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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For
the quarterly period ended
December 31, 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 #200
Gaithersburg,
MD
|
|
20878 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(301)
329-2700
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b)
of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
None |
|
None |
|
None |
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to 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 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 Rule 12b-2 of the Exchange Act) ☐ Yes ☒
No
As of
February 10, 2022, there were
85,042,887 shares
of the issuer’s common stock, $0.01 par value per share,
outstanding.
mPHASE
TECHNOLOGIES, INC.
QUARTERLY
REPORT ON FORM 10-Q
TABLE
OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
mPhase
Technologies, Inc.
Consolidated Balance Sheets
The
accompanying condensed notes are an integral part of these
unaudited condensed consolidated financial statements.
mPhase
Technologies, Inc.
Consolidated Statements of Operations and Other
Comprehensive Income (Loss)
(Unaudited)
The
accompanying condensed notes are an integral part of these
unaudited condensed consolidated financial statements.
mPhase
Technologies, Inc.
Consolidated Statements of Stockholders’
Equity
For
the Six Months Ended December 31, 2021 and 2020
(Unaudited)
|
|
Preferred
Stock |
|
|
Common
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
$0.01
Par Value |
|
|
Shares |
|
|
$0.01
Par Value |
|
|
Additional
Paid in
Capital |
|
|
Common
Stock to
be Issued |
|
|
Accumulated
Comprehensive
Income (Loss) |
|
|
Accumulated
Deficit |
|
|
Stockholders’
Equity |
|
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 |
|
|
|
|
|
|
- |
|
|
|
16,331,766 |
|
|
|
163,318 |
|
|
|
544,954 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
708,272 |
|
Issuance
of common stock for exchange of warrants |
|
|
|
|
|
|
|
|
|
|
37,390,452 |
|
|
|
373,905 |
|
|
|
(220,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,301 |
|
Stock-based
compensation for restricted shares under employment
agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,737 |
|
Issuance
of common stock for vendor services |
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
2,000 |
|
|
|
4,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,820 |
|
Other
comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121,163 |
) |
|
|
|
|
|
|
(121,163 |
) |
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
720,494 |
|
|
|
720,494 |
|
Balance
September 30, 2020 |
|
|
1,000 |
|
|
$ |
10 |
|
|
|
73,096,710 |
|
|
$ |
730,968 |
|
|
$ |
232,324,611 |
|
|
$ |
955,466 |
|
|
$ |
(8,093 |
) |
|
$ |
(227,006,926 |
) |
|
$ |
6,996,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for CloseComms acquisition |
|
|
- |
|
|
|
- |
|
|
|
2,666,666 |
|
|
|
26,667 |
|
|
|
928,799 |
|
|
|
(955,466 |
) |
|
|
|
|
|
|
|
|
|
|
- |
|
Stock-based
compensation for restricted shares under employment
agreement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,737 |
|
Other
comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,932 |
) |
|
|
|
|
|
|
(21,932 |
) |
Other
comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,932 |
) |
|
|
|
|
|
|
(21,932 |
) |
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,005,212 |
|
|
|
1,005,212 |
|
Net
income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,005,212 |
|
|
|
1,005,212 |
|
Balance
December 31, 2020 |
|
|
1,000 |
|
|
$ |
10 |
|
|
|
75,763,376 |
|
|
$ |
757,635 |
|
|
$ |
233,264,147 |
|
|
$ |
- |
|
|
$ |
(30,025 |
) |
|
$ |
(226,001,714 |
) |
|
$ |
7,990,053 |
|
The
accompanying condensed notes are an integral part of these
unaudited condensed consolidated financial statements.
mPhase
Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
The
accompanying condensed notes are an integral part of these
unaudited condensed consolidated financial statements.
