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<title>mPhase Technologies, Inc.: Form S-1 - Prepared by TNT Filings Inc.
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<hr color="#000000" size="5"><b><font FACE="Times New Roman PS" size="2">
<p align="center">As filed with the Securities and Exchange Commission on March
17, 2005 </p>
<p align="right">Registration No. 333-_______ </p>
</font><font FACE="Times New Roman PS">
<p align="center">SECURITIES AND EXCHANGE COMMISSION</p>
<p align="center">Washington, D.C. 20549</font><font FACE="Times New Roman PS" SIZE="6"></p>
<p align="center">FORM S-1</p>
<p align="center"></font><font FACE="Times New Roman PS">REGISTRATION STATEMENT
<br>
UNDER <br>
THE SECURITIES ACT OF 1933 </font><font FACE="Times New Roman PS" SIZE="6"></p>
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      <p align="center">mPHASE TECHNOLOGIES, INC.</b></font></td>
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      <p align="center">(Exact name of registrant as specified in its charter)</font></td>
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      <b>New Jersey</b></font></td>
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      <b>7385</b></font></td>
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      <b>22-2287503</b></font></td>
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      (State or other jurisdiction</font></td>
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      (Primary Standard Industrial</font></td>
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      Employer</font></td>
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      <td WIDTH="33%" align="center"><font FACE="Times New Roman PS" SIZE="2">of
      incorporation or organization)</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PS" SIZE="2">
      Classification Code Number)</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PS" SIZE="2">
      Identification Number)</font></td>
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<font FACE="Times New Roman PS" SIZE="2"><b>
<p ALIGN="CENTER">587 Connecticut Avenue <br>
Norwalk, Connecticut 06854-1711 <br>
Telephone: (203) 838-2741 <br>
</b>(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices) </p>
<p ALIGN="CENTER"><b>Martin S. Smiley <br>
Chief Financial Officer <br>
mPHASE TECHNOLOGIES, INC. <br>
587 Connecticut Avenue <br>
Norwalk, Connecticut 06854-1711 <br>
Telephone: (203) 831-2242 <br>
Telecopy: (203) 853-3304 <br>
</b>(Name, address, including zip code, and telephone number, including area
code, of agent for service) </font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement. </p>
<p>If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>Securities Act of 1933, check the following box. </p>
<p>If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. </p>
<p>If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. </p>
<p>If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. </p>
<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. </p>
</font>
<p>&nbsp;</p>
<p>&nbsp;</p>
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    <p align="center">CALCULATION OF REGISTRATION FEE</b></font></td>
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    <td WIDTH="19%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman PS" SIZE="2">
    Proposed</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman PS" SIZE="2">
    Proposed</font></td>
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    <td WIDTH="19%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
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    maximum</font></td>
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    maximum</font></td>
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    <td WIDTH="19%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
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    offering</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman PS" SIZE="2">
    aggregate</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman PS" SIZE="2">
    Amount of</font></td>
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    Title of each class of</font></td>
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    Amount to be</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman PS" SIZE="2">
    price per</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman PS" SIZE="2">
    offering</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman PS" SIZE="2">
    Registration</font></td>
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    <td WIDTH="19%" align="center" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">securities to be registered</font></td>
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    <font FACE="Times New Roman PS" SIZE="2">Registered</font></td>
    <td WIDTH="20%" align="center" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">share(1)</font></td>
    <td WIDTH="20%" align="center" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">price(1)</font></td>
    <td WIDTH="20%" align="center" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">fee</font></td>
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    <font FACE="Times New Roman PS" SIZE="2"><b>Stock, no par value</b></font></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2"><b>178,046,810</b></font></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2"><b>$0.505</b></font></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2"><b>$ 89,913,639</b></font></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2"><b>$10,593</b></font></td>
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<font FACE="Times New Roman PSMT" SIZE="2">
<p>(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, on the
basis of the average of the bid and ask prices per share of our common stock, as
reported on the OTC Bulletin Board, on March 16, 2005. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE. </p>
</b></font>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS"><b>
<p>March 17, 2005</b></font><font FACE="Times New Roman PSMT"> </font><b></p>
<font FACE="Times New Roman PS">
<p align="center">PROSPECTUS <br>
mPHASE TECHNOLOGIES, INC. </font><br>
</b>
    <font FACE="Times New Roman PS"><b>178,046,810</b></font><font FACE="Times New Roman PSMT">
</font><font FACE="Times New Roman PS"><b>Shares of Common Stock </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>This prospectus relates to the resale of up to 178,046,810 shares of common
stock, of which 77,676,057 shares are issued and outstanding and up to
100,370,753 shares may be issued upon the exercise of warrants, options and
convertible notes
held by the selling stockholders. The selling stockholders listed on pages 67-78
may sell the shares from time to time. </p>
<p>Our common stock is listed on the Over-the-Counter Bulletin Board under the
symbol &quot;XDSL.OB&quot; The last reported sales price of our common stock on March 16,
2005 was $.49 per share. </p>
<p>THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. PLEASE
REFER TO &quot;RISK FACTORS&quot; BEGINNING ON PAGE 8. </p>
<p>Our principal executive offices are located at 587 Connecticut Avenue,
Norwalk, Connecticut 06854-1711. Our phone number is (203) 838-2741. </p>
<p ALIGN="JUSTIFY">NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
REGULATORY BODY HAS APPROVED OR DISAPPROVED ANY OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. </p>
<p>The date of this prospectus is March 17, 2005 </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
</b></font>
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      <font FACE="Times New Roman PS" SIZE="2"><b>TABLE OF CONTENTS</b></font></td>
    </tr>
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      <td WIDTH="31%">&nbsp;</td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right">&nbsp;</td>
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      <td WIDTH="31%">&nbsp;</td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Page</b></font></td>
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    <tr>
      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Prospectus
      Summary</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      1</b></font></td>
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    <tr>
      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>The Offering</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      4</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>
      Forward-Looking Statements</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      4</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Summary
      Financial Data</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      6</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Risk Factors</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      8</b></font></td>
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    <tr>
      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Use of
      Proceeds</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      11</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Price Range of
      Common Stock</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      12</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Selected
      Financial Data</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      13</b></font></td>
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    <tr>
      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Selected
      Quarterly Financial Data</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      14</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Company
      Operations</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      17</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Business</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      36</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Legal
      Proceedings</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      52</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Our Management</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      52</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Stock Options</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      55</b></font></td>
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      <td WIDTH="64%" COLSPAN="2"><font FACE="Times New Roman PS" SIZE="2"><b>
      Security Ownership of Certain Beneficial Owners and Management</b></font></td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      58</b></font></td>
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      <td WIDTH="64%" COLSPAN="2"><font FACE="Times New Roman PS" SIZE="2"><b>
      Certain Relationships and Related Transactions</b></font></td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      60</b></font></td>
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    <tr>
      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Selling
      Stockholders</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      66</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Plan of
      Distribution</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      72</b></font></td>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Description of
      Securities</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      74</b></font></td>
    </tr>
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      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Legal Matters</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      75</b></font></td>
    </tr>
    <tr>
      <td WIDTH="31%"><font FACE="Times New Roman PS" SIZE="2"><b>Experts</b></font></td>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      76</b></font></td>
    </tr>
    <tr>
      <td WIDTH="64%" COLSPAN="2"><font FACE="Times New Roman PS" SIZE="2"><b>
      Where You Can Find Additional Information</b></font></td>
      <td WIDTH="36%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      76</b></font></td>
    </tr>
  </table>
  </center>
</div>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THOSE
DOCUMENTS TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED
WHERE IT IS LEGAL TO SELL THESE SECURITIES. </p>
<p ALIGN="left">THE DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING SALE DOES
NOT IMPLY THAT: (1) THERE HAVE BEEN NO CHANGES IN OUR AFFAIRS AFTER THE DATE OF
THIS PROSPECTUS; OR (2) THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
AFTER THE DATE OF THIS PROSPECTUS. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS"><b>
<p align="center">PROSPECTUS SUMMARY </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>You should read this Prospectus Summary together with the more detailed
information contained in this prospectus, including the risk factors and
financial statements and the notes to the financial statements. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those discussed in the forward-looking
statements. Factors that might cause such a difference include those discussed
in the Risk Factors section and elsewhere in this prospectus. </p>
<p>From inception (October 2, 1996), through December 31, 2004 the Company had
incurred (unaudited) development stage losses and has an accumulated deficit of
approximately $120,912,875 million and a stockholders' deficit of approximately
$3,069,329 respectively. Cumulatively, through June 30, 2004 and December 31,
2004, (unaudited) the Company had negative cash flows from operations of
approximately $47.8 million and $50.9 million respectively. The auditors report
for the fiscal year ended June 30, 2004 is qualified as to the Company's ability
to continue as a going concern. Management estimates the Company needs to raise
between $5 million and $10 million</font><font FACE="Times New Roman PSMT" SIZE="2">
</font><font FACE="Times New Roman PSMT" SIZE="2">during the next 12 months to
sustain its current level of operations. </p>
</font><font FACE="Times New Roman PS"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase Technologies, Inc. (mPhase, the Company, we or us), a New Jersey
corporation, founded in 1996 is a publicly-held company with approximately
12,000 shareholders and approximately 130,410,957 million shares of common stock
outstanding as of March 15, 2005. mPhase is a developer of broadband
communications products, specifically, digital subscriber line (DSL) products
for telecommunications service providers around the world. Since our inception
in 1996 we have been a development-stage company. </p>
<p>The Company's common stock is traded on the NASDAQ Over the Counter Bulletin
Board under the ticker symbol XDSL. We are headquartered in Norwalk, Connecticut
with offices in Little Falls, New Jersey and New York, N.Y. mPhase shares common
office space and common management with Microphase Corporation, a privately-held
company. Microphase sells radio frequency and filtering technologies to the
defense and telecommunications industry. Microphase has been in operation for 50
years and supports mPhase with engineering, administrative and financial
resources, as needed. </p>
<p>Our primary activities have consisted of designing, manufacturing and testing
our flagship products designed to deliver broadcast television over DSL. We have
not, as yet, derived significant sales revenue from such products. Our products
facilitate telephone companies becoming full service communications providers by
enabling the simultaneous delivery of digital broadcast television, high speed
data and voice services over the existing telephone line infrastructure. mPhase
has developed its flagship line of products primarily for telephone companies in
parts of the world where access to multi-channel television is limited. </p>
<p ALIGN="JUSTIFY">In February of 2004, the Company entered into the field
of Nanotechnology research and development of micro power cell batteries of
various voltages. The initial goal is to develop batteries for military
applications capable of operating for significantly longer periods of time than
are currently available in the market. The Company believes that such
development is consistent with its strategy of being a pioneer in areas of high
growth technology and potentially diversifies its mix of products.&nbsp; On
March 11, 2005 the Company announced that it had expanded its nanotechnology
research and efforts to develop uncooled magnetic ultra sensors as a new product
line.</p>
<p>mPhase introduced its first TV over DSL platform, the Traverser Digital Video
and Data Delivery System (DVDDS) in 1998. The DVDDS, is a patented end-to-end
system that enables a telecommunications service provider to deliver up to
several hundred channels of motion picture experts group two (MPEG-2) standard
broadcast digital television, high speed internet and plain old telephone
service (POTS) over copper telephone lines between a central office facility
(CO) of the provider and a customer's premise. mPhase has not, derived any
material revenues from sales of the DVDDS and has replaced the product with its
newer TV+ platform. The DVDDS is a proprietary technology developed in
conjunction with Georgia Tech Research Corporation (GTRC) that allows for the
delivery of any television channel to all users at any given time without a
dilution in quality. The system is the only system that utilizes non-internet
protocol for the delivery of broadcast television over Asymmetric DSL (ADSL).
The DVDDS is installed at Hart Telephone Company in Hartwell, Georgia, where a
limited user system is currently operational that is currently being replaced by
the Company's newer TV + system. A DVDDS system is also installed at the BMW
manufacturing plant in Spartanburg, South Carolina for use as a telebroadcast
system in a commercial setting. </p>
<p>The new mPhase TV+ system replaced the legacy  Traverser DVDDS system
and is developed in conjunction with Bell Laboratories
division of Lucent Technologies, Inc.&nbsp; The TV+ solution is also designed to allow for the
simultaneous delivery of voice, high speed data, and broadcast TV over copper
telephone lines between a telephone service provider's central office (CO) and
the customer premises. The TV+ system was developed in conjunction with Bell
Laboratories as an outgrowth of mPhase's engagement of Bell Labs in fiscal year
2003 to cost reduce mPhase's set top box that operated with the legacy DVDDS
system developed by GTRC. The TV+ system replaces the DVDDS system with an open
industry standards-based platform. Release 1 of the mPhaseTV+ system is complete
and ready for commercial deployment. The TV+ system delivers 255 broadcast
television channels over ADSL and utilizes an industry-leading, standards-based
Lucent Technologies, Inc.'s Stinger&#153 DSL Access Concentrator (DSLAM) for
transport of digital television plus high speed internet and voice. The mPhase
TV+ system consists of a powerful software platform and a cost reduced set top
box located in a telephone customer's premises plus the Lucent </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>Stinger located at the Central Office of a telecommunications service
provider or in the loop servicing the customer. </p>
<p>The mPhase TV+ system provides comprehensive end to end management of
delivery of digital broadcast television by interfacing with the Stinger and a
video headend built by a telephone service provider to downlink broadcast
television programming from satellites. mPhase software manages the broadcast
television compressed data prior to the distribution to a customer by the
Stinger and supports administrative tasks associated with subscriber management.
The use of the Lucent Stinger (digital subscriber line access mutiplexer
commonly known as a DSLAM) for transport in the TV+ system results in a highly
scalable architecture for the delivery of broadcast television. This is
accomplished by internally multicasting each television channel for delivery
from the CO to a larger number of end users. Release 1.0 of the TV+ system is
capable of distributing 255 channels of broadcast television simultaneously to
455 customers by one Lucent Stinger DSLAM concentrator. We believe that the TV+
platform is the most cost-effective standards-based solution for delivery of
broadcast television using ADSL. For mPhase the alliance with Lucent marks a
change in strategy from selling a complete proprietary platform to providing an
industry-standards solution. </p>
<p>The Company believes that the demand for the TV+ system will be greatest in
markets primarily outside of the United States that do not have a hybrid fiber
coaxial cable (&quot;HFC&quot;) infrastructure necessary for cable TV or fiber to the curb
necessary for very fast DSL (VDSL). We believe there is a significant cost
advantage when our mPhase TV+ solution is compared against other platforms
utilizing existing telephone lines containing the </font>
<font FACE="Times New Roman PS" SIZE="2"><i>same </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">features. Release 2.1 of the mPhase
TV+ system completed in March of 2005 does not contain features such as the
delivery of two or more TV channels over a single DSL copper telephone line,
video on demand, or interactive TV. Release 2.1 of the TV+ contains the same basic characteristics of Release 1.0 plus
an enhanced electronic program guide. Releases 1.0 and 2.0 of the TV+ system are
designed to operate only with the Lucent Stinger DSLAM. </p>
<p>In December of 2004, the Company announced that Lucent Russia selected the
mPhase TV+ platform to deploy to 1000 customers of one of seven regional
telecommunications operators in Russia that are part of a Russian Holding
Company with over 15 million customers. The Company also announced that it had
reached agreement with Beyaz Holding Company, an owner of Turkey's leading
television news and entertainment station to provide technology for the
introduction of an array of new digital television services throughout Turkey. </p>
<p>Release 3.0 of the TV+ solution, expected to be completed in the fourth
quarter of fiscal year 2005, will utilize a communications framework based upon
Internet Protocol (IP) instead of Asynchronous Transfer Mode (ATM) that is
utilized by Releases 1.0 and 2.1. ATM is an industry standard for transportation
of data based upon a packaging of information into a fixed-size cell format for
transportation across networks. Many telecommunications service providers
currently deploy equipment that handles this protocol because it can support
voice, video, data and multimedia applications simultaneously with a high degree
of reliability. IP is another transport protocol that maintains network
information and routes packets across networks. IP packets are larger and can
hold more data than ATM cells. Historically, there have been concerns that
service providers would be unable to provide the same quality of service with IP
because it is not optimized for time-sensitive signals such as broadcast
television and voice. Nevertheless, there is a greater demand by
telecommunication service providers for IP systems for delivery of television,
voice and high-speed data because such systems are significantly more cost
effective to deploy based upon greater scalability. </p>
<p>Release 3.0 of the TV+ system consists primarily of highly scalable system
management software designed to deliver IP television, video on demand, high
speed internet and voice over both fiber and copper infrastructures of a
telephone service provider. It will operate with both the Lucent Stinger as
well as the DSLAM's of other major vendors. Release 3.0 of the TV system will
also be able to send multiple TV channels down a single DSL line using ADSL2
supported DSLAM's and be capable of delivery of Video on Demand. As ADSL
technology migrates forward to ADSL2 or ADSL2+, mPhase plans to include
additional features in future versions of the TV+ system in a scalable, cost -
effective manner depending upon </font><font FACE="Times New Roman PS" SIZE="2">
<i>actual </i></font><font FACE="Times New Roman PSMT" SIZE="2">market demand
for such features in markets that mPhase is targeting. In addition, mPhase will
be continuously updating its set top box to be used as part of the TV+ system
and as a stand - alone product. </p>
<p>In those television markets in the United States that are not served by HFC,
we believe that the availability of programming content is essential to
facilitate potential sales of our systems enabling delivery of broadcast
television over ADSL. In March of 2000, we established mPhase Television net.,
Inc. (mPhase TV), a joint venture between mPhase and Alphastar International,
Inc. mPhase TV is experienced in negotiation contracts with broadcast television
programming providers for U.S. markets. mPhase TV has secured licenses to resell
programming for a significant number of channels of U.S. broadcast television
over DSL. mPhase TV is capable of providing and arranging with packagers of
television content a full complement of broadcast television channel content for
U.S. telecommunications service providers that may be sent over DSL. This
enables a U.S. telecommunications service provider to avoid the necessity of
securing such contracting rights individually with many different providers of
broadcast television content. mPhase owns approximately 57% of mPhase TV. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>NanoTechnology Products </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Effective February 3, 2004, mPhase entered into a 12 month research and
development agreement with the Bell Labs division of Lucent Technologies, Inc.
to develop micro power cell battery arrays employing nantextured
superhydrophobic materials for $1.2 million. The Company has extended the
contract with Lucent for another 12 months at approximately the same cost to
continue development of such product. Under the terms of the contract, the
Company will share in royalties from any licensing of the products developed
with Lucent. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>mPhase believes that the initial market for the product will be military
applications. A feasibility prototype of the product was completed during the
second quarter in fiscal year 2005. </p>
<p>On March 11, 2005, the Company announced that it had entered into a new 12
month research and development agreement with the Bell Labs division of Lucent
Technologies Inc at a cost of approximately $1.2 million to co -develop and
commercialize uncooled magnetic ultra-sensitive sensors for a host of defense
and civilian applications. The sensors, technically referred to as
magnetometers, are based upon Micro Electro Mechanical Systems, and are being
designed to create a new generation of uncooled ultra sensitive magnetic field
sensors. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>mPhase DSL Component Products </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase also has designed and markets a line of DSL component products ranging
from items such as Plain Old Telephone Service (POTS) splitters to innovative
loop management products. From our inception in 1996 to date virtually all of
mPhase's revenue has been derived from sales of our DSL products such as POTS
splitters and low pass filters. </p>
<p>Our newest innovation in our suite of DSL component products is our </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS or Intelligent POTS splitter
product. This product enables telephone service providers comprehensive remote
and automated test access to all elements of a DSL network. The </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS, and </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS3 allow a telephone service
provider to bypass POTS splitters on a DSL network and avoid having to manually
intervene and disrupt line usage so a test signal can pass through a DSL
network. This product marks an advancement in automating DSL loop management. As
DSL deployments increase, it is becoming more important for telecommunications
service providers to streamline the process for rolling-out and troubleshooting
DSL services. Additionally, as competition for high speed Internet expands, the
market is witnessing a reduction in the price for such service. Therefore, it
has become imperative that telecommunications service providers lower the
operational costs involved with deploying and supporting DSL services. Currently
our </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>1 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">is designed for use with the Lucent
Stinger, whereas, the </font><font FACE="Times New Roman PS" SIZE="2"><i>iPOTS3
</i></font><font FACE="Times New Roman PSMT" SIZE="2">(recently renamed the
Broadband Loop Watch product)</font><font FACE="Times New Roman PS" SIZE="2"><i>
</i></font><font FACE="Times New Roman PSMT" SIZE="2">is compatible with digital
subscriber line access multiplexers (data transport devices) DSLAM's
manufactured by other vendors. mPhase has a non-exclusive worldwide distribution
agreement with Corning Cable Systems for the sale of the </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS products and continues to market
such products directly. </p>
<p ALIGN="JUSTIFY">In November of 2004, the Company announced that Lucent
Technologies Saudi Arabia's telecommunications deployment selected the Company's
Broadband Loop Watch product. The broadband loop management system is designed
to reduce operating and maintenance expenses associated with DSL deployments by
telecommunications service providers. </p>
<p>For the year ending June 30, 2004 sales from our POTS Splitter Shelves were
$4,641,346 with a Net Loss of $7,758,586 as compared to POTS Splitter Shelf
sales of $351,027 and a Net Loss of $6,650,211 for the fiscal year ended June
30, 2003. For the six months ending December 31, 2004 (unaudited), sales from
POTS Splitter Shelves and our TV + platform totalled $474,687 with a Net Loss of $5,137,792 compared to
sales (exclusively of POTS SPLITTERS) of $3,780,137 and a Net Loss of $2,565,373 for the same period ending
December 31, 2003. (See Financial Statements which commence on page F-1.) </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>THE OFFERING </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Common stock offered: Up to 178,046,810 shares of common stock, of which
77,676,057 shares are issued and outstanding and up to 100,370,753 shares may be
issued pursuant to convertible notes and upon exercise of warrants and options
held by the selling stockholders. </p>
<p>Common Stock to be outstanding after this offering: Approximately 130,410,957
shares of common stock. This does not include an aggregate of 102,932,753 shares
that are reserved for issuance pursuant to convertible notes, outstanding
employee stock options, non-employee stock options and warrants. </p>
<p ALIGN="JUSTIFY">Use of proceeds: We will not receive any proceeds from the
sale and issuance of the common stock included in this offering. However, we
will receive approximately $39,123,042 upon the conversion of convertible notes
and the exercise of all of the warrants and options by the selling stockholders,
which would be used for general working capital. </p>
<p ALIGN="JUSTIFY">Risk Factors: An investment in our common stock is subject to
significant risks. You should carefully consider the information set forth in
the &quot;Risk Factors&quot; section of this prospectus as well as other information set
forth in this prospectus, including our financial statements and related notes.
