UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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
(Exact name of registrant as specified in its charter)
(State of incorporation) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
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.
☒
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).
☒
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 ☐ |
| 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 ☒
As of November 15, 2021, there were 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
| 1 |
ITEM 1. FINANCIAL STATEMENTS
mPhase Technologies, Inc.
Consolidated Balance Sheets
September 30, 2021 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Other assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets - purchased software, net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Due to related parties | ||||||||
| Notes payable to officer | ||||||||
| Notes payable | ||||||||
| Convertible notes payable, net | ||||||||
| Liabilities in arrears with convertible features | ||||||||
| Liabilities of discontinued operations | ||||||||
| Total Current Liabilities | ||||||||
| Notes payable, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 11) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $ par value; shares authorized, issued and outstanding at September 30, 2021 and June 30, 2021 | ||||||||
| Common stock, $ par value; shares authorized, shares issued and shares outstanding at September 30, 2021, and shares issued and outstanding at June 30, 2021 | ||||||||
| Additional paid-in-capital | ||||||||
| Common stock to be issued | - | |||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| 2 |
mPhase Technologies, Inc.
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
(Unaudited)
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross Profit | ||||||||
| Operating Expenses: | ||||||||
| Salaries and benefits | ||||||||
| General and administrative expenses | ||||||||
| Total Operating Expenses | ||||||||
| Operating Income | ||||||||
| Other (Expense) Income: | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Amortization of debt discounts, deferred financing costs, and original issue discounts | ( | ) | ( | ) | ||||
| Gain on settlement of vendor fees | - | |||||||
| Initial derivative liability expense | - | ( | ) | |||||
| Gain on change in fair value of derivative liability | - | |||||||
| Gain on debt extinguishments | - | |||||||
| Total Other (Expense) Income | ( | ) | ( | ) | ||||
| Income before income taxes | ||||||||
| Income taxes | - | - | ||||||
| Net income | $ | $ | ||||||
| Comprehensive income (loss): | ||||||||
| Unrealized loss (gain) on currency translation adjustment | ( | ) | ||||||
| Comprehensive income (loss) | $ | $ | ||||||
| Income per common share: | ||||||||
| Income per common share – basic | $ | $ | ||||||
| Income per common share – diluted | $ | $ | ||||||
| Weighted average shares outstanding – basic | ||||||||
| Weighted average shares outstanding – diluted | ||||||||
The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
mPhase Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
For the Three Months Ended September 30, 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, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Issuance of common stock for vendor services | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation for restricted shares under employment agreement | ||||||||||||||||||||||||||||||||||||
| Relative fair value of warrants issued with convertible promissory notes | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||
| Issuance of common stock for conversions of convertible promissory notes | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for exchange of warrants | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation for restricted shares under employment agreement | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for vendor services | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||||||
| Balance September 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
mPhase Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Amortization of debt discounts, deferred financing costs, and original issue discounts | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Gain on settlement of vendor fees | ( | ) | - | |||||
| Initial derivative expense | - | |||||||
| Gain on extinguishment of debt | - | ( | ) | |||||
| Gain on change in fair value of derivative liability | - | ( | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts receivable | ( | ) | ( | ) | ||||
| Increase in prepaid expenses | ( | ) | ( | ) | ||||
| Increase in other assets | ( | ) | ( | ) | ||||
| Increase in contract liabilities | ||||||||
| Increase in accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of convertible notes payable, net | ||||||||
| Repayments of notes payable | ( | ) | - | |||||
| Repayments under settlement agreement | - | ( | ) | |||||
| Repayments of convertible notes payable | - | ( | ) | |||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign exchange rates changes on cash | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Supplemental disclosure of non-cash operating activities: | ||||||||
| Initial fair value of derivative liability recorded as debt discount | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Relative fair value of warrants issued with convertible promissory notes | $ | $ | ||||||
| Issuance of Common Stock for services | ||||||||
| Value | $ | $ | ||||||
| Shares | ||||||||
| Issuance of Common Stock for conversions of convertible promissory notes and accrued interest | ||||||||
| Value | $ | $ | ||||||
| Shares | - | |||||||
The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 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
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 5G and EV charging to its consumer engagement platform as part of a major strategic initiative to monetize additional points of contact during consumer travel and travel planning. As of July 2021, the Company was actively planning pilot programs in 5G and EV charging, as part of a larger strategy to build an AI-driven consumer ecosystem. By late-2021, the Company plans to transition into a “green” consumer company, serving as an important bridge between consumers, retailers, and service providers.
