NOTE
1: NATURE OF BUSINESS AND BASIS OF PRESENTATION
Organization
and Nature of Business
mPhase
Technologies, Inc., including its wholly-owned subsidiaries, are collectively referred to herein as “mPhase,” “XDSL”,
“Company,” “us,” or “we.”
The
Company was incorporated in the state of New Jersey in 1979 under the name Tecma Laboratory, Inc. and has subsequently operated under
Tecma Laboratories, Inc., and Lightpaths TP Technologies, Inc., until June 2, 1997 when the Company changed its name to mPhase Technologies,
Inc.
On
January 11, 2019, the Company underwent a major change in management and control. New management of the Company is positioning the Company
to be a technology leader in artificial intelligence (“AI”) and machine learning while enabling a more rapid commercial
development of its patent portfolio and other intellectual property. The Company believes there are significant opportunities to embed
artificial intelligence and machine learning into business operations, platform architectures, business services, and customer experiences,
whereby its goal is to generate significant revenue from its artificial intelligence and machine learning technologies.
On
February 15, 2019, the Company acquired Travel Buddhi, a software platform to enhance travel via ultra-customization tools that tailor
a planned trip experience in ways not previously available.
On
June 30, 2019, the Company acquired 99% of the outstanding common shares of Alpha Predictions LLP (“Alpha Predictions”).
Alpha Predictions is an India-based technology company that has developed a suite of commercial data analysis products for use across
multiple industries. This acquisition has been integrated into the Company’s international operations and as expected, has driven
revenue growth and innovation.
On
May 11, 2020, the Company acquired CloseComms, 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.
During 2021, the Company announced that it would
be adding EV+ (electric vehicle) charging network and consumer engagement platform as part of a major strategic initiative
to monetize additional points of contact during consumer travel and travel planning. During the course of 2021, the Company actively
planned pilot programs in EV+ (electric vehicle) charging network and, as part of a larger strategy to build an AI-driven
consumer ecosystem. By late-2021, the Company transitioned 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 that includes EV charging
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 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.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
1: NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
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.
Basis
of Presentation
The
unaudited consolidated financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which
in the opinion of management, are necessary to fairly state the Company’s financial position, results of operations and cash flows
for the dates and periods presented and to make such information not misleading. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) have been omitted pursuant to rules and regulations of the Securities and Exchange Commission (the
“SEC”); nevertheless, management of the Company believes that the disclosures herein are adequate to make the information
presented not misleading.
The
unaudited consolidated financial statements for the three and six months ended December 31, 2021 and 2020 include the operations of mPhase
and its wholly-owned subsidiaries, mPower Technologies, Inc., Medds, Inc., mPhase Technologies India Private Limited effective March
19, 2019, and Alpha Predictions LLP effective June 30, 2019. All significant intercompany accounts and transactions have been eliminated
in the consolidation.
These
unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements
for the year ended June 30, 2021, contained in the Company’s Annual Report on Form 10-K filed with the SEC on October 13, 2021.
The results of operations for the three and six months ended December 31, 2021, are not necessarily indicative of results to be expected
for any other interim period or the fiscal year ending June 30, 2022.
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, the Company temporarily
closed its domestic and international offices and required all of its 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 the Company’s financial condition and results of operations will depend on future developments,
such as the ultimate duration and scope of the pandemic, its impact on the Company’s 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 the Company’s Annual Report on Form 10-K. Even after the pandemic has subsided, the Company may continue
to experience adverse impacts to its business as a result of any economic recession or depression that has occurred as a result of the
pandemic. Therefore, the Company cannot reasonably estimate the impact at this time. The Company continues to actively monitor the pandemic
and may determine to take further actions that alter its business operations as may be required by federal, state, or local authorities
or that it determines are in the best interests of its employees, customers, vendors, and shareholders. The Company applied for a
loan under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) of the Coronavirus Aid,
Relief and Economic Security Act of 2020 (“CARES ACT”). During April 2020, the Company received loan proceeds of $33,333
under the SBA PPP of the CARES Act (see Note 6: Notes Payable).
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
2: GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The
Company has generated net income of $194,203
and has used cash in operating activities
of $1,791,748
for the six months ended December 31, 2021. At December 31,
2021, the Company had a working capital surplus of $11,402,820,
and an accumulated deficit of $225,867,206.
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 unaudited consolidated financial statements
do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
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 EV charging initiatives, the Company may consider plans to raise additional funds through the issuance of equity or debt. Although the
Company intends to obtain additional financing to meet its cash needs, the Company may be unable to secure any additional financing on
terms that are favorable or acceptable to it, if at all. The Company’s 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 the
Company’s business and financial condition.
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain
reclassifications of prior year amounts have been made to enhance comparability with the current year’s unaudited consolidated
financial statements, including, but not limited to, presentation of certain items within the unaudited consolidated statements of operations
and comprehensive income (loss), unaudited consolidated statements of cash flows, and certain notes to the unaudited consolidated financial
statements.
Foreign
Currency Translation and Transactions
The
functional currencies of our operations in India and the United Kingdom are the Indian Rupee (“INR”) and the British Pound
(“GBP”), respectively. Assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance
sheet date, and income and expense items are translated at the average exchange rates in effect during the applicable period. The aggregate
effect of foreign currency translation is recorded in accumulated other comprehensive income (loss) in our consolidated balance sheets.
Our net investments in our Indian and United Kingdom operations are recorded at the historical rates and the resulting foreign currency
translation adjustments, net of income taxes, are reported as other comprehensive income and accumulated other comprehensive income within
stockholders’ equity in accordance with ASC 220 – Comprehensive Income.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The
exchange rates used to translate amounts in INR and GBP into USD for the purposes of preparing the consolidated financial statements
were as follows:
SCHEDULE
OF FOREIGN CURRENCIES TRANSLATION EXCHANGE RATE
Balance
sheet:
|
|
|
December
31,
2021
|
|
|
June
30,
2021
|
|
|
Period-end INR: USD exchange rate
|
|
$
|
0.01349
|
|
|
$
|
0.01349
|
|
|
Period-end GBP: USD exchange rate
|
|
$
|
1.34915
|
|
|
$
|
1.38510
|
|
Income
statement:
|
|
|
For the Three
Months Ended
|
|
|
For the Six
Months Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Average Period INR: USD exchange
rate
|
|
$
|
0.01349
|
|
|
$
|
0.01362
|
|
|
$
|
0.01349
|
|
|
$
|
0.01351
|
|
|
Average Period GBP: USD exchange rate
|
|
$
|
1.34876
|
|
|
$
|
1.32094
|
|
|
$
|
1.36066
|
|
|
$
|
1.29006
|
|
Translation
gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency
are translated at the rate on the date of the transaction and included in the results of operations as incurred.
