UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended March 31, 2019

OROr

For the Transition Period From               to             Commission File Number 000-30202

Commission File Number: 000-30202mPHASE TECHNOLOGIES, INC.

mPhase Technologies, Inc.

(Exact name of registrant as specified in its charter)

(301) 329-2700

(Registrant’s telephone number, including area code)code:(301) 329-2700

None

(Former name, former address and former fiscal year, if changed since last report)Securities registered pursuant to Section 12(b) of the Act: None.

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

[X] Yes [X] No [  ] 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 [X] No [  ] 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 [  ] Yes [X] No [X]

Indicate the numberAs of February 18, 2020 therewere 13,244,221 shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

AS ADJUSTED FOR 5000/1 REVERSE STOCK SPLIT ON MAY 20, 2019

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)

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 StatementStatements of Changes in Stockholders’ DeficitEquity (Deficit)

For the NineSix Months Ended MarchDecember 31, 2019 and 2018

(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 Flows

(Unaudited)

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

mPHASE TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCHFOR THE SIX MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Unaudited)(UNAUDITED)

1.NOTE 1: NATURE OF BUSINESS AND BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

EXPLANATORY NOTE

The financial statements contained herein have been adjusted to reflect a 5000/1 reverse splitOrganization and Nature of the Common Stock of the Company effective on May 20, 2019.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 October 2, 1996. Since 2007 the Company has beenincorporated 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 prior 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.

On January 4, 2019, the Company filed an Amendment to its Certificate of Incorporation in the Statestate of New Jersey pursuant to approval by its Board of Directors, to increase its authorized shares of common stock from 72 billion shares to 125 billion shares of no-par stock. In addition,in 1979 under the name Tecma Laboratory, Inc. and has subsequently operated under Tecma Laboratories, Inc., and Lightpaths TP Technologies, Inc., until June 2, 1997 when the Company in such Amendment created a new class of 1000 shares of a Series A super voting preferred Stockchanged its name to mPhase Technologies, Inc.

On January 11, 2019, the Company underwent a major change in management and focus to restructure its business.control. The Company intends to broaden and diversify its existing lines of business. The Company will implement its 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.

On January 11, 2019, the Company, Prior Management and Mr. Anshu Bhatnagar executed contracts including a transition agreement (the “Transition Agreement”) under which the Company’s priornew management was largely replaced. Mr. Bhatnagar is also the President and CEO of Verus International, Inc. (ticker symbol “VRUS”) a publicly-held company.

Messrs. Dotoli, and Smiley each resigned as Directors and Officers of the Company Mr. Biderman and Mr. Lawrence resigned as outside Directors. Mr. Bhatnagar became a Director, and new President and CEO, and acquired control of the Company. Mr. Durando remained as a Director ofis positioning the Company through March 15, 2019 at which time he resigned. Mr. Smiley was reappointed on January 28, 2018, as our Chief Financial Officer. It is expected that Mr. Smiley will hold the foregoing position on an interim basis to provide continuity during the Transition period.

The Transition Agreement provides for our new management to evaluate, formulate and implementbe a revised plan of operation. The Company is implementing undertakings, initiated by outgoing management, to extinguish certain debts and settle or reduce other liabilities outstanding on December 31, 2018, within six (6) months of January 11, 2019.(See Notes 4 and 5)

On February 4, 2019 the Company announced the formation of mPhase Technologies India, Pvt,Ltd to focus on software and technology development for new and existing projects.

On February 6, 2019 the Company announced that it has commenced discussions with a global pharmaceutical company to explore the use of mPhase “Smart Surface” technology for transdermal drug delivery. mPhase’s current technology uses electronic or other external stimulus to dispense an unattended, predetermined quantity of drug or medical agent through a smart surface membrane.

On February 19, 2019 the Company announced that it will assemble a teamleader in India of highly qualified software and technology experts in the fields of artificial intelligence and machine learning to work as partwhile enabling a more rapid commercial development of its newly formed India division.patent portfolio and other intellectual property. The Company’s goal is to generate significant revenue from its artificial intelligence and machine learning technologies.