|
|
For the
Six Months Ended |
|
|
|
December
31, |
|
|
|
2021 |
|
|
2020 |
|
Supplemental
disclosure of non-cash operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial fair value of
derivative liability recorded as debt discount |
|
$ |
- |
|
|
$ |
463,300 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relative fair value of
warrants issued with convertible promissory notes |
|
$ |
125,252 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Issuance of Common
Stock for services |
|
|
|
|
|
|
|
|
Value |
|
$ |
147,660 |
|
|
$ |
6,820 |
|
Shares |
|
|
543,425 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
Issuance of Common
Stock for conversions of convertible promissory notes and accrued
interest |
|
|
|
|
|
|
|
|
Value |
|
$ |
666,625 |
|
|
$ |
708,272 |
|
Shares |
|
|
2,500,000 |
|
|
|
16,331,766 |
|
The
accompanying condensed notes are an integral part of these
unaudited condensed consolidated financial statements.
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
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.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary
Note Regarding Forward-Looking Statements
This
quarterly report on Form 10-Q and other reports filed by mPhase
Technologies, Inc. (“we,” “us,” “our,” or the “Company”) from time
to time with the U.S. Securities and Exchange Commission (the
“SEC”) contain or may contain forward-looking statements
(collectively the “Filings”) and information that are based upon
beliefs of, and information currently available to, the Company’s
management as well as estimates and assumptions made by Company’s
management. Readers are cautioned not to place undue reliance on
these forward-looking statements, which are only predictions and
speak only as of the date hereof. When used in the filings, the
words “anticipate,” “believe,” “estimate,” “expect,” “future,”
“intend,” “plan,” or the negative of these terms and similar
expressions as they relate to the Company or the Company’s
management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties, assumptions, and
other factors. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated,
believed, estimated, expected, intended, or planned.
Although
the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot
guarantee future results, levels of activity, performance, or
achievements. Except as required by applicable law, including the
securities laws of the United States, the Company does not intend
to update any of the forward-looking statements to conform these
statements to actual results.
Our
financial statements are prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”). These
accounting principles require us to make certain estimates,
judgments, and assumptions. We believe that the estimates,
judgments, and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates,
judgments, and assumptions are made. These estimates, judgments,
and assumptions can affect the reported amounts of assets and
liabilities as of the date of the financial statements as well as
the reported amounts of revenues and expenses during the periods
presented. Our financial statements would be affected to the extent
there are material differences between these estimates and actual
results. In many cases, the accounting treatment of a particular
transaction is specifically dictated by GAAP and does not require
management’s judgment in its application. There are also areas in
which management’s judgment in selecting any available alternative
would not produce a materially different result. The following
discussion should be read in conjunction with our consolidated
financial statements and notes thereto appearing elsewhere in this
report.
The
following discussion should be read in conjunction with the
attached unaudited consolidated financial statements and notes
thereto, and our audited consolidated financial statements and
related notes for our fiscal year ended June 30, 2021 found in our
Annual Report on Form 10-K filed with the Securities and Exchange
Commission (“SEC”) on October 13, 2021.
Overview
mPhase
Technologies, Inc., 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.
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.
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 August 27, 2019, the Company’s Board of Directors approved the
filing of an amendment (the “Amendment”) to the Company’s Amended
and Restated Certificate of Incorporation, as amended (the
“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 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.
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 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. During the course of 2021, the Company
actively planning pilot programs in EV charging, 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.
On
May 17, 2021, the Company’s Board of Directors appointed 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 (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. The Base Salary shall increase to $225,000, the first
payroll subsequent to the Company completing an uplist to a listed
exchange. 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 “Board”) of 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.
This paragraph contains only a brief description of the material
terms of and does not purport to be a complete description of the
rights and obligations of the parties to the Director Agreements,
and such descriptions is qualified in its entirety by reference to
the full text of the Director Agreements, a copy of which is
incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K
filed with the SEC on September 2, 2021.
On
November 18, 2021, the Board appointed Angelia Lansinger Hrytsyshyn
as Chief Financial Officer, with such appointment to be effective
on November 22, 2021, and approved an employment agreement with Ms.
