UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K, Amendment No. 1
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE YEAR
ENDED JUNE 30, 2014
COMMISSION FILE
NO. 000-30202
mPHASE
TECHNOLOGIES, INC.
(Name of issuer
in its charter)
NEW JERSEY |
|
22-2287503 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification Number) |
|
|
|
587 CONNECTICUT AVE., NORWALK, |
|
CT 06854-1711 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant's
telephone number, including area code: (203) 838-2741
SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON
STOCK, $.001 PAR VALUE
(Title of Class)
Indicate by
check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
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 shorter period that the registrant was required to file such report), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x
No o
Indicate by
check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or such shorter period that the registrant was required to submit and post such files).
Yes o
No o
Indicate
by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendments to the Form 10-K. o
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
|
Non-accelerated filer x |
Smaller reporting company x |
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)
Yes o No x
As of June
30, 2014, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $7,152,000
based upon the closing sale price as of that date. As of August 26,, 2014, there were 13,884,394,594 shares of common stock, $.001
par value, outstanding.
Documents Incorporated by Reference
None.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR
ENDED JUNE 30, 2012
TABLE OF
CONTENTS
Explanatory Note
This Form 10-K/A (Amendment No.1)
to the annual report of mPhase Technologies Inc. (the “Company”) amends our Annual report for June 30, 2014, which
was originally filed on September 29, 2014.The report in the initial filing was prior to the formal approval for the release of
the Report by our Independent Registered Public Accounting Firm.
In addition,
the Company is also concurrently filing certain reclassifications with expanded and revised disclosure in this amendment No. 1
to Form 10K/A for the fiscal year ended June 30, 2014, in both;
| (a.) | The Management’s Discussion
and Analysis section, which begins on page 49; and |
| (b.) | The Consolidated Financial
Statements and the corresponding Footnotes to the Consolidated Financial Statements,
which begin on page 71. |
The Company hereby amends and replaces
the Form 10-K for June 30, 2014 in its entirety. The reclassified financial statement items had no effect on Net Loss for the
Year, Total Stockholders’ Deficit or Total Assets for the fiscal year ended June 30, 2014.
In addition, pursuant to Rule 12b-15
under the Securities Exchange Act of 1934, the Amendment includes new certifications of our principal executive officer and principal
financial officer on Exhibits 31.1 and 31.2, each as of the filing date of the Amendment.
PART I
FORWARD-LOOKING
STATEMENTS
This report
contains "forward-looking statements." In some cases, you can identify forward-looking statements by terms such as "may,"
"intend," "might," "will," "should," "could," "would," "expect,"
"believe," "estimate," "predict," "potential," or the negative of these terms and similar
expressions intended to identify forward-looking statements. These statements reflect the Company's current views with respect
to future events and are based on assumptions and subject to risks and uncertainties. The Company discusses many of these risks
and uncertainties in greater detail in Part I, Item 1A of this 10-K under the heading "Risk Factors." These risks and
uncertainties may cause the Company's actual results, performance, or achievements to be materially different from any future results,
performance, or achievements expressed or implied by the forward-looking statements. You should not place undue reliance on these
forward-looking statements. Also, these forward-looking statements represent the Company's estimates and assumptions as of the
date of this report. The Company is under no duty to update any of the forward-looking statements after the date of this report
to conform such statements to actual results or to changes in our expectations.
The following
discussion should be read in conjunction with mPhase Technologies' financial statements and related notes included elsewhere in
this report.
ITEM
1. BUSINESS
General
Description of the Business
mPhase Technologies,
Inc. is a publicly-held New Jersey corporation founded in 1996. The Company has approximately 23,000 shareholders and approximately
13 billion shares of common stock outstanding as of June 30, 2013. The Company's common stock is traded on the Over the
Counter Bulletin Board under the ticker symbol XDSL. The Company has offices in East Rutherford, New Jersey as well as Norwalk,
Connecticut.
mPhase is a
development-stage company specializing in developing “smart surfaces” using materials science engineering, nanotechnology
science and the principles of microfluidics and microelectromechanical systems (MEMS). The Company develops products for both commercial
and military applications. The Company's flagship product is its Smart NanoBattery providing Power On Command™. The new patent
pending and patented battery technology, based on the phenomenon of electrowetting, offers a unique way to store energy and manage
power. Features of the Smart NanoBattery include potentially infinite shelf life, environmentally friendly design, fast ramp to
power, programmable control, and direct integration with microelectronic devices. The platform technology behind the Smart NanoBattery
is a porous nanostructured material used to repel and precisely control the flow of liquids. The material has a Smart Surface that
can potentially be designed for other innovative products such as medical devices including heart pacemakers and pumping devices.
mPhase has
completed a Phase I and Phase II Small Business Technology Transfer Program (STTR) grant, part of the Small Business
Innovation Research (SBIR) program, with the U.S. Army for continued development of a reserve Smart NanoBattery for a critical
computer memory application. Such reserve battery can be activated by an electronic pulse. The Army has also successfully tested
the Smart NanoBattery as an energy source activated by g forces to provide energy for a guidance system for small munitions.
In a separate
effort, mPhase has also developed, through mPower Technologies, Inc, a wholly-owned subsidiary, a series of automotive products.
The mPower Jump is a small sized, very light weight battery jump starter designed to fit in the glove compartment of most A smaller
version called the mPower Mini-Jump can be used to start dead batteries in small cars as well as by small boats, jet skis, motor
cycles., cell phones and small electronic products.
Description
of Operations
Microfluidics,
MEMS, and Nanotechnology
In February
of 2004, mPhase entered the business of materials science engineering developing new products based on materials whose
properties and behavior are controlled at the micrometer and nanometer scales. (For reference, a micrometer or micron is equal
one millionth (10-6) of a meter and a nanometer is one billionth (10-9) of a meter – the scale of atoms and molecules. A
human hair is approximately 50 microns in diameter, or 50,000 nanometers thick.)
The Company
has expertise and capabilities in microfluidics, microelectromechanical systems (MEMS), and nanotechnology. Microfluidics refers
to the behavior, precise control and manipulation of fluids that are geometrically constrained to a small, typically micrometer
scale. MEMS is the integration of mechanical elements, sensors, actuators, and electronics on a common silicon substrate through
microfabrication technology. Nanotechnology is the creation of functional materials, devices and systems through control of matter
(atoms and molecules) on the nanometer length scale (1-100 nanometers), and exploitation of novel phenomena and properties (physical,
chemical, biological, mechanical, electrical) at that length scale.
In its Smart
NanoBattery, mPhase exploits the physical phenomenon of electrowetting by which a voltage is used to change the wetting properties
of a liquid/solid interface at the nanometer scale. . Through electrowetting, mPhase can change a surface from what is referred
to as a hydrophobic ("liquid repelling") state to a hydrophilic ("liquid attracting") state. In the hydrophobic
state, the liquid beads up or is repelled by the surface. In the hydrophilic state, the liquid spreads out or is absorbed by the
surface. The ability to electronically control the wetting characteristics of a surface at the nanometer scale is the core of mPhase's
nanotechnology operations and intellectual property portfolio.
In the Smart
NanoBattery application, mPhase uses electrowetting as a new technique to activate or literally "turn on" a battery once
it is ready to be used for the first time. At the heart of the Smart NanoBattery is a porous, nanostructured superhydrophic or
superlyophobic membrane designed and fabricated by mPhase. The so-called superhydrophobic membrane applies to water and the superlyophobic
membrane applies to nonaqueous or organic liquids such as ethanol or mineral oil. The difference between the two membrane types
lies in the nanoscale architecture at the surface. By virtue of its superhydrophobic or superlyophobic character, the membrane,
although porous, is able to physically separate the liquid electrolyte from the solid electrodes so that the battery remains dormant
or inactive, thus providing no voltage, or current until called upon.
This electrolyte-electrode
separation gives the battery the feature of potentially unlimited shelf life and the benefit of being always ready when needed,
which is not necessarily the case for conventional batteries. Electrowetting alters the liquid/membrane interface so that the
liquid is now able to flow over the membrane's surface and rapidly move through the pores where it is able to contact the solid
electrode materials located on the other side of the membrane. mPhase uses MEMS, to precisely control the machining of silicon-based
materials at the micrometer and nanometer scales. This ability has led to the Company's proprietary membrane design that controls
the wetting and movement of liquids on a solid surface. mPhase uses microfluidics to control the flow of liquid electrolyte through
the porous membrane and is also the basis for other possible applications such as self-cleaning surfaces, filtration and separation
and liquid delivery systems.
History
of Nanotechnology Operations
Smart NanoBattery
mPhase Technologies,
along with Bell Labs, jointly conducted research from February 2004 through April of 2007 that demonstrated control and manipulation
of fluids on superhydrophobic and superlyophobic surfaces to create a new type of battery or energy storage device with power management
features obtained by controlling the wetting behavior of a liquid electrolyte on a solid surface. The scientific research conducted
set the ground work for continued development of the Smart NanoBattery and forms a path to commercialization of the technology
for a broad range of market opportunities. The Company began its efforts by entering into a $1.2 million 12 month Development Agreement
in February of 2004 with the Bell Labs division of Alcatel/Lucent for exploratory research of control and manipulation of fluids
on superhydrophobic surfaces to create power cells ( batteries) by controlling wetting behavior of an electrolyte on nanostructured
electrode surfaces. The goal was to develop a major breakthrough in battery technology creating batteries with longer shelf lives
as the result of no direct electrode contact (meaning no power drain prior to activation). During 2005 and 2006, the battery team
tested modifications and enhancements to the internal design of the battery to optimize its power and energy density characteristics,
as well as making engineering improvements that were essential in moving the battery from a zinc-based chemistry to a commercial
lithium-based chemistry that can be manufactured on a large scale. The Company extended its development effort twice for an additional
2 year period ending in March of 2007 and for two additional periods thereafter through July 31, 2007. During this time, the technical
focus shifted from trying to separate the liquid electrolyte from nanostructured electrodes to developing a nanostructured membrane
that could physically separate the liquid electrolyte from the solid electrodes.
mPhase also
began working with the Rutgers University Energy Storage Research Group (ESRG) in July of 2005 to conduct contract research in
advanced battery chemistries involving lithium. This work involved characterizing and testing materials that could be used in the
mPhase battery. In July of 2007, the relationship shifted to a collaboration focused on developing a memory backup battery needed
by the U.S. Army. The work was funded through a Phase I Small Business Technology Transfer Program (STTR) grant.
The Company
decided in September of 2007 to transfer its development work out of Bell Labs (Alcatel/Lucent) in order to accelerate and broaden
its nanotechnology product commercialization efforts. Bell Labs had engaged in its battery research and development for the Company
for zinc-based batteries and was limited since it did not have facilities capable of handling lithium chemistry. mPhase has continued
to work with Rutgers ESRG which has facilities capable of handling lithium based batteries and has also engaged in work with foundries
and other companies to supply essential components, fabricate prototypes, and plan manufacturing approaches. These companies include
Silex, a well-respected silicon foundry in Sweden, and Eagle Picher, a well-known battery designer and manufacturer that focuses
on high-end batteries for military applications located in Joplin, Missouri.
In February
of 2008, the Company announced that a prototype of its Smart NanoBattery was successfully deployed in a gun-fired test at the Aberdeen
Proving Ground at Maryland. The test was conducted by the U.S. Army Armament Research and Development and Engineering Center (ARDEC)
of Picatinny, New Jersey. The battery not only survived the harsh conditions of deployment at a gravitational force in excess of
45,000 g, but was also flawlessly activated in the process.
In March of
2008, mPhase announced that it had been invited to submit a proposal for a Phase II STTR grant based upon the successful work it
had performed on the Phase I grant to develop a version of the Smart NanoBattery referred to as the multi-cell, micro-array reserve
battery for a critical memory backup application. The Phase II grant in the gross amount of $750,000 (net $500,000) was granted
to the Company in the middle of September of 2008. In March of 2008, the Company also announced the successful transfer to a commercial
foundry of certain processes critical to the manufacturing of its Smart NanoBattery. This will enable fabrication of the porous
membranes for the multi-cell, micro-array reserve battery mentioned above. The Company successfully manufactured nanostructured
membranes at the foundry that are essential to commercial production of the battery. By achieving a series of delayed activations,
the shelf-life and continuous run-time of such battery is increased to a period of time in excess of twenty years. In April of
2008, the Company announced that it had successfully activated it first Smart NanoBattery prototype by electrowetting using a hard-wired
configuration and a remotely-activated device. Remote activation plays a key role in providing power to wireless sensors systems
and radio frequency identification tags.
Also, in April
of 2008, the Company announced that it had successfully produced its first lithium-based reserve battery with a soft or pouch package
and breakable separator (in place of the electrowettable membrane) that relies on mechanical rather than electrical activation
to provide Power On Command™. The Company believes this to have been a significant milestone in moving from a low energy
density zinc-based battery to a higher energy density lithium-based battery towards proving that this mechanically-activated reserve
battery would become economically and commercially viable.
In fiscal
years ended June 30, 2009 and June 30, 2010, the Company focused upon further development of its Smart Nano Battery under a Phase
II STTR grant from the U.S. Army as a potential reserve battery for a back-up computer memory application for a weapons system.
The Company has recently completed such Phase II Army grant. On November 12, of 2010, the Company announced that it had successfully
triggered and activated its first functional multi-cell smart nano battery. Triggering and activation of the cells of the battery
were achieved by using the technique of electrowetting or programmable triggering. Triggering was accomplished by applying a pulse
of electrical energy to a porous, smart surface membrane located inside each cell in the battery causing the electrolyte to come
in contact with the cell’s electrodes, creating the chemical reaction to produce voltage inside of the multi-cell battery.
The multi-cell battery consists of a matrix of 12 individual cells populated with an electrode stack consisting of lithium and
carbon monofluoride materials with each rated at 3.0 volts. Using a custom designed circuit board for testing, each of the cells
in the battery were independently triggered and activated without affecting any of the non-activated cells in the multi-cell configuration.
Each cell in the battery has a very long shelf-life prior to triggering.
On February
9, 2011, the Company announced that it had signed a 3 year Cooperative Research and Development Agreement (CRADA) with the U.S.
Army Armament Research, Development, and Engineering Center (ARDEC) at Picatinny, New Jersey, to continue to cooperatively test
and evaluate the mPhase Smart NanoBattery, including new design features functionally appropriate for DoD based systems requiring
portable power sources. The army researchers are evaluating the prototypes using the Army’s testing facilities at Picatinny
Arsenal in New Jersey in order to determine applicability of the technology to gun fired munitions and potentially to incorporate
the technologies into research and development and other programs sponsored by Picatinny. The Research Agreement is supported by
the Fuze & Precision Armaments Technology Directorate.
During fiscal
year ended June 30, 2011, the Company completed work on its Phase II STTR grant for the U.S. army for a nano-reserve battery for
a back-up computer memory application. In addition the Company engaged First Principals, Inc to perform an evaluation or each of
its patents in order to identify a strategic partner whose products line will need the Company’s SmartNanoBattery as a compelling
solution.
On March 6,
2012, the Company announced that it is exploring the printing of its Smart NanoBattery on graphene and other new advanced materials.
Graphene is a very strong material that has been described as the most conductive material known, making it a vast improvement
over silicon. Graphene has the potential to lead to faster, cheaper and more flexible devices including power sources.
On August 16,
2012, the Company announced that it had received a notice of allowance for a patent from the U.S. patent office for a reserve battery
utility patent. The techniques described in the patent are for creating a battery system that is easily activated via a low energy
mechanical force, thus allowing the reserve battery to be used in a wide variety of consumer related and non-consumer related electrical
devices. The invention generally relates to a reserve battery, which includes a battery case having an electrolyte compartment
at a first end and an electrode compartment at a second end, a first terminal having an external button connected to the case at
the first end, and a second terminal connected to the case at the second end. A movable ampoule is movably positioned within the
electrolyte compartment. A bias member is located within the case between the external button and the ampoule, and a porous cutter
is positioned within the case between the electrodes and the ampoule and supported by an inverted U-shaped support structure. When
an external force is applied to the external button, the bias member transfers an internal force to the ampoule to cause the ampoule
to engage the cutter and allow the electrolyte to release thus activating the battery.
On August 23,
2012, the Company announced that, subject to the availability of sufficient funding, it will engage in further development
of its SmartNanoBattery to make it rechargeable.
On September
13, 2012, the Company announced that it had received a notice of allowance of a new patent from the
U.S. patent office for a modular device. The invention generally relates to a handheld, powered device containing at least one
power module having at least one battery, wherein the power module is removable and separately connects to each of the load modules.
The patent covers a modular device for providing multiple modular components that may be interchanged as desired. A system
for providing a modular device for use in emergency or everyday applications and having a plurality of modular components that are
interchangeable with one another depending on the particular desired use.
On October
26, 2012, the Company announced the development of a prototype of a new product “the mPower Jump” designed by Porsche
Design Studio and Porsche Engineering as an automatic jump starter for a dead car battery. The device is portable, light in weight
and small in size designed to fit in the glove compartment of most cars.
On January
24, 2013, the Company announced that it had received a notice of allowance from the U.S. patent office of a patent covering a
device for fluid spreading and transport. The invention relates to a single porous substrate formed from a network
of filaments wherein the network of filaments is comprised of a first plurality of filaments and a second plurality of filaments
is exposed to a surface modification treatment and the second plurality of filaments is covered with a conformal coating. A wetting
region comprised of the first plurality of filaments extends through a first portion of the porous substrate and is permeable
to fluid transport and a non-wetting region comprised of the second plurality of filaments which is operable to switch between
a wetting and non-wetting state by an electrical source coupled to the second plurality of filaments.The invention protects a
porous substrate with integrated wetting and non-wetting regions and is a key patent win for the Company relative to the protection
of its intellectual property in the area of microfluid dynamics.
On January
30, 2013, the Company announced that it had received a patent from the U.S. patent office for a reserve battery
system. The invention patented generally relates to a battery system that is easily activated via low mechanical force thus allowing
a reserve battery to be used in a wide variety of consumer related and non-consumer related electrical devices.
On February
12, 2013, the Company announced that it has filed a United States Letter Patent application for a novel drug delivery
system based on its Smart Surface technology.The drug delivery patent is based on mPhase's Smart Surface technology electronically
or manually enabling the precise control of a fluid on a nano-structured surface.The drug delivery system generally relates to
a drug delivery system for automatically dispensing a pre set dosage of a drug agent or medication.
On June 18,
2013, the Company announced that it had received the Frost & Sullivan award for its Innovative nano battery technology. Frost
& Sullivan noted that the smart nanobattery is sustainable, cost-effective, easy to handle, and possesses a long shelf life,
all of which clearly differentiate it from competing battery technologies. Frost & Sullivan further noted that this positions
the technology to enhance the effectiveness of conventional batteries and encourage widespread use of reserve batteries.
On March 27,
2014 the Company entered into a three year renewal of the Cooperative Research and Development Agreement (CRADA) with the United
States Army Armament Reseach, Development and Engineering Center at Picatinny Arsenal of February of 2011. This agreement provides
for further joint research and development of the Smart Nanobattery as an energy source for small munitions. The Company is seeking
funding for this research from
Emergency
Flashlight
On December
5, 2008, mPhase Technologies, Inc. signed a contract with Porsche Design Gesellschaft m.b.H., Flugplatzstrasse 29, A,S700 Zell
am see, Austria ("Porsche Design Studio"), to design a premium emergency flashlight (the mPower Emergency Illuminator).
A pilot program that began in March of 2010 has resulted in the sale of approximately 84 emergency flashlights. The flashlight
sold in the pilot program contained mPhase’s proprietary mechanically-activated lithium reserve battery. The battery contains
a breakable barrier that separates the solid electrodes from the liquid electrolyte until the battery is manually activated. Unlike
traditional batteries, the mPhase battery remains in an inert state with no leakage or self-discharge until activation. The mPhase
battery is designed to have an almost infinite shelf life making it ideal for emergency lighting applications. The premium flashlight
will be marketed as an accessory for automobile roadside emergency kits.
The reserve
battery is a manually activated lithium cell designed to provide Power On Command and was originally designed by Eagle Picher Technologies.
The battery remains dormant until “turned on” by the user. It is built to the highest standards with a minimum storage
life of 20 years. Once activated, the reserve battery is expected to deliver the electrical performance of a standard primary CR123
battery used in many portable electronic applications today.
Owing to cost
considerations, the Company has decided to utilize a cost reduced active-reserve battery in its current version of its emergency
flashlight product for potential sales after the pilot program. Such active reserve battery also has a very long shelf life and
enables the Company to significantly reduce the selling price of the Emergency Flashlight. In March 2011, the Company received
an initial order from Porsche Design Group in Germany for mPhase's Porsche design branded mPower Emergency illuminators to be sold
in Porsche Design stores in Germany, Great Britain and the United States and it began shipments of the Emergency Illuminators in
April of 2011. The Company has suspended further development and marketing of this product unit funds become available to do a
major redesigned cost-reduction of the product for a higher volume non-luxury market.
mPower Junp
During fiscal
year ended June 30, 2014 the Company successfully cost-reduced and began sales of the mPower Jump product as well as the mPower
mini Jump product. The mPower Jump is a rechargeable, compact device designed to jump start a dead battery in an automobile.
The mPhase Jump is rechargeable in a significantly shorter period of time than other jump starters and has a much smaller footprint
enabling it to fit in the glove compartment in most cars. The mPower mini Jump is a smaller version of the product
which is about the size of a smart phone that is a multipurpose charger of batteries. It is designed to start dead batteries recreational
toys such as all terrain vehcles, snowmobiles, notorcycles and jet skis-even a full size car. It is versatile enough to also start
small electronic devices including cell phones. Company views these two products as core strategic products.
The Company
is developing a Jump Plus that wil be a very powerful version of the Jump product line that will be powerful enough to jumpstart
large recreational vehicles, large busses , boats and trucks as well as arcicultural equipment. The product is currently in the
prototype stage of development and, subject to financial resources of the company, is planned to be introduced to the market in
fiscal year 2015.
DISCONTINUED
BUSINESS-Internet Protocol Television (IPTV)
Historically,
the Company, since its inception, had focused upon developing innovative solutions for the delivery of Broadcast Television as
part of a "triple play" of services that would include voice and high-speed internet for telephone service providers
globally. The Company, however,was not been able to derive any significant revenue from its TV+ solution and no active development
of the product has occurred since fiscal year 2007. The Company determined to discontinue this line of business and all inventory
has been written off. During the fourth quarter of the fiscal year ended June 30, 2010, the Company formally elected, for financial
reporting purposes to treat its IPTV product line as a discontinued business. The Company is also no longer continuing any work
on this product and is treating it as a discontinued product.
Nanotechnology
Products
Platform
Technology
The surface
is an important part of virtually every physical object and often plays an overriding role in many processes, beyond mere connectivity
and structural support, but more deeply into areas involving chemical and biological interactions. In some instances, the surface
provides an easy entry into the chemical or biological systems; in others it protects the internal elements of the object, surrounded
by the surfaces.
mPhase's current
flagship platform technology is the Smart Surface. By being able to control the surface properties of materials down
to the nanometer scale, new and improved devices can be designed and built that may lead to compelling business opportunities.
One type of smart surface of particular interest allows properties to be changed in response to an external stimulus.
Initially,
mPhase's development focused on Micro Electronic Mechanic Systems (MEMS) devices by manipulating the surface of silicon materials
– the same material used to make microelectronic materials and devices. Using physical and chemical processes, the surface
of the silicon is modified to make solid porous structures known as membranes. This is where microfluidics comes into play. These
membranes can be used to selectively control the flow of liquids through the pores or openings at the micrometer length scale.
Surfaces may
be characterized as hydrophilic or hydrophobic depending on whether or not they attract or repel
water (or other liquids). A hydrophilic surface can be wet and adsorbs water. A hydrophobic surface, on the other hand, cannot
be wet. Hydrophilic and hydrophobic surfaces are abundant in nature and in synthetic materials, both organic and inorganic in chemical
composition. A familiar example of a hydrophilic surface is a sponge that readily soaks up water. By contrast, many plant leaves
and flower petals are hydrophobic, as are insect parts and bird feathers. Synthetic hydrophobic surfaces include Scotchgard™
treated fabric, Teflon® coated metal, or Rain-X® coated glass. On a hydrophobic surface, water beads up and can move around
without being absorbed by the solid material that it is resting on.
So-called superhydrophobic surfaces
are also found in nature and can now be replicated in the lab. The lotus leaf and rose petal, for example, exhibit superhydrophobicity.
Here water droplets form almost perfect spheres with hardly any contact with the underlying solid surface. This makes the liquid
even easier to move and manipulate.
The synthesis
of superhydrophobic surfaces has recently been made possible by advances in nanotechnology and mPhase is leading the way to better
understand and create materials and devices incorporating these unique surface properties.
As mPhase's
research and development efforts evolve, in addition to silicon materials, the ability to control the surface properties of materials
can be extended to other substances such as polymers, ceramics, metals, and fibers, as examples, providing opportunities for our
platform technology to be used in a range of potential applications such as energy storage and power management for portable electronics
and microelectronics, self-cleaning surfaces, filters for water purification or desalination systems, materials for environmental
remediation that separate liquids or solvents, and other situations where the control of the interaction of a solid surface exposed
to a liquid is vitally important.
Smart NanoBattery
Battery technology
has changed little in its fundamentals over the past 150 years. As a result, ordinary batteries begin dissipating energy as soon
as they are assembled and therefore have limited shelf life. Chemistries are fixed inside the package so the user cannot interact
with the contents to program functionality. The size and form of batteries have not kept pace with the miniaturization of electrical
components, microprocessors and integrated circuits. As a result, the optimal implementation of an electronic device is not always
achieved. Some batteries contain chemicals that are not considered safe or environmentally friendly ("green"). This makes
disposal a potential issue.
mPhase is challenging
this convention by using their proprietary superhydrophobic porous silicon membrane technology as the basis to build the Smart
NanoBattery providing Power On Command™.
Superhydrophobicity
initially keeps the liquid electrolyte physically separated from the solid electrodes of the battery, thus preventing the chemical
reactions from occurring that cause the battery to provide power. This gives the Smart NanoBattery the benefit of potentially infinite
shelf life.
A conventional
battery loses some capacity while sitting on the shelf in its package or stored in an electronic or electrical device, even before
being used for the first time. On the other hand, the Smart NanoBattery is built so that it is inactive and remains that way indefinitely
until it is turned on. No power is lost to self-discharge or leakage current prior to activation. When needed, the Smart NanoBattery
can be activated on command via the phenomenon of electrowetting. The surface properties of the porous silicon membrane are selectively
controlled to shift instantly from a superhydrophobic to hydrophilic state. In other words, electrowetting acts as the triggering
mechanism.
mPhase has
successfully fabricated and demonstrated its first 3-volt lithium-based Smart NanoBattery, based on a design allowing either manual
or remote activation by the user, the feature known as Power on Command™.
By incorporating
the phenomenon of electrowetting on nanostructured surfaces into a revolutionary way of storing energy, the Smart NanoBattery
provides power to portable electronic and microelectronic devices exactly when and where it is needed. It is an alternative and
an augmentation to conventional batteries, still converting stored chemical energy into usable electrical energy, but in a way
that is potentially more reliable, more versatile, more environmentally friendly, and less expensive than the industry norm.
Applications
mPhase is exploring
military and commercial applications of smart surfaces in which the properties can be accurately and precisely controlled down
to the nanometer scale. Electrowetting allows the switching from a hydrophobic to hydrophilic state as a result of an electronic
stimulus.
The Smart NanoBattery,
mPhase's first smart surface product, has a unique architecture that enables a shelf life of decades, remote activation, programmable
control, scalable manufacturing, and adaptability to multiple configurations. The value proposition to the end user is to have
a source of energy or power that is literally always ready - reliable, convenient, low cost - a battery guaranteed to work at full
capacity when and where you need it.
The Smart NanoBattery
can conceivably supply power "on command" to a wide variety of portable electronic and microelectronic devices
used in military, medical, industrial, and consumer applications.
mPhase has
demonstrated that the battery works in lab tests as well as in a significant field test conducted for the U.S. Army as part of
a guided munitions project. The relationship with the Army also included an $850,000 funded project to develop a battery for a
mission critical computer memory backup application. The target was a small footprint, 3-volt lithium battery with a minimum shelf
life of 20 years and uninterruptible power output during this time period. No other battery technology available today can deliver
the long-term performance requirements specified by the U.S. Army for this application.
The Smart NanoBattery
can potentially be designed to accommodate a variety of sophisticated portable electronic and microelectronic devices including
next-generation cell phones, handheld gaming devices, wireless sensor systems, radio frequency identification tags, high-tech flashlights
and beacons, health alert alarms, and non-implantable and implantable medical devices such as pacemakers.
Initial applications
will address the need to supply emergency and backup power to a range of products for defense and security, with future applications
in the commercial and consumer arenas.
Strategic
Alliances
The Company
has been in active discussions with Picatinny Arsenal, Picatinny, New Jersey to jointly obtain federal funding under SBIR grants
to develop additional new products for military small munitions applications. The Company has a strong historic cooperative relationship
for product development and testing. The Company continues to seek opportunities with various potential academic partners
to obtain further STTR grants for new product research and development.
In 2007 the
Company entered into a Cooperative Research and Development Agreement (“CRADA”) with Picatinny Arsenal to test the
single cell version of the Smart NanoBattery suitable for future research and development programs for projectile launched munitions.
From 2007 through the first quarter of calendar year 2010, numerous internal laboratory air gun simulation tests were performed,
including a live-air gun and live gun fired test at the United States Army’s facility at Aberdeen Proving Grounds, Aberdeen,
Maryland. A prototype of the Smart NanoBattery was the subject of a live fire test as part of a projectile fired out of an Abrams
Tank. The results of the test indicated that the battery was activated by 10,000 G forces indicating that it could supply energy
necessary to operate a guidance system for small munitions. In addition, the Smart NanoBattery demonstrated extreme resiliency
to shock and acceleration since, it survived tests that subjected it to high acceleration of over 30,000 G forces.
On February
9, 2011, the Company announced that it had signed a 3 year CRADA with the U.S. Army Armament Research, Development, and Engineering
Center (ARDEC) at Picatinny, New Jersey, to continue to cooperatively test and evaluate the mPhase Smart NanoBattery, including
new design features functionally appropriate for DoD based systems requiring portable power sources. The army researchers are
evaluating the prototypes using the Army’s testing facilities at Picatinny Arsenal in New Jersey in order to determine applicability
of the technology to gun fired munitions and potentially to incorporate the technologies into research and development and other
programs sponsored by Picatinny. The Research Agreement is supported by the Fuze & Precision Armaments Technology Directorate.
In order for significant further research and development to be performed with respect to the Smart Nano Battery the Company will
have to be successful in obtaining additional congressional funding specifically designated for this type of battery. This CRADA
was renewed on March 27, 2014 for an additional three year period by the Army.
BUSINESS OF THE COMPANY
Business
Development, Organization, and Acquisition Activities
mPhase was
incorporated in New Jersey in 1979 under the name Tecma Laboratory, Inc. In 1987, the Company changed its name to Tecma Laboratories,
Inc. As Tecma Laboratories, Inc., the Company was primarily engaged in the research, development and exploration of products in
the skin care field. On February 17, 1997, the Company acquired Lightpaths, Inc., a Delaware corporation, which was engaged in
the development of telecommunications products incorporating DSL technology, and the Company changed its name to Lightpaths TP
Technologies, Inc.
On January
29, 1997, the Company formed another wholly-owned subsidiary called TLI Industries, Inc. The shares of TLI were spun off to its
stockholders on March 31, 1997 after the Company transferred the assets and liabilities, including primarily fixed assets, patents
and shareholder loans related to the prior business of Tecma Laboratories. As a consequence of these transactions, the Company
became the holding company of its wholly-owned subsidiary, Lightpaths, Inc., on February 17, 1997.
On May 5, 1997,
the Company completed a reverse merger with Lightpaths TP Technologies, Inc. and thereafter changed its name to mPhase Technologies,
Inc. on June 2, 1997.
From June of
1997-December of 2007, the Company’s main business was the development and sale of telecommunication products and equipment
and middleware products for the delivery of television by telephone service providers. This business was formally discontinued
by the Company for financial reporting as of June 30, 2010.
Effective February
3, 2004, the Company entered into a Development Agreement with the Bell Laboratories division of Lucent Technologies, Inc. for
the development of micro power source arrays fabricated using nano textured super hydrophobic materials.
Effective March
5, 2005, the Company extended its Development Agreement with Bell Labs for an additional 12 months for the development of micro
power source arrays fabricated using nano textured super hydrophobic materials.
Effective March
10, 2005, the Company entered into a Development Agreement with Bell Labs for the development of a new generation of magnetic field
sensors using the science of nanotechnology.
In April of
2006, the Company renewed each of the nanotechnology Development Agreements will Bell Labs dated March 5, 2005 and March 10, 2005
respectively for an additional 12 months at the cost of $100,000 per month for each agreement.
On February
3, 2007, the Company entered into Amendment No. 4 to a Development Agreement effective February 3, 2004, with Lucent Technologies,
Inc. extending research and development through April 27, 2007, relating to micro-power source arrays fabricated using nano-textured
superhydrophobic materials.
On February
17, 2007, the Company extended a Cooperative Research Agreement through December 31, 2007, originally entered into on July 15,
2005, with Rutgers, The State University of New Jersey governing cooperative research on a lithium nanostructured reserve battery.
On April 28,
2007, the Company extended its Development Agreement with Lucent Technologies relating to micro-power source arrays fabricated
using nano-textured superhydrophobic materials originally entered into in February of 2004 with Amendment #5 through July 31, 2007.
On May 10,
2007, the Company entered into a Consulting Agreement with CT NanoBusiness Alliance to produce a report and assist the Company
with respect to its strategy for development and marketing of its nano power cell product.
On July 18,
2007, the Company announced the award of a Phase I US Army Small Business Technology Transfer (STTR) Program Grant. This award
was a Phase I six month research effort to develop a 30 plus year shelf life, low power, green battery (coin cell or similar) that
would continuously power a static random access memory circuit for a computer device. SRAM is a common type of digital memory chip
used in a wide variety of electronic systems for data storage. During the six month research period, the team was to characterize
the design, conduct capacity and stability measurements of a reserve style power cell based on Lithium chemistry. Long term stability
and shelf life is achieved by initially separating the active materials of the power cell during storage, and controlling the activation
of the cell until needed to provide power. This research program extended the design of the company's smart battery to support
the use of non-water based electrolytes that are commonly used in lithium based batteries. Lithium batteries are favored for powering
many different types of electronic devices due to their higher voltage and power requirements than can be supplied by more common
alkaline batteries.
The Phase
I grant, valued at $100,000, enabled the Company to competitively compete for a Phase II award as an avenue used by U.S. government
defense agencies to adopt advanced technology for commercialization and use. Rutgers University supported the Company and its
newly formed subsidiary, AlwaysReady, Inc., during the award period as a subcontractor under the award guidelines.
On October
19, 2007, the Company announced that in connection with the settlement and dismissal of a civil law suit originally filed on November
16, 2005 by the Securities and Exchange Commission in the Federal District Court in the District of Connecticut, the SEC issued
a Cease and Desist Order and certain remedial sanctions against two officers of mPhase Technologies, Inc. (the "Company").
The civil suit was filed against Packetport.com, Inc. a Nevada corporation, Microphase Corporation, a Connecticut corporation
that provides administrative services to the Company and shares common management with the Company, and others. The two officers
of the Company were Mr. Ronald A. Durando, President and Chief Executive Officer and Mr. Gustave T. Dotoli, the Chief Operating
Officer. The civil suit by the SEC named as respondents Mr. Durando, Mr. Dotoli and others in connection with their activities
as officers and directors of Packetport.com. The cease and desist order from the SEC found that (1) all parties had violated Section
5 of the Securities Act of 1933, as making unregistered offers or sales of Packetport.com common stock, (2) Mr. Durando and Mr.
Dotoli had violated Section 16(a) of the Securities Exchange Act of 1934, as amended, and Rule 16(a) thereunder by failing to
timely disclose the acquisition of their holdings on Form 3's, and (3) Mr. Durando had violated Section 13(d) of the Securities
Exchange Act of 1934, as amended, for failing to disclose the acquisition of more than five percent of the stock of Packetport.com.
Under the order Mr. Durando was required to disgorge $150,000 and Mr. Dotoli was required to disgorge $100,000. The Company was
not named as a party to the civil suit. More information regarding the detailed terms of the settlement can be found in SEC release
No 8858 dated October 18, 2007 promulgated under the Securities Act of 1933 and SEC Release No. 56672 dated October 18, 2007 promulgated
pursuant to the Securities Exchange Act of 1934. Mr. Durando and Mr. Dotoli have continued to serve as officers and directors
of the Company. Mr Durando and Mr. Dotoli together with Microphase corporation and others, without admitting or denying the findings
of the SEC, except as to jurisdiction and subject matter, have consented to the entry of the Order Instituting Cease and Desist
Proceedings, Making Findings and Imposing a Cease and Desist Order and Remedial Sanctions pursuant to Section 8A of the Securities
Exchange Act of 1933 and Section 21C of the Securities Exchange Act of 1934.
On February
20, 2008, the Company announced that a prototype of its smart reserve nanobattery was successfully deployed and activated by the
resulting g-force in a gun-fired test at the Aberdeen Proving Grounds in Maryland. The test was conducted by the U.S. Army Armament
Research, Development, and Engineering Center (ARDEC) of Picatinny New Jersey. In this test, the AlwaysReady battery delivered
power to the test load inside the standard military anti-tank round (M830A1 or HEAT-High Explosive Anti-Tank) and demonstrated
extreme resiliency, surviving the harsh environment as well as the high acceleration at a g-force in excess of 45,000 (one "g"
is equal to the pull of gravity at sea level). The gun-fired test was part of a prototype evaluation process that the U.S. Army
was conducting as part of its CRADA (Cooperative Research and Development Agreement). The Company's Engineers collaborated with
those at Picatinny involved in the development of precision guidance components to successfully package this reserve electrochemical
storage system to operate during the gun-firing and flight environment of a very high "g" round. The developmental qualification
work, prior to the live test firing, was performed using Picatinny's air gun test facilities by subjecting battery prototypes to
various launch accelerations and various design iterations. The test validated the performance of the AlwaysReady battery with
a current armament used by the Army. The Company stated that its goal was to potentially incorporate this battery technology into
smart, gun-fired munitions programs being developed by Picatinny.
On May 2, 2008,
the Company announced that it had produced its first lithium-based battery that can be manually activated by providing power on
command with a significantly longer shelf life prior to initial activation than those found in other batteries. The battery can
be activated by command wirelessly from a remote location by a radio frequency signal giving it added mobility for sensor and similar
applications.
On September
9, 2008, the Company announced that it had been awarded a Phase II Small Business Technology Transfer Program (STTR) grant, part
of the Small Business Innovation Research (SBIR) program, from the U.S. Army for continued development of a reserve Smart NanoBattery
for a critical computer memory application.
On September
17, 2008, the Company announced that its breakthrough research in microfluidics on understanding how micro- and nanostructured
surfaces could be engineered to have properties for repelling water and other types of liquids could potentially be used in consumer
applications to enable self-cleaning surfaces such as shower doors or windows and other materials used in self-cleaning systems.
