Edgar Filing: MPHASE TECHNOLOGIES INC

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, 2016

COMMISSION FILE NO. 000-30202

FORM 10-Q

mPhase Technologies, Inc.

(Exact name of registrant as specified in its charter)

NEW JERSEY		22-2287503
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

688 New Dorp Lane

Staten Island, New York,

10306-4933

(Address of principal executive offices)

(Zip Code)

973-256-3737

ISSUER’S TELEPHONE NUMBER

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, DURING THE PRECEDING 12 MONTHS (OR FOR SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORT), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES ☐ NO ☒

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

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

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK AS OF MAY 17, 2018 IS 16,460,514,423 SHARES, ALL OF ONE CLASS OF $.001 PAR VALUE COMMON STOCK.

mPHASE TECHNOLOGIES, INC.

INDEX

		PAGE
PART I	FINANCIAL INFORMATION
Item 1	Condensed Consolidated Balance Sheets December 31, 2016 (Unaudited) and June 30, 2016	1
	Unaudited Condensed Consolidated Statements of Operations-Three Months Ended December 31, 2016 and 2015	2
	Unaudited Condensed Consolidated Statements of Operations-Six Months Ended December 31, 2016 and 2015	3
	Unaudited Condensed Consolidated Statements of Cash Flow-Six Months Ended December 31, 2016 and 2015	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4	Controls and Procedures	24
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	28
Item 4.	(Removed and Reserved)	28
Item 5.	Other Information	28
Item 6.	Exhibits and Reports on Form 8-K	28
Signature Page		29

mPHASE TECHNOLOGIES, INC.

Condensed Consolidated Balance Sheets

	December 31, 2016			June 30, 2016
ASSETS	(unaudited)
CURRENT ASSETS (see Note 1)
Cash	$	2,020		$	4,717
Assets of discontinued operations		5,042			25,171
TOTAL CURRENT ASSETS		7,062			29,888

Property and equipment, net		2,157			3,631

TOTAL ASSETS	$	9,219		$	33,519

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES (see Note 1)
Accounts payable	$	584,282		$	565,713
Accrued expenses		779,693			658,434
Due to related parties		215,545			212,545
Notes payable, Officers’		620,769			597,331
Notes payable, Director & Investor		119,023			115,486
Current Portion, Long term convertible debentures		1,580,198			1,561,611
Liabilities of discontinued operations		737,914			697,647
TOTAL CURRENT LIABILITIES		4,637,425			4,408,767

STOCKHOLDERS’ DEFICIT
Common stock, par value $.001, 18,000,000,000 shares authorized, 17,760,143,845 and 17,772,643,845 shares issued and outstanding at December 31, 2016 (unaudited) & June 30, 2016, respectively		17,760,143			17,772,643
Additional paid in capital		189,649,226			189,533,940
Accumulated deficit		(212,037,575	)		(211,681,831	)
TOTAL STOCKHOLDERS’ DEFICIT		(4,628,206	)		(4,375,248	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	9,219		$	33,519

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

mPHASE TECHNOLOGIES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended
	December 31, 2016			December 31, 2015
REVENUES (Continuing Operations - see Note 1)	$	-		$	-

COSTS AND EXPENSES (Continuing Operations - see Note 1)

General and administrative		71,237			194,459

Depreciation and amortization		737			804

TOTAL COSTS AND EXPENSES		71,974			195,263

OPERATING LOSS		(71,974	)		(195,263	)

OTHER INCOME (EXPENSE)
Interest (Expense)		(74,455	)		(82,219	)
Other income (Expense)		-			1,160
Change in fair value of derivative liability		-			(211,741	)

TOTAL OTHER INCOME (EXPENSE)	$	(74,455	)	$	(292,800	)

Loss From Continuing Operations, before Income Taxes	$	(146,429	)	$	(488,063	)

Loss From Discontinued Operations		(37,626	)		(92,267	)

Income Taxes		-			-

Net Loss		(184,055	)		(580,330	)

Basic & Diluted Net loss per share:
Loss per share From Continuing Operations	$	(0.00	)	$	(0.00	)
Loss per share From Discontinued Operations	$	(0.00	)	$	(0.00	)
Net Loss per share	$	(0.00	)	$	(0.00	)
Weighted Average Number of Shares Outstanding;
Basic & Diluted		17,747,643,845			16,413,128,048

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

mPHASE TECHNOLOGIES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Six Months Ended
	December 31, 2016			December 31, 2015
REVENUES (Continuing Operations - see Note 1)	$	-		$	-

COSTS AND EXPENSES (Continuing Operations - see Note 1)

General and administrative		134,945			376,199

Depreciation and amortization		1,474			1,542

TOTAL COSTS AND EXPENSES		136,419			377,741

OPERATING LOSS		(136,419	)		(377,741	)

OTHER INCOME (EXPENSE)
Interest (Expense)		(150,729	)		(154,181	)
Other income (Expense)		-			1,160
Change in fair value of derivative liability		-			(436,702	)

TOTAL OTHER INCOME (EXPENSE)	$	(150,729	)	$	(589,723	)

Loss From Continuing Operations, before Income Taxes	$	(287,148	)	$	(967,464	)

Loss From Discontinued Operations		(68,541	)		(156,589	)

Income Taxes		-			-

Net Loss		(355,689	)		(1,124,053	)

Basic & Diluted Net loss per share:
Loss per share From Continuing Operations	$	(0.00	)	$	(0.00	)
Loss per share From Discontinued Operations	$	(0.00	)	$	(0.00	)
Net Loss per share	$	(0.00	)	$	(0.00	)
Weighted Average Number of Shares Outstanding;
Basic & Diluted		17,845,401,997			16,284,261,113

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

mPHASE TECHNOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended
	December 31, 2016			December 31, 2015
Cash Flow From Operating Activities:
Net Loss from continuing operations	$	(287,148	)	$	(967,464	)
Net Loss from discontinued operations		(68,541	)		(156,589	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,474			1,542
Non-cash charges relating to issuance of common stock, common stock options and warrants		-			5,386
Gain on sale of patent		(12,500	)		-
Change in fair value of derivative liability and debt discount charges (credits)		-			490,676
Other non-cash charges for beneficial conversion interest expense		60,785			60,685
Amortization of loan discount, finance company		5,238			-
Changes in assets and liabilities:
Accounts receivable		55			4,985
Inventories		20,074			128,615
Prepaid expenses and other current assets		-			20,749
Other assets		-			3,060
Accounts payable & accrued expenses		147,511			108,132
Customer deposits		-			(26,691	)
Due to/from related parties
Microphase & Eagle		3,000			18,500
Officers		108,000			194,444
Net cash used in operating activities		(22,052	)		(113,970	)

Cash Flow Used in Investing Activities:
Purchase of fixed assets		-			-
Net Cash used in investing activities		-			-

Cash Flow from Financing Activities:
Proceeds from issuance of common stock, net of finder’s fees		27,000			126,000
Proceeds of demand note		-			35,000
Proceeds from Finance Company		-			27,006
Repayment to Finance Company		(7,062	)		-
Repayment of convertible debentures		-			(83,438	)
Proceeds from notes payable related parties		14,204			12,300
Repayment of notes payable related parties		(14,787	)		-
Net cash provided by financing activities	$	19,355		$	116,868

Net increase in cash		(2,697	)		2,898

CASH AND CASH EQUIVALENTS, beginning of period		4,717			2,868
CASH AND CASH EQUIVALENTS, end of period	$	2,020		$	5,766

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

mPHASE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(UNAUDITED)

1.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

mPhase Technologies, Inc. (the “Company”) was organized on October 2, 1996 and is presently focused on restructuring its debt obligations to be in a position to capitalize on its existing intellectual property portfolio and endeavor to further develop new “smart surface” products through the sciences of microfluidics, micro-electromechanical systems (MEMS) and nanotechnology. The Company plans to restructure its business through some combination of raising additional capital, strategic partnerships and or mergers & acquisitions.