Use
of Estimates
The
preparation of unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited
consolidated financial statements and reported amounts of revenues and expenses for the reporting period. Actual results could differ
from those estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition
and results of operations could be materially impacted. Significant estimates include the collectability of accounts receivable, estimated
useful lives of finite-lived intangible assets, accrued expenses, valuation of derivative liabilities, stock-based compensation, and
the deferred tax asset valuation allowance.
Concentrations
of Credit Risk
Credit
Risk
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and
accounts receivable. The Company maintains cash and cash equivalents with four financial institutions. Deposits held with the financial
institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation on such deposits, but may be redeemed
upon demand. The Company performs periodic evaluations of the relative credit standing of the financial institutions. With respect to
accounts receivable, the Company monitors the credit quality of its customers as well as maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of customers to make required payments.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Risk
Agreements
which potentially subject the Company to concentrations of revenue risk consist principally of one customer agreement. For the six months
ended December 31, 2021 and 2020, this one customer accounted for approximately 100%
and 100%
of our total revenue, respectively. At December 31, 2021 and June 30, 2021, this one customer accounted for approximately 100%
and 100%
of our total accounts receivable, respectively. During December 2021, the Company began invoicing its consumer engagement locations.
Although immaterial at December 31, 2021, as these locations continue to grow, the aforementioned one customer will become less of the
Company’s total revenue and accounts receivable, thus decreasing the Company’s revenue risk concentrations.
Supplier
Risk
Agreements
which potentially subject the Company to concentrations of supplier risk consist principally of one supplier agreement. For the six months
ended December 31, 2021, this one supplier accounted for approximately 100% of our total cost of revenue and accounted for approximately
80% of our total accounts payable. For the six months ended December 31, 2020, this one supplier accounted for approximately 100% of
our total cost of revenue and accounted for approximately 97% of our total accounts payable.
Cash
and Cash Equivalents
For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market
funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. There were no
cash equivalents at December 31, 2021 and June 30, 2021. The Company places its cash and cash equivalents with high-quality financial
institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”)
limit. At December 31, 2021 and June 30, 2021, the Company’s cash balance at one financial institution exceeded the FDIC limit.
Accounts
Receivable
The
Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating
the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments,
economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information
becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains reserves for potential credit
losses, and such losses traditionally have been within its expectations. Additionally, to date, the Company has entered into six 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 six tri-party settlement and offset agreements
has totaled $48,750,000. At December 31, 2021 and June 30, 2021, the Company determined there was no requirement for an allowance for
doubtful accounts.
Goodwill
and Intangible Assets
Goodwill
is recorded when the purchase price paid for an acquisition exceeds the fair value of the net identified tangible and intangible assets
acquired. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that
indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing the fair value
of the reporting unit to its carrying value. If the fair value is determined to be less than the carrying value, a second step is performed
to measure the amount of impairment loss, if any. On June 30, 2022, the Company will perform its annual evaluation of goodwill impairment
to determine if the estimated fair value of the reporting unit exceeds its carrying value.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Patents
and licenses are capitalized when the Company determines there will be a future benefit derived from such assets and are stated at cost.
Amortization is computed using the straight-line method over the estimated useful life of the asset, generally five years. As of December
31, 2021 and June 30, 2021, the book value of patents and licenses of $214,383, has been fully amortized and no amortization expense
was recorded for the six months ended December 31, 2021 and 2020.
Capitalized
Software Development Costs
The
Company follows the provisions of ASC 350-40, “Internal Use Software.” ASC 350-40 provides guidance for determining whether
computer software is internal-use software, and on accounting for the proceeds of computer software originally developed or obtained
for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. The Company expenses all costs incurred during the preliminary project stage of its
development, and capitalizes the costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements
to the software are capitalized if it is determined that these upgrades or enhancements add additional functionality to the software.
Costs incurred to improve and support products after they become available are charged to expense as incurred.
Capitalized
software development costs are amortized on a straight-line basis over the estimated useful lives, currently three years. Management
evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur
that could impact the recoverability of these assets.
At
December 31, 2021, the book value of purchased and developed technology of $3,875,256, included three technology platforms, a machine
learning platform and two artificial intelligence platforms. For the six months ended December 31, 2021 and 2020, the Company incurred
amortization expense of $449,142 and $450,302, respectively.
Fair
Value of Financial Instruments
The
Company accounts for the fair value of financial instruments in accordance with ASC topic 820, “Fair Value Measurements and Disclosures”
(ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as the price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ASC
820 also describes three levels of inputs that may be used to measure fair value:
Level
1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level
2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level
3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s
best estimate of fair value.
Financial
instruments consist principally of cash, accounts receivable, prepaid expenses, accounts payable, accrued liabilities, due to related
parties, and current and long-term debt. The carrying amounts of such financial instruments in the accompanying balance sheets approximate
their fair values due to their relatively short-term nature. The fair value of short and long-term debt is based on current rates at
which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value with the exception
of the fair value of due to related parties as the fair value cannot be determined due to a lack of similar instruments available to
the Company. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from
these financial instruments.
Revenue
Recognition
The
Company recognizes 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 5).
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 5).
A
contract asset is recognized for incremental costs to obtain a customer contract that are recoverable, otherwise such incremental costs
are expensed as incurred.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-Based
Compensation
The
Company computes 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. The Company estimates the fair value
of stock options and warrants by using the Black-Scholes option pricing model.
Derivative
Instruments
The
Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain
embedded derivative features. The Company accounts for these arrangements in accordance with ASC Topic 815, Accounting for Derivative
Instruments and Hedging Activities as well as related interpretations of this standard. In accordance with this standard, derivative
instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses
recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized
at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative
instruments and hybrid instruments based on available market data using appropriate valuation models, considering all of the rights and
obligations of each instrument.
