Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

mPhase Technologies, Inc. (the “Company” or “We”) was organized on October 2, 1996. Since 2007 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 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.

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”)

On January 11, 2019, the Company underwent a major change in management and focus to restructure its business. The Company intends to broaden 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.

On January 11, 2019, the Company, Prior Management and Mr.Anshu Bhatnagar executed contracts including a transition agreement under which Prior Management was largely replaced. Mr. Bhatnagar became a Director and he Company’s new President & CEO and acquired control of the Company. Mr. Durando remains a Director 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 provides for our new management to evaluate, formulate and implement 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. The Company will implement its revised plan of operation either directly or through wholly- owned subsidiaries.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the regulations of the Securities Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the six months ended ending December 31, 2018 are not necessarily indicative of the results that may be expected for a full fiscal year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K, as amended, for the year ended June 30, 2018.

GOING CONCERN

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

Through December 31, 2018, the Company had incurred (a) cumulative losses totaling ($211,932,586) and (b) a stockholders’ deficit 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) for the six months ended December 31, 2018. In addition, the Company relies on the continuation of funding through private placements of its common stock. These matters 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. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company’s ability to continue as a going concern and its future success is dependent upon its ability to raise capital in the near term to: (1) satisfy its current obligations, including recently amended settlement agreements, (2) continue its plan to align partners or other third parties to underwrite 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 equity financing will be available, or if so, on terms acceptable to the Company.

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 $1,500 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 2017. The reclassified financial statement items had no effect on Net Income (Loss) for the Quarter, Total Stockholders’ Deficit or Total Assets for the three months ended December 31, 2018 and 2017.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting 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. Actual results could differ from those estimates.

LOSS PER COMMON SHARE, BASIC AND DILUTED

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net loss adjusted for income or loss that would result from the assumed conversion of potential common shares from contracts that may be settled in stock or cash by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company had no warrants to purchase shares of its common stock and no options to purchase shares of its common stock outstanding at December 31, 2018.

At December 31, 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.

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

	December 31, 2018
	(Unaudited)
	Note Principle		Accrued Interest		Total			Shares Convertible
								immediately		conditionally available
Arrangement #1 - JMJ Financial, Inc	$	109,000	$	76,733	$	185,733			46,433,250		-
Arrangement #2 - St. George Investments/Fife Forbearance Obligation				-		-	(i)		-		-
Arrangement #3 - MH Investment trust II		3,333		3,511		6,844			114,066,667		-
Total Liabilities, in arrears, with convertible features		112,333		80,244		192,577			160,499,917		-
Judgement Settlement Agreement		910,764				910,764	(i)
Notes Payable- Officers		42,880		-		42,880	(ii)		-		857,600,000
Notes Payable- Director		1,456		-		1,456	(ii)		-		14,560,000
Total	$	1,067,433	$	80,244	$	1,147,677			160,499,917		872,160,000

(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 December 31, 2018. (SEE NOTE 3 - Judgement Settlement Agreement)
(ii)	Conditionally convertible if available under “Settlements Reserve”, through July 11, 2019.  (SEE NOTE 3 - Reserved Shares)

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:

	December 31, 2018						June 30, 2018
	(Unaudited)
	Total		Discontinued		Continuing		Total		Discontinued		Continuing
ASSETS
CURRENT ASSETS
Cash	$	348		-		348	$	261		-		261
TOTAL CURRENT ASSETS		348				348		261				261
Other assets		800		-		800		800		-		800
TOTAL ASSETS	$	1,148				1,148	$	1,061				1,061
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	426,802		85,476		341,326	$	545,564		124,508		421,056
Accrued expenses		167,397		-		167,397		1,273,569		142,195		1,131,374
Due to related parties		32,545		-		32,545		226,045		-		226,045
Notes payable, Officers’		42,880		-		42,880		777,912		-		777,912
Notes payable, Director and Investor		4,456		-		4,456		133,274		-		133,274
Note Payable, Finance Company		45,601		45,601		-		39,468		39,468		-
Current Portion, Liabilities, in arrears, with convertible features		112,333		0		112,333		0		0		0
Current Portion, Judgement Settlement Agreement (Notes 3 and 5)		300,000		-		412,334		997,698		-		997,698
TOTAL CURRENT LIABILITIES		1,132,014		131,077		1,000,938		3,993,530		306,171		3,687,359
Long term portion, Convertible debenture (under settlement agreement-Note 5)		610,764		-		610,763		-		-		-
TOTAL LIABILITIES	$	1,742,778		131,077		1,611,701	$	3,993,530		306,171		3,687,359

Revenue and Expense Recognition for Discontinued Operations

The Company had recognized revenue on its JUMP products when the products were shipped, and title passed to the customer.  

The results of discontinued operations include only specifically identified in the three-month and six-month periods ended December 31, 2018 and both specifically identified and allocated common overhead expenses in the period ended December 31, 2017.

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

	For the Three Months Ended
	December 31, 2018			December 31, 2017
	Discontinued			Discontinued
REVENUES	$	-		$	-
COSTS AND EXPENSES
Selling and Marketing		-			670
General and administrative		-			4,561
Depreciation and amortization		-			-
TOTAL COSTS AND EXPENSES		-			5,231
OPERATING LOSS		-			(5,231	)
OTHER INCOME (EXPENSE)
Interest (Expense)		(5,631	)		(10,144	)
Gain on debt extinguishments		12,533			257,475
TOTAL OTHER INCOME (EXPENSE)	$	6,902		$	247,331
Income from Discontinued Operations	$	6,902		$	242,100

PATENTS AND LICENSES

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

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

	For the Six Months Ended
	December 31, 2018			December 31, 2017
	Discontinued			Discontinued
REVENUES	$	-		$	-
COSTS AND EXPENSES
Selling and Marketing		-			2,094
General and administrative		-			8,863
Depreciation and amortization		-			-
TOTAL COSTS AND EXPENSES		-			10,957
OPERATING LOSS		-			(10,957	)
OTHER INCOME (EXPENSE)
Interest (Expense)		(23,441	)		(20,517	)
Gain on debt extinguishments		12,533			257,475
TOTAL OTHER INCOME (EXPENSE)		(10,908	)	$	236,958
Income (Loss) from Discontinued Operations	$	(10,908	)	$	226,001

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 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.