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 of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the six months ending December 31, 2016 are not necessarily indicative of the results that may be expected for a full fiscal year. For further information, refer to 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, 2016.

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, 2016, the Company had incurred (a) cumulative losses totaling ($212,037,575) and (b) a stockholders’ deficit of ($ 4,628,206). At December 31, 2016, the Company had $2,020 of cash and $385 of trade receivables from discontinued operations to fund short-term working capital requirements. 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, (2) continue its research and development efforts, and (3) allow the successful wide scale development, deployment and marketing of its smart surface products. There can be no assurance the necessary debt or equity financing will be available, or if so, on terms acceptable to the Company.

INVENTORY- Discontinued Operations

The Company uses the First In First Out method (FIFO) to account for inventory which is carried at lower of cost and net realizable value. As of June 30, 2016, inventory consisted primarily of its various Jump products including the Jump and the mini Jump, and our remaining flashlight inventory, and was valued at $23,551. As of December 31, 2016, inventory consisted primarily of the Company’s line of Jump products including the new Jump Plus, and our remaining flashlight inventory, and was valued at $3,477. The Company’s Board of Directors, in a meeting on June 25, 2016, determined it was in the best interest of the Company to discontinue its entire line of Jump products in the 1^st quarter of fiscal year 2017 owing to increased competition and decreasing margins. Appropriate reserves have been taken as of June 30, 2016 and December 31, 2016, to assure that the cost of such inventory does not exceed the expected net realizable value.

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.

CHANGE IN ACCOUNTING ESTIMATE FOR THE VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS

Changes in fair value of derivative liabilities results from changes due to the application of ASC 815, resulting in either income or expense, depending on the difference in fair value of the derivative liabilities between their measurement dates. The increase in fair value of derivative liabilities recognized effective June 30, 2016 is due to a change in accounting estimate related to the accounting for derivative liabilities. Due to the Company’s current share price and lack of trading liquidity in the Company’s common stock, in addition to limited shares available for conversions for such instruments as amended, the convertible notes were determined to have no basis for applying a derivative liability to the conversion of these notes. As a result, the Company recorded a change in accounting estimate which resulted in a gain on change in derivative liability of approximately $200,000 effective June 30, 2016.

As of December 31, 2016, due to the Company’s current share price and lack of trading liquidity in the Company’s common stock, in addition to limited shares available for conversions for such instruments as amended, the convertible notes were determined to still have no basis for applying a derivative liability to the conversion of these notes.

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, 2016.

At December 31, 2016 the Company has convertible securities held by third parties that are immediately convertible into 1,006,266,808 shares of common stock (which amount include one additional assumed monthly conversion by John Fife in April 2016 under the terms of the Forbearance Agreement, as amended). Under the terms of the Forbearance Agreement, as amended, with John Fife (arrangement #4), Fife may acquire a total of 9,685,050,125 shares of the Company’s common stock based upon the conversion terms; if the forbearance agreement discussed in Note 2 is settled entirely in stock. In addition, the Company has convertible notes plus accrued interest thereon held by officers of the Company, subject to availability, convertible into approximately 1,073,321,850, immediately, if available.

The following table illustrates debts convertible into shares of the Company’s Common Stock at September 30, 2016:

	December 31, 2016
	Note Principle		Accrued Interest		Total		Shares Convertible
							immediately		over full term, if available*
Arrangement #1 - JMJ Financial, Inc	$	802,060	$	363,474	$	1,165,534		291,383,475		291,383,475
Arrangement #2 - St. George Investments/Fife Forbearance Obligation		774,804		-		774,804		625,000,000		9,685,050,125
Arrangement #3 - MH Investment trust II		3,333		2,060		5,393		89,883,333		89,883,333
Total Convertible Notes payable		1,580,197		365,534		1,945,731		1,006,266,808		10,066,316,933
Notes Payable- Officers*		620,769		-		620,769		-		1,551,922,500
Total	$	2,200,966	$	365,534	$	2,566,500		1,006,266,808		11,618,239,433

* convertible if shares available

DEBT DISCOUNTS

Costs incurred with parties who are providing the actual long-term financing, which may include loan fees, the value of warrants, the fair value of the derivative conversion feature, or the intrinsic value of conversion features associated with the underlying debt, are reflected as a debt discount. These costs and discounts are generally amortized over the life of the related debt.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are recorded on the balance sheet at fair value. The conversion features of the convertible debentures and convertible notes may be embedded derivatives and would be separately valued and accounted for on our balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use for determining fair value of our derivatives is the Black-Scholes Pricing Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income. During the fiscal years ended June 30, 2016 and 2015, the Company utilized an expected life of 20 and 10 days based upon the look-back period of its convertible debentures and notes and a volatility of 100%, up and until the Change in Accounting Estimate effective June 30, 2016.

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, 2016 and 2015.

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

	December 31, 2016						June 30, 2016
	Total		Discontinued		Continuing		Total		Discontinued		Continuing
ASSETS
CURRENT ASSETS (see Note 1)
Cash	$	2,020	$	-	$	2,020	$	4,717	$	-	$	4,717
Accounts receivable, net		385		385		-		440		440		-
Inventory, net		3,477		3,477		-		23,551		23,551		-
Prepaid and other current assets		1,180		1,180		-		1,180		1,180		-
TOTAL CURRENT ASSETS		7,062		5,042		2,020		29,888		25,171		4,717

Property and equipment, net		2,157		-		2,157		3,631		-		3,631

TOTAL ASSETS		9,219		5,042		4,177		33,519		25,171		8,348

LIABILITIES
CURRENT LIABILITIES (see Note 1)
Accounts payable		1,177,026		592,742		584,284		1,143,956		578,242		565,714
Accrued expenses		901,887		122,195		779,692		750,628		92,195		658,434
Due to related parties		215,545		-		215,545		212,545		-		212,545
Notes payable, Officers’		620,769		-		620,769		597,331		-		597,331
Notes payable, Director & Investor		119,023		-		119,023		115,486		-		115,486
Note Payable, Finance Company		22,977		22,977		-		27,210		27,210		-
Current Portion, Long term convertible debentures		1,580,198		-		1,580,198		1,561,611		-		1,561,611

TOTAL LIABILITIES	$	4,637,425	$	737,914	$	3,899,511	$	4,408,767	$	697,647	$	3,711,121

DISCONTINUED OPERATIONS - (Continued)

Revenue and Expense Recognition for Discontinued Operations

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

The results of discontinued operations include specifically identified and allocated common overhead expenses.