On September
23, 2008, the Company announced that it had produced compact reserve lithium battery prototypes with a manually activated breakable
separator capable of powering a high-intensity emergency flashlight for more than two hours continuously at full brightness. The
work was done in conjunction with Eagle Picher, a respected battery design and development firm located in Joplin, Missouri. mPhase
stated that it was pursuing the concept of using a reserve battery with a breakable separator in a high-intensity emergency flashlight
either as the primary power supply or as a reliable source of backup power. Cylindrical and planar battery and flashlight designs
are possible. These flashlights may be equipped with either a krypton bulb or light emitting diode (LED), the choice depending
on the required brightness and runtime characteristics. A manually activated breakable separator technology has been created that
is analogous to that of the AlwaysReady Smart NanoBattery with the patented electrowettable membrane, both of which keep the liquid
electrolyte separate from the solid electrodes until the battery is actually needed. This provides a battery with potentially
infinite shelf-life that will not lose power while sitting on the shelf or in storage. Whereas the electrowettable membrane is
activated by applying a voltage at the interface between the liquid and membrane surface, the breakable separator is manually
activated through a well-defined physical force. The result in both cases is that the liquid electrolyte mixes with the solid
electrodes, thus releasing the stored energy and 3 volts of power when lithium chemistry is employed.
On December 5, 2008,
the Company announced that it had signed a contract with Porsche Design Gesellschaft m.b.H., Flugplatzstrasse 29, A,S700 Zell
am see, Austria ["Porsche Design Studio"], to design a premium version of the AlwaysReady emergency flashlight. The
flashlight was to use mPhase's proprietary lithium reserve battery. The battery contains a breakable barrier that separates the
solid electrodes from the liquid electrolyte until the battery is manually activated. Unlike traditional batteries, the mPhase
battery remains in an inert state with no leakage or self-discharge until activation. The mPhase battery was designed to have
an almost infinite shelf life making it ideal for emergency lighting applications. The premium flashlight was to be marketed as
an accessory for automobile roadside emergency kits.
On January
15, 2009, the Company announced that its Smart NanoBattery being developed pursuant to a Phase II Army Grant for a critical mission
computer backup reserve battery may also have wider application for unattended electronic ground sensors that provide mission critical
information for military operatives.
On January
29, 2009, the Company announced that it had contracted EaglePicher Technologies to manufacture the reserve battery for use in its
emergency flashlight. EaglePicher was selected for the project because of their experience in custom and standardized power solutions
for the extreme environments of aerospace and military applications as well as medical and commercial applications. This reserve
battery has been discontinued as a product owing to the significant cost to produce the product.
On March 18,
2009, the Company announced that it had received the first working model for the emergency flashlight from the Porsche Design Studio
in Zell am See, Austria, representing a major step forward as the Company prepared for the initial product launch.
On June 23,
2009, the Company announced that it had achieved a major milestone in the development of its Smart NanoBattery Technology. mPhase
reported that it had successfully manufactured a six-inch silicon-based wafer containing its key membrane (separator) technology.
This separator is responsible for keeping the Smart NanoBattery's chemicals separated until activated. The membrane's unique surface
and structure allows for control of a liquid on a nanostructured surface.
On August 5,
2009, the Company announced that it had completed the first functional prototype of its lithium reserve battery intended for use
in the Company's emergency flashlight. The prototype is the first time the mPhase battery technology had come together in a "ready
for production" prototype. The mPhase lithium reserve battery stores energy until it is literally "turned on." It
is manually activated by a unique triggering mechanism that rapidly releases and distributes the liquid electrolyte inside the
battery. The electrolyte immediately contacts the solid electrode materials to produce 3 volts. The reserve battery is designed
for backup power and emergency applications. With a shelf life of over 20 years, the mPhase lithium reserve battery allows the
emergency flashlight to function as a reliable emergency light source in countless situations.
On August 6,
2009, the Company announced that it had completed the first fully functional prototype of its emergency flashlight. A world renowned
automobile design firm created a sleek design to accompany the flashlight's unparalleled functionality. The new illuminator features
mPhase's first reserve battery that allows for backup power to be always ready through a simple activation method.
On August 27,
2009, the Company announced that its Phase II grant from the United States Army had been renewed for a second year.
On November 2, 2009, the Company
reported that it had been granted a United States patent for its concept for a battery that is safer for the environment in that
it is based on the idea of neutralizing the harmful chemistry inside the battery by dispensing a neutralizing agent or containment
polymer located inside the battery fixture and dispensed once the battery is depleted. This reduces the risk of potentially harmful
chemicals leaking through the battery container and polluting the ground or air after the battery has been discarded.
On March 9,
2010, the Company announced that its mPower On Command Reserve Battery had successfully met all United Nations/US Department of
Transportation safety standards and had received UN DOT certification for the safe transport of lithium-containing batteries.
Certification required successful passage of eight tests, altitude, thermal, vibration, shock, impact, overcharge, forced discharge,
and external short circuit.
On May 14, 2010, the Company announced that both its mPower Emergency Illuminator and the Power
On Command reserve battery technology passed a series of rigorous tests necessary to qualify for CE marking. The CE mark certifies
that a product has met European Union consumer safety requirements and allows both products to be sold in the European Economic
Area, which includes members and non-members of the European Union.
On June 14,
2010, the Company reported that it had been granted a United States patent for the concept of the porous membrane made from silicon
that is capable of controlling the flow of a wide range of liquids, including electrolytes, used in both primary and rechargeable
batteries. This is the concept used in the development of the Company’s Smart NanoBattery. The issued patent is jointly held
between the Company and Alcatel Lucent and is based on a prior cooperative research and development agreement between the two companies.
On July 31,
2010, the Company announced that its scalable smart reserve cell technology is one of the items included in the Fiscal Year 2011
Defense Appropriations Bill that was passed out of subcommittee by the U.S. House of Representatives to receive approximately $2,500,000
in federal funding. Such funding was never passed by the Senate and ultimately died in Congress.
On August 25,
2010, the Company announced that it signed a representative agreement with Tritech Lt. of Hod HaSharon, Israel, a leading stocking
representative and distributor of major manufacturers of electronic components serving the Military, Communication, Medical, Industrial
Control and Security Industries to promote the Company’s products exclusively in Israel.
On November
9, 2010, the Company announced that it has successfully assembled its first functional multi-cell Smart NanoBattery This was achieved
by bonding an electrolyte reservoir to mPhase's patented, porous, silicon based smart surface. The combined multi-cell reservoir
and honeycomb porous smart surface assembly is then bonded to a glass and silicon electrode assembly and populated with the electrode
stacks consisting of lithium and carbon monofluoride materials (Li/CFx). Fully assembled units are then filled with the electrolyte
and sealed, making them air tight. They are finally attached to special circuit boards for testing and characterization studies,
which will include triggering and activation of each of the independent battery cells via a technique called electrowetting, which
gives the mPhase reserve battery one of its key attributes -- programmable triggering. Because of the unique design of the multi-cell
battery, each cell in the battery has very long shelf until it is triggered. The development of the Smart NanoBattery has been
undertaken with funding support from a Phase II STTR Army award.
On November
10, 2010, the Company announced that it is developing a second new automotive product with a major European automobile manufacturer
that is based on advanced battery technology and that work on the first prototype of the product commenced. A feasibility study
was concluded and the product is expected to have broad appeal to both the OEM and aftermarket automobile industry
On November
11, 2010, the Company announced that it has completed the engineering and safety testing of a new Active Reserve Battery for its
award winning mPower Emergency Illuminator™. The new battery features a military- style housing with active Lithium-Manganese
Dioxide (Li-Mn02). The battery provides up to 20 years of shelf life under normal operating temperatures and replaces our first
Reserve Battery technology featured in the successful pilot run of the mPower Emergency Illuminator™. The new Active Reserve
Battery (illustration included) acts as a direct replacement for the Company’s first twist to activate Reserve Battery and
is available for sale on the mPower website for $29.99 USD. Included is the specification sheet for the new mPower On Command™
Active Reserve Battery.
mPower On Command™ Active
Reserve Battery Specifications
|
· |
Nickel Plated Steel Air Tight Cylindrical Can |
|
· |
Voltage Range 1.5V to 3.3V |
|
· |
Average Voltage 3V |
|
· |
Nominal Capacity 3.2 Ah @ 100mA to 2V @ 23 degrees C |
|
· |
Max discharge 1.5A continuous |
|
· |
Pulse Capacity up to 2.0A varies according to pulse characteristics, temperature, cell history and the application |
|
· |
Operating Temp -40 degrees C to 72 degrees C |
|
· |
Storage Temp -40 degrees C to 95 degrees C |
|
· |
Nominal dimensions of case: L 2.56" x D 0.730" (L 65mm x D 18.6mm) |
|
· |
Weight: 1.65 oz (41.3 grams) |
|
· |
Insulating Red Protective Cap |
|
· |
A hermetic glass to metal seal that ensures up to 20-year shelf life |
|
· |
Active Reserve Battery chemistry: Lithium-Manganese Dioxide (Li-Mn02) |
|
· |
Weight of metallic lithium in each battery: Approximately 1.10 grams of lithium |
Complies with
both US and EU safety regulations
On November
12, 2010, the Company reported that it had successfully triggered and activated its first functional multi-cell Smart NanoBattery,
achieved by applying a brief pulse of electrical energy to a porous, smart surface membrane, located inside each cell in the battery,
which caused the electrolyte to come in contact with the cell's electrodes, creating the chemical reaction to produce voltage inside
the cell of the multi-cell battery. The mPhase multi-cell battery consists of a matrix of 12 individual cells populated with an
electrode stack consisting of lithium and carbon monofluoride materials (Li/CFx), with each cells rated at 3.0 volts. Using a specially
designed circuit board for testing and characterization studies, each of the cells in the battery were independently triggered
and activated without affecting any of the non-activated cells in the multi-cell configuration. Because of the unique design of
the multi-cell battery, each cell in the battery has very long shelf until it is triggered.
On December
8, 2010, the Company announced that it has successfully completed the technical work under the Phase 2 STTR grant awarded by the
US Army for the multi-cell Smart NanoBattery. The team achieved this milestone by completing the work sponsored by the Army Research
Office, which encourages deep technical exploration, by funding small business involved in innovative research projects for miniature
energy storage designs, by helping accelerate research and development concepts for long term commercialization efforts. The STTR
funding enabled the mPhase technical team to develop functional prototypes and to conduct detailed analysis of the novel multi-cell
reserve battery designs. The funding allowed the mPhase team to create a substantial IP portfolio and to achieve a Technical Readiness
Level (TRL level) 4/5, which conventionally means that the original Smart Nanobattery design and technology used in its implementation
progressed to the extent that they now meet the criteria for prototype testing in both laboratory and simulated deployment environments.
The completed Smart Nanobattery is based on a complex MEMS device consisting of layers of silicon and glass fabricated to the exact
specifications of the mPhase team by its commercial foundry partner. The mPhase team finished the assembly by populating each battery
with the electrode stacks of lithium and carbon monofluoride materials (Li/CFx),that delivered 3 volts per cell. Because of the
unique design of the multi-cell battery, each cell in the battery has very long shelf until it is activated via a technique called
electrowetting, which gives the mPhase reserve battery one of its key attributes -- programmable triggering. The development of
the Smart NanoBattery has been undertaken with funding support from a Phase II STTR Army award.
On February
9, 2011, the Company announced that it signed a 3 year CRADA (Cooperative Research and Development Agreement) with the U.S. Army
Armament Research, Development, and Engineering Center (ARDEC) at Picatinny, New Jersey, to continue to cooperatively test and
evaluate the mPhase Smart NanoBattery, including new design features and functionally appropriate for DoD based systems requiring
portable power sources. The army researchers would further evaluate the prototypes using the Army's testing facilities at Picatinny
Arsenal in New Jersey in order to potentially incorporate the technologies into research and development and other programs sponsored
by Picatinny.
On April 5,
2011, the Company announced that it has begun to ship branded orders of its award winning Emergency Illuminator to a luxury-design
firm based in Europe. The Emergency Illuminator is a precision instrument with a powerful 180 Lumens LED and two separate battery
tubes. One tube is for everyday use and holds two CR123 batteries, while the other tube holds mPhase's Power On Command™
active reserve battery. If the regular CR123 batteries run down, the active reserve battery takes over -- even after laying idle
for 20 years. The Emergency Illuminator also features a USB port that can be used for charging portable devices such as a cell
phone.
On May 20,
2011, the Company reported that it had been granted a United States patent for the unique concept of a smart battery design that
could contain different battery chemistries within the same battery configuration or battery pack. The techniques described in
the patent are based on the idea of creating individual cells within a battery system, where each cell could contain a custom combination
of electrolyte and electrode materials. The patent describes how individual cells in a battery could be activated based on conditions
such as the surrounding temperatures or other conditions such as power drain requirements, which can be used in determining which
cells in the battery to activate. The concepts behind this patent could be used to create a new type of reserve battery that would
work in a wide range of applications, such as electronic devices and sensors used in very high and low temperature environments,
where the temperature conditions may change over time, or in other environments where optimal battery performance is not easily
achieved based on a single non optimized battery chemistry.
On June 15,
2011, the Company announced that it had engaged First Principals, Inc. (FPI), a world-class technology appraisal and commercialization
enterprise located in Cleveland, Ohio, to perform a complete economic and strategic evaluation of mPhase's Patent Portfolio and
identify a broad array of potential innovative products for "smart surfaces." In addition, FPI is to assist the Company
in identifying strategic partners leading to additional commercialization applications and opportunities with respect to its Smart
NanoBattery.
On June 29,
2011, the Company received approval from its shareholders at a Special Meeting of Shareholders to amend the Company’s Articles
of Incorporation to increase the Company’s authorized shares of common stock from 2 billion to 6 billion shares.
On October
19, 2011 the Company announced that an independent patent valuation of its technology estimates a minimum valuation of $40 million
for its portfolio of patents and intellectual property. The technical study of the Company's intellectual property commenced in
June of 2011 and was performed by FIRST PRINCIPALS, INC., a world-class technology appraisal and commercialization firm located
in Cleveland, Ohio.
On November
28, 2011, the Company amended the par value of its common stock from $.01 to $.001, the Balance Sheet at June 30, 2011 was restated
to reflect this change with a reduction of $14,656,520 to the value of common stock and a corresponding increase to additional
paid in capital for the same amount. Transactions recorded in the Consolidated Statement of Changes in Stockholders’ Deficit
were presented at the $.001 par value for the Fiscal Year Ended June 30, 2012.
On February
11, 2012, the Company announced that it had filed a new patent based upon its Smart Surface technology for a novel drug delivery
system. The drug delivery patent is based on the ability of mPhases’s Smart Surface technology to electronically control
the precise flow of a fluid on a nano-structured surface.
On February
14, 2012, the Company announced that it was enhancing its patent portfolio for products beyond reserve battery applications. The
core of the portfolio is the unique architecture relating to its Smart NanoBattery that enables a shelf life of decades, remote
activation, programmable control and adaptability to multiple chemistries within the same container. These attributes which are
developed by the Company’s focus on “Smart Surfaces” lend themselves to potential applications in the areas of
medical devices and portable electronic applications.
During the
first three quarters of the fiscal year ended June 30, 2012, the Company attempted to acquire Energy Innovative Products, (“EIP”)
a privately-held company that is a developer of proprietary technologies for reducing energy usage in refrigeration and cooling
systems with both commercial and consumer applications. The transaction was terminated in February of 2012 by EIP prior to the
Company completing its due diligence review of EIP’s assets, patents contracts and other necessary records. The Company is
entitled to a breakage fees and restitution of certain monies advanced to EIP during the due diligence period and is seeking to
determine the solvency of EIP and enforce certain contractual remedies under an Amended Letter of Intent.
On March 6,
2012, the Company announced that it is exploring the printing of its Smart NanoBattery on graphene and other new advanced materials.
Graphene is a very strong material that has been described as the most conductive material known, making it a vast improvement
over silicon. Graphene has the potential to lead to faster, cheaper and more flexible devices including power sources.
In March of
2012, the Company accepted an invitation to visit a Cluster of International Technology research and development in Grenoble, France.
The Cluster is made up on multinational companies and sponsored by various agencies of the French Government to perform advanced
technology research is the area of energy storage devices, micro fluidics and nanotechnology. The Company is continuing exploratory
negotiations with potential strategic partners each of which is a member of the cluster to “custom tailor” its intellectual
property and component products for use in a commercial end product.
On June 6,
2012, the Company announced that negotiations with two creditors have led to a standstill agreement and restructuring of approximately
$1,500,000 in floating rate convertible securities into 8% fixed rate debt instruments with payments commencing on October 1, 2012
at an aggregate amount of approximately $70,000 per month for two years The beneficial effect of restructuring of the variable
convertibility feature should give the Company the control it needs to cease the automatic dilution outside of the Company’s
control of its issued and outstanding common stock. The debt restructuring should allow the company the flexibility it needs to
obtain other funding.
During fiscal
year ended June 30, 2012, the Company announced that it had successfully completed a prototype of a new automotive and marine product
designed by a premiere European automotive company of luxury cars. A series of prototypes has resulted in a significant reduction
in size and increased functionality of the product. The Company believes that the small footprint and distinguished designed may
have significant appeal to both original equipment manufacturers and the automotive and marine aftermarket. The Company, pending
establishment of a complete marketing and distribution network for the product, has not disclosed the product’s identity
in order to first establish a “first to market presence” against potential competitors. The Company has identified
and had discussions with a marketing agency and launch firm for the new product.
During fiscal year 2013, the Company
announced the filing and/or awards of a number of patents significant to the ability to control a liquid on a “smart surface”
with applications beyond the field of energy storage devices to include a potential drug delivery technology capable
of delivering controlled dosages of drugs for medication. In addition in fiscal year 2013 the Company announced the development
of prototypes of its new automotive product designed to provide energy to jump start a dead battery in an automobile. The Company
believes, with proper funding, this product can potentially generate significant revenues in future years based upon its functionality
and small size.
During fiscal
year ended June 30, 2014, the Company announced the beginning of sales of its jump-it and mini jump-it products through its wholly-owned
subsidiary mPower Technologies, Inc. The products are designed to jump start dead batteries in cars, marine products and small
electronic devices.
Products
& Services
Since its inception
in 1996, mPhase has been a development stage company focused on the development of intellectual property involving high technology
innovative solutions and products with high-growth potential. The Company has served as an incubator for exploratory research and
initial development for products that are best characterized as having a high risk/high reward profile since they involve exploratory
research to achieve significant scientific breakthroughs from existing products that can have a substantial economic impact and
benefit upon successful commercialization.
NanoBattery
The Smart NanoBattery
is an outgrowth of the science of nanotechnology that the Company began in February of 2004 with the entry into a Project Development
Agreement with the Bell Labs Division of Lucent Technologies, Inc. The Company has historically outsourced its Research and Development
of new products to larger companies or institutions with significant scientific resources and experience in exploratory research.
mPhase Technologies along with Alcatel/Lucent/Bell Labs jointly conducted research from February 2004 through April of 2007 that
demonstrated control and manipulation of fluids on superhydrophobic surfaces to create power cells by controlling wetting behavior
of electrolytes on nano structured electrode surfaces. This scientific research set the ground work for continued exploration in
the development of intelligent nanotechnology power cells (nano-batteries), and formed a path to commercialization of the technology
for a broad range of market opportunities. During 2005 and 2006, the battery team tested modifications and enhancements to the
internal design of the battery to optimize its power and energy density characteristics, as well as engineering improvements that
were essential in moving the battery from a zinc based chemistry to a design using lithium based chemistry The Company established
a strategic research working relationship with the Energy Storage Research Group (ESRG), a center of excellence in Rutgers University
that has lab research facilities capable of handling lithium based battery development.
mPhase's current
flagship product is its Smart NanoBattery that has a significantly longer shelf life prior to initial activation than that of conventional
batteries. The Smart NanoBattery has potentially significant applications for critical mission power sources that must be reliable
and available upon command by the electronic device it is powering. Such applications involve emergency flashlights and beacons,
back-up power sources for computers and life support products, as well as significant military applications where critical mission
backup power is essential for weapons control computers and electronic warfare equipment used in combat. Other potential military
applications include power sources activated by g-forces for guided munitions.
The Smart
NanoBattery utilizes a proprietary technology developed over a period of 5 years. The battery design, prior to initial activation,
has a membrane that separates the electrolyte and electrodes used to generate power. Conventional batteries do not provide for
such separation and therefore their power begins to dissipate prior to the first time they are activated causing them to lose
capacity. Conventional batteries have significant limits on how long they can be stored prior to their first activation and in
providing a reliable source of power needed for critical applications requiring portable power supplies.
Competitive Business Conditions
Battery
Segment
The design
and functionality of the mPhase lithium Smart NanoBattery make it unique to the portable electronics battery market segment. To
the best of our knowledge, there is no existing product that directly competes with the Smart NanoBattery in terms of its combination
of small size and reserve design. As a reserve battery, the Smart NanoBattery remains dormant until it is activated on command.
It does not self-discharge or die prior to its first activation, thereby offering extremely long shelf life prior to use as either
a primary or backup battery in a device. Shelf life is projected to be in excess of twenty years.
There are numerous
thin film batteries based on lithium metal, lithium ion and lithium polymer, as well as other chemistries, used in military devices,
portable electronics, RFID tags and wireless sensor networks, that are similar in size to the Smart NanoBattery, often referred
to as microbatteries. None of these designs is based on reserve battery architectures. Thin film batteries are manufactured by
companies including Cymbet Corporation, Front Edge Technology, Infinite Power Solutions, ITN Energy Systems, Johnson Research and
Development Company, KSW Microtec, Lithium Technology Corporation, MPower Solutions, Oak Ridge Micro-Energy, Power Paper, Solicore,
VoltaFlex Corporation. Large companies such as Energizer, Ultralife, Varta and Proctor & Gamble are also involved with developing
thin film batteries. Thin film battery markets are anticipated to grow substantially as the result of a wide expansion of portable
devices in that time frame. With 3.5 billion cell phone users and 67 billion RFID tags per year anticipated during year 2012, it
is expected that there will be substantial commercial demand for thin film batteries.
Traditional
reserve batteries are distinct from the mPhase/AlwaysReady Smart NanoBattery in terms of size and activation mechanism. The market
for reserve batteries has largely been limited to the military for supplying power to munitions and other mission-critical electronic
devices. The traditional reserve battery tends to be larger and certain types are built by hand and contain mechanical parts to
activate the battery. The Smart NanoBattery relies on the phenomenon of electrowetting to initiate activation or a mechanical barrier
that can be broken, in the case of the breakable barrier design. Traditional reserve batteries for military applications have been
supplied by companies such as EaglePicher, Yardney and Storage Battery Systems, Inc. The Company believes that it may be able to
significantly reduce the cost of its Smart Nanobattery with the recent discovery of the potential of “printing” the
battery on a form of graphite rather than traditional silicon surface. The Company, through its working relationship with Stevens
Institute, began in fiscal year 2012 to investigate the feasibility of the use of graphite which is much stronger, flexible and
inexpensive than traditional silicon.
Battery
Jump Starter and Automotive Product Market
The Company
believes that there may be a significant market for its mPower Jump product capable of providing energy to start cars with dead
batteries The Company is now placing significant emphasis and focus on this product as a means to generate future revenues and
profitability. The mPower Jump was designed by Porsche Design Studio and Porsche engineering. It contains a very small footprint
and will fit in the glove compartment of most cars,. The need for absolute reliability in many emergency situations includes those
of fire, police and other emergency service providers. Since the market for new and innovative portable electronic solutions continues
to expand, especially in the field of wireless devices, the Company believes that its emergency Jump Starter may benefit from
this trend. . In fiscal year 2015 the Company plans to access capital from foreign investors by utilizing an innovative financing
program sponsored by the U.S. government to assist emerging growth and development companies create new jobs in the United States.
Such additional capital will enable the Company to expand its product line for jump starters of dead batteries and its global marketing
of such products.
Outsourcing
Research
and Development
The Company
practices an outsourcing model whereby it contracts with third party vendors to perform research and development rather than performing
the bulk of these functions internally. For current development of its SmartNano battery, the Company has outsourced
the majority of the work. From February of 2004 through March of 2007, the Company engaged Lucent/Bell Labs to develop, using the
science of nanotechnology, micro power cell arrays creating a structure for zinc batteries that separated the chemicals or electrolytes
prior to initial activation. This was done by suspending on nano grass or small spoke-like pieces of silicon a liquid electrolyte
taking advantage of a superhydrophobic effect that occurs as a result of the ability to manipulate materials of a very small size
or less than 1/50,000 the size of a human hair. The Company has, as a result of outsourcing, been able to have access to facilities,
equipment and research capabilities that the Company would not be able to develop on its own given the financial resources and
time that would be required to build or acquire such research capabilities. The Company has also been able to achieve key strategic
alliances with the U.S. Army to successfully test, under military combat conditions, its SmartBattery design, leading to further
validation of its path to product development under a Cooperative Research and Development Agreement (CRADA). In addition, the
Company has formed a relationship with Energy Storage Research Group, a center of excellence at Rutgers University, in New Jersey,
that has enabled the Company to expand its battery development from a zinc to a lithium battery capable of delivering significantly
more power. During fiscal years 2009 and 2010, the Company outsourced considerable foundry work for final development of the Smart
NanoBattery to Silex, a Swedish company.
During the
period from March of 2005 to April of 2007, the Company engaged the Bell Labs division of Lucent Technologies, Inc. to develop
a magnetometer or electronic sensor also using the science of nanotechnology. Although the Company has, in order to conserve financial
resources, currently suspended further development of its magnetometer product line, we believe that the intellectual property
developed from the research to date could be resumed to develop viable military and industrial products depending upon future financial
resources of the Company and future competitive market conditions.
During fiscal
year ended June 30, 2013, the Company has not engaged in any further outsourcing for product development in order to conserve resources.
During fiscal year 2014 the Company began outsourcing the development and manufacturing of a cost reduced version of its battery
jump starter products.
Prototype
Development
As the Company
has moved from development to commercialization of its jump starter products. , the Company outsourced the creation of original
prototypes to Porsche Design Studio and further cost reduced such products with other vendors. The Company is again working with
Porsche Design Studio on development and distribution of a luxury or high –end jump starter for the automotive market .
As of June 30, 2014, the Company has an outstanding payable of approximately $415,448 to Porsche Design Studio for the design
and delivery of the mPower illuminator and prototypes of its mPower Jump product.
Manufacturing
mPhase subcontracts
all of the manufacturing of its products to outside sources including related parties such as Microphase Corporation. During fiscal
year ended June 30, 2014 the Company paid no additional research expenses to outside third parties for development and product
manufacturing of its jump starter products nor to Microphase Corporation. The Company believes that any payments historically charged
by Microphase Corporation are the same as would be charged by other management services provided by non-affiliated third party
providers of such services. By using contract manufacturers, mPhase avoids the substantial capital investments required for internal
production.
Patents
and Licenses
We have filed
and intend to file United States patents, in some cases EU patents and/or copyright applications relating to some of our proposed
products and technologies, either with our collaborators, strategic partners or on our own. There can be no assurance however,
that any of the patents obtained will be adequate to protect our technologies or that we will have sufficient resources to enforce
our patents.
Because we
may license our technology and products in foreign markets, we may also seek foreign patent protection for some specific patents.
With respect to foreign patents, the patent laws of other countries may differ significantly from those of the United States as
to the patentability of our products or technology. In addition, it is possible that competitors in both the United States and
foreign countries, many of which have substantially greater resources and have made substantial investments in competing technologies,
may have applied for, or may in the future apply for and obtain, patents, which will have an adverse impact on our ability to make
and sell our products. There can also be no assurance that competitors will not infringe on our patents or will not claim that
we are infringing on their patents. Defense and prosecution of patent suits, even if successful, are both costly and time consuming.
An adverse outcome in the defense of a patent suit could subject us to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require us to cease our operations.
The Company
has intellectual property as follows:
Nano Technology,
Micro Electrical Mechanical Systems (MEMS) and Battery Portfolio:
Various aspects
of the mPhase technology are protected by patents either owned directly by the Company or with respect to which the Company has
full sub-licensing rights. The Company’s current battery related patent portfolio consists of seven issued patents, of which
one is jointly owned with Rutgers University, two are jointly owned with Lucent Technologies and four are licensed from Lucent
Technologies. These cover such aspects of the technology as the ability to use electrowetting to create a moveable liquid lens,
methodology and apparatus for reducing friction between a fluid and a body, methodology for etching planar silicon substrates to
develop a reserve battery device, methodology and apparatus for controlling the flow resistance of a fluid on nanostructured or
microstructured surfaces, methodology for creating a structured membrane with controllable permeability, methodology for a nanostructured
battery with end of life cells, and methodology for making a multi-cell battery system with multiple chemistries in each individual
cell of the battery pack. Some of these patents are specific to the development of a battery device while others are more generalized.
The Company also has four patent applications related to the Smart Surfaces technology that have been filed with the United States
Patent Office and other foreign patent offices and that are in various stages of examiner review, as well as four additional patent
applications related to other Smart Surfaces technologies under review.
The Company
has obtained trademark protection for its mPower Emergency Illuminator and mPower on Command, and it currently has one additional
trademark application pending.
Other Patents
On July 12,
2005, mPhase announced that it had been granted a U.S. patent that covers a series of techniques for splitting different voice
and data signals in DSL access networks that is used in its Broadband Loop Watch product. The Company has discontinued further
development and marketing of this product owing to the lack of demand for loop diagnostics systems by telephone service providers.
Various aspects
of the mPhase technology are protected by patents either owned directly by the Company or with respect to which the Company has
full sub-licensing rights. The Company’s current battery related patent portfolio consists of seven issued patents, of which
one is jointly owned with Rutgers University, two are jointly owned with Lucent Technologies and four are licensed from Lucent
Technologies. These cover such aspects of the technology as the ability to use electrowetting to create a moveable liquid lens,
methodology and apparatus for reducing friction between a fluid and a body, methodology for etching planar silicon substrates
to develop a reserve battery device, methodology and apparatus for controlling the flow resistance of a fluid on nanostructured
or microstructured surfaces, methodology for creating a structured membrane with controllable permeability, methodology for a
nanostructured battery with end of life cells, and methodology for making a multi-cell battery system with multiple chemistries
in each individual cell of the battery pack. Some of these patents are specific to the development of a battery device while others
are more generalized. The Company also has four patent applications related to the Smart Surfaces technology that have been filed
with the United States Patent Office and other foreign patent offices and that are in various stages of examiner review, as well
as four additional patent applications related to other Smart Surfaces technologies under review.
The Company
has obtained trademark protection for its mPower Emergency Illuminator and mPower on Command, and it currently has one additional
trademark application pending.
In July of 2009, the Company filed
for 3 new patents covering the unique design features of its manually-activated lithium reserve battery and emergency flashlight
products.
On May 20, 2011, the Company announced
that it had been granted a U.S. patent for multi-chemistry battery architecture.
As of fiscal year ended June 30,
2012, the Company has filed the following patents:
|
Title |
|
Awarded |
|
Pending |
1 |
Electrical Device Having A Reserve Battery Activation System |
|
|
|
X |
2 |
Combined Wetting/Non-Wetting Element for Low & High Surface Tension Liquids |
|
|
|
X |
3 |
Non-Pump Enabled Drug Delivery System |
|
|
|
X |
4 |
Device For Fluid Spreading & Transport |
|
|
|
X |
5 |
Adjustable Barrier For Regulating Flow of a Liquid |
|
|
|
X |
6 |
Reserve Battery System |
|
|
|
X |
7 |
Modular Device |
|
|
|
X |
8 |
Event Activated Micro Control Devices |
|
|
|
X |
9 |
Portable Battery Booster |
|
|
|
X |
10 |
Battery System |
|
X |
|
|
11 |
Reserve Battery |
|
|
|
X |
12 |
Tunable liquid microlens with lubrication assisted electrowetting |
|
X |
|
|
13 |
Method and apparatus for reducing friction between a fluid and a body |
|
X |
|
|
14 |
Battery having a nano structured electrode surface |
|
X |
|
|
15 |
Method and apparatus for controlling the flow resistance of a fluid on nano structured or micro structured surfaces |
|
X |
|
|
16 |
Structured membrane with controllable permeability |
|
X |
|
|
17 |
Nanostructure battery having end of life cells |
|
X |
|
|
We also rely
on unpatented proprietary technology, and we can make no assurance that others may not independently develop the same or similar
technology or otherwise obtain access to our unpatented technology. In fiscal year 2013 the Company obtained a new patent relating
to microfluidics for controlled dosages of liquid that could be used in a drug delivery system.
Research
and Development
From March
of 2005 through March of 2007, the Company had engaged Bell Labs under separate Development Agreements for the development of a
new generation of ultra-magnetic sensors (magnetometers) using the science of nanotechnology with a total cost of $2.4 million.
The Company did not renew such its engagement with Bell Labs upon expiration and did not incur any further costs with respect to
its magnetometer since the Company has suspended further development of the product to conserve financial resources.
On September
23, 2008, the Company announced that its internal research and development effort had resulted in the successful creation of a
compact lithium reserve battery reserve battery prototype with a breakable separator capable of powering a high-intensity emergency
flashlight. The manually-activated reserve battery is based upon the same principles of separation of liquid electrolyte from solid
electrodes as the Company’s Smart NanoBattery but was developed based upon traditional mechanical engineering technology.
Our Smart NanoBattery
and power cell technology research and development was performed by the Bell Labs division of Alcatel/Lucent from February of 2004
through March of 2007 at an aggregate cost of $3.8 million. The Company paid Bell Labs $300,000 covering the period from April
27, 2007 through July 30, 2007, at which time it determined that, in order to develop a lithium battery for higher density energy
than zinc, it required facilities capable of handling lithium battery research that Bell Labs does not have. The Company engaged
a number of small foundries during fiscal year ended June 30, 2008 for commercialization of its Smart NanoBattery at a cost of
approximately $150,000. In fiscal year ended June 30, 2009, the Company engaged Eagle Picher at a cost of $75,000 to design and
engineer a prototype of its manually-activated lithium reserve battery and Porsche Design studio at a cost of $79,123 for design
of its emergency flashlight product. In addition, the Company secured a Co-Branding Agreement with Porsche Design Studio for its
emergency flashlight product. In fiscal year ended June 30, 2010, the Company paid $950,018 in connection with producing and bringing
this product to market, and in fiscal year ended June 30, 2011, the Company incurred $33,254 of expenses in connection with this
product. During the fiscal year ended June 30, 2009, the Company engaged Silex, a silicon foundry in Sweden, at a cost of $21,200
for further development of its Smart NanoBattery; payments to Silex for fiscal year ended June 30, 2010 in connection with the
Smart NanoBattery amounted to $396,780, and for fiscal year ended June 30, 2011 they were $40,800.
During fiscal
years ended June 30, 2008, June 30, 2009 and June 30, 2010, the Company engaged in joint research with Rutgers University in connection
with a $750,000 STTR Grant from the United States Army for purposes of developing an emergency reserve battery to back-up a computer
memory application.
During fiscal
years ended June 30, 2009, June 30, 2010 and June 30, 2011, the Company engaged MKE, an approved vendor of Porche Design Studio
to manufacture prototypes as well as a series of commercialized emergency flashlights utilizing the design developed for the Company
by Porsche Design Studio.
Commencing
in fiscal year ended June 30, 2011, the Company engaged Porsche Design Studio to develop a jump starter for a dead battery as an
additional automotive product for the Company. During fiscal year ended June 30, 2012, the Company continued the development of
its Smart Nano Battery and progressed in the development of a final prototype of its jump starter product. In fiscal years ended
June 30, 2013 and June 30, 2014 the Company cost-reduced its jump-starter product and began sales of its jump starter and mini
jump starter products.
Employees
mPhase and
its subsidiary companies presently have a total of 6 full-time employees and consultants, two of whom are also employed by Microphase
Corporation. See the description in the section entitled Certain Relationships and Related Transactions.
ITEM
1A. RISK FACTORS
Risks
Relating to the Company’s Early Stage of Development
Our
business is at an early stage of development and we may not develop products that can be commercialized.
We
have derived very limited revenues from a Phase I Army Grant of approximately $100,000 and a Phase II Army Grant of approximately
$750,000 with respect to our Smart NanoBattery product from inception of development in February 2004 through March 30, 2011.
We have derived revenues of only $41,572 from our Emergency Flashlight product from inception of sales in April of 2010 through
June 30, 2014 and we have generated sales of our mPower Jump and mPower mini Jump products and accessories of $581,261 during
the fiscal year ended June 30, 2014.
We
have limited manufacturing, marketing, distribution and sales capabilities which may limit our ability to generate revenues.
Due
to the relatively early stage of our products, we have not yet invested in manufacturing, marketing, distribution or product sales
resources. We cannot assure you that we will be able to invest or develop any of these resources successfully or as expediently
as necessary. The inability to do so may inhibit or harm our ability to generate revenues or operate profitably.
We
have a history of operating losses and we may not achieve future revenues or operating profits.
We
have generated modest revenue to date from our operations. Historically we have had net operating losses each year since our inception.
As of June 30, 2014, we have an accumulated deficit of $(209,636,008) and a stockholders’ deficit of $(3,554,585) and incurred
a net loss of $(5,944,467). We incurred net losses of $5,994,585 and $220,634 for the years ended June 30, 2014 and June
30, 2013, respectively. The Company has just begun generating revenues from sales of $581,261for the year ended June 30, 2014.
Prior to such period the Company did not generate significant revenue outside of STTR grants and minor sales of its emergency
illuminator product. Additionally, even if we are able to commercialize our technologies or any products or services related to
our technologies it is not certain that they will result in profitability.
We
have a limited operating history on which investors may evaluate our operations and prospects for profitable operations.
If
we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their
entire investment. Our prospects must be considered speculative in light of the risks, expenses and difficulties frequently encountered
by companies in their early stages of development, particularly in light of the uncertainties relating to the new, competitive
and rapidly evolving markets in which we anticipate we will operate. To attempt to address these risks, we must, among other things,
further develop our technologies, products and services, successfully implement our research, development, marketing and commercialization
strategies, respond to competitive developments and attract, retain and motivate qualified personnel. A substantial risk is involved
in investing in us because, as an early stage company we have fewer resources than an established company, our management may
be more likely to make mistakes at such an early stage, and we may be more vulnerable operationally and financially to any mistakes
that may be made, as well as to external factors beyond our control.
Risks
Relating to Technology
We
are dependent on new and unproven technologies.
Our
risks as an early stage company are compounded by our heavy dependence on emerging and sometimes unproven technologies such as
our SmartNanobattery. If these technologies do not produce satisfactory results, our business may be harmed.
We
may not be able to commercially develop our technologies and proposed product lines, which, in turn, would significantly harm
our ability to earn revenues and result in a loss of investment.
Our
ability to commercially develop our technologies will be dictated in, large part, by forces outside our control which cannot be
predicted, including, but not limited to, general economic conditions. Other such forces include the success of our research and
field testing, the availability of collaborative partners to finance our work in pursuing applications of “smart surfaces”
or other developments in the field which, due to efficiencies or technological breakthroughs may render one or more areas of commercialization
more attractive, obsolete or competitively unattractive. It is possible that one or more areas of commercialization will not be
pursued at all if a collaborative partner or entity willing to fund research and development cannot be located. Our decisions
regarding the ultimate products and/or services we pursue could have a significant adverse effect on our ability to earn revenue
if we misinterpret trends, underestimate development costs and/or pursue wrong products or services. Any of these factors either
alone or in concert could materially harm our ability to earn revenues or could result in a loss of any investment in us.
If
we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.
We
are engaged in activities in the nanotechnology and microfluidics field, which is characterized by extensive research efforts
and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to
operate profitably could suffer. We cannot assure you that research and discoveries by other companies will not render our technologies
or potential products or services uneconomical or result in products superior to those we develop or that any technologies, products
or services we develop will be preferred to any existing or newly-developed technologies, products or services.
Risks
Related to Intellectual Property
Certain
aspects of our technology are not protectable by patent.
Certain
parts of our know-how and technology are not patentable. To protect our proprietary position in such know-how and technology,
we require all employees, consultants, advisors and collaborators with access to our technology to enter into confidentiality
and invention ownership agreements with us. We cannot assure you; however, that these agreements will provide meaningful protection
for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further,
in the absence of patent protection, competitors who independently develop substantially equivalent technology may harm our business.
Patent
litigation presents an ongoing threat to our business with respect to both outcomes and costs.
It
is possible that litigation over patent matters with one or more competitors could arise. We could incur substantial litigation
or interference costs in defending ourselves against suits brought against us or in suits in which we may assert our patents against
others. If the outcome of any such litigation is unfavorable, our business could be materially adversely affected. To determine
the priority of inventions, we may also have to participate in interference proceedings declared by the United States Patent and
Trademark Office, which could result in substantial cost to us. Without additional capital, we may not have the resources to adequately
defend or pursue this litigation.
We
may not be able to protect our proprietary technology, which could harm our ability to operate profitably.
Patent
and trade secret protection is critical for the new technologies we utilize, nanotechnology and microfluidics, as well as the
products and processes derived through them. Our success will depend, to a substantial degree, on our ability to obtain and enforce
patent protection for our products, preserve any trade secrets and operate without infringing the proprietary rights of others.
We cannot assure you that:
|
● |
we
will succeed in obtaining any patents in a timely manner or at all, or that the breadth or degree of protection of any such
patents will protect our interests, |
|
|
|
|
● |
the
use of our technology will not infringe on the proprietary rights of others, |
|
● |
patent
applications relating to our potential products or technologies will result in the issuance of any patents or that, if issued,
such patents will afford adequate protection to us or not be challenged, invalidated or infringed, and |
|
|
|
|
● |
patents
will not issue to other parties, which may be infringed by our potential products or technologies. |
|
|
|
|
● |
we
will continue to have the financial resources necessary to prosecute our existing patent applications, pay maintenance fees
on patents and patent applications, or file patent applications on new inventions. |
The
fields in which we operate have been characterized by significant efforts by competitors to establish dominant or blocking patent
rights to gain a competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors'
purported patent rights and the technologies they actually utilize in their businesses.
Patents
obtained by other persons may result in infringement claims against us that are costly to defend and which may limit our ability
to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential products.
If
third party patents or patent applications contain claims infringed by either our technology or other technology required to make
and use our potential products and such claims are ultimately determined to be valid, there can be no assurance that we would
be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology.
If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some products commercially. We may
be required to defend ourselves in court against allegations of infringement of third party patents. Patent litigation is very
expensive and could consume substantial resources and create significant uncertainties. Any adverse outcome in such a suit could
subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require
us to cease using such technology.
We
may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
Considerable
research in the areas of micro fluid dynamics is being performed in countries outside of the United States, and a number of potential
competitors are located in these countries. The laws protecting intellectual property in some of those countries may not provide
adequate protection to prevent our competitors from misappropriating our intellectual property. Several of these potential competitors
may be further along in the process of product development and also operate large, company-funded research and development programs.
As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product
commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop
obsolete.
We
may incur substantial expenditures in the future in order to protect our intellectual property.
We
believe that our intellectual property with respect to our Smart NanoBattery and our proprietary rights with respect to the Company's
permeable membrane design consisting of both micro and nano scale silicon features that are coated with a monolayer chemistry
used to repel liquids is critical to our future success. The Company’s current battery related patent portfolio consists
of seven issued patents, of which one is jointly owned with Rutgers University, two are jointly owned with Lucent Technologies
and four are licensed from Lucent Technologies. We also have four patent applications related to the Smart Surfaces technology
that have been filed with the United States Patent Office and other foreign patent offices that are in various stages of examiner
review, as well as four additional patent applications related to other Smart Surfaces technologies under review. Our pending
patent applications may never be granted for various reasons, including the existence of conflicting patents or defects in our
applications. Even if additional U.S. patents are ultimately granted, there are significant risks regarding enforcement of patents
in international markets. There are many patents being filed as the science of nanotechnology develops and the Company has limited
financial resources compared to large, well established companies to bring patent litigation based upon claims of patent infringement.
Our
products may not be accepted in the marketplace.
The
degree of market acceptance of those products will depend on many factors, including:
|
● |
Our
ability to manufacture or obtain from third party manufacturers sufficient quantities of our product candidates with acceptable
quality and at an acceptable cost to meet demand, and |
|
|
|
|
● |
Marketing
and distribution support for our products. |
We
cannot predict or guarantee that either military or commercial entities, in general, will accept or utilize any of our product
candidates. Failure to achieve market acceptance would limit our ability to generate revenue and would have a material adverse
effect on our business. In addition, if any of our product candidates achieve market acceptance, we may not be able to maintain
that market acceptance over time if competing products or technologies are introduced that are received more favorably or are
more cost-effective.
Risks
Related to Third Party Reliance
We
depend on third parties to assist us in the development of new products extensively, and any failure of those parties to fulfill
their obligations could result in costs and delays and prevent us from successfully commercializing our product candidates on
a timely basis, if at all.
We
engage consultants and contract research organizations to help design, develop and manufacture our products. We are dependent
on third parties outside of the United States to provide us with production facilities for our automotive line of products including
those located in the Peoples Republic of China. The consultants and contract research organizations we engage provide us critical
skills, resources and finished products for sale that we do not have within our own company. As a result, we depend on these consultants
and contract research and product supply organizations to deliver our existing automotive products and to perform the necessary
research and development to create new products. We may face delays in developing and bringing new products to market if these
parties do not perform their obligations in a timely or competent fashion or if we are forced to change service providers.
We
depend on our collaborators to help us develop and test our proposed products, and our ability to develop and commercialize products
may be impaired or delayed if collaborations are unsuccessful.
Our
strategy for the development, testing and commercialization of our proposed products requires that we enter into collaborations
with corporate partners, licensors, licensees and others. We are dependent upon the subsequent success of these other parties
in performing their respective responsibilities and the continued cooperation of our partners. Under agreements with collaborators,
we may rely significantly on such collaborators to, among other things:
|
● |
Fund
research and development activities with us; |
|
|
|
|
● |
Pay
us fees upon the achievement of milestones under STIR and SBIR programs; and |
|
|
|
|
● |
Market
with us any commercial products that result from our collaborations. |
Our
collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount
and timing of our collaborators’ resources that will be devoted to our research and development activities related to our
collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference
to those being developed in collaboration with us.
The
development and commercialization of potential products will be delayed if collaborators fail to conduct these activities in a
timely manner, or at all.
If
various outside vendors and collaborators do not achieve milestones set forth in our agreements, or if our collaborators breach
or terminate their collaborative agreements with us, our business may be materially harmed.
Our
reliance on the activities of our non-employee consultants, research institutions, and scientific contractors, whose activities
are not wholly within our control, may lead to delays in development of our proposed products.
We
rely extensively upon and have relationships with outside consultants and companies having specialized skills to conduct research.
These consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities
that may limit their availability to us. We have limited control over the activities of these consultants and, except as otherwise
required by our collaboration and consulting agreements to the extent they exist, can expect only limited amounts of their time
to be dedicated to our activities. These research facilities may have commitments to other commercial and non-commercial entities.
We have limited control over the operations of these collaborators and can expect only limited amounts of time to be dedicated
to our research and product development goals.
Product
Development Risks
We
have limited resources to manage development activities.
Our
limited resources in conducting and managing development activities might prevent us from successfully designing or implementing
new products. If we do not succeed in conducting and managing our development activities, we might not be able to commercialize
our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
Our
ability to generate revenues from any of our product candidates will depend on a number of factors, including our ability to successfully
complete and implement our commercialization strategy. In addition, even if we are successful in bringing one or more product
candidates to market, we will be subject to the risk that the marketplace will not accept those products. We may, and anticipate
that we will need to, transition from a company with a research and development focus to a company capable of supporting commercial
activities and we may not succeed in such a transition.
Because
of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to
predict the extent of our future losses or when or if we will become profitable.
Our
failure to successfully commercialize our product candidates or to become and remain profitable could depress the market price
of our Common Stock and impair our ability to raise capital, expand our business, diversify our product offerings and continue
our operations.
Risks
Related to Competition
The
market for energy storage products is highly competitive.
We
expect that our most significant competitors will be large more established companies. These companies are developing products
that compete with ours and they have significantly greater capital resources in research and development, manufacturing, testing,
obtaining regulatory approvals, and marketing capabilities. Many of these potential competitors are further along in the process
of product development and also operate large, company-funded research and development programs. As a result, our competitors
may develop more competitive or affordable products, or achieve earlier patent recognition and filings.
Our
industry is characterized by rapidly evolving technology and intense competition. Our competitors include major multinational
energy-storage device and battery companies as well as nanotechnology companies that specialize in micro fluid dynamics and smart
surfaces.
Many
of these companies are well-established and possess technical, research and development, financial and sales and marketing resources
significantly greater than ours. In addition, certain smaller nanotechnology companies have formed strategic collaborations, partnerships
and other types of joint ventures with larger, well established industry competitors that afford these companies' potential research
and development and commercialization advantages. Academic institutions, governmental agencies and other public and private research
organizations are also conducting and financing research activities which may produce products directly competitive to those we
are developing. Moreover, many of these competitors may be able to obtain patent protection, obtain regulatory approvals and begin
commercial sales of their products before we do.
In
the general area of energy storage and micro fluid dynamics, we compete with a variety of companies, including Duracell, Eveready
and Ultralife.
Each
of these companies is well-established and has substantial technical and financial resources compared to us. Many smaller companies
may also be developing products in the rapidly changing area of energy storage and advanced micro fluid dynamics. These smaller
companies may become significant competitors through rapid evolution of new technologies. Any of these companies could substantially
strengthen their competitive position through strategic alliances or collaborative arrangements with larger companies.
Our
competition includes both public and private organizations and collaborations among academic institutions and large companies,
most of which have significantly greater experience and financial resources than we do.
Private
and public academic and research institutions also compete with us in the research and development of nanotechnology products
based on micro-fluid dynamics. In the past several years, the nanotechnology industry has selectively entered into collaborations
with both public and private organizations to explore the development of new products evolving out of research in micro-fluid
dynamics.
The
energy storage device and battery business are each characterized by intense competition. We compete against numerous companies,
both domestic and foreign, many of which have substantially greater experience and financial and other resources than we have.
Companies
such as Duracell, Eveready and Ultralife, as well as others, many of which have substantially greater resources and experience
in our fields than we do, are well situated to effectively compete with us. Any of the world's largest battery companies represents
a significant actual or potential competitor with vastly greater resources than ours. These and other competitive enterprises
have devoted, and will continue to devote, substantial resources to the development of technologies and products in competition
with us.
RISKS
RELATED TO FINANCIAL ASPECTS OF OUR BUSINESS
We
may not be able to raise the required capital to conduct our operations and develop and commercialize our products. We
require substantial additional capital resources in order to conduct our operations and develop and commercialize our products
and run our facilities. We will need significant additional funds or collaborative partners, or both, to finance the research
and development activities of our potential products. Accordingly, we are continuing to pursue additional sources of financing.
Our future capital requirements will depend upon many factors, including:
|
● |
The
continued progress and cost of our research and development programs, |
|
|
|
|
● |
The
costs in preparing, filing, prosecuting, maintaining and enforcing patent claims, |
|
|
|
|
● |
The
costs of developing sales, marketing and distribution channels and our ability to sell the products if developed, |
|
|
|
|
● |
The
costs involved in establishing manufacturing capabilities for commercial quantities of our proposed products, |
|
|
|
|
● |
Competing
technological and market developments, |
|
|
|
|
● |
Market
acceptance of our proposed products, |
|
|
|
|
● |
The
costs for recruiting and retaining employees and consultants. |
Additional
financing through strategic collaborations, public or private equity financings or other financing sources may not be available
on acceptable terms, or at all. Additional equity financing could result in significant dilution to our shareholders. Further,
if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish
rights to some of our technologies, product candidates or products that we would otherwise seek to develop and commercialize on
our own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of
our programs or potential products, any of which could have a material adverse effect on our financial condition or business prospects.
Risks
Relating to Our Debt Financings
If we are required for any reason to repay our outstanding convertible debt we would be required to deplete our working capital,
if available, or raise additional funds. Our failure to repay the convertible debentures, if required, could result in legal action
against us, which could require the sale of substantial assets or liquidation of the Company.
We
had outstanding, as of June 30, 2014, $1,847,491 aggregate principal amount, ($1,562,217), plus accrued interest, ($285,274),
of convertible debt, that could be converted into approximately 1,730,922,492 shares of common stock. Sales
of a substantial number of shares of our Common Stock in the public market could adversely affect the market price for our Common
Stock and make it more difficult for you to sell shares of our Common Stock at times and prices that you feel are appropriate.
The
issuance of shares upon conversion of the convertible debt will cause immediate and substantial dilution to our existing stockholders.
The
issuance of shares upon conversion of the convertible debt and shares issued under our equity line of credit will result in substantial
dilution to the interests of other stockholders since the selling security holders may ultimately convert and sell the full amount
issuable on conversion. Although no single selling security holder may convert its convertible debentures and/or exercise its
warrants if such conversion or exercise would cause it to own more than 4.99% of our outstanding Common Stock, this restriction
does not prevent each selling security holder from converting some of its holdings and then converting the rest of its holdings.
In this way, each selling security holder could sell more than this limit while never holding more than this limit. There is no
upper limit on the number of shares that may be issued, which will have the effect of further diluting the proportionate equity
interest and voting power of holders of our Common Stock.
The
Company is currently engaged in litigation with John Fife, its second largest holder of a Convertible Note issued on September
13, 2011 in the original principal amount of $557,500. Although the Company believes it has significant legal defenses to the
enforcement of the Note, the failure of the Company to prevail in this litigation could result in liabilities including attorneys
fees that would have a material negative impact on the Company’s continuing operations. The Company is unable to predict
the outcome of such litigation at this time..
The
Company has been forced to curtail development of all products except its Smart NanoBattery and two automotive products in order
to conserve financial resources
The
Company has been forced to focus on commercialization of only two of its products, thereby eliminating product diversification.
The Company's lack of financial resources to simultaneously develop multiple products increases its overall risk profile as a
development-stage company.
mPhase's
stock price has suffered significant declines during the past ten years and remains volatile.
The
market price of our common stock closed at $7.88 on July 26, 2000 and at $.008 on August 3, 2014. During such period the number
of shares outstanding of the Company increased from approximately 30 million shares to approximately 13.8 billion shares. This
increase was the result of periodic private placements and other financing arrangements involving convertible debt issued by the
Company in order to finance company operations. Stocks in microcap companies having stock values below $1.00 per share have been
very volatile during such period. Our common stock is a highly speculative investment and is suitable only for such investors
with financial resources that enable them to sustain the loss of their entire investment in such stock. Because the price of our
common stock is less than $5.00 per share and is not traded on the NASDAQ National or NASDAQ Small Cap exchanges, it is considered
to be a "penny stock," limiting the type of customers that broker/dealers can sell to. Such customers consist only of
"established customers" and "Accredited Investors" (within the meaning of Rule 501 of Regulation D of the
Securities Act of 1933, as amended),generally individuals and entities of substantial net worth, thereby limiting the liquidity
of our common stock.
We
may not be able to raise sufficient capital to market our SmartNanoBattery and Emergency Flashlight applications of our technology
on any meaningful scale.
We
may not be able to obtain the amount of additional capital needed until the Company has established significant and predictable
sales and revenues from our technology. We have been successful in the past as a micro-cap development stage company in raising
capital; however, recent trends in the capital markets are likely to pose significant challenges for the Company. Factors affecting
the availability of capital include:
(1) |
the
price, volatility and trading volume of our common stock; |
(2) |
future
financial results including sales and revenues generated from operations; |
(3) |
the
market's view of the business sector of nanotechnology reserve batteries and emergency flashlights; and |
(4) |
the
perception in the capital markets of our ability to execute our business plan. |
We
have reported net operating losses for each of our fiscal years from our inception in
We
have reported net operating losses for each of our fiscal years from our inception in 1996 through the fiscal year ended June
30, 2014 and may not be able to operate profitability in the future.
We
have had net losses of approximately $(209.6) million since our inception in 1996 including approximately $(5.94) million and
$(260,634) for the fiscal years ended June 30, 2014 and June 30, 2013, respectively and cannot be certain when or if we will ever
be profitable. Despite the beginning of revenue generation from our jump it and mini jump it products,we expect to continue to
have net losses for the foreseeable future. We need to raise not less than $5 million in additional cash in the next 12 months
through further equity private placements and to continue operations. As of June 30, 2014, we have working capital deficit of
approximately $(2,880,043) and a stockholders’ deficit of $(3,554,585)). Cumulative negative cash flow from operations since
inception has amounted to approximately $(90,926,090).
Our
independent auditor's report expresses doubt about our ability to continue as a going concern.
The
reports of the Company's outside auditors Demetrius Berkower, LLC., and its prior auditors Rosenberg, Rich, Baker, Berman &
Company, Arthur Andersen & Co., with respect to its latest audited reports on Form10-K for each of the fiscal years commencing
in the fiscal year ended June 30, 2001 through the current fiscal year ended June 30, 2014, stated that "there is substantial
doubt of the Company's ability to continue as a going concern." Such opinion from our outside auditors makes it significantly
more difficult and expensive for the Company to raise additional capital necessary to continue our operations.
Our
common stock is subject to significant dilution upon issuance of shares we have reserved for future issuance.
As
of June 30, 2014, outstanding convertible debt plus accrued interest is equal to $285,724, which could have the right
to convert into additional shares of our common stock at discounts of up to 40% of mPhase's then current stock price computed
on a formula basis that may adversely affect the future price of our common stock that may result in future conversions shares
of our Common Stock based upon our stock price at June 30,2014.
RISK
FACTORS RELATED TO OUR OPERATIONS
We
have been a development-stage company since our inception in 1996 and have not to date had completed final military or commercial
development of our flagship product, the Smart NanoBattery and have only recently begun to generate revenues with respective to
our battery jump products.
We
have derived no material revenues from our Smart NanoBattery from inception of development in February 2004 through June 30, 2014
and have only begun in fiscal year 2014 to generate sales of our .mPower Jump and mPower mini Jump products
The
loss of key personnel could adversely affect our business
Management
and employment contracts with all of our officers have expired and no assurances can be given that such executives will remain
with the Company or that the Company will be able to successfully enter into agreements with such key executives. All of our officers
have made significant investments in the Company in the form of equity periodic purchases of common stock and bridge loans and
been granted stock and stock options that are intended to represent a key component of their compensation. Such grants may not
provide the intended incentives to such officers if our stock price declines or experiences significant volatility. In addition
our three corporate officers converted past accrued and unpaid salaries in the aggregate amount of approximately $426,000, certain
notes and accrued interest were settled for stock and an amended conversion feature (see Note 9) during the FYE June 30, 2014.
RISKS
RELATED TO OUR TARGETED MARKETS
The
sale of new high technology products often has a long lead-time and a multiplicity of risks.
Commercialization
of new technology products often has a very long lead time since it is not possible to predict when major companies will license
such technology for sale to their customers. The science of nanotechnology and microfluidics used to develop our Smart NanoBattery
is in its very early stages and acceptance and demand for such products can often be a long evolutionary process.
The
science of nanotechnology is at a very early stage as a discipline and is subject to great uncertainty and swift changes in technology.
Microfluid
dynamics and the manipulation of materials of nano size and dimensions is a very new science and the creation of new products
is dependent upon new and different properties of such materials created that will result in many uncertain applications and rapid
change. The evolution of nanotechnology as a new science adds greater uncertainty to new applications and new and improved product
introductions is unpredictable.
We
may not be able to create new products from our intellectual property using microfluidics that will be acceptable in water purification,
oil separation from water and other environment markets.
The
market for "green" products and solutions is characterized by changing regulatory standards, new and improved product
introductions, and changing customer demands.
Large
companies such as General Electric with great resources are currently focusing significant monies for new solutions.
Our
future success will depend upon our ability to achieve compelling technology innovations that are economic and practical to produce
in large quantities. Success in new technology, products and services is a complex and uncertain process requiring high levels
of innovation, highly-skilled engineering and development personnel, and the accurate anticipation of technological and market
trends. We may not be able to identify, develop, market or support new or enhanced technology, products, or services on a timely
basis, if at all, owing to our size and limited financial resources.
The
commercialization of many applications of our technologies will depend on our ability to establish strategic relationships with
commercial partners.
We
are seeking commercial partners with established lines of business and greater financial resources than our own. Such partners
may not place the priority that we do on joint projects because the success or failure of such projects is not as material to
other existing well developed lines of business.
Our
SmartNanoBattery and our potential applications of our technology are components of end products and therefore our products are
tied to the success of such end products.
The
compelling need for critical mission batteries and other applications of our nanotechnology will depend upon both military and
commercial needs going forward and the demand for our products as components. Thus the success of our SmartNanoBattery and other
applications of our technology will depend upon the continuing need for the end user products and market demand.
The
sale of new high technology products often has a long lead-time and a multiplicity of risks.
Commercialization
of new technology products often has very long lead time since it is not possible to predict when major companies will license
such technology for sale to their customers. The science of nanotechnology and microfluidics used to develop our Smart NanoBattery
is in its very early stages and acceptance and demand for such products can often be a long evolutionary process.
The
science of nanotechnology is at a very early stage as a discipline and is subject to great uncertainty and swift changes in technology.
Microfluid
dynamics and the manipulation of materials of nano size and dimensions is a very new science and the creation of new products
is dependent upon new and different properties of such materials created that will result in many uncertain applications and rapid
change. The evolution of nanotechnology as a new science adds greater uncertainty to new applications and new and improved product
introductions is unpredictable.
We
may not be able to create new products from our intellectual property using microfluidics that will be acceptable in water purification,
oil separation from water and other environment markets.
The
market for "green" products and solutions is characterized by changing regulatory standards, new and improved product
introductions, and changing customer demands.
Large
companies such as General Electric with great resources are currently focusing significant monies for new solutions.
Our
future success will depend upon our ability to achieve compelling technology innovations that are economic and practical to produce
in large quantities. Success in new technology, products and services is a complex and uncertain process requiring high levels
of innovation, highly-skilled engineering and development personnel, and the accurate anticipation of technological and market
trends. We may not be able to identify, develop, market or support new or enhanced technology, products, or services on a timely
basis, if at all, owing to our size and limited financial resources.
General
Risks Relating to Our Business
Our
current very limited revenue depends on the continued sales of our mPower Jump and mPower mini Jump products and our ability to
continue to obtain SBIR, STTR and other Government Grants for Research and Development.
We
have generated revenue commencing in Fiscal Year 2014 from sales of our battery jump products of $581, 261. We have completed
a Phase II STTR Army Research grant in the amount of $750,000. Although we are actively applying for new SBIR, STTR and other
government grants and funding we are unable to predict whether we will be successful in obtaining such grants.
We
depend on key personnel for our continued operations and future success, and a loss of certain key personnel could significantly
hinder our ability to move forward with our business plan.
Because
of the specialized nature of our business, we are highly dependent on our ability to identify, hire, train and retain highly qualified
scientific and technical personnel for the research and development activities we conduct or sponsor. The loss of one or more
certain key executive officers, or scientists, would be significantly detrimental to us. In addition, recruiting and retaining
qualified scientific personnel to perform research and development work is critical to our success. Our anticipated growth and
expansion into areas and activities requiring additional expertise, such as new applications for “smart surfaces”,
manufacturing and marketing, will require the addition of new management personnel and the development of additional expertise
by existing management personnel. Despite the current economic conditions and job market there is significant competition for
qualified personnel in the areas of our present and planned activities, and there can be no assurance that we will be able to
continue to attract and retain the qualified personnel necessary for the development of our business. The failure to attract and
retain such personnel or to develop such expertise would adversely affect our business.
Our
insurance policies may be inadequate and potentially expose us to unrecoverable risks.
We
do not carry director and officer insurance and have limited commercial insurance policies. Any significant insurance claims would
have a material adverse effect on our business, financial condition and results of operations. Insurance availability, coverage
terms and pricing continue to vary with market conditions. We endeavor to obtain appropriate insurance coverage for insurable
risks that we identify, however, we may fail to correctly anticipate or quantify insurable risks, we may not be able to obtain
appropriate insurance coverage, and insurers may not respond as we intend to cover insurable events that may occur. We have observed
rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance. Such conditions
have resulted in higher premium costs, higher policy deductibles, and lower coverage limits. For some risks, we may not have or
maintain insurance coverage because of cost or availability.
We
have no product liability insurance, which may leave us vulnerable to future claims we will be unable to satisfy.
The
testing, manufacturing, marketing and sale of consumer products entail an inherent risk of product liability claims, and we cannot
assure you that substantial product liability claims will not be asserted against us. We have no product liability insurance.
In the event we are forced to expend significant funds on defending product liability actions, and in the event those funds come
from operating capital, we will be required to reduce our business activities, which could lead to significant losses.
We
cannot assure you that adequate insurance coverage will be available in the future on acceptable terms, if at all, or that, if
available, we will be able to maintain any such insurance at sufficient levels of coverage or that any such insurance will provide
adequate protection against potential liabilities. Whether or not a product liability insurance policy is obtained or maintained
in the future, any product liability claim could harm our business or financial condition.
We
presently have members of management and other key employees located in various locations throughout the country which adds complexities
to the operation of the business.
Presently,
we have members of management and other key employees located in both Connecticut and New Jersey, which adds complexities to the
operation of our business.
We
face risks related to compliance with corporate governance laws and financial reporting standards.
The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the Securities and Exchange Commission
and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting
standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley
Act of 2002 relating to internal control over financial reporting, referred to as Section 404, have materially increased our legal
and financial compliance costs and made some activities more time-consuming and more burdensome.
ITEM
2. PROPERTIES
Our
corporate headquarters is located at 587 Connecticut Avenue, Norwalk, CT 06854-1711. The Company leases this office space from
Microphase Corporation under a facilities agreement with Microphase that provided office space on a month-to-month basis for $993
per month through December 31, 2013. As of January 1, 2014, the lease increased to $1,675 per month and as of April 1, 2014, increased
to $3,175. The Company also leased an office in East Rutherford, New Jersey for an average monthly cost of $1,880 from July 1,
2013 to August 31, 2014. On August 15, 2014, the Company moved its New Jersey office to Clifton, New Jersey with a one year lease
with monthly rent of $4,020.
ITEM
3. LEGAL PROCEEDINGS
From
time to time mPhase may be involved in various legal proceedings and other matters arising in the normal course of business. During
its fiscal years ended June 30, 2013 and June 30, 2014, the Company has been involved in litigation with John Fife and his affiliates
in connection with a Convertible Note issued to Fife on September 13, 2011in the original principal amount of $557,500. The Company
is not, at this time able to predict the outcome of this litigation.
PART
II
ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(A)
MARKET PRICES OF COMMON STOCK. The primary market for mPhase's common stock is the NASDAQ OTC Bulletin Board, where it trades
under the symbol "XDSL." The Company became publicly traded through a merger with Lightpaths TP Technologies, formerly
known as Tecma Laboratories, Inc. pursuant to an agreement dated February 17, 1997. The following table sets forth the high and
low closing prices for the shares for the periods indicated as provided by the NASDAQ's OTCBB System. The quotations shown reflect
inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions. These figures
have been adjusted to reflect a 1 for 10 reverse stock split on March 1, 1997.
YEAR/QUARTER | |
HIGH | | |
LOW | |
Fiscal year ended June 30, 2004 | |
| | |
| |
First Quarter | |
$ | 0.42 | | |
$ | 0.29 | |
Second Quarter | |
| 0.61 | | |
| 0.29 | |
Third Quarter | |
| 0.69 | | |
| 0.38 | |
Fourth Quarter | |
| 0.46 | | |
| 0.29 | |
Fiscal year ended June 30, 2005 | |
| | | |
| | |
First Quarter | |
$ | 0.31 | | |
$ | 0.21 | |
Second Quarter | |
| 0.35 | | |
| 0.23 | |
Third Quarter | |
| 0.6 | | |
| 0.3 | |
Fourth Quarter | |
| 0.41 | | |
| 0.25 | |
Fiscal year ended June 30, 2006 | |
| | | |
| | |
First Quarter | |
$ | 0.29 | | |
$ | 0.21 | |
Second Quarter | |
| 0.32 | | |
| 0.15 | |
Third Quarter | |
| 0.45 | | |
| 0.19 | |
Fourth Quarter | |
| 0.34 | | |
| 0.18 | |
Fiscal year ended June 30, 2007 | |
| | | |
| | |
First Quarter | |
$ | 0.21 | | |
$ | 0.16 | |
Second Quarter | |
| 0.2 | | |
| 0.15 | |
Third Quarter | |
| 0.24 | | |
| 0.15 | |
Fourth Quarter | |
| 0.19 | | |
| 0.09 | |
Fiscal year ended June 30, 2008 | |
| | | |
| | |
First Quarter | |
$ | 0.13 | | |
$ | 0.07 | |
Second Quarter | |
| 0.09 | | |
| 0.05 | |
Third Quarter | |
| 0.14 | | |
| 0.05 | |
Fourth Quarter | |
| 0.13 | | |
| 0.07 | |
Fiscal year ended June 30, 2009 | |
| | | |
| | |
First Quarter | |
$ | 0.08 | | |
$ | 0.03 | |
Second Quarter | |
| 0.05 | | |
| 0.01 | |
Third Quarter | |
| 0.04 | | |
| 0.01 | |
Fourth Quarter | |
| 0.05 | | |
| 0.01 | |
Fiscal year ended June 30, 2010 | |
| | | |
| | |
First Quarter | |
$ | 0.03 | | |
$ | 0.02 | |
Second Quarter | |
| 0.02 | | |
| 0.01 | |
Third Quarter | |
| 0.03 | | |
| 0.02 | |
Fourth Quarter | |
| 0.02 | | |
| 0.01 | |
Fiscal year ended June 30, 2011 | |
| | | |
| | |
First Quarter | |
$ | 0.0189 | | |
$ | 0.01 | |
Second Quarter | |
| 0.0147 | | |
| 0.008 | |
Third Quarter | |
| 0.0105 | | |
| 0.0045 | |
Fourth Quarter | |
| 0.0032 | | |
| 0.0123 | |
Fiscal year ended June 30, 2012 | |
| | | |
| | |
First Quarter | |
$ | 0.0085 | | |
$ | 0.0047 | |
Second Quarter | |
| 0.003 | | |
| 0.0053 | |
Third Quarter | |
| 0.002 | | |
| 0.0037 | |
Fourth Quarter | |
| 0.0016 | | |
| 0.0005 | |
Fiscal year ended June 30, 2013 | |
| | | |
| | |
First Quarter | |
$ | 0.0014 | | |
$ | 0.001 | |
Second Quarter | |
| 0.0023 | | |
| 0.0017 | |
Third Quarter | |
| 0.0037 | | |
| 0.0036 | |
Fourth Quarter | |
| 0.0015 | | |
| 0.0013 | |
Fiscal year ended June 30, 2014 | |
| | | |
| | |
First Quarter | |
$ | 0.0016 | | |
$ | 0.0014 | |
Second Quarter | |
| 0.0017 | | |
| 0.0015 | |
Third Quarter | |
| 0.0014 | | |
| 0.0013 | |
Fourth Quarter | |
| 0.0008 | | |
| 0.0007 | |
(B)
HOLDERS
As
of June 30, 2014, mPhase had approximately 13.850 billion shares of common stock outstanding and approximately 23,000 stockholders
of record. In addition the Company has a total of 1,730,922,492 shares of common stock reserved for issuance upon the
conversion of convertible securities of which, 1,392,162,326 may only be required to issued depending upon the outcome
of certain litigation with John Fife.. Finally, subject to availability, the Company has reserved 1,275,863,492 shares
for conversion of officer notes. Such notes may only be converted if the Board of Directors determines that such shares are not
needed for general corporate financing or other purposes.
(C)
DIVIDENDS
mPhase
has never declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings, if any, to finance operations and the expansion of its business.
Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be based upon mPhase's
financial condition, operating results, capital requirements, plans for expansion, restrictions imposed by any financing arrangements
and any other factors that the Board of Directors deems relevant.
Issuances
of Unregistered Securities.
During
the fiscal year ending June 30, 2014, the following transactions impacted stockholders’ equity
Private
Placements
During
the fiscal year ended June 30, 2014, the Company received $1,654,000 of net proceeds from the issuance of 4,579,628,375 shares
of common stock in private placements with accredited investors, including 283,128,375 shares to finders and $54,000 in fees.
Equity
Line Of Credit
During
the fiscal year ended June 30, 2014, the Company issued 3,990,000 shares of Common Stock to cover the exercise of Put advances
under Equity Line of Credit generating $6,263 of proceeds, net of $500 transaction fees.
Return
of Shares to Treasury
During
the fiscal year ended June 30, 2014 three (3) officers’ returned 885,000,000 shares of common stock to treasury of shares
previously issued to these officers.
Stock
Based Compensation
The
Company issued awards of 3,129,704,375 shares of common stock to Officers, Directors, Employees and consultants during the fiscal
year ended June 30, 2013 valued at $2,770,544.
Conversion
of debt securities
During
the fiscal year ended June 30, 2014, $96,026 of debt was converted into 141,761,066 shares of common stock to holders of Convertible
Notes.
Conversion
of Debt to Officers’
During
the fiscal year ended June 30, 2014, the officers’ were authorized by the board of directors’ to enter into agreements
to convert certain officer notes, previously convertible at $.004 from 2009 through April 2014, based upon the then concurrent
terms of private placements with accredited investors; at $.0004, representing the now current terms of private placements with
accredited investors.
As
a result thereon $723,729 of loans, accrued interest and unpaid salary were converted into 1,810,826,637shares of common stock
with a conversion rate of $.0004 per share and warrants to purchase shares of common stock at $.0004 for a term of five years
effective March 31, 2014, respectively. In connection with these transactions the officers’ agreed to forego and cancel
$425, 918 of accrued wages since fiscal 2013 and $238,321 of accrued interest since fiscal 2009 totaling a cancelation of $664,239
of debt; which when combined with the beneficial conversion feature of the 1,810,826,637 of shares converted for $723,729of
$1,673,261 less $361,380 debt forgiven attributable to the conversions resulted in $1,311,881 beneficial conversion feature interest
expense during the nine months ended March 31, 2014, and th Company amortized $30,393 from April 1, 2014 through June 30, 2014
for a total of $1,342,274 beneficial conversion feature interest expense during the current period.
The
value of the warrants computed using the black shoals method with a volatility of 100%, risk free interest rate of .05% and a
term of five years which was computed to be $1,413,547 for the conversion feature at $.0004 at the option of the officers, to
the extent shares are available and $502,837 of remaining debts to officers’, less 302,859 debt forgiven attributable
to the warrant resulted in $607,851 deferred beneficial conversion feature interest expense, a reduction of additional paid in
capital, which will be amortized on a straight line basis over the life of the warrant or sooner if and when converted, of which
30,393 was amortized through June 30, 2014. On June 30, 2014, these Notes are convertible into approximately 1,275,863,375 shares
of common stock, if available.
Reparations
The
Company did not issue any shares to investors for reparations.
During
the fiscal year ending June 30, 2013, the following transactions impacted stockholders’ equity
Private
Placements
During
the fiscal year ended June 30, 2013, the Company received $579,000 of net proceeds from the issuance of 1,322,250,000 shares of
common stock in private placements with accredited investors that included $92,000 of reparations. The aggregate fees for such
placements were $ 28,500.
Equity
Line Of Credit
During
the fiscal year ended June 30, 2013, the Company issued 42,412,553 shares of Common Stock to cover the exercise of Put
advances under Equity Line of Credit generating $80,853 of proceeds, net of $8,920 transaction fees.
Stock
Based Compensation
The
Company did not issue any awards of common stock or options to Officers, Directors or Employees during the fiscal year ended June
30, 2013.
Conversion
of debt securities
During
the fiscal year ended June 30, 2013, $ 39,000 of debt including $1,500 accrued interest thereon was converted into 40,451,179
shares of common stock to holders of Convertible Notes.
Reparations
The
Company issued 40,000,000 shares to single investor for reparations valued at $92,000.
During
the fiscal year ending June 30, 2012, the following transactions impacted stockholders’ equity
Private
Placements
During
the fiscal year ended June 30, 2012, the Company received $127,000 of net proceeds from the issuance of 170,000,000 shares of
common stock in private placements with accredited investors. The aggregate cost of such placements was $13,000.
Stock
Based Compensation
The
Company issued awards of 1,035,000,000 shares of common stock to Officers, Directors or Employees during the fiscal year ended
June 30, 2012 valued at $6,520,500. Directors revised the exercise price of options to purchase up to 98,000,000 shares of common
stock previously granted to officers in September, 2008 (originally exercisable for 5 years with an exercise price of 5 cents
per share). The exercise price of options to purchase up to 98,000,000 shares was revised to $.0040; the incremental cost of $339,700
was recorded as deferred compensation which will be amortized to expense through September 18, 2013.
Conversion
of debt securities
During
the fiscal year ended June 30, 2012, $1,814,368 of debt was converted into 716,962,140 shares of common stock to holders of Convertible
Notes.
Reparations
The
Company did not issue any shares to investors for reparations.
Long
Term Convertible Debentures / Debt Discount and Related Interest
The
Company has entered into eleven separate convertible debt arrangements with independent investors.
General
The
economic substance of convertible debt arrangements entered into beginning December 2007 was to provide the Company with needed
liquidity to supplement the private equity markets.
The
form of the transaction generally involves the following:
|
● |
The
receipt of cash. |
|
|
|
|
● |
The
issuance of a note payable from mPhase. |
|
● |
The
issuance of a note receivable due to mPhase. |
|
|
|
|
● |
A
Securities Purchase Agreement. |
|
● |
The
note payable contains conversion features which permit the holder to convert debt into equity. Such debt is eligible to be
converted into the Company's common stock immediately, thus requiring the recording of the entire liability upfront. Finally,
to encourage conversion, a discount from market value is offered. |
|
|
|
|
● |
The
aggregate amount of notes payable exceeds the amount of cash received. As "Consideration" for this difference the
Company takes back a secured note receivable. Security is generally liquid investments of the investor. |
|
● |
The
note receivable provides a commitment to fund mPhase. The notes are secured and collateralized and carry terms which are different
from the related note payable and no right of offset exists. |
Long
Term Convertible Debentures / Notes Receivable / Debt Discount
The
Company had 14 separate convertible debt arrangements with independent investors that were in effect at various times during the
two fiscal years ended June 30, 2013 and 2014, three (3) of which were still active as of June 30, 2014.
During
the fiscal year ended June 30, 2013, $ 39,000 of debt including $1,500 accrued interest thereon was converted into 40,451,179
shares of common stock to holders of Convertible Notes.
During
the fiscal year ended June 30, 2014, $96,026 of debt including $13,026 of accrued interest and fees thereon was converted into
141,761,066 shares of common stock to holders of Convertible Notes.
These
transactions are intended to provide liquidity and capital to the Company and are summarized below.
These
transactions are intended to provide liquidity and capital to the Company and are summarized below.
Arrangement
#1 (JMJ Financial, Inc.)