Hrytsyshyn (the “Employment Agreement”). Pursuant to the Employment
Agreement, the Company will compensate Ms. Hrytsyshyn in the amount
of $225,000 annually. Ms. Hrytsyshyn will be eligible for an annual
performance-based cash bonus. Ms. Hrytsyshyn shall also receive a
restricted stock award of 500,000 shares of the Company’s common
stock which will vest on each of the first, second, third and
fourth anniversaries of the Employment Agreement, so long as Ms.
Hrytsyshyn remains employed by the Company. This paragraph contains
only a brief description of the material terms of and does not
purport to be a complete description of the rights and obligations
of the parties to the Employment Agreement, and such description is
qualified in its entirety by reference to the full text of the
Employment Agreement, a copy of which is incorporated by reference
to Exhibit 10.2 of the Company’s Form 10-Q filed with the SEC on
November 22, 2021.
On January 5, 2022, the Company filed for a name change with the
Financial Industry Regulatory Authority (“FINRA”) to mPower
Technologies, Inc.
On
January 19, 2022, the Company, pursuant to the approval of 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, which becomes effective
retroactively as of January 1, 2022 (the “Effective Date”) provides
for an increase to Mr. Bhatnagar’s annual cash base salary to
$600,000. Further, Mr. Bhatnagar is eligible to receive additional
increases to base salary, to be determined in the sole discretion
of the Company’s Board, which allow for an increase in base salary
as follows: base salary shall increase to $700,000 on the first
anniversary of the effective date of the Amended Employment
Agreement; and base salary shall increase to $800,000 on the second
anniversary of the effective date of the Amended Employment
Agreement. Additionally, the Amended Employment Agreement provides
that Mr. Bhatnagar shall also be entitled to receive stock-based
compensation in the form of shares of common stock of the Company,
and an annual cash bonus of up to 100% of base salary, which shall
be determined by the Board. The Term of the Bhatnagar Amended
Employment Agreement shall expire on December 31, 2032. This
paragraph contains only a brief description of the material terms
of and does not purport to be a complete description of the rights
and obligations of the parties to the Bhatnagar Amended Employment
Agreement, and such description is qualified in its entirety by
reference to the full text of the Bhatnagar Amended Employment
Agreement, a copy of which is incorporated by reference to Exhibit
10.3 of the Company’s Form 8-K filed with the SEC on January 25,
2022.
On
January 19, 2022, 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, which becomes effective
January 21, 2022, provides for an increase to Ms. Hrytsyshyn’s
annual cash base salary to $250,000. Further, Ms. Hrytsyshyn is
eligible to receive an annual performance-based cash bonus equal to
50% of base salary. The Term of the Hrytsyshyn Amended Employment
Agreement shall be “at will” and can be terminated by the Company
or Ms. Hrytsyshyn at any time for any reason provided that Ms.
Hrytsyshyn may not voluntarily terminate the agreement without
thirty (30) days prior written notice delivered to the Company.
This paragraph contains only a brief description of the material
terms of and does not purport to be a complete description of the
rights and obligations of the parties to the Hrytsyshyn Amended
Employment Agreement, and such description is qualified in its
entirety by reference to the full text of the Hrytsyshyn Amended
Employment Agreement, a copy of which is incorporated by reference
to Exhibit 10.4 of the Company’s Form 8-K filed with the SEC on
January 25, 2022.
On January 19, 2022, the Board appointed James F. Engler, Jr. as a
member of the Board (the “Appointment”). Mr. Engler will serve as a
non-executive director of the Company. In connection with the
Appointment, the Company and Mr. Engler entered into a director
agreement (the “Director Agreement”) whereby, as compensation for
his services as a member of the Board, Mr. Engler shall receive
200,000 shares of the Company’s common stock options, par value
$0.01 per share (the “Director Options”) and will vest monthly over
three years that Mr. Engler serves as Director. Additionally, Mr.
