MPHASE TECHNOLOGIES INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTER ENDED DECEMBER 31, 2002

COMMISSION FILE NO. 000–24969

mPhase Technologies, Inc.

(Exact name of registrant as specified in its charter)

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

587 CONNECTICUT AVE., NORWALK, CT	06854-1711
(Address of principal executive offices)	(Zip Code)

ISSUER’S TELEPHONE NUMBER, (203) 838–2741

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, DURING THE PRECEDING 12 MONTHS (OR FOR SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORT), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK AS OF February 12, 2003 IS 65,932,341 SHARES, ALL OF ONE CLASS OF $.01 STATED VALUE COMMON STOCK.

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mPHASE TECHNOLOGIES, INC.

INDEX

		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS

	Consolidated Balance Sheets–June 30, 2002 and December 31, (Unaudited)	1

	Unaudited Consolidated Statements of Operations–Three months ended December 31, 2001 and 2002 and from October 2, 1996 (Date of Inception) to December 31, 2002	2

	Unaudited Consolidated Statements of Operations–Six months ended December 31, 2001 and 2002 and from October 2, 1996 (Date of Inception) to December 31, 2002	3

	Unaudited Consolidated Statement of Changes in Shareholders’ Deficit Six months ended December 31, 2002	4

	Unaudited Consolidated Statements of Cash Flows–Six Months Ended December 31, 2001 and 2002 and from October 2, 1996 (Date of Inception) to December 31, 2002	5

	Notes to Unaudited Consolidated Financial Statements	6–13

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Condition and Results of Operations	14-23

ITEM 3	Quantitative and Qualitative Disclosures about market risk	24

ITEM 4	CONTROLS AND PROCEDURES	24

PART II	OTHER INFORMATION	25

Item 1.	Legal Proceedings	25

Item 2.	Changes in Securities	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	25

Item 5.	Other Information	25

Item 6.	Exhibits on Reports on Form 8–K	25

Signature Page		26

Certifications		27-31

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mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)

				June 30, 2002			December 31, 2002

							(Unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents		$	47,065		$	9,913
	Accounts receivable, net of bad debt reserve of $2,906 in each period			273,780			342,639
	Inventories, net			3,342,716			2,712,479
	Prepaid expenses and other current assets			830,589			116,015

		Total Current Assets		4,494,150			3,181,046


Property and equipment, net				1,742,186			1,201,856
Patents and licensing rights, net				685,349			409,964
Other Assets				20,830			18,135


		TOTAL ASSETS		6,942,515			4,811,001

		LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable				2,819,245			2,677,609
Accrued expenses				673,065			657,836
Due to related parties				35,000			537,420
Notes payable, current				353,339			752,121
Deferred revenue				214,180			214,180

		TOTAL CURRENT LIABILITIES		4,094,829			4,839,166

Long-term debt, net of current portion				1,014,218			609,990
Other Liabilities				1,211,249			1,211,249
Other Liabilities, related parties				665,068			–

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS’ EQUITY

Common stock, stated value $.01, 150,000,000 shares
	authorized; 60,807,508 and 65,932,341 shares
	issued and outstanding at June 30, 2002 and
	December 31, 2002, respectively			608,075			659,323
Additional paid in capital				100,751,284			102,286,928
Deferred compensation				(23,923	)		–
Deficit accumulated during development stage				(101,366,286	)		(104,787,682	)
Unrecognized capital losses				(4,026	)		–
Less-Treasury stock, 13,750 shares at cost				(7,973	)		( 7,973	)


		TOTAL STOCKHOLDERS’ DEFICIT		(42,849	)		(1,849,404	)


		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,942,515		$	4,811,001

The accompanying notes are an integral part of these consolidated balance sheets.

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mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)

					For the Three Months Ended December 31,						October 2, 1996 (Date of Inception) December 31,
				2001			2002			2002

REVENUES				$	545,546		$	561,760		$	14,157,893

COSTS AND EXPENSES
	Cost of Sales				530,413			546,711			9,095,588
	Research and development
		(including non-cash stock
		related charges of $17,325,
		$262,500, and $1,966,424, respectively)			1,257,014			752,848			32,364,916
	General and Administrative
		(including non-cash stock
		related charges of $761,897, $256,655,
		and $20,706,772, respectively)			1,470,908			729,993			48,728,685
	Depreciation and amortization				209,377			128,652			2,510,993
	Non-cash charges for stock based compensation				170,251			1,403			25,089,095

			TOTAL COSTS AND EXPENSES		3,637,963			2,159,607			117,789,277

			LOSS FROM OPERATIONS		(3,092,417	)		(1,597,847	)		(103,631,384	)

OTHER INCOME (EXPENSE):
	Gain on extinguishments				5,321			–			182,960
	Minority interest loss in consolidated subsidiary				–			–			20,000
	Capital losses				–			(16,077	)		(16,077	)
	Loss from unconsolidated subsidiary				–			–			(1,466,467	)
	Interest Income (expense), net				(1,471	)		(15,414	)		123,286


			TOTAL OTHER INCOME (EXPENSE)		3,850			(31,491	)		(1,156,298	)


NET LOSS				$	(3,088,567	)	$	(1,629,338	)	$	(104,787,682	)


LOSS PER COMMON SHARE, basic and diluted				$	(.07	)	$	(.03	)

WEIGHTED AVERAGE COMMON SHARES
	OUTSTANDING, basic and diluted				44,645,458			65,914,466

The accompanying notes are an integral part of these consolidated balance sheets.

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mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)

				For the Six Months Ended December 31,						October 2, 1996 (Date of Inception) December 31,
				2001			2002			2002

REVENUE			$	1,082,554		$	771,837		$	14,157,893

COSTS AND EXPENSES
	Cost of Sales			987,112			744,030			9,095,588
	Research and development (including non-cash stock related charges of $185,095, $306,250, and $1,966,424, respectively)			2,368,430			1,556,142			32,364,916
	General and Administrative (including non-cash stock related charges of $1,704,252, $460,435, and $20,706,772, respectively)			4,114,996			1,600,255			48,728,685
	Depreciation and amortization			402,456			259,381			2,510,993
	Non-cash charges for stock based compensation			387,751			23,923			25,089,095

		TOTAL COSTS AND EXPENSES		8,260,745			4,183,731			117,789,277

		LOSS FROM OPERATIONS		(7,178,191	)		(3,411,894	)		(103,631,384	)

OTHER INCOME (EXPENSE):
	Gain on extinguishments			37,849			40,724			182,960
	Minority interest loss in consolidated subsidiary			–			–			20,000
	Loss from unconsolidated subsidiary			–			–			(1,466,467	)
	Capital losses			–			(16,077	)		(16,077	)
	Interest Income (expense), net			(11,558	)		(34,149	)		123,286

	TOTAL OTHER INCOME (EXPENSE)			26,291			(9,502	)		(1,156,298	)

NET LOSS			$	(7,151,900	)	$	(3,421,396	)	$	(104,787,682	)

LOSS PER COMMON SHARE, basic and diluted			$	(.17	)	$	(.06	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, basic and diluted				43,306,699			63,397,799

The accompanying notes are an integral part of these consolidated balance sheets.

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mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statement of Changes in
Shareholders’ Deficit (unaudited)

	Shares		$.01 Stated Value		Treasury Stock			Additional Paid-in Stock		Deferred Compensation			Accumulated Deficit			Comprehensive Loss		Total Shareholders (Deficit) Equity

Balance June 30, 2002	60,807,508	$	608,075	$	(7,973	)	$	100,751,284	$	(23,923	)	$	(101,366,286	)		($4,026)	$	(42,849	)
Issuance of Common stock for services	251,500		2,515		–			58,860		–			–			–		61,375
Amortization of deferred employee stock option compensation	–		–		–			–		23,923			–			–		23,923
Issuance of common stock in settlement of debt	340,000		3,400		–			61,200		–			–			–		64,600
Issuance of warrants to certain Officers in settlement of debt	–		–		–			480,917		–			–			–		480,917
Issuance of Common stock in settlement of debt to related parties	4,533,333		45,333		–			934,667		–			–			–		980,000
Net Loss	–		–		–			–		–			(3,421,396	)		–		(3,421,396	)
Other Comprehensive Loss	–		–		–			–		–			–			4,026		4,026

Balance, December 31,2002	65,932,341	$	659,323	$	(7,973	)	$	102,286,928	$	–		$	(104,787,682	)	$	–	$	(1,849,404	)

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

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mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)

			For the Six Months Ended December 31,						October 2, 1996 (Date of Inception) to December 31,
			2001			2002			2002

Cash Flow From Operating Activities:
Net Loss		$	(7,151,900	)	$	(3,421,396	)	$	(104,787,681	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			873,763			753,433			4,921,620
Realized and unrealized losses			–			16,077			16,077
Book Value of fixed assets disposed			–			–			74,272
Provision for doubtful accounts			–			–			32,124
Gain on debt extinguishments			(37,849	)		(40,725	)		(182,961	)
Loss on unconsolidated subsidiary			–			–			1,466,467
Impairment of note receivable			–			–			232,750
Non-cash charges relating to issuance of common stock, common stock options and Warrants			2,277,098			790,608			47,800,370
Changes in assets and liabilities:
	Accounts receivable		235,917			(68,859	)		(374,763	)
	Inventories		(269,532	)		630,237			(2,712,479	)
	Prepaid expenses and other current assets		103,907			40,792			(526,005	)
	Other non-current assets		75,000			2,695			(885	)
	Accrued expenses		583,993			(15,229	)		2,000,356
	Due to/from related parties		1,890,770			662,818			4,941,857
	Receivables from Subsidiary		–			–			(150,000	)
	Deferred revenue		214,180			–			214,180

Net cash used in operating Activities			(1,411,917	)		(621,017	)		(43,023,712	)