The Company can best be described as a technology company focused on consumer engagement using data analytics and artificial intelligence to create a monetizable link between consumers and retailers at opportunistic times and places. The Company is currently building a connected ecosystem of EV charging, 5G internet connectivity and software solutions that optimize consumer engagement within the framework of a SaaS/TaaS model. Branded under the mPower name, this ecosystem will empower the way people shop, dine, fuel and interact with the world to create a richer life experience. The mPower ecosystem is tailored to each individual’s tastes and needs, with particular emphasis on empowering tomorrow’s green consumer. The Company 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.
| 7 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 is 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 months ended September 30, 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 months ended September 30, 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.
| 8 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 $
In the event managements’ plans do not materialize, in order to meet the Company’s working capital needs through the next twelve months and to fund the growth of its nanotechnology, artificial intelligence, and machine learning technologies, as well as our 5G and EV charging initiatives, 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.
| 9 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The exchange rates used to translate amounts in INR (beginning March 19, 2019) and GBP (beginning May 11, 2020) into USD for the purposes of preparing the consolidated financial statements were as follows:
Balance sheet:
September 30, 2021 | June 30, 2021 | |||||||
| Period-end INR: USD exchange rate | $ | $ | ||||||
| Period-end GBP: USD exchange rate | $ | $ | ||||||
Income statement:
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Average Period INR: USD exchange rate | $ | $ | ||||||
| Average Period GBP: USD exchange rate | $ | $ | ||||||
Translation gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated, as the case may be, 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.
| 10 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 three
months ended September 30, 2021 and 2020, this one customer accounted for
Supplier Risk
Agreements which potentially subject the Company to concentrations of supplier risk consist principally of one supplier agreement. For the three months ended September 30, 2021, this one supplier accounted for approximately % of our total cost of revenue and accounted for approximately% of our total accounts payable. For the three months ended September 30, 2020, this one supplier accounted for approximately % of our total cost of revenue and accounted for approximately % 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
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 $
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.
| 11 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 September
30, 2021 and June 30, 2021, the book value of patents and licenses of $
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
September 30, 2021, the book value of purchased and developed technology of $
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.
| 12 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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.
| 13 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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”). 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.
| 14 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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
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.
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 are not included if the result would be anti-dilutive, such as when a net loss is reported. For the three months ended September 30, 2021 and 2020, as we incurred net income for those periods, dilutive shares included and shares, respectively, of the Company’s common stock related to convertible promissory notes and warrants, assuming conversion of such convertible promissory notes and warrants occurred at July 1, 2021 and 2020, respectively, 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 three months ended September 30, 2021 and 2020. At September 30, 2021, there were no shares of the Company’s common stock to be issued. At September 30, 2020, there were shares of the Company’s common stock to be issued in conjunction with the CloseComms acquisition, and restricted shares of the Company’s common stock to be issued upon vesting pursuant to the terms of an employment agreement with its 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.
| 15 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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:
| September 30, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Purchased software | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Purchased software, net | $ | $ | ||||||
Intangible asset – Purchased Software consists of the following three software technologies:
| Alpha Predictions developed software | $ | |||
| Travel Buddhi developed software | ||||
| CloseComms developed software | ||||
| Total developed software | $ |
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 September 30, 2021, the Travel Buddhi and CloseComms technology platforms have not been placed in service, but are expected to be during fiscal year 2022.