</p>
<p>Dividend policy: We do not expect to pay dividends on our common stock in the
foreseeable future. We anticipate that all future earnings, if any, generated
from operations will be retained to develop and expand our business. </p>
<p>Plan of Distribution: The shares of common stock (OTC Bulletin Board symbol:
XDSL.OB) offered for resale may be sold by the selling stockholders pursuant to
this prospectus in the manner described under &quot;Plan of Distribution.&quot; </p>
<p>We have applied for trademarks on certain marks which relate to our products.&nbsp; This prospectus also contains product names, trade
names and trademarks of ours as well as those of other organizations. All other
brand names and trademarks appearing in this prospectus are the property of
their respective holders. </font><font FACE="Times New Roman PSMT" SIZE="5"></p>
</font><font FACE="Times New Roman PS"><b>
<p align="center">FORWARD-LOOKING STATEMENTS </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>In addition to the other information contained in this prospectus, investors
should carefully consider the risk factors disclosed in this prospectus,
including those beginning on page 12, in evaluating an investment in our common
stock. This prospectus includes &quot;forward-looking statements&quot;. All statements
other than statements of historical fact are &quot;forward-looking statements&quot; for
purposes of these provisions, including any projections of earnings, revenues or
other financial items, any statements of the plans and objectives of management
for future operations, any statements concerning proposed new products or
services, any statements regarding future economic conditions or performance,
and any statement of assumptions underlying any of the foregoing. In some cases,
forward-looking statements can be identified by the use of terminology such as
&quot;may&quot;, &quot;will&quot;, &quot;expects&quot;, &quot;plans&quot;, &quot;anticipates&quot;, &quot;estimates&quot;, &quot;potential&quot;, or
&quot;continue&quot; or the negative thereof or other comparable terminology. </p>
<p ALIGN="left">Although we believe that the expectations reflected in the
forward-looking statements contained herein and in such incorporated documents
are reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to inherent risks and uncertainties,
including but not limited to the risk factors set forth above and for the
reasons described elsewhere in this prospectus. All forward-looking statements
and reasons why results may differ included in this prospectus are made as of
the date hereof, and we assume no obligation to update any such forward-looking
statement or reason why actual results might differ. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">SUMMARY FINANCIAL DATA </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The summary financial data set forth below should be read in conjunction with
&quot;Management's Discussion and Analysis of Financial Condition and Results of
Operations&quot; and the historical consolidated financial statements and notes
included in this prospectus. The statements of operations data from October 2,
1996 (date of inception) to June 30, 1998 are derived from financial statements
that have been audited by (i) Schuhalter, Coughlin &amp; Suozzo, PC, independent
auditors from inception to June 30, 1998, and (ii) by Arthur Andersen for the
years ended 1999, 2000 and 2001 included in this prospectus. The statement of
operations data for the year ended June 30, 2002, June 30, 2003 and June 30,
2004 are derived from the financial statements that have been audited by
Rosenberg, Rich, Baker, Berman &amp; Company in this prospectus. </font>
<font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="349">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="263" COLSPAN="3" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Year Ended June 30,</b></font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="150" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Cumulative</b></font></td>
  </tr>
  <tr>
    <td WIDTH="349">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="150" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>from inception</b></font></td>
  </tr>
  <tr>
    <td WIDTH="349">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="150" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>October 2, 1996</b></font></td>
  </tr>
  <tr>
    <td WIDTH="349">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="150" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>to June 30, 2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="349">&nbsp;</td>
    <td WIDTH="33" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>2000</b></font></td>
    <td WIDTH="33" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>2001</b></font></td>
    <td WIDTH="33" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="33" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="33" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" size="2"><b>2004</b></font></td>
    <td WIDTH="34" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349">&nbsp;</td>
    <td WIDTH="33" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="707" align="center" colspan="9"><font size="2">(in thousands,
    except share data)</font></td>
    <td WIDTH="34" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">STATEMENT OF</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">OPERATIONS DATA:</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Total revenues</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">279</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">10,524</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">2,582</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">1,582</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">4,641</font></td>
    <td WIDTH="34" align="right"><font size="2">$</font></td>
    <td WIDTH="116" align="right"><font size="2">19,609</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Costs and Expenses:</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Cost of sales</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">132</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">5,805</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">2,415</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">1,493</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">4,270</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font size="2">14,115</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Research and</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">development</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">10,157</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">10,780</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">3,820</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">3,538</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">3,928</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font size="2">38,275</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">General and</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">administrative</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">27,859</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">17,322</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">7,039</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">2,684</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">4,118</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font size="2">78,995</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Depreciation and</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">amortization</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">471</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">660</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">670</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">515</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">123</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font size="2">2,889</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Operating loss</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(38,340)</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(24,043)</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(11,361)</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(6,649)</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(7,798)</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font size="2">(114,666)</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Other income (expense), net</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">20</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">-</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">142</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">50</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">150</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font size="2">(1,104)</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Interest income (expense)</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">158</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">43</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(26)</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(51)</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">(111)</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font size="2">5</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Net loss</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(38,162)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(24,000)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(11,245)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(6,650)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(7,759)</font></td>
    <td WIDTH="34" align="right"><font size="2">$</font></td>
    <td WIDTH="116" align="right"><font size="2">(115,775)</font></td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Basic and diluted net</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">loss per share</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(1.41)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(.72)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(.23)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(.10)</font></td>
    <td WIDTH="33" align="right"><font size="2">$</font></td>
    <td WIDTH="115" align="right"><font size="2">(.10)</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">Shares used in basic and</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">diluted</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="349"><font size="2">net loss per share</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">26,974,997</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">33,436,641</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">49,617,280</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">65,217,088</font></td>
    <td WIDTH="33" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font size="2">77,677,120</font></td>
    <td WIDTH="34" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>* Does not include any common stock equivalents since their effect would be
anti-dilutive. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="107%" colspan="11" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>Year Ended June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="107%" colspan="11" align="center">
    <font FACE="Times New Roman" size="2">(in thousands)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <b><font size="2">2000</font></b></td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <b><font size="2">2001</font></b></td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <b><font size="2">2002</font></b></td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <b><font size="2">2003</font></b></td>
    <td WIDTH="7%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="7%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <b><font size="2">2004</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">BALANCE SHEET DATA:</font></td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="6%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="7%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="7%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Cash and cash
    equivalents</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">6,432</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">31</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">47</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">397</font></td>
    <td WIDTH="7%" align="right"><font size="2">$</font></td>
    <td WIDTH="7%" align="right"><font size="2">90</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Working capital
    (deficit)</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">3,557</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">(1,458)</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">(94)</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">(1,405)</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font size="2">(2,112)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Total assets</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">11,184</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">8,997</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">6,942</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">3,782</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font size="2">2,591</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Long-term obligations,
    net of current portion</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">-</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">90</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">2,891</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font size="2">2,608</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font size="2">1,038</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Total stockholders'
    equity (deficit)</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">7,329</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">1,865</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">(42)</font></td>
    <td WIDTH="6%" align="right"><font size="2">$</font></td>
    <td WIDTH="6%" align="right"><font size="2">(3,229)</font></td>
    <td WIDTH="7%" align="right"><font size="2">$</font></td>
    <td WIDTH="7%" align="right"><font size="2">(2,918)</font></td>
  </tr>
</table>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="70%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">As of</font></td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
      December</font></td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">31,
      2004</font></td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">(Unaudited)</font></td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">(in
      thousands)</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
      <td WIDTH="33%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" style="border-top-style: solid; border-top-width: 1">
      <font FACE="Times New Roman" SIZE="2"><b>BALANCE SHEET DATA:</b></font></td>
      <td WIDTH="33%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Cash and cash
      equivalents</font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">1,011</font></td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Working capital
      (deficit)</font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
      (3,094)</font></td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Total assets</font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">$2,708</font></td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Total stockholders'
      equity (deficit)</font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
      $(3,069)</font></td>
    </tr>
  </table>
  </center>
</div>
<p><font size="2">The balance sheet data as of June 30, 2003 and 2004 is
derived from the financial statements that have been audited by Rosenberg, Rich,
Baker, Berman &amp; Company in this prospectus and the balance sheet data for
December 31, 2004, and include all adjustments (consisting of normal recurring
items) that management considers necessary for a fair presentation of the financial statements have been derived from the unaudited financial
statements reviewed by Rosenberg, Rich, Baker, Berman &amp; Company included in this
prospectus. </font> </p>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>The statement of operations data for the six months ended December 31, 2004
and December 31, 2003 have been derived from the unaudited financial statements
reviewed by Rosenberg, Rich Baker Berman &amp; Company included in this prospectus
and include all adjustments (consisting of normal recurring items) that
management considers necessary for a fair presentation of the financial
statements. The (unaudited) results for the six month period ended December 31,
2004 are not necessarily indicative of the operating results to be expected in
the future. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">
    Cumulative</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">Totals</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">From
    Inception</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="44%" colspan="2" align="center">
    <font FACE="Times New Roman" SIZE="2">Six Months Ended</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">(October
    2,</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="44%" colspan="2" align="center">
    <font FACE="Times New Roman" SIZE="2">December 31,</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">1996)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">to
    December 31,</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">2003</font></td>
    <td WIDTH="22%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">2004</font></td>
    <td WIDTH="23%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="45%" COLSPAN="2" align="right">
    <p align="center"><font size="2">(in thousands, except per share data)</font></td>
    <td WIDTH="23%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="22%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">(Unaudited)</font></td>
    <td WIDTH="22%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">(Unaudited)</font></td>
    <td WIDTH="23%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">(Unaudited)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman" SIZE="2">Total revenues</font></td>
    <td WIDTH="22%" align="right" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman" SIZE="2">$3,780</font></td>
    <td WIDTH="22%" align="right" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman" SIZE="2">$475</font></td>
    <td WIDTH="23%" align="right" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman" SIZE="2">20,084</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Expenses:</font></td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Cost of sales</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">3,290</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">375</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">14,288</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">1,455</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">2,156</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">40,573</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,518,411</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,780,291</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">
    81,835,388</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">74</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">129</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">3,018</font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Operating loss</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">(2,557)</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">(4,965)</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">
    (119,631)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Other income
    (expense), net</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">23</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">(173)</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">(1,282)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Interest income
    (expense)</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">(31)</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">(95)</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">(100)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">$(2,565)</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">(5,138)</font></td>
    <td WIDTH="23%" align="right"><font FACE="Times New Roman" SIZE="2">
    (120,913)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Basic and diluted net
    loss per share*</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">$(0.04)</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">$(0.06)</font></td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Shares used in basic
    and diluted</font></td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">net loss per share*</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">
    72,251,251</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman" SIZE="2">
    91,474,828</font></td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>*Does not include any common stock equivalents since their effect would be
anti-dilutive. </p>
</font>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS"><b>
<p align="center">RISK FACTORS </b></font>
<font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>An investment in the common stock offered by this prospectus involves a high
degree of risk. In addition to the other information in this prospectus and any
supplements to this prospectus, you should carefully consider the following
risks before making an investment decision. </i></font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Risks Related to Financial Aspects of Our Business </p>
<p>In fiscal year 2004, the Company entered into the new and emerging business
of Nanotechnology which entails significant development and commercial risk. </b>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company has expended a total of $1.2 million pursuant to a contract with
Lucent Technologies, Inc. to initially develop longer life fuel cells for
military applications. The Company expects to continue exploratory research with
Lucent Technologies, Inc. and has extended&nbsp; its current Development Agreement
with Lucent for an additional 12 months at a cost of $100,000 per month. The
Company believes that it will be a minimum of two years to develop a
commercially viable revenue producing product. Even though a feasibility
prototype product has been successfully developed, pure research involves a high
degree of risk with significant uncertainty as to whether a commercially viable
product will result. On March 10, 2005 the Company undertook an additional
capital commitment of $1.2 million to Lucent Technologies Inc for new research
and development of uncooled magnetic ultra sensors using the science of
Nanotechnology</font><font FACE="Times New Roman PS" SIZE="2"><b> </p>
<p>mPhase's stock price has suffered significant declines during the past four
years and remains volatile. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The market price of our common stock closed at $1.91 on February 20, 2001 and
closed at $.465 on March 16, 2005. Stocks in telecommunications equipment
providers of DSL products have been very volatile during such period. Our common
stock is a highly speculative investment and is suitable only for such investors
with financial resources that enable them to sustain the loss of their entire
investment in such stock. Because the price of our common stock is less than
$5.00 per share and is not traded on the NASDAQ National or NASDAQ Small Cap
exchanges, it is considered to be a &quot;penny stock&quot; limiting the type of customers
that broker/dealers can sell to. Such customers consist only of &quot;established
customers&quot; and &quot;Accredited Investors&quot; (within the meaning of Rule 501 of
Regulation D of the Securities Act of 1933, as amended-generally individuals and
entities of substantial net worth) thereby limiting the liquidity of our common
stock. </font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>We have reported net losses for each of our fiscal years from our inception
in 1996 and for the six months (unaudited) ended December 31, 2004 and December
31, 2003 respectively and may
not be able to operate profitability in the future. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We have had substantial operating losses since our inception in 1996
(including $7,758,586 and $6,650,211 for the fiscal year ended June 30, 2004 and
fiscal year ended June 30, 2003, respectively and (unaudited) $5,137,977 and
$2,565,377 for the six month period ending December 31, 2004 and December 31, 2003
respectively) and cannot be certain when or if we will ever be profitable. We
expect to continue to have net losses for the foreseeable future and have a need
to raise not less than $5-10 million in additional cash in the next 12 months
through further offerings to continue operations. We have never been profitable
from our inception in October, 1996 through December 31, 2004 (unaudited) and we
have incurred (a) accumulated losses of $120,912,875 and a stockholder's deficit
of $3,069,329 and (b) cumulative negative cash flow of $50,890,701. As of
December 31, 2004 (unaudited) we have a negative net worth of $3,069,329 and
negative working capital of $3,093,403. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Our independent auditor's report express doubt about our ability to continue
as a going concern. </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The reports of the Company's outside auditors' Rosenberg, Rich, Baker, Berman
&amp; Company with respect to its latest audited 10K for the fiscal years ended June
30, 2004, June 30, 2003 and June 30, 2002 stated that &quot;there is substantial
doubt of the Company's ability to continue as a going concern.&quot; Such opinion
from our outside auditors makes it significantly more difficult and expensive
for the Company to raise additional capital necessary to continue our
operations. </font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Our common stock is subject to significant dilution upon issuance of shares
we have reserved for future issuance. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>As of March 16, 2005, we have warrants, options and convertible notes outstanding convertible into
approximately 76,110,420 shares and 24,822,333 shares restricted and 2,000,000
shares respectively of mPhase common stock
which, upon conversion, may adversely affect the future price of our common
stock. As of March 16, 2005 we have warrants and options convertible into
approximately 66,267,795 and 13,215,000 shares of our common stock at $.35 per
share or less that, upon exercise, will result in significant dilution to many
of our current shareholders and may adversely affect the future price of our
common stock. As of March 16, 2005, the Company has approximately 2,000,000
shares of common stock reserved for the issuance upon the conversion of certain
12% convertible notes to related parties at an average exercise price $.28 per
share which may adversely affect the </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>future price of our common stock. We may be forced to raise additional cash
for operations by selling additional shares of our common stock at depressed
prices causing further dilution to our shareholders. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Risk Factors Related to Our Operations </p>
<p>We have been a development-stage company since our inception in 1996 and have
not to date had a significant deployment of either of our platform for delivery
of televison over DSL. </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>We have had to date no material revenues derived from sales of our legacy
Traverser Digital Video Data Delivery System (DVDDS) that has been replaced by
our mPhaseTV+ products or our new line of Intelligence POTS Splitters. There
have been to date only one deployment of our TV+ platform for 1000 customers of
a telecommunications service provider in Russia and no major deployments of
Television over DSL by telephone service providers globally of our products and
there currently is uncertainty as to the extent, if at all, that deployments
will occur in the future. </font><font FACE="Times New Roman PS" SIZE="2"><b>
</p>
<p>We depend upon outsourcing of our research and product development of our
television platform and Nanotechnology proucts to Lucent Technologies Inc. </b>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p ALIGN="JUSTIFY">We depend upon Lucent Technologies Inc. for the successful
development of our TV+ product, certain design and software used in our
Broadband Watch product and our lines of Nanotechnology products and our
business would be materially adversely affected if Lucent Technologies Inc. were
to terminate our relationship. </font><font FACE="Times New Roman PS" SIZE="2">
<b></p>
<p>The loss of key personnel could adversely effect our business. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Management and employment contracts with all of our officers have expired and
no assurances can be given that such executives will remain with the Company or
that the Company will be able to successfully enter into agreements with such
key executives. All of our officers and other key employees have been granted
stock options that are intended to represent a key component of their
compensation. Such options may not provided the intended incentives to such
persons if our stock price declines or experiences significant volatility.
