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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

Or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________________ to ___________________

 

Commission File Number 000-30202

 

mPHASE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

New Jersey   22-2287503

(State of

incorporation)

 

(I.R.S. Employer

Identification No.)

 

9841 Washingtonian Blvd #200

Gaithersburg, MD

  20878
(Address of principal executive offices)   (Zip Code)

 

(301) 329-2700

Registrant’s telephone number, including area code:

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒ No

 

As of November 15, 2021, there were 80,440,821 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

 

   

Page

No.

PART I – FINANCIAL INFORMATION  
Item 1. Consolidated Unaudited Financial Statements 2
  Consolidated Balance Sheets – September 30, 2021 (Unaudited) and June 30, 2021 2
  Consolidated Unaudited Statements of Operations and Other Comprehensive Income (Loss) – Three Months Ended September 30, 2021 and 2010 3
  Consolidated Unaudited Statements of Changes in Stockholders Equity – Three Months Ended September 30, 2021 and 2010 4
  Consolidated Unaudited Statements of Cash Flows – Three Months Ended September 30, 2021 and 2020 5
  Condensed Notes to Consolidated Unaudited Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
Item 4. Controls and Procedures 35
     
PART II – OTHER INFORMATION  
Item 1. Legal Proceedings 36
Item 1A. Risk Factors 36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
Item 3. Defaults Upon Senior Securities 36
Item 4. Mine Safety Disclosures 36
Item 5. Other Information 36
Item 6. Exhibits 36
     
SIGNATURES 37

 

1

 

 

ITEM 1. FINANCIAL STATEMENTS

 

mPhase Technologies, Inc.

Consolidated Balance Sheets

 

   

September 30,

2021

   

June 30,

2021

 
      (Unaudited)          
Assets                
Current Assets                
Cash   $ 1,846,013     $ 2,473,386  
Accounts receivable, net     14,071,629       15,784,081  
Prepaid expenses     354,179       238,927  
Other assets     423,252       422,254  
Total Current Assets     16,695,073       18,918,648  
Property and equipment, net     13,781       16,518  
Goodwill     3,668       3,669  
Intangible assets - purchased software, net     1,825,649       2,079,047  
Other assets     3,644       3,645  
Total Assets   $ 18,541,815     $ 21,021,527  
                 
Liabilities and Stockholders’ Equity                
Current Liabilities                
Accounts payable   $ 254,677     $ 4,158,006  
Accrued expenses     1,264,662       1,368,367  
Contract liabilities     412,394       350,689  
Due to related parties     88,527       87,688  
Notes payable to officer     702,460       691,942  
Notes payable     208,188       323,218  
Convertible notes payable, net     3,024,828       1,991,036  
Liabilities in arrears with convertible features     109,000       109,000  
Liabilities of discontinued operations     82,795       82,795  
Total Current Liabilities     6,147,531       9,162,741  
                 
Notes payable, net of current portion     146,890       146,890  
Total Liabilities     6,294,421       9,309,631  
                 
Commitments and Contingencies (Note 11)     -       -  
                 
Stockholders’ Equity                
Preferred stock, $0.01 par value; 1,000 shares authorized, issued and outstanding at September 30, 2021 and June 30, 2021     10       10  
Common stock, $0.01 par value; 500,000,000 shares authorized, 79,156,033 shares issued and 79,127,633 shares outstanding at September 30, 2021, and 78,612,608 shares issued and 78,584,238 outstanding at June 30, 2021     791,278       785,844  
Additional paid-in-capital     237,222,221       236,935,277  
Common stock to be issued     -       63,700  
Accumulated other comprehensive income (loss)     1,533       (11,526 )
Accumulated deficit     (225,767,648 )     (226,061,409 )
Total Stockholders’ Equity     12,247,394       11,711,896  
Total Liabilities and Stockholders’ Equity   $ 18,541,815     $ 21,021,527  

 

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)

 

    2021     2020  
    For the Three Months Ended  
    September 30,  
    2021     2020  
Revenue   $ 8,225,710     $ 7,586,864  
Cost of revenue     5,625,033       5,625,389  
Gross Profit     2,600,677       1,961,475  
Operating Expenses:                
Salaries and benefits     217,587       519,773  
General and administrative expenses     1,005,952       246,073  
Total Operating Expenses     1,223,539       765,846  
Operating Income     1,377,138       1,195,629  
Other (Expense) Income:                
Interest expense     (96,281 )     (85,963 )
Amortization of debt discounts, deferred financing costs, and original issue discounts     (1,038,524 )     (320,462 )
Gain on settlement of vendor fees     51,428       -  
Initial derivative liability expense     -       (366,068 )
Gain on change in fair value of derivative liability     -       266,088  
Gain on debt extinguishments     -       31,270  
Total Other (Expense) Income     (1,083,377 )     (475,135 )
Income before income taxes     293,761       720,494  
Income taxes     -       -  
Net income   $ 293,761     $ 720,494  
                 
Comprehensive income (loss):                
Unrealized loss (gain) on currency translation adjustment     13,059       (121,163 )
Comprehensive income (loss)   $ 306,820     $ 599,331  
                 
Income per common share:                
Income per common share – basic   $ 0.00     $ 0.01  
                 
Income per common share – diluted   $ 0.00     $ 0.01  
                 
Weighted average shares outstanding – basic     78,935,170       63,215,776  
                 
Weighted average shares outstanding – diluted     120,333,191       96,159,147  

 

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)

 

    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
 
    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     1,000     $ 10       78,584,238     $ 785,844     $ 236,935,277     $ 63,700     $ (11,526 )   $ (226,061,409 )   $ 11,711,896  
                                                                         
Issuance of common stock for vendor services     -       -       543,425       5,434       142,226       (63,700 )     -       -       83,960  
Stock-based compensation for restricted shares under employment agreement     -       -       -       -       19,466               -       -       19,466  
Relative fair value of warrants issued with convertible promissory notes     -       -       -       -       125,252       -       -       -       125,252  
Other comprehensive income     -       -       -                               13,059               13,059  
Net income     -       -       -       -       -       -               293,761       293,761  
Balance September 30, 2021     1,000     $ 10       79,127,663     $ 791,278     $ 237,222,221     $ -     $ 1,533     $ (225,767,648 )   $ 12,247,394  

  

    Preferred Stock     Common Stock                                
    Shares     $0.01 Par Value     Shares     $0.01 Par Value     Additional Paid in
Capital
    Common
Stock to
be Issued
    Accumulated
Comprehensive
Income (Loss)
    Accumulated
Deficit
    Stockholders’
Equity
 
Balance June 30, 2020     1,000     $ 10       19,174,492     $ 191,745     $ 231,984,704     $ 955,466     $ 113,070     $ (227,727,420 )   $ 5,517,575  
                                                                         
Issuance of common stock for conversions of convertible promissory notes     -       -       16,331,766       163,318       544,954       -       -       -       708,272  
Issuance of common stock for exchange of warrants     -       -       37,390,452       373,905       (220,604 )                             153,301  
Stock-based compensation for restricted shares under employment agreement     -       -                       10,737                               10,737  
Issuance of common stock for vendor services     -       -       200,000       2,000       4,820       -                       6,820  
Other comprehensive loss     -       -                                       (121,163 )             (121,163 )
Net income     -       -                               -               720,494       720,494  
Balance September 30, 2020     1,000     $ 10       73,096,710     $ 730,968     $ 232,324,611     $ 955,466     $ (8,093 )   $ (227,006,926 )   $ 6,996,036  

 

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)

 

    2021     2020  
    For the Three Months Ended  
    September 30,  
    2021     2020  
Cash flows from operating activities:                
Net income   $ 293,761     $ 720,494  
Adjustments to reconcile net income to net cash used in operating activities:                
Amortization of debt discounts, deferred financing costs, and original issue discounts     1,038,524       320,462  
Depreciation and amortization     230,359       229,349  
Stock-based compensation     103,426       187,852  
Gain on settlement of vendor fees     (51,428 )     -  
Initial derivative expense     -       366,068  
Gain on extinguishment of debt     -       (31,270 )
Gain on change in fair value of derivative liability     -       (266,088 )
Changes in operating assets and liabilities:                
Increase in accounts receivable     (5,787,548 )     (7,626,199 )
Increase in prepaid expenses     (115,252 )     (19,060 )
Increase in other assets     (998 )     (4,149 )
Increase in contract liabilities     61,705       44,000  
Increase in accounts payable and accrued expenses     3,585,273       5,772,173  
Net cash used in operating activities     (642,178 )     (306,368 )
                 
Cash flows from investing activities:                
Capital expenditures     (2,357 )     (968 )
Net cash used in investing activities     (2,357 )     (968 )
                 