The
Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered
consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers, among other factors,
the nature of the instrument, the market risks that it embodies and the expected means of settlement. Estimating fair values of derivative
financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration
of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes
model) are highly volatile and sensitive to changes in the trading market price of the Company’s common stock. Since derivative
financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility
in these estimates and assumption changes.
Convertible
Debt Instruments
The
Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial
conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards Board (“FASB”)
ASC. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital.
Debt discount is amortized to interest expense over the life of the debt using the effective interest method.
Income
Taxes
The
Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty
in Income Taxes (“ASC 740”) issued in December 2019. Under this method, deferred income taxes are determined based
on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities and net operating
loss and tax credit carryforwards given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on
changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the
jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations,
operating results or the ability to implement tax planning strategies vary, adjustments to the carrying value of deferred tax assets
and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than
not” criteria of ASC 740.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ASC
740 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not”
threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood
of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its June 30, 2021, 2020,
2019, and 2018 tax years may be selected for examination by the taxing authorities as the statute of limitations remains open.
The
Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities upon
receiving valid notice of assessments. The Company has received no such notices for the years ended June 30, 2021 and 2020.
Earnings
Per Share
In
accordance with the provisions of FASB ASC Topic 260, Earnings per Share, basic earnings per share (“EPS”) is computed
by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the
period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating EPS on a diluted
basis.
In
computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included.
The effect of contingently issuable shares is not included if the result would be anti-dilutive, such as when a net loss is reported.
For the three months ended December 31, 2021, basic and diluted EPS are computed using the same number of weighted average shares
as we incurred a net loss for those periods. For the six months ended December 31, 2021, as we incurred net income for the period,
dilutive shares included approximately 25,000,000
shares of the Company’s common stock
related to convertible promissory notes and outstanding warrants to purchase up to approximately 14,000,000
shares of the Company’s common stock,
assuming conversion of such convertible promissory notes and exercise of such warrants occurred at July 1, 2021, as the conversion price
of the convertible promissory notes and warrants were less than the average market price of the Company’s common stock for the
six months ended December 31, 2021. At December
31, 2021, there were approximately 134,316 shares
of the Company’s common stock to be issued and 1,000,000
restricted shares of the Company’s
common stock to be issued upon vesting pursuant to the terms of employment agreements with the Company’s Chief Operating Officer
and Chief Financial Officer, which were not included in computing dilutive EPS.
For the three and six months ended December 31, 2020, as we incurred net income for those periods, dilutive shares included 31,750,297
shares of the Company’s common stock related
to convertible promissory notes, assuming conversion of such convertible promissory notes occurred at October 1, 2020 and July 1, 2020,
respectively, as the conversion price of the convertible promissory notes were less than the average market price of the Company’s
common stock for the three and six months ended December 31, 2020. Additionally, for dilutive EPS purposes for the three and six months
ended December 31, 2020, the assumed conversion of such convertible promissory notes at October 1, 2020 and July 1, 2020, increased the
net income amount used in the dilutive EPS computation by $742,537
and $751,482,
respectively, as a result of the net impact of interest that would not have been incurred during the period as well as original issue
discounts, deferred financing costs, debt discounts, and derivative liability balances that would not have been required at December
31, 2020. At December 31, 2020, there were 115,817
restricted shares of the Company’s common
stock to be issued upon vesting pursuant to the terms of an employment agreement with its former Chief Financial Officer, which were
not included in computing dilutive EPS.
Modification/Extinguishment
of Debt
In
accordance with ASC 470, a modification or an exchange of debt instruments that adds or eliminates a conversion option that was substantive
at the date of the modification or exchange is considered a substantive change and is measured and accounted for as extinguishment of
the original instrument along with the recognition of a gain or loss. Additionally, under ASC 470, a substantive modification of a debt
instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash
flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows
under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument
along with the recognition of a gain or loss.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Adopted Accounting Standards
Effective
July 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740). The standard
amends and simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, and also
improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
The Company determined the adoption of ASU 2019-12 did not have a material impact on its consolidated financial statements.
Recently
Issued Accounting Standards Not Yet Adopted
During
August 2020, the FASB issued ASU 2020-06, to modify and simplify the application of U.S. GAAP for certain financial instruments with
characteristics of liabilities and equity. The standard is effective for the Company as of July 1, 2024, with early adoption permitted.
The Company is reviewing the impact of this guidance on its consolidated financial statements.
During May 2021, the FASB issued ASU 2021-04,
to clarify and reduce diversity in accounting for modifications or exchanges of freestanding equity-classified written call options that
remain equity classified after modification or exchange. The standard is effective for the Company as of July 1, 2022, with early adoption
permitted. The Company is reviewing the impact of this guidance on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact
on the accompanying unaudited consolidated financial statements.
NOTE
4: INTANGIBLE ASSET – PURCHASED SOFTWARE, NET
Intangible
asset – Purchased Software, net, is comprised of the following at:
SCHEDULE
OF INTANGIBLE ASSET
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
Purchased software
|
|
$
|
3,875,256
|
|
|
$
|
3,905,228
|
|
|
Less: accumulated amortization
|
|
|
(2,275,323
|
)
|
|
|
(1,826,181
|
)
|
|
Purchased software,
net
|
|
$
|
1,599,933
|
|
|
$
|
2,079,047
|
|
Intangible
asset – Purchased Software consists of the following three software technologies:
SCHEDULE
OF INTANGIBLE ASSET BY DEVELOPED SOFTWARE
|
Alpha Predictions developed software
|
|
$
|
448,255
|
|
|
Travel Buddhi developed software
|
|
|
114,420
|
|
|
CloseComms developed
software
|
|
|
1,037,258
|
|
|
Total developed software
|
|
$
|
1,599,933
|
|
The Alpha Predictions and Travel Buddhi developed
software were acquired during the fiscal year ended June 30, 2019. The CloseComms developed software was acquired during the fiscal year
ended June 30, 2020. At December 31, 2021, the Travel Buddhi and CloseComms technology platforms have been placed in service.