</font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Economic support from affiliated companies has been significant. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>During the downturn in the telecommunications industry that has continued
over the past 4 years , both Microphase Corporation, and Janifast Ltd. had
provided significant financial support to mPhase in the form of either cash
infusions or conversions of related party debt. Such companies, which share
common management with mPhase, are under no legal obligation to and may not be
able to sustain such economic support of mPhase in the future should such
support be necessary. </font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Sales and margins from our component DSL products has varied dramatically
during the past four years and remains volatile. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Sales and gross margins from our POTS Splitter and other DSL products have
experienced a general decline and significant volatility during the period from
June 30, 2001 through December 31, 2005 as a result of the significant downturn
in capital spending by telecommunications service providers. Sales have declined
during each quarter of the fiscal year ended June 30, 2004 and continued to
decline during the first quarter of fiscal year 2005. Such decline has continued
through the second quarter of fiscal year 2005 and the outlook for continuing
growth in sales remains uncertain. Failure to achieve significant sales with
adequate gross margins with respect to our component DSL products will
negatively effect the cash available to the Company prior to commencement of
sales of our flagship television platforms thereby having a negative effect upon
the overall financial condition of the Company and the price of our common
stock. </font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>We rely on single sources for supply of a certain component for out POTS
splitter product that has been the source of all of our revenues to date. </b>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We purchase the core torroid which is a key component in our POTS Splitter
Product from VAC corporation. We purchase such component on a purchase order
basis and have no long term contract for the supply of such component. The loss
of this current source of supply could result in us having to redesign our
product at additional cost and result in lost revenues from our main source of
sales to date. </font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>We may incur substantial expenditures in the future in order to protect our
intellectual property. </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p ALIGN="JUSTIFY">Although our legacy Traverser DVDDS television platform is
patent-protected and not the subject of any infringement allegations we do not
have currently patents or patents pending for our TV+ product. The
telecommunications industry, in general, is characterized by a large number of
patents and frequent patent litigation based upon claims of patent infringement
when compared to other industries. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Risk Factors Related to Our Targeted Markets </p>
<p>Historically the sale of infrastructure products to telecommunication
providers in the international markets has a long lead time </p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<font FACE="Times New Roman PS" SIZE="2"><b>
<p>and a multiplicity of risks. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We expect the majority of our future revenues from our TV+ product to be
derived from international emerging markets and our success depends upon our
ability to sell our flagship television platform outside of the United States
where political, currency and regulatory risks are significantly greater. As a
result of their distance from the United States, different time zones, culture,
management and language differences, these operations pose greater risk than
selling in the United States. Our sales cycle for our TV + platform is
lengthy (since it involves a major strategic decision by an international
telecommunications service provider) and we may incur significant marketing
expenses with no guarantee of future sales. A significant market for our legacy Traverser DVDDS
never developed&nbsp; may never develop for our TV + platform&nbsp;
if international telephone service providers fail to successfully deploy
broadband services including high speed data and television Telephone service
providers worldwide have significantly decreased capital expenditures for
broadband and other deployment as a result of the current economic downturn in
the industry. Future market demand that will cause telephone service providers
to continue to aggressively roll out DSL, in general, is highly unpredictable
especially in markets outside of the United States. Certain telephone companies
(especially in developing international economies) may have copper wire
infrastructure that is not of sufficient quality to accommodate the mPhaseTV+
platform. Changes in foreign taxes and import duties and economic and political
instability in international markets pose a greater risk to our operations than
U.S. markets. </font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Our televison platform may not achieve compliance with regulatory
requirements in foreign countries. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p ALIGN="JUSTIFY">Our mPhaseTV+ platform may fail to meet foreign regulatory
standards. Since our targeted markets for our television platform involves
countries outside of the United States, such product is subject to greater
regulatory risks since it must comply with different standards of different
countries than can vary widely in the telecommunications industry. The failure
to meet such regulatory standards would result in potential customers in
countries outside of the United States not deploying of our TV+ platform. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>The telecommunications industry is subject to intense competition
characterized by swift changes in technology. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The telecommunications equipment industry is subject to swift and continuing
innovation and technological changes that could render our TV+ product obsolete
and intense competition in the industry could prevent our ever becoming
profitable. Our competitors that sell DSL systems that compete with and mPhaseTV+
system include much larger and better known and capitalized companies with
significantly greater selling and marketing experience and financial resources
such as ADC, Alcatel S.A and Microsoft in a joint venture., Calis, Catena
Networks, Copper Mountain, Diegeo, Advanced Fiber Communications, ECT
Telecommunications, Ericsson, Fujitsu, Marconi, Motorola, NEC, Nortel, Huawei
Technologies, Net to Net Technology, Nokia, UTS Starcom, DVTEL, Inc., Turnstone,
Paradyne Networks, Samsung, 2 Wire, Siemens, TuT Systems Scientific Atlantic,
and Optibase Wesell. We also face competition from companies that provide
infrastructure software products to deliver multi-channel digital television
over telephone such as Imagic TV, Minerva Corporation and Myrio
Corporation.Telephone service providers that are our targeted customers face
competition from cable-based technologies, fixed wireless technologies and
satellite technologies that may cause them not to deploy our TV+ product. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Deployment of our television platform requires certain additional investments
by telecommunications service providers. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Our Customers may need to build a digital head-end to download television
content from satellites involving a significant additional capital expenditure
to utilize the digital Television capabilities of our TV+ product. Such
additional capital costs to build a digital headend may cause a number of
potential customers not to deploy our TV+ platform. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>We may not be able to evolve our technology, products and services or develop
new technology, products and services that are acceptable to our customers. </b>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The market for our broadcast digital television platforms over DSL is
characterized by: </p>
<dir>
  <p>Rapid technology change; </p>
  <p>New and improved product introductions; </p>
  <p>Changing customer Demands; and </p>
  <p>Evolving industry standards and product obsolescence. </p>
</dir>
<p>Our future success will depend upon our ability to continually enhance our
existing broadcast digital television platforms as Asymmetric Digital Subscriber
Line (ADSL) technology migrates forward to ADSL2 and ADSL2+ with enhanced
features such as the ability to deliver multiple television channels to one set
top box and continually cost-reduce our platforms consistent with the demands of
telecommunications service providers. The development of enhanced and new
technology, products and services is a complex and uncertain process requiring
high levels of innovation, highly-skilled engineering and development personnel,
and the accurate anticipation of </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>technological and market trends. We may not be able to identify, develop,
market or support new or enhanced technology, products, or services on a timely
basis, if at all owing to our size and limited financial resources. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Telecommunications service providers outside of the United States must be
able to access sources for broadcast television content in order to deploy our
either of our television platforms. </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>In order to have an incentive to deploy either the TV+ platform, an
international telecommunications service provider must have access, to multiple
channels of Television programming from content providers at prices that enable
such provider to earn a profit from the deployment of television programming. In
certain of our key target markets, such as Brazil, only cable companies are
permitted under current law to provided such content and therefore a local
service provider must either establish a working relationship with such a cable
provider to have an incentive to utilize our products. </p>
</font>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>USE OF PROCEEDS </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The selling stockholders will receive the proceeds from the resale of the
shares of common stock. We will not receive any proceeds from the resale of the
shares of common stock by the selling stockholders. However, we will receive
approximately $39,168,942 if all of the warrants, options and convertible notes
are converted to purchase shares of common stock registered under this
prospectus are exercised, which would be used for general working capital.
</font><font FACE="Times New Roman PS" SIZE="2"><b></p>
<p align="center">PRICE RANGE OF COMMON STOCK </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p ALIGN="JUSTIFY">The primary market for our common stock is the OTC Bulletin
Board, where it trades under the symbol &quot;XDSL.OB&quot;. The following table sets
forth the high and low closing bid prices for the shares for the periods
indicated as provided by the National Quotation Bureau, Inc. The quotations
shown reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions. </font>
<font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="75%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Year/Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      High</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Low</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fiscal year
      ended June 30, 1999</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
      <td WIDTH="24%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>First Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $4.25</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $0.75</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Second Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      3.65625</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      1.5625</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Third Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      5.625</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      1.875</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fourth Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      8.75</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      2.90625</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fiscal year
      ended June 30, 2000</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
      <td WIDTH="24%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>First Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $9.25</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $2.96875</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Second Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      6.1875</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      2.50</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Third Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      19.125</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      6.50</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fourth Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      14.125</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      6.00</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fiscal year
      ended June 30, 2001</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
      <td WIDTH="24%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>First Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $9.25</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $3.00</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Second Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      5.9375</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      1.4688</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Third Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      3.38</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      1.22</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fourth Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      2.61</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      1.03</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fiscal year
      ended June 30, 2002</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
      <td WIDTH="24%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>First Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $1.67</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.31</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Second Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .86</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .31</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Third Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .62</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .27</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fourth Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .50</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .23</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fiscal year
      ended June 30, 2003</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
      <td WIDTH="24%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>First Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.32</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.15</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Second Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .31</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .15</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Third Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .36</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .19</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fourth Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .42</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      .28</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fiscal Year
      ended June 30, 2004</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
      <td WIDTH="24%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>First Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.42</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.29</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Second Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.61</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.26</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Third Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.69</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.41</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fourth Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.46</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.29</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Fiscal Year
      ended June 30, 2005</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
      <td WIDTH="24%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>First Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.31</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.21</b></font></td>
    </tr>
    <tr>
      <td WIDTH="53%"><font FACE="Times New Roman PS" SIZE="2"><b>Second Quarter</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.35</b></font></td>
      <td WIDTH="24%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      $.23</b></font></td>
    </tr>
  </table>
  </center>
</div>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>As of March 16, 2005 (unaudited), we had 130,410,957 shares of common stock
outstanding and approximately 12,000 stockholders. The last reported sales price
of our common stock on March 16, 2005 was $.465 per share. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">DIVIDEND POLICY </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We have never declared or paid any cash dividends on our common stock and do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be based upon our
financial condition, operating results, capital requirements, plans for
expansion, restrictions imposed by any financing arrangements and any other
factors that the board of directors deems are relevant. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p align="center">SELECTED FINANCIAL DATA </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The selected financial data set forth below should be read in conjunction
with &quot;Company Operations&quot; and the historical financial statements and notes
included in this prospectus The statement of operations data for the years ended
June 30, 1999, 2000 and 2001, are derived from financial statements that have
been audited by Arthur Andersen LLP, and the statement of operations data for
the years ended June 30, 2002, 2003 and 2004 are derived from financial
statements that have been audited by Rosenberg, Rich, Baker, Berman &amp; Company,
independent auditors, and are included in this prospectus. The operations data
for the quarterly periods ended September 30, 1999 and each quarter thereafter
to and including the quarter ended December 31, 2001 are derived from unaudited
financial statements reviewed by Arthur Andersen LLP and the operations data for
the quarterly periods from March 31, 2002 and each quarter thereafter through
and including the quarter ended December 31, 2004, have been derived from
unaudited financial statements reviewed by Rosenberg, Rich, Baker, Berman &amp;
Company, which include all adjustments (consisting of normal recurring items)
that management considers necessary for a fair presentation. The results for the
fiscal year ended June 30, 2004 and the results for the six months ended
December 31, 2004 are not necessarily indicative of the operating results to be
expected in the future. </font><font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="48%" COLSPAN="4" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>For The Year Ended</b></font></td>
    <td WIDTH="35%" COLSPAN="3" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>For the Six Months Ended December</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="48%" colspan="4" align="center" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>June 30,</b></font></td>
    <td WIDTH="35%" COLSPAN="3" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>31, (Unaudited)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2000</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2001</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>OPERATIONS</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>DATA:</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Total revenues</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$279,476</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $10,524,134</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $2,582,446</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,581,639</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $4,641,346</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $3,780,137</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$474,687</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Costs and</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Expenses:</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Cost of sales</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">131,756</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    5,804,673</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,415,129</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,493,394</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    4,068,255</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,289,937</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">374,905</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Research and</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">development</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    10,156,936</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    10,779,570</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,819,583</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,538,305</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    4,069,721</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,454,899</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,156,161</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">General &amp;</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">administrative</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    27,859,330</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    17,321,614</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    7,038,923</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,683,534</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    4,177,961</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,518,411</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,780,291</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Depreciation &amp;</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">amortization</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">471,101</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">660,372</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">670,183</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">515,417</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">122,878</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">74,082</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">128,805</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Operating loss</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (38,339,647)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (24,042,095)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (11,361,372)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (6,649,011)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (7,797,469)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (2,557,192)</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    (4,965,176)</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Other income</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">(expense), net</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">142,236</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">49,968</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">38,833</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">23,087</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">(40,500)</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Interest income</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">(expense)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">158,105</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">43,361</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">(26,225)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">(51,168)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (111,175)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">(31,272)</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">(95,205)</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Net Loss</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(38,161,542)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(23,998,734)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(11,245,361)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(6,650,211)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(7,758,586)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (2,565,377)</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    (5,137,792)</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Basic and diluted</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">net loss per share</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$(1.41)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$(0.72)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$(0.23)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$(0.10)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$(.10)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">(.04)</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">(.06)</font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">Shares used in</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">basic and diluted</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">net loss per</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2">share(1)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    26,974,997</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    33,436,641</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    49,617,280</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    65,217,088</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    77,677,120</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    72,251,251</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    91,474,828</font></td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>(1) Does not include shares on a pro forma basis for all periods presented
for shares which may be issued pursuant to warrants issued in private
placements, options or conversion rights for certain notes; of which the
underlying shares of the Company's common stock for such </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>common equivalent shares are subject to registration by this prospectus,
since their effect is anti-dilutive. Common equivalent shares for such shares
other than the options, warrants and convertible rights subject to registration
herein, have also been excluded from the computation of diluted earnings per
share since their effect is anti-dilutive. </p>
<p>The balance sheet data as of June 30, 1999, 2000, 2001 are derived from
financial statements that have been audited by Arthur Andersen LLP and June 30,
2002, 2003 and 2004 are derived from financial statements that have been audited
by Rosenberg, Rich, Baker, Berman &amp; Company and the balance sheet data as of
December 31, 2004, have been derived from unaudited financial statements
reviewed by Rosenberg, Rich, Baker, Berman &amp; Company, and include all
adjustments (consisting of normal recurring items) that management considers
necessary for a fair presentation. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Balance Sheet Data as of: </p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="28%">&nbsp;</td>
    <td WIDTH="72%" align="center" colspan="5">
    <font FACE="Times New Roman PS" SIZE="2"><b>June 30,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2000</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2001</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2002</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2003</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">Cash and cash</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">equivalents</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $6,432,417</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $31,005</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $47,065</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $396,860</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $90,045</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">Working capital</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">(deficit)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    3,556,587</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,458,227)</font></td>
    <td WIDTH="14%" align="right"><font face="Times New Roman PS" size="2">(94)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,405,331)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (2,111,452)</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">Total assets</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    11,184,246</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    8,997,182</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    6,942,515</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    3,781,649</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    2,590,718</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">Total Long-term</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">obligations, net of</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">current portion</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    90,000</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    2,890,535</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    2,607,552</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    1,038,050</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">Total stockholders'</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%"><font FACE="Times New Roman PS" SIZE="2">equity (deficit)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $7,328,504</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,864,642</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(42,849)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(3,228,886)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(2,917,962)</font></td>
  </tr>
</table>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="70%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="434">&nbsp;</td>
      <td WIDTH="435">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
      <td WIDTH="435" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
      <font FACE="Times New Roman" size="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; </b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
      <font FACE="Times New Roman" size="2"><b>December 31, 2004</b></font></td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; Cash and
      cash</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp;
      equivalents</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" size="2"><b>$1,010,903</b></font></td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; Working
      capital</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp;
      (deficit)</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" size="2"><b>(3,093,405)</b></font></td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-style: solid; border-width: 1">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; Total
      assets</b></font></td>
      <td WIDTH="435" align="right" style="border-style: solid; border-width: 1">
      <font FACE="Times New Roman" size="2"><b>2,708,618</b></font></td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; Total
      Long-term</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: none; border-bottom-width: medium">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp;
      obligations, net of</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; current
      portion</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" size="2"><b>398,049</b></font></td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; Total
      stockholders'</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="434" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" SIZE="2"><b>&nbsp;&nbsp;&nbsp;&nbsp; equity
      (deficit)</b></font></td>
      <td WIDTH="435" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
      <font FACE="Times New Roman" size="2"><b>$(3,069,329)</b></font></td>
    </tr>
  </table>
  </center>
</div>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">SELECTED QUARTERLY FINANCIAL DATA </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The statement of operations data as of the periods indicated below are
derived from unaudited financial statements, of which the quarterly periods
ended September 30, 1999 and each quarter thereafter to and including the
quarter ended December 31, 2001 are derived from unaudited financial statements
reviewed by Arthur Andersen LLP. The operations data for the quarterly periods
ended March 31, 2002 and each quarter thereafter through and including the
quarter ended December 31, 2004, have been derived from unaudited financial
statements reviewed by Rosenberg, Rich, Baker, Berman &amp; Company. The foregoing
include all adjustments (consisting of normal recurring items) that management
considers necessary for a fair presentation of the financial statements. </font>
<font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="831">&nbsp;</td>
    <td WIDTH="410" COLSPAN="2" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>
    <p>Three Months Ended&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b></font></td>
  </tr>
  <tr>
    <td WIDTH="831">&nbsp;</td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    September 30,</b></font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    December 31</b></font></td>
  </tr>
  <tr>
    <td WIDTH="831">&nbsp;</td>
    <td WIDTH="410" COLSPAN="2" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>
    <p>(in thousands, except share amounts)&nbsp;&nbsp;&nbsp; </b></font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2"><b>FISCAL 2005
    QUARTERLY</b></font></td>
    <td WIDTH="205" align="right">&nbsp;</td>
    <td WIDTH="205" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2"><b>STATEMENT OF
    OPERATIONS DATA:</b></font></td>
    <td WIDTH="205" align="right">&nbsp;</td>
    <td WIDTH="205" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Total revenues</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">$179</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">$295</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="205" align="right">&nbsp;</td>
    <td WIDTH="205" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Cost of sales</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">130</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">245</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">1,101</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">1,055</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">709</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">2,071</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">1,00</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">127</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Operating loss</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,762)</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (3,203)</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Interest expense,
    Net</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">(29)</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">(66)</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Gain (Loss) on Debt
    extinguishment</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">(41)</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">(37)</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Net Loss</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(1,832)</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (3,306)</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Basic and diluted
    net loss per share</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.02)</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">(.04)</font></td>
  </tr>
  <tr>
    <td WIDTH="831"><font FACE="Times New Roman PS" SIZE="2">Shares used in
    basic and diluted net loss per share(1)</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">
    89,719,962</font></td>
    <td WIDTH="205" align="right"><font FACE="Times New Roman PS" SIZE="2">
    93,388,584</font></td>
  </tr>
</table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="537">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="352" COLSPAN="2" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="537">&nbsp;</td>
    <td WIDTH="704" align="right" colspan="4">
    <font FACE="Times New Roman PS" SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="537">&nbsp;</td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    September 30</b></font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    December 31</b></font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    March 31</b></font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="537">&nbsp;</td>
    <td WIDTH="704" COLSPAN="4" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2"><b>FISCAL 2004
    QUARTERLY</b></font></td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Total revenues</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,489</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,291</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">$555</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">$294</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