Cash flows from financing activities:                
Proceeds from issuance of convertible notes payable, net     156,248       463,600  
Repayments of notes payable     (152,145 )     -  
Repayments under settlement agreement     -       (15,000 )
Repayments of convertible notes payable     -       (116,000 )
Net cash provided by financing activities     4,103       332,600  
                 
Effect of foreign exchange rates changes on cash     13,059       (121,163 )
Net decrease in cash     (627,373 )     (95,899 )
Cash at beginning of period     2,473,386       142,413  
Cash at end of period   $ 1,846,013     $ 46,514  
                 
Supplemental disclosure:                
Cash paid for interest   $ 16,301     $ 52,681  
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   $ -     $ 463,300  
                 
Supplemental disclosure of non-cash investing and financing activities:                
                 
Relative fair value of warrants issued with convertible promissory notes   $ 125,252     $ -  
                 
Issuance of Common Stock for services                
Value   $ 147,660     $ 6,820  
Shares     543,425       200,000  
                 
Issuance of Common Stock for conversions of convertible promissory notes and accrued interest                
Value   $ -     $ 708,272  
Shares     -       16,331,766  

 

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 99% of the outstanding common shares of Alpha Predictions LLP (“Alpha Predictions”). Alpha Predictions is an India-based technology company that has developed a suite of commercial data analysis products for use across multiple industries. This acquisition has been integrated into the Company’s international operations and as expected, has driven revenue growth and innovation.

 

On May 11, 2020, the Company acquired CloseComms, a patented, software application platform that can be integrated into a retail customer’s existing Wi-Fi infrastructure, giving the retailer important customer data and enabling AI-enhanced, targeted promotions to drive store traffic and sales.

 

During 2021, the Company announced that it would be adding 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 $293,761 and has used cash in operating activities of $642,178 for the three months ended September 30, 2021. At September 30, 2021, the Company 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, 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   $ 0.01348     $ 0.01349  
Period-end GBP: USD exchange rate   $ 1.34838     $ 1.38510  

 

Income statement:

 

    For the Three Months Ended  
    September 30,  
    2021     2020  
Average Period INR: USD exchange rate   $ 0.01349     $ 0.01343  
Average Period GBP: USD exchange rate   $ 1.36649     $ 1,25861  

 

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 100% and 100% of our total revenue, respectively. At September 30, 2021 and June 30, 2021, this one customer accounted for approximately 100% and 100% of our total accounts receivable, respectively.

 

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 100% of our total cost of revenue and accounted for approximately 0% of our total accounts payable. For the three months ended September 30, 2020, this one supplier accounted for approximately 100% of our total cost of revenue and accounted for approximately 94% of our total accounts payable.

 

Cash and Cash Equivalents

 

For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. There were no cash equivalents at September 30, 2021 and June 30, 2021. The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. At September 30, 2021 and June 30, 2021, the Company’s cash balance at one financial institution exceeded the FDIC limit.

 

Accounts Receivable

 

The Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. The Company maintains reserves for potential credit losses, and such losses traditionally have been within its expectations. Additionally, to date, the Company has entered into six separate tri-party settlement and offset agreements with its largest customer and largest vendor, whereby the Company’s largest customer has agreed to direct funds due the Company for certain outstanding invoices, to the Company’s largest vendor to satisfy payment on behalf of the Company for certain outstanding invoices. To date, the aggregate amount of the six tri-party settlement and offset agreements has totaled $48,750,000. At September 30, 2021 and June 30, 2021, the Company determined there was no requirement for an allowance for doubtful accounts.

 

Goodwill and Intangible Assets

 

Goodwill is recorded when the purchase price paid for an acquisition exceeds the fair value of the net identified tangible and intangible assets acquired. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing the fair value of the reporting unit to its carrying value. If the fair value is determined to be less than the carrying value, a second step is performed to measure the amount of impairment loss, if any. On June 30, 2022, the Company will perform its annual evaluation of goodwill impairment to determine if the estimated fair value of the reporting unit exceeds its carrying value.

 

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 $214,383, has been fully amortized and no amortization expense was recorded for the three months ended September 30, 2021 and 2020.

 

Capitalized Software Development Costs

 

The Company follows the provisions of ASC 350-40, “Internal Use Software.” ASC 350-40 provides guidance for determining whether computer software is internal-use software, and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes the costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the software are capitalized if it is determined that these upgrades or enhancements add additional functionality to the software. Costs incurred to improve and support products after they become available are charged to expense as incurred.

 

Capitalized software development costs are amortized on a straight-line basis over the estimated useful lives, currently three years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

 

At September 30, 2021, the book value of purchased and developed technology of $3,876,624, included three technology platforms, a machine learning platform and two artificial intelligence platforms. For the three months ended September 30, 2021 and 2020, the Company incurred amortization expense of $224,794 and $223,833, respectively.

 

Fair Value of Financial Instruments

 

The Company accounts for the fair value of financial instruments in accordance with ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

 

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)

 

Share-Based Compensation

 

The Company computes share based payments in accordance with the provisions of ASC Topic 718, Compensation – Stock Compensation and related interpretations. As such, compensation cost is measured on the date of grant at the fair value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the grants. The Company estimates the fair value of stock options and warrants by using the Black-Scholes option pricing model.

 

Derivative Instruments

 

The Company enters into financing arrangements that consist of freestanding derivative instruments or are hybrid instruments that contain embedded derivative features. The Company accounts for these arrangements in accordance with ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities as well as related interpretations of this standard. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, considering all of the rights and obligations of each instrument.

 

The Company estimates fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered consistent with the objective measuring fair values. In selecting the appropriate technique, the Company considers, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of the Company’s common stock. Since derivative financial instruments are initially and subsequently carried at fair values, our income (expense) going forward will reflect the volatility in these estimates and assumption changes.

 

Convertible Debt Instruments

 

The Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion and Debt Topics of the Financial Accounting Standards Board (“FASB”) ASC. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt using the effective interest method.

 

Income Taxes

 

The Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740”). 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 greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its June 30, 2021, 2020, 2019, and 2018 tax years may be selected for examination by the taxing authorities as the statute of limitations remains open.

 

The Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities upon receiving valid notice of assessments. The Company has received no such notices for the years ended June 30, 2021 and 2020.

 

Earnings Per Share

 

In accordance with the provisions of FASB ASC Topic 260, Earnings per Share, basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating EPS on a diluted basis.

 

In computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included. The effect of contingently issuable shares 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 41,398,021 and 32,943,371 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 2,666,666 shares of the Company’s common stock to be issued in conjunction with the CloseComms acquisition, and 115,817 restricted shares of the Company’s common stock to be issued upon vesting pursuant to the terms of an employment agreement with its 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   $ 3,876,624     $ 3,905,228  
Less: accumulated amortization     (2,050,975 )     (1,826,181 )
Purchased software, net   $ 1,825,649     $ 2,079,047  

 

Intangible asset – Purchased Software consists of the following three software technologies:

 

Alpha Predictions developed software   $ 674,242  
Travel Buddhi developed software     114,737  
CloseComms developed software     1,036,670  
Total developed software   $ 1,825,649  

 

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 three years. Amortization of developed software costs is included in general and administration expenses within the unaudited consolidated statements of operations.

 

For the three months ended September 30, 2021 and 2020, amortization expense was $224,794 and $223,833, respectively.

 

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   $ 713,290  
Fiscal year 2023     583,777  
Fiscal year 2024     415,217  
Fiscal year 2025     113,365  
Intangible asset - purchased software, net   $ 1,825,649  

 

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   $ 6,405,000     $ 6,180,000  
Service and support     955,930       897,264  
Application development and implementation     864,780       509,600  
Total Revenue   $ 8,225,710     $ 7,586,864  
                 
Primary Geographic Regions:                
United States     100 %     - %
India     - %     100 %
      100 %     100 %

 

Effective July 1, 2021, the Company moved the invoicing office of its largest customer to its customer’s United States based office. This change was to align the invoicing by the Company to the customer’s location managing the services provided under the customer agreement.

 

The following table presents our long-lived assets by primary geographic regions within our single reporting segment:

 

    September 30,  
    2021     2020  
United States   $ 1,438     $ 1,438  
India     795,357       1,713,273  
United Kingdom     1,049,947       1,017,152  
Total long-lived assets   $ 1,846,742     $ 2,731,863  

 

For the three months ended September 30, 2021 and 2020, the Company was subject to revenue concentration risk as one customer accounted for 100% of our total revenue for both periods.

 

Subscription and Application Development and Implementation Revenue

 

The Company recognizes revenue when, or as, it satisfies a performance obligation to a customer. The Company primarily has one performance obligation, which includes the combined promise to develop, implement, and license customized software. Payment terms for the software include one-time application development and implementation fees, which are generally billed on a time-and-materials basis over the development and implementation period, plus fixed license subscription fees, which may either be billed in full upfront or in monthly installments over the license period, which is generally three 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 $412,394 and $350,689, respectively.