Developed
software costs are amortized on a straight-line basis over three years. Amortization of developed software costs is included in general
and administration expenses within the unaudited consolidated statements of operations.
For
the three and six months ended December 31, 2021, amortization expense was $224,348 and $449,142, respectively. For the three and six
months ended December 31, 2020, amortization expense was $226,469 and $450,302, respectively.
Future
amortization expense related to the existing net carrying amount of developed software at December 31, 2021 is expected to be as follows:
SCHEDULE
OF FUTURE AMORTIZATION EXPENSE
|
|
|
|
|
|
|
Remainder of fiscal year 2022
|
|
$
|
402,668
|
|
|
Fiscal year 2023
|
|
|
564,743
|
|
|
Fiscal year 2024
|
|
|
415,325
|
|
|
Fiscal year 2025
|
|
|
217,197
|
|
|
Purchased software,
net
|
|
$
|
1,599,933
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
5: REVENUE FROM CONTRACTS WITH CUSTOMERS
The
following table presents our revenue disaggregated by category and primary geographic regions within our single reporting segment:
SCHEDULE OF REVENUE DISAGGREGATED BY CATEGORY
|
|
|
For the Three
Months Ended
|
|
|
For the Six
Months Ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
Categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
$
|
6,434,050
|
|
|
$
|
6,180,000
|
|
|
$
|
12,839,050
|
|
|
$
|
12,360,000
|
|
|
Service and support
|
|
|
1,005,157
|
|
|
|
906,756
|
|
|
|
1,961,087
|
|
|
|
1,804,020
|
|
|
Application development and implementation
|
|
|
900,670
|
|
|
|
549,680
|
|
|
|
1,765,450
|
|
|
|
1,059,280
|
|
|
Total Revenue
|
|
$
|
8,339,877
|
|
|
$
|
7,636,436
|
|
|
$
|
16,565,587
|
|
|
$
|
15,223,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Geographic Regions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
100
|
%
|
|
|
-
|
%
|
|
|
100
|
%
|
|
|
-
|
%
|
|
India
|
|
|
-
|
%
|
|
|
100
|
%
|
|
|
-
|
%
|
|
|
100
|
%
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Effective
July 1, 2021, the Company moved the invoicing office of its largest customer to its customer’s United States based office. This
change was to align the invoicing by the Company to the customer’s location managing the services provided under the customer agreement.
The
following table presents our long-lived assets by primary geographic regions within our single reporting segment:
SCHEDULE
OF LONG-LIVED ASSETS
|
|
|
December
31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
United States
|
|
$
|
1,438
|
|
|
$
|
1,438
|
|
|
India
|
|
|
568,973
|
|
|
|
1,490,952
|
|
|
United Kingdom
|
|
|
1,046,096
|
|
|
|
1,068,556
|
|
|
Total long-lived assets
|
|
$
|
1,616,507
|
|
|
$
|
2,560,946
|
|
For
the six months ended December 31, 2021 and 2020, the Company was subject to revenue concentration risk as one customer accounted for
approximately 100% of our total revenue for both periods.
Subscription
and Application Development and Implementation Revenue
The
Company recognizes revenue when, or as, it satisfies a performance obligation to a customer. The Company primarily has one performance
obligation, which includes the combined promise to develop, implement, and license customized software. Payment terms for the software
include one-time application development and implementation fees, which are generally billed on a time-and-materials basis over the development
and implementation period, plus fixed license subscription fees, which may either be billed in full upfront or in monthly installments
over the license period, which is generally three to ten years. All of these fees are allocated to the single performance obligation
of providing software to the customer.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
5: REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)
The
performance obligation is fully satisfied at the point in time when the customer has taken control of the completed software, which is
when physical possession of the software has transferred to the customer, the customer is able to use and benefit from the software,
and the contractual license period has begun. Since the Company has no further obligation to the customer once control of the software
has transferred, the Company recognizes revenue in full for all of the development and implementation fees at that point in time. Subscription
fees are also recognized when control of the software has transferred to the customer but only to the extent such fees are contractually
guaranteed to the Company. Any future monthly subscription fees that the Company would not have a contractually guaranteed right to collect
in the event of early termination of the contract are instead recognized as revenue on a straight-line basis over the license period.
Service
and Support Revenue
Certain
contracts also contain a second performance obligation for service and support. This performance obligation includes the promise to provide
future updates, upgrades, and enhancements to the software over the license period, if and when they occur. Service and support fees
are fixed as a percentage of total contract value and billed in monthly installments over the license period. The Company recognizes
service and support fee revenue over time, on a straight-line basis over the license period, as the customer receives such services on
a generally uniform basis throughout the license period.
Allocation
of the Transaction Price
Prices
allocated to each performance obligation generally correspond with the contractually stated prices, since they equal standalone selling
price. In some cases, services may be discounted, which requires the company to allocate the transaction price based on relative standalone
selling price. The Company estimates standalone selling price based on comparable industry practices and the costs and margins involved
in providing services to its customers.
Contract
Liabilities
Contract
liabilities include amounts billed to the customer in excess of revenue recognized and are presented as contract liabilities on the consolidated
balance sheets. At December 31, 2021 and June 30, 2021, contract liabilities totaled $430,027 and $350,689, respectively.