    <td WIDTH="176" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Cost of sales</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">2,099</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">1,191</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">484</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">294</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">611</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">843</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">1,404</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">1,212</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">605</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">914</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">803</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">1,856</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">46</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">28</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">27</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">22</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Operating loss</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">(872)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,685)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (2,162)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (3,078)</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Interest expense,
    Net</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">(16)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">(16)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">(20)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">(59)</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Gain (Loss) on debt
    extinguishment</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">23</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">(152)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">278</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Net Loss</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(865)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(1,701)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(2,334)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(2,859)</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Basic and diluted
    net loss per share</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.01)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.02)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.03)</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.03)</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">Shares used in
    basic and dilute net loss</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    71,725,318</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    72,814,272</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    81,564,405</font></td>
    <td WIDTH="176" align="right"><font FACE="Times New Roman PS" SIZE="2">
    84,885,017</font></td>
  </tr>
  <tr>
    <td WIDTH="537"><font FACE="Times New Roman PS" SIZE="2">per share</font></td>
    <td WIDTH="176">&nbsp;</td>
    <td WIDTH="176">&nbsp;</td>
    <td WIDTH="176">&nbsp;</td>
    <td WIDTH="176">&nbsp;</td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="14%" align="center">&nbsp;</td>
    <td WIDTH="30%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Three Months Ended</b></font></td>
    <td WIDTH="15%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    September 30</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    December 31</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    March 31</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="61%" COLSPAN="4" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>(in thousands, except share
    amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>FISCAL 2003
    QUARTERLY</b></font></td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="15%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Total revenues</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$210</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$562</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$210</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">$600</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Cost of sales</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">197</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">547</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">205</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">544</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">803</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">753</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">906</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,077</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">893</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">731</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">544</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">516</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">131</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">129</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">129</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">127</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Operating loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,814)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,598)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,574)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,664)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Interest expense,
    Net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(18)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(15)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(11)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">(6)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Gain on debt
    extinguishment</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">41</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">9</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">11</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Gain (Loss) on
    investments</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(16)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(12)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">17</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Net Loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(1,791)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(1,629)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(1,588)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(1,642)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Basic and diluted
    net loss per share</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.03)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.07)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.02)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.02)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Shares used in
    basic and diluted net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    60,881,131</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    65,914,466</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    65,956,810</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    68,164,160</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">loss per share(1)</font></td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="15%">&nbsp;</td>
  </tr>
</table>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="58%" colspan="4"><font FACE="Times New Roman PS" SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    September 30</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    December 31</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    March 31</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="59%" COLSPAN="4"><font FACE="Times New Roman PS" SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>FISCAL 2002
    QUARTERLY</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Total revenues</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$537</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$545</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$866</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">$634</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Cost of Sales</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">457</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">530</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">724</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">704</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,111</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,257</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">539</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">912</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,862</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,641</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,355</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,182</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">193</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">209</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">136</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">132</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Operating loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (4,086)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (3,092)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,888)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (2,296)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Interest expense,
    Net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(10)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(1)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">(5)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">(10)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Gain (Loss) on debt
    extinguishment</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">33</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">5</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">85</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">19</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Net Loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(4,063)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(3,088)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(1,808)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(2,287)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Basic and diluted
    net loss per share</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.10)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.07)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.03)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.04)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Shares used in
    basic and diluted net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    42,037,506</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    44,645,458</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    55,606,168</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    56,459,167</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">loss per share(1)</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="59%" colspan="4" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    September 30</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    December 31</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    March 31</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="59%" COLSPAN="4"><font FACE="Times New Roman PS" SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>FISCAL 2001
    QUARTERLY</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Total revenues</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,865</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $5,231</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,959</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">$469</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Cost of Sales</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">872</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,779</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,689</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">465</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,162</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,318</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,220</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,080</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,485</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,314</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,105</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">7,406</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">123</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">136</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">200</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">201</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Operating loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (5,779)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (4,316)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (4,255)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (9,683)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Interest income,
    Net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">28</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">8</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">4</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">3</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Net loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(5,751)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(4,308)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(4,251)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(9,680)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Basic and diluted
    net loss per share</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.18)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.13)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.12)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.27)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Shares used in
    basic and diluted net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    31,562,727</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    32,324,964</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    34,205,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    35,702,797</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">loss per share(1)</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
</table>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="58%" colspan="4"><font FACE="Times New Roman PS" SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    September 30</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    December 31</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    March 31</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%">&nbsp;</td>
    <td WIDTH="59%" COLSPAN="4"><font FACE="Times New Roman PS" SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>FISCAL 2000
    QUARTERLY</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Total revenues</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$40</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">$240</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Cost of sales</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">19</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">113</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,491</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,904</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,858</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,904</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,210</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,226</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    12,776</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    12,648</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">114</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">116</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">118</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">123</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Operating loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (2,815)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (3,246)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (15,731)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (16,548)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Other income, net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">20</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Interest income,
    Net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">18</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">41</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">57</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">42</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Net Loss</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(2,797)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(3,205)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(15,674)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(16,486)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Basic and diluted
    net loss per share</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.11)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.12)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.56)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(.55)</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">Shares used in
    basic and diluted net</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    24,942,965</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    25,907,602</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    27,743,996</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    29,729,060</font></td>
  </tr>
  <tr>
    <td WIDTH="43%"><font FACE="Times New Roman PS" SIZE="2">loss per share(1)</font></td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="15%">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<p ALIGN="JUSTIFY">(1) The quarterly earnings per share data above are computed
independently for each of the quarters presented. As such, the sum of the
quarterly per common share information may not equal the full year amounts due
to rounding differences resulting from changes in the weighted-average number of
common shares outstanding. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>(1)</font><font FACE="Arial MT" SIZE="2"> </font>
<font FACE="Times New Roman PS" SIZE="2"><b>SELECTED BALANCE SHEET DATA </b>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The summary financial data set forth below should be read in conjunction with
&quot;Company's Operations&quot; and the historical consolidated financial statements and
notes included in this prospectus. The balance sheet data including the effects
of Changes in the Statement of Stockholders from October 2, 1996 (date of
inception) to June 30, 1998 are derived from financial statements that have been
audited by (i) Schuhalter, Coughlin &amp; Suozzo, PC, independent auditors from
inception to June 30, 1998 (ii) from financial statements that have been audited
by Arthur Andersen for the years ended 1999, 2000 and 2001 and the balance sheet
data as of June 30, 2002, 2003, and 2004 which are included in this prospectus,
are derived from financial statements that have been audited by Rosenberg, Rich,
Baker, Berman &amp; Company. </font><font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="53%" align="center" colspan="4">
    <font FACE="Times New Roman PS" SIZE="2"><b>Year</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="53%" align="center" colspan="4">
    <font FACE="Times New Roman PS" SIZE="2"><b>Ended</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="53%" align="center" colspan="4">
    <font FACE="Times New Roman PS" SIZE="2"><b>June 30,</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2000</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2001</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2002</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2003</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">BALANCE SHEET DATA:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">Cash and cash
    equivalents</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $6,432</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">$31</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">$47</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$397</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">$90</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">Working capital
    (deficit)</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,557</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,458)</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">(94)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (1,405)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    (2,111)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">Total assets</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    11,184</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">8,997</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">6,943</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">3,781</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,591</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">Long-term
    obligations, net</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">of current portion</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">-</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">90</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,890</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">2,608</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">1,038</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">Total stockholders'
    equity</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2">(deficit)</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $7,329</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,865</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2">$(43)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(3,229)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $(2,918)</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">COMPANY OPERATIONS </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The following is management's discussion and analysis of the operations of
mPhase, since its inception in 1996 which should be read in conjunction with the
accompanying financial statements, financial data, and the related notes. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995: </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Some of the statements contained in or incorporated by reference in this
Prospectus discuss the Company's plans and strategies for its business or state
other forward-looking statements, as this term is defined in the Private
Securities Litigation Reform Act of 1995. The words &quot;anticipate,&quot; &quot;believe,&quot;
&quot;estimate,&quot; &quot;expect,&quot; &quot;plan,&quot; &quot;intend,&quot; &quot;should,&quot; &quot;seek,&quot; &quot;will,&quot; and similar
expressions are intended to identify these forward-looking statements, but are
not the exclusive means of identifying them. These forward-looking statements
include, among others, statements concerning the Company's expectations
regarding its working capital requirements, gross margins, results of
operations, business, growth prospects, competition and other statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. Any forward-looking statements contained in this Prospectus are subject
to risks and uncertainties that could cause actual results to differ materially
from those results expressed in or implied by the statements contained herein.
</p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">OVERVIEW </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase Technologies, Inc. (mPhase, the Company, we or us), a New Jersey
corporation, founded in 1996 is a publicly-held company with approximately
12,000 shareholders and approximately 130 million shares of common stock
outstanding. The Company's common stock is traded on the NASDAQ Over the Counter
Bulletin Board under the ticker symbol XDSL. </p>
<p>mPhase is a developer of broadband communications products, specifically,
digital subscriber line (DSL) products for telecommunications service providers
around the world. In February of 2004 mPhase has entered into the new and
emerging area of NanoTechnology. Since our inception in 1996 we have been a
development-stage company and operating activities have related primarily to
research and development, establishing third-party manufacturing relationships
and developing product brand recognition among telecommunications service
providers. </p>
<p>We are headquartered in Norwalk, Connecticut with offices in Little Falls,
New Jersey and New York, New York. mPhase shares common office space and common
management with Microphase Corporation, a privately-held company. Microphase is
a seller of radio frequency and filtering technologies to the defense industry.
Microphase has been in operation for almost 50 years and supports mPhase with
engineering, administrative and financial resources, as needed. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Description of Operations </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Since our inception in 1996 our primary activities have consisted of
designing, manufacturing and testing our flagship products designed to deliver
digital broadcast television over DSL. We have not, as yet, derived any
significant revenue from such products. The Company's recent entry into the
field of nanotechnology is focused upon exploratory development of batteries
with significantly longer shelf lives and enhanced capabilities. The Company
believes that such development is consistent with its strategy of being a
pioneer of high growth technology products and potentially diversifies its
product mix. </p>
<p>mPhase introduced its first TV over DSL platform, the Traverser&#153 Digital
Video and Data Delivery System (&quot;DVDDS&quot;), in 1998. The DVDDS is a patented end
to end system that enables a telecommunications service provider to deliver up
to several hundred channels of motion picture experts group two (&quot;MPEG-2&quot;)
standard broadcast digital television, high speed internet and voice over copper
telephone lines between a central office facility of the provider and a
customer's premise. mPhase has not, as yet, derived any material revenues from
sales of the DVDDS. The DVDDS is a proprietary technology developed in
conjunction with Georgia Tech Research Corporation (GTRC) and is one of the
first systems of its kind developed.. The system is the only system on the
market that utilizes non- Internet Protocol (&quot;IP&quot;) transmission over ADSL. The
DVDDS is installed at Hart Telephone Company in Hartwell, Georgia, where a
limited user system is currently operational. This trial system is being
replaced and updated with Version 1.0 of our new TV+ system at Hart Telephone
that is expected to be operational with a limited number of trial customers of broadcast television during  fiscal year 2005. A DVDDS&#153 system is also installed at the BMW manufacturing plant in Spartanburg,
South Carolina for use as a television broadcast system in a commercial setting.
</p>
<p>The new mPhase TV+ system, developed in conjunction with Bell Laboratories
division of Lucent Technologies, Inc., is also designed to allow for the
simultaneous delivery of voice, high speed data, and broadcast TV over copper
telephone lines between a telephone service provider's central office (CO) and
the customer premises. The TV+ system was developed in conjunction with Bell
Laboratories as an outgrowth of mPhase's engagement of Bell Labs in fiscal year
2003 to cost reduce mPhase's set top box that operates with the legacy DVDDS
sytem developed by Georgia Tech Research Corporation (GTRC). The TV+ system has
replaced the legacy DVDDS system with an open
industry standards-based platform. Release 1 and 2.1 of the mPhaseTV+ system is complete
and ready for commercial deployment. The TV+ system delivers 255 broadcast
television channels over ADSL and utilizes an industry-leading, standards-based
Lucent Technologies, Inc.'s Stinger&#153 DSL Access Concentrator for </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>transport of digital television plus high speed internet and voice. The
mPhase TV+ system consists of a powerful software platform and a cost reduced
set top box located in a telephone customer's premises plus the Lucent Stinger
located at the CO or in the loop servicing the customer. </p>
<p>The mPhase TV+ system provides comprehensive end to end management of
delivery of digital broadcast television by interfacing with the Stinger and a
video headend built by a telephone service provider to downlink broadcast
television programming from satellites. mPhase software manages the broadcast
television compressed data prior to the distribution to a customer by the
Stinger and supports administrative tasks associated with subscriber management.
The use of the Lucent Stinger (digital subscriber line access mutiplexer
commonly known as a DSLAM) for transport in the TV+ system results in a highly
scalable architecture for the delivery of broadcast television. This is
accomplished by internally multicasting each television channel for delivery
from the CO to a larger number of end users. Release 1.0 and 2.1 of the TV+ system is
capable of distributing 255 channels of broadcast television simultaneously to
455 customers by one Lucent Stinger DSLAM concentrator. We believe that the TV+
platform is the most cost-effective standards-based solution for delivery of
broadcast television using ADSL. For mPhase the alliance with Lucent marks a
change in strategy from selling a complete proprietary platform to providing an
industry-standards solution. </p>
<p>The Company believes that the demand for the TV+ system will be greatest in
markets primarily outside of the United States that do not have a hybrid fiber
coaxial cable (&quot;HFC&quot;) infrastructure necessary for cable TV or fiber to the curb
necessary for very fast DSL (VDSL). We believe there is a significant cost
advantage when our mPhase TV+ solution is compared against other platforms
utilizing existing telephone lines containing the </font>
<font FACE="Times New Roman PS" SIZE="2"><i>same </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">features. Release 1.0 of the mPhase
TV+ system completed in July of 2004 does not contain features such as the
delivery of two or more TV channels over a single DSL copper telephone line,
video on demand, or interactive TV. Release 2.1 of the TV+, completed in March
of 2005, contains the same basic characteristics of Release 1.0 plus
an enhanced electronic program guide. Releases 1.0 and 2.1 of the TV+ system are
designed to operate only with the Lucent Stinger DSLAM. </p>
<p>In December of 2004, the Company announced that a major telecommunications
service provider in Russia had chosen to deploy to 1,000 of its customers
mPhase's TV+ platform. The Russian service provider has over 1 million customers
and is part of a holding company with 15 million customers.</p>
<p>Release 3.0 of the TV+ solution, expected to be completed in the fourth
quarter of fiscal year 2005, will utilize a communications framework based upon
Internet Protocol (IP) instead of Asynchornous Transfer Mode (ATM) that is
utilized by Releases 1.0 and 2.1. ATM is an industry standard for transportation
of data based upon a packaging of information into a fixed-size cell format for
transportation across networks. Many telecommunications service providers
currently deploy equipment that handles this protocol because it can support
voice, video, data and multimedia applications simultaneously with a high degree
of reliability. IP is another transport protocol that maintains network
information and routes packets across networks. IP packets are larger and can
hold more data than ATM cells. Historically, there have been concerns that
service providers would be unable to provide the same quality of service with IP
because it is not optimized for time-sensitive signals such as broadcast
television and voice. Nevertheless, there is a greater demand by
telecommunication service providers for IP systems for delivery of television,
voice and high-speed data because such systems are significantly more cost
effective to deploy based upon greater scalability. </p>
<p>Release 3.0 of the TV+ system is a system management software product that will operate with both the Lucent Stinger as
well as the DSLAM's of other major vendors. Release 3.0 of the TV system will
also be able to send multiple TV channels over both fiber as well as down a single DSL line using ADSL2
supported DSLAM's and be capable of delivery of Video on Demand. As ADSL
technology migrates forward to ADSL2 or ADSL2+, mPhase plans to include
additional features in future versions of the TV+ system in a scalable, cost -
effective manner depending upon </font><font FACE="Times New Roman PS" SIZE="2">
<i>actual </i></font><font FACE="Times New Roman PSMT" SIZE="2">market demand
for such features in markets that mPhase is targeting. In addition, mPhase will
be continuously updating its set top box to be used as part of the TV+ system
and as a stand - alone product. </p>
<p>In those television markets in the United States that are not served by HFC,
we believe that the availability of programming content is essential to
facilitate potential sales of our systems enabling delivery of broadcast
television over ADSL. In March of 2000, we established mPhase Television net.,
Inc. (mPhase TV), a joint venture between mPhase and Alphastar International,
Inc. mPhase TV is experienced in negotiation contracts with broadcast television
programming providers for U.S. markets. mPhase TV has secured licenses to resell
programming for a significant number of channels of U.S. broadcast television
over DSL. mPhase TV is capable of providing and arranging with packagers of
television content a full complement of broadcast television channel content for
U.S. telecommunications service providers that may be sent over DSL. This
enables a U.S. telecommunications service provider to avoid the necessity of
securing such contracting rights individually with many different providers of
broadcast television content. mPhase owns approximately 57% of mPhase TV.</p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>mPhase DSL Component Products </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">. mPhase also has designed and
markets a line of DSL component products ranging from commodity items such as
POTS splitters to innovative loop management products. Most notable in the suite
of DSL component products is the recently introduced </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS or Intelligent POTS Splitter
product. The </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>1 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">product is designed to work in
conjunction the Lucent Stinger DSLAM. A newly developed version of the product
called the </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>3 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">(renamed the Broadband Watch product)</font><font FACE="Times New Roman PS" SIZE="2"><i>
</i></font><font FACE="Times New Roman PSMT" SIZE="2">is compatible with the
Lucent Stinger as well as DSLAM's manufactured by other vendors. This product
marks a significant advancement in automating loop management. As DSL
deployments scale, it is becoming increasingly more important for
telecommunications service providers to </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>streamline the process for provisioning and troubleshooting DSL services.
Additionally, as competition for high speed Internet expands, the market is
witnessing a reduction in price. Therefore, it has become imperative that
telecommunications service providers lower the operational costs involved with
supporting DSL services. The </font><font FACE="Times New Roman PS" SIZE="2"><i>
i </i></font><font FACE="Times New Roman PSMT" SIZE="2">POTS is a device that
allows service providers to perform full loop testing without having to deploy
manual assets by allowing service providers to temporarily bypass the POTS
Splitter and have a comprehensive view of their DSL networks. Prior to the
introduction of this product in order to perform full testing, service providers
would have to manually intervene so that so that test signals could be passed
through the network. In November of 2004, the Company announced that it had been
selected to provide its automated Broadband Watch product for Saudi Arabia
Telecom under an initial purchase order in excess of $1 million. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Nanotechnology </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Effective February 3, 2004, mPhase has entered into a Development Agreement
with Lucent Technologies, Inc. to commercialize the use of nano power cell
technology. The initial Agreement was for a 12 month period of exploratory
development at the cost of $100,000 per month of a new form of power cell having
a shelf life far in excess of conventional battery technology. The Company has
extended such Agreement for another 12 months at the cost of $100,000 per month
through February of 2006 to continue development of the nano power cell product.
We believe that this arrangement with the Bell Labs division of Lucent will give
mPhase the opportunity to develop and offer breakthrough battery technology and
other potential applications, initially to the government market for defense and
homeland security and ultimately to the commercial market. It is anticipated
that the initial applications for nano power cells will address the need to
supply emergency and reserve power to a broad range of products for the defense
department. </p>
<p>The Company believes that its entry into this new field of high technology
growth will provide product diversification without negatively affecting its
focus upon its traditional products aimed at delivery of Television over DSL.
