<PAGE>
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 December 31, 1999 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 06854-0566
- --------------------------------------- ------------------
(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 registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
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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 December 31, 1999 is 26,281,825 shares all of one class of $.01
stated value common stock.
<PAGE>
mPHASE TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - December 31, 1999 1
Consolidated Statements of Operations - Three
Months ended December 31, 1999 and 1998 2
Consolidated Statements of Operations - Six
Months Ended December 31, 1999 and 1998 3
Consolidated Statements of Cash Flows - Six
Months Ended December 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-6
Management's Discussion and Analysis of financial
conditions and results of operations 7-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits on Reports on Form 8-K 13
Signature Page 14
</TABLE>
<PAGE>
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Balance Sheet
December 31, 1999
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current Assets
Cash and equivalents $ 4,528,291
Prepaid expenses and other current assets 265,515
-----------
Total Current Assets 4,793,806
Property and equipment, net of accumulated
depreciation of $179,125 706,379
Patents and licensing rights, net of accumulated
amortization of $665,844 1,555,874
-----------
TOTAL ASSETS 7,056,059
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable 1,669,663
Accrued expenses 499,205
Due to officers 310,025
Due to affiliate 75,879
Deferred revenue 40,000
-----------
TOTAL LIABILITIES 2,594,772
-----------
STOCKHOLDERS' EQUITY
Common stock, stated value $.01, 50,000,000 shares
authorized; 26,281,825 shares issued and
outstanding shares at December 31, 1999 262,818
Additional paid in capital 38,399,155
Deferred compensation (229,917)
Deficit accumulated during development stage (33,962,796)
Treasury stock, 13,750 shares at cost (7,973)
-----------
TOTAL STOCKHOLDERS' EQUITY 4,461,287
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,056,059
===========
</TABLE>
See notes to the consolidated financial statements.
1
<PAGE>
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
October 2,
1996
(Date of
For the Inception)
Three Months Ended to
December 31, December 31,
1998 1999 1999
-------- -------- --------
<S> <C> <C> <C>
TOTAL REVENUES $ -- $ -- $ --
------------ ------------ ------------
TOTAL REVENUE -- -- --
------------ ------------ ------------
COSTS AND EXPENSES
Research and development 768,280 1,903,821 9,447,540
General and administrative 1,068,429 1,183,996 8,831,394
Licensing fees -- -- 487,500
Depreciation and amortization 101,360 116,415 680,511
Stock based compensation -- 42,250 13,090,688
------------ ------------ ------------
TOTAL COSTS AND EXPENSES 1,938,069 3,246,482 32,537,633
------------ ------------ ------------
LOSS FROM OPERATIONS 1,938,069 3,246,482 32,537,633
------------ ------------ ------------
OTHER INCOME (EXPENSE):
LOSS FROM UNCONSOLIDATED
SUBSIDIARY -- -- (1,466,467)
INTEREST INCOME (EXPENSE), NET (8,300) 41,530 41,304
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (8,300) 41,530 (1,425,163)
------------ ------------ ------------
NET LOSS $ (1,946,369) $ (3,204,952) $ (33,962,796)
============ ============ ============
LOSS PER COMMON SHARE; basic
and diluted $ (.13) $ (.12)
============ ============
WEIGHTED AVERAGE COMMON SHARES;
OUTSTANDING, basic and diluted 15,174,943 25,907,602
============ ============
</TABLE>
See notes to the consolidated financial statements.