 

The following table presents a reconciliation of the contract liabilities from June 30, 2021 to September 30, 2021:

 

June 30, 2021   $ 350,689  
Contract liability deferral     147,546  
Amortization of contract liability to revenue     (85,841 )
September 30, 2021   $ 412,394  

 

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]   $ 33,722     $ 33,680  
Note payable, SBA – Economic Injury Disaster Loan [2]     161,737       160,393  
Note payable, Accredited Investor [3]     159,619       276,035  
Total notes payable   $ 355,078     $ 470,108  
Less: current portion of notes payable     (208,188 )     (323,218 )
Long-term portion of notes payable   $ 146,890     $ 146,890  

 

[1] effective April 28, 2020, the Company entered into a promissory note with an approved lender in the principal amount of $33,333. The note was approved under the provisions of the Coronavirus, Aid, Relief and Economic Security Act (the “CARES Act”) and the terms of the Paycheck Protection Program of the U.S. Small Business Administration’s 7(a) Loan Program. The note accrues interest for the first six months following the issuance date at a rate of 1% per annum, (increasing to 6% per annum upon the occurrence of an Event of Default (as defined in the note)), and beginning November 28, 2020, requires 18 monthly payments of $1,876 each, consisting of principal and interest until paid in full on April 28, 2022. Subsequent to issuance, the first payment due date was extended. The note may be prepaid by the Company at any time prior to the maturity date with no prepayment penalties. Additionally, any portion of the note up to the entire principal and accrued interest balance may be forgiven in the event the Company satisfies certain requirements as determined by the CARES Act. The Company has applied for forgiveness and expects to satisfy the requirements for forgiveness of the entire principal and accrued interest balance. The Company is awaiting receipt of approval of its requested forgiveness from the SBA through its treasury partner. At September 30, 2021, $33,722 was recorded as a current liability within notes payable with the consolidated balance sheets.

 

[2] effective May 28, 2020, the Company entered into a promissory note and security agreement with the U.S. Small Business Administration (“SBA”) in the principal amount of $150,000. The note was approved under the provisions of the Coronavirus, Aid, Relief and Economic Security Act (the “CARES Act”) and the terms of the COVID-19 Economic Injury Disaster Loan (“EIDL”) program of the U.S. Small Business Administration’s EIDL Program. The note accrues interest at a rate of 3.75% per annum, and beginning May 28, 2021, requires monthly payments of $731 each, consisting of principal and interest until paid in full on May 28, 2050. Subsequent to issuance, the SBA extended the first payment due date to 24 months from the date of the note. The note may be prepaid by the Company at any time prior to the maturity date with no prepayment penalties. Additionally, this promissory note is collateralized by certain of the Company’s property as specified within the security agreement. Furthermore, on June 4, 2020, the Company received $4,000 from the SBA, which it is currently working to obtain details from the SBA regarding this amount. As such, at September 30, 2021, the Company recorded this amount as a current liability. At September 30, 2021, $14,847 was recorded as a current liability within notes payable and $146,890 was recorded as a long-term liability within notes payable, net of current portion with the consolidated balance sheets.
     

 

[3] effective February 8, 2021, the Company entered into a securities purchase agreement with an accredited investor and issued an 12% promissory note in the principal amount of $362,250 (including a $47,250 original issue discount) to the accredited investor with a maturity date of February 8, 2022. Twelve months of interest is immediately earned by the accredited investor upon the Company receiving proceeds and is included in the required monthly repayments. On February 10, 2021, the Company received net proceeds in the amount of $288,000 as a result of $27,000 being paid for legal and due diligence fees incurred with respect to this securities purchase agreement and convertible promissory note. In accordance with the securities purchase agreement, the Company issued 1) 250,000 restricted shares of its common stock (“Commitment Shares”) to the accredited investor as additional consideration for the purchase of the promissory note and 2) 200,000 restricted shares of its common stock (“Returnable Shares”) to the accredited investor which will be returned to the Company upon timely completion of the required repayment schedule. Repayments of the promissory note shall be made in eight (8) installments each in the amount of $50,715, which commenced July 8, 2021 and continues thereafter each thirty (30) days until February 8, 2022. This promissory note is only convertible upon an event of default as defined in the promissory note. The original issue discount, deferred financing costs and issuance date fair value of the Commitment Shares are being amortized over the term of the note. At September 30, 2021, the aggregate outstanding balance of the promissory note and accrued interest was $210,105. At September 30, 2021, the aggregate balance of the promissory note, net of original issue discount, deferred financing costs and issuance date fair value of the Commitment Shares was $159,619.

 

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 $231,269 and $213,545, respectively. During the three months ended September 30, 2021 and 2020 the Company recorded $4,564 and $4,215, respectively of interest for the outstanding convertible note.

 

At September 30, 2021 and June 30, 2021, the aggregate remaining amount of convertible securities held by JMJ could be converted into 11,563 and 10,677 shares, respectively, with a conversion price of $20.

 

Accredited Investors

 

Evergreen Agreement

 

On April 6, 2021, the Company entered into a Securities Purchase Agreement (“Agreement”) with Evergreen Capital Management LLC (the “Investor”), pursuant to which the Company sold to the Investor an aggregate of up to $2,040,000 in aggregate subscription amount of notes and warrants to purchase an aggregate of 11,730,000 shares of common stock in two (2) tranches (each a “Tranche”), with the first Tranche of $1,540,000 in subscription amount of notes (to purchase an aggregate of $1,771,000 in principal amount of notes) and warrants to purchase an aggregate of 8,855,000 shares of Common Stock being closed on upon execution of this Agreement. The closing for the second Tranche of $500,000 in subscription amount of notes (to purchase an aggregate of $575,000 in principal amount of notes) and warrants to purchase an aggregate of 2,875,000 shares of common stock will occur within three (3) business days after the later of (i) the filing by the Company of a Registration Statement on Form S-1 for the sale of common stock that will be listed on a national securities exchange, or (ii) the thirtieth (30th) day following the closing of the first Tranche. The first and second Tranches closed and funded on April 6, 2021 and May 3, 2021, respectively.

 

The Notes mature on April 6, 2022 and May 3, 2022, bears interest at the rate of 5% per annum and is convertible at any time upon the option of the Investor into shares of Common Stock at a conversion price equal to $0.20 per share or, upon the occurrence and during the continuance of an Event of Default (as defined in the Note), if lower, at a conversion price equal to 75% of the lowest daily VWAP of the Common Stock during the 20 consecutive trading days immediately preceding the applicable conversion date. The Company has the right to prepay all or any portion of the outstanding balance of the Note in an amount equal to 115% or 120%, depending on whether such repayment is made before November 5, 2021 or after November 5, 2021, respectively, multiplied by the portion of the outstanding balance to be prepaid. The Company is required to prepay all or any portion of the outstanding balance of the Note upon the occurrence of a Qualified Financing (as defined in the Note). If at any time while the Note is outstanding, the Company completes any single Future Transaction (as defined in the Note), the Investor may, in its sole discretion, elect to apply all, or any portion, of the then outstanding principal amount of this Note and any accrued but unpaid interest, as purchase consideration for such Future Transaction.

 

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 $0.20 per share at any time on or prior to April 6, 2025 and May 3, 2025, and may be exercised on a cashless basis, beginning on the six-month anniversary of the Effective Date, if the shares of Common Stock underlying the Warrants are not then registered under the Securities Act of 1933, as amended (the “Securities Act”). The Investor will not have the right to exercise the Warrants if the Investor, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to its conversion and under no circumstances may exercise the Warrants if the Investor, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to its exercise.

 

The SPA contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, other obligations of the parties thereto, and termination provisions.

 

In connection herewith, the Company recorded an original issue discount of $306,000 and deferred financing costs of $42,500. The original issue discount and deferred financing costs are being amortized over the term of the note. At September 30, 2021, the aggregate balance of the convertible promissory note and accrued interest was $2,401,162. At September 30, 2021, the aggregate balance of the convertible promissory note, net of original issue discount and deferred financing costs was $2,161,833. Subsequent to September 30, 2021, outstanding principal of $250,000 was converted into 1,250,000 shares of the Company’s common stock at a conversion price of $0.20 per share.