Developed
software costs are amortized on a straight-line basis over
For
the three months ended September 30, 2021 and 2020, amortization expense was $
Future amortization expense related to the existing net carrying amount of developed software at September 30, 2021 is expected to be as follows:
| Remainder of fiscal year 2022 | $ | |||
| Fiscal year 2023 | ||||
| Fiscal year 2024 | ||||
| Fiscal year 2025 | ||||
| $ |
| 16 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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:
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Categories: | ||||||||
| Subscription | $ | $ | ||||||
| Service and support | ||||||||
| Application development and implementation | ||||||||
| Total Revenue | $ | $ | ||||||
| Primary Geographic Regions: | ||||||||
| United States | % | % | ||||||
| India | % | % | ||||||
| % | % | |||||||
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:
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| United States | $ | $ | ||||||
| India | ||||||||
| United Kingdom | ||||||||
| Total long-lived assets | $ | $ | ||||||
For
the three months ended September 30, 2021 and 2020, the Company was subject to revenue concentration risk as one customer accounted for
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 years. All of these fees are allocated to the single performance obligation of providing software to the customer.
| 17 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2021 and June 30, 2021, contract liabilities totaled $
The following table presents a reconciliation of the contract liabilities from June 30, 2021 to September 30, 2021:
| June 30, 2021 | $ | |||
| Contract liability deferral | ||||
| Amortization of contract liability to revenue | ( | ) | ||
| September 30, 2021 | $ |
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.
| 18 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 6: NOTES PAYABLE
Notes payable is comprised of the following:
| September 30, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Note payable, SBA – Paycheck Protection Program [1] | $ | $ | ||||||
| Note payable, SBA – Economic Injury Disaster Loan [2] | ||||||||
| Note payable, Accredited Investor [3] | ||||||||
| Total notes payable | $ | $ | ||||||
| Less: current portion of notes payable | ( | ) | ( | ) | ||||
| Long-term portion of notes payable | $ | $ | ||||||
| [1] |
| [2] | ||
| [3] |
| 19 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 7: CONVERTIBLE DEBT ARRANGEMENTS
JMJ Financial
At
September 30, 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 $
At
September 30, 2021 and June 30, 2021, the aggregate remaining amount of convertible securities held by JMJ could be converted into
and shares, respectively, with a conversion price of $
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 $ in aggregate subscription
amount of notes and warrants to purchase an aggregate of
The
Notes mature on
| 20 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 7: Convertible Debt Arrangements (continued)
The
Warrants are exercisable at a purchase price of $ 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”).
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 $
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 $ in Aggregate Subscription Amount of Notes and Warrants
to acquire an aggregate of
The
Notes mature on
| 21 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 7: Convertible Debt Arrangements (continued)
The Warrants are exercisable at a purchase price of $ 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 of 1933, as amended (the “Securities Act”).
The SPA contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties thereto, and termination provisions.
In
connection herewith, the Company recorded an original issue discount of $
At
September 30, 2021 and June 30, 2021, there was $
During
the three months ended September 30, 2021 and 2020, amortization of original issue discount, deferred financing costs, and debt discounts
amounted to $
During
the three months ended September 30, 2021, there were
At September 30, 2021, the Company was in compliance with the terms of the Accredited Investors convertible promissory notes.
Notes payable under convertible debt and debenture agreements, net is comprised of the following:
| September 30, | June 30, | |||||||
| 2021 | 2021 | |||||||
| JMJ Financial | $ | $ | ||||||
| Accredited Investors | ||||||||
| Unamortized OID, deferred financings costs, and debt discounts | ( | ) | ( | ) | ||||
| Total convertible debt arrangements, net | $ | $ | ||||||
At
September 30, 2021 and June 30, 2021, the outstanding balances are reflected as current liabilities within our consolidated balance sheets.
At September 30, 2021 and June 30, 2021, accrued interest on these convertible notes of $
| 22 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 8: DERIVATIVE LIABILITY
The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, Derivatives and Hedging. The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operation as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from June 30, 2020 to June 30, 2021, as there was no derivative liability transactions during the three months ended September 30, 2021:
Conversion feature derivative liability | ||||
| June 30, 2020 | $ | |||
| Initial fair value of derivative liability recorded as debt discount | ||||
| Initial fair value of derivative liability charged to other expense | ||||
| Gain on change in fair value included in earnings | ( | ) | ||
| Derivative liability relieved by conversions of convertible promissory notes | ( | ) | ||
| June 30, 2021 | $ | |||
Total
derivative liability at September 30, 2021 and June 30, 2021 amounted to $
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 September 30, 2021, the Company did not have any derivative instruments that were designated as hedges.