On March 7,February 15, 2019, the Company announced the acquisition ofacquired Travel Buddhi, a software platform to enhance travel via ultra-customization tools that tailor a planned trip experience in ways not previously available.

On June 30, 2019, the Company acquired 99% of the outstanding common shares of Alpha Predictions LLP (“Alpha Predictions”). Alpha Predictions is an India-based technology company that has developed a suite of commercial data analysis products for use across multiple industries. The Company is movingexpects the acquisition to result in a new strategic direction of modificationsynergies with its other operating divisions, which will drive revenue growth and modernization of its existing technology to make it “smart” and “connected as part of the internet of things

On April 22, 2019 (see also “Subsequent Events”) the Company filed a Definitive Schedule 14C information statement with the SEC in connection with a 5000/1 reverse split of its common stock. The Company under New Jersey law is reducing its authorized shares of common stock to 25 million shares from the currently authorized 125,000,000,000 shares. The purpose of the Reverse Split is as follows:

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)innovation.

Raise our stock price to more attractive levels:

A higher stock price would return our share price to a price level typicalBasis of share prices of other widely owned public companies. The Board of Directors believes that a higher share price of the Company’s common stock may meet investment guidelines for certain institutional investors and investment funds.

Reduce transaction costs to our shareowners:

Our shareowners may benefit from relatively lower trading costs for a higher priced stock. We believe many investors pay commissions when they buy or sell the Company’s common stock based upon the number of shares traded. Because of our relatively low stock price, investors are required to pay more commissions to trade a fixed dollar amount than they would have to pay if our stock price was higher. In addition, shareowners owning very few shares may not have an economic way to sell their shares. If these shareowners are left with only fractional shares as a result of a reverse stock split, their interests can be liquidated without transaction costs, as we would absorb those costs.

Allow Shareholders to Deposit with their Broker newly issued shares of the Company’s common stock

Brokers and their Clearing Agents are not currently accepting deposits of newly issued shares of sub-penny stocks. Very few brokers will accept such deposits of a stock with a price less than $1.00 per share. This inhibits the ability of the Company to raise additional capital through sales of its common stock since investors face the uncertainty of when and if the share price of the Company’s common stock will become eligible for deposit and sale.

The reverse split became effective on May 20, 2019.

BASIS OF PRESENTATIONPresentation

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 presented not misleading.

The condensed consolidated unaudited financial statements for the six months ended December 31, 2019 and footnotes required by generally accepted accounting principles for complete financial statements. In2018 include the opinionoperations of management, all adjustments (normalmPhase and recurring in nature) considered necessary for a fair presentationits 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 included. Operating results foreliminated in the nine months ended ending March 31, 2019 are not necessarily indicative of 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.

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 MarchThe Company has incurred negative cash flows from operations of $660,849 for the six months ended December 31, 2019. At December 31, 2019, the Company had incurred (a) cumulative losses totaling ($213,374,998) and (b) a stockholders’working capital deficit of ($1,793,593). At March 31, 2019, the Company had $25,334$1,546,818, and an accumulated deficit of cash to fund short-term working capital requirements and cash used in operating activities was ($149,371) for the nine months ended March 31, 2019. In addition, the Company relies on the continuation of funding through private placements 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.

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.

RECLASSIFICATIONS

Certain reclassifications have been made in the prior period consolidated financial statements to conform to the current period presentation. The Company reclassified accrued fees of $5,000 to Eagle Advisors to a source of funds from financing activities previously included as a source of funds in operating activities in the Statement of Cash Flows in 2018. The reclassified financial statement items had no effect on Net Income (Loss) for the Quarter, Total Stockholders’ Deficit or Total Assets for the three or nine months ended March 31, 2018.

