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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 March 31, 2005

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 (I.R.S. Employer
incorporation or organization) 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     NO

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS OF May 3, 2005 IS 129,960,987 SHARES, ALL OF ONE CLASS OF $.01 STATED VALUE COMMON STOCK.

mPHASE TECHNOLOGIES, INC.

INDEX

    PAGE
PART I FINANCIAL INFORMATION  
ITEM 1    
  Unaudited Consolidated Balance Sheets-June 30, 2004 and March 31, 2005 3
  Unaudited Consolidated Statements of Operations-Three months ended March 31, 2004 and 2005 and from 4
  October 2, 1996 (Date of Inception) to March 31, 2005  
  Unaudited Consolidated Statements of Operations-Nine Months ended March 31, 2004 and 2005 and from 5
  October 2, 1996 (Date of Inception) to December 31, 2005  
  Unaudited Consolidated Statement of Changes in Shareholders Deficit Nine months ended March 31, 2005 6
  Unaudtied Consolidated Statement of Cash Flow-Nine Months Ended March 31, 2004 and 2005 and from 7
  October 2, 1997 (Date of Inception) to March 31, 2005  
  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
     

2

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

 

    June 30,   March 31,
    2004   2005
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents $ 90,045 $ 237,828
Accounts receivable, net of bad debt reserve of $0 for each period   64,100   354,903
Stock subscription receivable   886,000   -
Inventories, net   1,237,972   862,963
Production advances - Janifast   -   337,709
Prepaid expenses and other current assets   81,061   169,503
TOTAL CURRENT ASSETS   2,359,178   1,962,906
         
Property and equipment, net   52,685   178,626
Patents and licensing rights, net   161,605   176,972
Other Assets   17,250   -
         
TOTAL ASSETS  
2,590,718
  
2,318,504
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
CURRENT LIABILITIES        
Accounts payable   2,088,658   2,565,629
Accrued expenses   691,033   957,925
Due to related parties   625,956   280,739
Notes payable, related parties   300,000   242,000
Deferred revenue   214,180   -
Current portion of long term debt   550,803   248,891
TOTAL CURRENT LIABILITIES   4,470,630   4,295,184
         
Long-term debt, net of current portion   139,500   281,000
Other Liabilities   618,550   279,500
Notes payable, related parties   280,000   -
COMMITMENTS AND CONTINGENCIES (Note 9)        
STOCKHOLDERS' DEFICIT        
Common stock, stated value $.01, 250,000,000 shares authorized; 88,899,962 and        
129,960,987 shares issued and outstanding at June 30, 2004 and March 31, 2005,        
respectively   888,999   1,299,610
Additional paid in capital   111,976,095   121,430,506
Deficit accumulated during development stage   (115,775,083)   (125,259,323)
Less-Treasury stock, 13,750 shares at cost   (7,973)   (7,973)
TOTAL STOCKHOLDERS' DEFICIT   (2,917,962)   (2,537,180)
         
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,590,718 $ 2,318,504

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

3

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

    Three Months Ended October 2, 1996 (Date of
        Inception)
    March 31,   to March 31,
    2004   2005   2005
             
REVENUES $ 555,339 $ 564,316 $ 20,648,044
COSTS AND EXPENSES            
Cost of Sales   483,964   448,312   14,736,424
Research and development   1,403,817   1,663,967   42,236,928
(including non-cash stock related charges of $0, $0 and            
$2,503,114 respectively)            
General and Administrative   803,411   2,636,066   84,471,454
(including non-cash stock related charges of $36,900,            
$1,636,028 and $50,097,003 respectively)            
Depreciation and amortization   26,801   65,144   3,083,557
TOTAL COSTS AND EXPENSES   2,717,993   4,813,489   144,528,363
             
LOSS FROM OPERATIONS   (2,162,654)   (4,249,173)   (123,880,319)
             
OTHER INCOME (EXPENSE)            
  Gain (Loss) on extinguishments   (152,078)   (58,893)   254,127
  Minority interest loss in consolidated subsidiary   -   -   20,000
  Capital losses   -   (1,447)   (49,616)
  Loss from unconsolidated subsidiary   -   -   (1,466,467)
  Interest Income (expense), net   (19,664)   (36,935)   (137,048)
             
TOTAL OTHER INCOME (EXPENSE)   (171,742)   (92,275)   (1,379,004)
             
NET LOSS $
(2,334,396)
 $
(4,346,268)
 $
(125,259,323)
             
LOSS PER COMMON SHARE, basic and diluted $ (.03) $ (.04)    
             