The Company developed a lab prototype of its first nano power cell product that was completed
in the second quarter of fiscal year 2005. The Company is
unable, at this time, to predict when significant commercialization and material
revenues will be derived from its entry into the NanoTechnology business. </p>
<p>On March 10, 2005 the Company announced and agreement with the Bell Labs
research and development arm of Lucent Technologies, Inc. to codevelop and
commercialize uncooled magnetic ultra-sensitive sensors for a host of defense
and civilian applications. The sensors, technically referred to as
magnetometers, are based upon Micro Electro Mechanical Systems (MEMS) using
designs based upon fundamental breakthroughs made in the past few years at Bell
Labs as part of the New Jersey Nanotechnology Consortium. Initial tests of
theses MEMS magnetometers indicate sensitivities 1000 times those achieved in
presently available uncooled magnetometers. Such devices are designed to create
a new generation of ultrasensitive magnetic field sensors that will enable
military combatants to detect with greater accuracy and range hostile military
forces. Commercial applications may include inexpensive navigational components
for mobile phones to sensing devices for identification and other homeland
security products. </font><font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Revenues </i></font><font FACE="Times New Roman PSMT" SIZE="2">. To date, all
material revenues have been generated from sales of the POTS Splitter Shelves
and other DSL component products to a small number of telecommunications
companies. mPhase believes that future revenues are difficult to predict because
of &quot;the length and variability of the commercial roll-out of the mPhase TV+
product to various telecommunications service providers and (ii) the Company's
recent entry into the NanoTechnology business. Since the Company believes that
there may be a significant international market for the mPhaseTV+ products
involving many different countries, with different regulations, certifications
and commercial practices than the United States, future revenues are highly
subject to the changing variables and uncertainties. Additionally, the recent
instability of the telecommunications market evidenced by reduction in capital
spending across the whole in the telecom sector contributes to our difficulty in
accurately predicting future revenues. </font>
<font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Cost of revenues </i></font><font FACE="Times New Roman PSMT" SIZE="2">. The
costs necessary to generate revenues from the sale of POTS Splitter Shelves and
other related DSL component products include direct material, labor and
manufacturing. mPhase paid these costs to Janifast Ltd., which has facilities in
the People's Republic of China and is owned by and managed by certain senior
executives of the Company. The cost of revenues also includes certain royalties
paid to Microphase Corporation, a privately held corporation organized in 1955,
which shares certain common management with the Company and is majority-owned by
a director of mPhase. Costs for future production of the  TV +&nbsp;
Platform will consist primarily of payments to manufacturers to acquire
the necessary components and assemble the product including Lucent Technologies
Inc., Espiral Group and Magpie Telecom Insiders, Inc. </font><font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Research and development </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">. Research and development expenses
consist principally of the payments made to  Microphase and Lucent,
respectively, for development of the Traverser, the </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS, the TV+ and nanotechnology
products
respectively. The TV+ solution consists of the newly developed mPhase Broadcast
Television Switch together with the Lucent Stinger voice and data delivery
system product. All research and development costs are expensed as incurred.
</font><font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>General and administrative </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">. Selling, general and administrative
expenses consist primarily of salaries and related expenses for personnel
engaged in direct marketing of the TV+ platform, the POTS
Splitter Shelves, the </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i>
</font><font FACE="Times New Roman PSMT" SIZE="2">POTS and other DSL component
products, as well as support functions including executive, legal and accounting
personnel. Certain administrative activities are outsourced on a monthly fee
basis to Microphase and mPhase leases its principal office in Norwalk,
Connecticut from Microphase. </font><font FACE="Times New Roman PS" SIZE="2"><i>
</p>
<p>Non-Cash compensation charges </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">. The Company makes extensive use of
stock options and warrants as a form of compensation to </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>employees, directors and outside consultants. We incurred non-cash
compensation charges totaling $67,932,341 from inception (October 2, 1996)
through June 30, 2004, of which $2,117,769 was included in research and
development expenses and $47,133,142 was included in general and administrative
expenses. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>TWELVE MONTHS ENDED JUNE 30, 2004 VS. JUNE 30, 2003 </p>
</b></font><font FACE="Times New Roman PSMT" SIZE="2">
<p>Revenues. Total revenues for the year ended June 30, 2004 increased to
$4,641,346 from $1,581,639 for the year ended June 30, 2003. The increase was
primarily attributable to increased sales of the Company's POTS Splitter product
line especially during the first quarter of </p>
<p>fiscal year ended June 30, 2004, caused by an upturn in July and August of
2004 of orders from one customer that orders component products from the
Company. The Company continues to believe that its line of POTS Splitter
products is positioned to be competitively priced with high reliability and
connectivity, and as such has the potential to be significant part of DSL
deployment. The Company cannot predict when the demand for telecommunication
equipment will resume, however we do not expect significant sales in the first
two quarters of fiscal 2005. </p>
<p>Cost of revenues. Cost of sales was $4,068,255 for the year ended June 30,
2004 as compared to $1,493,394 in the year ended 30, 2003. Cost of revenues
increased for the twelve months ended June 30, 2004 compared to the prior period
ending June 30, 2003 primarily because of increased sales. Gross margins for the
period ended June 30, 2004 were 12%. The gross margins have varied dramatically
as spending among telecommunication providers has contracted, coupled with
downward pressures related to the supply and demand of telecommunications
products. The single most significant reason the margins decreased dramatically
was due to the reduced selling price of our POTS Splitter product. Discounts,
consisting of a 2% discount from the amount invoiced if paid within 10 days were
offered during fiscal year 2004 </font><font FACE="Times New Roman PS" SIZE="2">
<i>. </i></font><font FACE="Times New Roman PSMT" SIZE="2">Such discounts
amounted to $71,425 for the period ended June 30, 2004, and were offered to
Covad Communication our leading telecommunications service provider customer
</font><font FACE="Times New Roman PS" SIZE="2"><i>. </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">Discounts were offered in fiscal 2003
to an existing customer to accelerate collections in connection with an order of
our POTS Splitter product and was treated as a purchase discount to each our
customers, and the reduction to net sales lowered the gross margins in the
period. </p>
<p>Research and Development. Research and development expenses were $4,069,721
for the year ended June 30, 2004 as compared to $3,538,305 in the year ended
June 30, 2003, an increase of $531,416. Such expenditures included $2,328,602
incurred with Lucent Technologies, Inc. for the year ended June 30, 2004 as
compared to $1,112,500 during the comparable period in 2003. In addition we
incurred $99,494 with Microphase and other strategic vendors for the year ended
June 30, 2004 as compared to $528,434 during the comparable period in 2003. </p>
<p>The significant increase in research and development expenses with Lucent
Technologies, Inc. is due to the continued and accelerated development of the
TV+ product together with the entry into a $1.2 million 12 month Development
Agreement for battery and power pack product development utilizing
Nanotechnology. Such expenditures are expected to increase in fiscal year 2005
since the Company's strategy is to further enhance the features and cost reduce
its TV+ and expand its product line in the Nanotechnology area. </p>
<p>The elimination in research expenditures incurred with GTRC is due to the
Company's refocus in development from its legacy Traverser DVDDS television
delivery platform to its TV+ product. </p>
<p>Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of POTS Splitters and Microfilters and the Company's newest products, the
iPOTS&#153. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>General and Administrative Expenses. Selling, general and administrative
expenses were $4,177,961 for the year ended June 30, 2004 up from $2,683,534 for
the comparable period in 2003, an increase of $149,427. The increase in the
selling, general and administrative costs was primarily the result of the
addition of a number of new employees critical to the Company's needs in
developing, marketing and selling the TV+ and NanoTechnology product lines with
Lucent a respectively. </p>
<p>Included is an increase of non-cash charges relating to the issuance of
common stock and options to consultants, which totaled $1,010,895 for the year
ended June 30, 2004 as compared to $477,836 during the comparable period in
2003. Other components of the increase in selling, general and administrative
expenses were increases in payroll of approximately $461,226 to $953,602,
increase in the use of outside consultants of approximately $251,103 to
$987,720, marketing expenses such as trade shows of $30,148 to $40,347, and
advertising expenses of $20,439 to $21,948, all of which approximated $1,295,975
or 87% of the increase in spending. </p>
<p>Net loss. mPhase recorded a net loss of $7,758,586 for the year ended June
30, 2004 as compared to a loss of $6,650,211 for the same period ended June 30,
2003. This represents a loss per common share of $(.10) in 2004 as compared to
$(.10) in 2003, based upon weighted average common shares outstanding of
77,677,120 and 65,217,088 during the periods ending June 30, 2004 and June 30,
2003 respectively. </font><font FACE="Times New Roman PS" SIZE="2"><b><i></p>
</i>
<p>Twelve Months Ended June 30, 2003 vs. June 30, 2002 </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Revenue </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Total revenues were $1,581,639 for the year ended June 30, 2003 compared to
$2,582,446 for the year ended June 30, 2002. The decrease was attributable to
the continued slowing sales during fiscal year 2003 of the Company's POTS
Splitter product line, caused by the general downturn in the telecommunications
market, including customers that order component products from the Company. The
Company continues to believe that its line of POTS Splitter products is
positioned to be competitively priced with high reliability and connectivity,
and as such has the potential to be a significant part of DSL deployment
worldwide. The Company cannot say when the demand for telecommunication
equipment will resume. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Cost of Revenues </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Cost of sales was $1,493,394 for the fiscal year ended June, 2003 as compared
to $2,415,219 in the prior period, representing 94% of gross revenues, for each
of the fiscal years ended June 30, 2003 and 2002, respectively. The margins have
contracted dramatically in the past two fiscal years as spending among the
telecommunications providers has contracted, coupled with downward pressures
related to the supply and demand of telecommunications products. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Research and Development </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Research and development expenses were $3,538,305 for the fiscal year ended
June 30, 2003 as compared to $3,819,583 during the comparable period in 2002; or
a decrease of $281,278. </p>
<p>Such expenditures include $100,000 incurred with GTRC for the fiscal year
ended June 30, 2003 as compared to $450,000 during the comparable period in
2002. In addition, the Company incurred research and development expenses for
depreciation of test equipment located at Hart Telephone Company and at mPhase
of $839,735 and $845,783 for the fiscal years ended June 30, 2003 and 2002,
respectively. </p>
<p>Other portions of research and development expenses include (a) a decrease of
research and development expenses incurred with </p>
<p>Microphase by $322,640 to $428,434 for the fiscal year ended June 30, 2003
from $751,074 for the comparable period ended June 30,2002, (b) non cash
compensation of $385,495 for the twelve month period ended June 30, 2003
compared to $267,338 for the same period ending June 30, 2002 and (c)
miscellaneous expenses of $143,024 and $298,227 for the periods ended June 30,
2003 and June 30, 2002, respectively. </p>
<p>The Company incurred increased charges with Lucent Technologies, Inc. in the
current year, totaling $1,112,500 incurred on development of the Broadcast
Television Switch for use with Lucent's Stinger DSL product, $437,500 incurred
for the cost reduction effort for mPhase's set top box. In addition, $75,000 was
incurred for software development associated with mPhase's </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS3 product, as compared with
$156,250 incurred in the year ended June 30, 2002. </p>
<p>The elements contributing to the decrease in other research and development
expenses included a decrease in the operations of the Company's joint venture,
mPhase Television.net. The major costs incurred by the joint venture were
payroll expenses attributable to research and development of the Company's
transmission capabilities and acquisition of television content. Costs incurred
by the joint venture during the fiscal year ended June 30, 2002 were $232,334 as
compared to $62,352 for the period ended June 30, 2003. Additionally, this
decrease can be attributed to the Company abandoning certain research projects
on DSL components the Company believed were no </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>longer commercially viable, this approximated $12,960 in fiscal 2003 compared
to $440,295 in fiscal 2002. </p>
<p>The decrease in research expenditures incurred with GTRC is due to the
Company's shift of capital expenditures from the Traverser DVDDS to the TV+
product. The Company's project with Lucent provides for cost reduction of the
INI set top box and other product enhancements as well as development of a
Broadcast Television Switch for use with Lucent's Stinger product. To date
expenses incurred with respect to the TV+ platform and development of the new
cost reduced InI are $593,750, and $437,500 respectively for the fiscal year
ended June 30, 2003. </p>
<p>Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of POTS Splitters and Microfilters and the Company's newest products, the
</font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS and the mPhase Stretch. We
believe the mPhase </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i>
</font><font FACE="Times New Roman PSMT" SIZE="2">POTS offers a much needed
solution for the DSL industry; the </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS enables telecommunications
service providers to remotely and cost-effectively perform loop management and
maintenance including line testing, qualification and troubleshooting. Prior to
the introduction of the </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i>
</font><font FACE="Times New Roman PSMT" SIZE="2">POTS&#153 loop management could
not be remotely performed through a conventional POTS Splitter without the use
of expensive cross connects or relay banks because of the mandatory DC blocking
capacitors in traditional POTS splitters, as required by various telephone
protocol and regulatory standards. The unique (patent pending) </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS circuit allows most test heads
to perform both narrow and wideband testing of the local loop through the
central office POTS Splitter without having to physically disconnect the POTS
Splitter, thereby eliminating the need to dispatch personnel and a truckroll.
The Company anticipates future demand for this product, as it significantly
reduces the cost of deploying and maintaining DSL services. Also recently
developed is the DSL loop extender product called mPhaseStretch. This product
extends the service distance for the mPhase Traverser and can be used in
conjunction with other DSL services. The Company believes there will be future
demand for the Stretch loop extender product as it addresses a primary issue in
DSL services. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>General and Administrative Expenses </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>General and administrative expenses were $2,654,971 for the twelve-month
period ended on June 30, 2003 as compared to $6,490,373 for the same period
ended June 30, 2002. This represents a decrease of these expenses of $3,836,402,
or approximately 59% in fiscal 2003 as a percentage of these expenses in fiscal
2002. The decrease in administrative costs included a decrease of $1,696,771 in
non-cash changes for the issuance of options to consultants which totaled
$748,840 for the year ended June 30, 2003 as compared to $2,445,561 during the
comparable period in 2002. The decrease also occurred as a result of the
reduction in workforce and the reduction in marketing expenses which the Company
began in Fiscal 2002 in response to the current contraction in the
telecommunications equipment market. Other components of the decrease in
selling, general and administrative expenses included decreases in (a) executive
compensation and administrative payroll and related costs of approximately
$775,000, (b) marketing expenses such as trade shows of approximately $250,000,
(c) reductions in occupancy costs by approximately $290,000, (d) decreases in
shareholder services and related expenses by approximately $190,000, (e)
insurance and risk management costs by approximately $145,000 and (f) various
decreases in other administrative categories aggregating approximating $490,000.
The foregoing approximated reductions of general and administraive expenses
other than non-cash charges of $2,125,000 in the twelve months ended June 30,
2003 compared to the same period ended June 30, 2002. </p>
<p>We do not expect this downward trend to continue, yet administrative expenses
are expected to remain at the current levels until the Company begins its
marketing effort to roll out its TV+ products in the second quarter, and at such
time we expect that selling and travel expenses will grow. Further when the
Company begins to implement and support its Television over DSL platforms then
administrative payroll and related costs will again rise as the Company will
need to add employees to its administrative workforce. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Depreciation and Amortization </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Depreciation and amortization expense was $515,417 in fiscal 2003 as compared
to $670,183 for 2002. These expenses decreased $154,766, or approximately 23% of
the prior years expense as a result of the Company's reduced need for and
outlays on capital expenditures in its two preceding fiscal years. We do not
expect such downward trend to continue but such depreciation and amortization
expense should remain at the current reduced levels until the Company commences
deployment of its Television over DSL platforms. We expect to increase capital
expenditures in connecting with the deployment of equipment at test sites with
various telecommunications service providers globally as deployment of our TV+
product progresses and such equipment will need to be depreciated or amortized,
as the case may be, that will result in increased depreciation at that time. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Net Loss </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company recorded a net loss of $6,650,211 for the period ended June 30,
2003 as compared to a loss of $11,245,361 for the period ended June 30, 2002.
This represents a loss per common share of $.10 for the fiscal year ended June
30, 2003 as compared to a loss per common share of $.23 for the fiscal year
ended June 30, 2002 based upon weighted average common shares outstanding of
65,217,088 and 49,617,280 during the fiscal years ended June 30, 2003 and 2002,
respectively. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Twelve Months Ended June 30, 2002 vs. June 30, 2001 </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Revenue </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Total revenues for the year ended June 30, 2002 decreased to $2,582,446 from
$10,524,134 for the year ended June 30, 2001. The decrease was primarily
attributable to slowing sales of the Company's POTS Splitter product line,
caused by the general downturn in the telecommunications market, including among
customers that order component products from the Company. The Company continues
to believe that its line of POTS Splitter products is positioned to be
competitively priced with high reliability and connectivity, and as such has the
potential to be significant part of DSL deployment. The Company cannot predict
when the demand for telecommunication equipment will resume, however we do not
expect significant sales in the first two quarters of fiscal 2003. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Cost of Revenues </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Cost of sales was $2,415,129 for the year ended June 30, 2002 as compared to
$5,804,673 in the year ended June 30, 2001. Cost of revenues declined for the
twelve months ended June 30, 2002 compared to the prior period ending June 30,
2001 primarily because of decreased sales. Operating margins for the period
ended June 30, 2002 were 6%. The gross margins have varied dramatically as
spending among telecommunication providers has contracted, coupled with downward
pressures related to the supply and demand of telecommunications products. The
single most significant reason the margins decreased dramatically was due to the
reduced selling price of our POTS Splitter product. Discounts, consisting of 2%
of the amount invoiced if paid within 29 days of the invoice date, amounted to
$14,389 for the period ended June 30, 2002. Such discounts were offered to two
major customers that are leading telecommunications service providers. In each
case, the discount was offered to an existing customer to accelerate collections
in connection with a reorder of our POTS Splitter product and was treated as a
purchase discount to our customer, and the resultant reduction to net sales
lowered the gross margins in the period. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Research and Development </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Research and development expenses were $3,819,583 for the year ended June 30,
2002 as compared to $10,779,570 in the year ended June 30, 2001. Such
expenditures include $450,000 incurred with GTRC for the year ended June 30,
2002 as compared to $3,814,000 during the comparable period in 2001. In addition
we incurred $1,212,594 with Microphase and additional expenses with other
strategic vendors for the year ended June 30, 2002 as compared to $3,405,975
during the comparable period in 2001. </p>
<p ALIGN="JUSTIFY">The decrease in research and development expenses with
Microphase is due to the completion of the development of the POTS Splitter
product line. The decrease in research and development expense of approximately
$3.1 million is due to the termination of the Company's relationship with a
third party manufacturer, Flextronics, with whom the Company had incurred
substantial costs for prototypes and pre-manufacturing costs. </p>
<p>The decrease in research expenditures incurred with GTRC is due to the
Company's nearing completion of the design and manufacture of prototypes of the
set top box and the central office equipment associated with its Traverser
product in 2002. Generally, as the Company anticipates the completion of its
Traverser product, overall research and development expenses are expected to
decline, with variations based upon product cost reductions, product
enhancements, if any, when such are undertaken. </p>
<p>Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of POTS Splitters and Microfilters and the Company's newest products, the
iPOTS and mPhase Stretch. We believe the mPhase iPOTS offers a much needed
solution for the DSL industry; the iPOTS enables telcos to remotely and
cost-effectively perform loop management and maintenance including line testing,
qualification and troubleshooting. Prior to the introduction of the iPOTS&#153 loop
management could not be remotely performed through a conventional POTS Splitter
without manual deployment of personnel. The unique (patent pending) iPOTS
circuit allows most test heads to perform both narrow and wideband testing of
the local telephone loop from a network operations center central office POTS
Splitter without having to physically disconnect the POTS Splitter, thereby
eliminating the need to dispatch personnel and a truckroll to either a central
office in the field or a customer premises. The Company believes there will be a
demand for this product, as it significantly reduces the cost of deploying and
maintaining DSL services. Also recently developed is the DSL loop extender
product called mPhaseStretch. This product extends the service distance for the
mPhase Traverser and can be used in conjunction with other DSL services. </p>
<p>The Company believes there will be demand for the Stretch loop extender
product as it extends the reach of delivery of television and data over DSL. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>General And Administrative Expenses </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p ALIGN="JUSTIFY">Selling, general and administrative expenses were $6,490,373
for the year ended June 30, 2002 down from $16,150,711 for the comparable period
in 2001. The decrease in the selling, general and administrative costs included
a decrease of non-cash charges relating to the issuance of common stock and
options to consultants, which totaled $2,445,561 for the year ended June 30,
2002 as compared to $6,227,552 during the comparable period in 2001. The
decrease also occurred as a result of the reduction in workforce in Fiscal 2002
and the reduction in </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>marketing expenses in Fiscal 2002 in response to the current contraction in
the telecommunications equipment market. Other components of the decrease in
selling, general and administrative expenses were a substantial decrease in
payroll of approximately $1,100,000 to $450,000, use of outside consultants of
approximately $870,000 to $70,000, marketing expenses such as trade shows of
$1,200,000 to $270,000, and advertising expenses of $415,000 to $13,000, all of
which approximated $2,800,000. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Net Loss </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase recorded a net loss of $11,245,361 for the year ended June 30, 2002 as
compared to a loss of $23,998,734 for the same period ended June 30, 2001. This
represents a loss per common share of $(.23) in 2002 as compared to $(.72) in
2001, based upon weighted average common shares outstanding of 49,617,280 and
33,436,641 during the periods ending June 30, 2002 and June 30, 2001,
respectively. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Six Months Ended December 31, 2004 vs. December 31, 2003 </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Revenue </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Total revenues were $474,687 for the six months ended December 31, 2004
compared to $3,780,137 for the six months ended December 31, 2004 representing a
decrease of $3,305,450. The decrease was primarily attributable to a decrease in
sales of the Company's Pots Splitter product line. The Company continues to
believe that its line of Pots Splitter products is positioned to be
competitively priced with high reliability and connectivity, and as such has the
potential to be a significant part of DSL deployment worldwide. The Company has
experienced declines during each quarter of fiscal year 2004 that has continued
into the first half of fiscal year 2005. The Company cannot predict if the
downturn in sales of its Pots Splitter line will continue going forward. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Cost of Revenues </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Cost of sales were $374,905 for the six months ended December 31, 2004 as
compared to $3,289,937 in the prior period, representing 79% of gross revenues
for the first six months of fiscal 2005 which ended December 31, 2004 and 87%
for the six months of fiscal 2004 which ended December 31, 2003, respectively.