Engler shall be paid an annual fee of $50,000, to be paid $12,500
per quarter, as compensation for his services as a Director of the
Company. It was further agreed that until the Company has raised
$10 million, or within the first six months, whichever comes first,
the Company will pay the annual compensation through the issuance
of restricted shares of Company’s common stock in lieu of cash
consideration. So long as Mr. Engler serves as a member of any
committee of the Board, the amount of quarterly fee shall be
increased by $1,250. Additionally, pursuant to the approval of the
Board, each independent director’s existing director agreement will
be amended such that each independent director will receive
compensation on the same terms as set forth in the Director
Agreement.
On January 20, 2022, 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. The Board appointed
Chester White, Thomas Fore, and James Engler to serve on the Audit
Committee of the Board of Directors of the Company, with Mr. Engler
serving as the Chair of the Audit Committee. The Board appointed
Mr. Fore, Mr. Engler and Mr. Subramanyam to serve on the
Compensation Committee of the Board of Directors of the Company,
with Mr. Fore serving as the Chair of the Compensation Committee.
The Board appointed Mr. Subramanyam, Mr. Engler and Mr. Fore to
serve on the Nominating and Corporate Governance Committee of the
Board of Directors of the Company, with Mr. Subramanyam serving as
the Chair of the Nominating and Corporate Governance Committee.
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 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.
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.
Critical Accounting Policies and Estimates
The
discussion and analysis of the Company’s financial condition and
results of operations are based upon its unaudited consolidated
financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“U.S. GAAP”). The preparation of these unaudited
consolidated financial statements requires management to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an on-going basis, management evaluates
past judgments and estimates, including those related to bad debts,
potential impairment of intangible assets, accrued liabilities and
contingencies. Management bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions. The accounting policies and related
risks described in Note 3 above and the Company’s Annual Report on
Form 10-K as filed with the SEC on October 13, 2021, are those that
depend most heavily on these judgments and estimates. As of
December 31, 2021, there had been no material changes to any of the
critical accounting policies contained therein.
Results of Operations
Three
months ended December 31, 2021 compared to three months ended
December 31, 2020
Continuing
Operations
Revenue
Our
revenue increased to $8,339,877 for the three months ended December
31, 2021, compared to $7,636,436 for the three months ended
December 31, 2020, an increase of $703,441, or 9.2%. The increase
is the result of continued deployment and growth of our SaaS
technology platforms and services through our channel partner,
which generated $6,405,000 of subscription revenue, $1,005,157 of
service and support revenue and $900,670 of application development
and implementation revenue. The increase was also driven by the
launch of our consumer engagement services which generated $29,050
of subscription revenue.
Cost of Revenue
Cost of revenue remained unchanged at $5,625,000 for the three
months ended December 31, 2021, compared to the three months ended
December 31, 2020.
Operating Expenses
Our operating expenses increased to $1,527,258 for the three months
ended December 31, 2021, compared to $692,528 for the three months
ended December 31, 2020, an increase of $834,730, or 121%. The
increase is primarily due to $547,621 of operating expenses related
to supporting the addition of EV charging to the Company’s consumer
engagement platform as part of a major strategic initiative to
monetize additional points of contact during consumer travel and
travel planning, coupled with $314,664 of software development
costs. The increase was partially offset by a reduction of $27,555
of salaries and benefits expenses related to the reduction of
non-U.S. based team members, partially offset by an increase of
U.S. based team members.
Other (Expense) Income
Our
other expense, net, increased by $973,491, or 310%, for the three
months ended December 31, 2021. The increase is primarily the
result of increases in amortization of debt discounts, deferred
financings costs, and original issue discounts of $864,803, loss on
debt extinguishments and settlements of $166,625, and interest
expense of $50,251, partially offset by prior year loss on change
in fair value of derivative liability of $108,188.
Net (Loss) Income from Continuing Operations
We
incurred a net loss of $99,558 for the three months ended December
31, 2021, compared to net income of $1,005,212 for the three months
ended December 31, 2020, a decrease of $1,104,770, or 110%. The net
loss is primarily driven by the increases in operating expenses and
other expense, net, partially offset by the increase in gross
profit, as disclosed above.