The
following table presents a reconciliation of the contract liabilities from June 30, 2021 to December 31, 2021:
SCHEDULE
OF RECONCILIATION OF CONTRACT LIABILITIES
|
June 30, 2021
|
|
$
|
350,689
|
|
|
Contract liability deferral
|
|
|
300,247
|
|
|
Amortization of contract
liability to revenue
|
|
|
(220,909
|
)
|
|
December 31, 2021
|
|
$
|
430,027
|
|
Practical
Expedient
The
Company has elected a practical expedient to omit certain disclosures about the transaction price allocated to remaining performance
obligations for contracts with terms of one year or less.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
6: NOTES PAYABLE
Notes
payable is comprised of the following:
SCHEDULE
OF NOTES PAYABLE
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
Note payable,
SBA – Paycheck Protection Program [1]
|
|
$
|
33,751
|
|
|
$
|
33,680
|
|
|
Note payable, SBA –
Economic Injury Disaster Loan [2]
|
|
|
163,081
|
|
|
|
160,393
|
|
|
Note
payable, Accredited Investor [3]
|
|
|
43,202
|
|
|
|
276,035
|
|
|
Total notes payable
|
|
$
|
240,034
|
|
|
$
|
470,108
|
|
|
Less: current portion
of notes payable
|
|
|
(93,144
|
)
|
|
|
(323,218
|
)
|
|
Long-term portion of
notes payable
|
|
$
|
146,890
|
|
|
$
|
146,890
|
|
|
[1]
|
|
effective
April 28, 2020, the Company entered into a promissory note with an approved lender in the principal amount of $33,333. The note was
approved under the provisions of the Coronavirus, Aid, Relief and Economic Security Act (the “CARES Act”) and the terms
of the Paycheck Protection Program of the U.S. Small Business Administration’s 7(a) Loan Program. The note accrues interest
for the first six months following the issuance date at a rate of 1% per annum, (increasing to 6% per annum upon the occurrence of
an Event of Default (as defined in the note)), and beginning November 28, 2020, requires 18 monthly payments of $1,876 each, consisting
of principal and interest until paid in full on April 28, 2022. Subsequent to issuance, the first payment due date was extended.
The note may be prepaid by the Company at any time prior to the maturity date with no prepayment penalties. Additionally, any portion
of the note up to the entire principal and accrued interest balance may be forgiven in the event the Company satisfies certain requirements
as determined by the CARES Act. The Company has applied for forgiveness and expects to satisfy the requirements for forgiveness of
the entire principal and accrued interest balance. The Company is awaiting receipt of approval of its requested forgiveness from
the SBA through its treasury partner. At December 31, 2021, $33,751 was recorded as a current liability within notes payable with
the consolidated balance sheets.
|
|
[2]
|
|
effective
May 28, 2020, the Company entered into a promissory note and security agreement with the U.S. Small Business Administration (“SBA”)
in the principal amount of $150,000.
The
note was approved under the provisions of the CARES Act and the terms of the COVID-19 Economic Injury Disaster Loan (“EIDL”)
program of the SBA’s EIDL Program. The note accrues interest at a rate of 3.75%
per annum, and beginning May 28, 2021, requires monthly payments of $731
each,
consisting of principal and interest until paid in full on May
28, 2050.
Subsequent to issuance, the SBA extended the first payment due date to 24 months from the date of the note.
The note may be prepaid by the Company at any time prior to the maturity date with no prepayment penalties. Additionally, this promissory
note is collateralized by certain of the Company’s property as specified within the security agreement. Furthermore, on June
4, 2020, the Company received $4,000
from the SBA, which it
is currently working to obtain details from the SBA regarding this amount. As such, at December 31, 2021, the Company recorded this
amount as a current liability. At December 31, 2021, $16,191
was recorded as a current
liability within notes payable and $146,890
was recorded as a long-term
liability within notes payable, net of current portion with the consolidated balance sheets.
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
6: NOTES PAYABLE (continued)
|
[3]
|
|
effective
February 8, 2021, the Company entered into a securities purchase agreement with an accredited investor and issued an 12% promissory
note in the principal amount of $362,250 (including a $47,250 original issue discount) to the accredited investor with a maturity
date of February 8, 2022. Twelve months of interest is immediately earned by the accredited investor upon the Company receiving proceeds
and is included in the required monthly repayments. On February 10, 2021, the Company received net proceeds in the amount of $288,000
as a result of $27,000 being paid for legal and due diligence fees incurred with respect to this securities purchase agreement and
convertible promissory note. In accordance with the securities purchase agreement, the Company issued 1) 250,000 restricted shares
of its common stock (“Commitment Shares”) to the accredited investor as additional consideration for the purchase of
the promissory note and 2) 200,000 restricted shares of its common stock (“Returnable Shares”) to the accredited investor
which will be returned to the Company upon timely completion of the required repayment schedule. Repayments of the promissory note
shall be made in eight (8) installments each in the amount of $50,715, which commenced July 8, 2021 and continues thereafter each
thirty (30) days until February 8, 2022. This promissory note is only convertible upon an event of default as defined in the promissory
note. The original issue discount, deferred financing costs and issuance date fair value of the Commitment Shares are being amortized
over the term of the note. At December 31, 2021, the aggregate outstanding balance of the promissory note and accrued interest was
$101,430. At December 31, 2021, the aggregate balance of the promissory note, net of original issue discount, deferred financing
costs and issuance date fair value of the Commitment Shares was $43,202.
|
NOTE
7: CONVERTIBLE DEBT ARRANGEMENTS
JMJ
Financial
At
December 31, 2021 and June 30, 2021, the amount recorded in current liabilities for this one convertible note and accrued interest thereon
due to JMJ Financial was $235,925 and $213,545, respectively. During the six months ended December 31, 2021 and 2020 the Company recorded
$9,221 and $8,514, respectively, of interest for the outstanding convertible note.
At
December 31, 2021 and June 30, 2021, the aggregate remaining amount of convertible securities held by JMJ could be converted into 11,796
and 10,677 shares, respectively, with a conversion price of $20.
Accredited
Investors
Evergreen
Agreement
On
April 6, 2021, the Company entered into a Securities Purchase Agreement (“Agreement”) with Evergreen Capital Management LLC
(the “Investor”), pursuant to which the Company sold to the Investor an aggregate of up to $2,040,000 in aggregate subscription
amount of notes and warrants to purchase an aggregate of 11,730,000 shares of common stock in two (2) tranches (each a “Tranche”),
with the first Tranche of $1,540,000 in subscription amount of notes (to purchase an aggregate of $1,771,000 in principal amount of notes)
and warrants to purchase an aggregate of 8,855,000 shares of Common Stock being closed on upon execution of this Agreement. The closing
for the second Tranche of $500,000 in subscription amount of notes (to purchase an aggregate of $575,000 in principal amount of notes)
and warrants to purchase an aggregate of 2,875,000 shares of common stock will occur within three (3) business days after the later of
(i) the filing by the Company of a Registration Statement on Form S-1 for the sale of common stock that will be listed on a national
securities exchange, or (ii) the thirtieth (30th) day following the closing of the first Tranche. The first and second Tranches closed
and funded on April 6, 2021 and May 3, 2021, respectively.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
7: Convertible Debt Arrangements (continued)
The
Notes mature on April
6, 2022 and May 3, 2022, bears interest at the
rate of 5%
per annum and are 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 volume-weighted average price (“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 or after November 5, 2021, 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
Warrants are exercisable at a purchase price of $0.20
per share at any time on or prior to April 6,
2025 and May 3, 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”). On January 31, 2022, the Investor agreed to not convert, tender for conversion or otherwise take steps toward the conversion
of either of the Notes to Common Stock until the earlier of (a) May 1, 2022 or (b) the date on which the Common Stock commences trading
on the Nasdaq Stock Market or another national stock exchange. The
Investor will not have the right to exercise the Warrants 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 Warrants 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
Securities Purchase Agreement (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.