NOTE 9: STOCKHOLDERS’ EQUITY
At September 30, 2021, the total number of shares of all classes of stock that the Company shall have the authority to issue is shares consisting of shares of common stock, $ par value per share, of which are issued and are outstanding, and shares of preferred stock, par value $ per share of which shares have been designated as Series A Super Voting Preferred of which 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 shares from shares. On September 4, 2019, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase its authorized common stock from shares to shares.
| 23 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 9: STOCKHOLDERS’ EQUITY (continued)
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 shares from shares. On July 14, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase its authorized common stock from shares to 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 shares from shares. On August 4, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase its authorized common stock from shares to shares.
Common Stock
Stock Based Compensation – Common Stock Grants
During the three months ended September 30, 2021, the Company recorded $ of stock-based compensation expense related to a May 17, 2021 grant of
During
the three months ended September 30, 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
| 24 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 9: STOCKHOLDERS’ EQUITY (continued)
Furthermore, during the three months ended September 30, 2020, the Company recorded $ of stock-based compensation expense related to a June 1, 2019 grant of shares of common stock to
Vendor Services
During the three months ended September 30, 2021, the Company entered into various consulting, public relations, and marketing agreements whereby the Company issued an aggregate of restricted shares of its common stock for services to be performed during specified periods of time. During the three months ended September 30, 2021, the Company recorded $ of expense.
During the three months ended September 30, 2020, the Company entered into a consulting, public relations, and marketing agreement whereby the Company issued 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 three months ended September 30, 2020, the Company recorded $ of expense.
Conversion of Debt Securities
During
the three months ended September 30, 2021, there were conversions of convertible notes into shares of the Company’s common stock.
During the three months ended September 30, 2020, $
Reserved Shares
At September 30, 2021, the convertible promissory notes entered into with the accredited investors require the Company to reserve approximately shares of its common stock for potential future conversions under such instruments.
At September 30, 2021, 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 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
During
the three months ended September 30, 2020, the Company entered into an Exchange Agreement with its Chief Executive Officer, Anshu Bhatnagar
(“Holder”), whereby earned and issued warrants to purchase
| 25 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 9: STOCKHOLDERS’ EQUITY (continued)
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
Pursuant
to a Securities Purchase Agreement between the Company and Evergreen Capital Management, LLC (“Investor”), dated as of April
5, 2021, the Company sold to the Investor and the Investor acquired an aggregate of
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 when 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 three months ended September 30, 2021:
| Expected volatility | % | |||
| Weighted-average volatility | % | |||
| Expected dividends | % | |||
| Expected term (in years) | ||||
| Risk-free rate | % |
| 26 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 9: STOCKHOLDERS’ EQUITY (continued)
The following table sets forth common stock purchase warrants outstanding at September 30, 2021:
| Warrants | Weighted Average Exercise Price | Intrinsic Value | ||||||||||
| Outstanding, June 30, 2021 | $ | $ | ||||||||||
| Warrants issued | ||||||||||||
| Warrants forfeited | ||||||||||||
| Outstanding, September 30, 2021 | $ | $ | ||||||||||
| Common stock issuable upon exercise of warrants | $ | $ | ||||||||||
| Common Stock Issuable Upon Exercise of Warrants Outstanding | Common Stock Issuable Upon Warrants Exercisable | |||||||||||||||||||||
| Range of Exercise Prices | Number Outstanding at September 30, 2021 | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable at September 30, 2021 | Weighted Average Exercise Price | |||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||||
NOTE 10: RELATED PARTY TRANSACTIONS
Microphase Corporation
At
September 30, 2021, the Company owed $
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 three months ended September
30, 2021 and 2020, there were
| 27 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
NOTE 10: RELATED PARTY TRANSACTIONS (continued)
On
October 22, 2020,
At
September 30, 2021 and June 30, 2021, these outstanding notes including accrued interest totaled $
Common Stock Issuances
During
the three months ended September 30, 2021, the Company recorded $
Office Lease
Effective
February 8, 2021, the Company relocated its corporate office to 9841 Washingtonian Blvd., Suite 200, Gaithersburg, MD 20878, and incurred
rent expense of $
NOTE 11: COMMITMENTS AND CONTINGENCIES
Commitments
Office Lease
Effective
February 8, 2021, the Company relocated its corporate office to 9841 Washingtonian Blvd., Suite 200, Gaithersburg, MD 20878, and incurred
rent expense of $
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).
| 28 |
mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(UNAUDITED)
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 months ended September 30, 2021 and 2020.
