UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FOR THE QUARTER ENDED DECEMBER 31, 2018 

COMMISSION FILE NO. 000-30202

FORM 10-Q

(Mark One)

mPhase Technologies, Inc.Or

Commission File Number 000-30202

mPHASE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

973-256-3737

ISSUER’S TELEPHONE NUMBERRegistrant’s telephone number, including area code:(301) 329-2700

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.Securities registered pursuant to Section 12(b) of the Act: None.

YES ☒ NO ☐Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

[X] Yes [  ] No

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

[X] Yes [  ] No

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

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

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

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK AS OF FEBRUARY 14, 2019 IS 56,308,670,154 SHARES, ALL OF ONE CLASS OF NO-PAR VALUE COMMON STOCK.As of February 18, 2020 therewere 13,244,221 shares of the issuer’s common stock, $0.01 par value per share, issued and outstanding.

mPHASE TECHNOLOGIES, INC.

INDEX

mPhase Technologies, Inc.

Form 10-Q

Table of Contents

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “will,” “might,” “projects,” “expects,” “plans,” “believes,” “anticipates,” “targets,” “intends,” “hopes,” “aims,” “can,” “should,” “could,” “would,” “goal,” “potential,” “approximately,” “estimate,” “pro forma,” “continue” or “pursue” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. For example, forward-looking statements include any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.

These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and the other documents referred to and relate to a variety of matters, including, but not limited to, other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and mPhase Technologies, Inc. (the “Company”) cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by the Company or any other person that the Company will achieve its objectives and plans in any specified timeframe, or at all.

These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the SEC on October 15, 2019 and elsewhere in this Quarterly Report on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company disclaims any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.

mPHASE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND SIX MONTH PERIOD ENDED DECEMBER 31, 2019

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED COSOLIDATED UNAUDITED FINANCIAL STATEMENTS

mPhase Technologies, Inc.

Condensed Consolidated Balance Sheets
(UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements 

mPHASE TECHNOLOGIES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

mPHASE TECHNOLOGIES, INC.mPhase Technologies, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.

mPHASE TECHNOLOGIES, INC.mPhase Technologies, Inc.

Condensed Consolidated Statements of Cash FlowsStockholders’ Equity (Deficit)

For the Six Months Ended December 31, 2019 and 2018

(Unaudited)

The accompanying condensed notes are an integral part of these unaudited condensed consolidated financial statements.

mPhase Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

The accompanying condensed notes are an integral part of these unaudited consolidated financial statements.

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

(UNAUDITED)

NOTE 1: NATURE OF BUSINESS AND BASIS OF PRESENTATION

NATURE OF OPERATIONSOrganization and Nature of Business

mPhase Technologies, Inc. (the “Company”, including its wholly-owned subsidiaries, are collectively referred to herein as “mPhase,” “XDSL”, “Company,” “us,” or “We”)“we.”

The Company was organized on Octoberincorporated in the state of New Jersey in 1979 under the name Tecma Laboratory, Inc. and has subsequently operated under Tecma Laboratories, Inc., and Lightpaths TP Technologies, Inc., until June 2, 1996. Since 20071997 when the Company has been in the business of developing new products through the science of nanotechnology and micro-fluid dynamics. The Company has made significant progress in developing a reserve battery with an unlimited shelf life priorchanged its name to initial activation. Our patent portfolio consists of intellectual property covering the “smart surfaces” that liquids in droplets can be suspended upon and collapse upon initial activation by either an electrical impulse or a g force. The Company intends to develop other potential products such as a drug delivery system using such scientific disciplines to monetize its patent portfolio.

During our last two Fiscal Years ended June 30, 2018 and 2017, the Company has had very limited financial resources to pursue further product development and had fallen behind with respect to our required periodic SEC filings on Forms 10Q and 10K since it lacked resources to pay its auditors. The Company is now current with respect to is SEC filings. We have been negotiating with our creditors to restructure our debt obligations to be in a better position to monetize our patent portfolio. We believe the amendment to the Judgment Settlement Agreement, effective December 10, 2018 by and between John M. Fife, and the Company gives us an opportunity to do so. (see-Note 3. “EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT”)mPhase Technologies, Inc.

On January 11, 2019, the Company underwent a major change in management and focuscontrol. The new management of the Company is positioning the Company to restructurebe a technology leader in artificial intelligence and machine learning while enabling a more rapid commercial development of its business.patent portfolio and other intellectual property. The Company intendsCompany’s goal is to broadengenerate significant revenue from its artificial intelligence and diversify its existing lines of business. The Company will implement is revised plan of operations either directly or through wholly-owned subsidiaries. Such restructuring will include a combination of raising additional capital to improve our balance sheet and aggressive pursuit of mergers and acquisitions.machine learning technologies.

On January 11,February 15, 2019, the Company Prior Management and Mr. Anshu Bhatnagar executed contracts includingacquired Travel Buddhi, a transition agreement under which Prior Management was largely replaced. Mr. Bhatnagar becamesoftware platform to enhance travel via ultra-customization tools that tailor a Director and he Company’s new President and CEO andplanned trip experience in ways not previously available.

On June 30, 2019, the Company acquired control99% of the Company. Mr. Durando remainsoutstanding common shares of Alpha Predictions LLP (“Alpha Predictions”). Alpha Predictions is an India-based technology company that has developed a Directorsuite of the Company and Mr. Smiley was reappointed on January 28, 2018 as Chief Financial Officer. It is expected that both Mr. Durando and Mr. Smiley will hold the foregoing positions on an interim basis to provide continuity during the Transition period (SEE NOTE 8- “Subsequent Events”).