 

Investors’ Agreement

 

On May 4, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with two accredited investors (the “Investors”), pursuant to which the Company sold to the Investors an aggregate of up to $2,550,000 in Aggregate Subscription Amount of Notes and Warrants to acquire an aggregate of 15,000,000 shares of common stock in two tranches (each a “Tranche”), with the first Tranche of $1,924,999 in subscription Amount of Notes (to sell an aggregate of $2,264,706 in principal amount of Notes) and Warrants to acquire an aggregate of 11,323,529, shares of common stock being closed on upon execution of the SPA. The closing for the second tranche for $625,001 in Subscription Amount Notes (to sell an aggregate of $735,294 in principal amount of Notes) and Warrants to acquire an aggregate of 3,676,471 shares of common stock will occur within three (3) business days after the later of (i) the filing of a Registration Statement on Form S-1 for the sale of common stock that will be listed on a national securities exchange or (ii) the thirtieth (30th) day following the closing of the first Tranche. The first and second Tranches closed and funded on May 3, 2021 and June 30, 2021, respectively. The Company received a portion of the proceeds related to the second Tranche on July 1, 2021.

 

The Notes mature on May 4, 2022 and June 30, 2022, bear interest at the rate of 5% per annum and are convertible at any time upon the option of the Investors into shares of Common Stock at a conversion price equal to $0.20 per share. The Company has the right to prepay all or any portion of the outstanding balance of the Notes in an amount equal to 115% or 120%, depending on whether such repayment is made before November 5, 2021 or after November 5, 2021, respectively, multiplied by the portion of the outstanding balance to be prepaid.

 

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 $0.20 per share at any time on or prior to May 4, 2025 and June 30, 2025, and may be exercised on a cashless basis, beginning on the six-month anniversary of the Effective Date, if the shares of Common Stock underlying the Warrants are not then registered under the Securities Act 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 $447,237 and deferred financing costs of $10,000. The original issue discount and deferred financing costs are being amortized over the term of the note. At September 30, 2021, the aggregate balance of the convertible promissory note and accrued interest was $3,037,570. At September 30, 2021, the aggregate balance of the convertible promissory note, net of original issue discount and deferred financing costs was $2,696,374.

 

At September 30, 2021 and June 30, 2021, there was $5,332,616 and $5,143,795 of convertible notes payable outstanding, net of discounts of $2,307,788 and $3,157,759, respectively.

 

During the three months ended September 30, 2021 and 2020, amortization of original issue discount, deferred financing costs, and debt discounts amounted to $1,038,524 and $320,462, respectively.

 

During the three months ended September 30, 2021, there were no conversions of convertible notes, related fees or interest, into shares of the Company’s common stock. During the three months ended September 30, 2020, $288,182 of convertible notes, including fees and interest, were converted into 16,331,766 shares of the Company’s common stock.

 

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   $ 109,000     $ 109,000  
Accredited Investors     5,332,616       5,148,795  
Unamortized OID, deferred financings costs, and debt discounts     (2,307,788 )     (3,157,759 )
Total convertible debt arrangements, net   $ 3,133,828     $ 2,100,036  

 

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 $234,063 and $162,271, respectively, is included within accrued expenses of the consolidated balance sheets.

 

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   $ 897,631  
Initial fair value of derivative liability recorded as debt discount     853,800  
Initial fair value of derivative liability charged to other expense     2,240,908  
Gain on change in fair value included in earnings     (3,267,323 )
Derivative liability relieved by conversions of convertible promissory notes     (725,016 )
June 30, 2021   $ -  

 

Total derivative liability at September 30, 2021 and June 30, 2021 amounted to $0 for both periods.

 

The Company recognizes its derivative liabilities as Level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price of the underlying common stock of the Company.

 

At 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 500,001,000 shares consisting of 500,000,000 shares of common stock, $0.01 par value per share, of which 79,156,033 are issued and 79,127,633 are outstanding, and 1,000 shares of preferred stock, par value $0.01 per share of which 1,000 shares have been designated as Series A Super Voting Preferred of which 1,000 are issued and outstanding.

 

On August 27, 2019, the Company’s Board of Directors approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”) to increase the number of authorized shares of common stock of the Company to 100,000,000 shares from 25,000,000 shares. On September 4, 2019, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase its authorized common stock from 25,000,000 shares to 100,000,000 shares.

 

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 250,000,000 shares from 100,000,000 shares. On July 14, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase its authorized common stock from 100,000,000 shares to 250,000,000 shares.

 

On August 3, 2020, the Company’s Board of Directors approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”) to increase the number of authorized shares of common stock of the Company to 500,000,000 shares from 250,000,000 shares. On August 4, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation to increase its authorized common stock from 250,000,000 shares to 500,000,000 shares.

 

Common Stock

 

Stock Based Compensation – Common Stock Grants

 

During the three months ended September 30, 2021, the Company recorded $19,466 of stock-based compensation expense related to a May 17, 2021 grant of 500,000 restricted shares of common stock to the Company’s Chief Operating Officer, which vests 25% on the 1 year, 2 year, 3 year, and 4 year anniversaries of the grant date.

 

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 37,390,452 shares of the Company’s Common Stock (the “Cancelled Warrants”) pursuant to the terms of that certain Transition Agreement (the “Transition Agreement”) and Warrant Agreement (the “Warrant Agreement”) each between the Company and Holder and dated as of January 11, 2019 were forfeited and exchanged for (i) 37,390,452 shares of the Company’s Common Stock (the “Shares”) and (ii) the cancellation and termination of the Transition Agreement and Warrant Agreement. The Cancelled Warrants had an exercise price of $0.50 per share and were not subject to expiration. Such Exchange Agreement is intended to make the Company’s capitalization more attractive to potential investors and to remove the uncertainty associated with any future grants of warrants under the Transition Agreement and Warrant Agreement, although there can be no assurance of any future investments on terms that are attractive to the Company, or at all. Immediately prior to the Company’s entry into the Exchange Agreement, it was determined that 5,650,708 additional warrants (the “Additional Warrants”) to purchase the Company’s Common Stock were due to and issued to the Holder in accordance with the terms and conditions of the Transition Agreement as the Transition Agreement required certain liabilities to be eliminated by the prior management team within six months of the Transition Agreement’s effective date of January 11, 2019. However, the Additional Warrants were immediately cancelled and terminated with the intention of mitigating potential liabilities arising from certain issuances of the Company’s Common Stock below the minimum price of $0.50 per share as stated within the Transition Agreement. The Shares to be issued and sold to the Holder pursuant to the Exchange Agreement were issued in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. For the year ended June 30, 2021, the Company recorded $153,301 of stock-based compensation expense related to the Exchange Agreement. See Common Stock Warrants section below for further details of the warrants.

 

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 $10,737 of stock-based compensation expense related to a June 1, 2019 grant of 231,635 shares of common stock to the Company’s former Chief Financial Officer, which vested 25% on the six month, 1 year, 2 year, and 3 year anniversaries of the grant date.

 

Vendor Services

 

During the three months ended September 30, 2021, the Company entered into various consulting, public relations, and marketing agreements whereby the Company issued an aggregate of 543,425 restricted shares of its common stock for services to be performed during specified periods of time. During the three months ended September 30, 2021, the Company recorded $83,960 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 200,000 restricted shares of its common stock for services to be performed during the agreement period of July 15, 2020 through October 15, 2020. During the three months ended September 30, 2020, the Company recorded $5,708 of expense.

 

Conversion of Debt Securities

 

During the three months ended September 30, 2021, there were no conversions of convertible notes into shares of the Company’s common stock. During the three months ended September 30, 2020, $288,182 of convertible notes, including fees and interest, were converted into 16,331,766 shares of the Company’s common stock by accredited investors, valued at $708,272.

 

Reserved Shares

 

At September 30, 2021, the convertible promissory notes entered into with the accredited investors require the Company to reserve approximately 85,000,000 shares of its common stock for potential future conversions under such instruments.

 

At September 30, 2021, 7,202 shares of the Company’s common stock remain subject to be returned to the Company’s treasury for cancellation. Such shares were not sold as part of 8,000 shares of the Company’s common stock that was advanced during fiscal year 2014 under an Equity Line of Credit.

 

Common Stock Warrants

 

Exchange Agreement – Warrants Exchanged for Common Stock

 

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 37,390,452 shares of the Company’s Common Stock (the “Cancelled Warrants”) pursuant to the terms of that certain Transition Agreement (the “Transition Agreement”) and Warrant Agreement (the “Warrant Agreement”) each between the Company and Holder and dated as of January 11, 2019 were forfeited and exchanged for (i) 37,390,452 shares of the Company’s Common Stock (the “Shares”) and (ii) the cancellation and termination of the Transition Agreement and Warrant Agreement. The Cancelled Warrants had an exercise price of $0.50 per share and were not subject to expiration. Such Exchange Agreement is intended to make the Company’s capitalization more attractive to potential investors and to remove the uncertainty associated with any future grants of warrants under the Transition Agreement and Warrant Agreement, although there can be no assurance of any future investments on terms that are attractive to the Company, or at all. Immediately prior to the Company’s entry into the Exchange Agreement, it was determined that 5,650,708 additional warrants (the “Additional Warrants”) to purchase the Company’s Common Stock were due to and issued to the Holder in accordance with the terms and conditions of the Transition Agreement as the Transition Agreement required certain liabilities to be eliminated by the prior management team within six months of the Transition Agreement’s effective date of January 11, 2019. However, the Additional Warrants were immediately cancelled and terminated with the intention of mitigating potential liabilities arising from certain issuances of the Company’s Common Stock below the minimum price of $0.50 per share as stated within the Transition Agreement. The Shares to be issued and sold to the Holder pursuant to the Exchange Agreement were issued in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. For the three months ended September 30, 2020, the Company recorded $153,301 of stock-based compensation expense related to the Exchange Agreement.

