UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter ended March 31, 1999 Commission File No.000-24969
mPhase Technologies, Inc. (formerly Tecma Laboratories, 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 06854-0566
(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 registran
was required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
Transitional Small Business Disclosure Format:
Yes: X No:
The number of shares outstanding of each of the registrant's classes of common
stock as of March 31, 1999 is 17,479,043 shares all of one class of $.0001 par
value common stock.
<PAGE>
MPHASE TECHNOLOGIES, INC.
(FORMERLY TECMA LABORATORIES, INC.)
INDEX
PAGE
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - March 31, 1999 1
Consolidated Statements of Operations - Three and nine
Months Ended March 31, 1999 and 1998 2-3
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 1999 and 1999 4
Notes to Financial Statements 5-6
Management's Discussion and Analysis of financial
conditions and results of operations 7-8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits on Reports on Form 8-K 9
Signature Page 10
<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Balance Sheet
March 31, 1999
(Unaudited)
ASSETS
Cash and equivalents $ 122,479
Stock subscription receivable 375,000
Prepaid expenses 19,400
Deposits 7,415
Deferred offering costs 52,673
Equipment used in research and development, less
accumulated depreciation of $58,516 94,260
Marketing equipment, less accumulated depreciation
of $11,056 22,305
Patents and licensing rights, at cost, less
accumulated amortization of $202,000 916,690
Organization costs, less accumulated amortization
of $286 1,089
Note receivable - unconsolidated subsidiary, net
of $150,000 bad debt reserve -
Goodwill, less accumulated amortization of
$74,856 923,229
TOTAL ASSETS 2,534,540
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable 1,169,977
Accrued expenses 652,083
Due to affiliate 1,355,454
Deferred revenue 40,000
Loan(s) payable 228,900
TOTAL LIABILITIES 3,446,414
STOCKHOLDERS DEFICIT
Common stock, no par value, 50,000,000 shares
authorized; 17,479,043 shares issued and
outstanding shares issued and outstanding at
March 31, 1999 (unaudited) 8,579,136
Deficit accumulated during development stage,
subsequent to recapitalization effective
October 2, 1996 (9,483,037)
Treasury Stock, 13,750 shares at cost (7,973)
TOTAL STOCKHOLDERS' DEFICIT (911,874)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $2,534,540
See notes to the consolidated financial statements. 1.
<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
October 2,
1996
(Date of
For the Inception)
Three Months Ended to
March 31, March 31,
1998 1999 1999
REVENUE - LICENSING FEES $ - $ - $ -
TOTAL REVENUE - - -
COSTS AND EXPENSES
Research and development (including
$23,268 and $155,838 for the period
ended 1998 and 1999 respectively,
incurred with affiliate) 745,693 402,795 4,779,789
Licensing fees 112,500 - 487,500
General and administrative (including
$131,315 and $30,000 for the period
ended 1998 and 1999 respectively, 276,495 299,445 2,667,754
incurred with affiliate)
Depreciation and amortization 7,230 83,000 288,374
Stock based compensation 50,000 128,125 933,875
Interest - 6,300 20,900
TOTAL COSTS AND EXPENSES (1,191,918) (919,665) (9,178,192)
NET (LOSS) FROM OPERATIONS (1,191,918) (919,665) (9,178,192)
LOSS FROM UNCONSOLIDATED (55,193) - ( 304,845)
SUBSIDIARY
NET (LOSS) $(1,247,111) $(919,665) $(9,483,037)
BASIC LOSS PER COMMON SHARE $(.131) $(.053)
COMMON SHARES OUTSTANDING 9,544,532 17,159,876
DILUTED LOSS PER COMMON SHARE $(.095) $(.037)
COMMON SHARES AND EQUIVALENTS 13,119,199 24,960,471
OUTSTANDING
See notes to the consolidated financial statements 2.
