to officer |
|
|
691,942 |
|
|
|
26,818 |
|
|
Notes
payable |
|
|
323,218 |
|
|
|
20,469 |
|
|
Convertible notes
payable, net |
|
|
1,991,036 |
|
|
|
189,641 |
|
|
Current
portion, liabilities in arrears with convertible
features |
|
|
109,000 |
|
|
|
109,000 |
|
|
Current
portion, liabilities in arrears - judgement settlement agreement
(Note 9) |
|
|
- |
|
|
|
771,702 |
|
|
Derivative
liability |
|
|
- |
|
|
|
897,631 |
|
|
Liabilities of
discontinued operations |
|
|
82,795 |
|
|
|
82,795 |
|
|
Total
Current Liabilities |
|
|
9,162,741 |
|
|
|
11,423,922 |
|
| |
|
|
|
|
|
|
|
|
|
Notes
payable, net of current portion |
|
|
146,890 |
|
|
|
167,459 |
|
|
Total
Liabilities |
|
|
9,309,631 |
|
|
|
11,591,381 |
|
| |
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies (Note 15) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’
Equity |
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.01 par value; 1,000 shares authorized and 1,000 shares
issued and outstanding at June 30, 2021 and 2020 |
|
|
10 |
|
|
|
10 |
|
|
Common
stock, $0.01 par value; 500,000,000 shares authorized and
78,612,608 shares issued and 78,584,238 outstanding at June 30,
2021, and 19,318,679 shares issued and 19,174,492 outstanding at
June 30, 2020 |
|
|
785,844 |
|
|
|
191,745 |
|
|
Additional
paid-in-capital |
|
|
236,935,277 |
|
|
|
231,984,704 |
|
|
Common
stock to be issued |
|
|
63,700 |
|
|
|
955,466 |
|
|
Accumulated other
comprehensive (loss) income |
|
|
(11,526 |
) |
|
|
113,070 |
|
|
Accumulated
deficit |
|
|
(226,061,409 |
) |
|
|
(227,727,420 |
) |
|
Total
Stockholders’ Equity |
|
|
11,711,896 |
|
|
|
5,517,575 |
|
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
21,021,527 |
|
|
$ |
17,108,956 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
mPHASE
TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
For the
Years Ended |
|
|
|
|
June
30, |
|
|
|
|
2021 |
|
|
2020 |
|
|
Revenue |
|
$ |
30,672,314 |
|
|
$ |
30,276,422 |
|
|
Cost of
revenue |
|
|
22,501,496 |
|
|
|
22,579,544 |
|
|
Gross
Profit |
|
|
8,170,818 |
|
|
|
7,696,878 |
|
|
Operating
Expenses: |
|
|
|
|
|
|
|
|
|
Software
development costs |
|
|
2,433,071 |
|
|
|
991,928 |
|
|
Salaries
and benefits |
|
|
1,138,735 |
|
|
|
17,585,981 |
|
|
General
and administrative expenses |
|
|
1,393,104 |
|
|
|
1,695,200 |
|
|
Total
Operating Expenses |
|
|
4,964,910 |
|
|
|
20,273,109 |
|
|
Operating
income (loss) |
|
|
3,205,908 |
|
|
|
(12,576,231 |
) |
|
Other
Income (Expense): |
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(683,544 |
) |
|
|
(219,589 |
) |
|
Gain on
change in fair value of derivative liability |
|
|
3,267,323 |
|
|
|
1,584,102 |
|
|
Initial
derivative expense |
|
|
(2,240,908 |
) |
|
|
(1,610,913 |
) |
Amortization of debt
discounts, deferred financing costs, and
original issue discounts |
|
|
(2,032,516 |
) |
|
|
(899,491 |
) |
|
Gain
(loss) on extinguishment and settlement of debt |
|
|
149,748 |
|
|
|
(363,319 |
) |
|
Loss on
asset disposal |
|
|
- |
|
|
|
(8,126 |
) |
|
Total
Other Income (Expense) |
|
|
(1,539,897 |
) |
|
|
(1,517,336 |
) |
|
Income
(loss) before income taxes |
|
|
1,666,011 |
|
|
|
(14,093,567 |
) |
|
Income
taxes |
|
|
- |
|
|
|
- |
|
|
Net income
(loss) |
|
$ |
1,666,011 |
|
|
$ |
(14,093,567 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain on foreign currency translation adjustment |
|
|
(124,596 |
) |
|
|
113,070 |
|
|
Comprehensive income
(loss) |
|
$ |
1,541,415 |
|
|
$ |
(13,980,497 |
) |
| |
|
|
|
|
|
|
|
|
| Income (loss) per
common share: |
|
|
|
|
|
|
|
|
|
Income
(loss) per common share – basic and diluted |
|
$ |
0.02 |
|
|
$ |
(1.08 |
) |
| |
|
|
|
|
|
|
|
|
| Weighted average
shares outstanding – basic and diluted |
|
|
73,133,533 |
|
|
|