The Transition Agreement providescommercial data analysis products for our new management to evaluate, formulate and implement a revised plan of operation.use across multiple industries. The Company is implementing undertakings, initiated by outgoing management,expects the acquisition to extinguish certain debtsresult in synergies with its other operating divisions, which will drive revenue growth and settle or reduce other liabilities outstanding on December 31, 2018, within six (6) months of January 11, 2019. The Company will implement its revised plan of operation either directly or through wholly- owned subsidiaries.innovation.

BASIS OF PRESENTATIONBasis of Presentation

The accompanying unaudited condensed consolidated unaudited financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management, are necessary to fairly state the Company’s financial position, results of operations and cash flows for the dates and periods presented and to make such information not misleading. Certain information and footnote disclosures normally included in annual financial statements have been prepared in accordance with accounting principles generally accepted accounting principles for interim financial information andin the United States of America (“US GAAP”) have been omitted pursuant to therules and regulations of the Securities and Exchange Commission. Accordingly, they do not include allCommission (the “SEC”); nevertheless, management of the Company believes that the disclosures herein are adequate to make the information and footnotes required by generally accepted accounting principles for completepresented not misleading.

The condensed consolidated unaudited financial statements. In the opinion of management, all adjustments (normal and recurring in nature) considered necessary for a fair presentation have been included. Operating resultsstatements for the six months ended ending December 31, 2019 and 2018 are not necessarily indicativeinclude the operations of mPhase and its wholly-owned subsidiaries, mPower Technologies, Inc., Medds, Inc., mPhase Technologies India Private Limited effective March 19, 2019, and Alpha Predictions LLP effective June 30, 2019. All significant intercompany accounts and transactions have been eliminated in the results that may be expected for a full fiscal year. The accompanying unauditedconsolidation.

These condensed consolidated unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto includedfor the year ended June 30, 2019, contained in the Company’s Annual Report on Form 10-K as amended,filed with the SEC on October 15, 2019. The results of operations for the six months ended December 31, 2019, are not necessarily indicative of results to be expected for any other interim period or the fiscal year endedending June 30, 2018.2020.

GOING CONCERN

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

(UNAUDITED)

NOTE 2: GOING CONCERN

The Company’saccompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Through December 31, 2018, theThe Company hadhas incurred (a) cumulative losses totaling ($211,932,586) and (b) a stockholders’ deficitnegative cash flows from operations of ($1,741,630). At December 31, 2018, the Company had $348 of cash to fund short-term working capital requirements and cash used in operating activities was ($104,218)$660,849 for the six months ended December 31, 2018. In addition,2019. At December 31, 2019, the Company relies on the continuationhad a working capital deficit of funding through private placements$1,546,818, and an accumulated deficit of its common stock. These matters$229,874,128. It is management’s opinion that these facts raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this quarterly report.report, without additional debt or equity financing. The accompanying condensedunaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts nor to the amounts and classification of liabilities that might result frombe necessary should the outcome of this uncertainty.

GOING CONCERN – (continued)

The Company’s abilityCompany be unable to continue as a going concernconcern.

In order to meet its working capital needs through the next twelve months from the date of this report and its future success is dependent upon its abilityto fund the growth of our nanotechnology, artificial intelligence, and machine learning technologies, the Company may consider plans to raise capital inadditional funds through the near term to: (1) satisfyissuance of equity or debt. Although the Company intends to obtain additional financing to meet its current obligations, including recently amended settlement agreements, (2) continue its plancash needs, the Company may be unable to align partners or other third parties to underwritesecure any research and development efforts needed to exploit our existing technological capabilities, or develop new products and (3) allow the successful wide scale development, deployment and marketing of its smart surface products, or any newly developed, acquired or otherwise obtained product or service line of business. There can be no assurance the necessary debt or equityadditional financing will be available, or if so, on terms that are favorable or acceptable to the Company.it, if at all.

RECLASSIFICATIONSNOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Certain reclassifications have been madeForeign Currency Translation and Transactions

The functional currency of our operations in India is the priorIndian Rupee. Foreign currency denominated assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date, and income and expense items are translated at the average exchange rates in effect during the applicable period. Translation adjustments arising from the use of different exchange rates from period consolidated financial statements to conform to the current period presentation. The Company reclassified accrued fees of $1,500 to Eagle Advisors to a source of funds from financing activities previouslyare included as a sourcecomponent of funds in operating activitiesstockholders’ equity as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the Statementconsolidated statements of Cash Flowscomprehensive income (loss), as other comprehensive income (loss). There have been no significant fluctuations in 2017. The reclassified financial statement items had no effect on Net Income (Loss)the exchange rate for the Quarter, Total Stockholders’ Deficit or Total Assets forconversion of Indian Rupee to U.S. dollars after the three months ended December 31, 2018 and 2017.balance sheet date.

USE OF ESTIMATESUse of Estimates

The preparation of condensed consolidated unaudited financial statements in conformity with generally accepted accounting principlesUS GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include net realizable value of inventories, estimated value of stock-based compensation and changes in and the ending fair value of derivative liability.period. Actual results could differ from those estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted. Significant estimates include the collectability of accounts receivable, valuation of intangible assets, accrued expenses, valuation of derivative liabilities, stock-based compensation, and the deferred tax asset valuation allowance.