Our gross margins have been very volatile over the past three years as spending
among the telecommunications providers has contracted, coupled with downward
pressures related to the supply and demand of telecommunications products.
Margins for the first six months of fiscal 2005, which ended December 31, 2004,
increased by 10% over the margins for the same period ended December 31, 2003
due to better cost of materials used in the Pots Splitter product line. We are
unable to determine whether such increase in margins will continue for the
remainder of fiscal year 2005. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Research and Development </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p ALIGN="JUSTIFY">Research and development expenses were $2,156,161 for the six
months ended December 31, 2004 as compared $1,454,899 during the comparable
period in 2003, or an increase of $701,262. This increase consisted of increased
spending in the TV+ product development of $201,262 and Nanotechnology battery
exploratory research of $500,000 both contracted with Lucent Technologies Inc.
This increase was partially offset by a reduction of expenses incurred with Microphase Corporation for Research and Development. </p>
<p>The Company does, expect to increase such level of expenditures for research
and development costs during the remainder of fiscal year 2005 In order to
broaden and diversify its current line of business into additional high growth
technology areas, the Company entered into a Development Agreement, effective
February 3, 2004, with the Bell Labs division of Lucent Technologies, Inc. to
commercialize the use of nano power cell technology. Under the terms of the $1.2
million contract, Lucent/Bell Labs will develop for mPhase micro-power source
arrays fabricated using nanotextured, superhydrophobic materials. This new
business arrangement with Lucent Bell Labs will give mPhase the opportunity to
develop and offer breakthrough battery technology applications, initially to
government market segments including defense and homeland security, and
ultimately to the commercial market. The initial applications for the nano power
cell technology will address the need to supply emergency and reserved power to
a wide range of electronic devices for the defense department. In addition the
Company entered into a Second Amendment to its Development Agreement with Lucent
Technologies, Inc effective September 20, 2004 for Development of Release 3.0 of
its TV+ product which is expected to be completed during the third quarter of
fiscal year 2005. The contracts call for payments totaling $1,536,680 payable in
project milestones of $158.6 thousand each over the contract. As of December 31,
2004 the Company has made payments equal to $752,680 under such contract with an
aggregate of $784,000 remaining in 5 equal payments. In addition the Company
anticipates additional development cost to be incurred during fiscal year 2005
of approximately $800,000 for software from other vendors and other development
of its Release 3.0 of its TV+ product. </p>
<p>Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of pots Splitters and microfilters and the Company's newest products, the
</font><font FACE="Times New Roman PS" SIZE="2"><i>ipots </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">and the mPhase stretch. We believe
the mPhase </font><font FACE="Times New Roman PS" SIZE="2"><i>ipots </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">offers a much-needed solution for the
DSL industry; the </font><font FACE="Times New Roman PS" SIZE="2"><i>ipots </i>
</font><font FACE="Times New Roman PSMT" SIZE="2">enables telcos to remotely and
cost-effectively perform loop management and maintenance including line testing,
qualification and troubleshooting. Prior to the introduction of the </font>
<font FACE="Times New Roman PS" SIZE="2"><i>ipots </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">, loop management could not be
remotely performed without manual intervention. The unique (patent pending)
</font><font FACE="Times New Roman PS" SIZE="2"><i>ipots </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">circuit allows most test heads to
perform both narrow and wideband testing of the local loop through the central
office Pots splitter without having to physically disconnect the Pots splitter,
thereby eliminating the need to dispatch personnel and a truckroll. On November
23, 2004, the Company announced the first sale of its IPOTS3 product to a
European broadband networking company. The Company anticipates future demand for
</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>this product, as it significantly reduces the cost of deploying and
maintaining DSL services </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>General and Administrative Expenses </p>
</i></font><font FACE="Times New Roman PSMT" SIZE="2">
<p>Selling, general and administrative expenses were $2,780,291 for the six
months ending December 31, 2004 up from $1,518,411 or an increase of $1,261,880
from the comparable period in 2003. The increase in the selling, general and
administrative costs is comprised primarily of non-cash charges relating to the
issuance of common stock and options to consultants, which totaled $1,127,283
for the six months ended December 31, 2004 as compared to $307,245 for the
comparable period ended December 31, 2003 resulting in an increase of $820,038.
The increase in selling, general and administrative expenses is also
attributable to $185,721 of expenses associated with adjustments of offering
prices of certain of the private placements completed in fiscal year 2005.
Additionally travel expenses increased by $69,494 and increased spending in
advertising, trade shows and marketing and resulting expenses amounted to an
aggregate of $119,503.We expect sales and travel expenses to grow as the
Company's approaches the deployment of its TV+ products in the future. </p>
<p></font><font FACE="Times New Roman PS" SIZE="2"><i>Depreciation and
Amortization </p>
</i></font><font FACE="Times New Roman PSMT" SIZE="2">
<p>Depreciation and amortization expense was $128,506 for the six months ending
December 31, 2004, up from $74,082, or an increase of $54,424 from the
comparable period in 2003. The decrease is a result of the company's reduced
outlays for capital expenditures in its two most recent fiscal years. We do not
expect such downward trend to continue but such depreciation and amortization
expense should remain at the current reduced levels until the company commences
deployment of its television over DSL platforms. We expect to increase capital
expenditures in connecting with the deployment of equipment at test sites with
various telecommunications service providers globally as deployment of our TV+
product progresses. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Net Loss </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company recorded a net loss of $5,137,192 for the six months ended
December 31, 2004 as compared to a loss of $2,565,377 for the six months ended
December 31, 2003. This represents a loss per common share of $.06 for the six
month period ended December 31, 2004 as compared to a loss per common share of
$.04 for the six months ending December 31, 2003; based upon weighted average
common shares outstanding of 91,474,828 and 72,251,251 during the periods ending
December 31, 2004 and 2003, respectively. </p>
<p>Although it is difficult to predict the exact timing of additional material
deployments of its TV+ product, the Company believes that significant revenue is
not expected until the fourth quarter of fiscal year 2005, which along with any
upturn of spending in the telephone industry, will also increase sales and
improve the Company's operating margins and provide the Company with the
opportunity to attain profitability sometime in fiscal year 2006. </p>
<p></font><font FACE="Times New Roman PS" SIZE="2"><i>The Outlook for the
Company's Flagship Product </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p ALIGN="JUSTIFY">The Company believes the initial deployments and resultant
revenues of its Flagship product the TV+ are not expected until the second half
of fiscal year 2005, which, if accompanied by a material upturn in spending in
the telephone industry could lead to increased sales and improve the Company's
margins and provide the Company with the opportunity to become profitable.
</font><font FACE="Times New Roman PSMT"></p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Research and Development Activities </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase throughout its history has outsourced its research and development
activity with respect to both of its TV platforms as well as its POTS splitter
products. GTARC has conducted a significant amount of research and development
for mPhase pursuant to a research 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 DVDDS
legacy product. Microphase has performed research and development for mPhase
with respect to certain component DSL products such as the iPOTS products, low
pass filters and POTS Splitters and the legacy DVDDS product. Most recently,
mPhase has engaged Lucent for development of Version 3.0 of its TV+ product and
for development of a new extended shelf life battery using nanotechnology. </p>
<p>For the years ended June 30, 2004, 2003 and 2002 and for the period since
inception (October 2, 1996) to June 30, 2004, approximately $4,069,721,
$3,538,305, $3,819,583 and $38,416,800 , respectively, has been billed to mPhase
for research and development conducted by Lucent Technologies, Inc, Microphase
Corporation and GTARC. With the completion of the DVDDS legacy product, the
Company has shifted its research and development from GTARC to Lucent
Technologies Inc. The Company has recently expanded its research and development
efforts with Lucent Technologies to the NanoTechnology business segment. The
Company incurred research and development expenses with Lucent for fiscal years
ended June 30, 2004, June 30, 2003 and 2002 of $2,328,602, $1,112,500 and
$156,250, respectively. </p>
<p>In February of 2004, the Company and GTRC entered into a final agreement to
convert approximately $1.8 million in payables outstanding to GTRC and exchange
mutual releases in consideration for the issuance to GTRC of a Warrant (which
may be exercised on a cashless basis) to purchase 5,069,242 shares of the
Company's common stock valued at $.35 per share. In January of 2005, GTRC
exercised its cashless warrant an received 4,949,684 shares of common stock
based upon a formula which took into account the then current value of </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>the Company's common stock. In addition the, under the terms of the final
settlement, the Company was obligated to pay GTRC a total of $100,000 in
quarterly installments payments commencing at the end of March of 2004 which is
currently the subject of a renegotiation of the parties downward as the Company
reexamines the need to continue to maintain certain patent protection for the
TraverserDVDDS. Under the terms of its license from GTRC mPhase is the sole,
worldwide licensee of the technology developed by GTARC in conjunction with the
legacy DVDDS product. Upon completion of the legacy DVDDS product, GTRC may
receive a royalty of up to 5% of product sales. </p>
<p>The amount of research and development costs the Company has expended from
October 2, 1996, its inception date, through June 30, 2004 is $38,416,800.
During the year ended June 30, 2004, the Company incurred research and
development expenses of $4,069,721 related to the continued development of its
current TV+, IPOTS3 products plus exploratory development of certain
nanotechnology battery product as compared to $3,538,305 for the same period
ended June 30, 2003. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Strategic Alliances Implemented </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company has entered into a Co-Branding Agreement with Lucent for its
redesigned cost reduced INI set top box as part of its TV+ product solution. In
addition, pursuant to a Systems Integration Agreement with Lucent, the Company
has been designated as the exclusive worldwide reseller of the Lucent Stinger
when bundled as part of the mPhase TV+ product. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Critical Accounting Policies </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Revenue Recognition </i></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>All revenue included in the accompanying consolidated statements of
operations for all periods presented relates to sales of mPhase's POTS Splitter
Shelves and DSL component products. </p>
<p>As required, mPhase has adopted the Securities and Exchange Commission
(&quot;SEC&quot;) Staff Accounting Bulletin (&quot;SAB&quot;) No. 101, &quot;Revenue Recognition in
Financial Statements&quot;, which provides guidelines on applying generally accepted
accounting principals to revenue recognition based upon the interpretations and
practices of the SEC. The Company recognizes revenue for its POTS Splitter Shelf
and other DSL component products at the time of shipment, at which time, no
other significant obligations of the Company exist, other than normal warranty
support. </p>
<p>The deferred revenues balance recorded on the Balance Sheet for the fiscal
year ended June 30, 2004 is made up of three customer deposits consisting of
$214,180 in the aggregate for the POTS product. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Research and Development </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Research and development costs are charged to operations as incurred in
accordance with Statement of Financial Accounting Standards (&quot;SFAS&quot;), No.2,
&quot;Accounting for Research and Development Cost.&quot; </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Income Taxes </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase accounts for income taxes using the asset and liability method in
accordance with SFAS No.109 &quot;Accounting for Income Taxes.&quot; Under this method,
deferred tax assets and liabilities are measured using currently enacted tax
rates. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in results of operations in the period that includes the
enactment date. 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 financial statements. </p>
<p>Utilization of net operating losses generated through June 30, 2004 may be
limited due to &quot;changes in control&quot; of our common stock that occurred. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Stock-based Compensation </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Financial Accounting Statement No. 123, Accounting for Stock Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation for grants to
employees using the intrinsic method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock. The
Company has adopted the &quot;disclosure only&quot; alternative described in SFAS 123 and
SFAS 148, which require pro forma disclosures of net income and earnings per
share as if the fair value method of accounting had been applied. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>The Company accounts for non-employee stock based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more readily determinable. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Inventory Reserve and Valuation Allowance </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company carries its inventory at the lower of cost, determined on a
first-in, first-out basis, or market. Inventory consists mainly of the Company's
POTS Splitter Shelf and Filters. In determining the lower of cost or market, the
Company periodically reviews and estimates a valuation allowance to reserve for
technical obsolescence and marketability. The allowance represents management's
assessment and reserve for the technical obsolescence based upon the
inter-operability of its component products, primarily filters and splitters,
with presently deployed and next generation DSL infrastructures as well as a
reserve for marketability based upon current prices and the overall demand for
the individual inventory items. Material changes in either the technical
standards of future DSL deployments or further erosion in the demand for
deployments of DSL infrastructures could affect the estimates and assumptions
resulting in the amounts reported. The allowance represents management's
assessment and reserve for the technical obsolescence based upon the
inter-operability of its component products, primarily filters and splitters,
with presently deployed and next generation DSL infrastructures as well as a
reserve for marketability based upon current prices and the overall demand for
the individual inventory items. Material changes in either the technical
standards of future DSL deployments or further erosion in the demand for
deployments of DSL infrastructures could affect the estimates and assumptions
resulting in the amounts reported. The allowance is estimated as the difference
between inventory at historical cost, on a first in first out basis, and market
based upon assumptions about future demand, current prices and product
liability, and charged to the provision for inventory, which is a component of
cost of sales. At the point the historical cost is adjusted, a lower cost-basis
for that inventory is established, and subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly
established cost basis. </p>
<p>During the fiscal years ended June 30, 2004, 2003 and 2002, the Company
reserved approximately $98,000, approximately $302,000, and approximately
$928,000, respectively, for technical obsolescence and marketability based upon
current prices and overall demand and charged a like amount to expense,
representing 5.9% of average inventory, at cost, of approximately $1,671,000 on
hand during the period in fiscal 2004; 8.4% of average inventory, at cost, of
approximately $3,588,000 on hand during the period in fiscal 2003; and 13.6% of
average inventory, at cost, of approximately $4,602,000 on hand during fiscal
2002. The reserve and corresponding charges in fiscal 2002 were increased as the
Company experienced a dramatic decrease, along with the entire telephonic
industry, in demand for our component products in addition to the decision to
table the production of certain product line items built on certain European
standards and which the Company does not expect to pursue in the near future. As
of June 30, 2004, the Company recorded a cost adjustment of approximately
$86,902, recognizing permanent cost reductions due to price adjustments
approximating $11,212 and reductions due to obsolescence resulting from a lack
of inter-operability of certain components in inventory with the Company's
present product line approximating $11,212. As a result on June 30, 2004 the
Company had a total inventory valuation reserve of $388,235 against its
inventory with a total balance, at cost, of $1,627,207, or 24%. If there was to
be a sudden and significant decrease in demand for our products, or if there
were a higher incidence of inventory obsolescence because of rapidly changing
technology and customer requirements, we could be required to increase our
inventory allowances and our gross margins could be adversely affected. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Material Related Party Transactions </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company records material related party transactions. The Company incurs
costs for engineering, design and production of prototypes and certain
administrative functions from Microphase Corporation and the purchase of
finished goods, primarily consisting of DSL splitter shelves and filters, from
Janifast Limited. The Company has incurred costs for obtaining transmission
rights. This enabled the Company to obtain retransmission accreditation to
proprietary television content that the Company plans to provide with its
flagship product, the Traverser within its incorporated joint venture mPhase
Television.Net, in which the Company owns a 56.5% interest. </p>
<p>Directors that are significant shareholders of Janifast Limited include
Messrs Ronald A. Durando, Gustave T. Dotoli, and Necdet F. Ergul. </p>
<p>Mr. Michael McInerney, an outside Director, is employed by Lintel Inc. and
Mr. Abraham Biderman was employed until September 30, 2003 by our former
investment banking firm Lipper &amp; Company. </p>
<p>Messrs, Biderman, McInerney and Mr. Anthony Guerino own a relatively small
amount of stock, warrants and options in mPhase Technologies, Inc. </p>
<p>The Company has also incurred charges for beta testing and on-site marketing,
including the display of a live working model at Hart Telephone. In addition,
the Company has entered into a supply agreement with Hart Telephone, which may
commence upon the commercial production of Version 3.0 of the TV+ solution. In
addition the Company is currently replacing the Traverser with its new TV+
solution with customers of Hart Telephone. A member of mPhase's Board of
Directors is employed by Lintel, Inc., the parent corporation of Hart Telephone.
</p>
<p>Mr. Durando, the President and CEO of mPhase, owns a controlling interest and
is a director and COB of Janifast Limited. Mr. Durando and Mr. Dotoli are
officers of Microphase Corporation. Mr. Dotoli is also a shareholder of Janifast
Limited. Mr. Ergul, the chairman of the </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>board of mPhase, owns a controlling interest and is a director of Microphase
Corporation and is a director and shareholder of Janifast Limited. Microphase,
Janifast, Hart Telephone and Lintel Corporation are significant shareholders of
mPhase. Microphase, Janifast and Hart Telephone have converted significant
liabilities to equity in fiscal years June 30, 2001, 2002 and in the current
fiscal year. Management believes the amounts charged to the Company by
Microphase, Janifast, mPhase Television.Net and Hart Telephone are commensurate
to amounts that would be incurred if outside parties were used. The Company
believes Microphase, Janifast and Hart Telephone have the ability to fulfill
their obligations to the Company without further support from the Company. </p>
<p align="center">Significant charges from related parties are summarized for
the periods enumerated as follows: </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Charges and Expenses with Related Parties </p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="64%" COLSPAN="4" align="center" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman PS" SIZE="2"><b>For the Years Ended June 30,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">2001</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">2002</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">2003</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman PS" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2"><b>Charges incurred
    with Janifast</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2"><b>included in:</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $8,932,378</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,759,308</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $178,959</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Total Janifast</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $8,932,378</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,759,308</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $178,959</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Charges incurred
    with Microphase</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Corp.</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">(Including
    Royalties)</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $335,777</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $200,440</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $86,468</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $140,123</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    1,660,606</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    876,074</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    478,434</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    84,494</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    132,600</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    136,080</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    133,200</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    231,068</font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Total Microphase
    Corp.</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,128,983</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,212,594</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $648,102</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $386,113</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Charges incurred
    with Lintel &amp;</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Affiliates</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $192,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    285,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Total Lintel &amp;
    Affiliates</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $477,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Charges incurred
    with Joint Venture</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Partners &amp;
    Affiliates</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $949,420</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $64,039</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    60,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,009,420</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $64,039</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $9,268,155</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,959,748</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $265,427</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,912,048</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    2,802,026</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    940,113</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    428,434</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    84,494</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    477,600</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    136,080</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    133,200</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    231,068</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman PS" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $12,547,781</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $3,035,941</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $827,061</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $3,158,038</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="57%">&nbsp;</td>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="22%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%">&nbsp;</td>
    <td WIDTH="44%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Six Months Ended December 31</b></font></td>
  </tr>
  <tr>
    <td WIDTH="57%">&nbsp;</td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2003 </b></font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2"><b>Charges incurred
    with Janifast</b></font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2"><b>included in:</b></font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,816,019</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="57%">&nbsp;</td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Total Janifast</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $1,816,019</font></td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%">&nbsp;</td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Charges incurred
    with Microphase</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Corp.</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $191,133</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $11,784</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">(Including
    Royalties)</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $54,000</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $41,000</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $15,000</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $147,213</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Total Microphase
    Corp.</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $260,133</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $199,997</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Charges incurred
    with Lintel &amp;</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Affiliates</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">$ 0</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Total Lintel &amp;
    Affiliates</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Charges incurred
    with Joint Venture</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Partners &amp;
    Affiliates</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">included in:</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="22%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,007,152</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $410,499</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Research and
    development</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $54,000</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $41,000</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $15,000</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $147,213</font></td>
  </tr>
  <tr>
    <td WIDTH="57%"><font FACE="Times New Roman PS" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $2,076,152</font></td>
    <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2">
    $598,712</font></td>
  </tr>
</table>
<font FACE="Times New Roman PS"><b>
<p></b></font><font FACE="Times New Roman PS" SIZE="2"><i>Liquidity and Capital
Resources </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>From inception (October 2, 1996) through December 31, 2004 and June 30, 2004
the Company has incurred cumulative (a) development stage losses and has an
accumulated deficit of $120,912,875 and $115,775,083 respectively and (b)
negative cash flow from operations of $50,890,701 and $47,842,742 respectively.