BASIS OF PRESENTATION ANDNOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

USE OF ESTIMATESForeign Currency Translation and Transactions

The functional currency of our operations in India is the Indian 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 to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income (loss).” Gains and losses resulting from foreign currency transactions are included in the consolidated statements of comprehensive income (loss), as other comprehensive income (loss). There have been no significant fluctuations in the exchange rate for the conversion of Indian Rupee to U.S. dollars after the balance sheet date.

Use 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 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 no warrants or optionscustomers to purchase shares of its common stock outstanding at March 31, 2019.make required payments.

At MarchRevenue 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 the Company has convertible securities held by third parties that are immediately convertible into 17,078 sharesand 2018, this one customer accounted for 99% and 0% of common stock. In addition, the Company has convertible notes plus accrued interest thereon held by officersour total revenue, respectively. At December 31, 2019 and a DirectorJune 30, 2019, this one customer accounted for 96% and 99% of the Company, subject to availability from the settlement reserve, convertible into approximately 291,012 shares of common stock, immediately.There are an estimated 39,313,000our total shares on a post-split basis issuable under the warrant that are attainable under the agreement with Mr. Anshu Bhatnagar as of March 31, 2019.

accounts receivable, respectively.

The following table illustrates debts convertible into shares of the Company’s Common Stock at March 31, 2019:

(i) The Judgement Settlement Agreement with Mr. Fife, effective December 10, 2018 has no features whereby the debt is convertible into our common stock on March 31, 2019.(SEE NOTE 3 - Judgement Settlement Agreement)

(ii) Conditionally convertible if available under “Settlements Reserve”, through July 11, 2019.(SEE NOTE 3 - Reserved Shares)Cash and Cash Equivalents

(iii) Arrangement #3 - MH Investment trust II was settled in full on April 10,For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. There were no cash equivalents at December 31, 2019 and June 30, 2019.

1. BASIS OF PRESENTATIONmPHASE 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)

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:

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

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 nine-month periods ended Marchsuch losses traditionally have been within its expectations. At December 31, 2019 and both specifically identified and allocated common overhead expenses inJune 30, 2019, the period ended March 31, 2018.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 MarchDecember 31, 2019, and June 30, 2019, the book value of such assets, orpatents and licenses of $214,383, has been fully amortized.amortized and no amortization expense was recorded for the six months ended December 31, 2019 and 2018.

Share-Based PaymentsCapitalized Software Development Costs

The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation”350-40, “Internal Use Software.” ASC 350-40 provides guidance for determining whether computer software is internal-use software, and related interpretations. As such, compensation coston accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes the costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the software are capitalized if it is measureddetermined that these upgrades or enhancements add additional functionality to the software. Costs incurred to improve and support products after they become available are charged to expense as incurred.

Capitalized software development costs are amortized on a straight-line basis over the dateestimated useful lives, currently three years. Management evaluates the useful lives of grant atthese assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the fairrecoverability 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 share-based payments. Such compensation amounts, if any, are amortized oversix months ended December 31, 2019 and 2018, amortization expense which is included in general and administration expenses within the respective vesting periodsconsolidated statements of the grants. (SEE NOTE 3operations, was $484,278 and 5 ‘Warrant(s)” and “Stock Based Compensation”)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)$0, respectively.

DISCONTINUED OPERATIONS – (continued)

The expenses and items of other income associated with discontinued operations included in our NINE-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 model 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 MeasurementFair Value 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.

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

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.

2. SUPPLEMENTAL CASH FLOW INFORMATION

3. EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT

Common Stock

On 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 to 125 billion shares and the change to no par value. Effective on or about May 20, 2019 the Company will have completed a 5,000/1 reverse split of its common stock and upon completion the Company will have 25,000,000 shares of authorized common stock (See “Subsequent Events”).

Preferred Stock

On January 4, 2019 the State of New Jersey accepted an Amendment to the Company’s Certificate of Incorporation providing for 1000 shares of a 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.