<PAGE>
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
October 2,
1996
(Date of
For the Inception)
Nine Months Ended to
March 31, March 31,
1998 1999 1999
REVENUE - LICENSING FEES $ - $ - $ -
TOTAL REVENUE - - -
COSTS AND EXPENSES
Research and development (including
$71,268 and $458,026 for the period
ended March 1998 and 1999
respectively, incurred with
affiliate) 1,165,461 2,290,005 4,779,789
Licensing fees 337,500 - 487,500
General and administrative (including
$131,315 and $90,000 for the period
ended March 1998 and 1999
respectively, incurred with
affiliate) 837,949 1,017,231 2,667,754
Depreciation and amortization 21,690 248,721 288,374
Stock based compensation 150,000 783,875 933,875
Interest - 20,900 20,900
TOTAL COSTS AND EXPENSES (2,512,600)(4,360,732) (9,178,192)
NET (LOSS) FROM OPERATIONS (2,512,600)(4,360,732) (9,178,192)
LOSS FROM UNCONSOLIDATED
SUBSIDIARY 121,443 - (304,845)
NET (LOSS) $(2,634,043)$(4,360,732) $(9,483,037)
BASIC LOSS PER COMMON SHARE $ (.297) $(.291)
COMMON SHARES OUTSTANDING 8,878,432 14,960,531
DILUTED LOSS PER COMMON SHARE $(.212) $(.192)
COMMON SHARES AND EQUIVALENTS
OUTSTANDING 12,453,099 22,761,126
See notes to the consolidated financial statements. 3.
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
October 2,
1996
(Date of
For the Inception)
Nine Months Ended to
March 31, March 31,
1998 1999 1999
(Unaudited)
Cash Flow Used In Operating
Activities:
Net (Loss) $(2,634,043)$(4,360,732) $(9,483,037)
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation and Amortization 21,690 248,721 300,710
Depreciation of research and
development equipment 19,995 29,089 58,516
Loss on unconsolidated subsidiary 121,443 - 304,845
Stock based compensation 150,000 783,875 933,875
Changes in assets and liabilities:
Deposits (7,415) (7,415)
(Increase) decrease in prepaid
expenses 6,705 (3,400) (19,400)
Increase (decrease) in accounts payable 985,304 (564,950) 1,135,886
Increase in accrued expenses 293,719 13,529 692,906
Increase in due to affiliate 240,151 679,725 769,785
Increase in deferred revenue -
license fee 300,000 40,000 40,000
Increase in cash overdraft 8,432
Increase in accrued interest 18,900
Increase in receivables from
unconsolidated subsidiary (150,000) - (150,000)
Net cash (used in) operating
activities (645,036) (3,128,406) (5,395,997)
Cash Flow Used in Investing Activities:
Investment in organizational costs - (720) (54,830)
Investment in licensing rights - (75,977) (655)
Investment in fixed assets (21,636) - (186,137)
Investment in unconsolidated
subsidiary (304,000) - -
Net cash (used in) investing
activities (325,636) (76,697) (241,622)
Cash Flow From Financing Activities:
Proceeds from loan 210,000
Proceeds from issuance of common stock,
net of offering costs of $138,931 in
1998 and $184,065 in 1999 857,318 3,327,582 5,558,071
Repurchase of Treasury stock at cost (7,973) - (7,973)
Net cash provided by financing
activities 866,372 3,327,582 5,760,098
Net Increase (Decrease)in Cash (121,327) 122,479 122,479
Cash, Beginning of Period 161,787 - -
Cash, End of Period $ 40,46 $ 122,479 $ 122,479
See notes to the consolidated financial statements 4.
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Unaudited)
A. 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 with the instructions to
Form 10-QSB and Article 10 of Regulation S-X. 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 month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year
ending June 30, 1999. For the year ending June 30, 1998, and all periods
presented thereafter, the Company adopted FASB 128 to compute earnings per
share. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects 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.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Registration Statement on
form 10-SB for the year ended June 30, 1998 and the interim period ended
December 30, 1998.
Schedule of Non Cash Investing and Financial Activities:
For the nine
Months ended
March 31,1999
Common Stock issued for services:
Charged to operations $ 783,875
Charged to common stock $ 85,415
Common Stock issued for reduction
of accounts payable. $ 27,983
Other Supplemental Cash Flow Information:
Interest Paid $ 2,000
B. RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
5.
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Unaudited)
C. RELATED PARTY TRANSACTIONS
The Company is dependent on an affiliated company, Microphase Corporation,
for facilities and technological assistance. During the nine months ended
March 31,1999 and 1998 the Company incurred $458,026 and $71,268 research
and development expenses with an affiliate and $90,000 and $131,315
general a administrative expenses with the same affiliate. At
March 31, 1999 theCompany owed this affiliate, Microphase Corporation,
$ 1,355,454.
During the nine months ended March 31,1999 and 1998 the Company paid
$153,999 and $95,141 of finder fees to a corporation owned by a director.
At March 31, 1999 $228,900 was owed to this director including $12,900
accured interest.
6.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
mPHASE TECHNOLOGIES, INC.
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements, as well as information relating to the plans of the Company's
current management.