2
<PAGE>
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
October 2,
1996
(Date of
For the Inception)
Six Months Ended to
December 31, December 31,
1998 1999 1999
-------- -------- -----------
<S> <C> <C> <C>
TOTAL REVENUES $ -- $ -- $ --
------------ ------------ ------------
TOTAL REVENUE -- -- --
------------ ------------ ------------
COSTS AND EXPENSES
Research and development 1,887,210 3,394,855 9,447,540
General and administrative 1,475,527 2,347,762 8,831,394
Licensing fees -- -- 487,500
Non-cash charges for stock based 202,441 230,555 680,511
employee compensaiton -- 88,083 13,090,688
------------ ------------ ------------
TOTAL COSTS AND EXPENSES 3,565,178 6,061,255 32,537,633
------------ ------------ ------------
LOSS FROM OPERATIONS 3,565,178 6,061,255 32,537,633
------------ ------------ ------------
OTHER INCOME (EXPENSE):
LOSS FROM UNCONSOLIDATED
SUBSIDIARY -- -- (1,466,467)
INTEREST INCOME (EXPENSE), NET (14,600) 59,108 41,304
------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (14,600) 59,108 (1,425,163)
------------ ------------ ------------
NET LOSS $ (3,579,778) $ (6,002,147) $(33,962,796)
============ ============ ============
LOSS PER COMMON SHARE; basic
and diluted $ (.25) $ (.24)
============ ============
WEIGHTED AVERAGE COMMON SHARES;
OUTSTANDING, basic and diluted 14,389,738 25,425,281
============ ============
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE>
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
October 2,
1996
(Date of
For the Inception)
Six Months Ended to
December 31, December 31,
1998 1999 1999
-------- -------- --------
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net Loss $ (3,579,778) $ (6,002,147) $(33,962,796)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 220,675 321,828 845,402
Loss on disposal of fixed asset -- -- 7,062
Loss on unconsolidated subsidiary -- -- 1,466,467
Non-cash common stock, common
stock option and warrant expense 757,741 88,083 16,006,141
Changes in assets and liabilities:
Receivables from unconsolidated
subsidiary -- -- (150,000)
Prepaid expenses and other current
assets 4,185 (167,415) (265,515)
Accounts payable 592,186 1,235,894 1,669,663
Accrued expenses (160,896) (697,303) 349,828
Due to officers 143,600 (686,001) 310,025
Due to affiliate (83,239) 61,544 (359,791)
Cash overdraft (8,482) -- --
Deferred revenue 40,000 -- 40,000
------------ ------------ ------------
Net cash used in operating
activities (2,074,008) (5,842,517) (14,043,514)
Cash Flow From Investing Activities:
Investment in unconsolidated subsidiary -- -- (300,000)
Payments related to patents and
licensing rights (720) (33,103) (147,775)
Investment in fixed assets (61,092) (513,333) (891,901)
Proceeds from default of license
agreement with unconsolidated subsidiary -- -- 300,000
------------ ------------ ------------
Net cash used in investing
activities (61,812) (546,436) (1,039,676)
------------ ------------ ------------
Cash Flow From Financing Activities:
Proceeds from issuance of common stock 3,105,500 2,939,384 19,619,454
Repurchase of treasury stock at cost -- -- (7,973)
------------ ------------ ------------
Cash Flow provided by financing
activities 3,105,500 2,939,384 19,611,481
------------ ------------ ------------
Net Increase (Decrease)in Cash 969,680 (3,449,569) 4,528,291
Cash, Beginning of Period -- 7,977,860 --
------------ ------------ ------------
Cash, End of Period $ 969,680 $ 4,528,291 $ 4,528,291
============ ============ ============
</TABLE>
See notes to the consolidated financial statements.
4
<PAGE>
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited 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 six month period ended
December 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending June 30, 2000. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on form
10KSB for the year ended June 30, 1999.
2. EARNINGS PER SHARE
The Company computes earnings per share in accordance with
Statements of Financial Accounting Standards ("SFAS") No. 128.
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. Common equivalent shares have been excluded
from the computation of diluted EPS since their affect is
antidilutive.
3. RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
5
<PAGE>
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Unaudited)
4. RELATED PARTY TRANSACTIONS
The management of the Company are also employees of Microphase, Corp.
("Microphase"). On May 1, 1997, the Company entered into an agreement
with Microphase, whereby the Company will use office space as well as
the administrative services of Microphase including the use of
accounting personnel. This Agreement was for $5,000 per month and was
on a month-to-month basis. In July 1998, the office space agreement was
revised to $10,000 per month. Additionally, in July 1998, the Company
entered into an agreement with Microphase, whereby the Company
pays Microphase $40,000 per month for technical research and
development assistance. Microphase also charges fees for specific
projects on a project by project basis. During the six months ended
December 31, 1998 and 1999 and for the period from inception
(October 2, 1996) to December 31, 1999, $300,000, $453,098 and
$1,496,324 have been charged to expense under these Agreements and is
included in operating expenses in the accompanying consolidated
statements of operations. As of December 31, 1999, the Company has
$75,879 due to affiliates included in the accompanying consolidated
balance sheet.
Interest expense for the six months ended December 31, 1998
represents $2,000 paid to the Company's vice president and $12,600
payable to the Company's president.
The Company will be obligated to pay a 3% royalty to Microphase on
revenues from the Company's proprietary Traverser-TM-Digital Video
Data Delivery System.
5. COMMITMENTS AND CONTINGENCIES
The Company has entered into various agreements with Georgia Tech
Research Corporation ("GTRC"), pursuant to which the Company receives
technical assistance in developing the commercialization of its digital
video and data system. The amounts incurred by the Company for
GTRC technical assistance with respect to its research and development
activities and included in the accompanying consolidated statement
of operations for the six months ended December 31, 1998 and 1999
totaled $1,565,068 and $2,284,030, respectively. If and when sales
commence utilizing this particular technology, the Company will be
obligated to pay to GTRC a royalty of 3% to 5% of product sales as
defined.
6. INCOME TAXES
The Company accounts for income taxes using the asset and liability
method in accordance with "SFAS" NO. 109. Under this method, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Because of the uncertainty as to their future
realizability, net deferred tax assets, consisting primarily of net
operating loss carryforwards, have been fully reserved for.
Accordingly, no income tax benefit for the net operating loss has
been recorded in the accompanying consolidated financial statements.
6
<PAGE>
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 consolidated financial
statements, as well as information relating to the plans of the Company's
current management.
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1999 VS. DECEMBER 31, 1998
The Company recorded a net loss of $6,002,147 for the six months ended
December 31, 1999 as compared to a loss of $3,579,778 for the comparable
period ended December 31, 1998. This represents a loss per common share of
$(.24) for the period ended December 31, 1999 as compared to a loss per
common share of $(.25) for the period ended December 31, 1998. Research and
development expenses were $3,394,855 in 1999 compared to $1,887,210 in 1998
and general and administrative expenses rose to $2,347,762 in '99 from
$1,475,527 for the comparable period in '98. The increase in the
administrative costs primarily relate to the hiring of full time employees,
implementation of management employment agreements, market making expenses
relating to investor relations and an increase in the Company's marketing
efforts.
THREE MONTHS ENDED DECEMBER 31, 1999 VS. DECEMBER 31, 1998
The Company recorded a net loss of $3,204,952 for the three months ended
December 31, 1999 as compared to a loss of $1,946,369 for the comparable
period ended December 31, 1998. This represents a loss per common share of
$(.12) for the period ended December 31, 1999 as compared to a loss per
common share of $(.13) for the period ended December 31, 1998. Research and
development expenses were $1,903,821 in 1999 compared to $768,280 in 1998
and general and administrative expenses rose to $1,183,996 in '99 from
$1,068,429 for the comparable quarter in '98. The increase in the
administrative costs primarily relate to the hiring of full time employees,
implementation of management employment agreements, market making expenses
relating to investor relations and an increase in the Company's marketing
efforts.
7
<PAGE>
PLAN OF OPERATIONS
RESEARCH AND DEVELOPMENT ACTIVITIES
Georgia Tech conducts a significant amount of research and development for us
pursuant to a basic ordering agreement comprised of a series of delivery orders,
which outline the timing, necessary actions and form of payment for specific
tasks related to the completion of certain components of the Traverser product
lines. After the development of the Traverser DVDDS version 1.1, we expect
Georgia Tech to continue research and development of the Traverser product to
enhance features and functionality, as well as to coordinate the effort to
develop the Traverser, version 2.0 and additional products utilizing Traverser
technology.