Discontinued
Operations
For
the three months ended December 31, 2021 and 2020, there are no
revenue, cost of revenue, operating expenses, other income
(expense), or net income from discontinued operations.
Results of Operations
Six
months ended December 31, 2021 compared to six months ended
December 31, 2020
Continuing
Operations
Revenue
Our
revenue increased to $16,565,587 for the six months ended December
31, 2021, compared to $15,223,300 for the six months ended December
31, 2020, an increase of $1,342,287, or 8.8%. The increase is the
result of continued deployment and growth of our SaaS technology
platforms and services through our channel partner, which generated
$12,810,000 of subscription revenue, $1,961,087 of service and
support revenue and $1,765,450 of application development and
implementation revenue. The increase was also driven by the launch
of our consumer engagement services which generated $29,050 of
subscription revenue.
Cost of Revenue
Cost
of revenue totaled $11,250,033 for the six months ended December
31, 2021, compared to $11,250,399 for the six months ended December
31, 2020.
Operating Expenses
Our operating expenses increased to $2,750,797 for the six months
ended December 31, 2021, compared to $1,458,374 for the six months
ended December 31, 2020, an increase of $1,292,423, or 89%. The
increase is primarily due to $1,307,500 of operating expenses
related to supporting the addition of EV charging to the Company’s
consumer engagement platform as part of a major strategic
initiative to monetize additional points of contact during consumer
travel and travel planning, coupled with $314,664 of software
development costs. The increase was partially offset by a reduction
of $329,741 of salaries and benefits expenses related to the
reduction of non-U.S. based team members and a reduction of
employee stock-based compensation expense, partially offset by an
increase of U.S. based team members.
Other (Expense) Income
Our
other expense, net, increased by $1,581,733, or 200%, for the six
months ended December 31, 2021. The increase is primarily the
result of increases in amortization of debt discounts, deferred
financings costs, and original issue discounts of $1,582,865, loss
on debt extinguishments and settlements of $146,467, and interest
expense of $60,569, coupled with prior year gain on change in fair
value of derivative liability of $157,900, and partially offset by
prior year loss on initial derivative liability expense of
$366,068.
Net Income from Continuing Operations
We
generated net income of $194,203 for the six months ended December
31, 2021, compared to net income of $1,725,706 for the six months
ended December 31, 2020, a decrease of $1,531,503, or 89%. The net
loss is primarily driven by the increases operating expenses and
other expense, net, partially offset by the increase in gross
profit, as disclosed above.
Discontinued
Operations
For
the six months ended December 31, 2021 and 2020, there are no
revenue, cost of revenue, operating expenses, other income
(expense), or net income from discontinued operations.
Liquidity and Capital Resources
At
December 31, 2021, we had $545,871 of cash on-hand, a decrease of
$1,927,515 from $2,473,386 at June 30, 2021.
Net
cash used in operating activities was $1,791,748 for the six months
ended December 31, 2021, an increase of $1,463,700 from $328,048
used during the six months ended December 31, 2020. This increase
was primarily due to a decline in net income during the current
period as compared to the comparable prior year period, coupled
with a decrease in accounts payable and accrued expenses due to
increased cash payments in the current year as compared to higher
non-cash tri-party offset agreements in the prior year with our
largest vendor and customer, and an increase in other assets due to
foreign local taxes, partially offset by a net increase in non-cash
charges and decreases in accounts receivable due to increased cash
receipts in the current year as compared to higher non-cash
tri-party offset agreements in the prior year with our largest
vendor and customer and prepaid expenses due to net
utilization.
Net
cash used in investing activities was $2,357 for the six months
ended December 31, 2021 as compared to $1,727 used in investing
activities for the six months ended December 31, 2020. The increase
was due to an increase in capital expenditures.
Net
cash used in financing activities decreased by $480,642 to $148,042
for the six months ended December 31, 2021, compared to net cash
provided by financing activities of $332,600 for the six months
ended December 31, 2020. This decrease was primarily due to
decreased proceeds from issuances of convertible promissory notes,
coupled with increased repayments of debt.