RESULTS OF OPERATIONS AND CURRENT METHOD OF OPERATION
Nine Months Ended March 31, 1999 vs. March 31, 1998
The Company's results of operations for the nine months ended March 31, 1999
consisted of a loss of $4,360,732 as compared to March 31, 1998 which consisted
of a loss of $2,634,043.
The major expenses during the nine month periods were research and development
of $2,290,005 in 1999 compared to $1,165,461 in 1998 and general and
administrative expenses totaling $1,017,231 in 1999 compared with $837,949 for
the same period in 1998.
Liquidity and Working Capital
The Company's working capital (deficit) of $2,929,535 at March 31, 1999 has
been reduced from its previous fiscal year end, June 30, 1998 total of
$3,073,299.
As enumerated in the Company's recently filed form 10-SB, the Company estimated
it will need to raise from $10,000,000 to $15,000,000 of additional capital
through the issuance of its common stock, at per share prices to be determined,
to sophisticated investors in a series of transactions which are intended to be
exempt from registration pursuant to Rule 506 of Regulation D promulgated by
the Securities and Exchange Commission. The $375,000 of stock subscription
receivable is included with assets on the balance sheet at March 31, 1999 as
this subscription was collected in the first week of April, 1999. Management
does not believe it will experience much difficulty in raising the targeted
capital.
YEAR 2000 ISSUES
Many computer systems and software programs, including several used by the
Company may require modification and conversion to allow date code fields to
accept dates beginning with the year 2000. Major system failures or erroneous
calculations can result if computer systems are not year 2000 compliant.
The Company is in the process of evaluating the computer systems they now have
in use and does not anticipate a major undertaking to be compliant.
The company anticipates all of the products it is currently developing will be
year 2000 compliant and as such has informed its suppliers and co-developers of
this requirement.
7.
Forward looking and other statements
Forward looking statements above and elsewhere in this report that suggest the
Company will increase revenues or become profitable are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations and cash flows. These
statements are identified by words such as "believes," "expects," "anticipates"
or similar expressions. Such forward looking statements are based on the
beliefs of mPHASE Technologies Inc."mPHASE" or "The Company" and its Board of
Directors in which they attempt to analyze the Company's competitive position
in its industry and the factors affecting its business, including management's
evaluation of its sales pontential. Stockholders of the Company should
understand that each of the foregoing risk factors, in addition to those
discussed elsewhere in this quaterly report and in the documents which are
incorporated by reference herein, could affect the future results of mPHASE,
and could cause those results to differ materially from those expressed in the
forward-looking statements contained or incorporated by reference herein. In
addition there can be no assurance that the Company and its Board have
correctly identified and assessed all of the factors affecting the Company's
business.
8.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any legal proceeding nor
does it have knowledge of any threatened litigation, except for a
lawsuit instituted by Global Music and Media Inc, a Tennessee
Corporation, over an alleged breach of an April 30, 1997 agreement
whereby Global alleges it was given the exclusive right to market
mPhase technology as well as television programming and related
services. The Company has asserted the April 30, 1997 agreement
relied upon by Global was superseded by an October 27, 1997 agreement
with respect to which Global and a related company has defaulted
under its obligations. Accordingly, the Company does not believe
there is any merit to the contentions of Global and intends to
vigorously defend the lawsuit.
The Company was previously in volved in an action arising out of a
lease entered into by its predecessor in name with U.S. Land
Resources, L.P. which has since been resolved and settled at a
minimal cost. Another matter which did not result in litigation but
was settled by the company involved claims by Thomas A. Murphy, a
former director and executive of the Company who agreed to waive all
claims against the company in return for allowing him to retain the
benefit of 525,000 shares of mPhase common stock he had acquired as a
founding shareholder of Lightpaths, Inc. when it was acquired by the
company and as a director of the Company.
Item 2. Changes in Securities
There have been no changes in the type of securities or amount of
the shares authorized to be issued. During the quarter ended March
31, 1999 the company issued 235,000 shares to sophisticated
investors in a series of transactions intended to be exempt from
registration for cash consideration totaling $587,500 which included
a $375,000 stock subscription collected in April, 1999. Additionally
50,000 shares valued at $85,415 were issued for services in
connection with private offerings of the company's common stock and
85,000 shares valued at $128,125 were issued for services pertaining
to the Company's operations and were recorded as stock based
compensation.
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
9.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant, caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
mPHASE TECHNOLOGIES, INC.
Formerly Tecma Laboratories, Inc.
Dated: June 23, 1999 By: /s/Ronald A. Durando
Ronald A. Durando, President, CEO
10.
FINANCIAL SUMMARY
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