13,052,590 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
mPHASE
TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED JUNE 30, 2021 AND 2020
|
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
Additional |
|
|
Common
Stock |
|
|
Other |
|
|
|
|
|
Total Stockholders’
|
|
|
|
|
Shares |
|
|
$0.01
Par
Value |
|
|
Shares |
|
|
$0.01
Par
Value |
|
|
Paid
in Capital
|
|
|
to
be
Issued |
|
|
Comprehensive
Loss |
|
|
Accumulated
Deficit
|
|
|
Equity
|
|
|
Balance
June 30, 2019 |
|
|
1,000 |
|
|
$ |
10 |
|
|
|
11,689,078 |
|
|
$ |
116,890 |
|
|
$ |
214,007,203 |
|
|
$ |
115,388 |
|
|
$ |
- |
|
|
$ |
(213,633,853 |
) |
|
$ |
605,638 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to accredited investors in private
placements |
|
|
|
|
|
|
|
|
|
|
1,129,577 |
|
|
|
11,296 |
|
|
|
368,704 |
|
|
|
(33,000 |
) |
|
|
|
|
|
|
|
|
|
|
347,000 |
|
|
Common
Stock to be issued for CloseComms transaction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
955,466 |
|
|
|
|
|
|
|
|
|
|
|
955,466 |
|
|
Issuance
of Common Stock for conversions of convertible promissory
notes |
|
|
|
|
|
|
|
|
|
|
5,872,362 |
|
|
|
58,724 |
|
|
|
995,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,054,204 |
|
|
Issuance
of Common Stock for the conversion of Related Party debts and
Strategic Vendor payables, net of reversals |
|
|
|
|
|
|
|
|
|
|
294,654 |
|
|
|
2,947 |
|
|
|
216,570 |
|
|
|
(82,388 |
) |
|
|
|
|
|
|
|
|
|
|
137,129 |
|
|
Issuance
of Common Stock for accrued services |
|
|
|
|
|
|
|
|
|
|
62,000 |
|
|
|
620 |
|
|
|
45,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,500 |
|
|
Issuance
of Common Stock for services related to private
placements |
|
|
|
|
|
|
|
|
|
|
11,003 |
|
|
|
110 |
|
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
Restricted
shares issued under employment contract |
|
|
|
|
|
|
|
|
|
|
115,818 |
|
|
|
1,158 |
|
|
|
148,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,606 |
|
|
Warrants
earned under employment contract |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,202,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,202,529 |
|
|
Other
comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,070 |
|
|
|
|
|
|
|
113,070 |
|
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,093,567 |
) |
|
|
(14,093,567 |
) |
|
Balance
June 30, 2020 |
|
|
1,000 |
|
|
$ |
10 |
|
|
|
19,174,492 |
|
|
$ |
191,745 |
|
|
$ |
231,984,704 |
|
|
$ |
955,466 |
|
|
$ |
113,070 |
|
|
$ |
(227,727,420 |
) |
|
$ |
5,517,575 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for conversions of convertible promissory
notes |
|
|
|
|
|
|
|
|
|
|
20,716,750 |
|
|
|
207,169 |
|
|
|
1,389,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,596,888 |
|
|
Issuance
of Common Stock for exchange of warrants |
|
|
|
|
|
|
|
|
|
|
37,390,452 |
|
|
|
373,905 |
|
|
|
(220,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,301 |
|
|
Issuance
of Common Stock for CloseComms acquisition |
|
|
|
|
|
|
|
|
|
|
2,666,666 |
|
|
|
26,667 |
|
|
|
928,799 |
|
|
|
(955,466 |
) |
|
|
|
|
|
|
|
|
|
|
- |
|
|
Issuance
of Common Stock for vendor services |
|
|
|
|
|
|
|
|
|
|
1,422,127 |
|
|
|
14,221 |
|
|
|
183,146 |
|
|
|
63,700 |
|
|
|
|
|
|
|
|
|
|
|
261,067 |
|
|
Issuance
of Common Stock for note payable issuance |
|
|
|
|
|
|
|
|
|
|
450,000 |
|
|
|
4,500 |
|
|
|
117,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,500 |
|
|
Stock-based
compensation for restricted shares under employment
agreements |
|
|
|
|
|
|
|
|
|
|
115.817 |
|
|
|
1,158 |
|
|
|
(32,395 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,237 |
) |
|
Cancellation
of Common Stock of CEO |
|
|
|
|
|
|
|
|
|
|
(3,352,066 |
) |
|
|
(33,521 |
) |
|
|
(462,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(496,106 |