In
connection herewith, the Company recorded an original issue discount of $306,000 and deferred financing costs of $42,500. The original
issue discount and deferred financing costs are being amortized over the term of the note. At December 31, 2021, the aggregate balance
of the convertible promissory note and accrued interest was $1,927,988. At December 31, 2021, the aggregate balance of the convertible
promissory note, net of original issue discount and deferred financing costs was $1,387,297. During October 2021 and December 2021, an
aggregate of $500,000 of outstanding principal was converted into an aggregate of 2,500,000 shares of the Company’s common stock.
The company recorded an aggregate loss on extinguishment of debt of $166,625 as a result of the Company issuing shares of it common stock
to satisfy the outstanding principal conversions.
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 an aggregate of up to $2,550,000
in Aggregate Subscription Amount of Notes and Warrants to acquire an aggregate of 15,000,000
shares of common stock in two tranches (each a “Tranche”), with the first Tranche of $1,924,999 in
subscription Amount of Notes (to sell an aggregate of $2,264,706 in
principal amount of Notes) and Warrants to acquire an aggregate of 11,323,529,
shares of common stock being closed on upon execution of the SPA. The closing for the second tranche for $625,001 in
Subscription Amount Notes (to sell an aggregate of $735,294
in principal amount of Notes) and Warrants to acquire an aggregate of 3,676,471
shares of common stock will occur within three (3) business days after the later of (i) the filing of a Registration Statement on
Form S-1 for the sale of common stock that will be listed on a national securities exchange or (ii) the thirtieth (30th) day
following the closing of the first Tranche. The first and second Tranches closed and funded on
May 3, 2021 and June 30, 2021, respectively. The Company received a portion of the proceeds related to the second Tranche on July 1,
2021.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
7: Convertible Debt Arrangements (continued)
The
Notes mature on May 4, 2022 and June 30, 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 4, 2025
and June 30, 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.
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.
In
connection herewith, the Company recorded an original issue discount of $447,237 and deferred financing costs of $10,000. The original
issue discount and deferred financing costs are being amortized over the term of the note. At December 31, 2021, the aggregate balance
of the convertible promissory note and accrued interest was $3,075,146. At December 31, 2021, the aggregate balance of the convertible
promissory note, net of original issue discount and deferred financing costs was $2,135,337.
At
December 31, 2021 and June 30, 2021, there was $4,832,616 and $5,143,795 of convertible notes payable outstanding, net of discounts of
$1,304,993 and $3,157,759, respectively.
During
the six months ended December 31, 2021 and 2020, amortization of original issue discount, deferred financing costs, and debt discounts
amounted to $2,077,049 and $494,184, respectively.
During
the six months ended December 31, 2021, $500,000 of convertible notes were converted into 2,500,000 shares of the Company’s common
stock. During the six months ended December 31, 2020, $288,182 of convertible notes, including fees and interest, were converted into
16,331,766 shares of the Company’s common stock.
At
December 31, 2021, the Company was in compliance with the terms of the Accredited Investors convertible promissory notes.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
7: Convertible Debt Arrangements (continued)
Notes
payable under convertible debt and debenture agreements, net is comprised of the following:
SCHEDULE
OF NOTES PAYABLE UNDER CONVERTIBLE DEBT AND DEBENTURE AGREEMENT, NET
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
2021
|
|
|
2021
|
|
|
JMJ Financial
|
|
$
|
109,000
|
|
|
$
|
109,000
|
|
|
Accredited Investors
|
|
|
4,832,616
|
|
|
|
5,148,795
|
|
|
Unamortized OID, deferred
financings costs, and debt discounts
|
|
|
(1,304,993
|
)
|
|
|
(3,157,759
|
)
|
|
Total convertible debt
arrangements, net
|
|
$
|
3,636,623
|
|
|
$
|
2,100,036
|
|
At
December 31, 2021 and June 30, 2021, the outstanding balances are reflected as current liabilities within our consolidated balance sheets.
At December 31, 2021 and June 30, 2021, accrued interest on these convertible notes of $303,207 and $162,271, respectively, is included
within accrued expenses of the consolidated balance sheets.
NOTE
8: DERIVATIVE LIABILITY
We do not use derivative instruments to hedge
exposures to cash flow, market, or foreign currency risks. The Company evaluates its convertible instruments, options, warrants or
other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives or contain features
that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815, Derivatives and Hedging. The result of this accounting
treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event
that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operation as other income (expense).
Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date then reclassified
to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are
reclassified to liabilities at the fair value of the instrument on the reclassification date.
The
following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable
inputs (Level 3) from June 30, 2020 to June 30, 2021, as there was no derivative liability transactions during the three months ended
December 31, 2021:
SCHEDULE
OF RECONCILIATION OF DERIVATIVE LIABILITY
|
|
|
Conversion
feature
derivative liability
|
|
|
June 30, 2020
|
|
$
|
897,631
|
|
|
Initial fair value of derivative liability
recorded as debt discount
|
|
|
853,800
|
|
|
Initial fair value of derivative liability
charged to other expense
|
|
|
2,240,908
|
|
|
Gain on change in fair value included in earnings
|
|
|
(3,267,323
|
)
|
|
Derivative liability
relieved by conversions of convertible promissory notes
|
|
|
(725,016
|
)
|
|
June 30, 2021
|
|
$
|
-
|
|
Total
derivative liability at December 31, 2021 and June 30, 2021 amounted to $0 for both periods.
The
Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods discussed below. While the Company
believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair
value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are
that of volatility and market price of the underlying common stock of the Company.