For the six months ended December 31, 1998, and 1999 and for the period since
inception (October 2, 1996) to December 31, 1999, approximately $1,565,000,
$2,284,000 and $6,884,000 respectively, has been billed to mPhase for
research and development conducted by Georgia Tech, of which approximately
$361,723 was included in accrued expenses as of December 31, 1999.
We are the sole, worldwide licensee of the technology developed by Georgia Tech
in conjunction with the Traverser product line. Upon completion of the
commercial product, Georgia Tech will receive a royalty of 3% to 5% of product
sales as defined.
The total amount of research and development costs we have expended from
inception (October 2, 1996) through December 31, 1999 was approximately
$9,447,500. During the six months ended December 31, 1999, we incurred
research and development expenses of approximately $3,394,900 as a
consequence of the continued development of our current DSL products.
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 system failures are not year 2000 compliant.
The Company has evaluated the computer systems they now have in use. The
Company experienced no difficulty at the turn of the new calendar year.
All costs associated with year 2000 compliance that have been incurred by the
Company have been expensed and have not been capitalized. The overall cost to
the Company of modifications and conversion for year 2000 compliance with
relation to the financial statements taken as a whole is not material. The
Company is advised by a substantial majority of its vendors of computer products
upgraded to be year 2000 compliant, or will not be affected by the year 2000
problem. The Company's business could be materially adversely affected if the
Company computer-based systems are not year 2000 compliant in a timely manner,
the Company incurs significant additional expenses pursuing year 2000
compliance, the Company's vendors do not timely provide year 2000 compliant
products, or the Company is subject to warranty or other claims by the Company's
clients related to product failures caused by the year 2000 problem.
8
<PAGE>
STRATEGIC ALLIANCES IMPLEMENTED
The manufacturer of the Company's TRAVERSER(TM) DIGITAL VIDEO and DATA
Delivery System (DVDDS), Flextronics International LTD. (NASDAQ: FLEX),
completed a pilot run of the central office equipment for the (DVDDS) system
and is presently conducting the pilot run for the Intelligent Network
Interface (INI) (a next generation set top box). The Company still maintains
a Spring Target of April or May of 2000 to make its initial products
available. The Company believes that the selection of Flextronics enhances
the Company's ability to implement the delivery system necessary to satisfy
what we hope to be a strong and evolving market demand.
On January 31, 2000 Newbridge Networks Corporation (NYSE: NN-NEWS), a leading
provider of networking solutions, agreed to re-sell the Company's filter
products, including the "POTS SPLITTER SHELF" and "SPLITTER CARD." The filter
products the Company provides Newbridge Networks will be the Company's first
products sold and utilized. The Company's management welcomes the opportunity
for the filter products to enable Newbridge Networks customers, which
includes 350 of the world's largest telecommunication services providers, to
provide quality, cost efficient voice, video and Internet access applications.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999 the Company had working capital of $2,199,034.
During the six months ended December 31, 1999 we raised additional capital of
approximately $1,313,000 through the issuance of common stock from the
exercise of warrants held by sophisticated investors in transactions exempt
from registration pursuant to Rule 506 of Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act of 1933. We also
received $510,500 from stock subscriptions receivable and approximately
$675,000 from the exercise of previously outstanding stock options. In
December 1999 and January 2000 we raised $440,000 and $3,560,000 for a total
of $4,000,000 through the issuance of 1,000,000 shares to sophisticated
investors in transactions exempt from registration pursuant to Rule 506
discussed above. As a result of these private offerings, we anticipate having
sufficient working capital through the end of fiscal year ending June 30,
2000. We do anticipate that, in connection with the full commercial
production of our Traverser DVDDS product, we will raise significant
additional funds through a public or private offering of our common stock or
otherwise.
9
<PAGE>
RISK FACTORS WHICH MAY AFFECT OUR BUSINESS
OUR OPERATING HISTORY IS VERY LIMITED.