LOSS PER COMMON SHARE, BASIC AND DILUTEDConcentrations of Credit Risk

Basic income (loss) per share is computed by dividing net income (loss)Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with three financial institutions. Deposits held with the financial institutions may exceed the amount of insurance provided by the weighted average numberFederal Deposit Insurance Corporation on such deposits, but may be redeemed upon demand. The Company performs periodic evaluations of sharesthe relative credit standing of common stock outstanding during the period. Diluted earnings per share is computed by dividing net loss adjustedfinancial institutions. With respect to accounts receivable, the Company monitors the credit quality of its customers as well as maintain an allowance for income or loss that would resultdoubtful accounts for estimated losses resulting from the assumed conversioninability of potential common shares from contracts that maycustomers to make required payments.

Revenue Risk

Agreements which potentially subject the Company to concentrations of revenue risk consist principally of one customer agreement. For the six months ended December 31, 2019 and 2018, this one customer accounted for 99% and 0% of our total revenue, respectively. At December 31, 2019 and June 30, 2019, this one customer accounted for 96% and 99% of our total accounts receivable, respectively.

Cash and Cash Equivalents

For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be settled in stock or cash by the weighted average number of shares of common stock, common stockand cash equivalents. There were no cash equivalents and potentially dilutive securities outstanding during each period. The Company had no warrants to purchase shares of its common stock and no options to purchase shares of its common stock outstanding at December 31, 2018.2019 and June 30, 2019.

At December

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018 the Company has convertible securities held by third parties that are immediately convertible into 160,499,917 shares of common stock. Under the terms of the judgement settlement agreement with Mr. Fife, effective December 10, 2018 there are no features whereby the debt would convertible in shares of the Company’s common stock; In addition, the Company has convertible notes plus accrued interest thereon held by officers and a Director of the Company, subject to availability, convertible into approximately 872,160,000 shares of common stock, immediately.

(UNAUDITED)

The following table illustrates debts convertible into shares of the Company’s Common Stock at December 31, 2018:

DISCONTINUED OPERATIONS

The Company has classified the operating results and associated assets and liabilities from its Jump line of products, which ceased having material sales in the first quarter of Fiscal 2017, as Discontinued Operations in the Consolidated Financial Statements for the Fiscal Years ended June 30, 2018 and 2019.

The Assets and Liabilities associated with discontinued operations included in our Consolidated Balance Sheet were as follows:

DISCONTINUED OPERATIONS – (continued)

Revenue and Expense Recognition for Discontinued OperationsAccounts Receivable

The Company had recognized revenue onregularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established loss reserves, the Company makes judgments regarding its JUMP products whencustomers’ ability to make required payments, economic events and other factors. As the products were shipped, and title passedfinancial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the customer.  

allowance for doubtful accounts may be required. The results of discontinued operations include only specifically identified in the three-monthCompany maintains reserves for potential credit losses and six-month periods endedsuch losses traditionally have been within its expectations. At December 31, 20182019 and both specifically identified and allocated common overhead expenses inJune 30, 2019, the period ended December 31, 2017.Company determined there was no requirement for an allowance for doubtful accounts.

The expensesGoodwill and items of other income associated with discontinued operations included in our QUARTERLY condensed Consolidated Statements of operations were as follows:Intangible Assets

PATENTS AND LICENSESGoodwill is recorded when the purchase price paid for an acquisition exceeds the fair value of the net identified tangible and intangible assets acquired. The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company tests goodwill for impairment by first comparing the fair value of the reporting unit to its carrying value. If the fair value is determined to be less than the carrying value, a second step is performed to measure the amount of impairment loss. On June 30, 2020, we will perform our annual evaluation of goodwill impairment to determine if the estimated fair value of the reporting unit exceeds its carrying value.

Patents and licenses are capitalized when mPhasethe Company determines there will be a future benefit derived from such assets and are stated at cost. Amortization is computed using the straight-line method over the estimated useful life of the asset, generally five years. As of December 31, 2018,2019, and June 30, 2019, the book value of such assets, orpatents and licenses of $214,383, has been fully amortized.

DISCONTINUED OPERATIONS – (continued)

The expensesamortized and items of other income associated with discontinued operations included in our SIX-MONTH CONDENSED Consolidated Statements of operations were as follows:

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 establishes a single comprehensive modelno amortization expense was recorded for entities to use in accounting for revenue arising from outside contracts with customers and supersedes most of the existing revenue recognition guidance and notes that lease contracts with customers are a scope exception. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. On August 12, 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09. Public business entities may elect to adopt the amendments as of the original effective date, however, adoption is required for annual reporting periods beginning after December 15, 2017. The Company will implement this pronouncement on July 1, 2019.

In January 2016, the FASB issued ASU-2016-01, Financial Instruments- Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liability Letters. The Company is currently assessing the impact of the guidance on our financial statements and notes to our financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). The standard amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of fiscal 2020. Early adoption of ASU 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In September, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842) which amends certain aspects of the new lease standard. The Company is currently evaluating the impact of adopting ASU 2016-02 on the Company’s financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this Update provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. This Update is the final version of Proposed ASU 2015-330 Business Combinations (Topic 805) – Clarifying The Definition of a Business, which has been deleted. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting” to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. This Update is the final version of Proposed ASU 2016-360—Compensation—Stock Compensation (Topic 718)—Scope of Modification Accounting, which has been deleted. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU is not expected to have a material impact on the Company’s financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying abbreviated financial statements.