) |
|
Relative
fair value of warrants issued with convertible promissory
notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,047,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,047,493 |
|
|
Other
comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,596 |
) |
|
|
|
|
|
|
(124,596 |
) |
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,666,011 |
|
|
|
1,666,011 |
|
|
Balance
June 30, 2021 |
|
|
1,000 |
|
|
$ |
10 |
|
|
|
78,584,238 |
|
|
$ |
785,844 |
|
|
$ |
236,935,277 |
|
|
$ |
63,700 |
|
|
$ |
(11,526 |
) |
|
$ |
(226,061,409 |
) |
|
$ |
11,711,896 |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
mPHASE
TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
|
For the
Years Ended |
|
|
|
|
June
30, |
|
|
|
|
2021 |
|
|
2020 |
|
|
Cash flows
from operating activities: |
|
|
|
|
|
|
|
|
|
Net income
(loss) |
|
$ |
1,666,011 |
|
|
$ |
(14,093,567 |
) |
|
Adjustments to
reconcile net income (loss) to net cash from operating
activities: |
|
|
|
|
|
|
|
|
|
Initial
derivative expense |
|
|
2,240,908 |
|
|
|
1,610,913 |
|
|
Amortization of debt
discount, deferred financing costs, and original issue
discount |
|
|
2,032,516 |
|
|
|
899,491 |
|
|
Depreciation and
amortization |
|
|
925,037 |
|
|
|
929,924 |
|
|
Stock-based
compensation |
|
|
383,131 |
|
|
|
16,335,671 |
|
|
(Gain)
loss on extinguishment and settlement of debt |
|
|
(149,748 |
) |
|
|
363,319 |
|
|
(Gain)
loss on change in fair value of derivative liability |
|
|
(3,267,323 |
) |
|
|
(1,584,102 |
) |
|
Allowance
for foreign taxes |
|
|
- |
|
|
|
145,129 |
|
|
Loss on
asset disposal |
|
|
- |
|
|
|
8,126 |
|
|
Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Increase
in accounts receivable |
|
|
(27,985,986 |
) |
|
|
(11,521,940 |
) |
|
(Increase)
decrease in prepaid expenses |
|
|
(180,450 |
) |
|
|
4,343 |
|
|
Increase
in other assets |
|
|
(383,350 |
) |
|
|
(39,491 |
) |
|
Increase
in contract liabilities |
|
|
131,037 |
|
|
|
219,652 |
|
|
Increase
in accounts payable and accrued expenses |
|
|
23,067,514 |
|
|
|
5,378,498 |
|
|
Net cash
used in operating activities |
|
|
(1,520,703 |
) |
|
|
(1,344,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing activities: |
|
|
|
|
|
|
|
|
|
Capital
expenditures |
|
|
(3,064 |
) |
|
|
(553 |
) |
|
Cash
acquired in CloseComms asset acquisition |
|
|
- |
|
|
|
70,000 |
|
|
Net cash
(used in) provided by investing activities |
|
|
(3,064 |
) |
|
|
69,447 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible notes payable, net |
|
|
5,219,431 |
|
|
|
1,116,800 |
|
|
Proceeds
from notes payable |
|
|
288,000 |
|
|
|
187,333 |
|
|
Proceeds
from sale of common stock, net of finder’s fees |
|
|
- |
|
|
|
347,000 |
|
|
Proceeds
from notes payable to related parties |
|
|
- |
|
|
|
32,800 |
|
|
Repayments
of notes payable to related parties |
|
|
(224,595 |
) |
|
|
(32,000 |
) |
|
Repayments
under settlement agreement |
|
|
(250,000 |
) |
|
|
(120,000 |
) |
|
Repayments
of convertible notes payable |
|
|
(1,053,500 |
) |
|
|
(262,000 |
) |
|
Net cash
provided by financing activities |
|
|
3,979,336 |
|
|
|
1,269,933 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
foreign exchange rate changes on cash |
|
|
(124,596 |
) |
|
|
113,070 |
|
|
Net
increase in cash |
|
|
2,330,973 |
|
|
|
108,417 |
|
|
Cash at
beginning of year |
|
|
142,413 |
|
|
|
33,996 |
|
|
Cash at
end of year |
|
$ |
2,473,386 |
|
|
$ |
142,413 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid
for interest |
|
$ |
514,176 |
|
|
$ |
118,596 |
|
|
Cash paid
for taxes |
|
$ |
- |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
|
|
For the
Years Ended |
|
|
|
|
June
30, |
|
|
|
|
2021 |
|
|
2020 |
|
|
Supplemental
disclosure of non-cash operating activities: |
|
|