On
November 17, 2009, the Company received a total of $186,000 of proceeds in connection with a new financing agreement with JMJ
Financial. This transaction consists of the following: 1) a convertible note in the amount of $1,200,000 plus a one-time interest
factor of 12% ($144,000) and a maturity date of September 23, 2012 and (2) a secured promissory note in the amount of $1,100,000
plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity date of September 23, 2012 due from the holder of
the convertible note. Conversion of outstanding principal into shares of common stock is at the option of the holder. The number
of shares into which this note can be converted is equal to the dollar amount of the note divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion
To
date the Company has received a total of $639,500 in cash and has issued 322,187,500 shares of common stock to the holder upon
conversions of $325,440 of principle and $994,766 of conversion fees. The remaining $604,600 of cash which was to be received
from the holder plus accrued and unpaid interest was convertible into shares of common stock at the option of the holder. Upon
receipt, in full, of cash by the Company equaling the purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total amount of interest funded that would accrue to maturity
into additional shares of common stock. Based upon the price of the Company’s common stock on June 30, 2011 of $.0073 per
share the holder could convert the remaining principal amount plus interest of this convertible note into approximately 222,142,857
shares of common stock at the full contract value; of which the derivative liability associated with this arrangement is calculated.
At June 1, this note was combined with arrangement #4 JMJ Financial, Inc.
During
the year ended June 30, 2011 the holder converted $33,750 of principal into 10,000,000 shares of common stock and amortization
of debt discount amounted to $412,332, reducing the debt discount balance to $100,000.
During
the year ended June 30, 2012, the Company reduced the note payable and debt discount by $42,000 in proportion with the amount
funded to the total original funding commitment and amortization of debt discount amounted to $27,067 reducing the balance to
$30,933. Also during the year ended June 30, 2012, the Company had incurred $994,766 of conversion fees which together with $291,690
of principle was converted into 322,187,500 shares of common stock. At June 30, 2012 this convertible note had $372,060 outstanding
which was combined with arrangement #3 JMJ Financial, Inc.
Arrangement
#2 (JMJ Financial, Inc.)
On
December 15, 2009 the Company entered into a new financing agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the amount of $1,500,000 plus a one-time interest factor of 12% ($180,000) and a maturity date of
December15, 2012 and (2) a secured promissory note in the amount of $1,400,000 plus a one-time interest rate factor of 13.2% ($180,000
) and a maturity date of December 15, 2012 due from the holder of the convertible note. To date the Company has received a total
of $300,000 cash and has issued no shares of common stock to the holder upon conversions. The remaining $1,280,000 of cash to
be received from the holder plus accrued and unpaid interest is convertible into shares of common stock at the option of the holder.
Upon receipt, in full, of cash by the Company equaling the purchase price of the convertible note plus interest or any portion
thereof payable through maturity, the holder may convert such portion of the total amount of interest funded that would accrue
to maturity into additional shares of common stock.
The
number of shares into which this convertible note can be converted is equal to the dollar amount of the note divided by 75% of
the lowest trade price during the 20 day trading period prior to conversion. Based upon the price of the Company’s common
stock on June 30, 2011 of $.0073 per share the holder could convert the remaining principal amount plus interest of this convertible
note into approximately 285,714,286 shares of common stock at the full contract value; of which the derivative liability associated
with this arrangement is calculated.
The
Company and the holder are presently negotiating potential amendments to this agreement, and funding and conversions have not
occurred since April, 2011. For accounting purposes the note receivable has been fully reserved, and the liability is recorded,
when netted against the debt discount and cumulative conversions, at the amount funded. Based upon the price of the Company’s
common stock on June 30, 2011, the net liability of this note is convertible into approximately 38,095,238 shares of common stock.
At the commitment date, the derivative value of the embedded conversion feature of such security was $542,714 and the debt discount
was valued at $642,714. As of June 30, 2011, this value was calculated to be $607,994. During the year ended June 30, 2011, amortization
of debt discount amounted to $418,552, reducing the balance to $100,000.
During
the fiscal year ended June 30, 2012, the Company reduced the note payable and debt discount by $79,000 in proportion with the
amount funded to the total original funding commitment and amortization of debt discount amounted to $8,573 reducing the balance
to $12,427. As of June 30, 2012, this convertible note has $321,000 outstanding which was combined with arrangement #3 JMJ Financial,
Inc.
Arrangement
#3 (JMJ Financial, Inc.)
On
April 5, 2010, the Company entered into a new financing agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the principal amount of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity
date of December 15, 2012, and (2) a secured promissory note from the holder of the convertible note in the amount of $1,100,000
plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity date of December 15, 2012. To date the Company has
received a total of $100,000 cash and has issued no shares of common stock to the holder upon conversions. The remaining $1,144,000
of cash to be received from the holder plus accrued and unpaid interest is convertible into shares of common stock at the option
of the holder.
Upon
receipt, in full, of cash by the Company equaling the purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total amount of interest funded that would accrue to maturity
into additional shares of common stock. The number of shares into which this convertible note can be converted is equal to the
dollar amount of the note divided by 75% of the lowest trade price during the 20 day trading period prior to conversion. Based
upon the price of the Company’s common stock on June 30, 2011 of $.0073 per share the holder could convert the remaining
principal amount plus interest of this convertible note into approximately 228,571,429 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is calculated.
For
accounting purposes the note receivable has been fully reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the Company’s common stock on June
30, 2011, the net liability of this note is convertible into approximately 19,047,619 shares of common stock. At the commitment
date, the derivative value of the embedded conversion feature of such security was $421,891 and the debt discount was valued at
$521,891. As of June 30, 2011, this value was calculated to be $486,795. During the year ended June 30, 2011, amortization of
debt discount amounted to $378,761, reducing the balance to $ 100,000.
During
the fiscal year ended June 30, 2012, the Company reduced the note payable and debt discount by $91,000 in proportion with the
amount funded to the total original funding commitment and amortization of debt discount amounted to $3,674 reducing the balance
to $5,326.
As
of June 30, 2012, this convertible note has $109,000 outstanding, which when combined with arrangements #8 and #9 totaled $802,060,
which the Company entered into an amended agreement on June 1, 2012 whereby the Company agreed to make payments of principle and
interest of $37,018 per month commencing October 1, 2012 through September 1, 2014 at 8% interest and so long as the payments
are not in default then no conversions into the Company’s common stock would be available to the holder. Also as of June
30, 2012 the derivative value of the embedded conversion feature of this arrangement when combined with arrangements #2 and #3
totaled $0; which when compared to the combine value of $1,567,512 created a non-cash credit to earnings of $1,567,512 in fiscal
2012. As of June 30, 2013 and June 30, 2014, the combined arrangements with JMJ in this note would be convertible into 219,050,990 and
237,807,785 at the conversion floor price of $.004; and only so if the Company does not make the scheduled payments pursuant to
the June 1, 2012 amended agreement. The Company has not made any payments of the $37,018 installment payments commencing October
1, and the holder has continued to accrue interest on the outstanding balance.
Arrangement
#4 (John Fife)
On
March 5, 2010, the Company entered into an new financing agreement with J. Fife that consist of a convertible note issued by the
Company in the principal amount of $550,000 bearing interest at 7.5% per annum in which the Company received $495,000 cash up
front. The Convertible Note had a maturity date of one year from the date of issuance. In addition, the Company had committed
to issue in the future 2 additional promissory notes each in the principal amount of $275,000 each with an interest rate of 7.5%
each upon the receipt of $250,000 of cash funding in exchange for such notes. The issuance of each of such notes was expected
to take place upon the full conversion of the holder of its previous note into common stock of the Company. Conversion of each
of the Convertible Notes into common stock of the Company is at the option of the holder at a price equal to the dollar amount
of the note being converted divided by 75% of the three lowest volume weighted average prices during the 20 day trading period
immediately preceding the date of conversion.
On
October 22, 2010, the Company entered into a Forbearance Agreement with this convertible note holder in which the lender agreed
not to convert any additional amounts under the convertible notes until January 15, 2011 in exchange for increasing the original
principal amount of those notes by 10% from $550,000 to $605,000 resulting in a charge of $55,000 for debt extension fees corresponding
with the addition to the note principal. At the time of the October 22, 2010 transaction, the embedded conversion feature of this
security for this incremental liability and loan discount was calculated to be $20,005. This note, which was originally scheduled
to mature on March 4, 2011, was extended to June 30, 2012 on September 13, 2011. These increases in the convertible note will
also be convertible into common stock of the Company at the option of the holder at a price equal to the dollar amount of the
note being converted divided by 75% of the three lowest volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion.
At
the time of the transaction (March 5, 2010) the derivative value of this security was calculated to be $193,767 and the debt discount
was valued at $243,767. As of June 30, 2011 and 2012 this liability was estimated to be
$78,059
and $0, respectively, creating a non-cash credit to earnings of $78,059 in fiscal 2012. During the year ended June 30, 2011 the
holder converted $398,245 of principal into 65,280,866 shares of common stock and amortization of debt discount amounted to $
227,621, reducing the balance of the debt discount to $ 0. During the year ended June 30, 2012 the holder converted the remaining
principal of $234,755, contractual charges of $74,848 and accrued interest of $77,895 into 161,041,617 shares of common stock
and $0 remained outstanding at June 30, 2012.
Arrangement
#5 (Jay Wright)
On
August 11, 2011 the Company issued to Jay Wright a Convertible Note plus a Warrant in a Private Placement pursuant to Section
42) of the Securities Act of 1933 and received $25,000 in gross proceeds. The purpose for this transaction was to provide working
capital for the Company to use for a portion of the interim financing needed by Energy Innovative Products during the course of
due diligence by the Company of a proposed acquisition of EIP. The acquisition was subsequently terminated by EIP in January of
2012.
Interest
only is payable under the original terms of the Convertible Note at the rate of 1% per month by the Company to the holder. The
Convertible Note was originally convertible at a price of $.0068 per share subject to a downward adjustment if the Company issues
common stock below such price as long as the Convertible Note is outstanding (anti-dilution protection). The Warrant gives the
holder the right to purchase up to 3,676,471 shares of the Company’s common stock at a price of $.0068 per share subject
also to a downward adjustment for anti-dilution protection.
The
Company and the holder had negotiations with respect to a final repayment arrangement of the Convertible Note. The Company has
issued the holder 18 million shares of its common stock for repayment through a conversion and the holder has accepted the
conversion and the amount of shares issued in satisfaction of the obligation.
All
proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $4,660 and
the debt discount totaled the same.
The
Company has taken the position that this note was converted in full during the fiscal year ended June 30, 2012 together with accrued
interest of $1,900 for 18,000,000 shares of common stock. On February 11, 2013, the Holder formally accepted the 18,000,000 shares
of common stock as payment in full of the Convertible Note and agreed to cancel the Warrant.
Arrangement
#6 (John Fife dba St. George Investors)
On
September 13, 2011, the Company issued a second Convertible Note to John Fife founder and president of St. George Investments,
in a Private Placement pursuant to Section 4(2) of the Securities Act of 1933. The initial principal amount of the first funded
tranche of the Convertible Note was $357,500 and the Company received cash proceeds of $300,000.
A
second tranche of the Convertible Note in the amount of $200,000 cash is funded upon the filing by the Company of a Registration
Statement on Form S-1 with the Securities and Exchange Commission providing for the registration of 185,400,000 shares of common
stock that may be converted into from time to time by the holder of the Convertible Note.
The
instrument is convertible into the Company’s common stock at 75% of the volume weight average price of the stock based upon
the average of the three lowest trading days in the 20 day trading period immediately preceding such conversion. Absent an effective
Registration Statement, the holder of the Convertible Note may not sell any common stock prior to 6 months from the date of funding
of each of the respective tranches of such instrument under Rule 144 of the Securities Act of 1933.
All
proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $137,481 and
the loan discount totaled $194,981 for the initial tranche and the embedded conversion feature of this security and the warrant
for a second tranche of the Convertible Note was calculated to be $46,379. On June 30, 2012, given the changes in the Company’s
stock price during the 20 day look-back period for June 30, 2012 and conversions during the period this estimated liability had
increased from $183,860 to $771,079, an increase this period of $587,219, creating a non-cash charge to earnings for the twelve
months ended June 30, 2012 of that amount.
During
the twelve month period ended June 30, 2012 amortization of debt discount amounted to $185,456 reducing the combined balance to
$55,903. On June 30, 2013, given the changes in the Company’s stock price during the 20 day look-back period for June
30, 2013, this estimated liability had decreased to $138,696, a decrease this period of $689,007, creating a non-cash credit to
earnings for the year ended June 30, 2013 of that amount. During the year ended June 30, 2013, amortization of debt discount amounted
to $55,903, reducing the combined balance to $0.
On
June 30, 2014, given the changes in the Company’s stock price during the 20 day look-back period for June 30, 2014,
this estimated liability had increased to $548,906, an increase this period of $410,210, creating a non-cash charge to earnings
for the year ended June 30, 2014 of that amount.
The
company entered into an amended agreement on June 1, 2012, when principle of $557,500 accrued interest of $66,338 and $95,611
of contractual charges totaled $719,449; with this noteholder whereby the Company agreed to make payments of principle and interest
of $33,238 per month commencing October 1, 2012 through September 1, 2014 at 8% interest and so long as the payments are not in
default then no conversions into the Company’s common stock would be available to the holder. As of September 30, 2012 this
note would be convertible into 789,645,351 shares of common stock at the original terms. The Company has not made any payments
of the $33,238 installment payments commencing October 1, and the holder has continued to accrue interest on the outstanding balance
(see note 4). On November 20, 2012, mPhase Technologies, Inc. (the “Company”) formally received an Event of Default
and Redemption Notice dated November 16, 2012 with respect to an 8% Convertible Note dated September 13, 2011 issued by the Company
to St. George Investments LLC and assigned to John Fife. The notice included alleged defaults with respect to payments owed by
the Company under the Convertible Note and the failure to convert the Note into shares of the Company’s common stock. The
alleged amount owed according to the notice is approximately $902,279. The Company believes it has affirmative defenses to the
actions of the holder of the Convertible Note as well as counterclaims against the Holder.
As
of June 30, 2013, this note would have been convertible into 700,806,707 shares of common stock at the original terms.
As
of June 30, 2014, this note would be convertible into 1,392,162,326 shares of common stock at the original terms.
Arrangement #7
(Asher Enterprises, Inc.)
On
November 17, 2011 the Company issued to Asher Enterprises, Inc. a Convertible Note plus a Warrant in a Private Placement pursuant
to Section 4(2) of the Securities Act of 1933 and received $53,000 in gross proceeds, net of $3000 closing fees. The instrument
is in the principal amount of $53,000 and matures on November 17, 2012. Interest only is payable at the rate of 8% per annum by
the Company to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume
weight average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately
preceding such conversion. All proceeds received in connection with the above financing have been used by the Company as working
capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $47,970 and
the loan discount totaled $50,970. During the fiscal year ended June 30, 2012, this Convertible Note was converted,
in full, into 162,749,128 shares of common stock.
Arrangement #8
(Asher Enterprises, Inc II)
On
January 5, 2012 the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section 4(2)
of the Securities Act of 1933 and received $35,000 in gross proceeds, net of $2,500 closing fees. The instrument is in the principal
amount of $35,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight average price
of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding such conversion.
All proceeds received in connection with the above financing have been used by the Company as working capital. On July
11, 2012, the Company prepaid, in full, in cash, this Convertible Note, together with $1,388 of interest and a $17,500 prepayment
fee charged to expense during the year ended June 30, 2013.
Arrangement#9-
(Asher Enterprises, Inc. III )
On
May 5, 2012 the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section 4(2) of
the Securities Act of 1933 and received $37,500 in gross proceeds, net of $2,500 closing fees. The instrument is in the principal
amount of $33,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight average price
of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding such conversion.
All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $18,137 and
the loan discount totaled the same. On June 30, 2012, given the changes in the Company’s stock price during the 10 day look-back
period for this estimated liability had increased to $66,029, an increase this period of $47,892 creating a non-cash charge to
earnings of that amount. During the twelve month period ended June 30, 2012 amortization of debt discount amounted to $3,601 reducing
the balance to $14,536. Based upon the price of the Company’s common stock on June 30, 2012, this note was convertible into
approximately 115,030,675 shares of common stock.
On
September 30, 2012, given the changes in the Company’s stock price during the 10 day look-back period for this estimated
liability had decreased to $17,038, an decrease this period of $48,991 creating a non-cash credit to earnings of that amount.
During the three month period ended September 30, 2012 amortization of debt discount amounted to $6,201 reducing the balance to
$8,335. On December 5, 2012 the Company prepaid, in full, in cash, this Convertible Note, together with $1,479 of interest
and an $18,750 prepayment fee charged to expense during the year ended June 30, 2013.
Arrangment
#10 (Asher Enterprises, Inc. IV)
On
December 8, 2012, the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 and received $37,500 in gross proceeds, net of $2,500 closing fees. The instrument is in the
principal amount of $33,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company
to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight
average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding
such conversion. All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $24,966 and
the loan discount totaled $27,466, which amount was fully amortized during the year ended June 30, 2013. During the fiscal year
ended June 30, 2013, $ 37,500 of this debt together with $1,500 accrued interest thereon was converted into 40,451,179 shares
of common stock repaying this note in full.
Arrangement
#11(Black Arch Opportunity Fund L.P.)
On
December 8, 2012, the Company issued to Black Arch Opportunity Fund L.P., Inc. a Convertible Note in a Private Placement pursuant
to Section 4(2) of the Securities Act of 1933 and received $30,000 in gross proceeds. The instrument is in the principal amount
of $30,000 and matures on January 5, 2013. Interest only is payable at the rate of 12% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 45% discount (60% while the Company’s
stock is “chilled” by the DTC) based upon the average of the three lowest trading days in the 10 day trading period
immediately preceding such conversion. All proceeds received in connection with the above financing have been used by the Company
as working capital.
At
the time of the transaction, the embedded conversion feature of this security was calculated to be $70,001 and the loan discount
totaled $70,001. On June 30, 2013, given the changes in the Company’s stock price during the 10 day look-back period for
this estimated liability had decreased to $43,508, a decrease this period of $26,423 creating a non-cash credit to earnings of
that amount. During the year ended June 30, 2013, amortization of debt discount amounted to $70,001, reducing the balance to $31,136.
Based upon the price of the Company’s common stock on June 30, 2013, this Note is convertible into approximately
57,668,070 shares of common stock.
Arrangement #12
(Asher Enterprises, Inc. V)
On
January 31, 2013, the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 and received $50,000 in gross proceeds, net of $3,000 closing fees. The instrument is in the
principal amount of $33,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company
to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight
average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding
such conversion. All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $57,418 and
the loan discount totaled $60,418. On June 30, 2013, given the changes in the Company’s stock price during the 10 day look-back
period for this estimated liability had decreased to $29,729, a decrease this period of $27,689 creating a non-cash charge to
earnings of that amount. During the year ended June 30, 2013, amortization of debt discount amounted to $48,787 reducing the balance
to $0. Based upon the price of the Company’s common stock on June 30, 2013, this Note is convertible into approximately
57,688,070 shares of common stock.
Arrangement
#13 (Asher Enterprises, Inc. VI)
On
July 2, 2013, the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section 4(2)
of the Securities Act of 1933 and received $37,500 in gross proceeds, net of $2,500 closing fees. The instrument is in the principal
amount of $37,500 and matures on March 28, 2014. Interest only is payable at the rate of 8% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight average price
of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding such conversion.
All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $28,216 and
the loan discount totaled $30,626. On December 31, 2013, given the changes in the Company’s stock price during the 10 day
look-back period for this estimated liability had decreased to $26,471, a decrease this period of $1,655 creating a non-cash credit
to earnings of that amount. During the six months ended December 31, 2013, amortization of debt discount amounted to $30,626 reducing
the balance to $0. On January 8, 2014 this note was prepaid in full, together with a prepayment fee of $17,500 and
accrued interest totaling $2,729.
Arrangement
14 (MH Investment trust)
On
December 27, 2013, the Company issued to the MH Investment Trust. a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 which was executed funded with $40,000 in gross proceeds on January 7, 2014. The instrument
is in the principal amount of $40,000 and matures on October 1, 2014. Interest only is payable at the rate of 12% per annum by
the Company to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume
weight average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately
preceding such conversion, or 65 % when the trading price exceeds $.0020 for the five days before such conversion. All proceeds
received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $35,556 and
the company recorded no loan discount as the quantity of shares was considered indeterminable at the date of funding. On June
30, 2014, given the changes in the Company’s stock price during the 10 day look-back period for this estimated liability
had increased to
$88,637,
an increase for this period of $53,081creating a non-cash charge to earnings of that amount. Based upon the price of the
Company’s common stock on June 30, 2014, this Note is convertible into approximately 100,952,381 shares of common stock.
EQUITY
LINE OF CREDIT
The
Company entered into a $10,000,000 equity line of Credit with Dutchess Opportunity Fund II, LLC in December of 2011. Under the
equity line, the Company is eligible to “PUT” to the fund, 20,000,000 shares of its common stock during any pricing
period. The Company has registered a total of 250,000,000 shares of its common stock on a Form S-1 Registration Statement with
the Securities and Exchange Commission that was declared effective on January 17, 2012 in connection with the Dutchess Equity
Line.
As
of June, 2014, the Company has received $227,744 of proceeds under the Equity Line relating to the resale of 135,990,000 shares
of the Company’s common stock, net of $22,920 transaction fees. The amount of proceeds to be received under the Equity Line
will depend upon the stock price of the Company at the various points in time it exercises the Put Option. As of June 30, 2014,
the Company has received $145,428, $80,053 and $6,263 in Fiscal Years Ended June 30, 2012, 2013 and 2014, under
the Equity Line relating to the resale of 89,587,447, 42,412,553 and 3,990,000 shares of the Company’s common stock in Fiscal
Years Ended June 30, 2012 , 2013 and 2014. The amount of proceeds to be received under the Equity Line will depend upon the
stock price of the Company at the various points in time it exercises the Put Option.
BENEFICIAL
CONVERSION FEATURE
In
April 2009, the Board of Directors authorized the right for the officers to convert into shares of the Company's common stock
officers' loans discussed in Note 9, plus accrued interest thereon, at any time for the next five years providing such shares
are issued, outstanding and available, at a conversion price of $.0075. This conversion price was amended in August 2011 to $.0040.
During the fiscal year ended June 30, 2014, the officers’ were authorized by the board of directors’ to enter into
agreements to convert certain officer notes, previously convertible at $.004 from 2009 through April 2014, based upon the then
concurrent terms of private placements with accredited investors; at $.0004, representing the now current terms of private placements
with accredited investors. On June 30, 2014, these Notes are convertible into approximately 1,275,863,375 shares of common stock,
if available.
SUBSEQUENT
EVENTS
On August
8, 2014, the Company paid in full $40,000 principle and together with $2,632 accrued interest and $14,900 of prepayment fees to
MH Investment Trust in satisfaction of its Convertible Promissory Note to MH Investment Trust for $40,000, originally funded on
January 7, 2014.
On September 5, 2014 the Company
announce on form 8k that pursuant to Section 4(2) of the Securities Act of 1933, as amended, the Company issued a convertible note
to MH Investment Trust in a Private Placement. The Company received in $40,000 cash proceeds from the sale of the 6% Convertible
Note that will be used as additional working capital.
From July 1, 2014 through October
22, 2014 the Company has completed transactions in a private placement of its common stock to 5 accredited investors pursuant
to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. The Company received proceeds of $245,000,
made available for working capital, in connection with the issuance of 642,500,000 shares of its common stock at $.0004, including
30,000,000 shares to finders.
ITEM
6. SELECTED CONSOLIDATED FINANCIAL DATA
The
selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements and notes included in this annual report. The
statement of operations data for the years ended June 30, 2010, 2011, 2012, 2013 and 2014 and the balance sheet data as of June
30, 2010, 2011, 2012, 2013 and 2014 are derived from financial statements that have been audited by Demetrius & Company,
L.L.C.
SUMMARY
OPERATING DATA
Year
Ended June 30,
(in
thousands except per share data)
| |
Fiscal
Years Ended June 30, | |
| |
2010 | | |
2011 | | |
2012 | | |
2013 | | |
2014 | |
Total
Revenues | |
$ | 354 | | |
$ | 49 | | |
$ | 1 | | |
| 4 | | |
$ | 581 | |
Cost of Sales | |
| 66 | | |
| 50 | | |
| 15 | | |
| 15 | | |
| 352 | |
Research
and Development | |
| 2,203 | | |
| 626 | | |
| 53 | | |
| 126 | | |
| 2 | |
General
and administrative | |
| 1,845 | | |
| 1,823 | | |
| 7,921 | | |
| 1,202 | | |
| 4,100 | |
Depreciation
and amortization | |
| 25 | | |
| 15 | | |
| 14 | | |
| 12 | | |
| 12 | |
Operating
Loss | |
| (3,785 | ) | |
| 1,875 | | |
| (8,002 | ) | |
| (1,351 | ) | |
$ | (3,885 | ) |
Other
income (expense) net | |
| (118 | ) | |
| 2,120 | | |
| (446 | ) | |
| 503 | | |
$ | (423 | ) |
Interest
income (expense) | |
| (3,463 | ) | |
| (141 | ) | |
| (344 | ) | |
| (293 | ) | |
$ | (1,632 | ) |
Discontinued
Operations | |
| - | | |
| 245 | | |
| 5 | | |
| 880 | | |
| - | |
Net
Loss | |
$ | (7,366 | ) | |
$ | (486 | ) | |
$ | (8,787 | ) | |
| (261 | ) | |
$ | (5,944 | ) |
Continuing
per share | |
$ | (.01 | ) | |
$ | (.00 | ) | |
$ | (.00 | ) | |
| (.00 | ) | |
| (.00 | ) |
Discontinued
per share | |
$ | 0 | | |
$ | (.00 | ) | |
$ | (.00 | ) | |
| (.00 | ) | |
| 0 | |
Weighted
Average shares outstanding | |
| 1,041,685,519 | | |
| 1,402,130,735 | | |
| 2,789,725,412 | | |
| 4,515,985,122 | | |
| 7,033,888,082 | |
BALANCE
SHEET DATA
in
$000's
| |
2010 | | |
2011 | | |
2012 | | |
2013 | | |
2014 | |
Cash
and cash equivalents | |
$ | 228 | | |
$ | 2 | | |
$ | 40 | | |
$ | 1 | | |
$ | 179 | |
Working
capital (deficit) | |
$ | 201 | | |
$ | (2,705 | ) | |
$ | (3,691 | ) | |
$ | (4,370 | ) | |
$ | (2,880 | ) |
Total
assets | |
$ | 5,844 | | |
$ | 235 | | |
$ | 186 | | |
$ | 112 | | |
$ | 860 | |
Long-term
obligations, net of current portion | |
$ | 28 | | |
$ | 16 | | |
$ | 3 | | |
$ | 40 | | |
$ | 40 | |
Total
stockholders' (deficit) | |
$ | (7,884 | ) | |
$ | (5,592 | ) | |
$ | (5,503 | ) | |
$ | (4,788 | ) | |
$ | (3,555 | ) |
Selected
Quarterly Financial Information
The
statement of operations data as of the quarterly periods indicated below are derived from unaudited financial statements on Form
10Q filings, and include all adjustments (consisting of normal recurring items) that management considers necessary for a fair
presentation of the financial statements.
FISCAL 2014
QUARTERLY | |
Three
Months Ended | |
STATEMENT
OF OPERATIONS DATA: | |
September 30, | | |
December 31, | | |
March
31, | | |
June
30, | |
| |
(in
thousands, except share amounts) | |
Total
revenues | |
$ | 0 | | |
$ | 54 | | |
$ | 255 | | |
$ | 272 | |
Costs
and Expenses: | |
| | | |
| | | |
| | | |
| | |
Costs of Sales | |
| 0 | | |
| 50 | | |
| 151 | | |
| 151 | |
Research
and development | |
| 1 | | |
| 1 | | |
| 1 | | |
| (1 | ) |
General
administrative | |
| 247 | | |
| 245 | | |
| 446 | | |
| 3,162 | |
Depreciation
and amortization | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | |
Operating
loss | |
| (251 | ) | |
| (245 | ) | |
| (346 | ) | |
| (3,043 | ) |
Interest
expense, Net | |
| (78 | ) | |
| (79 | ) | |
| (1,393 | ) | |
| (50 | ) |
Other
Income (expense) | |
| (744 | ) | |
| 679 | | |
| (164 | ) | |
| (230 | ) |
Discontinued
operations | |
| | | |
| | | |
| | | |
| | |
Net
(Loss)Income | |
$ | (1,073 | ) | |
$ | 355 | | |
$ | (1,903 | ) | |
$ | (3,323 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | (0.00 | ) | |
$ | 0.00 | | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
Discontinued
operations | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | |
Diluted
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | N/A | | |
$ | 0.00 | | |
$ | N/A | | |
$ | N/A | |
Discontinued
operations | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | |
Shares
used in basic net loss per share | |
| 5,258,640,472 | | |
| 5,443,409,801 | | |
| 7,561,827,456 | | |
| 10,161,132,304 | |
Shares
used in diluted net loss per share | |
| N/A | | |
| 6,000,000,000 | | |
| N/A | | |
| N/A | |
FISCAL 2013 QUARTERLY | |
Three Months Ended | |
STATEMENT OF OPERATIONS DATA: | |
September 30, | | |
December 31, | | |
March 31, | | |
June 30, | |
| |
(in thousands, except share amounts) | |
Total revenues | |
$ | 2 | | |
$ | 0 | | |
$ | 0 | | |
$ | 2 | |
Costs and Expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| 13 | | |
| 0 | | |
| 0 | | |
| 2 | |
Research and development | |
| 1 | | |
| 1 | | |
| 1 | | |
| 123 | |
General and administrative | |
| 283 | | |
| 302 | | |
| 268 | | |
| 349 | |
Depreciation and amortization | |
| 3 | | |
| 3 | | |
| 3 | | |
| 3 | |
Operating loss | |
| (298 | ) | |
| (306 | ) | |
| (272 | ) | |
| (475 | ) |
Interest expense, Net | |
| (70 | ) | |
| (71 | ) | |
| (75 | ) | |
| 77 | |
Other Income (expense) | |
| 661 | | |
| (361 | ) | |
| (139 | ) | |
| (342 | |
Discontinued operations | |
| | | |
| | | |
| | | |
| 880 | |
Net ( Loss) Income | |
$ | 293 | | |
$ | (738 | ) | |
$ | (486 | ) | |
$ | 670 | |
| |
| | | |
| | | |
| | | |
| | |
Basic net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing operations | |
$ | 0.00 | | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | 0.00 | |
Discontinued operations | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | | |
$ | 0.00 | |
Diluted net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing operations | |
$ | 0.00 | | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | 0.00 | |
Discontinued operations | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | | |
$ | 0.00 | |
Weighted Average Number of | |
| | | |
| | | |
| | | |
| | |
shares Outstanding | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 4.030,772,724 | | |
| 4,215,768,806 | | |
| 4,381,966,680 | | |
| 4,448,975,901 | |
Diluted | |
| 6,000,000,000 | | |
| N/A | | |
| N/A | | |
| 6,000,000,000 | |
FISCAL
2012 QUARTERLY | |
Three
Months Ended | |
STATEMENT
OF OPERATIONS DATA: | |
September 30, | | |
December
31, | | |
March
31, | | |
June
30, | |
| |
(in
thousands, except share amounts) | |
Total
revenues | |
$ | 0 | | |
$ | 1 | | |
$ | 0 | | |
$ | 0 | |
Costs
and Expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| 1 | | |
| 1 | | |
| 0 | | |
| 0 | |
Research
and development | |
| 41 | | |
| 10 | | |
| 1 | | |
| 1 | |
General
and administrative | |
| 6,888 | | |
| 346 | | |
| 359 | | |
| 328 | |
Depreciation
and amortization | |
| 4 | | |
| 4 | | |
| 4 | | |
| 2 | |
Operating
loss | |
| (6,934 | ) | |
| (360 | ) | |
| (364 | ) | |
| (331 | ) |
Interest
expense, Net | |
| (71 | ) | |
| (44 | ) | |
| (72 | ) | |
| (157 | ) |
Other
Income (expense) | |
| 826 | | |
| 534 | | |
| (370 | ) | |
| (1,436 | ) |
Discontinued
operations | |
| | | |
| | | |
| | | |
| 5 | |
Net
( Loss) Income | |
$ | (6,179 | ) | |
$ | 130 | | |
$ | (806 | ) | |
$ | (1,919 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Discontinued
operations | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Diluted
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Discontinued
operations | |
$ | 0 | | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | |
Shares
used in basic net loss per share | |
| 2,053,984,273 | | |
| 2,765,647,479 | | |
| 2,971,015,232 | | |
| 3,419,465,827 | |
Shares
used in diluted net loss per share | |
| N/A | | |
| 3,608,180,728 | | |
| N/A | | |
| N/A | |
Includes
certain reclassification from previous reported amounts
FISCAL
2011 QUARTERLY | |
Three
Months Ended | |
STATEMENT
OF OPERATIONS DATA: | |
September 30, | | |
December
31, | | |
March
31, | | |
June
30, | |
| |
(in
thousands, except share amounts) | |
Total
revenues | |
$ | 29 | | |
$ | 1 | | |
$ | 18 | | |
$ | 1 | |
Costs
and Expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| 9 | | |
| 5 | | |
| 37 | | |
| (1 | ) |
Research
and development | |
| 193 | | |
| 141 | | |
| 111 | | |
| 180 | |
General
and administrative | |
| 523 | | |
| 446 | | |
| 455 | | |
| 398 | |
Depreciation
and amortization | |
| 3 | | |
| 4 | | |
| 4 | | |
| 4 | |
Operating
loss | |
| (701 | ) | |
| (595 | ) | |
| (589 | ) | |
| (580 | ) |
Interest
expense, Net | |
| (30 | ) | |
| (25 | ) | |
| (26 | ) | |
| (60 | ) |
Other
Income (expense) | |
| 2,725 | | |
| (100 | ) | |
| (709 | ) | |
| 204 | |
Discontinued
operations | |
| | | |
| | | |
| | | |
| | |
Net
( Loss) Income | |
$ | 1,994 | | |
$ | (720 | ) | |
| (1,324 | ) | |
| (436 | ) |
Basic
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Discontinued
operations | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Diluted
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
Discontinued
operations | |
$ | 0 | | |
$ | N/A | | |
$ | N/A | | |
$ | N/A | |
Shares
used in basic net loss per share | |
| 1,189,554,845 | | |
| 1,226,037,125 | | |
| 1,456,690,423 | | |
| 1,602,502,264 | |
Shares
used in diluted net loss per share | |
| 1,713,140,738 | | |
| N/A | | |
| N/A | | |
| N/A
| |
FISCAL 2010
QUARTERLY | |
Three
Months Ended | |
STATEMENT
OF OPERATIONS DATA: | |
September 30, | | |
December 31, | | |
March
31, | | |
June
30, | |
| |
(in
thousands, except share amounts) | |
Total
revenues | |
$ | 52 | | |
$ | 34 | | |
$ | 142 | | |
$ | 126 | |
Costs
and Expenses: | |
| | | |
| | | |
| | | |
| | |
Cost
of sales | |
| 0 | | |
| 0 | | |
| 2 | | |
| 63 | |
Research
and development | |
| 515 | | |
| 579 | | |
| 712 | | |
| 397 | |
General
and administrative | |
| 421 | | |
| 489 | | |
| 453 | | |
| 482 | |
Depreciation
and amortization | |
| 5 | | |
| 7 | | |
| 7 | | |
| 7 | |
Operating
loss | |
| (889 | ) | |
| (1041 | ) | |
| (1032 | ) | |
| (823 | ) |
Interest
expense, Net | |
| (681 | ) | |
| (42 | ) | |
| (33 | ) | |
| (31 | ) |
Other
Income (expense) | |
| 1173 | | |
| (2417 | ) | |
| 1959 | | |
| (3508 | ) |
Discontinued
operations | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Net
( Loss) Income | |
$ | (397 | ) | |
$ | (3,500 | ) | |
$ | 894 | | |
$ | (4,362 | ) |
Basic
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | 0.00 | | |
$ | (0.01 | ) |
Discontinued
operations | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Diluted
net (loss) gain per share- | |
| | | |
| | | |
| | | |
| | |
Continuing
operations | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | 0.00 | | |
$ | (0.01 | ) |
Discontinued
operations | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Shares
used in basic net loss per share | |
| 934,821,600 | | |
| 934,821,600 | | |
| 1,057,751,508 | | |
| 1,084,251,619 | |
Shares
used in diluted net loss per share | |
| 934,821,600 | | |
| 934,821,600 | | |
| 1,534,563,992 | | |
| 1,084,251,619 | |
Includes
certain reclassification from previous reported amounts
7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS AND PLAN OF OPERATIONS
The
following is management's discussion and analysis of certain significant factors which have affected mPhase's financial position
and should be read in conjunction with the accompanying financial statements, financial data and the related notes.
RESULTS
OF OPERATIONS
OVERVIEW
mPhase
Technologies, Inc. (OTC BB: XDSL.OB) is a development company focused on the development of innovative power cells and related
products through the science of microfluidics, microelectromechanical systems (MEMS) and nano- technology. mPhase is primarily
focused on commercializing its first nanotechnology-enabled product for military and commercial applications - the Smart NanoBattery
providing Power On CommandTM. Our new patented and patent-pending battery technology, based on the phenomenon of electrowetting,
offers a unique way to store energy and manage power that could revolutionize the battery industry. Features of the Smart NanoBattery
include potentially infinite shelf life, environmentally friendly design, fast ramp to power, programmable control, and direct
integration with microelectronic devices.
The
platform technology behind the Smart NanoBattery is a porous nanostructured material used to repel and precisely control the flow
of liquids. The material has a Smart Surface that can potentially be designed for heart pacemakers and other medical devices.
mPhase's
Smart NanoBattery technology has been incorporated in leading-edge research and development projects supported by various groups
within the U.S. Army for mission critical static random access memory (SRAM) backup and guided munitions applications. In July
2007, mPhase received a Small Business Technology Transfer (STTR) Program Phase I grant for $100,000 from the U.S. Army and in
September 2008, was awarded a prestigious $750,000 (net $500,000) Phase II STTR grant to continue battery development work for
the SRAM project. That award was renewed in 2009 for a second year. The company has also been working with the U.S. Army as part
of a Cooperative Research and Development Agreement (CRADA). mPhase has focused on development of a lithium Smart NanoBattery.
Working closely with Rutgers University, mPhase introduced the first version of the lithium Smart NanoBattery designed for portable
electronics and microelectronic applications.
One
version of the lithium battery based on a breakable separator was developed for an emergency flashlight application.
New
Products developed and sold during Fiscal Year 2014
The
Company completed development and began sales of the MPOWER Jump and MPOWER mini Jump products as part of its consumer
product line. The Company outsourced the design, engineering, development and manufacturing of the products and it is
anticipated that the Company will add the additional battery jump starter products. Prior to fiscal year 2014 the Company
incurred approximately $12.139 million in development costs of its nano and battery products and has received a series of
prototypes of the mini Jump products. The roll-out of the product that began in fiscal year 2014.generated gross revenues of
$581,261 during the fiscal year ended June 30, 2014.
TWELVE
MONTHS ENDED JUNE 30, 2014 VS. JUNE 30, 2013
Revenues. Total
revenues for the year ended June 30, 2014 increased from $4,086 in 2013 to $581,261. The revenue increase for the current fiscal
year was derived primarily from the sales of the mPower Jump and mPower Mini Jump products.
Cost
of sales. Cost of sales increased $337,041 for the year ended June 30, 2014 to $352,135. This increase is attributable
to sales of our mPower Jump and mPower Mini Jump products.
Research
and Development. Research and development expenses were $2,168 for the year ended June 30, 2014 as compared to $125,982 in
the year ended June 30, 2013, a decrease of $123,814. Such increase is attributable to development expense incurred
with respect to the Company’s new mPower Jump and mPower Mini Jump products.