WEIGHTED AVERAGE COMMON  
81,564,405
  
120,015,504
    
SHARES OUTSTANDING, basic and diluted            

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

4

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

    Nine Months Ended October 2, 1996 (Date of
    March 31, Inception) to March 31,
    2004   2005   2005
             
REVENUES $ 4,335,476 $ 1,039,003 $ 20,648,944
COSTS AND EXPENSES            
Cost of Sales   3,878,389   823,217   14,736,424
Research and development   2,858,715   3,820,128   42,236,928
including non-cash stock related charges of $0, $0 and            
$2,503,114, respectively)            
General and Administrative   2,196,052   5,416,357   84,471,454
(including non-cash stock related charges of $785,740,            
$2,763,861 and $50,097,003, respectively)            
Depreciation and amortization   100,883   193,650   3,083,557
TOTAL COSTS AND EXPENSES   9,033,889   10,253,352   144,528,363
             
LOSS FROM OPERATIONS   (4,698,483)   (9,214,349)   (123,880,319)
             
OTHER INCOME (EXPENSE)            
  Gain (Loss) on extinguishments   (128,991)   (99,393)   254,127
  Minority interest loss in consolidated subsidiary   -   -   20,000
  Capital losses   -   (38,358)   (49,616)
  Loss from unconsolidated subsidiary   -   --   (1,466,467)
  Interest Income (expense), net   (72,367)   (132,140)   (137,048)
TOTAL OTHER INCOME (EXPENSE)   (201,358)   (269,891)   (1,379,004)
             
NET LOSS $ (4,899,771) $ (9,484,240) $ (125,259,323)
             
LOSS PER COMMON SHARE, basic and diluted $ (.07) $ (.09)    
             
WEIGHTED AVERAGE COMMON            
SHARES OUTSTANDING, basic and diluted  
75,312,435
   101,062,839    

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

5

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

                        Total
        $.01 Stated     Additional Paid   Accumulated Shareholders
                       
    Shares   Value Treasury Stock   in Capital   Deficit   Equity
Balance, June 30, 2004   88,899,962 $ 888,999 $ (7,973) $ 111,976,095 $  (115,775,083) $ (2,917,962)
                         
Issuance of Shares in Private                        
Placement   26,286,716 $ 262,867 $ - $ 5,225,576 $ - $ 5,488,443
                         
Issuance of Shares in connection                        
with exercise of warrants   3,300,954 $ 33,009 $ - $ 530,581 $ - $ 563,590
                         
Conversion of Debt to Common                        
Stock and warrants   3,437,271 $ 34,372 $   $ 997,052 $ - $ 1,031,424
                         
Options Awarded to Consultants   - $ - $   $ 1,821,100 $ - $ 1,821,100
                         
Options Awarded to Officers   - $ - $   $ 625,290 $ - $ 625,290
                         
Issuance of shares to officers                        
for services   425,000 $ 4,250 $   $ 127,500 $ - $ 131,750
                         
Exercise of cashless warrant   4,949,684 $ 49,499 $ - $ (49,499) $ - $ -
                         
Exercise of warrants by                        
Officers   1,770,400 $ 17,704 $ - $ - $ - $ 17,704
                         
Reparation of Private Placement                        
Offering   891,000 $ 8,910 $ - $ 176,811 $ - $ 185,721
                         
Net Loss   - $ - $ - $ - $  (9,484,240) $ (9,484,240)
                         
March 31, 2005   129,960,987 $ 1,299,610 $ (7,973) $ 121,430,506 $  (125,259,323) $ (2,537,180)

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

6

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

   

Nine Months Ended

 October 2, 1996 (Date of
            Inception)
        March 31,   to March 31,
    2004   2005   2005
Cash Flow From Operating Activities:            
Net Loss $ (4,889,771) $ (9,484,240) $ (125,259,323)
Adjustments to reconcile net loss to net cash used in            
operating            
activities:            
Depreciation and amortization   573,579   193,650   6,523,889
Book Value of fixed assets disposed   -   -   74,272
Provision for doubtful accounts   -   -   32,124
(Gain) loss on debt extinguishments   128,991   99,393   (254,127)
Loss on unconsolidated subsidiary   -   -   1,466,467
Impairment of note receivable       17,250   250,000
Loss on securities   -   38,358   49,616
Non-cash charges relating to issuance of common            
stock, common            
stock options and Warrants   344,143   2,763,861   52,222,751
Changes in assets and liabilities:            
Accounts receivable   164,844   (290,803)   (387,027)
Inventories   1,077,080   160,209   (867,524)
Production advances - Related Party       (337,709)   (337,709)
Prepaid expenses and other current assets   30,417   (88,442)   (88,442)
Other non-current assets   -   -   (577,182)
Accounts payable   279,422   539,314   4,868,421
Accrued expenses   (133,670)   395,892   2,175,761
Due to/from related parties            
Microphase   66,156   92,083   2,488,794
Janifast   (205,998)   103,543   2,806,448
Officers   (90,583)   (86,139)   382,617
Lintel   -   -   477,000
Others   -   (179,482)   -
Receivables from Subsidiary   -   -   (150,000)
Deferred revenue   -   (214,180)   -
Net cash used in operating activities   (2,665,390)   (6,277,632)   (54,120,374)
             