 

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 14,908,077 warrants to acquire shares of the Company’s common stock. The warrants expire four years after issuance and have an exercise price of $0.20 per share, subject to adjustment hereunder. The warrants can also be exercised under a cashless basis as outlined within the Warrant Agreement. The Company attributed an aggregate fair value of $1,879,204 to the warrants, based upon an average value of $0.35 per warrant.

 

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 11,730,000 warrants to acquire shares of the Company’s common stock. The warrants expire four years after issuance and have an exercise price of $0.20 per share, subject to adjustment hereunder. The warrants can also be exercised under a cashless basis as outlined within the Warrant Agreement. The Company attributed an aggregate fair value of $1,293,541 to the warrants, based upon an average value of $0.27 per warrant.

 

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     618.01 %
Weighted-average volatility     618.01 %
Expected dividends     0 %
Expected term (in years)     4.0  
Risk-free rate     0.68 %

 

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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     25,718,971     $ 0.20     $ -  
Warrants issued     919,106       0.20       -  
Warrants forfeited     -       -       -  
Outstanding, September 30, 2021     26,638,077     $ 0.20     $ -  
                         
Common stock issuable upon exercise of warrants     26,638,077     $ 0.20     $ -  

 

 

      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  
$ 0.20       26,638,077       3.59     $ 0.20       26,638,077     $ 0.20  
          26,638,077       3.59     $ 0.20       26,638,077     $ 0.20  

 

 

NOTE 10: RELATED PARTY TRANSACTIONS

 

Microphase Corporation

 

At September 30, 2021, the Company owed $32,545 to Microphase for previously leased office space at its Norwalk location and for certain research and development services and shared administrative personnel from time to time, all through December 31, 2015.

 

Transactions With Officers

 

Note Payable Issuances

 

At various points during past fiscal years certain officers and former officers of the Company provided bridge loans to the Company evidenced by individual promissory notes and deferred compensation to provide working capital to the Company. During the three months ended September 30, 2021 and 2020, there were no advances from any officers or former officers of the Company. During the three months ended September 30, 2021 and 2020, $11,355 and $1,197 has been charged for interest on loans from officers and former officers.

 

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, the Company received a notice of event of default and demand letter (“Demand Letter”) from a former officer and promissory note holder (the “Note Holder”). The promissory note was issued on November 1, 2019, in the original principal amount of $40,739, accrued interest at a rate of 6% per annum, and matured on April 18, 2020. The Demand Letter stated an aggregate of $51,940 of principal and interest was immediately due. The promissory note does not have a convertible feature and is not convertible into shares of the Company’s common stock. Additionally, the promissory note does not contain any cross-default provisions with any other promissory notes issued by the Company. The Company expects to work with the Note Holder to negotiate a repayment structure whereby the Company can repay the Note Holder the balance due as quickly as possible based upon its available capital.

 

At September 30, 2021 and June 30, 2021, these outstanding notes including accrued interest totaled $758,442 and $747,086, respectively. At September 30, 2021, these promissory notes are not convertible into shares of the Company’s common stock.

 

Common Stock Issuances

 

During the three months ended September 30, 2021, the Company recorded $19,466 of stock-based compensation expense related to a May 17, 2021 grant of 500,000 restricted shares of common stock to the Company’s Chief Operating Officer, which vests 25% on the 1 year, 2 year, 3 year, and 4 year anniversaries of the grant date.

 

Office Lease

 

Effective February 8, 2021, the Company relocated its corporate office to 9841 Washingtonian Blvd., Suite 200, Gaithersburg, MD 20878, and incurred rent expense of $1,350 per month through March 31, 2021, which was payable to a related party. The current lease payment is $1,600 per month and the lease term is a month-to-month arrangement. For the three months ended September 30, 2021 and 2020, $10,749 and $4,050, respectively, was recognized as rent expense. At September 30, 2021 and June 30, 2021, $35,971 was accrued as payable to the related party.

 

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 $1,350 per month through March 31, 2021, which was payable to a related party. The current lease payment is $1,600 per month and the lease term is a month-to-month arrangement.

 

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 $82,795 for both periods.

 

For the three months ended September 30, 2021 and 2020, there were no revenue or expenses associated with discontinued operations included in our unaudited consolidated statements of operations.

 

NOTE 13: SUBSEQUENT EVENTS

 

Subsequent to September 30, 2021, $250,000 of principal of a convertible promissory note was converted into 1,250,000 shares of the Company’s common stock.

 

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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.

 

33

 

 

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.

 

Exhibit Number   Description
     
10.1   Form of Director Agreements (Incorporated by reference to Form 8-K, Exhibit 10.1, filed September 2, 2021)
     
10.2*   Form of Employment Agreement between Company and Angelina Hrytsyshyn
     
31.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS*   XBRL Instance Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document
101.SCH*   XBRL Taxonomy Extension Schema Document
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

*Filed herewith.

 

36

 

 

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

 

37

 

 

Exhibit 10.2

 

mPHASE TECHNOLOGIES, INC.

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”) is entered into as of this 18th day of November 2021 by and between mPhase Technologies, Inc., a New Jersey corporation with a principal place of business in Gaithersburg, MD (the “Company”), and Angelia Hrytsyshyn, an individual (the “Executive”).

 

WHEREAS, the Company and the Executive wish to set forth the terms and conditions for the employment of the Executive by the Company;

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration the receipt of which is hereby acknowledged, the parties mutually agree as follows:

 

Section 1. Term of Employment.

 

  (a) General. The Company will employ Executive, and Executive will be employed by the Company, for the period set forth in Section 1(b), in the positions set forth in Section 2, and upon the other terms and conditions herein provided commencing on November 22, 2021 (the “Effective Date”).
     
  (b) Term. The Agreement shall become effective on the Effective Date and shall continue unless earlier terminated as provided in Section 6 (the “Term”). The Executive’s employment with the Company shall be “at will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and for any reason provided that Executive may not voluntarily terminate his employment upon less than thirty (30) days prior written notice delivered to the Company, or upon such shorter notices as Company and Executive agree.
     
  (c) Location. During the Term, the Executive’s principal place of employment shall be in Gaithersburg, MD. The Executive acknowledges that Executive’s duties and responsibilities shall require the Executive to travel on business to the extent reasonably necessary to fully perform Executive’s duties and responsibilities hereunder.

 

Section 2. Duties and Exclusivity.

 

  (a) During the Term, the Executive (i) shall serve as Chief Financial Officer of the Company, with responsibilities, duties and authority customary for such position, subject to direction by the Chief Executive Officer of the Company, (ii) shall report directly to the Chief Executive Officer; (iii) shall devote all the Executive’s working time and efforts to the business and affairs of the Company and its subsidiaries; and (iv) agrees to observe and comply with the Company’s rules and policies as adopted by the Company from time to time. The Executive’s duties, responsibilities and authority may include services for one or more subsidiaries of the Company.
     
  (b) Notwithstanding anything to the contrary in Section 2(a) above, the Executive may (i) serve as a director, trustee or officer or otherwise participate in not-for-profit educational, welfare, social, religious and civic organizations. During the Term, Executive shall not accept any other employment or consultancy or serve on the board of directors or similar body of any entity unless such position is approved by the Chief Executive Officer.
     
  (c) Exclusivity. The Executive hereby represents to the Company that: (i) the execution and delivery of this Agreement by the Executive and the Company and the performance by the Executive of the Executive’s duties hereunder do not and shall not constitute a breach of, conflict with, or otherwise contravene or cause a default under, the terms of any other agreement or policy to which the Executive is a party or otherwise bound or any judgment, order or decree to which the Executive is subject; (ii) that the Executive has no information (including, without limitation, confidential information and trade secrets) relating to any other Person which would prevent, or be violated by, the Executive entering into this Agreement or carrying out his duties hereunder; (iii) the Executive is not bound by any agreement with any previous employer or other party to refrain from (A) competing with the business of, or (B) soliciting the customers of, that employer or party, in each case, which would be violated by the Executive’s employment with the Company; and (iv) the Executive understands the Company will rely upon the accuracy and truth of the representations and warranties of the Executive set forth herein and the Executive consents to such reliance.