The
assets and liabilities associated with discontinued operations included in our consolidated balance sheets at September 30, 2021 and
June 30, 2021 were only accounts payable with a balance of $
For
the three months ended September 30, 2021 and 2020, there were
NOTE 13: SUBSEQUENT EVENTS
Subsequent
to September 30, 2021, $
| 29 |
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 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “will,” “might,” “projects,” “expects,” “plans,” “believes,” “anticipates,” “targets,” “intends,” “hopes,” “aims,” “can,” “should,” “could,” “would,” “goal,” “potential,” “approximately,” “estimate,” “pro forma,” “continue” or “pursue” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.
These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and the other documents referred to and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and mPhase Technologies, Inc. (the “Company”) cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by the Company or any other person that the Company will achieve its objectives and plans in any specified timeframe, or at all.
These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, filed with the SEC on October 13, 2021 and elsewhere in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company disclaims any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.
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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 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.
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During 2021, the Company announced that it would be adding 5G and EV charging to its consumer engagement platform as part of a major strategic initiative to monetize additional points of contact during consumer travel and travel planning. As of July 2021, the Company was actively planning pilot programs in 5G and EV charging, as part of a larger strategy to build an AI-driven consumer ecosystem. By late-2021, the Company plans to transition into a “green” consumer company, serving as an important bridge between consumers, retailers, and service providers.
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 Employment Agreement, and such descriptions 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 10.1 of the Company’s Form 8-K filed with the SEC on August 27, 2021.
The Company can best be described as a technology company focused on consumer engagement using data analytics and artificial intelligence to create a monetizable link between consumers and retailers at opportunistic times and places. The Company is currently building a connected ecosystem of EV charging, 5G internet connectivity and software solutions that optimize consumer engagement within the framework of a SaaS/TaaS model. Branded under the mPower name, this ecosystem will empower the way people shop, dine, fuel and interact with the world to create a richer life experience. The mPower ecosystem is tailored to each individual’s tastes and needs, with particular emphasis on empowering tomorrow’s green consumer. The Company 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 September 30, 2021, there had been no material changes to any of the critical accounting policies contained therein.
Results of Operations
Three months ended September 30, 2021 compared to three months ended September 30, 2020
Continuing Operations
Revenue
Our revenue increased to $8,225,710 for the three months ended September 30, 2021, compared to $7,586,864 for the three months ended September 30, 2020, an increase of $638,846, or 8.4%. The increase is the result of continued deployment and growth of our SaaS technology platforms and services which generated $6,405,000 of subscription revenue, $955,930 of service and support revenue and $864,780 of application development and implementation revenue.
Cost of Revenue
Cost of revenue totaled $5,625,033 for the three months ended September 30, 2021, compared to $5,625,389 for the three months ended September 30, 2020.
Operating Expenses
Our operating expenses increased to $1,223,539 for the three months ended September 30, 2021, compared to $765,846 for the three months ended September 30, 2020, an increase of $457,693, or 60%. The increase is primarily due to $759,879 of operating expenses partially offset by a reduction of $302,186 of salaries and benefits expenses.
Other (Expense) Income
Our other expense, net, increased by $608,242, or 128%, for the three months ended September 30, 2021. The increase is primarily the result of increases in amortization of debt discounts, deferred financings costs, and original issue discounts, and increases in interest expense, coupled with declines in gain on change in fair value of derivative liability and loss on debt extinguishments, partially offset by declines in initial derivative liability expense and gain on settlement of vendor fees.
Net Income from Continuing Operations
We generated net income of $293,761 for the three months ended September 30, 2021, compared to net income of $720,494 for the three months ended September 30, 2020, a decrease of $426,733, or 59%. The decrease in net income 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 three months ended September 30, 2021 and 2020, there are no revenue, cost of revenue, operating expenses, other income (expense), or net income from discontinued operations.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
At September 30, 2021, we had $1,846,013 of cash on-hand, an decrease of $627,373 from $2,473,386 at June 30, 2021.
Net cash used in operating activities of continuing operations was $642,178 for the three months ended September 30, 2021, an increase of $335,810 from $306,368 used during the three months ended September 30, 2020. This increase was primarily due to decreased net income and accounts payable and accrued expenses, partially offset by a net increase in non-cash charges and a decrease in accounts receivable.
Net cash used in investing activities of continuing operations was $2,357 for the three months ended September 30, 2021 as compared to $968 used in investing activities of continuing operations for the three months ended September 30, 2020. The increase was due to an increase in capital expenditures.
Financing activities of continuing operations decreased by $328,497 to $4,103 for the three months ended September 30, 2021, compared to $332,600 for the three months ended September 30, 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 $293,761 and $720,494 for the three months ended September 30, 2021 and 2020, respectively. We used cash in operating activities of $642,178 and $306,368 for the three months ended September 30, 2021 and 2020, respectively. At September 30, 2021, we had a working capital surplus of $10,547,542, and an accumulated deficit of $225,767,648. 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 5G and EV charging initiatives, we may consider plans to raise additional funds through the issuance of equity or debt. Although we intend to obtain additional financing to meet our cash needs, we may be unable to secure any additional financing on terms that are favorable or acceptable to us, if at all. Our ability to raise additional capital may also be impacted by the recent COVID-19 pandemic, which such ability is highly uncertain, cannot be predicted, and could have an adverse effect on our business and financial condition.
Impact of COVID-19 Pandemic
A novel strain of coronavirus, COVID-19, surfaced during December 2019 and has spread around the world, including to the United States. During March 2020, COVID-19 was declared a pandemic by the World Health Organization. During certain periods of the pandemic thus far, a number of U.S. states and various countries throughout the world had been under governmental orders requiring that all workers remain at home unless their work was critical, essential, or life-sustaining. As a result of these governmental orders, we temporarily closed our domestic and international offices and required all of our employees to work remotely. As economic activity has begun and continues recovering, the impact of the COVID-19 pandemic on our business has been more reflective of greater economic and marketplace dynamics. Furthermore, in light of variant strains of the virus that have emerged, the COVID-19 pandemic could once again impact our operations and the operations of our customers and vendors as a result of quarantines, illnesses, and travel restrictions.
The full impact of the COVID-19 pandemic on our financial condition and results of operations will depend on future developments, such as the ultimate duration and scope of the pandemic, its impact on our employees, customers, and vendors, in addition to how quickly normal economic conditions and operations resume and whether the pandemic impacts other risks disclosed in Item 1A “Risk Factors” within 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide information required by this item.
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 September 30, 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 September 30, 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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding 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 our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s 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:
| ● | 493,425 shares of the Company’s common stock were issued on July 30, 2021 to two vendors for services provided. | |
| ● | 50,000 shares of the Company’s common stock were issued on September 7, 2021 to a vendor for services provided. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
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 $225,000.00 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 the 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 filed herewith as Exhibit 10.2.
Ms. Hrytsyshyn, Chief Financial Officer, age 40, combines over 17 years of experience in private and public corporate finance in various industries. From 2018 through August 2021, Ms. Hrytsyshyn was the Treasurer for American Trading and Production Corporation, a company with assets in private equity, alternative investments, and real estate. From 2013 to 2018, she was Assistant Treasurer for American Trading and Production Corporation. From 2009 to 2013, she held various finance roles in audit, FP&A, and strategy at Constellation Energy, an Exelon Company and energy company. Ms. Hrytsyshyn started her career at PricewaterhouseCoopers as an external SEC auditor for Fortune 500 companies in the Baltimore and Washington, DC area. She has an undergraduate and master’s degree from the University of Maryland at College Park and an MBA from the University of Chicago’s Booth School of Business.
Item 6. Exhibits.
*Filed herewith.
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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, Financial and Accounting Officer) | |
| November 22, 2021 |
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