The Revenues and expenses associated with discontinued operations included in our Consolidated Statements of operations were as follows:

	For the Three Months Ended
	December 31, 2016			December 31, 2015
	(Unaudited)			(Unaudited)
REVENUES	$	624		$	215,075

COSTS AND EXPENSES

Cost of sales		-			162,666

Research and development		-			-

Selling and marketing (including non-cash stock related charges of $0 and $3,150 for the three months ended December 31, 2016 & 2015).		2,705			52,710

General and administrative		23,805			55,634

Depreciation and amortization		-			-

TOTAL COSTS AND EXPENSES		26,510			271,010

OPERATING LOSS		(25,886	)		(55,935	)

OTHER INCOME (EXPENSE)
Interest (Expense)		(11,740	)		(10,162	)
Other income (Expense)		-			-
Change in fair value of derivative liability		-			(26,170	)

TOTAL OTHER INCOME (EXPENSE)	$	(11,740	)	$	(36,332	)

Income (Loss) From Discontinued Operations		(37,626	)		(92,267	)

DISCONTINUED OPERATIONS - (Continued)

	For the Six Months Ended
	December 31, 2016			December 31, 2015
	Discontinued			Discontinued
REVENUES	$	20,516		$	398,346

COSTS AND EXPENSES

Cost of sales		20,075			277,559

Research and development		38			-

Selling and marketing (including non-cash stock related charges of $0 and $5,386 for the six months ended December 31, 2016 & 2015).		10,898			94,649

General and administrative		46,679			109,696

Depreciation and amortization		-			-

TOTAL COSTS AND EXPENSES		77,690			481,904

OPERATING LOSS		(57,174	)		(83,558	)

OTHER INCOME (EXPENSE)
Interest (Expense)		(23,867	)		(19,056	)
Other income (Expense)		12,500			-
Change in fair value of derivative liability		-			(53,974	)

TOTAL OTHER INCOME (EXPENSE)	$	(11,367	)	$	(73,031	)

Income (Loss) From Discontinued Operations		(68,541	)		(156,589	)

RECLASSIFICATIONS

Certain reclassifications have been made in the prior period consolidated financial statements, primarily selling and marketing expense in the prior period, to conform to the current period presentation. The reclassified financial statement items had no effect on (a) Net Loss for the three and six months ended December 31, 2016 and 2015, or (b), total Stockholders’ Deficit or total Assets as of December 31, 2016 or June 30, 2016. For the three and six months ended December 31, 2016 and 2015 the Company’s Statements of Operations and Cash Flows have been reclassified to the current presentation to reflect the Discontinued Operations resulting from terminating the Jump line of products which ceased having material sales in the first quarter of Fiscal 2017.

2.	SUPPLEMENTAL CASH FLOW INFORMATION

	For the Six Months Ended
	December 31, 2016		December 31, 2015
Statement of Operation Information:
Interest paid (net interest income)	$	49,736	$	41,156

Non-Cash Investing and Financing Activities:
Conversion of $9,460 convertible debt and $5,540 accrued interest to common stock	$	15,000	$	-
Amortization of loan discount	$	5,238	$	-

3.	EQUITY TRANSACTIONS, NOTES PAYABLE AND CONVERTIBLE DEBT

Private Placements

During the six months ended December 31, 2016, the Company issued 600,000,000 shares of common stock in private placements pursuant to Section 4(a) (2) of the Securities Act of 1933, as amended raising net proceeds of $27,000 net of finder’s fees of $3,000 in private placements. The proceeds were used by the Company as working capital.

During the six months ended December 31, 2015 the Company issued 466,666,667 shares 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 $140,000 and incurring finder’s fees of $14,000. The proceeds were used by the Company as working capital.

Stock Based Compensation

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

During the six months ended December 31, 2016, the Company issued 14,973,000 shares of common stock to an employee valued at $5,386, based upon the closing trading price for each quarter end earned, the entire amount of which is included in selling and marketing expenses in the Condensed Consolidated Statements of Operations for that period. The Company during such period did not issue any common stock, warrants or options to officers.

Other Short-Term Notes

Note Payable, Director

Mr. Biderman, a director of the Company loaned the Company $90,000 in the fourth quarter of fiscal year ended June 30, 2015 and additionally advanced the Company $60,000 and received $40,000 in repayments during the fiscal year ended June 30, 2016, which together with $5,486 of accrued interest resulted in $115,486 outstanding at June 30, 2016. During the six months ended December 31, 2016 the Company recorded $3,537 of accrued interest and $119,023 was outstanding at December 31, 2016.

Note Payable Finance Company - Discontinued Operation

The Company Borrowed approximately $66,000 under two advances commencing January 2016, with scheduled repayments of approximately $87,500 originally due through July 2016, incurring $36,193 of finance charges which were included in interest expense during the fiscal year ended June 30, 2016. At June 30, 2016, $30,039 remained outstanding under this note. During the six months ended December 31, 2016 we incurred $5,238 of finance charges under this note, we repaid $7,062 of principal and at December 31, 2016, $22,977 remained outstanding.

Long Term Convertible Debentures / Debt Discount

The Company had three separate convertible debt arrangements with independent investors that were in effect at various times during the fiscal year ended June 30, 2016, all three of which were still active as of December 31, 2016.

During the six months ended December 31, 2016, the Company incurred the conversion of $15,000 of Convertible Debt which consisted of $5,540 principal and $9,460 accrued interest thereon relating to the forbearance agreement into 187,500,000 shares; of the Company’s Common stock.

The following table summarizes notes payable under convertible debt and debenture agreements as of:

	December 31,		June 30,
	2016
Arrangement #1 - JMJ Financial, Inc	$	802,060	$	802,060
Arrangement #2 - St. George Investments/Fife Forbearance Obligation		774,805		756,218
Arrangement #3 - MH Investment trust II		3,333		3,333
Total notes payable		1,580,198		1,561,611
less: unamortized debt discount		-		-
Convertible Notes payable, net of discount		1,580,198		1,561,611
Convertible Notes payable-short term portion		-		-
Convertible Notes payable-long term portion	$	1,580,198	$	1,561,611

Included in accrued expenses is $365,534 and $319,669 of interest accrued on these notes at September 30, 2016 (unaudited) and June 30, 2016, respectively

These transactions are 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.

On December 15, 2009 the Company entered into a new financing agreement with JMJ Financial that consists of the following: 1) a convertible note issued by the Company in the amount of $1,500,000 plus a one-time interest factor of 12% ($180,000) and a maturity date of December15, 2012 and (2) a secured promissory note in the amount of $1,400,000 plus a one-time interest rate factor of 13.2% ($180,000) and a maturity date of December 15, 2012 due from the holder of the convertible note. To date the Company has received a total of $300,000 cash 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.

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 was 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.

As of December 31, 2016, and as of June 30, 2016, the combined arrangements with JMJ in this note would be convertible into 291,383,475 and 279,995,328 common shares at the conversion floor price of $.004; and would be required to do so if the Company does not make the scheduled payments pursuant to the June 1, 2012 amended agreement.

The Company has not made any payments of the $37,018 installment payments commencing October 1, 2012 and the holder has continued to accrue interest on the outstanding balance. At December 31, 2016 the amount recorded in Current Liabilities for all three convertible notes and accrued interest thereon previously issued to JMJ Financial was $802,606 and $365,534. At June 30, 2016 the amount recorded in Current Liabilities for all three convertible notes and accrued interest thereon previously issued to JMJ Financial was $802,060 and $317,921, 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 December 15, 2014, a Memorandum Opinion and Order was issued 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. The Company commenced settlement negotiations with the Plaintiff after we explored options including an appeal of the Judgment which the Company concluded would have a low probability of success.

Effective February 10, 2015, the Company entered into a Forbearance Agreement with the Holder. The agreement provides 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 terms of the agreement, as amended, provide for interest to accrue on the unpaid portion at 9% per annum with monthly payments in cash or conversions into common stock of the Company; commencing with an initial $15,000 payment due on February 15, 2015, and thereafter and on or before the 15^th day of each month thereafter the Company agrees to pay to Holder the following amounts ; $30,000.00 per month on each of the following dates: March 15, 2015, April 15, 2015, May 15, 2015, June 15, 2015, and July 15, 2015; $15,000.00 per month on each of the following dates: August 15, 2015 and September 15, 2015; $20,000.00 per month on each of the following dates: October 15, 2015, November 15, 2015, and December 15, 2015; $35,000.00 per month on each of the following dates: January 15, 2016 and February 15, 2016 and March 15, 2016; and $50,000.00 per month thereafter until the Forbearance Amount has been paid in full.

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. The Company had not issued any stock for conversions since entering into the forbearance agreement and during the year ended June 30, 2015 and has made cash payments repaying $69,081 of principle and $41,019 of interest under the agreement. The value of the forbearance debt obligation on June 30, 2015 was $902,253.

As of August 11, 2015 the Company entered into an Amendment No. 1 with Fife to the Forbearance Agreement rescheduling the monthly payment schedules.

As of January 19, 2016 the Company entered into a Second Amendment to the Forbearance Agreement again rescheduling certain of the monthly payments.

During the year ended June 30, 2016 the Company repaid $146,035 of principle and $72,465 of interest under the agreement, which included non-cash conversions of 812,500,000 shares of the Company’s common stock valued at $70,000 of which $17,812 represented accrued interest and $52,188 represented principle. The value of the forbearance debt obligation on June 30, 2016 was $756,218.

As of June 30, 2016 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 9,452,720,625 shares of our common stock should the entire obligation be converted.

During the six months ended December 31, 2016 the Company repaid $9,460 of principle and $5,540 of interest under the agreement, with non-cash conversions of 187,500,000 shares of the Company’s common stock valued at $15,000. The value of the forbearance debt obligation on December 31, 2016 was $774,804, after giving effect to additional accrued interest of $18,586, resulting in total interest charged under this agreement during the six months of $24,127.

As of December 31, 2016, 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 9,685,050,125 shares of our common stock should the entire obligation be converted.

On August 18, 2017 the Company entered into a Judgment Settlement Agreement with John Fife with respect to the Judgment in favor of Fife, which reduces the balance under the amended agreement to $360, 000, without conversion rights, in connection with the default by the Company under a Convertible Debenture dated September 13, 2011. (See also “Subsequent Events”).

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 10 day trading period immediately preceding such conversion, or 65 % when the trading price exceeds $.0020 for the five days before such conversion. All proceeds received in connection with the above financing have been used by the Company as working capital. At December 31, 2016 the note balance was $3,333 and accrued interest of $2,060, at 12%, remained due under this agreement. At June 30, 2016 the note balance was $3,333 and accrued interest of $1,747, at 12%, remained due under this agreement. Based upon the price of the Company’s common stock on December 31, 2016 and June 30, 2016 this Note is convertible into approximately 89,883,333 and 84,672,667 shares of common stock.

4.	COMMITMENTS

Our corporate headquarters had been located in Clifton, New Jersey since August 15, 2014., The Company initially rented the Clifton premise under a one year lease with monthly rent of $4,020, which was renewed with monthly rent of $4,132 per month through July, 2016, when this lease terminated by mutual agreement with landlord. The Company cancelled its security deposit and no amounts remain due under the agreement.

The Company had leased a warehouse and limited office space in Norwalk, Connecticut, commencing in April of 2015 with a monthly rental of $2,200 per month. The Company vacated the Norwalk premise in April 2016 and the Company moved its warehouse contents, primarily inventory and associated shipping materials of its mPower battery products into the Clifton premise. The Company has $22,000 of unpaid rent in accounts payable at December 31, 2016.

5.	CONTINGENCIES

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 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 has entered into a Forbearance Agreement with Fife as a result of negotiations to settle such Judgment.

The value of the forbearance obligation on December 31, 2016 is $774,804 (See Note 3), all of which are included in current liabilities at that date. The value of the judgment totaled approximately $1.6 million as of December 31, 2014 and bears a punitive interest rate of 16% and would become payable in full $1.35 million if the Company defaults under the forbearance obligation reduced by payments under the Forbearance Agreement, which payments through June 30, 2016 totaled $250,000. Through June 30, 2016 the Company has not defaulted under the agreement. The Forbearance agreement requires the Company to place, and the Company has done so, 1,000,000,000 shares in reserve with its transfer agent, to satisfy the conversion provisions for any unpaid monthly cash payments, as of June 30, 2016, 812,500,000 shares from this reserve have been issued to satisfy the conversion provisions of the Forbearance Agreement. During the year ended June 30, 2017 187,500,000 shares were issued from this reserve and no amounts remain under the reserve agreement with our transfer agent.

As of December 31, 2016, this forbearance obligation 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 immediately for the satisfaction of the next required monthly payment, and (ii) up to 9,685,050,125 shares of our common stock should the entire obligation be converted.

Subsequent to December 31, 2016 this Forbearance Agreement with Fife has been amended several times; the most recent providing for settlement amounts less than the aggregate of liabilities recorded in the financial statements. (See Note 3)

6.	FAIR VALUE MEASUREMENTS

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 GAAP. 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 requires that valuation techniques maximize the use of 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 on unadjusted quoted market prices within active markets. Financial assets and liabilities valued using level 2 inputs are based primarily on quoted prices for similar assets or liabilities in active or inactive markets. For certain long-term debt, the fair value was based on present value techniques using inputs derived principally or corroborated from market data. Financial assets and liabilities using level 3 inputs were primarily valued using management’s assumptions about the assumptions market participants would utilize in pricing the asset or liability. Valuation techniques utilized to determine fair value are consistently applied.

The table below presents reconciliation for liabilities measured at fair value on a recurring basis at December 31, 2016 and 2015:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Derivative Liability
	December 30,		December 30,
	2016		2015
Balance, Beginning of Year	$	-		235,425
Increase (Decrease) in Derivative and associated liabilities		-		490,676
Debt discounts		-		-
Balance, Ending	$	-		726,101

Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature, such as cash and cash equivalents, receivables and payables.

We have determined that it is not practical to estimate the fair value of our notes payable because of their unique nature and the costs that would be incurred to obtain an independent valuation. We do not have comparable outstanding debt on which to base an estimated current borrowing rate or other discount rate for purposes of estimating the fair value of the notes payable and we have not been able to develop a valuation model that can be applied consistently in a cost-efficient manner. These factors all contribute to the impracticability of estimating the fair value of the notes payable. At December 31, 2016, the carrying value of the notes payable and accrued interest for convertible agreements and officers’ notes was approximately $2,375,060. The JMJ convertible notes, which were originally due at various times through December 31, 2012, yield an interest rate of 12%, the Fife Forbearance obligation is 9%. Refer to Note 3 of these unaudited condensed consolidated financial statements for more information about the Company’s notes payable as of December 31, 2016.

7.	RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

During a portion of the fiscal year ended June 30, 2016, the Company leased office space from Microphase at its Norwalk location. Rental expense charged by Microphase was $4,500 from July 1, 2015 through June 30, 2016. Microphase provided certain research and development services and shares administrative personnel from time to time. Mr. Ergul retired as the chairman of the board of mPhase in Nov 2007. Mr. Necdet Ergul and his family had owned a controlling interest and he is a director of Microphase Corporation. On February 9, 2015 Mr. Durando assigned all his interests in the Capital Stock of Microphase to the RCKJ Trust as the Grantor. The beneficial owners for economic purposes at that time were Mr. Durando’s children. Mr. Durando was a strategic employee of Microphase Corporation from January 2, 2015 through May 31, of 2017. On June 2, 2017 the RCKJ Trust, the holder of Durando’s prior interest in Microphase, and the Ergul Family Limited partnership, the holder of Ergul’s prior interest in Microphase, each exchanged all their respective shares of stock in Microphase in exchange for shares of stock in Digital Power Corporation, a publicly-held company then listed on the New York Stock exchange.

During the six months ended December 31, 2016 and 2015, $0 has been charged for rent and $0 has been charged for other expenses, respectively, to the Company by Microphase. As a result of the foregoing transactions, as of December 31, 2016, the Company owed $32,545 to Microphase.

OTHER RELATED PARTIES

On December 31, 2016, Mr. Biderman, an outside Director’s affiliated firms of Palladium Capital Advisors and Eagle Strategic Advisers were owed unpaid finders’ fees in the aggregate amount of $177,000, which is included in due to related parties. Also Mr. Biderman loaned the Company $90,000 in the fourth quarter of the fiscal year ended June 30, 2015 and additionally, he advanced the Company $20,000 in the fiscal year ended June 30, 2016, net of repayments, together with $5,486 of accrued interest resulted in $115,486 outstanding at June 30, 2016. During the six months ended December 31, 2016 the Company recorded $3,537 accrued interest and $119,023 was outstanding at December 31, 2016.

During the six months ended December 31, 2016 and 2015, Mr. Biderman’s firm charged finders’ fees of $3,000 and $14,000.

During the six months ended December 31, 2016 and 2015, the Company recorded $14,500 and $33,000 of fees to the wife of the Company’s president for product marketing services.

Transactions with Officers

At various points during past fiscal years the Messrs. Durando, Dotoli and Smiley provided bridge loans to the Company evidenced by individual promissory notes and deferred compensation so as to provide working capital to the Company.

During the six months ended December 31, 2016 and 2015, $18,209 and $20,319 have been charged for interest on loans from officers.

At December 31, 2016 the aggregate principal amount of the officers’ loans together with accrue interest totaled $613,956. At June 30, 2016 the officers’ loans together with accrue interest totaled $597,331.

8.	SUBSEQUENT EVENTS

	●	On July 16, 2016 the Company closed its office in Clifton, New Jersey to further conserve financial resources. The Company moved to its present address on May 1, 2017 (See Note 4-Commitments & Contingencies)

	●	Subsequent to December 31, 2016, Messrs. Durando, Biderman, Smiley and Dotoli loaned the Company approximately $56,510, $10,000, $15,050 and $1,850 to provide general working capital to commence the filings necessary to bring the Company’s financial statements and required periodic each report pursuant to section 13 or 15(d) of the securities exchange act of 1934 current.

	●	From January 1, 2017 through the date hereof, the Company issued 1,500,000,000 shares of its common stock in private placements pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule 506 of Regulation D thereunder raising gross proceeds aggregate of $75,000 all of which was used for working capital and general corporate purposes.

	●	On August 18, 2017 the Company entered into a Judgment Settlement Agreement with John Fife with respect to the Judgment in favor of Fife, which reduces the balance under the amended agreement to $360,000, without conversion rights, in connection with the default by the Company under a Convertible Debenture dated September 13, 2011. The Company reserved 1 billion shares of its common stock with its transfer agent, to satisfy the conversion provisions for any unpaid monthly cash payments required under the terms of a Forbearance Agreement with John Fife dated February 10, 2015, which through August 31, 2016, the entire 1 billion shares from this reserve have been issued to satisfy the conversion provisions through that date. No payments have been made under this agreement since August of 2016. On August 18, 2017 the Company entered into a Judgment Settlement Agreement with John Fife with respect to the Judgment in favor of Fife, which reduces the balance under the amended agreement to $360,000, without conversion rights, relating to the default by the Company under a Convertible Debenture dated September 13, 2011

	●	In April of 2017, the Company received a judgment from the Federal District Court of Northern Illinois Eastern Division in its favor with prejudice dismissing a claim by River North Equity covering Convertible Securities of the Company which effectively negated the two notes River North Equity obtained from JMJ Financial. At March 31, 2016 the amount recorded in Current Liabilities for all three convertible notes and accrued interest thereon previously issued to JMJ Financial was $1,167,594. At December 31, 2016 the amount recorded in Current Liabilities for the two notes and accrued interest thereon subject to the River North Equity claim was $1,008,881.

●

On December 28, 2017 the Company entered into a non-binding letter of intent with Scepter Commodities, LLC for the proposed acquisition by Scepter of 80% of the fully-diluted shares of the Company on a reverse split basis. As of February15, 2018 the Company and Scepter amended the letter of intent extending the time period for the Company to become current in its SEC filings.

●

On February 16, 2018 the Company and John Fife entered into an Amendment to a Judgment Settlement Agreement dated August 18, 2017 modifying the repayment schedule of a Convertible Debenture of the Company originally issued on September 13, 2011.

●

On February 15, 2018, April 3, 2018 and April 27, 2018 the Company entered into Amendment No. 1, 2 & 3 to a Letter of Intent with Scepter Commodities LLC extending the time frame for the Company to become current in its SEC filings to March 29, 2018, April 30, 2018 & May 31, 2018, respectively.

ITEM 2.

MANAGEMENT’S DISCUSSION OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of certain significant factors which have affected mPhase’s financial position and should be read in conjunction with the accompanying financial statements, financial data, and the related notes.

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:

Some of the statements contained in or incorporated by reference in this Form 10-Q discuss the Company’s plans and strategies for its business or state other forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend,” “should,” “seek,” “will,” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements include, among others, statements concerning the Company’s expectations regarding its working capital requirements, gross margin, results of operations, business, growth prospects, competition and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Any forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to risks and uncertainties that could cause actual results to differ materially from those results expressed in or implied by the statements contained herein.

RESULTS OF OPERATIONS OVERVIEW

mPhase Technologies, Inc. (OTC Pink Sheets: XDSL.OB) is a development company focused on the development of innovative power cells and related products through the science of microfluidics, microelectromechanical systems (MEMS) and nano- technology. mPhase is primarily focused on commercializing its first nanotechnology-enabled product for military and commercial applications - the Smart NanoBattery providing Power On CommandTM. Our new patented and patent-pending battery technology, based on the phenomenon of electrowetting, offers a unique way to store energy and manage power that could become a significant development in the battery industry. Features of the Smart NanoBattery include potentially infinite shelf life, prior to initial use environmentally friendly design, fast ramp to power, programmable control, and direct integration with microelectronic devices.

The platform technology behind the Smart NanoBattery is a porous nanostructured material used to repel and precisely control the flow of liquids. The material has a Smart Surface that can potentially be designed for heart pacemakers and other medical devices.

One version of the lithium battery based on a breakable separator was developed for an emergency flashlight application.

Discontinuance of Jump Stater Products during Fiscal Year 2016

In June 2016 the Company conditionally sold a patent covering a portion of its Jump product line for $25,000, with two installments each for $12,500, recording other income in its discontinued operations of that amount in the year ended June 30, 2016 and the Three months ended September 30, 2016.

Commencing in April of 2016, the Company began discontinuing its line of Jump Starter products due to increased competition and declining margins. The Company continues the wind-down of its remaining inventory of such products estimated to have values of $3,477 & $23,551 as of September 30, 2016 & June 30, 2016 (See Note 3 under the caption “Discontinued Operations” and Note 13- Subsequent Events).

FINANCIAL OVERVIEW

Revenues. Revenue, if any, has primarily been attributable to sales of its Jump and Mini Jump Products. Owing to increased competition, contracting margins and the inability to fund volume purchases of inventory at favorable prices, the Company decided to discontinue its line of Jump Starter products.

Cost of revenues. Cost associated with revenues are comprised primarily of the cost to purchase out-sourced developed and manufactured products internationally and having them private labeled under the mPower brand name. These costs may be reduced assuming the Company moves forward with the commercialization and distribution of its automotive battery jump starter product and other potential products associated with its mechanically-activated reserve battery in large volumes.

Research and development. Research and development expenses have consisted principally of direct labor and payments made to various outside vendors including Porsche Design Studio and cost reduction vendors of the Porsche Designed products outside of the United States in connection with the Company’s Automotive Battery Jump Starter products. The Company is continuing to seek SBIR grants and take advantage of other U.S. government financial programs to fund continued research and development of its Smart Nano Battery.

General and administrative. General and administrative expenses consist primarily of salaries and related expenses for personnel engaged in sales of its automotive jump starter product line and legal and accounting personnel. In addition the Company from time to time will use outside consultants. Certain administrative activities are outsourced.

Non-cash compensation charges. The Company makes extensive use of stock, stock options and warrants as a form of compensation to employees, directors and outside consultants.

Other Income (Expense). Included in Other Expense are non-recurring items related to the change in the value of derivative securities and amortization as related debt discount. Such amounts will fluctuate significantly and should not be considered as recurring or in any way indicative of operating results. In addition, it has been the Company’s policy to record as an expense the cost of re-pricing securities (Reparation Cost) to raise capital.

THREE MONTHS ENDED DECEMBER 31, 2016 VS. DECEMBER 31, 2015

Continuing Operations

General and Administrative Expenses. General and administrative expenses charged to continuing operations were $71,237 for the three months ended December 31, 2016 compared to $194,459 and for the three months ended December 31, 2015, a decrease of $123,222. The Company reduced the salaries of the three officers of the Company in the three and six months ended December 31, 2016 and laid off full time employees resulting in lower accrued payroll of approximately $36,000 to executive officers and $25,810 in cash payments for staff as compared to three months ended December 31, 2015. The Company also cut $97,056 of other administrative expenses, primarily for office space and professional fees in the current year from the prior year.

Other Income and Expense. Interest expenses charged to continuing operations were $74,455 in the three months of Q2 2016 as compared to $82,219, a decrease of $7,764 due to larger liability balances.

Net loss. mPhase recorded a net loss of $146,429 from continuing operations for the three months ended December 31, 2016, less $37,626 loss from discontinued operations, resulting in a net loss of $184,055 for the current year as compared to a net loss of $580,330 in the prior relative period, which consisted of a loss of $488,063 from continuing operations and a $92,267 loss from discontinued operations for the three-month period ended December 30, 2015.

This represents a loss per common share of ($0.00) in 2017 as compared to $(0.00) in 2016, based upon weighted average common shares outstanding of 17,747,643,845 and 16,413,128,048 during the three-month period ending December 31, 2016 and December 31, 2015 respectively.

Discontinued Operations

Revenues. Total revenues for the three months ended December 31, 2016 decreased to $624 from $215,075 in December 2015, or $214,451. The revenue decrease for the current period was derived solely from decreased sales of the mPower Jump products.

Cost of sales. Cost of sales decreased $162,666 for the three months ended December 31, 2016 to $0 from $162,666 in December 2015. This decrease is directly attributable to the decreased sales of our mPower Jump products.

Research and Development. Research and development expenses were $0 for the three months ended December 31, 2016 as compared to $0 for the three and six months ended December 31, 2015, unchanged. Such values are attributable to the wind-down of the Company’s efforts to sell its Jump Products.

Selling and Marketing Expenses. Selling and marketing expenses were $2,705 for the three months ended December 31, 2016 compared to $52,710 for the three months ended December 31, 2015, decreases of $50,005. The decrease is attributable to the reduction of the Company’s sales force and marketing efforts with respect to its line of Jump Products.

General and Administrative Expenses. General and administrative expenses charged to discontinued operations were $23,805 for the three months ended December 31, 2016 compared to $54,908 for the three months ended December 31, 2015, a decrease of $31,103. The Company reduced the salaries of the three officers of the Company in the three months ended December 31, 2016 and laid off full time employees resulting in lower accrued payroll charged to discontinued operations of approximately $10,000 to executive officers and $3,190 in cash payments for staff as compared to three months ended December 31, 2015. The Company also cut $11,995 of other administrative expenses, primarily for office space and professional fees in the current year from the prior year.

Other Income and Expense. Interest expenses charged to discontinued operations were $11,740 in December 2016 as compared to $10,162, an increase of $1,578 due to larger liability balances. During the current December 2016 other income from discontinued operations included $12,500 from the conditional sale of a patent.

Net loss from Discontinued Operations. mPhase recorded net losses from discontinued operations of $37,626 for the three months ended December 31, 2016 as compared to $92,267 for the three months ended December 31, 2015. This represents a loss from discontinued operations per common share of ($0.00) in 2017 as compared to $(0.00) in 2016, based upon weighted average common shares outstanding of 17,747,643,845, 16,413,128,048 during the three-month periods ending December 31, 2016 and 2015 respectively.

SIX MONTHS ENDED DECEMBER 31, 2016 VS. DECEMBER 31, 2015

Continuing Operations

General and Administrative Expenses. General and administrative expenses charged to continuing operations were $134,945 for the six months ended December 31, 2016 compared to $376,199 for the six months ended December 31, 2015, a decrease of $241,254. The Company reduced the salaries of the three officers of the Company in the six months ended December 31, 2016 and laid off full time employees resulting in lower accrued payroll of approximately $72,000 to executive officers and $49,626 in cash payments for staff as compared to six months ended December 31, 2015. The Company also cut $188,920 of other administrative expenses, primarily for office space and professional fees in the current year from the prior year.

Other Income and Expense. Interest expenses charged to continuing operations were $150,729 in the six months of Q2 2016 as compared to $154,182, a decrease of $3,453 due to larger liability balances.

Net loss. mPhase recorded a net loss of $287,148 from continuing operations for the six months ended December 31, 2016, less a $68,541 loss from discontinued operations, resulting in a net loss of $355,689 for the current year as compared to a net loss of $1,124,053 in the prior relative period, which consisted of a $1,967,464 loss from continuing operations and $156,589 loss from discontinued operations for the six-month period ended December 30, 2015. This represents a loss per common share of ($0.00) in 2017 as compared to $(0.00) in 2016, based upon weighted average common shares outstanding of 17,932,358,519 and 16,284,261,113 during the six-month periods ending December 31, 2016 and December 31, 2015 respectively.

Discontinued Operations

Revenues. Total revenues for the six months ended December 31, 2016 decreased to $20,516 from $398,346 in December 2015, or $377,830. The revenue decrease for the current period was derived solely from decreased the sales of the mPower Jump products.

Cost of sales. Cost of sales decreased $275,484 for the six months ended December 31, 2016 to $20,075 from $277,559 in December 2015. This decrease is directly attributable to the decreased sales of our mPower Jump products.

Research and Development. Research and development expenses were $38 for the six months ended December 31, 2016 as compared to $0 for the six months ended December 31, 2015, an increase of $38. Such values are attributable to the wind-down of the Company’s efforts to sell its Jump Products.

Selling and Marketing Expenses. Selling and marketing expenses were $10,898 for the six months ended December 31, 2016 compared to $94,649 for the six months ended December 31, 2015, a decrease of $83,751. The decreases are attributable to the reduction of the Company’s sales force and marketing efforts with respect to its line of Jump Products.

General and Administrative Expenses. General and administrative expenses charged to discontinued operations were $46,679 for the six months ended December 31, 2016 compared to $109,696 for the six months ended December 31, 2015, a decrease of $63,017. The Company reduced the salaries of the three officers of the Company in the six months ended December 31, 2016 and laid off full time employees resulting in lower accrued payroll charged to discontinued operations of approximately $20,000 to executive officers and $6,134 in cash payments for staff as compared to six months ended December 31, 2015. The Company also cut $23,349 of other administrative expenses, primarily for office space and professional fees in the current year from the prior year.

Other Income and Expense. Interest expenses charged to discontinued operations were $23,867 in December 2016 as compared to $19,056, a decrease of $4,811 due to larger liability balances. During the current December 2016 other income from discontinued operations included $12,500 from the conditional sale of a patent.

Net loss from Discontinued Operations. mPhase recorded a net loss from discontinued operations of $68,541 for the six months ended December 31, 2016 as compared to $102,615 for the six months ended December 31, 2015. This represents a loss from discontinued operations per common share of ($0.00) in 2017 as compared to $(0.00) in 2016, based upon weighted average common shares outstanding of 17,932,358,519 and 16,284,261,113 during the six-month periods ending December 31, 2016 and 2015 respectively.

Critical Accounting Policies

The Company’s critical accounting policies are as follows:

Convertible Instruments - The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815.

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments in accordance with EITF 00-19. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional (as that term is described).

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with the provisions of ASC 470 20 “Debt with Conversion Options” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

The Company believes the certain conversion features embedded in convertible notes payable are not clearly and closely related to the economic characteristics of the Company’s stock price. Accordingly, the Company has recognized derivative liabilities in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter. The Company uses judgment in determining which valuation is most appropriate for the instrument (e.g., Black Scholes), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate.

MATERIAL RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

During a portion of the fiscal year ended June 30, 2016, the Company leased office space from Microphase at its Norwalk location. Rental expense charged by Microphase was $4,500 from July 1, 2015 through June 30, 2016. Microphase provided certain research and development services and shares administrative personnel from time to time. Mr. Necdet Ergul retired as the chairman of the board of mPhase in Nov 2007. Mr. Ergul and his family had owned a controlling interest and he is a director of Microphase Corporation. On February 9, 2015 Mr. Durando assigned all his interests in the Capital Stock of Microphase to the RCKJ Trust as the Grantor. The beneficial owners for economic purposes at that time were Mr. Durando’s children. Mr. Durando was a strategic employee of Microphase Corporation from January 2, 2015 through May 31, of 2017. On June 2, 2017 the RCKJ Trust, the holder of Durando’s prior interest in Microphase, and the Ergul Family Limited partnership, the holder of Ergul’s prior interest in Microphase, each exchanged all (its) there shares of stock in Microphase in exchange for shares of stock in Digital Power Corporation, a publicly-held company then listed on the New York Stock exchange.

During the six months ended December 31, 2016 and 2015, $0 has been charged for rent and $0 has been charged for other expenses, respectively, to the Company by Microphase. As of December 31, 2016, the Company owed $32,545 to Microphase.

OTHER RELATED PARTIES

On December 31, 2016, Mr. Biderman, a director of mPhase had affiliated firms of Palladium Capital Advisors and Eagle Strategic Advisers were owed unpaid finders’ fees in the amount of $177,000, which is included in due to related parties. Also, Mr. Biderman loaned the Company $90,000 in the fourth quarter of the fiscal year ended June 30, 2015 and additionally, he advanced the Company $20,000 in the fiscal year ended June 30, 2016, net of repayments, together with $5,486 of accrued interest resulted in $115,486 outstanding at June 30, 2016. During the six months ended December 31, 2016 the Company recorded $3,537 accrued interest and $119,023 was outstanding at December 31, 2016.

During the six months ended December 31, 2016 and 2015, Mr. Biderman’s firm charged finders’ fees of $3,000 and $14,000.

During the six months ended December 31, 2016 and 2015, the Company recorded $14,500 and $33,000 of fees to Karen Durando for product marketing services.

Transactions with Officers

During the six months ended December 31, 2016 and 2015, $18,209 and $20,319 have been charged for interest on loans from officers.

At December 31, 2016 the officers’ loans together with accrue interest totaled $613,956. At June 30, 2016 the officers’ loans together with accrue interest totaled $597,331.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred cumulative losses of ($212,037,575) and a working capital deficit of ($4,628,206) as of December 31, 2016. The auditors’ report for the fiscal year ended June 30, 2016 includes the statement that “there is substantial doubt of the Company’s ability to continue as a going concern”. As of December 31, 2016, the Company had a negative net worth of ($4,628,206) compared to a negative net worth of ($4,375,248) as of June 30, 2016 as a result of continuing net losses.

During the six months ended December 31, 2016, the Company issued 600,000,000 shares of common stock generating gross proceeds of $30,000 and incurring finder’s fees of $3,000 in private placements. During the same six-month period the officers deferred $108,000 of salary to the Company to fund limited operating activity.

During the six months ended December 30, 2015, the Company issued 616,666,667 shares of its common stock in connection with private placements pursuant to Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act of 1933, as amended, raising gross proceeds of $170,000 and incurring finder’s fees of $17,000. The proceeds were used by the Company as working capital.

Additionally, Mr. Biderman advanced the Company $20,000 in the twelve months ended June 30, 2016, net of repayments, which together with $5,486 of accrued interest resulted in $115,486 outstanding at June 30, 2016. During the six months ended December 31, 2016 the Company recorded $3,537 of accrued interest and $119,023 was outstanding at December 31, 2016.

While the Company believes that private placements of its common stock to be issued from time to time will fund short term capital needs it will soon need to seek shareholder approval to increase its authorized shares of common stock.

The Company does not expect to derive any material revenue from its nanotechnology product development until after a deployment and custom tailoring of its Smart Nanobattery. This is not expected to occur in the foreseeable future owing to its current financial condition which does not allow further work to complete the product, if possible, when and if the Company can recapitalize.

MANAGEMENT’S PLANS AND CURRENT STATUS

The Company is curtailing its efforts with respect to selling its line of automotive jump starter products owing to increased competition resulting in poor margins as a result of commodity pricing of such products. The Company is seeking alternative products for development but does not foresee a definitive path to revenues to replace the winding down of its line of automotive jump products. The Company has faced significant challenges in funding sufficient inventory of such products to compete successfully with larger competitors selling such product.

The Company is considering strategic alternatives to best monetize its remaining patent portfolio restructuring and revising its debt obligations and Capital structure. The Company and the note holder for arrangement #1, JMJ Financial, had been renegotiating the settlement of these agreements. (See, however “Subsequent Events” describing the disposition of such Notes by JMJ to River North Equity and judicial action denying enforcement of such Notes) At December 31, 2016 we had recorded in Current Liabilities for all three convertible notes and accrued interest thereon previously issued to JMJ Financial was approximately $1,167,600 including approximately $802,000 of principle and $365,600 accrued interest. The Company, subsequent to the River North Equity and judicial action denying enforcement of such Notes, has negotiated a settlement of $25,000 of cash payments to JMJ Financial.

On August 18, 2017 the Company entered into a Judgment Settlement Agreement with John Fife with respect to the Judgment in favor of Fife, which reduces the balance under the amended agreement to $360,000, without conversion rights, in connection with the default by the Company under a Convertible Debenture dated September 13, 2011. At December 31, 2016 we had recorded $774,804 for the value of the forbearance debt obligation, which has been renegotiated down to $360,000.

The Company’s ability to continue as a going concern and its future success is dependent upon its ability to raise capital in the near term to: (1) satisfy its current obligations, (2) continue its research and development efforts, and (3) allow the successful wide scale development, deployment and marketing of its products. There can be no assurance the necessary debt or equity financing will be available, or if so, on terms acceptable to the Company.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not exposed to changes in interest rates as the Company has no debt arrangements and no investments in certain held-to-maturity securities. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of any financial instruments at December 31, 2016.

ITEM 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

The Company did identify control deficiencies regarding its present accounting structure:

Lack of segregation of duties and control procedures that would include multiple levels of supervision and review have both been limited due to the reduced level of accounting staff and the Company’s lack of funding.

The Company remediated these deficiencies by increasing the role of an external contract controller.

There was a change in our internal control over financial reporting during the quarter ended December 31, 2016, which included the laying off the Company’s accounting manager, which the Company remediated by the increased involvement of an external contract controller. The result of the changes in our internal control over financial reporting and the Company’s remediation steps to address the change, the Company believes it has made the necessary adjustments so that there were no changes in our internal control over financial reporting during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

On February 2, 2015 the Securities and Exchange Commission upheld the denial of a corporate action by the Financial Industry Regulatory Authority (FINRA) in connection with the Company’s seeking to reverse split its common stock pursuant to FINRA Rule 6490 (see SEC Release No 7418 of February 2, 2015). The action was found as deficient by FINRA on the basis that two corporate officers and directors of the Company had previously entered into a Consent Decree with the SEC in October of 2007 when they were previously officers of another company named Packetport.com.

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 Triggering Events include alleged defaults with respect to payments owed by the Company under the Convertible Note and the failure to convert the Note into shares of the Company’s common stock. The alleged amount owed according to the notice is approximately $902,279. A lawsuit was commenced in late November in the Federal District Court, Northern District of Illinois Eastern Division by Fife against the Company alleging breach of contract and other actions in connection with the 8% Convertible Note.

Effective February 10, 2015, the Company entered into a Forbearance Agreement with the Holder. The agreement provides 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, and after accounting for a payment of $15,000 the Company paid, under the terms of the agreement.

As of August 11, 2015 the Company entered into an Amendment No. 1 with Fife to the Forbearance Agreement rescheduling the monthly payment schedules (see Form 8K filed with the SEC on August 2, 2015)

As of January 19, 2016 the Company entered into a Second Amendment to the Forbearance Agreement again rescheduling certain of the monthly payments. The Amendment was filed with the SEC on Form 8k on January 22, 2016.

As of May 12, 2016 the Company entered into a Third Amendment to the Forbearance Agreement again rescheduling certain of the monthly payments. The Amendment was filed with the SEC on Form 8k on May 23, 2016.

In April of 2017, the Company received a judgment from the Federal District Court of Northern Illinois Eastern Division in its favor with prejudice dismissing a claim by River North Equity covering Convertible Securities of the Company which effectively negated the two notes River North Equity obtained from JMJ Financial. At March 31, 2016 the amount recorded in current liabilities for all three convertible notes and accrued interest thereon previously issued to JMJ Financial was $1,167,594. At December 31, 2016 the amount recorded in current liabilities for the two notes and accrued interest thereon subject to the river north Equity claim was $1,008,881.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

All proceeds received from the following financings were used by the Company for working capital needs.

Private Placements

During the six months ended December 31, 2016, the Company issued 600,000,000 shares of common stock in private placements pursuant to Section 4(a) (2) of the Securities Act of 1933 generating gross proceeds of $30,000 net of incurring finder’s fees of $3,000. The proceeds were used by the Company as working capital.

Conversion of Debt Securities

During the six months ended December 31, 2016, the Company authorized the conversion of $15,000 of Convertible Debt and Accrued Interest thereon relating to the forbearance agreement into 187,500,000 shares; of the Company’s Common stock.

Long Term Convertible Debentures / Debt Discount

These transactions are intended to provide liquidity and capital to the Company and are summarized as follows.

Arrangement #1 (JMJ Financial, Inc.)

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

As of August 11, 2015 the Company entered into an Amendment No. 1 with Fife to the Forbearance Agreement rescheduling the monthly payment schedules.

As of January 19, 2016 the Company entered into a Second Amendment to the Forbearance Agreement again rescheduling certain of the monthly payments.

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 10 day trading period immediately preceding such conversion, or 65 % when the trading price exceeds $.0020 for the five days before such conversion. All proceeds received in connection with the above financing have been used by the Company as working capital. At December 31, 2016 the note balance was $3,333 and accrued interest of $2,060, at 12%, remained due under this agreement. Based upon the price of the Company’s common stock on December 31, 2016 this Note is convertible into approximately 89,883,333 shares of common stock.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

(REMOVED AND RESERVED)

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

filed herewith.

SIGNATURES

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	mPHASE TECHNOLOGIES, INC.

Dated: June 8, 2018	By:	/s/ Martin S. Smiley
		Martin S. Smiley
		EVP, CFO and General Counsel