 

 

 

 

  (d) Deemed Resignation. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices, if any, then held with the Company or any of its subsidiaries, and, at the Company’s request, Executive shall execute such documents as are necessary or desirable to effectuate such resignations.

 

Section 3. Compensation.

 

  (a) Salary. In consideration of all of the services rendered by the Executive under the terms of this Agreement, the Company shall pay to the Executive a base salary at the annualized rate of Two Hundred Twenty-Five Thousand Dollars ($225,000.00), less payroll deductions and all required withholdings. Executive’s Base Salary shall be subject to annual review and upward adjustment only by the Chief Executive Officer of the Company. The Base Salary shall be paid in accordance with the customary payroll practices of the Company in effect. The Executive’s salary, as adjusted from time to time under this Section 3(a), is referred to as (“Base Salary”).
     
  (b) Annual Bonus. With respect to each Company fiscal year that ends during the Term, commencing with fiscal year 2022, the Executive shall be eligible to receive an annual performance-based cash bonus (the “Annual Bonus”) which shall be payable based upon the attainment of individual and/or Company performance goals established by the Chief Executive Officer. The target amount of such Annual Bonus shall equal 50% of Executive’s Base Salary in the year to which the Annual Bonus relates, provided that the actual amount of the Annual Bonus may be greater or less than such target amount (the “Target Bonus”). Each Annual Bonus, if any, for a fiscal year shall be payable, less payroll deductions and all required withholdings, no later than the fifteenth day of the second month following the end of such fiscal year.
     
  (c) Reimbursement of Expenses. The Company will promptly reimburse Executive for all reasonable out-of-pocket business expenses that are incurred by Executive in furtherance of the Company’s business in accordance with the Company’s policies with respect thereto as in effect.
     
  (d) Paid Time Off. Executive shall be entitled to accrue ten (10) days of paid time off during each calendar year in accordance with and subject to the terms of the Company’s vacation policy applicable to other executive officers of the Company, as it may be amended prospectively from time to time. Any accrued paid time off that is not used in the calendar year in which it is earned will be eligible to be carried forward to, or otherwise used in, any subsequent calendar year, provided that Executive shall not be allowed to accrue paid time off in excess of ten (10) days at any one time.
     
  (e) Holidays. During the Employment Period, Executive shall be entitled to holidays consistent with the Company’s current policy, which may be amended from time to time.

 

Section 4. Equity Awards.

 

  (a) Restricted Stock Grant. In addition to Base Salary, as part of the Executive’s overall compensation, the Executive shall receive a restricted stock award of 500,000 shares of the Company’s common stock (the “Restricted Shares”). For so long as the Executive remains continuously employed by the Company, the Restricted Shares shall vest as follows: 25% of the Shares shall vest at, 1 year, 2 year, 3 and 4 year anniversaries of the Agreement. In the event of a Change in Control while the Executive is employed by the Company, any unvested portion of the Restricted Shares shall vest immediately upon the Change in Control. The Restricted Shares grant shall be evidenced in writing by, and subject to the terms and conditions of a restricted stock agreement, which agreement shall expire ten (10) years from the date of grant except as otherwise provided herein or in such restricted stock agreement.

 

 

 

 

  (b) Section 83(b) Election. The Executive hereby acknowledges that the Executive has been informed that, with respect to the Restricted Stock, the Executive may file an election with the Internal Revenue Service, within 30 days of the Date of the Grant, electing pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, (the Code) to be taxed currently on any difference between the purchase price of the Restricted Stock and their fair market value on the date of purchase. Absent such an election, taxable income will be measured and recognized by the Executive at the time or times at which the forfeiture restrictions on the Restricted Stock lapse. The Executive is strongly encouraged to seek the advice of his own tax consultants in connection with the issuance of the Restricted Stock and the advisability of filing of the election under Section 83(b) of the Code. THE EXECUTIVE ACKNOWLEDGES THAT IT IS NOT THE COMPANYS, BUT RATHER THE EXECUTIVES SOLE RESPONSIBILITY TO FILE THE ELECTION UNDER SECTION 83(b) TIMELY.
     
  (c) Sale of Shares. Executive agrees that he will not loan or pledge any securities of the Company owned by him or which he may accrue in the future through restricted stock, option or other equity awards as collateral for any indebtedness.

 

Section 5. Compliance with Company Policy.

 

During the Term, the Executive shall observe all Company rules, regulations, policies, procedures and practices in effect from time to time, including, without limitation, such policies and procedures as are contained in the Company policy and procedures manual, as may be amended or superseded from time to time.

 

Section 6. Termination of Employment.

 

Executive’s employment with the Company may be terminated during the Term of this Agreement for any of the following reasons:

 

  (a) By The Company For Cause. At any time during the Term, the Company may terminate Executive’s employment hereunder for Cause. For purposes of this Agreement, “Cause” shall mean the occurrence of any of the following events, as determined by the Board or a committee designated by the Board, in its sole discretion: (i) conduct by Executive constituting a material act of willful misconduct in connection with the performance of his duties, including, without limitation, misappropriation of funds or property of the Company or any of its affiliates other than the occasional, customary and de minimis use of Company property for personal purposes; (ii) the commission by Executive of a felony or any misdemeanor involving moral turpitude, deceit, dishonesty or fraud, or conduct by Executive that would reasonably be expected to result in material injury to the Company if he were retained in his position; (iii) continued, willful and deliberate non-performance by Executive of his duties hereunder (other than by reason of Executive’s physical or mental illness, incapacity or disability) which has continued for more than thirty (30) days following written notice of such non-performance from the Company; (iv) a material breach by Executive of any of the provisions contained in Paragraph 7 of this Agreement; (v) a material violation by Executive of the Company’s employment policies which has continued for more than thirty (30) days following written notice of such violation from the Company; or (vi) willful failure to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate, or the willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the willful inducement of others to fail to cooperate or to produce documents or other materials.
     
  (b) By The Company for Without Cause. At any time during the Term, the Company may terminate Executive’s employment hereunder without Cause.
     
  (c) By The Executive. At any time during the Term, Executive may terminate his employment hereunder for any reason.

 

 

 

 

  (d) Right to Severance. In the event the Company terminates Executive’s employment Without Cause and if Executive executes and does not revoke during any applicable revocation period a general release of all claims against the Company and its affiliates in a form acceptable to the Company (a “Release of Claims”) within a reasonable period of time specified by the Company and in compliance with applicable law, following such termination, then in addition to any accrued obligations payable under Section 6(d)(i) below, the Company shall:

 

  i. Provided the Executive has been employed for a minimum of twelve (12) months but less than twenty-four (24) months, pay to the Executive six (6) months of the Executive’s current Base Salary, less payroll deductions and all required withholdings, paid over time in accordance with the Company’s payroll practices then in effect;
     
  ii. Provided the Executive has been employed for a minimum of twenty-four (24) months, pay to the Executive twelve (12) months of the Executive’s current Base Salary, less payroll deductions and all required withholdings, paid over time in accordance with the Company’s payroll practices then in effect; and
     
  iii. The Company shall notify Executive of any right to continue group health plan coverage sponsored by the Company immediately prior to Executive’s date of termination pursuant to the provisions of applicable law including, but not limited to, the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). If Executive elects to receive such continued healthcare coverage, the Company shall directly pay, or reimburse Executive for, the premium for Executive and Executive’ s covered dependents, less the amount of Executive’s monthly premium contributions for such coverage prior to termination, for the period commencing on the first day of the first full calendar month following the date the Release of Claims becomes effective and irrevocable through the earlier of (i) the last day of the six (6) or twelve (12) full calendar months (such period consistent with the severance payment period set forth in Section 6(d)(i) and 6(d)(ii) above) following the date the Release of Claims becomes effective and irrevocable (ii) the date Executive and Executive’s covered dependents, if any, become eligible for healthcare coverage under another employer’s plan(s). Executive shall notify the Company immediately if Executive becomes covered by a group health plan of a subsequent employer. After the Company ceases to pay premiums pursuant to this subsection, Executive may, if eligible, elect to continue healthcare coverage at Executive’s expense in accordance the provisions of COBRA or other applicable law.

 

For purposes of this Section 6(e), Executive’s termination of employment at the end of the Term following an earlier notice of nonrenewal by the Company shall be treated as a termination of the Executive’s employment by the Company without Cause as of the last day of the Term.

 

  (e) Upon a termination of the Executive’s employment for any reason, (i) the Executive shall be entitled to receive: (A) any portion of the Executive’s Base Salary through the date of employment termination not theretofore paid, (B) any expenses owed to the Executive under Section 3(c) above, (C) any accrued but unused vacation pay owed to the Executive pursuant to Section 3(e) above, any pro-rated and unpaid Annual Bonus pursuant to Section 3(b) above, and (E) any amount arising from the Executive’s participation in, or benefits under, any employee benefit plans, programs or arrangements under Section 3(d) above, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements.
     