Private Placements

During the nine months ended March 31, 2019, the Company issued 440,000 shares (adjusted for the reverse split described above) 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 $110,000. The proceeds were used by the Company as working capital.

During the nine months ended March 31, 2018, the Company issued 200,000 shares (also adjusted for the reverse split) 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 $50,000 and incurring finder’s fees of $5,000. The proceeds were used by the Company as working capital.

Stock Award Payable

During the nine months ended March 31, 2019, Messrs. Durando, Dotoli and Smiley received 800,000 shares of common stock (adjusted for the reverse split described above), which were valued at $400,000, Mr. Biderman an outside Director received 200,000 shares of common stock (adjusted for the reverse split described above), which were valued at $100,000 and strategic consultants received 150,000 shares of common stock (adjusted for the reverse split described above), which were valued at $75,000, and in total this group received a total of 1,150,000 shares of common stock (adjusted for the reverse split described above), which was valued at $575,000 and this liability had been included in accrued expenses at June 30, 2018. Mr. Bhatnagar, President and CEO of the Company received 2,620,899 shares of common stock (adjusted for the reverse split described above), in connection with the commencement of his employment with the Company.

Stock Based Compensation

During the nine months ended March 2019, the Company issued 2,620,899 shares of common stock as discussed above valued at $1,310,449 (included in General and Administrative expense in the accompanying Condensed Consolidated Statement of Operations) based upon the closing price of the Company’s common stock on January 11, 2019.

During the nine months ended March 31, 2018, the Company did not issue any common stock, warrants or options to employees or officers.

3. EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT – (continued)

Warrant agreement (s) and warrant cap compensation costsInstruments

The Company entered into warrant agreement (s) with Mr. Bhatnagar containing provisions to acquire up to 80% (the warrant cap) of the Company’s common stock based upon the generation of new revenues by the Company. The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations. As such, compensation cost is measured on the date of grant ataccounts for the fair value of the share-based payments,financial instruments in accordance with ASC topic 820, “Fair Value Measurements and for accounting purposes the warrant has the characteristics of a Non- Qualified stock option. The agreement provides defined revenue targets and the generally provide for milestones equivalent to options for 4% of the Company’s common stock for qualified revenue attained subsequent to January 11, 2019; the commencement date of Mr. Bhatnagar’s employment with the Company.

The Earned Warrants represent equity-based compensation given to an employee and is in the scope ofDisclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 718. The accounting treatment of such awards requires an evaluation as to the timing of the employee’s requisite service period (“RSP”) and the grant date: With respect to these warrants, the grant date is when i.) A mutual understanding of the award’s key terms and conditions has been reached; ii.) The Company is contingently obligated to issue shares to employees who fulfill vesting conditions; iii.) An employee begins to benefit from, or be adversely affected by, subsequent changes in stock price; iv.) Awards are approved by the board of directors or management, as required; and v.) The recipient meets the definition of an employee. The Company has used Mr. Bhatnagar’s employment date820 defines “fair value” as the grant date for valuation purposes and the obligation is contingent upon the attainment of revenue which is a vesting condition yet to commence. Through March 31, 2019 no warrants have been “earned” nor have become issuable under the agreement; and as such no estimated expense for amortization of the unvested and unrecognized compensation estimated should the agreement become fulfilled. For the three months ended March 31, 2019 we recognized no non-cash compensation expense in connection with this agreement.

As of March 31, 2019, the Company has estimated. by application of a Black Scholes option pricing model that approximately $19,656,741 of unrecognized pre-tax non-cash compensation expense, which the Company expects to recognize, based on a weighted-average period of 2 years and 5 ½ months. The Company will record the compensation expense over the estimated term requisite service or vesting period to earn the conditions of the warrant. There are an estimated 39,313,000 total shares issuable under the warrant on a post-split basis that are attainable under the agreement as of March 31, 2019.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards and warrant issuances. The calculation of the fair value of the awards using the Black - Scholes option-pricing model is affected by the Company’s stock price on the date of grant as well as assumptions regarding the following: