MPHASE TECHNOLOGIES INC - 10-Q Quarterly Report

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTER ENDED DECEMBER 31, 2004

mPhase Technologies, Inc.
(Exact name of registrant as specified in its charter)

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.

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS OF February 9, 2005 IS 120,349,661 SHARES, ALL OF ONE CLASS OF $.01 STATED VALUE COMMON STOCK.

		PAGE
PART I	FINANCIAL INFORMATION
ITEM 1
	Unaudited Consolidated Balance Sheets-June 30, 2004 and December 31, 2004	3
	Unaudited Consolidated Statements of Operations-Three months ended December 31, 2003 and 2004 and from October 2, 1996 (Date of Inception) to December 31, 2004	4
	Unaudited Consolidated Statements of Operations-Six Months ended December 31, 2003 and 2004 and from October 2, 1996 (Date of Inception) to December 31, 2004	5
	Unaudited Consolidated Statement of Changes in Shareholders Deficit Six months ended December 31, 2004	6
	Unaudtied Consolidated Statement of Cash Flow-Six Months Ended December 31, 2003 and 2004 and from October 2, 1997 (Date of Inception) to December 31, 2004	7
	Notes to Consolidated Financial Statments	8
ITEM 2	Management's Discussion and Analysis of Financial Condition and Condition and Results of Operations	15
ITEM 3	Quantitative and Qualitative Disclosures about market risk	26
ITEM 4	CONTROLS AND PROCEDURES	26
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 2.	Changes in Securities	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Submission of Matters to a Vote of Security Holders	27
Item 5.	Other Information	27
Item 6.	Exhibits and Reports on Form 8-K	28
Signature Page		29

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

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

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

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

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

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

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

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

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)

		June 30,		December 31,
		2004		2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	90,045	$	1,010,903
Accounts receivable, net of bad debt reserve of $0 for each period		64,100		206,069
Stock subscription receivable		886,000		50,000
Inventories, net		1,237,972		790,500
Prepaid expenses and other current assets		81,061		229,123
TOTAL CURRENT ASSETS		2,359,178		2,286,595
Property and equipment, net		52,685		240,393
Patents and licensing rights, net		161,605		144,380
Other Assets		17,250		37,250
TOTAL ASSETS		2,590,718		2,708,618
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		2,088,658		2,633,363,
Accrued expenses		691,033		1,131,529
Due to related parties		625,956		310,960
Notes payable, related parties		300,000		686,046
Deferred revenue		214,180		100,295
Current portion of long term debt		550,803		517,805
TOTAL CURRENT LIABILITIES		4,470,630		5,379,998
Long-term debt, net of current portion		139,500		175,000
Other Liabilities		618,550		-
Notes payable, related parties		280,000		223,049
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' DEFICIT
Common stock, stated value $.01, 150,000,000 shares authorized; 88,899,962 and
109,743,391 shares issued and outstanding at June 30, 2004 and December 31, 2004,
respectively		888,999		1,097,433
Additional paid in capital		111,976,095		116,754,086
Deficit accumulated during development stage		(115,775,083)		(120,912,875)
Less-Treasury stock, 13,750 shares at cost		(7,973)		(7,973)
TOTAL STOCKHOLDERS' DEFICIT		(2,917,962)		(3,069,329)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	2,590,718	$	2,708,718



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

		Three Months Ended			October 2, 1996 (Date of Inception)
		December 31,			to December 31,

		2003		2004		2004
REVENUES	$	1,290,935	$	295,524	$	20,083,728
COSTS AND EXPENSES
Cost of Sales		1,191,193		245,124		14,288,122
Research and development
(including non-cash stock related charges of $0,$385,495 and		843,478		1,054,761		40,572,961
$2,503,114, respectively)
General and Administrative
(including non-cash stock related charges of $195,000, $1,127,833		913,519		2,071,396		81,835,388
and $48,460,975 respectively)
Depreciation and amortization		27,978		127,485		3,018,413
TOTAL COSTS AND EXPENSES		2,976,168		3,498,766		139,714,874
LOSS FROM OPERATIONS		(1,685,233)		(3,203,242)		(119,631,146)
OTHER INCOME (EXPENSE)
Gain (Loss) on extinguishments		-		-		313,020
Minority interest loss in consolidated subsidiary		-		-		20,000
Capital losses		-		(36,911)		(48,169)
Loss from unconsolidated subsidiary		-		-		(1,466,467)
Interest Income (expense), net		(15,633)		(65,777)		(100,113)
TOTAL OTHER INCOME (EXPENSE)		(15,633)		(102,688)		(1,281,729)
NET LOSS	$	(1,700,866)	$	(3,305,930)	$	(120,912,875)
LOSS PER COMMON SHARE, basic and diluted	$	(.02)	$	(.04)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, basic and diluted		72,814,272		93,388,584

	Six Months Ended				October 2, 1996 (Date of
	December 31,				Inception) to December 31,

		2003		2004		2004
REVENUES	$	3,780,137	$	474,687	$	20,083,728
COSTS AND EXPENSES
Cost of Sales		3,289,937		374,905		14,288,122
Research and development
including non-cash stock related charges of $7,200, $385,495 and		1,454,899		2,156,161		40,572,961
$2,503,114, respectively)
General and Administrative
(including non-cash stock related charges of $748,840, $1,127,833		1,518,411		2,780,291		81,835,388
and $48,460,975, respectively)
Depreciation and amortization		74,082		128,506		3,018,413
TOTAL COSTS AND EXPENSES		6,337,329		5,439,862		139,714,874
LOSS FROM OPERATIONS		(2,557,192)		(4,965,176)		(119,631,146)
OTHER INCOME (EXPENSE)
Gain (Loss) on extinguishments		23,087		(40,500)		318,020
Minority interest loss in consolidated subsidiary		-		-		20,000
Capital losses		-		(36,911)		(48,169)
Loss from unconsolidated subsidiary		-		--		(1,466,467)
Interest Income (expense), net		(31,272)		(95,205)		(100,113)
TOTAL OTHER INCOME (EXPENSE)		(8,185)		(172,616)		(1,281,729)
NET LOSS	$	(2,565,377)	$	(5,137,792)	$	(120,912,875)
LOSS PER COMMON SHARE, basic and diluted	$	(.04)	$	(.06)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, basic and diluted		72,251,251		91,474,828

	Shares	$.01 Stated Value		Treasury Stock		Additional	Accumulated Deficit		Total Shareholders (Deficit)
						Paid-in				Equity
						Capital
Balance June 30,	88,899,962	$	888,999	$ (7,973)	$	111,976,095	$	(115,755,083)	$	(2,917,962)
2004
Issuance of
common stock with	-		-	-		169,500		-		169,500
warrants in connection
with settlement
of liabilities
Issuance of common	1,672,000		16,720	-		385,380		-		402,100
stock with warrants in
private placements, net of
cash expenses of $15,900
Net Loss	-		-	-		-		(1,831,862)		(1,831,862)
Balance,
September 30,	90,571,962	$	905,719	$ (7,973)	$	112,530,975	$	(117,606,945)	$	(4,178,224)
2004
Issuance of	10,717,700		107,177	-		2,009,423		-		2,166,600
common stock
with warrants in
private
placements
Sale of common	2,817,954		28,179	-		535,411		-		563,590
stock through
exercise of
warrants
Issue of Stock	-		-	-		936,333		-		936,333
Options to Consultants
Issuance of Common Stock
to Consultants for services	134,500		1,345	-		25,555		-		26,900
Issue of
additional shares	891,000		8,910	-		176,811		-		185,721
and warrants to
effect revised
pricing on
previous private
offering
Conversion of	4,610,275		46,103	-		539,576		-		585,679
Debt to
Common Stock
and Warrants
Net loss	-		-	-		-	$	(3,305,930)		(3,305,930)
Balance,
December 31,	109,743,391	$ 1,097,433		$ (7,973)		$ 116,754,086		$ (120,912,875)		$ (3,069,329)
2004

	Six Months Ended			October 2, 1996 (Date of Inception)
	December 31,			to December 31,

		2003	2004		2004
Cash Flow From Operating Activities:
Net Loss	$	(2,565,377)	(5,137,792)	$	(120,912,875)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization		402,257	128,506		6,458,745
Book Value of fixed assets disposed		-			74,272
Provision for doubtful accounts		-			32,124
Gain on debt extinguishments		(23,087 )	40,500		(316,609)
Loss on unconsolidated subsidiary		-			1,466,467
Impairment of note receivable		-			232,750
Loss on securities		-			11,258
Non-cash charges relating to issuance of common stock, common		307,245	1,122,054		50,580,944
stock options and Warrants
Changes in assets and liabilities:
Subscription Receivable
Accounts receivable		104,999	(141,969)		(238,193)
Inventories		614,876	237,251		(790,482)
Prepaid expenses and other current assets		30,418	(165,447)		(742,629)
Other non-current assets		-	(20,000)		(20,000)
Accounts payable		401,394	564,705		4,893,812
Accrued expenses		(419,559 )	467,221		2,247,090
Due to/from related parties
Microphase		313,226	(96,437)		2,,283,274
Janifast		534,887	(64,636)		2,638,269
Officers		(450,583 )	181,970		650,726
Lintel		-			477,000
Others		-	(50,000)		129,472
Receivables from Subsidiary		-			(150,000)
Deferred revenue		-	(113,885)		100,295
Net cash used in operating activities		(749,304 )	(3,037,959)		(50,890,701)
Cash Flow from Investing Activities:
Payments related to patents and licensing rights		-	(64,902)		(416,613)
Purchase of fixed assets</