At
December 31, 2021, the Company did not have any derivative instruments that were designated as hedges.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
9: STOCKHOLDERS’ EQUITY
At
December 31, 2021, the total number of shares of all classes of stock that the Company shall have the authority to issue is 500,001,000
shares consisting of 500,000,000 shares of common stock, $0.01 par value per share, of which 81,656,033 are issued and 81,627,663 are
outstanding, and 1,000 shares of preferred stock, par value $0.01 per share of which 1,000 shares have been designated as Series A Super
Voting Preferred of which 1,000 are issued and outstanding.
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.
Common
Stock
Stock
Based Compensation – Common Stock Grants
During
the six months ended December 31, 2021, the Company recorded $45,869 of stock-based compensation expense related to a November 22, 2021
grant of 500,000 restricted shares of common stock to the Company’s Chief Financial Officer and a May 17, 2021 grant of 500,000
restricted shares of common stock to the Company’s Chief Operating Officer, both of which vests 25% on the 1 year, 2 year, 3 year,
and 4 year anniversaries of the grant dates.
During
the six months ended December 31, 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. For the year ended June 30, 2021, the Company
recorded $153,301 of stock-based compensation expense related to the Exchange Agreement. See Common Stock Warrants section below for
further details of the warrants.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
9: STOCKHOLDERS’ EQUITY (continued)
Furthermore,
during the six months ended December 31, 2020, 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,
1 year, 2 year, and 3 year anniversaries of the grant date.
Vendor
Services
During
the six months ended December 31, 2021, the Company entered into various consulting, public relations, and marketing agreements whereby
the Company issued an aggregate of 543,425 restricted shares of its common stock for services to be performed during specified periods
of time. During the six months ended December 31, 2021, the Company recorded $83,960 of expense.
During
the six months ended December 31, 2020, the Company entered into a consulting, public relations, and marketing agreement whereby the
Company issued 200,000 restricted shares of its common stock for services to be performed during the agreement period of July 15, 2020
through October 15, 2020. During the six months ended December 31, 2020, the Company recorded $6,820 of expense.
Board
of Director Services
During
the six months ended December 31, 2021, the Company granted an aggregate of 134,316 restricted shares of its common stock in accordance
with the Board of Directors agreements in place during this period. During the six months ended December 31, 2021, the Company recorded
$30,000 of expense. At December 31, 2021, the grant date fair value of the 134,316 granted restricted shares of $30,000 is classified
as common stock to be issued within the consolidated balance sheets.
During
the six months ended December 31, 2020, there were no restricted shares of the Company’s common stock granted in accordance with
any Board of Directors agreements.
Conversion
of Debt Securities
During
the six months ended December 31, 2021, $500,000
of convertible notes were converted into 2,500,000
shares of the Company’s common stock by
an accredited investor, valued at $666,625. During the six months ended December 31, 2020, $288,182
of convertible notes, including fees and interest,
were converted into 16,331,766
shares of the Company’s common stock by
accredited investors, valued at $708,272.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
9: STOCKHOLDERS’ EQUITY (continued)
Reserved
Shares
At
December 31, 2021, the convertible promissory notes entered into with the accredited investors require the Company to reserve approximately
82,000,000 shares of its common stock for potential future conversions under such instruments.
At
December 31, 2021, 7,202 shares of the Company’s common stock remain subject to be returned to the Company’s treasury for
cancellation. Such shares were not sold as part of 8,000 shares of the Company’s common stock that was advanced during fiscal year
2014 under an Equity Line of Credit.
Common
Stock Warrants
Exchange
Agreement – Warrants Exchanged for Common Stock
Refer to the Exchange Agreement, Cancelled Warrants,
Transition Agreement and Warrant Agreement discussed in the aforementioned Stock Based Compensation – Common Stock Grants section
of Note 9.
Warrant
Agreements – Convertible Promissory Note Warrants
Pursuant
to a Securities Purchase Agreement between the Company and two accredited investors dated as of April 30, 2021, the Company sold to the
Investors and the Investors acquired an aggregate of 14,908,077 warrants to acquire shares of the Company’s common stock. The warrants
expire four years after issuance and have an exercise price of $0.20 per share, subject to adjustment hereunder. The warrants can also
be exercised under a cashless basis as outlined within the Warrant Agreement. The Company attributed an aggregate fair value of $1,879,204
to the warrants, based upon an average value of $0.35 per warrant.
As discussed in Note 7, the Evergreen Agreement,
the Company sold to the Investor and the Investor acquired an aggregate of 11,730,000
warrants to acquire shares of the Company’s common stock. The warrants expire four
years after issuance and have an exercise price of $0.20
per share, subject to adjustment hereunder. The warrants can also be exercised under a cashless basis as outlined within the Warrant
Agreement. The Company attributed an aggregate fair value of $1,293,541
to the warrants, based upon an average value of $0.27
per warrant.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
9: STOCKHOLDERS’ EQUITY (continued)
Fair
Value of Warrants
The
Company estimates the fair value of each option award on the date of grant using a black-scholes option valuation model that uses the
assumptions noted in the table below. Because black-scholes option valuation models incorporate ranges of assumptions for inputs, those
ranges are disclosed. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical
data to estimate option exercise and applicable employee termination within the valuation model; separate groups of employees that
have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived
from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding.