Common Stock

On December 18, 2018 the Company’s Board approved a resolution to increase the authorized common shares of the Company to 125 billion shares of the Company’s common stock no par value. January 4, 2019 the State of New Jersey accepted an Amendment to the Company’s Certificate of Incorporation providing for the increase in authorized shares of common stock and the change to no par value.

Preferred Stock

Additionally, on December 18, 2018 the Board approved a new class of 1000 shares of Series A (super voting preferred stock). On January 4, 2019 the State of New Jersey accepted an Amendment to the Company’s Certificate of Incorporation providing for the new class of super voting preferred stock. The shares of the new Series A voting preferred stock provide for 51% of the voting authority of all capital stock; feature no dividends, have a Par Value $.001 per share and have a liquidation preference up to Stated Value (Par) of $.001 per share. All the 1000 shares of the Series A Preferred Stock were issued to the Company’s New President and CEO to effectuate voting control of the Company on January 11, 2019, pursuant to the Transition Agreement. (See “Subsequent Events”).

Private Placements

During the six months ended December 31, 2018,2019 and 2018.

Capitalized Software Development Costs

The Company follows the provisions of ASC 350-40, “Internal Use Software.” ASC 350-40 provides guidance for determining whether computer software is internal-use software, and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company issued 600,000,000 sharesexpenses all costs incurred during the preliminary project stage of its common stock in connection with private placements pursuantdevelopment, and capitalizes the costs incurred during the application development stage. Costs incurred relating to Section 4(a) (2) ofupgrades and enhancements to the Securities Act of 1933,software are capitalized if it is determined that these upgrades or enhancements add additional functionality to the software. Costs incurred to improve and support products after they become available are charged to expense as amended, raising gross proceeds of $30,000. The proceeds were used by the Company as working capital.incurred.

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

At December 31, 2019, the book value of purchased and developed technology of $2,925,827, included two technology platforms, a machine learning platform and an artificial intelligence platform. For the six months ended December 31, 2017,2019 and 2018, amortization expense which is included in general and administration expenses within the Company issued 300,000,00 sharesconsolidated statements of its common stock in connection with private placements pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, raising gross proceeds of $15,000operations, was $484,278 and incurring finder’s fees of $1,500. The proceeds were used by the Company as working capital.$0, respectively.

Stock Award Payable

During the six months ended December 31, 2018, the three OfficersFair Value of the Company received 4,000,000,000 shares of common stock which were valued at $400,000, Mr. Biderman an outside Director received 1,000,000,000 shares of common stock which were valued at $100,000 and strategic consultants received 750,000,000 shares of common stock which were valued at $75,000, and in total this group received a total of 5,750,000,000 shares of common stock which was valued at $575,000 and had been included in accrued expenses at June 30, 2018. 

Stock Based Compensation

During the six months ended December 31, 2018, the Company did not issue any common stock, other than the shares discussed above whish were awarded in fiscal 2018, warrants or options to employees or officers.

During the six months ended December 31, 2017, the Company did not issue any common stock, warrants or options to employees or officers.

Other Short-Term Notes 

Note Payable, Director

A Director of the Company loaned the Company funds for working capital and through June 30, 2018 $130,274 remained outstanding. On September 24, 2018 and December 31, 2018, this director converted $126,364 and $4,369 of this note into 1,263,642,700 and 87,375,000 shares of common stock, on the respective dates; and as a result, $1,456 remained outstanding on December 31, 2018. During the six months ended December 31, 2018 and 2017 the Company recorded $1,915 and $3,755 of accrued interest on this loan.

Note payable - Investor

During the fourth quarter fiscal 2017 an unaffiliated shareholder advanced the Company $1,000. During fiscal 2018 the shareholder advanced an additional $2,000. At December 31, 2018 and June 30, 2018 $3,000 remained outstanding under this note.

Note Payable, Finance Company- Discontinued OperationsFinancial Instruments

The Company borrowed approximately $66,000 from a finance company under two advances commencing January 2016, with scheduled repayments of approximately $87,500 originally due through July 2016. This note is in arrears and the Company is negotiating settlement terms with the Note Holder.

During the six months ended December 31, 2018 and 2017 we incurred $6,133 and $5285 of finance charges under this note and at December 31, 2018, $45,601 remained outstanding.

Liabilities, in arrears, with Convertible Features / Judgement Settlement Agreement

The Company had three separate convertible debt arrangements with independent investors that still, had convertible features as of June 30, 2018, The Company had two separate convertible debt arrangements with independent investors that still, had convertible features as of December 31, 2018.

During the six months ended December 31, 2018 no conversions were made under any Convertible Debentures.

During the six months ended December 31, 2017, no conversions were made under any Convertible Debentures.

The following table summarizes Liabilities, in arrears, with current or past convertible features:

Included in accrued expenses is $80,244 and $72,638 of interest accrued on the liabilities, in arrears, with convertible features at December 31, 2018 and June 30, 2018, respectively.

These transactions were initially intended to provide liquidity and capital to the Company and are summarized below.

Arrangement #1 (JMJ Financial, Inc.)

The Company entered into a convertible note on November 17, 2009, in which 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, of which the Company received a total of $150,000 of proceeds in connection with the second promissory note under this agreement. At June 30, 2012 this convertible note had $372,060 outstanding which was combined with the April 5, 2010 arrangement with JMJ Financial, Inc. JMJ Financial sold this Note to River North Equity LLC. 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 December 15, 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 under this note and has issued no shares of common stock to the holder upon conversions. The Company and the holder entered into a Forbearance Agreement amendment, as amended, and funding and conversions have not occurred since April 2011. As of June 30, 2012, this convertible note had $321,000 outstanding which was combined with the April 5, 2010 arrangement with JMJ Financial, Inc. JMJ Financial also sold this Note to River North Equity LLC.