We have limited operating history upon which you can evaluate our
performance. As an interested party or investor in our common stock, you
should consider the risks and difficulties we may encounter as in the rapidly
evolving market for high speed Internet access, additional telephone service
and digital television over existing copper telephone lines. These risks
include our ability to:
- complete our flagship products;
- implement our current strategy and obtain market
penetration when our products become available;
- anticipate and adapt to rapid changes in our markets;
- attract initial customers and maintain customer satisfaction.
If we do not successfully manage these risks, our business will suffer. We
cannot assure you that we will successfully address these risks or that our
business strategy will be successful.
WE EXPECT TO INCUR SUBSTANTIAL NET LOSSES FOR THE FORESEEABLE FUTURE.
We expect operating losses and negative cash flow for the foreseeable future
as we must invest in marketing and promotional activities, maintenance of the
Company's technology and operating systems, in addition to the continued
commitment we must maintain for research and development. We cannot be
certain when and if we will achieve sufficient revenues in relation to
expenses to become profitable. We believe that increasing our revenues will
depend in large part on our ability to:
- Complete the Beta-stage of our initial products;
- Gain market acceptance and market share which will be
dependent upon the timing, strength and success of our
strategic alliances;
- increase consumer awareness of our products and develop
effective marketing and other promotional activities to
develop our initial customer base;
- develop strategic relationships that balance the Company's
current and longterm ability to capitalize on its technology.
Our future profitability depends on generating and sustaining high revenue
growth while maintaining reasonable expense levels. Slower revenue growth than
we anticipate or operating expenses that exceed our expectations would harm our
business. If we achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability in the future.
WE EXPECT TO USE 3RD PARTY MANUFACTURERS.
Even though we have secured a third party to manufacture our products, the
potential for dependence on a third party manufacturer is inherently risky. If
there is a disruption in supply from Flextronics or another vendor that supplies
the Company with products and or components, we may be unable to complete the
products we desire to sell. Our sales would suffer as a result of a disruption
in the operations of any of our manufacturers.
10
<PAGE>
WE HAVE COMMON MANAGEMENT.
Necdet F. Ergul, our Chairman of the Board, Ronald A. Durando, our President and
Chief Executive Officer, and Gustave T. Dotoli, our Chief Operating Officer and
Vice President, respectively, are officers and Necdet F. Ergul and Ronald
Durando are shareholders as well of Microphase Corporation. We currently
purchase from Microphase passive components for the Traverser. Microphase also
provides resources and technology related to the development of the Traverser.
Microphase may not be the most economical provider of these components and
resources. In addition, we will pay to Microphase, going forward, a royalty
comprised of a percentage of the commercial product sales of DSL-related
technologies. Ronald A. Durando and Gustave T. Dotoli are president and
vice-president of PacketPort.com.
OUR SUCCESS DEPENDS ON INTELLECTUAL PROPERTY
Our success depends in part on our ability to protect our intellectual property.
To protect our proprietary rights, we have filed provisional patents and
copyright applications relating to some of our proposed products and technology.
Georgia Tech has filed an application for U.S. Patent for Georgia Tech's Digital
Video and Data System. Although we believe that certain of our technology is
patentable, the patents may not be obtained. Even if the patents are obtained,
they may not afford us sufficient protection for our technologies from third
party infringement. We may elect to seek foreign patent protection, but foreign
patent protection may not be granted. Our failure to protect our intellectual
property could materially adversely affect us.
COMPETITION
The telecommunications equipment market is characterized by swift
technological change. Several solutions such as fiber optic, cable, wireless
and satellite technologies compete with DSL for market share. Service
providers may use other technologies such as fiber optic cable, hybrid
coaxial cable, ISDN to deploy high-speed transmissions. Based on current
industry standards, we believe that XDSL can compete, particularly with
respect to telephone companies and other copperwire based service providers,
from the standpoint of cost effectiveness, superior technology and ease of
development.
Among equipment companies that supply DSL Technology, our competitors include
ADTRAN, Alacatel S.A., Aware, Inc., Pliant Technologies, CISCO Systems, Inc.,
ECI Telecom Ltd., Lucent Technologies, Next Level Communications, Inc.,
Orckit Communications, PairGain Technologies, TUT Systems, Westell
Technologies, AG Communications Systems, Copper Mountain, Nokia, Interspeed
and Paradyne Networks, Inc.