Cash Flow from Investing Activities:            
Payments related to patents and licensing rights   -   (50,836)   (467,449)
Purchase of fixed assets   (5,500)   (107,481)   (2,748,587)
Net Cash used in investing activities   (5,500)   (158,317)   (3,216,036)
             
Cash Flow from Financing Activities:            
Proceeds from issuance of common stock and            
exercises of options and warrants   3,834,092   6,938,033   57,410,509
Payments of notes payable   (5,000)   (129,301)   (351,138)
Advances from Microphase Corporation   (180,000)   --   347,840
Proceeds from notes payable-officers   -   600,000   (1,030,000)
Repayments of notes payable-officers   -   (825,000)   (855,000)
Repurchase of treasury stock at cost   -   --   (7,973)
Net cash provided by financing activities   3,649,092   6,583,732   57,574,238
             
Net increase (decrease) in cash   978,202   147,783   237,828
CASH AND CASH EQUIVALENTS, beginning of            
period   396,860   90,045   -
CASH AND CASH EQUIVALENTS, end of period $
1,375,062
 $
237,828
 $
237,828

7

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

mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. On February 17, 1997, the Company acquired Tecma Laboratories, Inc. ("Tecma") in a transaction accounted for as a reverse merger. On June 25, 1998, the Company acquired Microphase Telecommunications, Inc. ("MicroTel"), through the issuance of 2,500,000 shares of its common stock in exchange for all the issued and outstanding shares of MicroTel. The assets acquired in this acquisition were patents related to the mPhase line of DSL component products (e.g., POTS Splitters) and patent applications utilized in the Company's proprietary Traverser Digital Video Data Delivery System ("Traverser"). The primary business of the company is to design, develop, manufacture and market high band-width telecommunication products incorporating digital subscriber line ("DSL") technology. The Company has replaced the legacy Traverser product with its new TV+ platform developed by Lucent Technologies. The present activities of the Company are focused (a) upon deployment of its TV+ platform and (b) exploratory research and development of a new generation of power cells for military and commercial applications through the use of the science of Nanotechnology. The TV+ platform enables telecommunications service providers to simultaneously deliver broadcast digital television high-speed Internet and voice over copper telephone wires utilizing DSL technology and over fiber. Additionally, the Company sells DSL component products which includes microfilters, splitters, and line extenders, as well as a new line of intelligent pots splitters designed to reduce the cost of deploying DSL.

The Company is in the development stage, as defined by Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises." and its present activities are focused on the commercial deployment of its proprietary Traverser and associated DSL component products. Since mPhase is in the development stage, the accompanying consolidated financial statements should not be regarded as typical for normal operating periods.

BASIS OF PRESENTATION - The accompanying unaudited 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 (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ending March 31, 2005 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 for the year ended June 30, 2004.

Through March 31, 2005, the Company had incurred cumulative (a) development stage losses totaling approximately $125,259,323 and (b) negative cash flow from operations equal to $54,120,374. At March 31, 2005, the Company had approximately $237,828 of cash, cash equivalents and approximately $ 206,069 of trade receivables to fund short-term working capital requirements. 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.

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. Actual results could differ from those estimates.

8

mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

RECLASSIFICATIONS - Certain reclassifications have been made in the prior period consolidated financial statements to conform to the current period presentation.

LOSS PER COMMON SHARE, BASIC AND DILUTED - The Company accounts for net loss per common share in accordance with the provisions of SFAS No. 128, "EARNINGS PER SHARE" ("EPS"). SFAS No. 128 requires the disclosure of the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Common equivalent shares have been excluded from the computation of diluted EPS for all periods presented since their affect is antidilutive.

RESEARCH AND DEVELOPMENT - Research and development costs are charged to operations as incurred.

REVENUE RECOGNITION - All revenue included in the accompanying consolidated statements of operations for all periods presented relates to sales of mPhase's line of POTS Splitter products and other related DSL component products. As required, the Company adopted the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which provides guidance on applying generally accepted accounting principles to revenue recognition based on the interpretations and practices of the SEC. The Company recognizes revenue for its line of POTS Splitter products and other DSL component products at the t