General
and Administrative Expenses. Selling, general and administrative expenses were $4,100,354 for the year ended June
30, 2014 compared to $1,201,966 for the year ended June 30, 2013 an increase of $2,898,388. During fiscal year ended June 30,
2014, the Company incurred non-cash charges amounting to $2,717,624 for stock based compensation awarded to officers, employees
and consultants. During fiscal year ended June 30, 2013, such charges amounted to $0. In addition the Company accrued and reduced
salaries of the three officers of the Company in fiscal year ended June 30, 2013 resulting in lower payroll by approximately $156,707
as compared to the payroll for fiscal year ended June 30, 2014. Expenses were increased across the board, including an increase
in marketing expense of $68,412 and investor relations expense of $61,215.
Other
Income and Expense. During the current FYE 2014 non-cash charges included $0 for reparations, and net settlement
income of $31,858 offset by $4,040 other expenses for net other income of $27,818. During the prior FYE 2013, non-cash charges
included $92,000 for reparations, and net settlement income of $953,641. In addition during FYE 2014, the Company realized non-cash
net charges of approximately $428,020 included in net charges of $454,573 compared to a non-cash net gain of $557,918 included
in net credits of $521.668 in FYE 2013 resulting from the issuance and the changes in the derivative liability values relative
to convertible debt. The current FYE 2014 includes a non- cash charge resulting from a change in derivative value of $399,894
increased in part by amortization of debt discount of $28,126, stock issuance costs and other charges including prepayment fees
of $17,500. This compares to prior FYE 2013 which included a gain resulting from the change in derivative value of $838,796 offset
in part by amortization of debt discount, and conversion floor fees and charges amounting to $317,128.
Net
loss. mPhase recorded a net loss of $5,944,467 for the year ended June 30, 2014 as compared to a loss of $260,634
for the same period ended June 30, 2013. This represents a loss per common share of ($0.00 ) in 2014 as compared to $(.00) in
2013, based upon weighted average common shares outstanding of 7,033,888,082 and 4,515,985,122 during the periods ending June
30, 2014 and June 30, 2013 respectively.
CURRENT
PLAN OF OPERATIONS
The
Company is actively pursuing both military and commercial applications of its smart surface technology. The Company is actively
seeking additional strategic partners. The Company is seeking such partners to custom tailor its Smart NanoBattery as a component
for a commercial or military end product. The Company,subject to the availability of additional capital, will continue to aggressively
deployment of its line of battery jump products and to enhance sales by offering additional versions of such products. The Company
is also seeking funding under various U.S. government programs for companies seeking to employ new employees to stimulate the
U.S. economy.
Expanded
Market Potential for Proprietary Membrane Technology
The
core membrane technology used to enable the Smart NanoBattery's propriety membrane design can potentially be used to develop other
non-power source applications and products. The Company's market potential for using the membrane design of this patent pending
core technology broadens the application areas outside the portable power energy field.
The
Company's permeable membrane design consisting of both micro and nano scale silicon features is coated with a monolayer chemistry
used to repel liquids. The membrane works using a microfluidics principle that permits the dynamic control of surfaces when interacting
with liquids, and as a result, the membrane can be tuned to filter out certain types of materials. In the reserve battery application,
the properties of the membrane are used to create a superhydrophobic surface that prevents the battery’s electrolyte from
coming into contact with the dry electrodes of the battery until activation. In a similar way, the membrane can be designed so
that it can control the passing of liquids through the pores of the membrane, acting as a filter, allowing and restricting materials
to pass through the membrane. This ability opens up the potential to use the membrane's design in new configurations for applications
that require controlled filtering of materials used in the health, environmental, food services, as well as other industries.
RESEARCH
AND DEVELOPMENT
mPhase
throughout its history has outsourced its research and development activity with respect to all of its product lines. The Company
engaged the Bell Labs division of Lucent Technologies in February of 2004 to develop a power cell using the science of nanotechnology.
The Company terminated its development efforts with Lucent Bell Labs in fiscal year 2008 with respect to micro power cell products
using the science of nanotechnology since the facilities at Bell Labs were only able to provide development of zinc based batteries.
The Company determined that in order to develop a commercially viable product, higher energy lithium based batteries were required
and it established a research relationship with Rutgers University that has facilities capable of handling development of lithium
batteries.
From
March of 2005 through March of 2007, the Company, pursuant to the terms of a Project Development Agreement engaged Bell Labs to
develop a magnetometer or electronic sensor products using the science of nanotechnology. The Company did not renew this Project
Development Agreement in order to conserve financial resources. No further development has occurred on the magnetometer; however,
the Company believes that the intellectual property created may have significant value in the future depending upon further scientific
progress in the field and market developments.
Since
inception, but prior to the end of fiscal year 2006, the Company incurred $13.5 million for research and development conducted
by Georgia Tech Research Corporation in connection with its legacy Traverser DVDDS technology that was a proprietary end to end
solution of hardware and software enabling telecommunications service providers to delivery broadcast television, high-speed internet
and voice over copper telephone lines. Expenditures for discontinued Traverser DVDDS product are included in “discontinued
operations. In fiscal year 2003 the Company began the transition of its product to development of a carriers standard open platform
using middleware platform and transferred its research and development from Georgia Tech Research Corporation to the Bell Labs
division of Lucent Technologies Inc. In May of 2007, the Company decided not to renew its Project Development Agreement for its
TV+ solution with Bell Labs and chose a number of new software vendors to finalize its IPTV solution. The Company incurred research
and development expenses with Lucent for fiscal years ended June 30, 2007 and 2006 of $2.3 million and $4.4 million. It should
be noted that all expenditures during with Lucent/Bell Labs in FYE 2007 have been in connection with nanotechnology.
During
the year ended June 30, 2008, the Company incurred research and development expenses of $188,000 related to the development
of IPTV solutions compared to $4.1 million for the same period ended June 30, 2007. Expenditures for the IPTV discontinued
product are included in “discontinued operations”. In addition the Company incurred research and development
expenses for the fiscal year June 30, 2008 of $800,000 for its nanotechnology products as compared to $2.3 million for fiscal
year ended June 30, 2007. During the fiscal year ended June 30, 2009, the Company incurred research and development expenses
of $1,255,655, all of which was in connection with its nanotechnology, manually activated battery and emergency flashlight
products. During the fiscal year ended June 30, 2010, the Company incurred research and development expenses of $2,203,383
and during the fiscal years ended June 30, 2011 and 2012, such research and development expenses amounted to $625,417 and
$53,374.
During
the years ended June 30, 2009, June 30, 2010 and June 30, 2011 the Company was primarily engaged in joint research and development
with Rutgers University in connection with a $750,000 Phase II STTR grant from the United States Army for development of a reserve
battery with an extended shelf life suitable for serving as a backup energy source for a computer memory application. In addition,
during such period significant design services were provided by Porsche Design Studio in connection with the development of the
Company’s emergency flashlight product.
During
fiscal year ended June 30, 2012 the Company commenced research, design and development of a prototype of a second new innovative
automotive product with an initial cost of approximately $300,000. The Company, owing to its current financial austerity program
in fiscal year ended June 30, 2013 has had to curtail significantly its research and development activities. In fiscal year 2014
the Company spent $2,168 on research and development primarily in connection with the roll-out of its mPower consumer product
line of battery jump starter products.
The
amount of research and development costs the Company has expended on its current technology, from its inception through June 30,
2014, is approximately $12,139,000.
STRATEGIC
ALLIANCES IMPLEMENTED
The
Company and Alcatel Lucent share jointly in certain intellectual property developed with respect to nanotechnology products. The
Company has established a working relationship with Rutgers University for development and testing of lithium based batteries.
In addition, the Company has a co-branding agreement with Porsche Design Studio for its emergency flashlight product.
CRITICAL
ACCOUNTING POLICIES
RESEARCH
AND DEVELOPMENT
Research
and development costs are charged to operations as incurred in accordance with FASB ASC Topic 730 Research and Development, formerly
Statement of Financial Accounting Standards ("SFAS"), No.2, "Accounting for Research and Development Cost."
OPTIONS,
WARRANTS AND OTHER CONVERTIBLE EQUITY INSTRUMENTS
STOCK
BASED COMPENSATION
Effective,
July 1, 2005, the Company adopted the promulgated authority "modified prospective" method, and has recorded as an expense
the fair value of all stock based grants to employees after such date. The Company has not restated its operating results for
any prior fiscal year end or quarter.
EQUITY
LINE OF CREDIT
The
Company entered into a $10,000,000 equity line of Credit with Dutchess Opportunity Fund II, LLC in December of 2011. Under the
equity line, the Company is eligible to “PUT” to the fund, 20,000,000 shares of its common stock during any pricing
period. The Company has registered a total of 250,000,000 shares of its common stock on a Form S-1 Registration Statement with
the Securities and Exchange Commission that was declared effective on January 17, 2012 in connection with the Dutchess Equity
Line.
As
of June, 2014, the Company has received $227,744 of proceeds under the Equity Line relating to the resale of 135,990,000 shares
of the Company’s common stock, net of $22,920 transaction fees. The amount of proceeds to be received under the Equity Line
will depend upon the stock price of the Company at the various points in time it exercises the Put Option. As of June 30, 2014,
the Company has received $145,428, $80,053 and $6,263 in Fiscal Years Ended June 30, 2012, 2013 and 2014, under
the Equity Line relating to the resale of 89,587,447, 42,412,553 and 3,990,000 shares of the Company’s common stock in Fiscal
Years Ended June 30, 2012 , 2013 and 2014. The amount of proceeds to be received under the Equity Line will depend upon the
stock price of the Company at the various points in time it exercises the Put Option.
MATERIAL
EQUITY INSTRUMENTS
The
Company has material equity instruments including convertible debentures and convertible notes that are accounted for as derivative
liabilities and options and warrants that are evaluated quarterly for potential reclassification as liabilities pursuant to FASB
ASC Topic 815 Derivatives and Hedging previously known as EITF 00-19 (SEE ALSO NOTE 8 "Stockholders Equity" under the
caption "Other Equity"). The Company utilized a sequencing method prescribed by ASC Topic 815, based upon applying shares
available to contracts with the earliest inception date first.
Subsequent
to September 30, 2009 the Company has not entered into, and presently the Company did not have, any contracts for warrants or
other equity instruments subject to reclassification to liabilities as prescribed by FASB ASC Topic 815 (previously known as EITF
00-19) until August 10, 2011, when it entered into a Convertible Note of $25,000 that concurrently provided the note holder with
a warrant and recorded an additional liability for the warrant.
DERIVATIVE
FINANCIAL INSTRUMENTS
Presently
promulgated accounting literature requires all derivatives to be recorded on the balance sheet at fair value. The conversion features
of the convertible debentures are embedded derivatives and are separately valued and accounted for on our balance sheet with changes
in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded
securities and derivatives are based on quoted market prices. The pricing model we use for determining fair value of our derivatives
is the Black-Scholes Pricing Model with a 20 day life for the look-back period of each conversion feature using volatility of
100%. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management's judgment
and may impact net income.
REPARATION
EXPENSE
As
an incentive for additional equity contributions, the Company will, from time to time, adjust the cost of past private purchases
of common stock through the issuance of additional shares in such magnitude as to reduce an investor's cost to an average price
that more closely approximates current market value. The market value of additional shares issued without cash investment is charged
to Reparation Expense, which is included in Other Expenses.
LIQUIDITY
AND CAPITAL RESOURCES
Through June 30, 2014, the Company had
incurred cumulative losses totaling approximately $(209,636,008) and had cash and cash equivalents of $179,257. At June 30, 2014,
mPhase had a working capital deficit of $(2,880,044) as compared to a working capital deficit of $(4,410,117) as of June 30, 2013.
On
February 12, 2014 at its Annual Meeting of Shareholders for the fiscal year ended June 30, 2013, shareholders of the Company authorized
the Company to increase its authorized shares of common stock from 6 billion shares to 18 billion shares.
During the
fiscal year ended June 30, 2014 the Company issued 4,579,628,375 shares of its common stock in private placement generating cash
proceeds of $1,654,000 including 283,128,375 in finders’ shares and placement fees. During the fiscal year the Company issued
141,761,066 shares of common stock in connection with conversions of convertible securities together with interest and fees totaling
$96,026. The Company prepaid two convertible notes with cash in the aggregate amount of $75,000 during the fiscal year.
In
December of 2011, the Company entered into a $10,000,000 equity line of credit with Dutchess Opportunity Fund II, LLC. Under the
equity line, the Company is eligible to “PUT” to the fund 20,000,000 shares of its common stock during any pricing
period. The Company has registered a total of 250,000,000 shares of its common stock on a Form S-1 Registration Statement with
the Securities and Exchange Commission that was declared effective on January 17, 2012. As of June, 2014, the Company has received
$227,744 of proceeds under the Equity Line relating to the resale of 135,990,000 shares of the Company’s common stock, net
of $22,920 transaction fees. The amount of proceeds to be received under the equity line will depend upon the stock price of the
Company and the various points in time it exercises its Put option.
On
June 6, 2012 the Company announced the restructuring of all of its convertible securities that were issued to JMJ Financial and
John Fife of approximately $1,500,000. The Company is currently in litigation with John Fife with respect to such restructuring.
To date no action has been taken by JMJ Financial with respect to the Company. In the longer term, we estimate that the Company
will need to raise approximately $5-10 million of additional capital above the funds anticipated from the monthly funding’s
and conversions by holders of revised or replacement convertible securities, to meet longer term liquidity needs through June
30, 2013. Such monies will be necessary primarily to fund future operating expenditures as well as marketing, cost-reductions
and commercialization of its Smart NanoBattery and automotive products. Finally, depending upon sales and margins in fiscal year
2014, additional capital may be required to fund a portion of any growth necessary in operations.
Cash
used in operating activities was $1,571,837 during the twelve months ended June 30, 2014. During such period, the cash used by
operating activities consisted principally of the net loss from operations of ($5,944,467) offset by settlement income of $31,858
plus non-cash credits related to convertible debt issued and associated changes in derivative value ($428,020) reduced
by an increase of accounts payable and accrued expenses of $250,176. These amounts are offset in part by non-cash charges related
to issuance of common stock and options for services of $2,770,544, beneficial conversion interest expense of $1,342,273 and amortization
of deferred compensation of $28,305.
During
the twelve-month period ended June 30, 2014, the Company raised capital through private placements with accredited investors,
whereby the Company issued 4,579,628,375 shares of the Company's common stock, generating net proceeds to the Company of $1,654,000.
During
the twelve-month period ended June 30, 2013, the Company raised capital through private placements with accredited investors,
whereby the Company issued 1,282,250,000 shares of the Company's common stock, generating net proceeds to the Company of $487,000.
Equity
Conversions of Debt and Other Financial Instruments with Related Parties- Conversion of Debt to Officers’
During
the fiscal year ended June 30, 2014, the officers’ were authorized by the board of directors’ to enter into agreements
to convert certain officer notes, previously convertible at $.004 from 2009 through April 2014, based upon the then concurrent
terms of private placements with accredited investors; at $.0004, representing the now current terms of private placements with
accredited investors.
As
a result thereon $723,729 of loans, accrued interest and unpaid salary were converted into 1,810,826,637 shares of
common stock with a conversion rate of $.0004 per share and warrants to purchase shares of common stock at $.0004 for a term
of five years effective March 31, 2014, respectively. In connection with these transactions the officers’ agreed to
forego and cancel $425, 918 of accrued wages since fiscal 2013 and $238,321 of accrued interest since fiscal 2009
totaling a cancelation of $664,239 of debt; which when combined with the beneficial conversion feature of the
1,810,826,637 of shares converted for $723,729 of $1,673,261 less $361,380 debt forgiven attributable to the
conversions resulted in $1,311,881 beneficial conversion feature interest expense during the nine months ended March 31,
2014, and the Company amortized $30,393 from April 1, 2014 through June 30, 2014 for a total of $1,342,274 beneficial
conversion feature interest expense during the current period.
The
value of the warrants computed using the black shoals method with a volatility of 100%, risk free interest rate of .05% and a
term of five years which was computed to be $1,413,547 for the conversion feature at $.0004 at the option of the officers, to
the extent shares are available and $502,837 of remaining debts to officers’, less 302,859 debt forgiven attributable
to the warrant resulted in $607,851 deferred beneficial conversion feature interest expense, a reduction of additional paid in
capital, which will be amortized on a straight line basis over the life of the warrant or sooner if and when converted, of which
30,393 was amortized through June 30, 2014. On June 30, 2014, these Notes are convertible into approximately 1,275,863,375 shares
of common stock, if available.
CUMULATIVE
LOSSES AND MANAGEMENT'S PLANS
Through
June 30, 2014 the Company has incurred cumulative losses totaling approximately $209,636,008 and at June 30, 2014 had a working
capital deficit of $(2,880,043). Funding in our traditional capital markets was difficult during FYE 2014. Management of the Company
continued to limit unnecessary dilution by issuing large amounts of equity at depressed prices to raise sums of cash considered
necessary to maintain operating levels. The Company was able to raise $1,654,000 from private placements of equity net of fees,
resulting in the issuance of 4,579,628 shares of common stock including 283,128,375 shares to finders.
The
Company has also significantly reduced employee compensation, in many instances by as much as 20%, commencing in July 2010 and
the Company has maintained a reduced workforce and workspace through the Fiscal Year June 30, 2014. The Company did make a nominal
restoration of management salary in April, 2014 subsequent to a significant conversion of Officers’ debt concurrent to a
forgiveness by the officers’ for unpaid salary and approximately half (1/2) of interest accrued on notes to the officers’
which have been extended past their original repayment terms on multiple occasions.
In addition to deferring compensation from
time to time the Company has obtained necessary working capital via bridge loans from officers (see notes payable to officers).
Officers of the Company accrued unpaid salary from July 1 of 2013 through March 31 of 2014 of approximately $426,000 to further
augment the cash flow needed to launch our JUMP products. On March 31, 2014 the Officers’ and the Company undertook of a
comprehensive restructuring of debt to the Officers in which: a.) $723,729 of officers’ loans and a portion of accrued interest
were settled for stock at $.0004 per share, or 1,809,326,625 common shares; b.) the Officers’ agreed forego the above reference
unpaid salary of $425,918 and accrued interest on these loans of $238,321; and c.) the Officers’ agreed to extend the repayment
terms of the remaining balance on these loans, $502,837, for a period of five (5) years and reduced the contractual interest rate
from 12% to 6% and the new agreement amended the conversion feature, previously convertible at $.004, for a term of five (5) years
commencing April 1, 2014; on terms comparable to concurrent from private placements of the Company’s common stock at $.0004
per share. (See Notes 9 & 10).
The Company's
ability to continue as a going concern and its future success is dependent upon its ability to raise capital in the near term
to (1) satisfy its current obligations, (2) continue its research and development efforts, (3) continue its efforts to commercialize
and sell and receive military grants for its SmartBattery, and (4) commercialize and sell its emergency flashlight and Jump products.
The
Company is currently focused on development and commercialization of its battery jump starter product as well as the further development
of its smart nano battery in both single and multi-cell form. The Company believes that these reserve batteries which have a much
longer shelf life than conventional batteries will have significant commercial and military applications which the Company intends
to actively pursue. .
ITEM
7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
The
Company is not exposed to changes in interest rates as the Company has no floating rate debt arrangements and no investments in
certain held-to-maturity securities. Under our current policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical 100 basis point adverse move in interest rates along the interest rate yield
curve would not materially affect the fair value of any financial instruments at June 30, 2012. We believe that interest rate
risks for our accounts receivable are insignificant. Sales to customers are denominated in dollars. Accordingly, we are not directly
exposed to market risks from currency fluctuations.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See
pages beginning page 69.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM
9A. CONTROLS AND PROCEDURES Assessment of Internal Controls Evaluation of Disclosure Controls and Procedures
The
Company has implemented disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange
Act of 1934 (the ‘‘Exchange Act’’) that are designed to ensure that information required to be disclosed
in the Company’s Exchange Act reports are recorded, processed, summarized, and reported within the time periods specified
in rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.
As
of June 30, 2014, the management of the Company carried out an assessment, under the supervision of and with the participation
of the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant
to Exchange Act Rules 13a-15(b) and 15d-15(b). As of the date of this assessment, the Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of June 30, 2014.
Management’s
Report on Internal Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United
States of America. The Company utilizes the COSO Framework for internal control over financial reporting. Internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the interim or
annual financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with policies or procedures may deteriorate.
The
Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June
30, 2014. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements
will not be prevented or detected on a timely basis. Our evaluation concluded that the company had no material weakness which
would result in the reasonable possibility of a material misstatement described above.
This
report does not include an attestation report of our registered public accounting firm regarding our internal controls over financial
reporting. The disclosure contained under this Item 9A was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only the disclosure under this Item 9A in this annual report.
Changes
in Internal Control over Financial Reporting
The
Company has made steps toward remediating the internal control condition identified in the fiscal year June 30, 2009, described
above. The Company has obtained, on a fee basis, an outside consultant to act as an accounting manager to assist the Company with
the accounting of convertible debentures and derivatives and the consultant was utilized during all four quarters of the fiscal
year ended June 30, 2012. However, mPhase Technologies is a small company with a total staff of approximately 6 employees and
consultants. This size limits, and may continue to limit, the Company’s ability to provide for adequate backup of financial
personnel. Accordingly, efforts individually and in the aggregate may be insufficient to fully eliminate the condition that could
adversely affect the organization’s ability to record, summarize and report financial data consistent with the assertions
of management in the financial statements.
There
were no changes in our internal control over financial reporting during the fiscal year ended June 30, 2013 that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive
officers are selected by the Board of Directors. No family relationships exist between any of the executive officers or directors.
The following table sets forth certain information with respect to each person who is an executive officer or director. mPhase's
executive officers and directors as of June 30, 2014 are as follows:
NAME |
|
AGE |
|
POSITION(S) |
Ronald
A. Durando |
|
57 |
|
Chief
Executive Officer and Director |
Gustave
T. Dotoli (2) |
|
77 |
|
Chief
Operating Officer and Director |
Martin
Smiley |
|
66 |
|
Chief
Financial Officer |
|
|
|
|
|
OUTSIDE
DIRECTORS |
|
|
|
|
|
|
|
|
|
Abraham
Biderman (1)(2) |
|
66 |
|
Director |
Dr.
Victor Lawrence |
|
65 |
|
Director |
(1) |
Member
of the Audit Committee |
(2) |
Member of
the Compensation Committee |
RONALD
A. DURANDO is a co-founder of mPhase and has served as the Company's President, Chief Executive Officer and Director since its
inception in October 1996. Since 1994, Mr. Durando has been an Officer of Microphase Corporation. Mr. Durando is a Director of
Microphase Corporation. From 1986-1994, Mr. Durando was President and Chief Executive Officer of Nutley Securities, Inc., a registered
broker-dealer. Mr. Durando also served as president of PacketPort until his resignation in February, 2008, when PacketPort merged
with Wyndstorm Corporation.
GUSTAVE
T. DOTOLI has served as mPhase's Chief Operating Officer as well as a Director since October 1996. Prior to joining the Company,
Mr. Dotoli was President and CEO of State Industrial Safety, Inc. from 1986-1996. In addition, Mr. Dotoli currently serves as
the Vice President of Corporate Development of Microphase Corporation. Mr. Dotoli was also a Director and Vice President of Packet
Port. He was formerly the President and Chief Executive Officer of the following corporations: Imperial Electro- Plating, Inc.,
World Imports USA, Industrial Chemical Supply, Inc., SISCO Beverage, Inc., and Met Pack, Inc. Mr. Dotoli received a B.S. in Industrial
Engineering from Fairleigh Dickenson University in 1959.
ABRAHAM
BIDERMAN has been a member of the Board since August 3, 2000. He currently is the Managing Director of Eagle Advisers, Inc, a
small investment banking firm. From 1990 through September 30, 2003, Mr. Biderman had been employed by Lipper & Co. as Executive
Vice President; Executive Vice President, Secretary and Treasurer of the Lipper Funds; and Co-Manager of Lipper Convertibles,
L.P. Prior to joining Lipper & Co. in 1990, Mr. Biderman was Commissioner of the New York City Department of Housing, Preservation
and Development from 1988 to 1989 and Commissioner of the New York City Department of Finance from 1986 to 1987. He was Chairman
of the New York City Retirement System from 1986 to 1989. Mr. Biderman was Special Advisor to former Mayor Edward I. Koch from
1985 to 1986 and assistant to former Deputy Mayor Kenneth Lipper from 1983 to 1985. Mr. Biderman is a Director of the Municipal
Assistance Corporation for the City of New York. Mr. Biderman graduated from Brooklyn College and is a certified public accountant.
MARTIN
SMILEY was elected on June 28, 2006 to the Board of Directors. He joined mPhase as Executive Vice President, Chief Financial Officer
and General Counsel in August 2000. Mr. Smiley has over twenty years experience as a corporate finance and securities attorney
and as an investment banker. Prior to joining the company, Mr. Smiley served as a Principal at Morrison & Kibbey, Ltd., a
mergers and acquisitions and investment banking firm, from 1998 to 2000, and as a Managing Director for CIBC Oppenheimer Securities
from 1994 to 1998. He served as a Vice President of Investment Banking at Chase Manhattan Bank from 1989 to 1994, and as a Vice
President and Associate General Counsel for Chrysler Capital Corporation from 1984 to 1989. Mr. Smiley graduated with a B.A. in
Mathematics from the University of Pennsylvania and earned his law degree from the University of Virginia School Of Law.
DR
VICTOR LAWRENCE is Batcheler Chair Professor of Electrical Engineering and Associate Dean for Special Programs in the Charles
V Schafer, Jr. School of Engineering, at Stevens Institute of Technology. Dr. Victor Lawrence is a member of the National Academy
of Engineering and has worked in the information technology and communications field for over thirty years. He is an industry
leader in digital communications R&D and services, an entrepreneur, an active member of engineering professional organizations,
an author, and a teacher who has extensive international experience. Prior to joining Stevens Institute of Technology, Dr. Lawrence
was Vice President, Advanced Communications Technology, Bell Laboratories, Lucent Technologies. He led the development of technologies
that go into the most innovative, reliable, and cost-effective communications networks for the leading telecommunications service
providers. He has supported Lucent's businesses with a staff of about 500 leading technologists and a budget of about $100M. Major
projects included gigabit, photonic, and wireless networking developments and services. He was responsible for a team of engineers
that worked on performance analysis, simulations and development of broadband access and backbone networks for many national and
international service providers. All of Lucent's R&D organizations relied on his high-technology support of computer-aided
hardware design, physical and thermal design, systems compliance testing and certification, and design for high performance network
control, signaling, and management. Earlier, he was Director, Advanced Multimedia Communications at Bell Labs, where he was responsible
for systems engineering, exploratory development of multimedia signal processing, transmission, and switching, including speech
and audio coding, modems, broadband transmission, ATM switching and protocols, and wireless communication and signal processing.
He held a variety of leadership positions in data communications research, digital techniques, and information systems. His application
of digital signal processing to data communications in the late 1980s and early 1990s led to many significant advances in high-speed
transmission over copper lines (e.g., voice band modems and DSL), which helped create a global industry that leverages the public
switched telephone network. Dr. Lawrence played a significant role in the development of major international voiceband modem standards,
making high-speed data communication over international networks possible. The universal availability of high-speed data connectivity
stimulated the growth and widespread use of the Internet. He led the development of high-speed modem/fax chip sets that are used
in data terminals, computers, and voice terminals for secure communications worldwide. His work on high-speed transceivers for
local loop and for premises applications led to the development of a variety of DSL technologies, many of which are deployed today
for broadband services. As an entrepreneur, Dr. Lawrence spun off several ventures internal and external to Lucent to maximize
the impact of technology developed in his organization.
At
each annual meeting of stockholders, the newly elected directors' terms begin on the date of election and qualification, and continue
through the next annual meeting following election. Terms may differ in the event a director resigns or is removed from office,
or continues until a successor director is elected and qualified.
SECTION
16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors,
executive officers, and individuals owning more than 10 percent of mPhase common stock are required to file initial reports of
ownership and changes in ownership with the SEC under Section 16(a) of the Securities Exchange Act of 1934, as amended. The SEC
regulations also require those persons to provide copies of all filed Section 16(a) reports to the Company. mPhase has reviewed
the report copies filed in fiscal year 2014 and, based also on written representations from those persons, the Company believes
that there was compliance with Section 16(a) filing requirements for fiscal year 2014. All the officers and directors filed all
of the required forms in a timely manner.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth, for the fiscal year ended June 30, 2014 and the two previous fiscal years, the compensation earned
by mPhase's chief executive officer and the other executive officers whose compensation was greater than $100,000 for services
rendered in all capacities to the Company for the year ended June 30, 2014
SUMMARY
EXECUTIVE COMPENSATION
NAME& | |
| | |
| | |
| | |
| | |
| | |
NON-
| |
| |
| | |
| |
PRINCIPAL | |
| | |
| | |
| | |
STOCK | | |
OPTION | | |
EQUITY
| |
PENSION | |
| | |
| |
POSITION | |
YEAR
| | |
SALARY | | |
BONUS | | |
AWARDS | | |
AWARDS | | |
INCENTIVE
| |
VALUE | |
OTHER | | |
TOTAL | |
Ronald | |
| 2014 | | |
$ | 118,333 | | |
$ | 0 | | |
$ | 1,136,000 | | |
| 0 | | |
N/A | |
N/A | |
$ | 49,556 | (4)(5)(6) | |
$ | 1,303,889 | |
Durando | |
| 2013 | | |
$ | 61,667 | | |
$ | 0 | | |
$ | 0 | | |
| 0 | | |
N/A | |
N/A | |
$ | 65,940 | | |
$ | 127,607 | |
Chief | |
| 2012 | | |
$ | 110,000 | | |
$ | 0 | | |
$ | 2,488,500
| (2) | |
$ | 173,316 | (3) | |
N/A | |
N/A | |
$ | 54,681 | (1) | |
$ | 164,681 | |
Executive Officer | |
| 2011 | | |
$ | 160,000 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
N/A | |
N/A | |
$ | 33,728 | (1) | |
$ | 193,728 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| |
| | | |
| | |
Gustave | |
| 2014 | | |
$ | 85,000 | | |
$ | 0 | | |
$ | 686,000 | | |
$ | 0 | | |
N/A | |
N/A | |
$ | 37,614 | (4)(5) | |
$ | 808,614 | |
Dotoli | |
| 2013 | | |
$ | 61,667 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
N/A | |
N/A | |
$ | 46,138 | | |
$ | 104,805 | |
Chief | |
| 2012 | | |
$ | 107,333 | | |
$ | 0 | | |
$ | 1,858,500
| (2) | |
$ | 103,952 | (3) | |
N/A | |
N/A | |
$ | 36,103 | (1) | |
$ | 143,436 | |
Operating Officer | |
| 2011 | | |
$ | 144,000 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
N/A | |
N/A | |
$ | 18,610 | (1) | |
$ | 162,610 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| |
| | | |
| | |
Martin | |
| 2014 | | |
| 85,000 | | |
$ | 0 | | |
$ | 686,000 | | |
$ | 0 | | |
N/A | |
N/A | |
$ | 33,516 | (4)(5) | |
$ | 804,516 | |
Smiley | |
| 2013 | | |
$ | 61,667 | | |
$ | 0 | | |
$ | 0 | | |
| | | |
N/A | |
N/A | |
$ | 38,406 | | |
$ | 100,073 | |
CFO and | |
| 2012 | | |
$ | 106,667 | | |
$ | 0 | | |
$ | 1,858,500
| (2) | |
$ | 62,394 | (3) | |
N/A | |
N/A | |
$ | 26,744 | (1) | |
$ | 133,411 | |
General Counsel | |
| 2011 | | |
$ | 140,000 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
N/A | |
N/A | |
$ | 16,569 | | |
$ | 156,569 | |
FOOTNOTES
(1) |
Interest
on loans to the Company. |
(2) |
Share
grants are valued at the share price on the date the grant was authorized by the board of directors. The shares under the
2011 grant to officers are restricted from resale through August, 2015. |
(3) |
Directors
revised the exercise price of options to purchase up to 98,000,000 shares of common stock previously granted to officers in
September, 2008 (originally exercisable for 5 years with an exercise price of 5 cents per share). The exercise price of options
to purchase up to 98,000,000 shares was revised to $.0040; the incremental cost of $339,700 was recorded as deferred compensation
which will be amortized to expense through September 18, 2013. |
(4) |
Does
not include $1,342,273 charged to beneficial conversion interest expense charged in FYE June 30, 2014 to amend the conversion
feature of officer loans for Mssrs’ Durando, Dotoli & Smiley discussed in footnote 8. |
(5) |
Messrss.
Durando, Dotoli and Smiley forgave a total of $425,918 of accrued and unpaid salary and $238,321 of accrued and unpaid interest
as part of a debt/equity conversion that was effective March 31, 2014. |
(6) |
Does not include $42,000
of fees paid to Karen Durando for product marketing services during the fiscal year ended
June 30, 2014
|
OUTSTANDING EQUITY AWARDS at
FISCAL YEAR END JUNE 30, 2014
| |
Number of Securities underlying Unexercised Options (Exercisable) | | |
Number of Securities underlying Unexercised Options (Unexercisable) | | |
Equity Incentive Plan awards Number of Securities | |
Option Exercise Price | | |
Option Expiration Date | | |
Number of shares of stock that has not been vested | | |
Market Value of Shares not vested | | |
Equity Incentive | |
Ronald Durando | |
| 0 | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| 0 | |
President CEO | |
| | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| | |
Gustave Dotoli | |
| 0 | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| 0 | |
COO | |
| | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| | |
Martin Smiley | |
| 0 | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| 0 | |
Executive VP | |
| | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| | |
CFO Chief Legal Council | |
| | | |
| | | |
| | |
$ | | | |
| | | |
| | | |
| | | |
| | |
EMPLOYMENT
AGREEMENTS WITH EXECUTIVE OFFICERS
The
Company does not have written employment agreements with any of the named Executive Officers. As previously noted under “Risk
Factors” the Company has accrued and unpaid salary owed to its 3 Officers and is continuing such practice owing to limited
financial resources.
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
members of the Compensation Committee during fiscal 2014 were Messrs. Dotoli and Biderman . Mr. Biderman has never been an mPhase
officer or employee. None of the Company's directors or executive officers served as a member of the Compensation Committee (or
other board committee performing equivalent functions or, in the absence of such committee, the entire Board of Directors) of
another entity during fiscal 2014 that has a director or executive officer serving also as a director on mPhase's Board of Directors.
Mr. Dotoli, together with Mr. Durando and Mr. Ergul, were collectively controlling shareholders and Directors of Janifast Ltd.
In March of 2009, Janifast Ltd. terminated operations.
COMPENSATION
OF DIRECTORS
No
Directors received compensation for their services as a Director.
AUDIT
COMMITTEE
No
members of the Audit Committee received compensation for their services on the Committee.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth as of August 26, 2014 certain information regarding the beneficial ownership of our shares:
1. |
by
each person who is known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock; |
2. |
each
of our directors; |
3. |
by
each executive officer named in the Summary Compensation Table; and |
4. |
by
all of our directors and executive officers as a group. |
AFFILIATES (1 & 2) | |
Shares | | |
Warrants/ conversion rights | | |
Options | | |
TOTAL | | |
% | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Victor Lawrence | |
| 10,100,000 | | |
| - | | |
| - | | |
| 10,100,000 | | |
| 0.07 | % |
Anthony Guerino | |
| - | | |
| - | | |
| - | | |
| - | | |
| 0.00 | % |
Abraham Biderman | |
| 45,226,890 | | |
| - | | |
| - | | |
| 45,226,890 | | |
| 0.33 | % |
Gustave Dotoli (3)(5) | |
| 1,347,472,079 | | |
| 314,903,100 | | |
| - | | |
| 1,662,375,179 | | |
| 11.71 | % |
Ron Durando (3)(4) | |
| 2,169,819,609 | | |
| 740,663,475 | | |
| - | | |
| 2,910,483,084 | | |
| 19.90 | % |
Ned Ergul | |
| 24,213,343 | | |
| - | | |
| - | | |
| 24,213,343 | | |
| 0.17 | % |
Martin Smiley (3) | |
| 1,313,760,629 | | |
| 220,297,100 | | |
| - | | |
| 1,534,057,729 | | |
| 10.88 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Affiliates | |
| 4,910,592,550 | | |
| 1,275,863,675 | | |
| - | | |
| 6,186,456,225 | | |
| 43.06 | % |
(1)
Unless otherwise indicated, the address of each beneficial owner is 587 Connecticut Avenue, Norwalk, Connecticut 06854–1711.
(2)
Unless otherwise indicated, mPhase believes that all persons named in the table have sole voting and investment power with respect
to all shares of the Company beneficially owned by them. The percentage for each beneficial owner listed above is based on 13,884,394,595
shares outstanding on August 26, 2014, and, with respect to each person holding options or warrants to purchase shares that are
exercisable within 60 days after August 26, 2014, the number of options and warrants are deemed to be outstanding and beneficially
owned by the person for the purpose of computing such person's percentage ownership, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(3)
Includes as warrants 740,663,475 shares, 314,903,100 shares and 220,297,100 shares issuable for loans plus accrued interest, if
converted, for Messrs. Durando, Dotoli and Smiley respectively. Such conversions are subject to availability of authorized shares.
On April 27, 2009, and amended as of August 25, 2011; the board of directors consolidated all amounts outstanding for all obligations
to the officers, including unpaid compensation, and authorized the issuance of new notes with a term of five years, an interest
rate of 12% and a conversion feature at a price of $.0040 on amounts outstanding plus accrued interest thereon. During the fiscal
years ended June 30, 2009 , June 30, 2010 and in the three months ended September 30, 2011, the Company recorded $914,060 , $82,609
and $2,360, respectively, of beneficial interest expense with respect to the conversion feature. During the fiscal year ended
June 30, 2014, the officers’ were authorized by the board of directors’ to enter into agreements to convert certain
officer notes, previously convertible at $.004 from 2009 through April 2014, based upon the then concurrent terms of private placements
with accredited investors; at $.0004, representing the now current terms of private placements with accredited investors. During
the fiscal year ended June 30, 2014 the Company recorded $1,342,274 of beneficial conversion feature interest expense with respect
to the conversion feature.
(4)
Includes 1,950,671,992 shares owned by Karen Durando, his wife.
(5)
Includes 1,324,364,274 shares owned by Patricia Dotoli, his wife.
| |
Shares | | |
Warrants/ conversion rights | | |
Options | | |
TOTAL | | |
% | |
Other investor (1) | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
John Fife dba St. George Investors-(Arrangement #6 Discuused in Footnote #8 of the Finanacial Statements) | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
On September 13, 2011, the Company
issued a second Convertible Note to John Fife founder and president of St. George Investments, in a Private Placement pursuant
to Section 4(2) of the Securities Act of 1933. As of June 30, 2014, this note would be convertible into 1,392,162,326 shares of
common stock at the original terms. | |
| - | | |
| 1,392,162,326 | | |
| - | | |
| 1,392,162,326 | | |
| 9.11 | % |
The
Company is currently in litigation with John Fife seeking to void the convertible note with Fife that gives rise to his claimed
beneficial ownership set forth above.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Material
Related Party Transactions
The
Company has material related party transactions. The Company incurs costs for engineering, design and production of prototypes
and certain administrative functions from Microphase Corporation. Prior to March, 2008, it had purchased finished goods, primarily
consisting of DSL splitter shelves and filters, from Janifast Limited.
Mr.