The auditors report for the fiscal year ended June 30, 2004 includes the
statement that &quot;there is substantial doubt of the Company's ability to continue
as a going concern&quot;. Management estimates that the Company needs to raise
approximately $5-10 million during the next 12 months to continue operations. As
of June 30, 2004, the Company had a negative net worth of $2,917,962 down from a
negative net worth of $3,228,886. </p>
<p>At June 30, 2004 mPhase had working capital deficit of $2,111,452 as compared
to a working capital deficit of $1,405,331 at June 30, 2003. Through June 30,
2004, the Company had incurred development stage losses totaling $115,775,083.
At June 30, 2004, the Company had $90,045 of cash and cash equivalents and
$64,100 of net accounts receivables to fund short-term working capital
requirements. At December 31, 2004 mPhase had working capital deficit of
$3,093,403 as compared to working capital deficit of $2,111,452 at June 30,
2004. Through December 31, 2004, the Company had incurred development stage
losses totaling approximately $120,912,875. At December 31, 2004, the Company
had approximately $1,010,903 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)
the successful wide scale development, deployment and marketing of its products.
</p>
<p>Historically, mPhase has funded its operations and capital expenditures
primarily through private placements of common stock. </p>
<p>Management expects that its ongoing financial needs will be provided by
financing activities and believes that the sales of its line of POTS Splitter
products and other related DSL component products will provide some offset to
cash flow used in operations, although there can be no assurance as to the level
and growth rate of such sales in future periods as seen with quarter to quarter
fluctuations in component sales. At June 30, 2004, the Company had cash and cash
equivalents of $90,045 compared to $396,860 at June 30, 2003, net accounts
receivable of $64,100 and net inventory of $1,237,972. This compared to $287,135
of net accounts receivable and $2,103,328 of net inventory at June 30, </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p ALIGN="JUSTIFY">2003. At December 31, 2004, the Company had cash and cash
equivalents of $1,010,903 compared to $90,045 at June 30, 2004, accounts
receivable of $13,909 and inventory of $1,153,232. This compared to $64,100 of
accounts receivable and $1,237,972 of inventory at June 30, 2004. </p>
<p>Cash used in operating activities was $3,037,959 during the six months ending
December 31, 2004. The cash used by operating activities principally consists of
the net loss, and significant changes in assets and liabilities, including
additional cash provided by increasing accounts payable and accrued expenses by
approximately $1,031,926 offset by depreciation and amortization of $128,506,
and by non-cash charges of $1,222,054 for common stock options and warrants
issued for services and offset by cash outflow from an increase in inventory of
approximately $237,251. The Company expects that it will not have a need to
increase inventory until the roll out of our TV+ platform. </p>
<p>The Company has entered into various agreements with GTARC, pursuant to which
the Company receives technical assistance in developing the Digital Video and
Data Delivery System. The Company has incurred expenses in connection with
technical assistance from GTARC totaling approximately $0 and $0, for the three
month periods ended December 31, 2004 and 2003, respectively, and $13,539,932
from the period from inception through December 31, 2004.. </p>
<p>In February of 2004, the Company and GTRC entered into a final agreement to
convert approximately $1.8 million in payables outstanding to GTRC and exchange
mutual releases in consideration for the issuance to GTRC of a Warrant (which
has been exercised on a cashless basis in February of 2005) resulting in the
issuance of 4,949,684 shares of the Company's common stock valued at $.35 per
share. In addition the Company was obligated to pay GTRC a total of $100,000 in
quarterly installments payments commencing at the end of March of 2004 that is
currently the subject of a renegotiation downward as the Company reexamines its
need to maintain certain patents with respect to the Traverser DVDDS product..
mPhase is the sole, worldwide licensee of the technology developed by GTARC in
conjunction with the Traverser DVDDS product line. Upon completion of the
commercial product, GTRC may receive a royalty of up to 5% of product sales. </p>
<p>Effective June 30, 2001 the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements. </p>
<p>During the fiscal year ended June 30, 2002 certain strategic vendors and
related parties converted approximately $2.7 million of accounts payable and
accrued expenses into 7,492,996 shares of the Company's common stock and
5,953,490 warrants. Such vendors include Microphase Corporation, Janifast, Ltd.,
and Piper Rudnick LLP, mPhase's outside counsel. </p>
<p>During the twelve months ending June 30, 2003, certain strategic vendors and
related parties converted approximately $1.9 million of accounts payable and
accrued expenses into 5,923,333 shares of the Company's common stock and
warrants to purchase 3,706,800 shares of common stock of mPhase. </p>
<p>During the twelve months ending June 30, 2004, certain strategic vendors and
related parties converted approximately 1,963,202 million of accounts payable and
accrued expenses into 110,467 shares of the Company's common stock and warrants
to purchase 5,069,242 shares of common stock of mPhase. </p>
<p>During the six months ending December 31, 2004, certain strategic vendors and
related parties converted approximately $543,975 million of accounts payable and
accrued expenses into 2,739,875 shares of the Company's common stock and warrants to
purchase 2,739,575 shares of common stock of mPhase. </p>
<p>As of December 31, 2004, mPhase is obligated to pay Lucent Technologies,
Inc., the sum of $784,000 in 5 payments of $156,800 each against project
milestones under its current Development Agreement for development of Version
3.0 of its TV+ product. In addition, the Company is obligated to make payments
of $100,000 per month through December of 2004 under a separate Development
Agreement with Lucent covering development of its new battery developed through
the science of NanoTechnology. </p>
<p>The Company does, however, expects an increase in research and development
costs beginning in February, 2005 with the expansion of its research and
development efforts with Lucent Technologies Inc in the science of
Nanotechnology commencing with a renewal for an additional 12 months of a $1.2
million contract with Lucent to continue work on its nano power cell technology
and the entering of a second Research and Development Agreement in March of 2005
to develop a Magnetometer product through the science of Nanotechnology for an
additional $1.2 million contract for 12 months. In order to broaden and
diversify its current line of business into additional high growth technology
areas, the Company has previously entered into a Development Agreement,
effective February 3, 2004, with the Bell labs division of Lucent Technologies,
Inc. to commercialize the use of nano power cell technology. Under the terms of
the $1.2 million contract, Lucent/ Bell Labs will develop for mPhase micro-power
source arrays fabricated using nanotextured, superhydrophobic materials. This
new business arrangement with Lucent Bell Labs will give mPhase the opportunity
to develop and offer breakthrough battery technology applications, initially to
government market segments including defense and homeland security, and
ultimately to the commercial market. The initial applications for the nano power
cell technology will address the need to supply emergency and reserved power t o
a wide range of electronic devices for the defense department. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>The Company has no commitments from affiliates or related parties to provide
additional financing. The Company has, from time to time, been able to obtain
financing from affiliates when conditions in the capital markets make third
party financing difficult to obtain or when external financing is available only
upon very unattractive terms to the Company, and when such capital has been
available from the affiliates. As a result, conversions of Debt with related
parties and strategic vendors during the periods enumerated is a follows: </font>
<font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="274">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="274">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="left"><font FACE="Times New Roman PS" SIZE="2"><b>
    &nbsp;For the Six Months</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="left"><font FACE="Times New Roman PS" SIZE="2"><b>
    Ended December 31,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274">&nbsp;</td>
    <td WIDTH="356" COLSPAN="2" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>
    For the Years Ended June 30,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </b></font></td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>(Unaudited)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Equity
    Conversions of Debt With Related</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2002</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2003</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">
    2003</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Parties and
    Strategic Vendors</b></font></td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Related Party
    Conversions</b></font></td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Number of shares</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    6,546,550</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    5,533,333</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    4,510,275</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Number of
    warrants</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    3,733,334</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    3,491,800</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    4,510,275</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Amount converted
    to equity</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $1,594,628</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $1,760,967</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">$0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $565,679</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Strategic Vendor
    Conversions</b></font></td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Number of shares</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    999,662</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    390,000</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    100,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Number of
    warrants</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    870,000</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    215,000</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    100,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Amount converted
    to equity</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $529,503</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $198,032</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">$0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $20,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Total Related
    Party and Strategic</b></font></td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Party
    Conversions</b></font></td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
    <td WIDTH="178" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Number of shares</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    7,546,212</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    5,923,333</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    4,610,275</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Number of
    warrants</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    4,603,334</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    3,706,800</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    4,610,275</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Amount converted
    to equity</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $2,124,131</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $1,958,999</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">$0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $585,679</b></font></td>
  </tr>
  <tr>
    <td WIDTH="274"><font FACE="Times New Roman PS" SIZE="2"><b>Gain (Loss) on
    Extinguishment of Debt</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $142,236</b></font></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $61,226</b></font></td>
    <td WIDTH="178" align="right"><b><font face="Times New Roman PS" size="2">$0</font></b></td>
    <td WIDTH="178" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $(40,500)</b></font></td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>Effective November 28, 2004 and September 2,, 2004, the Company entered into
software development agreements with Espiral and Magpie respectively calling for
the payments of $95,000and $312,000 in connection with development of Version
3.0 of its TV+ system. Effective September 22, 2004, the Company became
obligated to pay Lucent Technologies Inc. a total amount of $1.2 million for
development of Version 3.0 of its TV+ product. Such amount is payable in 8
installments of $158,600 each against 7 project milestones all of which are
expected to be completed during fiscal year 2005. </p>
<p>Effective February 3, 2004, the Company became obligated to pay a total of
$1.2 million to Lucent Technologies Inc. under a new Development Agreement in
installments of $100,000 per month for a period of 12 months to develop a micro
power source array using nanotextured superhydrophobic materials. </p>
<p>Effective August 30, 2004, the Company successfully renegotiated its payment
agreement originally entered into in March of 2002 with Piper&amp;Rudnick LLC, its
outside counsel to cure all past arrearages owed under the original payment
agreement. On August 30, 2004, the Company paid Piper &amp;Rudnick the sum of
$100,000 cash and agreed to make future payments of $25,000 each on December 1,
2004, March 1, 2005, June 1, 2005, September 1, 2005 with a payment of $50,000
on December 1, 2005 and payments of $25,000 each on March 1, 2006, June 1,2006,
September 1, 2006 and a final payment of $75,000 on December 1, 2006. In
addition, the Company issued a 5 year cashless warrant for 750,000 shares of its
common stock valued at $.25 per share. The common stock in which such warrant is
convertible into is being registered hereunder on this Form S-1 (See Selling
Shareholders list on page 65) and could be sold in the open market (see Risk
Factor on Page 8 hereof). In addition, Piper Rudnick LLC holds a cashless
warrant covering 2,233,490 shares of its common stock that was originally issued
as part of its original payment agreement in March of 2002 which shares are
being registered as part of this Registration Statement filed on form S-1 by the
Company (see Selling Shareholders). </p>
<p>Effective February 18, 2004 of fiscal year ended June 30, 2004, GTRC agreed
to convert approximately $1.8 million of aggregate invoices for work performed
for the Company in development of its TraverserDVDDS product into a 5 year
cashless warrant to purchase5,069,200 shares of the Company's common stock or
stock valued at $.35 per share. </p>
<p>During the fiscal years ended June 30, 2002 and 2003 the Company was able to
negotiate extended payment terms for overdue accounts payable with strategic
vendors. These obligations are now classified as notes payable and included in
current and long-term portions of notes payable in the accompanying balance
sheets, based upon the revised payment terms. The company believes they can
maintain its </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>present repayment schedule, or otherwise renegotiate such terms that are
satisfactory to the Company and these vendors. </p>
<p>We have evaluated our cash requirements for fiscal year 2005 and beyond based
upon certain assumptions, including our ability to raise additional working
capital from equity financing and increased sales of our POTS Splitter. The
Company anticipated that it would need to raise, at a minimum, approximately
$5-10 million primarily in private placement of its common stock with accredited
investors, in the current fiscal year. As of December 31, 2004, the Company has
raised in the current fiscal year approximately $3,945,190. </p>
<p>Management believes that the $5-10 million to be raised, in new Private
Placements in the capital markets, will be sufficient to cover its current
operating expenses and permit the company to maintain its present operational
levels. This amount may be supplemented with additional funds that could be
received from investors, including selling shareholders' listed in this
prospectus, currently holding warrants to purchase up to a total of
approximately 56,216,363 million shares of common stock at exercise prices
ranging from $.25 to approximately $.45 per share which may trade &quot;in the money&quot;
and can be exercised during the next 12 months; the likelihood and potential for
which will increase should this prospectus become effective and should the price
of the Company's common stock rise. </p>
<p>Should these cash flows not be available to us, we believe we would have the
ability to revise our operating plan and make certain further reductions in
expenses, so that our resources which were available at June 30, 2004, plus
financing to be secured during fiscal year 2005, and expected POTS splitter
revenues, will be sufficient to meet our obligations until the end of fiscal
year 2004 and for the second half of fiscal year 2005. We have continued to
experience operating losses and negative cash flows. To date, we have funded our
operations with a combination of component sales, debt conversions with related
parties and strategic vendors, and private equity offerings. Management believes
that we will be able to secure the necessary financing in the short-term to fund
our operations into our next fiscal year. However, failure to raise additional
funds, or generate significant cash flows through revenues, could have a
material adverse effect on our ability to achieve our intended business
objectives. </p>
<p>Subsequent to the December 31 Quarterly Report Date, outstanding
subscriptions receivable of $ 50,000 was fully collected in January of 2005.
Additionally, the December 2004 private placement was closed out in January of
2005 with the placement of an additional 3,600,000 equity units at $.20 per unit
consisting of one share of common stock plus 5 year warrants for a like amount
of shares with a strike price of $.25 per share. This generated net proceeds of
$720,000 to the Company. </p>
<p>A January Private Placement realized additional net proceeds of $357,250 upon
issuance of 1,793,750 shares of Common Stock at $.20 per share plus 5 year
warrants to purchase 1,793,750 shares of Common Stock at $.25 per share. A later
Private Placement realized net proceeds of $1,351,000 upon issuance of 4,920,000
shares of Common Stock plus 5 year warrants to purchase 4,920,000 shares of
Common Stock at $.25 per share. A March Private Placement resulted in the
realization of net proceeds of $1,217,000 upon issuance of 4,396,667 shares of
Common Stock at $.30 per share plus 5 year warrants to purchase 4,396,667 shares
of Common Stock at $.30 per share </p>
<p>On January 15, 2005, the company converted a $ 100, 000 convertible note
payable to Martin Smiley in exchange for 400,000 shares and a like number of
warrants that were price at $25 per unit or $100,000 in aggregate. </p>
<p>Also in January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.35 on the date of that award. </p>
<p>In late February and early March of 2005, the Company converted approximately
$173,898 in accounts payable due various vendors into 535,296 shares of common
stock aggregating $183,310 in full settlement of those obligations. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Current Developments </i></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>During the months of January, February and March of 2005, the Company raised
a total of $2,759,000 in two Private Placements pursuant to Section 506 of
Regulation D of the Securities Act of 1933 with approximately 21 Accredited
Investors. The proceeds received from such placements is being used by the
Company for general corporate purposes including working capital and the payment
of Research and Development Expenses primarily to Lucent Technologies Inc. in
connection with the continuing development of the Company's TV+ and
Nanotechnology fuel cell products. The Company is focusing upon a dual strategy
of maximizing sales from its new cutting edge products and continued development
of such products to achieve maximum returns to its shareholders as a high growth
technology enterprise. </p>
<p>On February 28, 2005, the Company announced that it will collaborate with
Rutgers, the State University of New Jersey, on broadening of its nanotechnology
based battery to include chemistries such as Lithium as well as the Zinc and
Manganese Dioxide chemistries that it is developing through the Bell Labs
division of Lucent Technologies Inc. The agreement with Rutgers is contingent
upon obtaining federal and state funding for the project. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>BUSINESS </p>
<p align="center">Overview </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We develop, market and sell innovative DSL broadband telecommunications
equipment. Our main focus is developing the most cost effective products to
enable telecommunications service providers to deliver digital quality
television (together with data and voice) over ordinary copper telephone lines.
The primary markets for mPhase's television delivery products are regions of the
world outside of the United State that do not have coaxial fiber infrastructure
capable of delivering a large number of digital broadcast television channels.
mPhase is not seeking, at this point in time, to develop robust
feature-intensive expensive television platforms to compete with cable in the
United States currently both of our TV over DSL solutions support a single
television stream over a telephone wire. Therefore our television products are
targeted primarily for International markets outside of the United States. </p>
<p>On February 3, 2004, mPhase entered into the emerging area of NanoTechnology
as a new and second line of business with its execution of a new Research and
Development Agreement with the Bell Labs division of Lucent Technologies, Inc.