Arrangement #1 (JMJ Financial, Inc.) – (continued)

On April 5, 2010, the Company entered into a 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 under this note 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. As of June 30, 2012, this convertible note had $109,000 outstanding which was combined with the November 17, 2009 and December 15, 2009 arrangements with JMJ Financial, Inc., for a total of $802,060 for convertible notes. The Company has no promissory notes receivable from JMJ as of June 30, 2012.

In April of 2017, the Company received a judgment from the Federal District Court of Northern Illinois Eastern Division in its favor dismissing a claim by River North Equity which effectively negated two notes River North Equity purchased from JMJ Financial. At June 30, 2017 the amount recorded in Current Liabilitiesaccounts for the two notes and accrued interest thereon subject to the River North Equity claim was $1,046,416. Such amount is included in the amount recorded in Current Liabilities for all three convertible notes and accrued interest thereon previously issued to JMJ Financial which totaled $1,212,940 on that date. River North failed to appeal the Judgement by July 17, 2017 and the Judgement become final. As a result of this proceeding the Company recorded the cancellation of the two notes assigned to River North from JMJ Financial for a total of $693,060 of principal and $358,534 accrued interest thereon. This resulted in a $1,051,594 gain from the debt during the six months ended December 30, 2017.

As of December 31, 2018, and as of June 30, 2018, the aggregate remaining amount of convertible securities held by JMJ could be converted into 46,433,250 and 44,630,000 common shares at the conversion floor price of $.004.

During the six months ended December 31, 2018 and 2017 the Company recorded $7,212 and $9,198 interest on this agreement.

At June 30, 2018 the amount recorded in Current Liabilities for all three convertible notes and accrued interest thereon previously issued to JMJ Financial was $109,000 and $69,520, respectively. At December 31, 2018 the amount recorded in Current Liabilities for convertible note plus accrued interest thereon previously issued to JMJ Financial was $109,000 and $76,733 respectively.

Arrangement #2 (John Fife dba St. George Investors)/Fife Forbearance

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 for previous notes with John Fife totaled $719,449; 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.

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 at that time was approximately $902,279. This proceeding resulted a Memorandum Opinion and Order which was issued on December 15, 2014 by the United States District Court Northern District of Illinois Eastern Division granting the motion of John Fife, plaintiff (“Plaintiff”), for summary judgment against mPhase Technologies, Inc. (the “Company”) for breach of contract (the “Opinion”). All other claims and counterclaims were dismissed. Effective February 10, 2015, the Company entered into a Forbearance Agreement with the Holder. The agreement provided that the Holder would forego his right to enforce its remedies pursuant to the Judgment, which include demand for immediate payment of approximately $1.6 million, provided the Company satisfy its forbearance obligation of $1,003,943, (after accounting for a payment of $15,000 the Company paid, under the terms of the agreement).

The Forbearance agreement required the Company to place, and the Company had done so, 1,000,000,000 shares in reserve with its transfer agent, to satisfy the conversion provisions for any unpaid monthly cash payments. The original agreement also provided that the Company file a Proxy statement before June 1, 2015 should additional shares be needed for the conversion reserve. The Company has not filed such a proxy statement due to cost prohibitions. As of June 30, 2018, 1,000,000,000 shares have been issued with respect to payment obligations under the forbearance agreement, as amended and no amounts remain, in reserve,

On various occasions commencing with August 11, 2015 and then January 19, 2016, June 30, 2016, August 18, 2017 and February 16, 2018 the Company entered into an Amendments No. 1 through 5 to the Forbearance Agreement with Mr. Fife; primarily rescheduling the monthly payment schedules.

As of June 30, 2017, this forbearance obligation, as amended, would only be convertible for monthly obligations the Company elects to/or does not pay in cash in part or in full, for: (i) up to 625,000,000 shares, for the satisfaction of the next required monthly payment, and (ii) up to 10,123,399,750 shares of our common stock should the entire obligation be converted.

Arrangement #2 (John Fife dba St. George Investors)/Fife Forbearance – (continued)

During the year ended June 30, 2018 the Company did not make any repayments to Fife under the Judgment Settlement Agreement, as amended. Thefair value of the forbearance debt obligation on June 30, 2018 was $885,365.

As of, June 30, 2018, this forbearance obligation,financial instruments in accordance with ASC topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as amended, would only be convertible for monthly obligations the Company elects to/or does not pay in cash in part or in full, for: (i) up to 625,000,000 shares, for the satisfaction of the next required monthly payment, and (ii) up to 11,067,050,000 shares of our common stock should the entire obligation be converted.

The Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement with Fife discussed above, effective December 10, 2018.As of December 31, 2018, the Forbearance agreement is no longer in effect and no shares of our common stock are issuable or eligible to be converted to under this obligation.

Arrangement #3 (MH Investment trust II)

On August 26, 2014, 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 in which the Company received $40,000 in gross proceeds on September 1, 2014. The instrument is in the principal amount of $40,000 and matured on May 1, 2015. Interest only was 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 weighted average price of the stock based upon the average of the three lowest trading days in the 10day 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 proceeds of the financing used by the Company as working capital.

During the six months ended December 31, 2018 and 2017 the Company recorded $393 and $352 interest on this agreement.