Going Concern
We
generated net income of $194,203 and $1,725,706 for the six months
ended December 31, 2021 and 2020, respectively. We used cash in
operating activities of $1,791,748 and $328,048 for the six months
ended December 31, 2021 and 2020, respectively. At December 31,
2021, we 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, 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 our Annual Report on Form 10-K for the fiscal year ended
June 30, 2021, filed with the SEC on October 13, 2021. 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.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We
are a
“smaller reporting company” as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information
otherwise required under this Item. We do not hold any derivative
instruments and do not engage in any hedging activities.
ITEM
4. CONTROLS AND PROCEDURES
(a)
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 December 31, 2021 to determine whether the
Company’s 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 December 31,
2021.
(b)
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during our most recently completed fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
There
are no other actions, suits, proceedings, inquiries or
investigations before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our
common stock, any of our subsidiaries or of our companies or our
subsidiaries’ officers or directors in their capacities as such, in
which an adverse decision could have a material adverse
effect.
Item 1A. Risk Factors.
We
believe there are no changes that constitute material changes from
the risk factors previously disclosed in our Annual Report on Form
10-K for the year ended June 30, 2021, filed with the SEC on
October 13, 2021.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
There
were no unregistered sales of equity securities that were not
otherwise disclosed in a current report on Form 8-K, except as set
forth below:
|
● |
1,250,000
shares of the Company’s common stock were issued on October 18,
2021 to an accredited investor for the partial conversion of a
promissory note; and |
|
● |
1,250,000
shares of the Company’s common stock were issued on December 31,
2021 to an accredited investor for the partial conversion of a
promissory note. |
Item
3. Defaults Upon Senior Securities
There
were no defaults upon senior securities during the quarter ended
December 31, 2021.
Item
4. Mine Safety Disclosures
Not
Applicable.
Item
5. Other Information
None.
Item
6. Exhibits.
Exhibit
Number |
|
Description |
|
|
|
3.01 |
|
Form of Audit Committee Charter
(Incorporated by reference to Form 8-K, Exhibit 3.01, filed January
25, 2022) |
3.02 |
|
Form of Compensation Committee Charter (Incorporated by reference
to Form 8-K, Exhibit 3.02, filed January 25, 2022) |
3.03 |
|
Form of Nominating and Corporation
Governance Committee Charter (Incorporated by reference to Form
8-K, Exhibit 3.03, filed January 25, 2022) |
10.1 |
|
Form of Director Agreements
(Incorporated by reference to Form 8-K, Exhibit 10.1, filed
September 2, 2021) |
10.2 |
|
Form of Employment Agreement between
Company and Angelia Hrytsyshyn (Incorporated by reference to Form
10-Q, Exhibit 10.2, filed November 22, 2021) |
10.3 |
|
Form of Amended and Restated
Employment Agreement between Company and Anshu Bhatnagar
(Incorporated by reference to Form 8-K, Exhibit 10.3, filed January
25, 2022) |
10.4 |
|
Form of Amended and Restated
Employment Agreement between Company and Angelia Hrytsyshyn
(Incorporated by reference to Form 8-K, Exhibit 10.4, filed January
25, 2022) |
10.5 |
|
Form of Director Agreement
(Incorporated by reference to Form 8-K, Exhibit 10.5, filed January
25, 2022) |
31.1* |
|
Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* |
|
Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
32.2* |
|
Certification of 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 |
104 |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL
document) |
*Filed
herewith.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
mPhase
Technologies, Inc. |
|
|
|
/s/
Anshu Bhatnagar |
|
Anshu
Bhatnagar |
|
Chief
Executive Officer (Principal Executive Officer) |
|
February
10, 2022 |
|
|
|
/s/
Angelia Lansinger Hrytsyshyn |
|
Angelia
Lansinger Hrytsyshyn |
|
Chief
Financial Officer (Principal Financial and Accounting
Officer) |
|
February
10, 2022 |
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