Durando, President and CEO of mPhase, owns a controlling interest and is a director and President of Janifast Limited. Mr. Durando
and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited prior to its discontinuing
operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director
and shareholder of Janifast Limited. Microphase Corporation and Janifast Ltd. are significant shareholders of mPhase.
Management believes the amounts charged
to the Company by Microphase. are commensurate with amounts that would be incurred if outside parties were used. The Company believes
Microphase Corporation has the ability to fulfill its obligations to the Company without further support from the Company.
Transactions
with Officers, Directors and their Affiliates
Directors
that were significant shareholders of Janifast Limited prior to its ceasing operations in March of 2009 included Messrs. Durando
and Dotoli
Total
compensation and payables to related parties and to officers is summarized below:
Summary
of compensation to related parties for the Twelve Months Ended June 30, 2014
| |
Durando | | |
Dotoli | | |
Smiley | | |
K. Durando | | |
Biderman | | |
Microphase | | |
Total | |
Consulting / Salary | |
$ | 118,333 | | |
$ | 85,000 | | |
$ | 85,000 | | |
| | | |
| | | |
| | | |
$ | 288,333 | |
Interest | |
$ | 49,556 | | |
$ | 37,614 | | |
$ | 33,516 | | |
| | | |
| | | |
| | | |
$ | 120,686 | |
Rent | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 20,090 | | |
$ | 20,090 | |
S,G&A | |
| | | |
| | | |
| | | |
$ | 42,000 | | |
| | | |
$ | 18,281 | | |
$ | 60,281 | |
R&D | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0 | |
Finders Fees | |
| | | |
| | | |
| | | |
| | | |
$ | 54,000 | | |
| | | |
$ | 54,000 | |
Stock based compensation
(shares issued)* | |
$ | 1,136,000 | | |
$ | 686,000 | | |
$ | 686,000 | | |
| | | |
| | | |
| | | |
$ | 2,508,000 | |
Total compensation
for the Twelve Months Ended June 30, 2014 | |
$ | 1,303,889 | | |
$ | 808,614 | | |
$ | 804,516 | | |
$ | 42,000 | | |
$ | 54,000 | | |
$ | 38,371 | | |
$ | 3,051,390 | |
Summary
of compensation to related parties for the Twelve Months Ended June 30, 2013
| |
Durando | | |
Dotoli | | |
Smiley | | |
Biderman | | |
Microphase | | |
Total | |
Consulting
/ Salary | |
$ | 61,667 | | |
$ | 61,667 | | |
$ | 61,667 | | |
| | | |
| | | |
$ | 185,001 | |
Interest | |
$ | 65,940 | | |
$ | 46,138 | | |
$ | 38,406 | | |
| | | |
| | | |
$ | 150,484 | |
Rent | |
| | | |
| | | |
| | | |
| | | |
$ | 5,290 | | |
$ | 5,290 | |
G&A | |
| | | |
| | | |
| | | |
| | | |
$ | 7,666 | | |
$ | 7,666 | |
R&D | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0 | |
Finders
Fees | |
| | | |
| | | |
| | | |
$ | 28,500 | | |
| | | |
$ | 28,500 | |
Total
compensation for the Twelve Months Ended June 30, 2013 | |
$ | 127,607 | | |
$ | 107,805 | | |
$ | 100,073 | | |
$ | 28,500 | | |
$ | 12,956 | | |
$ | 376,941 | |
Summary
of payables to related parties as of June 30, 2014
| |
| | |
| | |
| | |
Total
Notes | | |
| | |
| | |
| |
| |
| Durando | | |
| Dotoli | | |
| Smiley | | |
| Payable | | |
| Biderman | | |
| Microphase | | |
| Total | |
Notes
payable | |
$ | 289,015 | | |
$ | 122,865 | | |
$ | 0 | | |
$ | 411,880 | | |
| | | |
| | | |
$ | 411,880 | |
Accrued
Wages Officers | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
| | | |
| | | |
$ | 0 | |
Due
to Officers / Affiliates | |
| | | |
| | | |
| | | |
| | | |
$ | 150,000 | | |
$ | 16,183 | | |
$ | 166,183 | |
Interest
Payable | |
$ | 7,250 | | |
$ | 3,096 | | |
$ | 88,119 | | |
$ | 98,465 | | |
| | | |
| | | |
$ | 98,465 | |
Total
Payable to Officers / Affiliates as of June 30, 2014 | |
$ | 296,265 | | |
$ | 125,961 | | |
$ | 88,119 | | |
$ | 510,345 | | |
$ | 150,000 | | |
$ | 16,183 | | |
$ | 676,528 | |
Summary
of payables to related parties as of June 30, 2013
| |
| | |
| | |
| | |
Total
Notes | | |
| | |
| | |
| |
| |
Durando | | |
Dotoli | | |
Smiley | | |
Payable | | |
Biderman | | |
Microphase | | |
Total | |
Notes
payable | |
$ | 449,523 | | |
$ | 322,963 | | |
$ | 276,426 | | |
$ | 1,048,912 | | |
| | | |
| | | |
$ | 1,048,912 | |
Accrued Wages
Officers | |
$ | 95,667 | | |
$ | 95,667 | | |
$ | 75,417 | | |
$ | 266,751 | | |
| | | |
| | | |
$ | 266,751 | |
Due to Officers
/ Affiliates | |
| | | |
| | | |
| | | |
| | | |
$ | 156,000 | | |
$ | 56,084 | | |
$ | 212,084 | |
Interest
Payable | |
$ | 124,712 | | |
$ | 84,883 | | |
$ | 67,029 | | |
$ | 276,624 | | |
| | | |
| | | |
$ | 276,624 | |
Total
Payable to Officers / Affiliates as of June 30, 2012 | |
$ | 669,902 | | |
$ | 503,513 | | |
$ | 418,872 | | |
$ | 1,592,287 | | |
$ | 156,000 | | |
$ | 56,084 | | |
$ | 1,804,371 | |
Conversion
of Debt to Officers’
During
the fiscal year ended June 30, 2014, the officers’ were authorized by the board of directors’ to enter into
agreements to convert certain officer notes, previously convertible at $.004 from 2009 through April 2014, based upon the
then concurrent terms of private placements with accredited investors; at $.0004, representing the now current terms of
private placements with accredited investors. As a result thereon $723,729 of loans, accrued interest and unpaid salary were
converted into 1,810,826,637 shares of common stock with a conversion rate of $.0004 per share and warrants to purchase
shares of common stock at $.0004 for a term of five years effective March 31, 2014, respectively. In connection with these
transactions the officers’ agreed to forego and cancel $425, 918 of accrued wages since fiscal 2013 and
$238,321 of accrued interest since fiscal 2009 totaling a cancelation of $664,239 of debt; which when
combined with the beneficial conversion feature of the 1,809,326,625 of shares converted for $723,729 of
$1,673,261 less $361,380 debt forgiven attributable to the conversions resulted in $1,311,881 beneficial conversion feature
interest expense during the nine months ended March 31, 2014, and the Company amortized $30,393 from April 1, 2014
through June 30, 2014 for a total of $1,342,274 during the current period. The value of the warrants computed using the black
shoals method with a volatility of 100%, risk free interest rate of .05% and a term of five years which was computed to be
$1,413,547 for the conversion feature at $.0004 at the option of the officers, to the extent shares are available
and $502,837 of remaining debts to officers’, less 302,859 debt forgiven attributable to the warrant
resulted in $607,851 deferred beneficial conversion feature interest expense, a reduction of additional paid in capital,
which will be amortized on a straight line basis over the life of the warrant or sooner if and when converted, of which
30,393 was amortized through June 30, 2014. On June 30, 2014, these Notes are convertible into approximately 1,275,863,375
shares of common stock, if available.
In
July of 2009, Microphase Corporation converted $200,000 of Accounts Payable owed by the Company into common stock valued at $.0075
per share (26,666,667 shares). Such price was determined based upon the price of private placements of equity by the Company during
such period.
On
October 7, 2009, the Company paid Messrs. Durando, Dotoli and Smiley $45,000, $45,000 and $25,000 respectively in reduction of
amounts owed to them by the Company for unpaid compensation and bridge loans.
Mr. Abraham Biderman is a Managing Director
of Eagle Advisers, Inc., a firm that performs investment banking services for the Company and was employed until September 30,
2003, by our former investment banking firm Lipper & Company.
During the twelve months ended June 30,
2007, Mr. Biderman, through his affiliated firm of Palladium Capital Advisors, earned finder's fees of $520,000 in connection
with the raising of approximately $5 million in various equity transactions during the year.
During
the twelve months ended June 30, 2010, the Company incurred finders’ fees of $25,000 with Mr. Biderman’s affiliated
firm of Palladium Capital Advisors. Mr. Biderman was employed until September 30, 2003, by our former investment banking firm,
Lipper & Company. As of June 30, 2010, the Company owed Palladium Capital Advisors $25,000 in unpaid finders’ fees.
During
the twelve months ended June 30, 2011 and 2012, the Company incurred additional finders’ fees of $24,500 and $13,000 with
Mr. Biderman’s firm Eagle Strategic Advisers.
During the years ended June 30, 2013 and
2014, Mr. Biderman charged finders’ fees of $28,500 and $54,000.
During the fiscal year ended June 30, 2014
the Company paid $42,000 of fees to Karen Durando for product marketing services.
In
addition, at various points during fiscal year ended June 30, 2007, Messrs. Durando, Dotoli and Smiley provided $650,000 in bridge
loans to the Company which was evidenced by individual promissory notes. During December 2006, Messrs. Durando and Dotoli agreed
to convert their notes, in the amounts of $130,000 and $200,000 respectively, to a deferred compensation arrangement, the repayment
terms of which have not been specified. Mr. Smiley has extended bridge loans to the Company of $160,000, evidenced by promissory
notes for $101,000 and a $60,000 note with a 12% rate of interest. In summary as of June 30, 2007, bridge loans outstanding were
$85,000, $75,000 and $161,000 to the Messrs. Durando, Dotoli and Smiley, respectively. All of the foregoing promissory notes were
payable on demand and only the $161,000 payable to Mr. Smiley remained outstanding in June 2008. As of June 30, 2010, only $110,030
payable to Mr. Smiley remained outstanding.
During
the 12 month period ended June 30, 2006, Eagle Advisers, an investment banking firm founded by Mr. Biderman earned fees and reimbursement
expenses of approximately $782,568 in connection with services in regard to private placements of the Company's common stock and
warrants and raised a total of $5,820,652 net of such fees for the Company.
During
the fiscal year ended June 30, 2006, Mr. Edward Suozzo, a consultant of the Company, converted $50,000 of accounts payable owed
by the Company into 331,864 shares of common stock plus a 5 year warrant to purchase 277,778 shares of common stock at $.18 per
share. During fiscal year ended June 30, 2005, Mr. Suozzo converted $20,000 of accounts payable owed by the Company into 100,000
shares of common stock plus a 5 year warrant to purchase 100,000 shares of common stock at $.25 per share.
During
fiscal year ended June 30, 2006, Microphase Corporation and Janifast Corp., both related parties, respectively converted $369,000
and $171,000 of accounts payable owed by the Company into 2,050,000 and 950,000 shares of common stock plus a 5 year warrant to
purchase 2,050,000 and 950,000 shares of common stock at $.18 per share.
Effective
June 30, 2004, the Company was $473,787 in arrears with respect to a promissory note issued to Piper Rudnick LLP plus other legal
fees of $118,773.36. It should be noted that Piper & Rudnick, the Company’s outside counsel, received such promissory
note in March of 2002 plus two warrants that expired in March 8, 2007 in exchange for cancellation of certain payables. Such warrants
had conversion rights into our common stock for a total of 2,233,490 shares that had been registered under a Form S-1 Registration
Statement, and were cashless. On September 3, 2003, in exchange for reducing the total payable to $550,000, the Company paid $10,000
in cash to Piper and issued an additional cashless warrant for $150,000 worth of the Company's common stock valued at $.25 per
share. The remaining $300,000 payable had the following future payment schedule: payments of $25,000 each on December 1, 2004,
March 1, 2005, June 1, 2005, September 1, 2005, March 1, 2006, June 1, 2006 and September 1, 2006, a payment of $50,000 on December
1, 2005, and a payment of $75,000 due on December 1, 2006. On August 30, 2004, the Company paid $100,000 to Piper & Rudnick,
LLP in connection with the renegotiation of a Payment Agreement effective June 30, 2004. Under the terms of the renegotiated Payment
Agreement, the Company agreed to payments of $25,000 each on December 1, 2004, March 1, 2005, June 1, 2005 and September 1, 2005
and a payment of $50,000 on December 1, 2006 plus $25,000 payments on March 1, 2006, June 1, 2006, September 1, 2006 and a final
payment of $75,000 payment on December 1, 2007. In addition, Piper & Rudnick LLP agreed to convert $150,000 of such payable
into a 5 year cashless warrant to purchase the Company's common stock at $.25 per share. The Company has made all of the above
payments except for $65,000 of the $75,000 due December 1, 2006, that is presently in arrears.
Necdet
F. Ergul, Ronald A. Durando and Gustave T. Dotoli are executive officers and shareholders of Microphase and Ronald Durando and
Gustave T. Dotoli served as president and vice- president of PacketPort.com., respectively until Packetport.com merged with Wyndstorm
Corporation in February of 2008, at which time Mr. Durando and Mr. Dotoli resigned from their respective positions..
On
November 26, 1999, PacketPort, Inc., a company owned 100% by Mr. Durando, acquired a controlling interest in Linkon Corp., which
subsequently changed its name to PacketPort.com, Inc. In connection with this transaction, Mr. Durando transferred 350,000 shares
of our common stock to PacketPort, Inc.
Transactions
with Microphase Corporation
mPhase's President and Chairman
of the Board of the Company are also employees of Microphase. On May 1, 1997, the Company entered into an agreement with Microphase
whereby it would use office space as well as the administrative services of Microphase, including the use of accounting personnel.
This agreement for fiscal year 2011 required mPhase to pay Micophase $3,000 per month. Microphase also charges fees for specific
projects on a project-by-project basis. During the year ended June 30, 2013 and 2014, $12,596 and $38,371 respectively, have been
charged to expense or inventory under these Agreements. Management believes that amounts charged to the Company by Microphase
are commensurate with amounts that would be incurred if outside third parties were used. The Company is obligated to pay a 3%
royalty to Microphase on revenues from its proprietary Traverser Digital Video and Data Delivery System and DSL component products.
Mr.
Durando, President and CEO of mPhase, owns a controlling interest and is a director and President of Janifast Limited. Mr. Durando
and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited prior to its discontinuing
operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director
and shareholder of Janifast Limited. Microphase Corporation is a significant shareholder of the Company. Janifast Limited had
been a significant shareholder of the Company until September 17, 2009, when it transferred to Mr. Durando 11,735,584 shares,
representing all the shares of the Company held by Janifast, in partial consideration of the cancellation of loan obligations
to Mr. Durando in connection with the plan of its liquidation.
Transactions
with Janifast
Janifast
Ltd., a Hong Kong corporation manufacturer, had produced components for our now discontinued Traverser_ DVDDS product. Necdet
F. Ergul, Ronald A. Durando and Gustave T. Dotoli are controlling shareholders of Janifast Ltd. with an aggregate ownership interest
of greater than 75% of Janifast Ltd. Mr. Durando is Chairman of the Board of Directors and Mr. Ergul is a Director of Janifast.
Janifast Ltd. ceased operations in March, 2009, and the Company has had no transactions with Janifast during or since its fiscal
year ended June 30, 2010.
Reparation
Shares issued to related parties
During
the fiscal year ended June 30, 2006, the Company issued 3,931,382 shares valued at $728,434 and 4,504,542 shares valued at $834,633
for reparation of investments of $200,000 for 1,000,000 shares and $250,000 for 1,250,000 shares made during fiscal year ended
June 30, 2005 by Janifast and Microphase, respectively, concurrently on the same terms reparations were issued to other investors
of the same private placements.
During
the fiscal year ended June 30, 2007, Janifast was issued 769,231 shares valued at $138,462 for reparation of an investment of
$171,000 for 950,000 shares issued for an investment made in fiscal year ended June 30, 2006, concurrently on the same terms reparations
were issued to other investors of the same private placement.
Transactions
with Other Related Parties
In
March 2000, mPhase acquired a 50% interest in mPhaseTelevision.Net (formerly Telco Television Network, Inc.), an incorporated
joint venture. This percentage was increased to approximately 57% in fiscal year 2001. Alpha Star International, Inc. currently
owns the remaining joint venture interest. The joint venture has been inactive for a period of five years and is in the process
of being dissolved.
Mr.
Durando, President and CEO of mPhase, owned a controlling interest and was a director and President of Janifast Limited. Mr. Durando
and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited prior to its discontinuing
operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director
and shareholder of Janifast Limited.
Microphase
Corporation is a significant shareholder of the Company. Janifast Limited had been a significant shareholder of the Company until
September 17, 2009, when it transferred to Mr. Durando 11,735,584 shares, representing all the shares of the Company held by Janifast,
in partial consideration of the cancellation of loan obligations to Mr. Durando in connection with the plan of its liquidation.
SUBSEQUENT
EVENTS
On
August 8, 2014, the Company paid in full $40,000 principle and together with $2,632 accrued interest and $14,900 of prepayment
fees to MH Investment Trust in satisfaction of its Convertible Promissory Note to MH Investment Trust for $40,000, originally
funded on January 7, 2014.
On
September 5, 2014 the Company announce on form 8k that pursuant to Section 4(2) of the Securities Act of 1933, as amended, the
Company issued a convertible note to MH Investment Trust in a Private Placement. The Company received in $40,000 cash proceeds
from the sale of the 6% Convertible Note that will be used as additional working capital.
From July 1, 2014 through October
22, 2014, the Company has completed transactions in a private placement of its common stock to 5 accredited investors pursuant
to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. The Company received proceeds of $245,000,
made available for working capital, in connection with the issuance of 642,500,000 shares of its common stock at $.0004, including
30,000,000 shares to finders.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Audit
Fees
The
audit fees billed by our accounting firm of Demetrius Berkower, LLC.. for fiscal years ended June 30, 2014 and June 30, 2013 were
$40,000 and $55,000.
Audit
Related Services
There
were no fees for audit related services billed for the fiscal year ended June 30, 2013. The fees billed for audit related services
for the fiscal year ended June 30, 2014 were also $0.
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Form 10-K (1) Consolidated Financial Statements
|
PAGE |
Report of
Demetrius Berkower, L.L.C. (Formerly Demetrius & Company, LLC) |
69 |
Consolidated
Balance Sheets as of June 30, 2013 and 2014 |
70 |
Consolidated
Statements of Operations for the years ended June 30, 2013 and 2014 |
71 |
Consolidated
Statements of Changes in Stockholders' Equity (Deficit) for the two years ended June 30, 2014 |
72 |
Consolidated
Statements of Cash Flows for the years ended June 30, 2013 and 2014 |
73 |
Notes to
Consolidated Financial Statements |
74 |
(2)
Financial Statement Schedules None.
(3)
The Exhibits filed with this Form 10-K or, where so indicated by footnote in the case of previously filed exhibits, incorporated
by reference are as set forth below:
2.1* |
Exchange
of Stock Agreement and Plan of Reorganization (incorporated by reference to Exhibit 2(a) to our registration statement on
Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)). |
|
|
2.2* |
Exchange
of Stock Agreement and Plan of Reorganization dated June 25, 1998 (incorporated by reference to Exhibit 2(b) to our registration
statement on Form 10SB-12G filed on May 6, 1999 (file no. 000-24969)). |
|
|
3.1*** |
Certificate
of Incorporation of the Company. |
|
|
3.2*** |
Bylaws
of the Company |
|
|
4.1* |
Minutes
of Special Meeting of the Board of Directors held on April 27, 2009, authorizing convertibility of officers’ promissory
notes. (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 (file no. 000-30202)) |
|
|
10.1* |
License
Agreement, dated March 26, 1998, between the Company and Georgia Tech Research Corporation (incorporated by reference to Exhibit
10(e) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000- 24969)). |
|
|
10.2* |
First
Amendment to the License Agreement dated January 8, 2001, between the Company and Georgia Tech Research Corporation (incorporated
by reference to Exhibit 10.2 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)). |
|
|
10.9* |
Facilities/Services
Agreement between the Company and Microphase Corporation, dated as of July 1, 1998 (incorporated by reference to Exhibit 10.9
to our registration statement on Form S- 1 filed on June 18, 2001 (file no. 33- 63262). |
|
|
10.10* |
Company’s
2001 Stock Incentive incorporated by reference to Exhibit C to Preliminary Proxy on Schedule 14A filed on March 21, 2001 (file
no. 000- 30202). |
|
|
10.18*** |
Development
Agreement effective February 3, 2004 between Lucent Technologies, Inc. and mPhase Technologies, Inc for development of micro
fuel cell Nano Technology. |
10.21*** |
Development
Agreement effective March 1, 2005 between Lucent Technologies Inc and mPhase Technologies relating to development of Magnetometers. |
|
|
10.22*** |
Amendment
No. 2 to Development Agreement executed as of March 9, 2005 amending Development Agreement effective as of February 5, 2004,
as amended relating to Micro Power Source Cells between mPhase Technologies, Inc. and Lucent Technologies, Inc. |
|
|
10.33*** |
Amendment
No. 3 dated May 19, 2006 to Development Agreement between Lucent Technologies, Inc. and mPhase Technologies, Inc. effective
February 3, 2004 for Development of micro fuel cell Nanotechnology. |
|
|
10.34*** |
Amendment
No. 4 dated February 3, 2007 to Development Agreement between Lucent Technologies, Inc. and mPhase Technologies, Inc. effective
February 3, 2004 for Development of micro fuel cell Nanotechnology. |
|
|
10.35*** |
Cooperative
Research Agreement Rutgers University and mPhase Technologies, Inc. executed October 18, 2005. |
|
|
10.36*** |
Modification
No. 1 to Cooperative Research Agreement with Rutgers University dated February 22, 2006. |
|
|
10.37*** |
Modification
No. 2 to Cooperative Research Agreement with Rutgers University dated September 22, 2006. |
|
|
10.38*** |
Modification
No. 3 to Cooperative Research Agreement with Rutgers University dated February 7, 2007. |
|
|
10.40*** |
CT
NanoBusiness Alliance Consulting Agreement dated May 10, 2007. |
|
|
10.41*** |
Amendment
No.5 dated April 28, 2007 to Development Agreement between Lucent Technologies, Inc. and mPhase Technologies, Inc. effective
February 3, 2004 for Development of micro fuel cell Nanotechnology. |
|
|
10.43* |
Cooperative
Research and Development Agreement between US Army Picatinny Arsenel and mPhase Technologies, Inc. dated December 20, 2006.
(Exhibit 43 to Form S-1 filed July 12, 2007, File No. 333-144527). |
|
|
10.44***. |
Small
Business Technology Transfer Collaboration Agreement between Rutgers University and mPhase Technologies, Inc. dated June 25,
2007 |
|
|
10.46* |
Phase
I Army Grant dated July 7, 2007 (Form 10-K filed October 7, 2009, Commission File No. 000-24969) |
|
|
10.47* |
Securities
Purchase Agreement dated December 11, 1007 between mPhase Technologies, Inc. and Golden Gate Investors and Related Documents
in connection with $1,500,000 Convertible Debenture Financing (Form 10-K filed October 7, 2009, Commission File No. 000-24969) |
|
|
10.48* |
Securities
Purchase Agreement dated February 29, 2008 between St. George Investments and mPhase Technologies, Inc and Related Documents
in connection with $550,000 Convertible Debenture Financing. (Form 10-K filed October 7, 2009, Commission File No. 000-24969) |
|
|
10.49* |
Documentation
including $350,000 Convertible Note and $1,000,000 Convertible Note and Secured Note for $1,000,000 Financing between mPhase
Technologies, Inc. and JMJ Financial dated March 25, 2008 (Form 10-K filed October 7, 2009, Commission File No. 000-24969) |
|
|
10.52* |
Phase
II Army Grant dated August 29, 2008 (Form 10-K filed October 7, 2009, Commission File No. 000-24969) |
|
|
10.53* |
Securities
Purchase Agreement dated September 12, 2008 between mPhase Technologies, Inc. and La Jolla Cove Investors and Related Documents
in connection with $2,000,000 Convertible Debenture Financing (Form 8K filing dated September 18, 2008) |
|
|
10.54* |
Design
Development Agreement between mPhase Technologies, Inc. and Porsche Design Studio for Emergency Flashlight dated November
3, 2008. (Form 8K filed on March 12, 2009) ** |
|
|
10.55* |
Documentation
dated December 31, 2008 for $1,100,000 Convertible Note and Secured Note Financing between mPhase Technologies, Inc. and JMJ
Financial and Amendment to $350,000 Convertible Note Financing (Form 8K Filing dated January 21, 2009, Commission File No.
000-24969) |
|
|
10.56* |
Eagle
Picher Proposal for mPhase Technologies, Inc. dated January 26, 2009 for design and development of mechanically- activated
Reserve Battery to be used in Emergency Flashlight. (Form 8-K filed January 30, 2009)** |
|
|
10.57* |
Termination
Agreement with Golden Gate Investors dated March 17, 2009 with respect to Convertible Debenture Financing dated December 11,
2007 (Form 10-K filed October 7, 2009, Commission File No. 000-24969) |
|
|
10.59* |
Documentation
including $1,870,000 Convertible Note and Secured Note for Financing with JMJ Financial dated August 21, 2009 (Form 8K dated
August 21, 2009, Commission File No. 000-24969) |
|
|
10.60* |
Documentation
including two $1,200,00 Convertible Notes executed September 23, 2009 and November 17, 2009 and Secured Notes in connection
with financing with JMJ Financial (Forms 8k dated December 23,2009 and December 30, 2009 respectively each Commission
File No. 000-25969)) |
|
|
10.61* |
Promissory
Notes Payable to Mr. Durando (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 30202)) |
10.62* |
Promissory
Notes Payable to Mr. Dotoli (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 (fil
10.63*Promissory Notes Payable to Mr. Smiley (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January
11, 2011 (fi 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
10.63* |
Promissory
Notes Payable to Mr. Smiley (Amendment No. 4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 (Commission
File No. 000-30202)) |
|
|
10.64* |
Forbearance
Agreement dated as of September 13, 2011 between mPhase Technologies, Inc. and John Fife ( Exhibit 99.1 to Form 8k filed September
16, 2011, (Commission file No. 000-24969)) |
|
|
10.65* |
Securities
Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies, Inc and John Fife ( Exhibit 99.2 to Form 8k
filed September 16, 2011, (Commission file No. 000-24969)) |
|
|
10.66* |
Officer’s
Certificate delivered pursuant to Securities Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies,
Inc. and John Fife (Exhibit 99.3 to Form 8k filed September 16, 2011, (Commission file No. 000- 24969)) |
|
|
10.67* |
Confession
of Judgment 1 delivered pursuant to Securities Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies,
Inc. and John Fife (Exhibit 99.4 to Form 8k filed September 16, 2011, (Commission file No. 000- 24969)) |
|
|
10.68* |
Confession
of Judgment 2 delivered pursuant to Securities Purchase Agreement, dated as of September 13, 2011 between mPhase Technologies,
Inc. and John Fife (Exhibit 99.5 to Form 8k filed September 16, 2011, (Commission file No. 000- 24969)) |
|
|
10.69* |
Registration
Rights Agreement dated as of September 13, 2011 between mPhase Technologies, Inc. and John Fife (Exhibit 99.6 to Form 8k filed
September 16, 2011, (Commission file No. 000-24969)) |
|
|
10.70* |
Convertible
Note dated September 13, 2011issued by mPhase Technologies, Inc. to John Fife (Exhibit 99.7 to Form 8k filed September 16,
2011, (Commission file No. 000-24969)) |
|
|
10.71* |
Convertible
Note dated August 11, 2011 issued by mPhase Technologies to Jay Wright (Exhibit 10.71 to Amendment No.4 to Form S-1 filed
January 17, 2012(Commission File No. 333-77248)) |
|
|
10.72
* |
Warrant
dated August 11, 2011 issued by mPhase Technologies to Jay Wright (Exhibit 10.72 to Amendment No.4 to Form S-1 filed January
17, 2012(Commission File No. 333-77248)) |
|
|
10.73* |
Investment
Agreement for Equity Line of Credit dated as of November 30, 2011 between mPhase Technologies, Inc. and Dutchess Opportunity
Fund L.L.P. (Exhibit 10.73 to Amendment No.4 to Form S-1 filed January 17, 2012(Commission File No. 333-77248)) |
|
|
10.74* |
Registration
Rights Agreement for Equity Line of Credit dated as of November 30, 2011 between mPhase Technologies, Inc. and Dutchess Opportunity
Fund II L.L.P. (Exhibit 10.74 to Amendment No.4 to Form S-1 filed January 17, 2012(Commission File No. 333-77248)) |
|
|
10.75* |
Securities
Purchase Agreement dated as of November 17, 2011 between Asher Enterprises, Inc. and mPhase Technologies, Inc.( Exhibit 99.1
to Form 8K filed November 30, 2011 (Commission file No. 000-24969)) |
|
|
10.76* |
8%Convertible
Note issued to Asher Enterprises, Inc. dated November 17, 2011 by mPhase Technologies, Inc.(Exhibit 99.2 to Form 8K filed
November 30, 2011 (Commission file No. 000-24969)) |
|
|
10.77* |
Securities
Purchase Agreement dated as of January 5, 2012 between Asher Enterprises, Inc. and mPhase Technologies, Inc.( Exhibit 99.1
to Form 8K filed January 17, 2012 (Commission file No. 000-24969)) |
|
|
10.78* |
8%Convertible
Note issued to Asher Enterprises, Inc. dated January 5, 2012 by mPhase Technologies, Inc.(Exhibit 99.2 to Form 8K filed January
17, 2012 (Commission file No. 000-24969)) |
|
|
10.79* |
Securities
Purchase Agreement dated as of May 4, 2012 between Asher Enterprises, Inc. and mPhase Technologies, Inc.(Exhibit 10.79 to
Form 10K for the fiscal year ended June 30, 2012 filed September 24, 2012 (Commission file No. 000-24969)) |
10.80* |
8%Convertible
Note issued to Asher Enterprises, Inc. dated May 4, 2012 by mPhase Technologies, Inc. (Exhibit 10.80 to Form 10K for
the fiscal year ended June 30, 2012 filed September 24, 2012 (Commission file No. 000-30202)) |
|
|
10.81* |
Stand
Still and Restructuring Agreement entered into as of May 31,2012 with John Fife (Exhibit 99.1 to Form 8K filed June 5, 2012
(Commission file No. 000-24969)) |
|
|
10.82* |
Stand
Still and Restructuring Agreement entered into as of June 1,2012 with JMJ Fiancial (Exhibit 99.2 to Form 8K filed June 5,
2012 (Commission file No. 000-24969)) |
|
|
10.83* |
Securities
Purchase Agreement, dated as of December 4, 2012 between mPhase Technologies, Inc and Asher Enterprises, Inc. (Exhibit 99.1
to Form 8K dated December 13, 2012(Commission File No. 000-24969)) |
|
|
10.85* |
Securities
Purchase Agreement dated as of January 18, 2003 between mPhase Technologies, Inc. and Black Arch Opportunity Fund L.P. (Exhibit
99.1 to Form 8K dated January 22, 2013 (Commission File No. 000-24969)) |
|
|
10.86* |
12%
Convertible Promissory Note with an issue date of January 14, 2013 issued by mPhase Technologies, Inc. to Black Arch Opportunity
Fund L.P. (Exhbit 99.2 to Form 8K dated January 22, 2013 (Commission File No. 000-24969)) |
|
|
10.87 * |
Securities
Purchase Agreement dated as of January 31, 2013 between mPhase Technologies, Inc. and Asher Enterprises, Inc. (Exhibit 99.1
to Form 8K dated February 15, 2013(Commission File No. 000-24969)) |
|
|
10.88* |
8%
Convertible Promissory Note dated as of January 31, 2013 issued by mPhase Technologies,Inc. to Asher Enterprises, Inc. (Exhibit
99,2 to Form 8k dated February 15, 2013 (Commission File No. 000-24969)) |
|
|
10.89* |
Securities
Purchase Agreement dated as of June 26, 2013 between mPhase Technologies, Inc. and Asher Enterprises, Inc. (Exhibit 99.1 to
Form 8k dated July 18, 2013 (Commission File No. 000-24969)) |
|
|
10.90* |
8%
Convertible Promissory Note dated as of June 26, 2013 (Exhibit 99.2 to Form 8K dated
July 18, 2013 (Commission File No. 000-24969))
|
|
|
10.91*
|
Securities
Purchase Agreement dated as of January 10, 2014 between mPhase Technologies, Inc. and
M H Investment Trust (Exhibit 99.1 to Form 8K dated January 10, 2014 (Commission File
No 000-24969)) |
|
|
10.92* |
12%
Convertible Promissory Note dated as of January 10, 2014 between mPhase Technologies,
Inc. and M H Investment Trust (Exhibit 99.2 to Form 8K dated January 10, 2014 (Commission
File No 000-24969))
12%
Convertible Promissory Note dated as of August 26, 2014 between mPhase Technologies, Inc. and M H Investment Trust (Exhibit
99.1 to Form 8K dated September 5, 2014 (Commission File No. 000-24969)) |
31.1 |
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
32.2 |
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* |
Incorporated
by reference. |
|
|
** |
All
or portions of such Agreements have been omitted and the Company has requested that the omitted sections be treated as “Confidential
Information” pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended and has been filed with the Securities
and Exchange Commission separately. |
|
|
*** |
Incorporated
by reference from Amendment No. 6 to Form 10K for the period ended June 30, 2009 file on August 13, 2009. |
Report
of Independent Registered Public Accounting Firm
To
The Board of Directors and
Shareholders
of mPhase Technologies, Inc.
We have audited
the accompanying consolidated balance sheets of mPhase Technologies, Inc. (a New Jersey corporation in the development
stage) and its subsidiaries as of June 30, 2013 and 2014 and the related consolidated statements of operations, changes in stockholders’
equity (deficit) and cash flows for the two years then ended. These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of mPhase Technologies, Inc. and
subsidiaries as of June 30, 2013 and 2014 and the results of their operations and
their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying consolidated financial statements have been prepared assuming that mPhase Technologies, Inc. and subsidiaries
will continue as a going concern. As shown in the financial statements, the Company has experienced significant losses and negative
operating cash flows resulting in a working capital deficiency and stockholders’ deficit. These conditions raise substantial
doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are more fully described
in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Demetrius
Berkower LLC.
Wayne,
New Jersey
October 22, 2014
mPHASE
TECHNOLOGIES, INC.