At December 31, 2018 the note balance was $3,333 and accrued interest of $3,511 at 12%, remained due under this agreement. At June 30, 2018 the note balance was $3,333 and accrued interest of $3,118, at 12%; remained due under this agreement. Based upon the price of the Company’s common stock on December 31, 2018 and June 30, 2018 this Note is convertible into approximately 114,066,667 and 107,516,667 shares of common stock, respectively.

Judgement Settlement Agreement

The Company entered into a “Judgment Settlement Agreement” effective December 10, 2018 by and between John M. Fife, an individual (“Lender”), and mPhase Technologies, Inc. The Judgment Settlement Agreement, supersedes all other prior oral or written agreements between Borrower, as further detailed in our Filing on form 8-k on December 21, 2018.

The agreement required a $15,000 execution payment, which we paid in December 2018; and subsequently the agreement offers three payment options- the first two options have material settlements amounts which would be due during the Quarter ending March 31, 2019 -(short term options); Or the 3^rd option which calls for $15,000 monthly payments throughout calendar 2019 and a January 15, 2020 lump sum final payment (long term option);

The initial and revised payment schedule of the Judgement Settlement Agreement are as follows:

(a) $15,000, which amount has been paid upon execution of this Agreement, plus (b) either

(short term options);                                                                                                      ( Payment Status)

(i) $265,000, provided such amount is received by Lender on or before January 15, 2019, -(expired)

(ii) $280,000, provided such amount is received by Lender on or before February 15, 2019,-(expired)

iia.);as revised; $15,000 on February 1, 2019; and $270,000 by March 15, 2019 – (the Company is targeting this option)

(long term option); 

iii) $375,000, which amount, if Borrower elects this option, shall be payable as follows:

(1) Borrower shall make a payment to Lender in the amount of $15,000. on or before January 15, 2019, and

(2) Borrower shall continue making payments of $15,000 each month until January 15, 2020, when Borrower shall pay to Lender the entire unpaid portion of the Settlement Amount (which would be equal to $195,000).

Judgement Settlement Agreement – (continued)

During the six months ended December 31, 2018, the Company paid $15,000 applying $8,151 to principle and $6,849 to interest. During the six months December 31, 2018 and 2017 recorded a total of $40,399 and $$36,676 interest expense on the preceding forbearance and current judgement settlement agreement. On December 31, 2018 the judgement settlement agreement, which satisfies the Fife obligation in full, totaled $910,764.

The Company plans to satisfy this agreement in full by completing the short-term option of the Judgement Settlement Agreement of the during the quarter ending March 31, 2019, and has included $300,000 included in the line item “Current Portion, liabilities in arears- Judgement Settlement Agreement” for this agreement and $610,764 in the line item “Long term portion, liabilities in arears- Judgement Settlement Agreement in the liabilities section of the Company’s Balance Sheet as of December 31, 2018.

Had the Company planned to or should we revert to the long-term option of the Judgement Settlement Agreement $180,000 would be included in the line item “Current Portion, liabilities in arears- Judgement Settlement Agreement ” for this agreement and $730,764 in the line item “Long term portion, liabilities in arears- Judgement Settlement Agreement ” in the liabilities section of the Company’s Balance Sheet as of December 31, 2018;

Should the Company satisfy this liability utilizing the short-term option of the Judgement Settlement Agreement we would realize a gain on such settlement of approximately $610,000. Should the Company satisfy this liability utilizing the long-term option of the Judgement Settlement Agreement we would realize a gain on such settlement of approximately $580,000.

Conversion of Related Party and Strategic Vendor Debts

On September 24, 2018 the officers converted $538,777 accrued wages into 5,387,770,000 shares and $702,105 of notes payable and accrued interest into 7,021,050,000 shares and a director converted $186,000 of accrued fees into 1,860,000,000 shares and $126,364 of a note and accrued interest into 1,263,642,700 shares, of the Company’s common stock. Also, on September 24, 2018 accounts payable to strategic vendors totaling $99,500 were converted into 995,000,000 shares of common stock. These conversions were for 100 % of the debt to these individuals owed by Company on December 31, 2017, pursuant to a resolution, of the Company’s Board dated November 28, 2017, issuable when such shares became available, at $.0001 per share,

Effective December 31, 2018 the officers and a Director of the Company converted $133,010 and vendors of the Company converted $15,300 of debt of the Company outstanding on December 31, 2018 into 2,660,200,000 and 306,000,000 shares of common stock at $.00005 per share. These shares were issued as a prerequisite to the Transition Agreement which was part of the “Change in Control Agreements” culminating in the change in the Management of the Company (see Note 8- Subsequent Events). 

Reserved shares

The Company has agreed to reserve newly issued shares of Preferred and Common Stock pursuant to the change in control agreements discussed in “The Transition Agreement” (see note-8 - Subsequent Events)

Preferred Stock

We issued one thousand (1,000) shares of the Company’s recently created new class of Series A Preferred Stock to the Company’s New President and CEO to effectuate voting control of the Company as of January 11, 2019, pursuant to the Transition Agreement.

Common Stock

Signing Shares

The issuance of restricted shares of common stock of the Company equal to 20% or 13,109,494,031, of the number of shares outstanding, after the shares reserved under the agreements (“Signing Shares”) on the Effective Date.

Warrant agreement (s) & warrant cap

A warrant agreement (s) with provisions to acquire up to 80% (the warrant cap) of the Company’s common stock with acceleration provisions;

Settlement and New funding share reserve(s)

The Company has agreed to reserve a total of 15,000,000,000 newly issued shares of Common Stock, of which 2,660,200,000 and 306,000,000 were issued concurrently to reduce liabilities outstanding December 31, 2018, and 9,533,800,000 remained available from the initial share reserve to settle prior liabilities and 2,500,000.000 remained available from the initial share reserve to fund continuing operations as of January 11, 2019; the effective date of implementation of all of the “change in control agreements” discussed herein pursuant to” The Transition Agreement” (see note-8 - Subsequent Events)

PRIOR LIABILITIES -SETTLEMENT RESERVE

1. 9,839,800,000 shares of Common Stock of the Company to settle the Debts of the Company outstanding December 31, 2018, in the following priority; - The Judgement Settlement Agreement (formerly -Fife forbearance agreement), JMJ Financial, Inc., MH Investment Trust, PowerUp Lending Ltd, as well as other liabilities satisfactory to the Executive and the Company; (as per Section 2 (a) of the Reserve Agreement concurrent “change in control agreements”, dated January 11, 2019);As of the date of this filing 9,233,800,000 shares remain available under this reserve.

OFFICER’S AND DIRECTOR -CONVERSION SHARE RESERVE

2. 2,660,200,000 shares of Common Stock of the Company for the conversion of 75% payables to officers’ and a director outstanding December 31, 2018, (as per Section 2 (a) of the Reserve Agreement concurrent “change in control agreements”, dated January 11, 2019) As of the date of this filing no shares remain available under this reserve.

CONTINUING OPERATIONS SHARE RESERVE

3. 2,500,000,000 shares of common stock as per section 2 (c) to be sold at a price, not less than $.00005 per share in periodic Private Placements, (as per Section 2 (a) of the Reserve Agreement concurrent “change in control agreements”, dated January 11, 2019) As of the date of this filing all of the shares remain available under this reserve.

FINAL ADJUSTMENT FOR LIABILITIES ELIMINATED IN SETTLEMENT RESERVE

To the extent Company does not eliminate the above-mentioned liabilities, or the cost to do so requires more than the funding provided within six months of the Effective Date, the Warrant Cap shall increase be increased by that number of shares at a price of $.00005 which equals the amount of remaining liability.

Judgement Settlement Agreement

The Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement with Fife discussed above, effective December 10, 2018, by and between John M. Fife, an individual (“Lender”), and mPhase Technologies, Inc; The Company plans to satisfy this agreement in full by completing the short-term option of the Judgement Settlement Agreement;(iia.)whichas revised; the Company has paid $15,000 on February 1, 2019 and would be required to pay $270,000 by March 15, 2019.

Contracts and Commitments Executed Pursuant to the Transition Agreement:

In the transaction whereby, Mr. Bhatnagar acquired control of the Company on January 11, 2019, the Company entered into material commitments including; (see Note 8- Subsequent Events). 

The Company agreed to an employment agreement with the Executive which include annual compensation for a period of five (5) years with annual salary of $275,000; and The issuance of restricted shares of common stock of the Company equal to 20% or 13,109,494,031  of the amount of shares outstanding, after giving effect to the shares reserved under the agreements, (“Signing Shares”) on the Effective Date.; and a warrant agreement (s) with provisions to acquire up to 80% (the warrant cap) of the Company’s common stock with acceleration provisions.

The Company agreed to finalize undertakings already in process to extinguish specific debts and settle or reduce other liabilities outstanding on December 31, 2018, within six (6) months. The result of our settlements, when finalized, will be evaluated based agreed upon limits, and the liabilities may exceed the threshold for agreed upon limits on the quantity of shares issuable under the warrant and warrant cap calculation.

The Company had been in litigation with John Fife with respect to a Convertible Note originally issued on September 13, 2011 in the principal amount of $557,000. Fife sought damages on a Motion for Summary Judgment in the amount in excess of $1,300,000 and attorney’s fees. On December 15, 2014 the federal district court in the North East District of Illinois found in favor of Fife on a motion for Summary Judgment. The Company had entered into a Forbearance Agreement with Fife as a result of negotiations to settle such Judgment. As of December 31, 2018, the Forbearance agreement is no longer in effect and no shares of our common stock are issuable or eligible to be converted to under this obligation as a result of the Judgement Settlement Agreement effective December 10, 2018 discussed below.

Judgement Settlement Agreement

The Company entered into a “Judgment Settlement Agreement” to satisfy in full the Forbearance Agreement with Fife discussed above, effective December 10, 2018, by and between John M. Fife, an individual (“Lender”), and mPhase Technologies, Inc. The Agreement supersedes all other prior oral or written agreements between Borrower. The Company plans to satisfy this agreement in full by completing the short-term option of the Judgement Settlement Agreement of the during the quarter ending March 31, 2019, which would require us to pay $270,000 by March 15, 2019. If that payment it not paid timely; not withstanding whether or not we can get a revision to the short term option we are pursuing; we may revert to the long-term option of the Judgement Settlement Agreement of which $180,000 would be included in the line item “Current Portion, liabilities in arears- Judgement Settlement Agreement ” for this agreement and $730,763 in the line item “Long term portion, liabilities in arears- Judgement Settlement Agreement ” in the liabilities section of the Company’s Balance Sheet as of December 31, 2018.

Should the Company satisfy this liability utilizing the short-term option of the Judgement Settlement Agreement we would realize a gain on such settlement of approximately $610,000. Should the Company satisfy this liability utilizing the long-term option of the Judgement Settlement Agreement we would realize a gain on such settlement of approximately $580,000. (see also note 3)

Amounts Contingent upon Certain Terms of Change in Control Agreements Effective January 11, 2019 (see note-8 - Subsequent Events)

To the extent Company does not eliminate the certain liabilities within six months of the effective Date, the Warrant Cap shall increase be increased by such number of shares at a price of $.00005 equal to the amount of excess liability.

The Change in Control Agreements, effective January 11, 2019, also have certain provisions that accelerate the warrant and employment agreements.

Effective July 1, 2008, we adopted Accounting Standards Codification (“ASC”) 820-10-20, Fair Value Measurements, which provides a framework for measuring fair value under generally accepted accounting principles. ASC 820-10-20 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 820-10-20 requires820 also describes three levels of inputs that valuation techniques maximize the use of observablemay be used to measure fair value:

Level 1: Observable inputs and minimize the use of unobservable inputs. ASC 820-10-20 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 onthat reflect unadjusted quoted market prices within active markets. Financial assets and liabilities valued using level 2 inputs are based primarily on quoted prices for identical assets or liabilities traded in active markets.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Financial instruments consist principally of cash, accounts receivable, prepaid expenses, due from affiliates, accounts payable, accrued liabilities, due to related parties, and other current liabilities. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. The fair value of short and long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amounts approximate fair value. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

(UNAUDITED)

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

Revenue is derived from the sale of artificial intelligence and machine learning focused technology products. The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. In the event any discounts, sales incentives, or similar arrangements are agreed to with a customer, such amounts are estimated at time of sale and deducted from revenue. Sales taxes and other similar taxes are excluded from revenue (see Note 6).

Share-Based Compensation

The Company computes share based payments in accordance with ASC 718-10, Compensation (“ASC 718-10”) and Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment No. 107 (“SAB 107”). The Company has applied the provisions of SAB 107 in its adoption of ASC 718-10. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50, Equity Based Payments to Non-Employees. The Company estimates the fair value of stock options and warrants by using the Black-Scholes option pricing model.

Derivative Instruments

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

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

Convertible Debt Instruments

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

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

(UNAUDITED)

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company accounts for income taxes in accordance with Accounting for Income Taxes, as clarified by ASC 740-10,Accounting for Uncertainty in Income Taxes (“ASC 740”). Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities using level 3 inputs were primarily valued using management’s assumptions aboutand net operating loss and tax credit carryforwards given the assumptions market participants would utilizeprovisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year-to-year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in pricingwhich the assetCompany operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or liability.the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation techniques utilizedallowances are recorded related to determine fair value are consistently applied.deferred tax assets based on the “more likely than not” criteria of ASC 740.

Financial instrumentsASC 740 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company’s tax returns for its June 30, 2019, 2018, 2017, and 2016 tax years may be selected for examination by the taxing authorities as the statute of limitations remains open.

The Company recognizes expenses for tax penalties and interest assessed by the Internal Revenue Service and other taxing authorities upon receiving valid notice of assessments. The Company has received no such notices for the tax years ended June 30, 2019 and 2018.

Earnings Per Share

In accordance with the provisions of FASB ASC Topic 260,Earnings per Share, basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered 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 unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.calculating EPS on a diluted basis.

SomeIn computing diluted EPS, only potential common shares that are dilutive, those that reduce EPS or increase loss per share, are included. The effect of contingently issuable shares are not included if the result would be anti-dilutive, such as when a net loss is reported. Therefore, basic and diluted EPS are computed using the same number of weighted average shares for the three and six months ended December 31, 2019 and 2018, respectively, as we incurred a net loss for those periods. At December 31, 2019, there were outstanding warrants to purchase up to approximately 37,000,000 shares of the Company’s common stock, approximately 703,726 shares of the Company’s common stock to be issued, and notes payable held by third parties with convertible features that if converted, would total approximately 1,400,000 shares of the Company’s common stock, which may dilute future EPS. At December 31, 2018, there were notes payable held by third parties and officers and directors, with convertible features that if converted, would total approximately 200,000 shares of the Company’s common stock, which may dilute future EPS.

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

(UNAUDITED)

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Adopted Accounting Standards

Effective July 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”). The standard amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842, which amends certain aspects of the new lease standard. The Company determined the adoption of ASU 2016-02 did not have a material impact on its consolidated financial statements.

Effective July 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2017-11, Update to Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The ASU makes limited changes to the guidance on classifying certain financial instruments as either liabilities or equity. The ASU is intended to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. The Company determined the adoption of ASU 2017-11 did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concept Statement, including the consideration of costs and benefits. The standard is effective for the Company as of July 1, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concept Statement, including the consideration of costs and benefits. The standard is effective for the Company as of July 1, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying consolidated financial statements.

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

(UNAUDITED)

NOTE 4: BUSINESS ACQUISITION

On June 30, 2019, the Company acquired 99% of the outstanding common shares of Alpha Predictions LLP (“Alpha Predictions”). Alpha Predictions is an India-based technology company that has developed a suite of commercial data analysis products for use across multiple industries. The Company expects the acquisition to result in synergies with its other operating divisions, which will drive revenue growth and innovation.

The goodwill of $6,020 arising from the acquisition consists largely of the synergies expected from combining the operations of the Company and Alpha Predictions.

The following table summarizes the consideration paid for Alpha Predictions and the fair values of the assets acquired and liabilities assumed recognized at the acquisition date.