The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time
of grant. The following range of assumptions were utilized during the six months ended December 31, 2021:
SCHEDULE
OF ASSUMPTIONS USED
|
Expected volatility
|
|
|
618.01
|
%
|
|
Weighted-average volatility
|
|
|
618.01
|
%
|
|
Expected dividends
|
|
|
0
|
%
|
|
Expected term (in years)
|
|
|
4.0
|
|
|
Risk-free rate
|
|
|
0.68
|
%
|
The
following table sets forth common stock purchase warrants outstanding at December 31, 2021:
SCHEDULE
OF COMMON STOCK PURCHASE WARRANTS OUTSTANDING
|
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Intrinsic
Value
|
|
|
Outstanding, June 30, 2021
|
|
|
25,718,971
|
|
|
$
|
0.20
|
|
|
$
|
-
|
|
|
Warrants issued
|
|
|
919,106
|
|
|
|
0.20
|
|
|
|
-
|
|
|
Warrants forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, December 31, 2021
|
|
|
26,638,077
|
|
|
$
|
0.20
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuable
upon exercise of warrants
|
|
|
26,638,077
|
|
|
$
|
0.20
|
|
|
$
|
-
|
|
SCHEDULE
OF WARRANTS OUTSTANDING AND EXERCISABLE BY EXERCISE PRICE RANGE
|
|
|
|
Common
Stock Issuable Upon Exercise of Warrants Outstanding
|
|
|
Common
Stock Issuable Upon Warrants Exercisable
|
|
|
Range
of Exercise Prices
|
|
|
Number
Outstanding at December 31, 2021
|
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
|
Weighted
Average Exercise Price
|
|
|
Number
Exercisable at December 31, 2021
|
|
|
Weighted
Average Exercise Price
|
|
|
$
|
0.20
|
|
|
|
26,638,077
|
|
|
|
3.34
|
|
|
$
|
0.20
|
|
|
|
26,638,077
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
26,638,077
|
|
|
|
3.34
|
|
|
$
|
0.20
|
|
|
|
26,638,077
|
|
|
$
|
0.20
|
|
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
10: RELATED PARTY TRANSACTIONS
Microphase
Corporation
At
December 31, 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 to provide working capital to the Company. During the six months ended December
31, 2021 and 2020, there were no advances from any officers or former officers of the Company. During the six months ended December 31,
2021 and 2020, $22,883 and $2,412 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, accrued interest at a rate of 6% per annum, and matured on April 18, 2020. The Demand Letter stated an aggregate of
$51,940 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
December 31, 2021 and June 30, 2021, these outstanding notes including accrued interest totaled $769,970 and $747,086, respectively.
At December 31, 2021, these promissory notes are not convertible into shares of the Company’s common stock.
Common
Stock Issuances
During
the six months ended December 31, 2021, the Company recorded $45,869 of stock-based compensation expense related to a November 22, 2021
grant of 500,000 restricted shares of common stock to the Company’s Chief Financial Officer and a May 17, 2021 grant of 500,000
restricted shares of common stock to the Company’s Chief Operating Officer, both of which vests 25% on the 1 year, 2 year, 3 year,
and 4 year anniversaries of the grant dates.
Office
Lease
Effective
February 8, 2021, the Company relocated its corporate office to Gaithersburg, MD, 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 six months ended December 31, 2021 and 2020, $24,389 and $8,100, respectively,
was recognized as rent expense. At December 31, 2021 and June 30, 2021, $35,971 was accrued as payable to the related party.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(UNAUDITED)
NOTE
11: COMMITMENTS AND CONTINGENCIES
Commitments
Office
Lease
Refer to Note 10: Related Party Transactions,
Office Lease.
Contracts
and Commitments Executed Pursuant to the Transition Agreement
In
the transaction whereby, Mr. Bhatnagar acquired control of the Company on January 11, 2019, the Company entered into material commitments
including an employment agreement and a warrant agreement (see Note 9).
NOTE
12: DISCONTINUED OPERATIONS
The
Company has classified the operating results and associated assets and liabilities from its Jump line of products, which ceased generating
material revenue during the first quarter of fiscal year 2017, as discontinued operations in the unaudited consolidated financial statements
for the three and six months ended December 31, 2021 and 2020.
The
assets and liabilities associated with discontinued operations included in our consolidated balance sheets at December 31, 2021 and June
30, 2021 were only accounts payable with a balance of $82,795 for both periods.
For
the three and six months ended December 31, 2021 and 2020, there were no revenue or expenses associated with discontinued operations
included in our unaudited consolidated statements of operations.
NOTE
13: SUBSEQUENT EVENTS
Subsequent
to December 31, 2021, the Company, pursuant to the approval of its Board of Directors (the “Board”), entered into an amended
and restated employment agreement with Anshu Bhatnagar, Chief Executive Officer of the Company, modifying the terms of the Employment
Agreement entered into between the Company and Mr. Bhatnagar dated January 11, 2019 (collectively, the “Bhatnagar Amended Employment
Agreement”). The Bhatnagar Amended Employment Agreement became effective retroactively as of January 1, 2022 and shall expire
on December 31, 2032.
Subsequent
to December 31, 2021, the Company, pursuant to the approval of the Board, entered into an amended and restated employment agreement with
Angelia Lansinger Hrytsyshyn, Chief Financial Officer of the Company, modifying the terms of the Employment Agreement entered
into between the Company and Ms. Hrytsyshyn dated November 16, 2021 (collectively, the “Hrytsyshyn Amended Employment Agreement”).
The Hrytsyshyn Amended Employment Agreement became effective January 21, 2022.
Subsequent
to December 31, 2021, the Company’s Board appointed James F. Engler, Jr. as a member of the Board to serve as a
non-executive director of the Company.
Subsequent
to December 31, 2021, the Company’s Board ratified and approved the establishment of the Audit Committee, Compensation Committee,
and Nominating and Governance Committee as committees of the Board, the adoption of the charters for such committees and the appointment
of the Company’s directors to such committees.
Subsequent
to December 31, 2021, the Company entered into a non-recourse Future Receivables Agreement (“Agreement”) with an accredited
investor (the “Investor”), pursuant to which the Company sold, assigned, and transferred to Investor all of the Company’s
future accounts, contract rights, and other entitlements arising from or relating to the payment of monies from the Company’s customers’
including all payments made in the ordinary course of business, for the payments due to the Company as a result of the Company’s
sale of goods or services. The Agreement provides for the purchase of $4,050,000 of purchased receipts by the Investor with net proceeds
of $2,910,000 to the Company. The weekly repayment term began during January 2022 and concludes during July 2022, at which time the Agreement
will be fully satisfied.
Subsequent
to December 31, 2021, the Company’s Board approved the issuance of 3,352,066 shares of the Company’s common stock to Anshu
Bhatnagar, Chief Executive Officer of the Company, to satisfy a note payable due to Mr. Bhatnagar in the aggregate amount of $528,607.
Subsequent to December
31, 2021, Evergreen agreed to not convert shares for a period of time. Refer to Note 7 for details.
Subsequent
to December 31, 2021, the Company filed for a name change with the Financial Industry Regulatory Authority (“FINRA”)
to mPower Technologies, Inc.