Consolidated
Balance Sheets
| |
June 30, | | |
June 30, | |
| |
2013 | | |
2014 | |
| |
| | |
| |
ASSETS | |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash | |
$ | 1,055 | | |
$ | 179,257
| |
Accounts receivable | |
| - | | |
| 29,594
| |
Inventory, net | |
| 70,684 | | |
| 594,320 | |
Prepaid and other current assets | |
| 23,013 | | |
| 57,239 | |
| |
| | | |
| | |
TOTAL CURRENT ASSETS | |
$ | 94,752 | | |
$ | 860,410 | |
| |
| | | |
| | |
Property and equipment, net | |
| 17,169 | | |
| 3,001 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 111,921 | | |
$ | 863,411 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS'
DEFICIT | |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 1,089,617 | | |
$ | 1,150,397 | |
Accrued expenses | |
| 226,609 | | |
| 326,311 | |
Due to related parties | |
| 212,084 | | |
| 166,183 | |
Accrued Wages Officers | |
| 266,751 | | |
| - | |
Notes payable, related parties | |
| 1,325,536 | | |
| 510,345 | |
Short term notes-Discontinued
Operations
| |
| 65,000 | | |
| 65,000 | |
Current Portion, Long term convertible debentures | |
| 1,314,692 | | |
| 1,522,217 | |
Current Portion, Long term
debt | |
| 4,580 | | |
| - | |
| |
| | | |
| | |
TOTAL CURRENT LIABILITIES | |
$ | 4,504,869 | | |
$ | 3,740,453 | |
| |
| | | |
| | |
OTHER OBLIGATIONS CONVERTIBLE TO EQUITY | |
| | | |
| | |
Convertible debt derivative liability | |
| 212,023 | | |
| 637,543 | |
Long term portion of Convertible debentures | |
| 290,525 | | |
| 40,000 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| - | | |
| - | |
| |
| | | |
| | |
STOCKHOLDERS' DEFICIT | |
| | | |
| | |
Common stock, par value $.001, 6,000,000,000 and 18,000,000,000
shares authorized, 5,071,165,583 and 13,850,576,024 shares issued and outstanding at June 30, 2013 and 2014, respectively | |
| 5,071,164 | | |
| 13,850,574 | |
Additional paid in capital | |
| 193,761,159 | | |
| 192,230,848
| |
Deferred Compensation | |
| (28,305 | ) | |
| - | |
Accumulated Deficit | |
| (203,691,541 | ) | |
| (209,636,008 | ) |
Less-Treasury stock, 13,750
shares at cost | |
| (7,973 | ) | |
| - | |
TOTAL STOCKHOLDERS' DEFICIT | |
$ | (4,895,496 | ) | |
$ | (3,554,585 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT | |
$ | 111,921 | | |
$ | 863,411 | |
The accompanying
notes are an integral part of these consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
Consolidated
Statements of Operations
| |
For
the years ended June 30 | |
| |
2013 | | |
2014 | |
| |
| | |
| |
REVENUES | |
$ | 4,086 | | |
$ | 581,261 | |
| |
| | | |
| | |
COSTS
AND EXPENSES | |
| | | |
| | |
| |
| | | |
| | |
Cost
of Sales | |
| 15,094 | | |
| 352,135 | |
| |
| | | |
| | |
Research
and Development | |
| 125,982 | | |
| 2,168 | |
| |
| | | |
| | |
General
and Administrative (including non-cash stock related charges of $169,852 and $2,798,849 for the years ended June 30, 2013
& 2014, respectively) | |
| 1,201,966 | | |
| 4,100,354 | |
| |
| | | |
| | |
Depreciation
and Amortization | |
| 12,000 | | |
| 12,000 | |
| |
| | | |
| | |
TOTAL
COSTS AND EXPENSES | |
| 1,355,042 | | |
| 4,466,657 | |
| |
| | | |
| | |
OPERATING
LOSS | |
$ | (1,350,956 | ) | |
$ | (3,885,396 | ) |
| |
| | | |
| | |
OTHER
INCOME (EXPENSE) | |
| | | |
| | |
Interest
(Expense) | |
| (292,987 | ) | |
| (1,632,316 | ) |
Net
Reparation, Impairment and Other Income (Expense) | |
| (18,540 | ) | |
| 27,818
| |
Net
Charges related to Convertible Debt | |
| 521,668 | | |
| (454,573 | ) |
| |
| | | |
| | |
TOTAL
OTHER INCOME (EXPENSE) | |
| 210,141 | | |
| (2,059,071
| ) |
| |
| | | |
| | |
Loss
From Continuing Operations, before Income Taxes | |
$ | (1,140,815 | ) | |
$ | 5,944,467
| |
| |
| | | |
| | |
Income
From Discontinued Operations | |
| 880,181 | | |
| - | |
| |
| | | |
| | |
Income
Taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Net
Loss | |
$ | (260,634 | ) | |
$ | (5,944,467 | ) |
| |
| | | |
| | |
Net
loss per share from: | |
| | | |
| | |
Continuing
Operations-Basic and Diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
Discontinued
Operations-Basic and Diluted | |
$ | 0.00 | | |
| N/A | |
| |
| | | |
| | |
Weighted
Average Number of Shares Outstanding; | |
| | | |
| | |
Basic
and Diluted | |
| 4,515,985,122 | | |
| 7,033,888,082 | |
The
accompanying notes are an integral part of these consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
Consolidated
Statement OF CHANGES IN
STOCKHOLDERS’
EQUITY (DEFICIT)
| |
Common
Stock | | |
| | |
Additional | | |
| | |
| | |
| |
| |
| | |
$.001
Par | | |
Treasury | | |
Paid
in | | |
Deferred | | |
Accumulated | | |
Stockholders' | |
| |
Shares | | |
Value | | |
Stock | | |
Capital | | |
Compensation | | |
Deficit | | |
(Deficit) | |
Balance June 30, 2012
| |
| 3,666,051,851 | | |
$ | 3,666,051 | | |
$ | (7,973 | ) | |
$ | 194,468,219 | | |
$ | (198,157 | ) | |
$ | (203,430,907 | ) | |
$ | (5,502,767 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of Common Stock to accredited
investors in private placements, net of $28,500 fees and $92,000 of reparation expense
| |
| 1,322,250,000 | | |
| 1,322,250 | | |
| - | | |
| (743,250 | ) | |
| - | | |
| - | | |
| 579,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Amortization of deferred stock compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 169,852 | | |
| - | | |
| 169,852 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common Stock issued to cover the exercise
of Put advances under Equity Line of Credit, net of $8,920 transaction fees
| |
| 42,412,553 | | |
| 42,412 | | |
| | | |
| 37,641 | | |
| | | |
| | | |
| 80,053 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversions of Convertible Debentures
plus accrued interest | |
| 40,451,179 | | |
| 40,451 | | |
| | | |
| (1,451 | ) | |
| | | |
| | | |
| 39,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss for
the Year Ended June 30, 2013 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (260,634 | ) | |
| (260,634 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June 30, 2013 | |
| 5,071,165,583 | | |
$ | 5,071,164 | | |
$ | (7,973 | ) | |
$ | 193,761,159 | | |
$ | (28,305 | ) | |
$ | (203,691,541 | ) | |
$ | (4,895,496 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of Common Stock to accredited
investors in private placements, including 283,128,375 shares to finders, net of $54,000 fees | |
| 4,579,628,375 | | |
| 4,579,628 | | |
| | | |
| (2,925,628 | ) | |
| | | |
| | | |
| 1,654,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Amortization of deferred stock compensation | |
| | | |
| | | |
| | | |
| | | |
| 28,305 | | |
| | | |
| 28,305 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common Stock issued to cover the exercise
of Put advances under Equity Line of Credit, net of $500 transaction fees
| |
| 3,990,000 | | |
| 3,990 | | |
| | | |
| 2,273 | | |
| | | |
| | | |
| 6,263 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversions of Convertible Debentures
plus accrued interest | |
| 141,761,066 | | |
| 141,761 | | |
| | | |
| (45,735 | ) | |
| | | |
| | | |
| 96,026 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Return to Company and cancelation of shares previously issued to officers
| |
| (885,000,000 | ) | |
| (885,000 | ) | |
| | | |
| 885,000 | | |
| | | |
| | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of shares and warrants for
Conversions of Officers' loans and Cancellation of accrued wages | |
| 1,809,326,625 | | |
| 1,809,327 | | |
| | | |
| 890,520 | | |
| | | |
| | | |
| 2,699,847 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beneficial Conversion Feature Interest
Expense Charged to Additional Paid in Capital
| |
| | | |
| | | |
| | | |
| 30,393 | | |
| | | |
| | | |
| 30,393 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of Common Stock for services | |
| 3,129,704,375 | | |
| 3,129,704 | | |
| | | |
| (359,160 | ) | |
| | | |
| | | |
| 2,770,544 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cancellation of Treasury Stock
| |
| | | |
| | | |
| 7,973
| | |
| (7,973
| ) | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss for
the Year Ended June 30, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (5,944,467 | ) | |
| (5,944,467 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June 30,
2014 | |
| 13,850,576,024 | | |
$ | 13,850,574 | | |
$ | - | | |
$ | 192,230,849
| | |
$ | - | | |
$ | (209,636,008 | ) | |
$ | (3,554,585 | ) |
The
accompanying notes are an integral part of these consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
Consolidated
Statements of Cash Flows
| |
For The Years Ended |
| |
June 30, |
| |
2013 | |
2014 |
Cash Flow From Operating Activities: | |
| | | |
| | |
Net (Loss) From Continuing Operations | |
$ | (1,140,815 | ) | |
$ | (5,944,467 | ) |
Net Income From Discontinued Operations | |
| 880,181 | | |
| — | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 15,972 | | |
| 14,168 | |
(Gain) on debt extinguishments | |
| (953,641 | ) | |
| (31,858 | ) |
Non-cash charges relating to issuance of common stock, common stock options and warrants | |
| — | | |
| 2,770,544 | |
Reparation charges | |
| 92,000 | | |
| — | |
Derivative value and debt discount charges (credits) | |
| (557,918 | ) | |
| 428,020 | |
Other non cash charges including amortization of deferred compensation and beneficial | |
| | | |
| | |
conversion interest expense | |
| 169,852 | | |
| 1,370,578 | |
| |
| | | |
| | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| — | | |
| (29,911 | ) |
Inventories | |
| 15,810 | | |
| (523,635 | ) |
Prepaid expenses and Other current assets | |
| 3,640 | | |
| (33,909 | ) |
Accounts payable, Accrued expenses | |
| 579,287 | | |
| 250,176 | |
Due to from related parties | |
| | | |
| | |
Microphase / Janifast/Lintel | |
| 2,956 | | |
| (33,401 | ) |
Officers and Other | |
| 198,000 | | |
| 160,000 | |
Net cash used in operating activities | |
$ | (694,676 | ) | |
$ | (1,571,837 | ) |
| |
| | | |
| | |
Cash Flow from Financing Activities: | |
| | | |
| | |
Proceeds from issuance of common stock, exercises of warrants, net of finders fees | |
| 659,053 | | |
| 1,660,263 | |
Payment of short term notes & equipment loans | |
| (11,735 | ) | |
| (4,580 | ) |
Proceeds from issuance of convertible debentures | |
| 115,000 | | |
| 77,500 | |
Repayment of Convertible Debentures | |
| (92,000 | ) | |
| (37,500 | ) |
Net Proceeds (Repayment) from notes payable related parties | |
| (14,500 | ) | |
| 16,856 | |
Net cash provided by financing activities | |
| 655,818 | | |
$ | 1,750,039 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
$ | (38,858 | ) | |
$ | 178,202 | |
CASH AND CASH EQUIVALENTS, beginning of year | |
$ | 39,913 | | |
$ | 1,055 | |
CASH AND CASH EQUIVALENTS, end of year | |
$ | 1,055 | | |
$ | 179,257 | |
The accompanying
notes are an integral part of these consolidated financial statements.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
1.
ORGANIZATION AND NATURE OF BUSINESS
mPhase,
a New Jersey corporation founded in 1996, is a publicly-held company with over 23,000 shareholders and approximately 13.85 billion
shares of common stock outstanding as of June 30, 2014. The Company's common stock is traded on the Over the Counter Bulletin
Board under the ticker symbol XDSL.
The
Company historically has focused much of its efforts in the commercial deployment of its TV+ products
for delivery of broadcast IPTV, and DSL component products which include POTS splitters. Beginning in 2004, the Company added
a new line of power cell batteries and electronic sensors (magnetometers) being developed through the use of nano-technology.
In
recent years, the Company has shifted its primary business focus to the development of innovative power cells and related products
through the science of microfluidics, microelectromechanical systems (MEMS) and nano- technology. Using these disciplines, it
has developed a battery that has a significantly longer shelf life prior to activation than conventional batteries. In addition,
such battery product, unlike conventional batteries, is capable of disposal after use without harm to the environment. During
the current fiscal year, the Company launched it Jump products.
On
April 17, 2007, the Company announced that it had formed AlwaysReady, Inc., a New Jersey Corporation, as a new wholly-owned subsidiary.
The Company planned to transfer all of its nano-technology assets and appropriate liabilities to such company so as to separate
its nano-technology product line from its IPTV product. Although management and staff of AlwaysReady Inc. were hired, the Company
has funded all operations of Always Ready Inc. to date and no assets or liabilities have been transferred.
On
June 20, 2007, the Company announced the formation of a new subsidiary, Granita Media, Inc. ("Granita"), a Delaware
corporation, to promote and develop its IPTV product line including targeted advertising and middleware solution. Capitalization
of Granita amounted to $514,000 of equity, provided by employees and independent investors. During FYE June 30, 2008, related
assets and liabilities were transferred to Granita and its results consolidated into the these financial statements. Additional
funding was to have been arranged from outside institutional financing and potentially involve the sale of up to 10% of the common
stock of Granita with mPhase retaining 90% of the stock of Granita. Owing to very challenging conditions in the capital markets,
Granita was unable to raise funds necessary to operate as a self-sufficient enterprise and fund the additional software development
necessary for a targeted advertising enhancement capability of its TV+ solution. In order to conserve financial resources, all
employees of Granita were either terminated or had resigned by December 31, 2007. (See also Note 7.) As of June 30, 2010, the Company
has treated Granita as a discontinued business.
We
are headquartered in Norwalk, Connecticut with an office inClifton, NJ. mPhase shares common office space with Microphase Corporation,
a privately held company in which the CEO of the Company owns a minority interest. Microphase is a leader in the field of radio
frequency and filtering technologies within the defense and telecommunications industry. It has been in operation for over 50
years and has supported mPhase with engineering, administrative and financial resources.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
2.
CUMULATIVE LOSSES AND MANAGEMENT'S PLANS
Through
June 30, 2014, the Company incurred cumulative losses totaling approximately $(209,636,008) and at June 30, 2014 had a working
capital deficit of $(2,880,043). Funding in our traditional capital markets was difficult during FYE 2013 and 2014.
The
Company was able to enter into convertible debt arrangements and an equity line of credit and private placements of equity with
independent investors to provide liquidity and capital resources during the preceding two fiscal years. Such arrangements have
provided the Company with cash in the amounts of $967,428 and $682,052 during FYE 2012 and 2013 respectively. In addition
and from time to time during FYE 2012 and 2013, the Company raised necessary working capital via bridge loans from officers. During
FYE June 30, 2014 the Company received proceeds from private placements with accredited investors of approximately $1,654,000.
The
Company is currently focused on the continued development and commercialization of its "Always Ready" battery product
using the science of nanotechnology. The Company believes that such battery has a much longer shelf life than conventional batteries
and will have significant commercial and military applications. The Company is also actively working on the commercialization
and marketing of its emergency flashlight, the mPower Emergency Illuminator. The Company launched its JUMP product line during
the fiscal year ended June 30, 2014 generating over $580,000 of sales since December, 2013. The Company has suspended development
of its magnetometer sensor devices and discontinued all activities related to its IPTV business. It is unclear whether any intellectual
property related to those operations will have significant value.
The
Company's ability to continue as a going concern and its future success is dependent upon its ability to raise capital in the
near term to: (1) satisfy its current obligations, (2) continue its research and development efforts, and (3) successfully develop,
market and sell its products. The Company believes that it will be able to complete the necessary steps in order to meet its cash
flow requirements throughout fiscal 2015 and continue its development and commercialization efforts.
However,
there can be no assurance that mPhase will generate sufficient revenues to provide positive cash flows from operations or that
sufficient capital will be available, when required, to permit the Company to realize its plans. The accompanying consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of mPhase and its wholly-owned and majority owned subsidiaries. Significant
inter-company accounts and transactions have been eliminated in consolidation.
BASIS OF PRESENTATION
The
consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S.”), which require the Company to make estimates and assumptions regarding the valuations of certain
financial instruments, the valuation of goodwill, compensation, deferred tax assets, the outcome of litigation and tax matters,
and other matters that affect the consolidated statement of financial condition and related disclosures. The Company believes
that the estimates utilized in the preparation of the consolidated statement of financial condition are prudent and reasonable.
Actual results could differ materially from these estimates. All material intercompany balances and transactions with its subsidiaries
have been eliminated in consolidation.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
RECLASSIFICATIONS
Certain reclassifications have been
made in the prior period consolidated financial statements to conform to the current period presentation. As of June 30, 2014
and for the year then ended these financial statements include a reclassification of $53,834 of accounts receivable to cash in
the Consolidated Balance Sheet and resultant corresponding changes in assets and liabilities in the Statement of Cash Flows &
a reclassification of $31,858 of other income from Discontinued Operations to Other Income from Continuing Operations. The reclassified
financial statement items had no effect on Net Loss for the Year, Total Stockholders’ Deficit or Total Assets for the fiscal
year ended June 30, 2014.
STOCK BASED COMPENSATION
Effective,
July 1, 2005, the Company adopted the promulgated authority "modified prospective" method, and has recorded as an expense
the fair value of all stock based grants to employees after such date. The Company has not restated its operating results for
any prior fiscal year end or quarter.
PROPERTY
AND EQUIPMENT
Property
and equipment is recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of three
to five years.
REVENUE
RECOGNITION
As
required, mPhase has adopted the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB")
No. 104, "Revenue Recognition in Financial Statements," which provides guidelines on applying generally accepted accounting
principles to revenue recognition based on the interpretations and practices of the SEC. The Company recognizes revenue on its
research grant contract upon delivery of milestones defined in the contract, at the fixed predetermined price under the contract
in which payment is reasonably expected as enumerated in SAB104. The Company recognizes revenue on it JUMP products when the products
are shipped and title passes to the customer.
RESEARCH
AND DEVELOPMENT
Research
and Development cost are charged to operations when incurred. The amounts charged to expense for the years ended 2013, 2014 were
$125,982 and $2,168, respectively.
PATENTS
AND LICENSES
Patents and licenses
are capitalized when mPhase 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 June 30, 2013
and 2014, the book value of such assets, or $214,383, has been fully amortized.
INVENTORIES
The Company uses
the First In First Out method (FIFO) to account for inventory which is carried at the lower of market value or cost. As of June
30, 2013 and June 30, 2014, the inventory related to the Emergency Flashlight was valued at $70,684 and $54,799, net of a $23,935
and $39,547 reserve, respectively.
The inventory related to the new Jump products was valued at $537,276 on June 30, 2014.
All inventories for both periods presented represent finished goods.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
LONG-LIVED
ASSETS
The
Company reviews long-term assets for impairment whenever events or circumstances indicate that the carrying amount of those assets
may not be recoverable. The Company also assesses these assets for impairment based on their estimated future cash flows.
REPARATION
EXPENSE
As
an incentive for additional equity contributions, the Company will from time to time, adjust the cost of past private purchases
of common stock through the issuance of additional shares in such magnitude as to reduce an investors cost to an average price
that more closely approximates current market value. The market value of additional shares issued without cash investment is charged
to Reparation Expense, which is included in Other Expenses. Reparations expenses have amounted to $92,000 and $0 for the years
ended 2013 and 2014, respectively.
LOSS
PER COMMON SHARE, BASIC AND DILUTED
mPhase
accounts for net loss per common share in accordance with the requirements FASB ASC 260 Earnings Per Share. Basic loss per share
is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net loss adjusted for income or loss that would result from the assumed conversion
of potential common shares from contracts that may be settled in stock or cash by the weighted average number of shares of common
stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company had convertible
debentures (if converted in full – see note 9) outstanding at June 30, 2014, convertible into, respectively, approximately
100,952,381 immediately (and additionally up to 1,629,970,111 shares of the Company's common stock could be required
for Convertible Notes held by John Fife and JMJ Financial depending on the outcome of certain disputes between the
Company and each of such Convertible Note holders) based upon the conversion terms at June 30, 2014. The Company has also
granted a conversion feature to certain officers for notes outstanding, giving these note holders the right to convert principal
and interest outstanding, subject to availability, into 1,275,863,675 shares of the Company’s common stock based on a $.0004
per share conversion price as amended (see note 10). The inclusion of the common shares to be issued in connection with convertible
debt have an anti-dilutive effect on diluted loss per share and have been omitted in such computation.
BUSINESS
CONCENTRATIONS AND CREDIT RISK
To date, the
Company's products have been sold to a limited number of customers, earlier primarily in the telecommunications and defense
industry and recently including some sales of the Emergency Illuminator. During the fiscal year ended 2013 sales consisted
primarily of the Company’s mPower emergency illuminator. During the fiscal year ended 2014 sales consisted primarily of
the Company’s new Jump products. Sales of individual Jump products are prepaid in advance and sales to distributors
have terms of net 15 or less while sales to retail chains have terms of 60 days. Throughout the year, cash balances that the
Company maintains at financial institutions may exceed the Federal Deposit Insurance Corporation insurance limitation of up
to $250,000. Cash balances exceeded FDIC insured limits at times throughout the years ended June 30, 2013 and 2014.
MATERIAL
EQUITY INSTRUMENTS
The
Company has material equity instruments including convertible debentures and convertible notes that are accounted for as derivative
liabilities (SEE Note-9) and options and warrants that are evaluated quarterly for potential reclassification as liabilities pursuant
to current accounting guidance.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
DEBT
DISCOUNTS
Costs
incurred with parties who are providing the actual long-term financing, which generally may include the value of warrants, fair
value of the derivative conversion feature, or the intrinsic value of conversion features associated with the underlying debt,
are reflected as a debt discount. These costs and discounts are generally amortized over the life of the related debt.
DERIVATIVE
FINANCIAL INSTRUMENTS
Derivatives
are recorded on the balance sheet at fair value. The conversion features of the convertible debentures are embedded derivatives
and are separately valued and accounted for on our balance sheet with changes in fair value recognized during the period of change
as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted
market prices. The pricing model we use for determining fair value of our derivatives is the Black-Scholes Pricing Model. Valuations
derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs
such as interest rates and stock price volatilities. Selection of these inputs involves management's judgment and may impact net
income. During the fiscal years ended June 30, 2013 and June 30, 2014, the Company utilized an expected life of 20 and 10 days
based upon the look-back period of its convertible debentures and notes and a volatility of 100%.
INCOME
TAXES
The
Company accounts for income taxes in accordance with accounting guidance now codified as Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. At June 30, 2013and 2014, the Company had a full valuation allowance
against its deferred tax assets.
Effective
July1, 2007, the Company adopted the provisions of FASB ASC 740-10-05, “Accounting for Uncertainties in Income Taxes.”
The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The
ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return.
The
Company files U.S. and state income tax returns with various statutes of limitations. The 2010 through 2013 tax years generally
remain subject to examination by federal and most state tax authorities.
The
Company recognizes interest accrued and penalties related to unrecognized tax benefits, if any, in interest and operating expenses.
No interest or penalties were recorded for the years ended June 30, 2013 and 2014.
ESTIMATED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company's financial instruments include cash, accounts payable, long term debt, line of credit, convertible debt and due to
related parties. Management believes the estimated fair value of cash, accounts payable and debt instruments at June 30, 2014
approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the
use of market interest rates for debt instruments. Fair value of due to related parties cannot be determined due to lack of
similar instruments available to the Company.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
NEW
ACCOUNTING PRONOUNCEMENTS
In
October 2012, the FASB issued ASU2012-04, Technical Corrections and Improvement which contains amendments to make technical corrections,
clarifications, and limited-scope improvements to various topics throughout the Codification. The amendments apply to all reporting
entities within the scope of the affected accounting guidance. For public entities, the amendments that are subject to the transition
guidance will be effective for fiscal periods beginning after December 15, 2012(our fiscal 2016). We do not anticipate the adoption
of this amendment to have a material impact on our consolidated financial statements.
In
January 2013, the FASB issued ASU 2013-01, Clarifring the Scope of Disclosures about Offsetting Assets and Liabilities.
This update amends ASC 210, “Balance Sheet,” specifically the disclosure requirements created by ASU 2011-11,
Disclosures About Offsetting Assets and Liabilities, issued by the FASB in December 2011. This update clarifies the scope of
these disclosure requirements to be applicable only to derivatives and securities borrowing and lending transactions that
are offset in accordance with GAAP or are subject to an enforceable master netting arrangement or similar agreement.
The disclosure requirements continue to be effective for annual reporting periods, and interim periods within those years,
beginning on or after January 1, 2013, which will be fiscal 2014 for the Company. Based on the scope clarification of this
update, the Company does not believe it has any financial instruments requiring these disclosures but will continue to
evaluate this assessment.
In
July 2013, the FASB issued ASU2OI3-11, Income Taxes, which applies to all entities that have unrecognized tax benefits when
a net operating loss, a similar tax loss, or a tax credit carryforward exists at the reporting date. The amendments inthis update
are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (our fiscal2017). We
do not anticipate the adoption of this amendment to have a material impact on our consolidated financial statements.
4. SUPPLEMENTAL
CASH FLOW INFORMATION
| |
For the years ended
June 30, | |
| |
2013 | | |
2014 | |
Statement of Operation Information: | |
| | |
| |
| |
| | |
| |
Beneficial Conversion feature interest expense of Officers’ Notes | |
$ | - | | |
$ | 1,342,274 | |
Interest Accrued Unpaid | |
$ | 420,380 | | |
$ | 285,275 | |
Interest Paid (net interest income) | |
$ | 10,552 | | |
$ | 30,525 | |
| |
| | | |
| | |
Non Cash Investing and Financing Activities: | |
| | | |
| | |
| |
| | | |
| | |
Conversion of Convertible Debt and Related Expenses to common stock | |
$ | 39,000 | | |
$ | 96,026 | |
Conversion of Officers' Notes to common stock | |
$ | - | | |
$ | 723,729 | |
Cancellation of Accrued Wages Officers' | |
$ | - | | |
$ | 425,918 | |
Cancellation of Accrued Interest Officers' | |
$ | - | | |
$ | 238,321 | |
Issuances of Common Stock for services & amortization of deferred stock compensation
| |
$ | 169,852 | | |
$ | 2,798,849 | |
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
5. PROPERTY
AND EQUIPMENT
Property
and equipment, at cost, consist of the following:
| |
June 30, |
| |
2013 | | |
2014 | |
Research Equipment | |
$ | 48,383 | | |
$ | 48,383 | |
Office and Marketing | |
| 142,280 | | |
| 142,280 | |
Gross Cost | |
| 190,663 | | |
| 190,663 | |
Less Accumulated Depreciation | |
| (173,494 | ) | |
| (187,662 | ) |
| |
| | | |
| | |
Net Property and Equipment | |
$ | 17,169 | | |
$ | 3,001 | |
Depreciation
expense for the years ended June 30, 2013 and 2014 was $15,972 and $14,168, respectively, of which $3,474 and $2,168, respectively,
relates to research laboratory and testing equipment included in research and development expense.
6. ACCRUED
EXPENSES
Accrued
expenses consist of the following as of each Balance Sheet date:
| |
June 30, | |
| |
2013 | | |
2014 | |
Accrued Interest- Convertible Debentures | |
$ | 143,756 | | |
$ | 285,274 | |
Other Accrued Expenses | |
$ | 82,853 | | |
$ | 41,037 | |
Total | |
$ | 226,609 | | |
$ | 326,311 | |
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
7.
GRANITA MEDIA
Effective July
1, 2007, the Company formed Granita Media, Inc. to separate its IPTV business and facilitate the raising of capital. Pursuant
to an arrangement with four employees of mPhase, such employees were terminated from mPhase as of July 1, 2007 and became employees
of Granita Media Inc. and invested solely in the common stock of Granita Media Inc. Under the arrangement, each of the four employees
were required to invest $125,000 in exchange for an aggregate 2% equity interest in Granitia Media, Inc, with mPhase continuing
to own 98% of the Company. The four employees contributed a total of $339,000 of the total $500,000 equity investment required
from them and raised from third party investors another $175,000 for a total of $514,000. Granita Media has 19,000,000 shares
of common stock outstanding of which 18,000,000 was owned by mPhase Technology and 1,000,000 was being held for issuance to the
four employees and the third party investors pending an agreement among such persons of the allocation of such shares. These shares
were never issued and the Company considers their claim to issue has been forfeited. Under the terms of the arrangement between
mPhase and the four employees, such employees were authorized to sell up to 7.99% of additional equity in the Company for a total
of not less than $2,000,000 of additional capital by December 31, 2007. As noted above, the employees raised a total of $175,000
of outside capital only and pursuant to the arrangement, such employees either resigned or were terminated by mPhase together
with several lower level employees of Granita. A dispute arose between Granita Media and one of the former employees with respect
to a sum of approximately $176,000 included in short term loans. It is the Company's position that such sums were voluntarily
advanced to fund operating expenses after July 1, 2007. Since the four employee/officers of Granita Media were required to cover
operating expenses of Granita Media after July 1, 2007 through equity investments either directly or from third parties, the Company
took the position that neither such amount nor any related interest and fees are owed to the employee. In addition, the Company
had substantial rights of offset for unpaid rent with respect to the portion of its Little Falls office occupied by Granita Media
after July 1, 2007. Granita Meida, Inc. ceased operations in December of 2007. In the fourth quarter of fiscal year 2010, the
Company elected to treat Granita Media, Inc. as a discontinued operation.
8.
SHORT TERM NOTES PAYABLE
Short
term debt is comprised of the following:
| |
June 30,
2013 | | |
June 30,
2014 | |
Note payable to Granita Employee (See note #7) Note payable to law firm bearing
8% interest, originally monthly installments of $5,000 per month commencing in June 2002 and continuing through December 1,
2003 with a final payment of principal plus accrued interest due at maturity on December 31, 2003, this note was in arrears
as of June 30, 2004 and the Company negotiated a new settlement arrangement as of August 31, 2004. Under such settlement agreement,
the Company made a $100,000 cash payment and gave a cashless warrant to purchase $150,000 worth of common stock valued at
$.25 per share. In addition, the Company agreed to pay $25,000 on each of December 1, 2004, March 1, 2005, June 1, 2005, September
1, 2005 and $50,000 on December 1, 2005. Thereafter, the Company was obligated to pay $25,000 on each of March 1, 2006, June
1, 2006, September 1, 2006 with a final payment of $75,000 on December 1, 2006, of which $10,000 was paid in 2008. The Company
is currently in default with respect to the remainder. | |
$ | 65,000 | | |
$ | 65,000 | |
| |
| | | |
| | |
Total Short Term Notes | |
$ | 65,000 | | |
$ | 65,000 | |
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY
mPhase
initially authorized capital of 50,000,000 shares of common stock with no par value. On February 23, 2000, the Board of Directors
proposed, and on May 22, 2000 the shareholders approved, an increase in the authorized capital to 150,000,000 shares of common
stock. On June 15, 2004, a Special Meeting of Shareholders of the Company approved a proposal by the Company to amend the Company's
Certificate of Incorporation under New Jersey law to increase the authorized shares of common stock from 150 million to 250 million
shares and change the par value of all shares of common stock from no par to $0.01 par stock. Effective June 2005, June 2006,
and June 2008, the Company received authorization to increase the number of authorized shares to 500 million, 900 million and
2 billion, respectively. A further increase in the number of authorized shares of common stock to 6 billion was approved at a
Special Meeting of Shareholders of the Company held on June 29, 2011. Finally the Company received shareholder approval to increase
its authorized shares to 18 billion on February 12, 2014, so that as June, 2014, the Company has 18 billion authorized
shares of common stock.
On
November 28, 2011, the Company amended the par value of its common stock from $.01 to $.001. The Balance Sheet at June 30, 2011
was restated to reflect this change with a reduction of $14,656,520 to the value of common stock and a corresponding increase
to additional paid in capital for the same amount. Transactions recorded in the Statement of Changes in Stockholders’ Deficit
were presented at the $.001 par value for the fiscal years ended June 30, 2013 and 2014.
All
other debt converted involved long term convertible debentures which are discussed below:
Long
Term Convertible Debentures / Debt Discount and Related Interest
The Company has entered into 14 separate convertible
debt arrangements with independent investors relevant to the last two fiscal years as detailed below.
General
The
economic substance of convertible debt arrangements entered into beginning December 2007 was to provide the Company with needed
liquidity to supplement the private equity markets.
The
form of the transaction generally involves the following:
● |
The
receipt of cash. |
● |
The
issuance of a note payable from mPhase. |
● |
The
issuance of a note receivable due to mPhase. |
● |
A
Securities Purchase Agreement. |
● |
The
note payable contains conversion features which permit the holder to convert debt into equity. Such debt is eligible to be
converted into the Company's common stock immediately, thus requiring the recording of the entire liability upfront. Finally,
to encourage conversion, a discount from market value is offered. |
● |
The
aggregate amount of notes payable exceeds the amount of cash received. As "Consideration" for this difference the
Company takes back a secured note receivable. Security is generally liquid investments of the investor. |
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
Long
Term Convertible Debentures / Notes Receivable / Debt Discount
The
Company had 14 separate convertible debt arrangements with independent investors that were in effect at various times during the
two fiscal years ended June 30, 2013 and 2014, three (3) of which were still active as of June 30, 2014.
During
the fiscal year ended June 30, 2013, $ 39,000 of debt including $1,500 accrued interest thereon was converted into 40,451,179
shares of common stock to holders of Convertible Notes.
During
the fiscal year ended June 30, 2014, $96,026 of debt including $13,026 of accrued interest and fees thereon was converted into
141,761,066 shares of common stock to holders of Convertible Notes.
These
transactions are intended to provide liquidity and capital to the Company and are summarized below.
Arrangement
#1 (JMJ Financial, Inc.)
On
November 17, 2009, the Company received a total of $186,000 of proceeds in connection with a new financing agreement with JMJ
Financial. This transaction consists of the following: 1) a convertible note in the amount of $1,200,000 plus a one-time interest
factor of 12% ($144,000) and a maturity date of September 23, 2012 and (2) a secured promissory note in the amount of $1,100,000
plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity date of September 23, 2012 due from the holder of
the convertible note. Conversion of outstanding principal into shares of common stock is at the option of the holder. The number
of shares into which this note can be converted is equal to the dollar amount of the note divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion
To
date the Company has received a total of $639,500 in cash and has issued 322,187,500 shares of common stock to the holder upon
conversions of $325,440 of principle and $994,766 of conversion fees. The remaining $604,600 of cash which was to be received
from the holder plus accrued and unpaid interest was convertible into shares of common stock at the option of the holder. Upon
receipt, in full, of cash by the Company equaling the purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total amount of interest funded that would accrue to maturity
into additional shares of common stock. Based upon the price of the Company’s common stock on June 30, 2011 of $.0073 per
share the holder could convert the remaining principal amount plus interest of this convertible note into approximately 222,142,857
shares of common stock at the full contract value; of which the derivative liability associated with this arrangement is calculated.
At June 1, this note was combined with arrangement #4 JMJ Financial, Inc.
During
the year ended June 30, 2011 the holder converted $33,750 of principal into 10,000,000 shares of common stock and amortization
of debt discount amounted to $412,332, reducing the debt discount balance to $100,000.
During
the year ended June 30, 2012, the Company reduced the note payable and debt discount by $42,000 in proportion with the amount
funded to the total original funding commitment and amortization of debt discount amounted to $27,067 reducing the balance to
$30,933. Also during the year ended June 30, 2012, the Company had incurred $994,766 of conversion fees which together with $291,690
of principle was converted into 322,187,500 shares of common stock. At June 30, 2012 this convertible note had $372,060 outstanding
which was combined with arrangement #3 JMJ Financial, Inc.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
Arrangement
#2 (JMJ Financial, Inc.)
On
December 15, 2009 the Company entered into a new financing agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the amount of $1,500,000 plus a one-time interest factor of 12% ($180,000) and a maturity date of
December15, 2012 and (2) a secured promissory note in the amount of $1,400,000 plus a one-time interest rate factor of 13.2% ($180,000
) and a maturity date of December 15, 2012 due from the holder of the convertible note. To date the Company has received a total
of $300,000 cash and has issued no shares of common stock to the holder upon conversions. The remaining $1,280,000 of cash to
be received from the holder plus accrued and unpaid interest is convertible into shares of common stock at the option of the holder.
Upon receipt, in full, of cash by the Company equaling the purchase price of the convertible note plus interest or any portion
thereof payable through maturity, the holder may convert such portion of the total amount of interest funded that would accrue
to maturity into additional shares of common stock.
The
number of shares into which this convertible note can be converted is equal to the dollar amount of the note divided by 75% of
the lowest trade price during the 20 day trading period prior to conversion. Based upon the price of the Company’s common
stock on June 30, 2011 of $.0073 per share the holder could convert the remaining principal amount plus interest of this convertible
note into approximately 285,714,286 shares of common stock at the full contract value; of which the derivative liability associated
with this arrangement is calculated.
The
Company and the holder are presently negotiating potential amendments to this agreement, and funding and conversions have not
occurred since April, 2011. For accounting purposes the note receivable has been fully reserved, and the liability is recorded,
when netted against the debt discount and cumulative conversions, at the amount funded. Based upon the price of the Company’s
common stock on June 30, 2011, the net liability of this note is convertible into approximately 38,095,238 shares of common stock.
At the commitment date, the derivative value of the embedded conversion feature of such security was $542,714 and the debt discount
was valued at $642,714. As of June 30, 2011, this value was calculated to be $607,994. During the year ended June 30, 2011, amortization
of debt discount amounted to $418,552, reducing the balance to $100,000.
During
the fiscal year ended June 30, 2012, the Company reduced the note payable and debt discount by $79,000 in proportion with the
amount funded to the total original funding commitment and amortization of debt discount amounted to $8,573 reducing the balance
to $12,427. As of June 30, 2012, this convertible note has $321,000 outstanding which was combined with arrangement #3 JMJ Financial,
Inc.
Arrangement
#3 (JMJ Financial, Inc.)
On
April 5, 2010, the Company entered into a new financing agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the principal amount of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity
date of December 15, 2012, and (2) a secured promissory note from the holder of the convertible note in the amount of $1,100,000
plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity date of December 15, 2012. To date the Company has
received a total of $100,000 cash and has issued no shares of common stock to the holder upon conversions. The remaining $1,144,000
of cash to be received from the holder plus accrued and unpaid interest is convertible into shares of common stock at the option
of the holder.
Upon
receipt, in full, of cash by the Company equaling the purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total amount of interest funded that would accrue to maturity
into additional shares of common stock. The number of shares into which this convertible note can be converted is equal to the
dollar amount of the note divided by 75% of the lowest trade price during the 20 day trading period prior to conversion. Based
upon the price of the Company’s common stock on June 30, 2011 of $.0073 per share the holder could convert the remaining
principal amount plus interest of this convertible note into approximately 228,571,429 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is calculated.
For
accounting purposes the note receivable has been fully reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the Company’s common stock on June
30, 2011, the net liability of this note is convertible into approximately 19,047,619 shares of common stock.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
At
the commitment date, the derivative value of the embedded conversion feature of such security was $421,891 and the debt discount
was valued at $521,891. As of June 30, 2011, this value was calculated to be $486,795. During the year ended June 30, 2011, amortization
of debt discount amounted to $378,761, reducing the balance to $ 100,000.
During
the fiscal year ended June 30, 2012, the Company reduced the note payable and debt discount by $91,000 in proportion with the
amount funded to the total original funding commitment and amortization of debt discount amounted to $3,674 reducing the balance
to $5,326.
As
of June 30, 2012, this convertible note has $109,000 outstanding, which when combined with arrangements #8 and #9 totaled $802,060,
which the Company entered into an amended agreement on June 1, 2012 whereby the Company agreed to make payments of principle and
interest of $37,018 per month commencing October 1, 2012 through September 1, 2014 at 8% interest and so long as the payments
are not in default then no conversions into the Company’s common stock would be available to the holder. Also as of June
30, 2012 the derivative value of the embedded conversion feature of this arrangement when combined with arrangements #2 and #3
totaled $0; which when compared to the combine value of $1,567,512 created a non-cash credit to earnings of $1,567,512 in fiscal
2012. As of June 30, 2013 and June 30, 2014, the combined arrangements with JMJ in this note would be convertible into 219,050,990 and
237,807,785 at the conversion floor price of $.004; and only so if the Company does not make the scheduled payments pursuant to
the June 1, 2012 amended agreement. The Company has not made any payments of the $37,018 installment payments commencing October
1, and the holder has continued to accrue interest on the outstanding balance.
Arrangement
#4 (John Fife)
On
March 5, 2010, the Company entered into an new financing agreement with J. Fife that consist of a convertible note issued by the
Company in the principal amount of $550,000 bearing interest at 7.5% per annum in which the Company received $495,000 cash up
front. The Convertible Note had a maturity date of one year from the date of issuance. In addition, the Company had committed
to issue in the future 2 additional promissory notes each in the principal amount of $275,000 each with an interest rate of 7.5%
each upon the receipt of $250,000 of cash funding in exchange for such notes. The issuance of each of such notes was expected
to take place upon the full conversion of the holder of its previous note into common stock of the Company. Conversion of each
of the Convertible Notes into common stock of the Company is at the option of the holder at a price equal to the dollar amount
of the note being converted divided by 75% of the three lowest volume weighted average prices during the 20 day trading period
immediately preceding the date of conversion.
On
October 22, 2010, the Company entered into a Forbearance Agreement with this convertible note holder in which the lender agreed
not to convert any additional amounts under the convertible notes until January 15, 2011 in exchange for increasing the original
principal amount of those notes by 10% from $550,000 to $605,000 resulting in a charge of $55,000 for debt extension fees corresponding
with the addition to the note principal. At the time of the October 22, 2010 transaction, the embedded conversion feature of this
security for this incremental liability and loan discount was calculated to be $20,005. This note, which was originally scheduled
to mature on March 4, 2011, was extended to June 30, 2012 on September 13, 2011. These increases in the convertible note will
also be convertible into common stock of the Company at the option of the holder at a price equal to the dollar amount of the
note being converted divided by 75% of the three lowest volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion.
At
the time of the transaction (March 5, 2010) the derivative value of this security was calculated to be $193,767 and the debt discount
was valued at $243,767. As of June 30, 2011 and 2012 this liability was estimated to be $78,059 and $0, respectively, creating
a non-cash credit to earnings of $78,059 in fiscal 2012. During the year ended June 30, 2011 the holder converted $398,245 of
principal into 65,280,866 shares of common stock and amortization of debt discount amounted to $ 227,621, reducing the balance
of the debt discount to $ 0. During the year ended June 30, 2012 the holder converted the remaining principal of $234,755, contractual
charges of $74,848 and accrued interest of $77,895 into 161,041,617 shares of common stock and $0 remained outstanding at June
30, 2012.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
Arrangement
#5 (Jay Wright)
On
August 11, 2011 the Company issued to Jay Wright a Convertible Note plus a Warrant in a Private Placement pursuant to Section
42) of the Securities Act of 1933 and received $25,000 in gross proceeds. The purpose for this transaction was to provide working
capital for the Company to use for a portion of the interim financing needed by Energy Innovative Products during the course of
due diligence by the Company of a proposed acquisition of EIP. The acquisition was subsequently terminated by EIP in January of
2012.
Interest
only is payable under the original terms of the Convertible Note at the rate of 1% per month by the Company to the holder. The
Convertible Note was originally convertible at a price of $.0068 per share subject to a downward adjustment if the Company issues
common stock below such price as long as the Convertible Note is outstanding (anti-dilution protection). The Warrant gives the
holder the right to purchase up to 3,676,471 shares of the Company’s common stock at a price of $.0068 per share subject
also to a downward adjustment for anti-dilution protection.
The
Company and the holder had negotiations with respect to a final repayment arrangement of the Convertible Note. The Company has
issued the holder 18 million shares of its common stock for repayment through a conversion and the holder has accepted the
conversion and the amount of shares issued in satisfaction of the obligation.