INTEGRATED SERVICES DIGITAL NETWORK. Emerging technologies for high speed
data transmission over copper lines include Integrated Services Digital
Network, or ISDN. ISDN currently delivers 128 Kbps computer networking
connections, which are two times faster than those available with the fastest
analog modems.
While ISDN does provide faster access than analog modems, it is expensive,
difficult to install, and not as fast as competing high speed technologies.
Moreover, it does not allow for simultaneous data transmission and normal
telephone service on the same line and it is not capable of delivering digital
television.
FIBER OPTIC CABLE. Fiber optic cable is another alternative that allows high
bandwidth transmission. However, it is expensive to install.
COAXIAL. Cable companies have begun offering high speed Internet access
through cable modems. These modems provide the potential of wider bandwidth
(up to 10 Mbps as compared to 56 Kbps analog modems). But coaxial cable is
relatively expensive and has the drawbacks associated with a shared bandwidth
medium.
11
<PAGE>
REGULATION
The Federal Communication Commission, or FCC, and various state public
utility and service commissions, regulate most of our potential domestic
customers. Changes to FCC regulatory policies may affect the accessibility of
services, and otherwise affect how telecommunications providers conduct their
business. These regulations may adversely affect our potential penetration
into certain markets. In addition, our business and results of operations may
also be adversely affected by the Imposition of certain tariffs, duties and
other import restrictions on components which we obtain from non-domestic
suppliers. Changes in current or future laws or regulations, in the U.S. or
elsewhere, could materially adversely affect our business.
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 potential. Stockholders of the Company should understand
that each of the foregoing risk factors, in addition to those discussed
elsewhere in this quarterly 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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------ -----------------
As of September 30, 1999 we had settled a litigation with
Global Music and Media Inc. which had asserted it had the
exclusive right to market our technology. This litigation was
resolved in August 1999 in a settlement agreement wherein
Global Music surrendered its claim to the Company's technology
in exchange for the Company to settle claims of Hal Willis
against Global for a cash payment of $100,000, the issuance of
75,000 shares of the Company's common stock and option to
purchase another 75,000 shares at $5.6275 per share and the
payment of $90,000 to Global to settle employee claims, the
cost of which has been recorded in the financial statements as
of June 30, 1999. The agreement also called for the repurchase
of 75,000 shares of the Company's common stock from the owners
of Global by the Company or its co-defendant, Microphase
Corporation. Microphase repurchased these shares in August,
1999.
Other than the Global Music litigation, we were and are not a
party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
- ------ ---------------------
During the six months ended December 31, 1999, 1,751,845
warrants to purchase the Company shares for $.75 were
exercised generating gross proceeds to the Company of
$1,313,884; pursuant to an option granted July 15, 1998,
352,259 shares were issued to an investment banking firm;
75,000 shares were issued in connection with the settlement
discussed in Item One above, and 225,000 shares were issued
pursuant to the exercise of options generating net proceeds
to the Company of $275,000 through September. Additionally
400,000 shares were issued to an investment banking firm
pursuant to an option, in October 1999. In December, 1999
110,000 shares and in January 2000, 890,000 shares
respectively, were issued to investors for $4.00 a share
which subscribed to an offering intended to be exempt from
registration pursuant to Rule 506 of the U.S. Securities and
Exchange Commission. On January 26, 2000, the Board of
Directors authorized the stated value to $.01 per share for
its common stock. The Company plans to formally change its
par value to $.01 at the next shareholders' meeting.
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
13
<PAGE>
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: February 22, 2000 By: /s/ RONALD A. DURANDO
------------------------------------
Ronald A. Durando, President, CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
By: /s/ Ronald A. Durando February 22, 2000
-------------------------
President, CEO
By: /s/ Gustave T. Dotoli February 22, 2000
-------------------------
Vice President, COO
By: /s/ John Randazzo February 22, 2000
-------------------------
Accounting and Finance
14
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
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0
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