  (f) The payments and benefits described in this Section 6 shall be the only payments and benefits payable in the event of the Executive’s termination of employment for any reason.

 

 
 

 

Section 7. Competitive Activity; Confidentiality; Nonsolicitation.

 

(a) Acknowledgements and Agreements. Executive hereby acknowledges and agrees that in the performance of Executive’s duties to the Company during the Employment Period, Executive will be brought into frequent contact with existing and potential customers of the Company throughout the world. Executive also agrees that trade secrets and confidential information of the Company, more fully described in subparagraph 7(e)(i), gained by Executive during Executive’s association with the Company, have been developed by the Company through substantial expenditures of time, effort and money and constitute valuable and unique property of the Company. Executive further understands and agrees that the foregoing makes it necessary for the protection of the Company’s Business that Executive not compete with the Company during his employment with the Company, and not compete with the Company for a defined period thereafter, as further provided in the following subparagraphs.

 

(b) Covenants.

 

(i) Covenants During Employment. While employed by the Company, Executive will not compete with the Company anywhere in the world. In accordance with this restriction, but without limiting its terms, while employed by the Company, Executive will not:

 

  (A) enter into or engage in any business which competes with the Company’s Business;
     
  (B) solicit customers, business, patronage or orders for, or sell, any products or services in competition with, or for any business that competes with, the Company’s Business;
     
  (C) divert, entice or otherwise take away any customers, business, patronage or orders of the Company or attempt to do so; or
     
  (D) promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company’s Business.

 

(ii) Covenants Following Termination. For two (2) years following the termination of Executive’s employment, Executive shall not:

 

  (A) enter into or engage in any business which competes with the Company’s Business;
     
  (B) solicit customers, business, patronage or orders for, or sell, any products and services in competition with, or for any business, wherever located, that competes with, the Company’s Business;
     
  (C) divert, entice or otherwise take away any customers, business, patronage or orders of the Company, or attempt to do so; or
     
  (D) promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company’s Business.

 

The time period set forth in subparagraph 7(b)(ii) may be extended to such longer period as determined by the Company in its sole discretion, provided that if the Company extends the applicable period, the Company shall make payment to Executive of the Base Salary during any such extended period.

 

(iii) Indirect Competition. For the purposes of subparagraphs 7(b)(i) and (ii) inclusive, but without limitation thereof, Executive will be in violation thereof if Executive engages in any or all of the activities set forth therein directly as an individual on Executive’s own account, or indirectly as a partner, joint venturer, employee, agent, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity, or as a stockholder of any corporation in which Executive or Executive’s spouse, child or parent owns, directly or indirectly, individually or in the aggregate, more than one percent (1%) of the outstanding stock.

 

 

 

 

(iv) If it is judicially determined that Executive has violated this subparagraph 7(b) and the Company obtains an injunction or other equitable relief, then the period applicable to each obligation that Executive has been determined to have violated will be automatically extended by a period of time equal in length to the period during which such violation occurred.

 

(c) The Company. For purposes of this paragraph 7, the Company shall include any and all direct and indirect subsidiary, parent, affiliated, or related companies of the Company for which Executive worked or had responsibility at the time of termination of his employment and at any time during the two (2) year period prior to such termination.

 

(d) Non-Solicitation; Non-Association. Executive will not directly or indirectly at any time during the period of Executive’s employment, or for five (5) years thereafter, attempt to disrupt, damage, impair or interfere with the Company’s Business by raiding any of the Company’s employees, soliciting any of them to resign from their employment by the Company or associating with any of them for the express purpose of encouraging them to resign from their employment by the Company, or by disrupting the relationship between the Company and any of its consultants, agents or representatives.

 

Executive acknowledges that this covenant is necessary to enable the Company to maintain a stable workforce and remain in business.

 

(e) Further Covenants.

 

(i) Executive will keep in strict confidence, and will not, directly or indirectly, at any time, during or after Executive’s employment with the Company, disclose, furnish, disseminate, make available or, except in the course of performing Executive’s duties of employment, use any trade secrets or confidential business and technical information of the Company or its customers or vendors, without limitation as to when or how Executive may have acquired such information. Such confidential information shall include, without limitation, the Company’s unique selling, manufacturing and servicing methods and business techniques, training, service and business manuals, promotional materials, training courses and other training and instructional materials, vendor and product information, customer and prospective customer lists, other customer and prospective customer information and other business information. Executive specifically acknowledges that all such confidential information, whether reduced to writing, maintained on any form of electronic media, or maintained in the mind or memory of Executive and whether compiled by the Company, and/or Executive, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the Company to maintain the secrecy of such information, that such information is the sole property of the Company and that any retention and use of such information by Executive during Executive’s employment with the Company (except in the course of performing Executive’s duties and obligations to the Company) or after the termination of Executive’s employment shall constitute a misappropriation of the Company’s trade secrets.

 

(ii) Executive agrees that upon termination of Executive’s employment with the Company, for any reason, Executive shall return to the Company, in good condition, all property of the Company, including without limitation, the originals and all copies of any materials which contain, reflect, summarize, describe, analyze or refer or relate to any items of information listed in subparagraph 7(e)(i) of this Agreement.

 

 

 

 

(f) Discoveries and Inventions; Work Made for Hire.

 

(i) Executive agrees that upon conception and/or development of any idea, discovery, invention, improvement, software, writing or other material or design that: (A) relates to the business of the Company, or (B) relates to the Company’s actual or demonstrably anticipated research or development, or (C) results from any work performed by Executive for the Company, Executive will assign to the Company the entire right, title and interest in and to any such idea, discovery, invention, improvement, software, writing or other material or design. Executive has no obligation to assign any idea, discovery, invention, improvement, software, writing or other material or design that Executive conceives and/or develops entirely on Executive’s own time without using the Company’s equipment, supplies, facilities, or trade secret information unless the idea, discovery, invention, improvement, software, writing or other material or design either: (x) relates to the business of the Company, or (y) relates to the Company’s actual or demonstrably anticipated research or development, or (z) results from any work performed by Executive for the Company. Executive agrees that any idea, discovery, invention, improvement, software, writing or other material or design that relates to the business of the Company or relates to the Company’s actual or demonstrably anticipated research or development which is conceived or suggested by Executive, either solely or jointly with others, within one (1) year following termination of Executive’s employment under this Agreement or any successor agreements shall be presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s equipment, supplies, facilities, and/or trade secrets.

 

(ii) In order to determine the rights of Executive and the Company in any idea, discovery, invention, improvement, software, writing or other material, and to insure the protection of the same, Executive agrees that during Executive’s employment, and, to the extent related to the Company’s Business, for one (1) year after termination of Executive’s employment under this Agreement or any successor agreement, Executive will disclose immediately and fully to the Company any idea, discovery, invention, improvement, software, writing or other material or design conceived, made or developed by Executive solely or jointly with others. The Company agrees to keep any such disclosures confidential. Executive also agrees during Executive’s employment, and, to the extent related to the Company’s Business, for one (1) year after termination of Executive’s employment under this Agreement or any successor agreement, to record descriptions of all work in the manner directed by the Company and agrees that all such records and copies, samples and experimental materials will be the exclusive property of the Company. Executive agrees that at the request of and without charge to the Company, but at the Company’s expense, Executive will execute a written assignment of the idea, discovery, invention, improvement, software, writing or other material or design to the Company and will assign to the Company any application for letters patent or for trademark registration made thereon, and to any common-law or statutory copyright therein; and that Executive will do whatever may be necessary or desirable to enable the Company to secure any patent, trademark, copyright, or other property right therein in the United States and in any foreign country, and any division, renewal, continuation, or continuation in part thereof, or for any reissue of any patent issued thereon. In the event the Company is unable, after reasonable effort, and in any event after ten business days, to secure Executive’s signature on a written assignment to the Company of any application for letters patent or to any common-law or statutory copyright or other property right therein, whether because of Executive’s physical or mental incapacity or for any other reason whatsoever, Executive irrevocably designates and appoints the Corporate Secretary of the Company as Executive’s attorney-in-fact to act on Executive’s behalf to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of such letters patent, copyright or trademark.

 

(iii) Executive acknowledges that, to the extent permitted by law, all work papers, reports, documentation, drawings, photographs, negatives, tapes and masters therefor, prototypes and other materials (hereinafter, “items”), including without limitation, any and all such items generated and maintained on any form of electronic media, generated by Executive during Executive’s employment with the Company shall be considered a “work made for hire” and that ownership of any and all copyrights in any and all such items shall belong to the Company. The item will recognize the Company as the copyright owner, will contain all proper copyright notices, e.g., “(creation date) mPhase Technologies, Inc., All Rights Reserved,” and will be in condition to be registered or otherwise placed in compliance with registration or other statutory requirements throughout the world.