All
proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $4,660 and
the debt discount totaled the same.
The
Company has taken the position that this note was converted in full during the fiscal year ended June 30, 2012 together with accrued
interest of $1,900 for 18,000,000 shares of common stock. On February 11, 2013, the Holder formally accepted the 18,000,000 shares
of common stock as payment in full of the Convertible Note and agreed to cancel the Warrant.
Arrangement
#6 (John Fife dba St. George Investors)
On
September 13, 2011, the Company issued a second Convertible Note to John Fife founder and president of St. George Investments,
in a Private Placement pursuant to Section 4(2) of the Securities Act of 1933. The initial principal amount of the first funded
tranche of the Convertible Note was $357,500 and the Company received cash proceeds of $300,000.
A
second tranche of the Convertible Note in the amount of $200,000 cash is funded upon the filing by the Company of a Registration
Statement on Form S-1 with the Securities and Exchange Commission providing for the registration of 185,400,000 shares of common
stock that may be converted into from time to time by the holder of the Convertible Note.
The
instrument is convertible into the Company’s common stock at 75% of the volume weight average price of the stock based upon
the average of the three lowest trading days in the 20 day trading period immediately preceding such conversion. Absent an effective
Registration Statement, the holder of the Convertible Note may not sell any common stock prior to 6 months from the date of funding
of each of the respective tranches of such instrument under Rule 144 of the Securities Act of 1933.
All
proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $137,481 and
the loan discount totaled $194,981 for the initial tranche and the embedded conversion feature of this security and the warrant
for a second tranche of the Convertible Note was calculated to be $46,379. On June 30, 2012, given the changes in the Company’s
stock price during the 20 day look-back period for June 30, 2012 and conversions during the period this estimated liability had
increased from $183,860 to $771,079, an increase this period of $587,219, creating a non-cash charge to earnings for the twelve
months ended June 30, 2012 of that amount.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
During
the twelve month period ended June 30, 2012 amortization of debt discount amounted to $185,456 reducing the combined balance to
$55,903. On June 30, 2013, given the changes in the Company’s stock price during the 20 day look-back period for June
30, 2013, this estimated liability had decreased to $138,696, a decrease this period of $689,007, creating a non-cash credit to
earnings for the year ended June 30, 2013 of that amount. During the year ended June 30, 2013, amortization of debt discount amounted
to $55,903, reducing the combined balance to $0.
On
June 30, 2014, given the changes in the Company’s stock price during the 20 day look-back period for June 30, 2014,
this estimated liability had increased to $548,906, an increase this period of $410,210, creating a non-cash charge to earnings
for the year ended June 30, 2014 of that amount.
The Company
entered into an amended agreement on June 1, 2012, when principle of $557,500 accrued interest of $66,338 and $95,611 of contractual
charges totaled $719,449; with this noteholder whereby the Company agreed to make payments of principle and interest of $33,238
per month commencing October 1, 2012 through September 1, 2014 at 8% interest and so long as the payments are not in default then
no conversions into the Company’s common stock would be available to the holder. As of September 30, 2012 this note would
be convertible into 789,645,351 shares of common stock at the original terms. The Company has not made any payments of the $33,238
installment payments commencing October 1, 2012 and the holder has continued to accrue interest on the outstanding balance. On
November 20, 2012, mPhase Technologies, Inc. (the “Company”) formally received an Event of Default and Redemption Notice
dated November 16, 2012 with respect to an 8% Convertible Note dated September 13, 2011 issued by the Company to St. George Investments
LLC and assigned to John Fife. The notice included alleged defaults with respect to payments owed by the Company under the Convertible
Note and the failure to convert the Note into shares of the Company’s common stock. The alleged amount owed according to
the notice is approximately $902,279. The Company believes it has affirmative defenses to the actions of the holder of the Convertible
Note as well as counterclaims against the Holder.
As
of June 30, 2013, this note would have been convertible into 700,806,707 shares of common stock at the original terms.
As
of June 30, 2014, this note would be convertible into 1,392,162,326 shares of common stock at the original terms.
Arrangement #7
(Asher Enterprises, Inc.)
On
November 17, 2011 the Company issued to Asher Enterprises, Inc. a Convertible Note plus a Warrant in a Private Placement pursuant
to Section 4(2) of the Securities Act of 1933 and received $53,000 in gross proceeds, net of $3000 closing fees. The instrument
is in the principal amount of $53,000 and matures on November 17, 2012. Interest only is payable at the rate of 8% per annum by
the Company to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume
weight average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately
preceding such conversion. All proceeds received in connection with the above financing have been used by the Company as working
capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $47,970 and
the loan discount totaled $50,970. During the fiscal year ended June 30, 2012, this Convertible Note was converted,
in full, into 162,749,128 shares of common stock.
Arrangement #8
(Asher Enterprises, Inc II)
On
January 5, 2012 the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section 4(2)
of the Securities Act of 1933 and received $35,000 in gross proceeds, net of $2,500 closing fees. The instrument is in the principal
amount of $35,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight average price
of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding such conversion.
All proceeds received in connection with the above financing have been used by the Company as working capital. On July
11, 2012, the Company prepaid, in full, in cash, this Convertible Note, together with $1,388 of interest and a $17,500 prepayment
fee charged to expense during the year ended June 30, 2013.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
Arrangement
#9- (Asher Enterprises, Inc. III )
On
May 5, 2012 the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section 4(2) of
the Securities Act of 1933 and received $37,500 in gross proceeds, net of $2,500 closing fees. The instrument is in the principal
amount of $33,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight average price
of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding such conversion.
All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $18,137 and
the loan discount totaled the same. On June 30, 2012, given the changes in the Company’s stock price during the 10 day look-back
period for this estimated liability had increased to $66,029, an increase this period of $47,892 creating a non-cash charge to
earnings of that amount. During the twelve month period ended June 30, 2012 amortization of debt discount amounted to $3,601 reducing
the balance to $14,536. Based upon the price of the Company’s common stock on June 30, 2012, this note was convertible into
approximately 115,030,675 shares of common stock.
On
September 30, 2012, given the changes in the Company’s stock price during the 10 day look-back period for this estimated
liability had decreased to $17,038, an decrease this period of $48,991 creating a non-cash credit to earnings of that amount.
During the three month period ended September 30, 2012 amortization of debt discount amounted to $6,201 reducing the balance to
$8,335. On December 5, 2012 the Company prepaid, in full, in cash, this Convertible Note, together with $1,479 of interest
and an $18,750 prepayment fee charged to expense during the year ended June 30, 2013.
Arrangment
#10 (Asher Enterprises, Inc. IV)
On
December 8, 2012, the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 and received $37,500 in gross proceeds, net of $2,500 closing fees. The instrument is in the
principal amount of $33,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company
to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight
average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding
such conversion. All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security was calculated to be $24,966 and
the loan discount totaled $27,466, which amount was fully amortized during the year ended June 30, 2013. During the fiscal year
ended June 30, 2013, $ 37,500 of this debt together with $1,500 accrued interest thereon was converted into 40,451,179 shares
of common stock repaying this note in full.
Arrangement
#11(Black Arch Opportunity Fund L.P.)
On
December 8, 2012, the Company issued to Black Arch Opportunity Fund L.P., Inc. a Convertible Note in a Private Placement pursuant
to Section 4(2) of the Securities Act of 1933 and received $30,000 in gross proceeds. The instrument is in the principal amount
of $30,000 and matures on January 5, 2013. Interest only is payable at the rate of 12% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 45% discount (60% while the Company’s
stock is “chilled” by the DTC) based upon the average of the three lowest trading days in the 10 day trading period
immediately preceding such conversion. All proceeds received in connection with the above financing have been used by the Company
as working capital.
At
the time of the transaction, the embedded conversion feature of this security was calculated to be $70,001 and the loan discount
totaled $70,001. On June 30, 2013, given the changes in the Company’s stock price during the 10 day look-back period for
this estimated liability had decreased to $43,598, a decrease this period of $26,423 creating a non-cash credit to earnings of
that amount. During the year ended June 30, 2013, amortization of debt discount amounted to $70,001, reducing the balance to $0.
Based upon the price of the Company’s common stock on June 30, 2013, this Note is convertible into approximately
57,668,070 shares of common stock.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
During
the year ended June 30, 2014, the Company issued 53,313,811 shares of common stock to repay this note in full together
with $11,811 accrued interest and $9,054 prepayment fees thereon The estimated liability for the embedded conversion fee was reduced
by $43,508, creating a non cash credit to earnings for this period as the note was paid in full.
Arrangement #12
(Asher Enterprises, Inc. V)
On
January 31, 2013, the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 and received $50,000 in gross proceeds, net of $3,000 closing fees. The instrument is in the
principal amount of $53,000 and matures on January 5, 2013. Interest only is payable at the rate of 8% per annum by the Company
to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight
average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding
such conversion. All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $57,418 and
the loan discount totaled $60,418. On June 30, 2013, given the changes in the Company’s stock price during the 10 day look-back
period for this estimated liability had decreased to $29,729, a decrease this period of $27,689 creating a non-cash charge to
earnings of that amount. During the year ended June 30, 2013, amortization of debt discount amounted to $60,418 reducing the balance
to $0. Based upon the price of the Company’s common stock on June 30, 2013, this Note is convertible into approximately
57,668,070 shares of common stock.
During
the year ended June 30, 2014, the Company issued 88,447,255 shares of common stock to repay this note, in full, together
with $2,120 accrued interest. The estimated liability for the extended conversion fee of $29,729 at June 30, 2013 was
reduced to zero during the year ended June 30, 2014 creating a non-cash credit to earnings for this
period as the loan was repaid in full.
Arrangement
#13 (Asher Enterprises, Inc. VI)
On
July 2, 2013, the Company issued to Asher Enterprises, Inc. a Convertible Note in a Private Placement pursuant to Section 4(2)
of the Securities Act of 1933 and received $37,500 in gross proceeds, net of $2,500 closing fees. The instrument is in the principal
amount of $37,500 and matures on March 28, 2014. Interest only is payable at the rate of 8% per annum by the Company to the holder
until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume weight average price
of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately preceding such conversion.
All proceeds received in connection with the above financing have been used by the Company as working capital.
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $28,216 and
the loan discount totaled $30,626. On January 8, 2014 this note was prepaid in full, together with a prepayment fee of $17,500 and
accrued interest totaling $2,729.
Arrangement
14 (MH Investment trust)
On
December 27, 2013, the Company issued to the MH Investment Trust. a Convertible Note in a Private Placement pursuant to Section
4(2) of the Securities Act of 1933 which was executed funded with $40,000 in gross proceeds on January 7, 2014. The instrument
is in the principal amount of $40,000 and matures on October 1, 2014. Interest only is payable at the rate of 12% per annum by
the Company to the holder until maturity. The instrument is convertible into the Company’s common stock at 60% of the volume
weight average price of the stock based upon the average of the three lowest trading days in the 10 day trading period immediately
preceding such conversion, or 65 % when the trading price exceeds $.0020 for the five days before such conversion. All proceeds
received in connection with the above financing have been used by the Company as working capital.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
At
the time of the transaction, the embedded conversion feature of this security and the warrant was calculated to be $35,556 and
the company recorded no loan discount as the quantity of shares was considered indeterminable at the date of funding. On June
30, 2014, given the changes in the Company’s stock price during the 10 day look-back period for this estimated liability
had increased to $88,637, an increase for this period of $53,081 creating a non-cash charge to earnings of that amount. Based
upon the price of the Company’s common stock on June 30, 2014, this Note is convertible into approximately 100,952,381
shares of common stock.
The
following table summarizes notes payable under convertible debt and debenture agreements as of:
| |
June 30, | | |
June 30, | |
| |
2013 | | |
2014 | |
| |
| | |
| |
Arrangement #3 - JMJ Financial, Inc | |
$ | 802,060 | | |
$ | 802,060 | |
Arrangement #6 - St. George Investments | |
| 720,157 | | |
| 720,157 | |
Arrangement #11-Black Arch Opportunity Fund L.P. | |
| 30,000 | | |
| - | |
Arrangement #12-Asher Enterprises V | |
| 53,000 | | |
| - | |
Arrangement #14 -MH Investment trust | |
| - | | |
| 40,000 | |
Total notes payable | |
$ | 1,605,217 | | |
$ | 1,562,217 | |
less: unamortized debt discount | |
| - | | |
| - | |
Convertible Notes payable, net of discount | |
| 1,605,217 | | |
| 1,562,217 | |
Convertible Notes payable-short term portion | |
| 1,314,692 | | |
| 1,522,217 | |
Convertible Notes payable-long term portion | |
$ | 290,525 | | |
$ | 40,000 | |
Included
in accrued expenses is $143,756 and $285,274 interest accrued on these notes at June 30, 2013 and 2014, respectively.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
During
the fiscal year ending June 30, 2014, the following transactions impacted stockholders’ equity
Private
Placements
During
the fiscal year ended June 30, 2014, the Company received $1,654,000 of net proceeds from the issuance of 4,579,628,375 shares
of common stock in private placements with accredited investors, including 283,128,375 shares to finders and $54,000 in fees.
Equity
Line Of Credit
During
the fiscal year ended June 30, 2014, the Company issued 3,990,000 shares of Common Stock to cover the exercise of Put advances
under Equity Line of Credit generating $6,263 of proceeds, net of $500 transaction fees.
Return of Shares
to Treasury and Cancellation
During the fiscal year ended June 30, 2014
three (3) officers’ returned 885,000,000 shares of common stock to treasury and cancelled of shares previously issued to
these officers.
Stock
Based Compensation
The
Company issued awards of 3,129,704,375 shares of common stock to Officers, Directors, Employees and consultants during the fiscal
year ended June 30, 2013 valued at $2,770,544.
Conversion
of debt securities
During
the fiscal year ended June 30, 2014, $96,026 of debt was converted into 141,761,066 shares of common stock to holders of Convertible
Notes.
Conversion
of Debt to Officers’
During
the fiscal year ended June 30, 2014, the officers’ were authorized by the board of directors’ to enter into agreements
to convert certain officer notes, previously convertible at $.004 from 2009 through April 2014, based upon the then concurrent
terms of private placements with accredited investors; at $.0004, representing the now current terms of private placements with
accredited investors.
As
a result thereon $723,729 of loans, accrued interest and unpaid salary were converted into 1,810,826,637 shares of common
stock with a conversion rate of $.0004 per share and warrants to purchase shares of common stock at $.0004 for a term of five
years effective March 31, 2014, respectively. In connection with these transactions the officers’ agreed to forego and
cancel $425, 918 of accrued wages since fiscal 2013 and $238,321 of accrued interest since fiscal 2009 totaling a
cancelation of $664,239 of debt; which when combined with the beneficial conversion feature of the 1,809,326,625
of shares converted for $723,729 of $1,673,261 less $361,380 debt forgiven attributable to the conversions
resulted in $1,311,881 beneficial conversion feature interest expense during the nine months ended March 31, 2014, and the
Company amortized $30,393 of deferred beneficial conversion feature interest from April 1, 2014 through June 30, 2014 for a
total of $1,342,274 beneficial conversion feature interest expense during the current period.
The
value of the warrants computed using the black shoals method with a volatility of 100%, risk free interest rate of .05% and a
term of five years which was computed to be $1,413,547 for the conversion feature at $.0004 at the option of the officers, to
the extent shares are available and $502,837 of remaining debts to officers’, less 302,859 debt forgiven attributable
to the warrant resulted in $607,851 deferred beneficial conversion feature interest expense, a reduction of additional paid in
capital, which will be amortized on a straight line basis over the life of the warrant or sooner if and when converted, of which
$30,393 was amortized through June 30, 2014. On June 30, 2014, these Notes are convertible into approximately 1,275,863,375 shares
of common stock, if available.
Reparations
The
Company did not issue any shares to investors for reparations.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
During
the fiscal year ending June 30, 2013, the following transactions impacted stockholders’ equity
Private
Placements
During
the fiscal year ended June 30, 2013, the Company received $579,000 of net proceeds from the issuance of 1,322,250,000 shares of
common stock in private placements with accredited investors that included $92,000 of reparations. The aggregate fees for such
placements were $ 28,500.
Equity
Line Of Credit
During
the fiscal year ended June 30, 2013, the Company issued 42,412,553 shares of Common Stock to cover the exercise of Put
advances under Equity Line of Credit generating $80,853 of proceeds, net of $8,920 transaction fees.
Stock
Based Compensation
The
Company did not issue any awards of common stock or options to Officers, Directors or Employees during the fiscal year ended June
30, 2013.
Conversion
of debt securities
During
the fiscal year ended June 30, 2013, $ 39,000 of debt including $1,500 accrued interest thereon was converted into 40,451,179
shares of common stock to holders of Convertible Notes.
Reparations
The
Company issued 40,000,000 shares to single investor for reparations valued at $92,000.
EQUITY
LINE OF CREDIT
The
Company entered into a $10,000,000 equity line of Credit with Dutchess Opportunity Fund II, LLC in December of 2011. Under the
equity line, the Company is eligible to “PUT” to the fund, 20,000,000 shares of its common stock during any pricing
period. The Company has registered a total of 250,000,000 shares of its common stock on a Form S-1 Registration Statement with
the Securities and Exchange Commission that was declared effective on January 17, 2012 in connection with the Dutchess Equity
Line.
As
of June, 2014, the Company has received $227,744 of proceeds under the Equity Line relating to the resale of 135,990,000 shares
of the Company’s common stock, net of $22,920 transaction fees. The amount of proceeds to be received under the Equity Line
will depend upon the stock price of the Company at the various points in time it exercises the Put Option. As of June 30, 2014,
the Company has received $145,428, $80,053 and $6,263 in Fiscal Years Ended June 30, 2012, 2013 and 2014, under
the Equity Line relating to the resale of 89,587,447, 42,412,553 and 3,990,000 shares of the Company’s common stock in Fiscal
Years Ended June 30, 2012 , 2013 and 2014. The amount of proceeds to be received under the Equity Line will depend upon the
stock price of the Company at the various points in time it exercises the Put Option.
BENEFICIAL
CONVERSION FEATURE
In
April 2009, the Board of Directors authorized the right for the officers to convert into shares of the Company's common stock
officers' loans discussed in Note 9, plus accrued interest thereon, at any time for the next five years providing such shares
are issued, outstanding and available, at a conversion price of $.0075. This conversion price was amended in August 2011 to $.0040.
During the fiscal year ended June 30, 2014, the officers’ were authorized by the board of directors’ to enter into
agreements to convert certain officer notes, previously convertible at $.004 from 2009 through April 2014, based upon the then
concurrent terms of private placements with accredited investors; at $.0004, representing the now current terms of private placements
with accredited investors. On June 30, 2014, these Notes are convertible into approximately 1,275,863,375 shares of common stock,
if available.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
9.
STOCKHOLDERS' EQUITY- (continued)
STOCK
INCENTIVE PLANS
A
summary of the stock option activity for the years ended June 30, 2013 and 2014 pursuant to the terms of both plans, which include
incentive stock options and non-qualified stock options, as set forth on the table below:
| |
| | |
Weighed | |
| |
| | |
Average | |
| |
Number of | | |
Exercise | |
| |
Options | | |
Price | |
Outstanding at June 30, 2009 | |
| 145,293,000 | | |
$ | 0.11 | |
Granted | |
| 0 | | |
| | |
Exercised | |
| 0 | | |
| | |
Cancelled/Expired | |
| (7,775,000 | ) | |
| (0.25 | ) |
Outstanding at June 30, 2010 | |
| 137,518,000 | | |
$ | 0.087 | |
| |
| | | |
| | |
Granted | |
| 0 | | |
| | |
Exercised | |
| 0 | | |
| | |
Cancelled/Expired | |
| (23,798,000 | ) | |
| (.21 | ) |
Outstanding at June 30, 2011 | |
| 113,720,000 | | |
$ | 0.063 | |
| |
| | | |
| | |
Granted | |
| 0 | | |
| | |
Exercised | |
| 0 | | |
| | |
Cancelled/Expired | |
| (8,960,000 | ) | |
| (.21 | ) |
Outstanding at June 30, 2012 | |
| 104,760,000 | | |
$ | 0.0071 | |
| |
| | | |
| | |
Granted | |
| 0 | | |
| | |
Exercised | |
| 0 | | |
| | |
Cancelled/Expired | |
| (85,000 | ) | |
| (.21 | ) |
Outstanding at June 30, 2013 | |
| 104,675,000 | | |
$ | 0.0052 | |
| |
| | | |
| | |
Granted | |
| 0 | | |
| | |
Exercised | |
| 0 | | |
| | |
Cancelled/Expired | |
| (104,675,000 | ) | |
| (.52 | ) |
Outstanding at June 30, 2014 | |
| 0 | | |
$ | 0.000 | |
As
of June 30, 2014 no options remained outstanding.
Warrants
As
of June 30, 2013 and 2014 no warrants remained outstanding, other than the convertible note feature for certain officers’
discussed above and in Note 9.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
10.
RELATED PARTY TRANSACTIONS
Mr.
Durando, the President and CEO of mPhase, together with Mr. Ergul own a controlling interest and are officers of Janifast Limited.
Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr. Ergul, retired as the chairman of the board of mPhase in
Nov 2007, owns a controlling interest and is a director of Microphase Corporation.
During the
years ended June 30, 2013 and 2014, Mr. Biderman charged finders’ fees of $28,500 and $54,000.
During
the fiscal year ended June 30, 2014 the Company paid $42,000 of fees to Karen Durando for product marketing services
As of June
30, 2012 and 2013, outstanding bridge loans from Mr. Smiley, including accrued interest thereon, amounted to $301,800 and $343,455.
All of the promissory notes were payable on demand.
As of
June 30, 2012 and 2013, unpaid compensation owing to Mr. Durando and Mr. Dotoli, plus accrued interest thereon at 12% per annum,
equaled $515,345 and $372,407 and $574,235 and $407,846, respectively.
During the Fiscal Year ended June 30, 2014 $425,
918 of accrued wages were forgiven by the Officers’ concurrent with conversions discussed below.
In
April 2009, the Board of Directors authorized the right for the officers to convert such loans plus accrued interest thereon at
any time for the next five years into common shares provided such shares are issued, outstanding and available, at a conversion
price of $.0075, and in August, 2011, the conversion price was amended to $.0040, which prices are comparable to that of private
placements during those periods.
The
Company recorded beneficial conversion interest expense of $82,609, $0, $2,230 and $0 during the years ended June 30, 2010, 2011,
2012 and 2013, respectively, on the conversion feature based upon principal at the commitment date and accrued interest through
June 30 of 2010, 2011, 2012 and 2013, respectively.
The
officers' notes plus accrued interest are convertible into approximately 331,384,000 shares of the Company's common stock based
upon the conversion terms at June 30, 2013. As discussed below, the Officers’ converted $723,729 of these notes into 1,809,326,625
shares of common stock with a conversion rate of $.0004 per share and amended the conversion feature to provide for the conversion
of the remaining Officers’ loans, reduced by the forgiveness of $238,321 of accrued interest, into shares of common stock
at a conversion price of $.0004 for a term of five years effective March 31, 2014, At June 30, 2014
these notes and accrued interest at the amended rate of 6% effective April 1, 2014, totaled $510,345. On June 30, 2014,
these Notes are convertible into approximately 1,275,863,375 shares of common stock, if available.
MICROPHASE
The
Company leases office space from Microphase at its Norwalk location. Rental expense charged by Microphase was $993 through December
31, 2013 and increased to $1,675 January 1,2014 and $3,175 per month at Norwalk. In addition, Microphase provides certain research
and development services and shares administrative personnel from time to time.
During
the years ended June 30, 2013 and 2013, Microphase Corporation charged the Company $5,290 and $20,090 for rent and $7,666 and
$18,281 for administrative expenses.
Conversion
of Debt to Officers’
During
the fiscal year ended June 30, 2014, the officers’ were authorized
by the board of directors’ to enter into agreements to convert certain officer notes, previously convertible at $.004 from
2009 through April 2014, based upon the then concurrent terms of private placements with accredited investors; at $.0004, representing
the now current terms of private placements with accredited investors. As a result thereon $723,729 of loans, accrued interest
and unpaid salary were converted into 1,809,326,625 shares of common stock with a conversion rate of $.0004 per share and warrants
to purchase shares of common stock at $.0004 for a term of five years effective March 31, 2014, respectively. In connection with
these transactions the officers’ agreed to forego and cancel $425, 918 of accrued wages since fiscal 2013 and $238,321 of
accrued interest since fiscal 2009 totaling a cancelation of $664,239 of debt; which when combined with the beneficial conversion
feature of the 1,809,326,625 of shares converted for $723,729 of $1,673,261 less $361,380 debt forgiven attributable to the conversions
resulted in $1,311,881 beneficial conversion feature interest expense during the nine months ended March 31, 2014, and the Company
amortized $30,393 from April 1, 2014 through June 30, 2014 for a total of $1,342,274 during the current period. The value of the
warrants computed using the black shoals method with a volatility of 100%, risk free interest rate of .05% and a term of five
years which was computed to be $1,413,547 for the conversion feature at $.0004 at the option of the officers, to the extent shares
are available and $502,837 of remaining debts to officers’, less 302,859 debt forgiven attributable to the warrant resulted
in $607,851 deferred beneficial conversion feature interest expense, a reduction of additional paid in capital, which will be
amortized on a straight line basis over the life of the warrant or sooner if and when converted, of which $30,393 was amortized
through June 30, 2014. On June 30, 2014, these Notes are convertible into approximately 1,275,863,375 shares of common stock,
if available.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
10.
RELATED PARTY TRANSACTIONS - (continued)
Total
compensation and payables to related parties and to officers is summarized below:
Summary
of compensation to related parties for the Twelve Months Ended June 30, 2014
| |
Durando | | |
Dotoli | | |
Smiley | | |
K. Durando | | |
Biderman | | |
Microphase | | |
Total | |
Consulting / Salary | |
$ | 118,333 | | |
$ | 85,000 | | |
$ | 85,000 | | |
| | | |
| | | |
| | | |
$ | 288,333 | |
Interest | |
$ | 49,556 | | |
$ | 37,614 | | |
$ | 33,516 | | |
| | | |
| | | |
| | | |
$ | 120,686 | |
Rent | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 20,090 | | |
$ | 20,090 | |
S,G&A | |
| | | |
| | | |
| | | |
$ | 42,000 | | |
| | | |
$ | 18,281 | | |
$ | 60,281 | |
R&D | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0 | |
Finders Fees | |
| | | |
| | | |
| | | |
| | | |
$ | 54,000 | | |
| | | |
$ | 54,000 | |
Stock based compensation
(shares issued)* | |
$ | 1,136,000 | | |
$ | 686,000 | | |
$ | 686,000 | | |
| | | |
| | | |
| | | |
$ | 2,508,000 | |
Total compensation
for the Twelve Months Ended June 30, 2014 | |
$ | 1,303,889 | | |
$ | 808,614 | | |
$ | 804,516 | | |
$ | 42,000 | | |
$ | 54,000 | | |
$ | 38,371 | | |
$ | 3,051,390 | |
Summary
of compensation to related parties for the Twelve Months Ended June 30, 2013
| |
Durando | | |
Dotoli | | |
Smiley | | |
Biderman | | |
Microphase | | |
Total | |
Consulting
/ Salary | |
$ | 61,667 | | |
$ | 61,667 | | |
$ | 61,667 | | |
| | | |
| | | |
$ | 185,001 | |
Interest | |
$ | 65,940 | | |
$ | 46,138 | | |
$ | 38,406 | | |
| | | |
| | | |
$ | 150,484 | |
Rent | |
| | | |
| | | |
| | | |
| | | |
$ | 5,290 | | |
$ | 5,290 | |
G&A | |
| | | |
| | | |
| | | |
| | | |
$ | 7,666 | | |
$ | 7,666 | |
R&D | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 0 | |
Finders
Fees | |
| | | |
| | | |
| | | |
$ | 28,500 | | |
| | | |
$ | 28,500 | |
Total
compensation for the Twelve Months Ended June 30, 2013 | |
$ | 127,607 | | |
$ | 107,805 | | |
$ | 100,073 | | |
$ | 28,500 | | |
$ | 12,956 | | |
$ | 376,941 | |
Summary
of payables to related parties as of June 30, 2014
| |
| | |
| | |
| | |
Total Notes | | |
| | |
| | |
| |
| |
Durando | | |
Dotoli | | |
Smiley | | |
Payable | | |
Biderman | | |
Microphase | | |
Total | |
Notes payable | |
$ | 289,015 | | |
$ | 122,865 | | |
$ | 0 | | |
$ | 411,880 | | |
| | | |
| | | |
$ | 411,880 | |
Accrued Wages Officers | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | | |
| | | |
| | | |
$ | 0 | |
Due to Officers / Affiliates | |
| | | |
| | | |
| | | |
| | | |
$ | 150,000 | | |
$ | 16,183 | | |
$ | 166,183 | |
Interest Payable | |
$ | 7,250 | | |
$ | 3,096 | | |
$ | 88,119 | | |
$ | 98,465 | | |
| | | |
| | | |
$ | 98,465 | |
Total Payable to Officers / Affiliates as of June 30, 2014 | |
$ | 296,265 | | |
$ | 125,961 | | |
$ | 88,119 | | |
$ | 510,345 | | |
$ | 150,000 | | |
$ | 16,183 | | |
$ | 676,528 | |
Summary
of payables to related parties as of June 30, 2013
| |
| | |
| | |
| | |
Total
Notes | | |
| | |
| | |
| |
| |
Durando | | |
Dotoli | | |
Smiley | | |
Payable | | |
Biderman | | |
Microphase | | |
Total | |
Notes
payable | |
$ | 449,523 | | |
$ | 322,963 | | |
$ | 276,426 | | |
$ | 1,048,912 | | |
| | | |
| | | |
$ | 1,048,912 | |
Accrued Wages
Officers | |
$ | 95,667 | | |
$ | 95,667 | | |
$ | 75,417 | | |
$ | 266,751 | | |
| | | |
| | | |
$ | 266,751 | |
Due to Officers
/ Affiliates | |
| | | |
| | | |
| | | |
| | | |
$ | 156,000 | | |
$ | 56,084 | | |
$ | 212,084 | |
Interest
Payable | |
$ | 124,712 | | |
$ | 84,883 | | |
$ | 67,029 | | |
$ | 276,624 | | |
| | | |
| | | |
$ | 276,624 | |
Total
Payable to Officers / Affiliates as of June 30, 2012 | |
$ | 669,902 | | |
$ | 503,513 | | |
$ | 418,872 | | |
$ | 1,592,287 | | |
$ | 156,000 | | |
$ | 56,084 | | |
$ | 1,804,371 | |
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
11. INCOME TAXES
The
accompanying consolidated balance sheet includes the following components of deferred taxes under the liability method:
| |
2013 | | |
2014 | |
Deferred
Tax Assets | |
| | |
| |
Net
operating loss carry forward | |
$ | 36,309,600 | | |
$ | 43,804,725 | |
| |
| 36,309,600 | | |
| 43,804,725 | |
Net
Deferred Tax Asset | |
| 36,309,600 | | |
| 43,804,725 | |
Valuation
allowance | |
| (36,309,600 | ) | |
| (43,804,725 | ) |
| |
$ | - | | |
$ | - | |
The
valuation allowance at June 30, 2012 was $43,045,200.
At
June 30, 2014, the Company has federal net operating loss carry forwards of approximately $112.5 million and $55.5 million to
offset future federal and state income taxes, respectively, which expire at various times from 2016 through 2033. The federal
net operating loss carry forwards may be subject to the separate return loss limitation rules and IRC section 382 limitations
due to changes in ownership. The Company has assessed the evidence of its forecasted future operations against the potential likelihood
of the realization of the deferred tax assets to make the determination that the Company will not utilize these carry forwards
and has recorded a valuation allowance against the net deferred tax asset.
The
Company had net losses of $1,882,032 in 2014 and $260,634 in 2013. Deferred income taxes relate principally to the use of net
operating loss carry forwards; these can differ from computations based upon book losses for the use for tax purposes of accelerated
depreciation methods and the difference in the book and tax basis of certain stock based compensation.
The
provision for income taxes from continuing operations differs from taxes that would result from applying Federal statutory rates
because of the following:
| |
Year
ended June 30, | |
| |
2013 | | |
2014 | |
| |
Amount | | |
Percent | | |
Amount | | |
Percent | |
Taxes
at Federal Statutory Rate | |
$ | (88,615 | ) | |
| (34.0 | %) | |
$ | (640,754 | ) | |
| (34.0 | %) |
State
Taxes Net of Federal Tax | |
| (14,595 | ) | |
| (5.60 | %) | |
| (105,536 | ) | |
| (5.60 | %) |
Valuation
Allowance | |
| 103,210 | | |
| 39.6 | % | |
| 746,290 | | |
| 39.6 | % |
| |
$ | - | | |
| - | | |
$ | - | | |
| - | |
At
June 30, 2013 and 2014, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations
were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve
months. The Company did not recognize any interest or penalties related to uncertain tax positions at June 30, 2013 and 2014.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
12.
COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Our
corporate headquarters is located at 587 Connecticut Avenue, Norwalk, CT 06854-1711. The Company leases this office space from
Microphase Corporation under a facilities agreement with Microphase that provided office space on a month-to-month basis for $993
per month through December 31, 2013. As of January 1, 2014, the lease increased to $1,675 per month and as of April 1, 2014, increased
to $3,175. The Company also leased an office in East Rutherford, New Jersey for an average monthly cost of $1,880 from July 1,
2013 to August 31, 2014. On August 15, 2014, the Company moved its New Jersey office to Clifton, New Jersey with a one year lease
with monthly rent of $4,020.
CONTINGENCIES
As
noted above, the Company is in litigation with John Fife with respect to a Convertible Note issued on September 13, 2011 in the
original principal amount of $557,000. Fife is seeking damages including attorney’s fees on a Motion for Summary Judgment
in the amount in excess of $1,300,000. The Company has filed a motion opposing Summary Judgment and is seeking to void the Convertible
Note under Section 29(b) of the Securities Exchange Act of 1934, as amended, on the basis that Fife failed to disclose a prior
Consent Decree in a Registration Statement filed by the Company effective January 17, 2012 under which Fife sold shares in April
of 2012. The matter is pending in the federal district court in the North East District of Illinois. The Company is unable to
predict the outcome of this litigation at this time.
mPHASE
TECHNOLOGIES, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2014
13.
FAIR VALUE MEASUREMENTS
Effective
July 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements, now known
as FASB ASC 820 Fair Value Measurements and Disclosures (ASC 820), which provides a framework for measuring fair value under GAAP.
ASC 820 defines fair value as the exchange 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. ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use
of unobservable inputs. ASC 820 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad
levels.
Financial
assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets. Financial
assets and liabilities valued using level 2 inputs are based primarily on quoted prices for similar assets or liabilities in active
or inactive markets. For certain long-term debt, the fair value was based on present value techniques using inputs derived principally
or corroborated from market data. Financial assets and liabilities using level 3 inputs were primarily valued using management's
assumptions about the assumptions market participants would utilize in pricing the asset or liability. Valuation techniques utilized
to determine fair value are consistently applied.
| |
Fair
Value Measurements Using | |
| |
Significant | |
| |
Unobservable
Inputs (Level 3) | |
| |
Derivative
Liability | |
| |
June
30,
2013 | | |
June
30,
2014 | |
Balance,
Beginning | |
$ | 898,734 | | |
$ | 212,023 | |
Increase
(Decrease) in Derivative and associated liabilities | |
| (553,893 | ) | |
| 399,894 | |
Debt
discounts | |
| (132,818 | ) | |
| 25,626 | |
Balance,
Ending | |
$ | 212,023 | | |
$ | 637,543 | |
Financial
instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is input is unobservable. Level 3 financial instruments
also include those for which the determination of fair value requires significant management judgment or estimation.
14.
SUBSEQUENT EVENTS
On
August 8, 2014, the Company paid in full $40,000 principle and together with $2,632 accrued interest and $14,900 of prepayment
fees to MH Investment Trust in satisfaction of its Convertible Promissory Note to MH Investment Trust for $40,000, originally
funded on January 7, 2014.
On
September 5, 2014 the Company announce on form 8k that pursuant to Section 4(2) of the Securities Act of 1933, as amended, the
Company issued a convertible note to MH Investment Trust in a Private Placement. The Company received in $40,000 cash proceeds
from the sale of the 6% Convertible Note that will be used as additional working capital.
From July 1, 2014 through October
22, 2014 the Company has completed transactions in a private placement of its common stock to 5 accredited investors pursuant
to Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. The Company received proceeds of $245,000,
made available for working capital, in connection with the issuance of 642,500,000 shares of its common stock at $.0004, including
30,000,000 shares to finders.
SIGNATURES
Pursuant
to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
mPHASE TECHNOLOGIES, INC. |
|
|
|
Dated:
October 22, 2014 |
|
|
|
|
|
|
By: |
/s/
RONALD A. DURANDO |
|
|
Ronald
A. Durando |
|
|
President,
CEO |
|
|
|
|
By: |
/s/
MARTIN SMILEY |
|
|
Martin
Smiley |
|
|
Chief
Financial Officer |
Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Ronald
A. Durando, Chief Executive Officer, Director |
October 22, 2014 |
Gustave
T. Dotoli, Chief Operating Officer, Director |
October 22, 2014 |
Martin
S. Smiley, Executive Vice President, Chief Financial Officer and General Counsel |
October 22, 2014 |
Abraham
Biderman, Director |
October 22, 2014 |
Victor
Lawrence, Director |
October 22, 2014 |
100
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13A-14(a)/15D-14(a)
OF THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Ronald A. Durando, certify that:
1. |
I have reviewed this annual report on Form 10-K 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. |
The registrant's other certifying officer(s) and I are 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. |
The registrant's other certifying officer(s) and 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 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: October 22, 2014
/s/
Ronald A. Durando |
|
Ronald
A. Durando |
|
President
and CEO |
|
|
|
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13A-14(a)/15D-14(a)
OF THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Martin Smiley, certify that:
1. |
I have reviewed this annual report on Form 10-K 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. |
The registrant's other certifying officer(s) and I are 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. |
The registrant's other certifying officer(s) and 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 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: October 22, 2014
/s/
Martin Smiley |
|
Martin Smiley |
|
EVP, CFO
and General Counsel |
|
Exhibit
32.1
CERTIFICATIONS
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
In connection with the Annual Report of mPhase Technologies, Inc., a New Jersey corporation (the "Company"),
on Form 10-K for the fiscal year ended June 30, 2014 as filed with the Securities and Exchange Commission (the "Report"),
I, Ronald A. Durando, Chief Executive Officer of the Company certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350), that to his knowledge:
|
1. |
The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
2. |
The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
/s/
Ronald A. Durando |
|
Ronald
A. Durando |
|
Chief Executive
Officer |
|
October
22, 2014
Exhibit 32.2
CERTIFICATIONS
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)
In
connection with the Annual Report of mPhase Technologies, Inc., a New Jersey corporation (the "Company"), on Form 10-K
for the fiscal year ended June 30, 2014 as filed with the Securities and Exchange Commission (the "Report"), I, Martin
Smiley, EVP, Chief Financial Officer and General Counsel of the Company certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350), that to his knowledge:
|
1. |
The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
|
2. |
The information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company. |
/s/
Martin Smiley |
|
Martin Smiley |
|
EVP, CFO
and General Counsel |
|
October 22, 2014
MPhase Technologies (CE) (USOTC:XDSL)
Historical Stock Chart
From Apr 2024 to May 2024
MPhase Technologies (CE) (USOTC:XDSL)
Historical Stock Chart
From May 2023 to May 2024