 

 

 

 

(g) Confidentiality Agreements. Executive agrees that Executive shall not disclose to the Company or induce the Company to use any secret or confidential information belonging to Executive’s former employers. Except as indicated, Executive warrants that Executive is not bound by the terms of a confidentiality agreement or other agreement with a third party that would preclude or limit Executive’s right to work for the Company and/or to disclose to the Company any ideas, inventions, discoveries, improvements or designs or other information that may be conceived during employment with the Company. Executive agrees to provide the Company with a copy of any and all agreements with a third party that preclude or limit Executive’s right to make disclosures or to engage in any other activities contemplated by Executive’s employment with the Company.

 

(h) Relief. Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of Executive’s obligations under this Agreement would be inadequate. Executive therefore agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision contained in subparagraphs 7(b), 7(d), 7(e), 7(f) and 7(g) inclusive, of this Agreement, without the necessity of proof of actual damage.

 

(i) Reasonableness. Executive acknowledges that Executive’s obligations under this paragraph 7 are reasonable in the context of the nature of the Company’s Business and the competitive injuries likely to be sustained by the Company if Executive were to violate such obligations. Executive further acknowledges that this Agreement is made in consideration of, and is adequately supported by the agreement of the Company to perform its obligations under this Agreement and by other consideration, which Executive acknowledges constitutes good, valuable and sufficient consideration.

 

Section 8. Survival of Obligations.

 

The obligations of the Executive as set forth in Section 4, Section 6, Section 7, and Sections 9 through 13 below shall survive the term of this Agreement and the termination of Executive’s employment hereunder regardless of the reason(s) therefor.

 

Section 9. Equitable Remedies.

 

Executive agrees that any damages awarded the Company for any breach of Sections 10 through 11 of this Agreement by Executive would be inadequate. Accordingly, in addition to any damages and other rights or remedies available to the Company, the Company shall be entitled to obtain injunctive relief from a court of competent jurisdiction temporarily, preliminarily and permanently restraining and enjoining any such breach or threatened breach and to specific performance of any such provision of this Agreement. In the event that either party commences litigation against the other under this Agreement the prevailing party in said litigation shall be entitled to recover from the other all costs and expenses incurred to enforce the terms of this Agreement and/or recover damages for any breaches thereof, including without limitation reasonable attorneys’ fees.

 

Section 10. Representations and Warranties.

 

  (a) Executive represents and warrants as follows that: (i) Executive has no obligations, legal or otherwise, inconsistent with the terms of this Agreement or with the Executive’s undertaking a relationship with the Company; and (ii) Executive has not entered into, nor will Executive enter into, any agreement (whether oral or written) in conflict with this Agreement.
     
  (b) The Company represents and warrants to the Executive that this Agreement and the Restricted Shares grant have been duly authorized by the Company’s Board of Directors and are the valid and binding obligations of the Company, enforceable in accordance with their respective terms.

 

 

 

 

Section 11. Miscellaneous.

 

  (a) Entire Agreement. This Agreement, the exhibits attached hereto, and the Restricted Shares granted concurrently herewith under Section 4(a) hereof, contain the entire understanding of the parties and supersede all previous contracts, arrangements or understandings, express or implied, between the Executive and the Company with respect to the subject matter hereof or his engagement by the Company as Chief Financial Officer. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement or in the attached exhibits.
     
  (b) Section Headings. The section headings herein are for the purpose of convenience only and are not intended to define or limit the contents of any section.
     
  (c) Severability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, the remainder of this Agreement shall be deemed the same.
     
  (d) No Oral Modification; Waiver or Discharge. No provisions of this Agreement may be modified, waived or discharged orally, but only by a waiver, modification or discharge in writing signed by the Executive and such officer as may be designated by the Board of Directors of the Company to execute such a waiver, modification or discharge. No waiver by either party hereto at any time of any breach by the other party hereto of, or failure to be in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time.
     
  (e) Invalid Provisions. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement.
     
  (f) Execution In Counterparts. The parties may sign this Agreement in counterparts, all of which shall be considered one and the same instrument. Facsimile transmissions, or electronic transmissions in .pdf format, of any executed original document and/or retransmission of any executed facsimile or .pdf transmission shall be deemed to be the same as the delivery of an executed original of this Agreement.
     
  (g) Governing Law And Performance. This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the state of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the state of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the state of Delaware. Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the state of Delaware or of the United States of America for the State of Delaware. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of the aforesaid courts. The prevailing party shall be entitled to all applicable remedies, including but not limited to actual damages caused by breach and reasonable attorney’s fees and costs.

 

 

 

 

  (h) Successor and Assigns. This Agreement shall be binding on and inure to the benefit of the successors in interest of the parties, including, in the case of the Executive, the Executive’s heirs, executors and estate. The Executive may not assign Executive’s obligations under this Agreement. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers the assumption agreement described in this Section 11(h) or which becomes bound by the terms of this Agreement by operation of law.

 

  (i) Notices. Any notices or other communications provided for hereunder may be made by hand, by certified or registered mail, postage prepaid, return receipt requested, or by nationally recognized express courier services provided that the same are addressed to the party required to be notified at its address first written above, or such other address as may hereafter be established by a party by written notice to the other party. Notice shall be considered accomplished on the date delivered, three days after being mailed or one day after deposit with the express courier, as applicable.

 

Section 12. Section 409A.

 

  (a) It is intended that any compensation or benefits under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) provided under Treasury Regulations Sections 1.409A-1(b), and this Agreement will be construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A. For purposes of Section 409A, the Executive’s right to receive any installment payments under this Agreement shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. Severance benefits under Section 6(d) shall not commence until the Executive has a “separation from service” for purposes of Section 409A.
     
  (b) To the extent that any reimbursement of expenses or in-kind benefits constitutes deferred compensation under Section 409A, such reimbursement or benefit shall be provided no later than December 31 of the year following the year in which the expense was incurred. The amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year. The amount of any in-kind benefits provided in one year shall not affect the amount of in-kind benefits provided in any other year.
     
  (c) If the Executive is deemed at the time of his separation from service to be a specified employee for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the compensation and benefits to which the Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of the Executive’s termination benefits shall be provided to the Executive immediately after the earlier of (A) the expiration of the six-month period measured from the date of the Executive’s separation from service with the Company (as such term is defined in the Treasury Regulations issued under Section 409A of the Code) or (B) the date of the Executive’s death in a lump sum, and any remaining payments due under the Agreement shall be paid as otherwise provided herein.

 

Section 13. Limitation of Payments upon Certain Events.

 

  (a) Limitation on Payments. Notwithstanding anything in this Agreement to the contrary, if any payment or distribution Executive would receive pursuant to this Agreement or otherwise (“Payment”) would (a) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Company shall cause to be determined, before any amounts of the Payment are paid to Executive, which of the following alternative forms of payment would maximize Executive’s after-tax proceeds: (i) payment in full of the entire amount of the Payment (a “Full Payment”), or (ii) payment of only a part of the Payment so that Executive receives that largest Payment possible without being subject to the Excise Tax (a “Reduced Payment”), whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax (all computed at the highest marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in Executive’s receipt, on an after-tax basis, of the greater amount of the Payment, notwithstanding that all or some portion the Payment may be subject to the Excise Tax.

 

  (b) The independent registered public accounting firm engaged by the Company for general audit purposes as of the day prior to the date the first Payment is due shall make all determinations required to be made under this Section 13. If the independent registered public accounting firm so engaged by the Company is serving as accountant or auditor for the individual, group or entity effecting the transaction, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such independent registered public accounting firm required to be made hereunder.
     
  (c) The independent registered public accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and Executive at such time as requested by the Company or Executive. If the independent registered public accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Payment, it shall furnish the Company and Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement under seal as of the date and year first above written.

 

Company:  
     
mPhase Technologies, Inc.  
     
     
By: Anshu Bhatnagar  
  Chief Executive Officer  
     
Executive:  
     
     
By: Angelia Hrytsyshyn  

 

 

 

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Anshu Bhatnagar, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of mPhase Technologies, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 22, 2021

 

/s/ Anshu Bhatnagar  
Anshu Bhatnagar  
Chief Executive Officer (Principal Executive, Financial and Accounting Officer)  

 

 

 

 

Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Anshu Bhatnagar, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of mPhase Technologies, Inc. on Form 10-Q for the period ended September 30, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of mPhase Technologies, Inc.

 

Date: November 22, 2021

 

  By: /s/ Anshu Bhatnagar
  Name: Anshu Bhatnagar
  Title: Chief Executive Officer (Principal Executive, Financial and Accounting Officer)