NanoTechnology involves the synthetic assembly of new structures and materials
at the molecular level. NanoTechnology has many potential applications including
in industries such as biotechnology, semi conductors and power cells and sensors. The
Company is initially focusing its efforts in developing new power cells and
sensors NanoTechnology products designed for military applications. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Outsourcing </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company practices an outsourcing model whereby it contracts with third
party vendors to perform certain functions rather than performing those
functions internally. For instance, mPhase out sources its research and Micro
Electro Mechanical Systems
development of both its TV+ product and its exploratory development of power
source array fabrication using nanotextured superhydrophobic materials to Lucent
Tecnologies Inc.. It also out sources analog engineering development and certain
administrative functions to Microphase Corporation and manufacturing of its POTS
Splitter product to Janifast Ltd. </p>
<p>We have currently have no contracts in place for the manufacturing of our
products with either Microphase Corporation or Janifast Ltd. or any other
non-affiliated third party manufacturers. We periodically execute purchase
orders for the the manufacture of quantities of POTS Splitters that are made by
Janifast Ltd. </p>
<p>With respect to manufacturing of its TV+ Platform, mPhase is targeting
leading contract manufacturing companies with strategically located facilities
globally with which it can establish long-term relationships. By using contract
manufacturers, mPhase will attempt to avoid the substantial capital investments
required for internal production. </p>
<p>The Company has entered into various Project Development Agreements with
Lucent Technologies, Inc in fiscal years 2004 and 2005 described above, as well as other
significant agreements that include a Co-Branding Agreement, dated as of January
21, 2003, allowing the Company to add the Lucent name and Logo to its
cost-reduced INI set top box for use with its TV+ products. Such agreement is
for an initial period of one year and is subject to renewal on an annual basis
by mutual consent. In addition, the Company has entered into a Systems
Integrator Agreement, dated as of April 4, 2003 designating the Company as a
reseller of the Lucent Stinger DSL transport product when bundled as part of the
mPhase TV+ platform globally. Such agreement gives mPhase the exclusive right to
sell the TV+ product worldwide containing the Lucent Stinger as the DSL
transport mechanism for delivering broadcast television, high speed data and
voice over copper telephone wires. In order to qualify for such status, as an
accredited reseller, Lucent Technologies, Inc. determined that the Company's TV+
platform added significant software and hardware value to the Stinger DSL
product by enabling such product to deliver broadcast television over ADSL in
addition to the Stinger's well known existing world-class capabilities for the
delivery of voice and high-speed data over copper telephone lines. Such
agreement is for an initial two year term provided that either party may cancel
such agreement with 60 days' notice to the other party. </p>
<p>As a member of the Lucent Business Partner organization, mPhase is able to
leverage established relationships with an existing Stinger customer base
without having to expand its sales force. To date there are approximately 4
million ports of the Stinger deployed around the world. mPhase and the Lucent
Global Business Partners group are also targeting other Business partners in
markets where there currently is a lack of cable television infrastructure. </p>
<p>mPhase also develops and designs component DSL products including Plain Old
Telephone Service Splitters (POTS Splitters) and low pass filters. Since its
inception in 1996, virtually all of mPhase's sales revenue has been derived from
the sales of POTS Splitters and other DSL component products. mPhase's product
line also includes its </font><font FACE="Times New Roman PS" SIZE="2"><i>intelligent
</i></font><font FACE="Times New Roman PSMT" SIZE="2">line of POTS Splitter
products. The </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS is a device which allows
telecommunications service providers to perform DSL loop qualification from a
central office without having to deploy workers to the field. mPhase has
established a worldwide non-exclusive distribution agreement with Corning Cable
for the </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS product and continues to market
such product directly. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Industry Background </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>The Company believes there is a significant market for its television over
DSL products, in particular, for its latest TV+ Platform. Telephone companies
worldwide need to deliver a combination of services (i.e., voice, television and
data) in order to reverse negative </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>economic trends of reduced margins and customers. The multichannel television
business is a growing industry. Much of the world is largely underserved, with
little access to digital television programming. Cable, outside the US and
pockets of Europe, is in the early stages of deployment. In fact, according to
Kagan World Media, the percent of television-owning households subscribing to
multi-channel television services outside of North America in 2002 was only 36%.
The mPhaseTV+ platform empowers telecommunications service providers to (a)
capitalize upon this growing revenue-generating segment and (b) be able to
compete more effectively with other technologies, such as cable where installed,
and direct broadcast satellite (DBS) services. </p>
<p>We believe the incentive for telephone companies to deploy advanced digital
services is significant. The traditional revenue model for telecommunications
service providers is shifting as fixed line calling revenues are continuing to
decline with the advent of as wireless telephony and voice delivered over the
Internet. Traditional telephone companies can no longer rely on a captured
market and need to offer new, revenue-generating services in order to maintain
or increase profitability and by offering new services to their customers. </p>
<p>Cable television providers are also beginning to offer cable telephony and
cable modems for high-speed Internet service, in addition to their traditional
multichannel television services. Additionally, in the U.S., direct broadcast
satellites providers (DBS) are upgrading to two-way satellite communication to
provide data services. In more advanced markets, these technologies have
converged, leaving telephone, cable and direct satellite television providers
competing for the same customers and the same dollars. </p>
<p>mPhase's flagship TV+ solution enables telephone companies and other
communications service providers utilizing twisted pair telephone wires to
respond to these competitive threats and immediately offer fully integrated
broadband service packages to their subscribers. Importantly, with mPhase's
products, telecommunications service providers are able to compete with cable
and satellite providers in the high-margin multichannel digital television
market. mPhase's product solution do not require a capital-intensive fiber nor
cable build- out, long lead times, or a technically challenging deployment.
Instead, utilizing their already installed copper telephone line infrastructure,
telephone companies can increase their per subscriber revenue, capture
additional marketshare, stave off competition and ultimately increase their
overall market valuation by becoming full-service communications providers
today. </p>
<p>Incumbent telecommunications service providers will have an opportunity to
preempt wide digital cable or satellite adoption that deploy mPhase's systems
DSL and become market leaders in providing data and video services. Most
telecommunications companies and industry analysts currently understand that
data-only solutions are not sufficient to attract new customers, retain existing
ones, and maintain or achieve profitability. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Our Television Over DSL Solution </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase markets and sells a line of innovative DSL (digital subscriber
line)-based broadband telecommunications equipment. Our flagship product line is
our TV+ solution enabling the delivery of television over DSL. This product
facilitates telephone companies becoming full service communications providers
by enabling the simultaneous delivery of digital broadcast television, high
speed data and voice services over the existing telephone line infrastructure.
mPhase has developed its TV+ solution with a specific target in mind,
specifically, telephone companies in parts of the world where access to
multi-channel television is limited, as well as domestic, rural telephone
operators. </p>
<p>mPhase introduced its first TV over DSL product, the Traverser Digital Video
and Data Delivery System, (DVDDS) in 1998. The DVDDS, is an end-to-end system
based upon proprietary technology developed in conjunction with Georgia Tech
Research Corporation. Because it is an end-to-end video-over-ADSL (asymmetric
digital subscriber line) equipment. The proprietary transport method utilized in
the Traverser System is patent protected. The intellectual property embodied by
the DVDDS System includes the ability to deliver a plurality of channels to a
plurality of users, ensuring that all channels are available to all users at all
times. The Company has replaced this legacy product with its newer TV+ solution.
</p>
<p>The DVDDS is installed at Hart Telephone Company in Hartwell, Georgia, that
is currently being upgraded to the TV+ solution. Another DVDDS system is
installed at the BMW manufacturing plant in Spartanburg, South Carolina for use
as a closed television system in a commercial setting. </p>
<p>mPhase recently has completed development of Versions 1.0 and 2.0 of the TV+
product and has recently commenced development of its new IP based Version 3.0
of the TV+ solution. </p>
<p ALIGN="JUSTIFY">Bell Labs approached mPhase about creating a hybrid, mPhaseTV+
solution that would capitalize upon the strengths of each company's DSL platform
in December of 2002. Prior to this, Bell Labs had been working in a contract
engineering capacity helping mPhase to cost-reduce its digital set top box. </p>
<p>The two companies elected to team and create what we believe to be the most
reliable, scaleable and cost-effective system for the delivery of television
services over copper telephone wires. This collaborative platform combines the
data centric strengths of Lucent's Stinger with the TV-centric strengths of
mPhase's Traverser&#153 resulting in a best of breed solution. For mPhase, the TV+
Solution marks a shift in strategy from selling a complete, proprietary platform
to providing an industry-standard, modular solution. This joint approach offered
a number of advantages. For instance, by utilizing the Lucent Stinger for
transport, mPhase's mPhaseTV+ platform can capitalize upon the proven, extremely
robust and cost effective method of supporting and delivering data combined with
the Traverser's method of supporting </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>video. </p>
<p>Versions 1.0 and 2.o of the TV+ platform eliminates the need for telephone
companies to replace their already installed equipment. Because this solution is
modular, telephone companies that already have Stingers deployed can quickly and
easily upgrade to support television in addition to data and voice services.
There are currently 4 million Stinger ports deployed in 20 countries around the
globe that deliver voice and data over DSL. With minor modifications, mPhase's
BTS and Traverser CPE are also interoperable with other leading vendor's DSLAMs
on the market today, making it possible for any telephone company with an
installed base of equipment to quickly and relatively inexpensively become full
service communications providers. </p>
<p>Version 3.0 of the TV+ platform will be an IP based solution ideally suited
for large-scale deployments, and in parts of the world which cannot afford the
cost of upgrading to cable infastructure. In contrast to the Versions 1.0 and
2.0, Version 3.0 will interoperate with the Stinger as well as DSLAM's of all
other major vendors and give a telephone service provider ultimate software
enabling flexibility resulting the lowest cost of deployment by providing a
total open architecture allowing a telephone company to optimize its own system
solution for delivery of a &quot;triple play&quot; of services based upon the
characteristics of its customer base and the topology of its current
infrastructure. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>NanoTechnology </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase has recently entered the business of NanoTechnology which represents
the latest scientific area involving the disciplines of molecular engineering,
quantum physics and electrochemistry, amongst others to create new advances in
products. mPhase is currently focusing primarily upon exploratory research for
the development of advanced battery and power cell products and Electro
Mechanical Systems for a new generations of sensors for military
applications. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Business Development, Organization, and Acquisition Activities </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We were incorporated in New Jersey in 1979 under the name Tecma Laboratory,
Inc. In 1987, we changed our name to Tecma Laboratories, Inc. As Tecma
Laboratories, Inc., the Company has primarily engaged in the research,
development and exploitation of products in the skin care field. On February 17,
1997, we acquired Lightpaths, Inc., a Delaware corporation, which was engaged in
the development of telecommunications products incorporating DSL technology, and
we changed our name to Lightpaths TP Technologies, Inc. </p>
<p>On January 29, 1997, we formed another wholly-owned subsidiary called TLI
Industries, Inc. The shares of TLI were spun off to our stockholders on March
31,1997 after we transferred the assets and liabilities, including primarily
fixed assets, patents and shareholder loans related to the prior business of
Tecma Laboratories. As a consequence of these transactions, we became the
holding company of our wholly owned subsidiary, Lightpaths, Inc. on February 17,
1997. </p>
<p>On June 2, 1997, we completed a reverse merger with Lightpaths TP
Technologies, Inc. and changed our name to mPhase Technologies, Inc. </p>
<p>On June 25, 1998, we acquired Microphase Telecommunications, Inc., a Delaware
corporation, by issuing 2,500,000 shares of our common stock. Microphase
Telecommunications' principal assets were patents and patent applications
utilized in the development of our proprietary Traverser technology (as
discussed in related footnote 11 of financial statements on P F-35). See also
&quot;Material Related Party Transactions,&quot; contained with &quot;Critical Accounts
Policies&quot; on P 27 and &quot;Certain Relationships and Related Transaction&quot; P 51. </p>
<p ALIGN="JUSTIFY">In March 2000, we entered into a joint venture with Alphastar
International, Inc. to form a company called mPhase Television.net, Inc., (mPhaseTV)
in which we held a 50% interest. On May 1, 2000, we acquired an additional 6.5%
interest in mPhaseTV, and made it one of our consolidated subsidiaries. </p>
<p>On March 14, 2000, we entered into an agreement with BMW Manufacturing Corp.,
located in South Carolina. Under the agreement, we installed version 1.0 of the
Traverser for BMW's telephone transmission network. BMW has agreed that, upon
its notice and consent, we will be able to demonstrate to potential customers
the functioning system at BMW's facilities. BMW has made two (2) subsequent
purchases increasing the size of its deployment to 48 unique units. </p>
<p ALIGN="JUSTIFY">Our flagship installation, Hart Telephone, has completed the
build and development of its digital headend during fourth quarter of 2001. The
completion of their digital headend marks the move from beta to commercial
deployment of the Traverser platform. Hart currently has approximately 70
customers receiving about 80 channels of television services. </p>
<p>In May of 2002 mPhase initiated discussions for development of a cost-reduced
intelligent network interface (INI) set top box with the Bell Laboratories
division of Lucent Technologies, Inc. </p>
<p>Effective December 1, 2002, mPhase entered into a Development Agreement with
the Bell Laboratories division of Lucent Technologies, Inc. for the development
of mPhase's broadcast television switch (BTS) as an intergrated platform with
the Lucent Stinger DSL Access Concentrator. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>On December 9, 2002, pursuant to a Statement of Work, Lucent commenced
development of the BTS for mPhase. </p>
<p>On December 15, 2003, mPhase engaged Lucent for the cost-reduction of its
Traverser INI set top box. </p>
<p>On January 21, 2003, mPhase entered into a Co-Branding Agreement with Lucent
under which mPhase's INI set top box will be co-branded with the Lucent
Technologies, Inc. name and logo. </p>
<p>On April 4, 2003, mPhase entered into a Systems Integration Agreement with
Lucent. Under the terms of the agreement, mPhase has been given the exclusive
right to sell worldwide a &quot;bundled&quot; solution consisting of mPhase BTS and the
Lucent Stinger. </p>
<p>In May of 2003, MPhase has announced development of the mPhaseTV+ Platform
with Lucent Technologies' Bell Labs. This modular product, as described in the
&quot;Our Solutions&quot; section earlier, utilizes the industry-standard Lucent Stinger
for transport. Bell Labs has been design contracted to design the mPhase BTS and
Traverser CPE to be used in conjunction with the Lucent Stinger. A redesigned
cost reduced second generation set top box CPE equipment has been completed. A
prototype version of the BTS is also completed and has been successfully tested
with 3 customers at Hart telephone in July of 2003. The first version of our TV+
product is scheduled to be completed during the second quarter of fiscal year
2004. </p>
<p>In November of 2003, mPhase announced that it had entered into a $1.0 million
Project Development contract with Lucent Technologies' Bell Labs division to
complete development of Version 1.0 of its TV+ solution by the summer of 2004.
</p>
<p>In February of 2004, mPhase announced that it had entered into a $1.2 million
Project Development contract with Lucent Technologies' Bell Labs division to
perform exploratory research and development of micro power source arrays
fabricated using nanotextured, superhydrophobic materials. </p>
<p>In September of 2004, mPhase announced that it had entered into a new $1.2
million Project Development contract with Lucent Technologies' Bell Labs
division to develop Version 3.0 of the TV+ solution centered around a new &quot;Video
Soft Switch&quot; enabling the delivery of broadcast television, high speed internet
and voice over an new IP based system with an open standards architecture. </p>
<p>In November of 2004, mPhase announced the selection by Lucent Russia to
deploy 1,000 ports of mPhase's TV+ solution to a telecom services company in the
far eastern region of Russia that is one of 7 regional mega communications
service providers. In addition the Company announced that it had received a $1
million order for its IPOT3 product renamed as the Broadband Loop Watch from
Lucent Saudi Arabia. </p>
<p>In March of 2005, mPhase extended its Project Development Agreement with
Lucent Technologies Inc. covering its power cell product for an additional 12 months at a cost of $1.2 million
and also entered into a new 12 month Project Development Agreement for
development of its new MEMS based Magnetometer sensor product.</p>
<p>Our revenue, historically, has been derived from sales of component telephone
equipment parts, the majority of which has come from our sales of POTS Splitter
Shelves. In our fiscal years ended June 30, 2003 and June 30, 2004 respectively,
we generated approximately $2.6 million and $4.8 million in revenue and $474,687
in revenue for the six months ended December 31, 2004,
respectively, from the commercial sale of our component products. Our other
component products, including Filters and Central Office POTS Filter Shelves,
are marketed to other DSL equipment vendors. We do not believe that the sales of
our TV+ feature product will be materially impaired by the sale of these
component products to these potential competitors. </p>
<p>mPhase is in the process of evaluating a full range of contract
manufacturers, including manufacturers outside of the U.S. We believe that there
are many qualified manufacturers around the world. mPhase is likely to contract
with multiple companies depending on which countries the TV+ product is deployed
and depending upon cost-competitiveness. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Our Products &amp; Services </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>To date mPhase's revenue has been derived almost exclusively from sales of
DSL component telephone equipment parts, the majority of which has come from our
sales of POTS Splitter Shelves. We have just received our first order for 1000
ports of our broadcast television platform over DSL platform and our first order
for $1 million of our IPOTS-s or Broadband Loop watch Product. In our fiscal
years ended June 30, 2004 and June 30, 2003 we generated approximately $4.8
million and $1.6 million in revenue, respectively, from the commercial sale of
our component products and overall losses for such years of $7,758,586 and
$6,650,211, respectively. </p>
<p>mPhase supplies the telecommunications industry with products designed to
enable, enhance or support broadband DSL services. mPhase's line of TV-over-DSL
products include Versions 1.0 and 2.0 of its TV+ Platform with Version 3.0 of
its TV+ product expected to be available during the third quarter of fiscal year
2002. Additionally, mPhase markets a line of DSL component products ranging from
commodity items such as traditional POTS Splitters and microfilters to
higher-end, feature-rich products such as the recently introduced Intelligent
POTS Splitter. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Traverser DVDDS </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase's legacy television-over-DSL System is the Traverser DVDDS. This
system is a patented end-to-end solution enabling the delivery of digital
broadcast television, high speed data services, and traditional voice services
(requires Class5E voice switch) over a pair of </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>copper telephone wires. It has been recently replaced by the mPhase TV+
platform. </p>
<p></font><font FACE="Times New Roman PS" SIZE="2"><i>mPhaseTV+ Platform </i>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase and Bell Labs Lucent Technologies have teamed together to create an
industry-standard, high quality and cost effective television over DSL platform
known as the mPhaseTV+ Platform.Versions 1.0 and 2.1 of this solution consists
of three key elements: </p>
<p>The mPhase BTS (broadcast television switch) layer interfacing the video
headend and the DSLAM; </p>
<p>Lucent's Stinger DSL Access Concentrator, a field-tested central office (CO)
piece of equipment which provides DSL connections to individual customers; and
</p>
<p>mPhase CPE, a highly integrated set top box to deliver video in the home
environment from the DSL link. </p>
<p>This hybrid, collaborative platform capitalizes upon the strengths of both
Lucent's and mPhase's technology. The BTS embodies the same video networking
intelligence as the Traverser DVDDS. However, when combined with the proven,
robust Stinger, which effectively and cost-effectively supports data, the end
result is what we believe to be a best-of-breed, industry-standard solution. </p>
<p ALIGN="JUSTIFY">The mPhase BTS resides between the DSLAM and the video
headend and provides video networking intelligence that enables television
services over DSL. The BTS is also responsible for video-related functionality
such as demuxing and mapping MPEG-2 bitstreams, video subscriber management,
video content management and billing management. </p>
<p>MPhase has developed, in conjunction with Bell Labs, a low cost, efficient
and compact digital set top box with an integrated DSL Modem called the INI
Version 400. Various versions of this device exist or are in development such as
a standards-based product inoperable with the Lucent Stinger as well as other
manufactures' DSLAMs. </p>
<p>Together with a digital video headend (or PCC) and the Lucent Stinger, the
Versions 1.0 and 2.0 of the TV+ platform provide an ATM (asynchronous transfer
mode) based end-to-end solution for customers wanting to provide television and
high-speed data services over their existing copper infrastructure. Based on a
streamlined, modular architecture, future upgrade, additional features and
ancillary services can be implemented without major modifications to the entire
system. </p>
<p>The Company expects to sell Version 3.0 or its IP(internet protocol) based
TV+ platform to customers planning to support large scale deployments,
delivering both high speed data and television services. Such system is designed
for maximum flexibility cost effectiveness and highly scaleable for large
deployments by telephone service providers and represents a shift of the
Company's focus from hardware to software.</p>
<p>The Company believes the initial major deployments and any revenues from
sales of its flagship TV+ product, are not expected until the third or fourth
quarter of fiscal year 2005. An upturn of spending in the telephone industry
should also increase sales and improve the Company's margins and provide the
Company with the opportunity to attain profitability. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Component Parts Pots Splitter Shelves Intelligent Pots Splitter (iPots) </i>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase also designs and markets a line of DSL component products ranging from
commodity items such as carrier-class POTS splitters located at the central
office as well as CPE splitters and filters located in the home. Recently,
mPhase has introduced a line of innovative loop management products intended to
lower the operational costs involved with supporting DSL services. The </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS, (intelligent POTS Splitter),
product line includes the </font><font FACE="Times New Roman PS" SIZE="2"><i>i
</i></font><font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>1 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">and the </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>3 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">. These products mark a significant
advancement in automating loop management by utilizing &quot;intelligent
functionality&quot; thereby enabling testing of a telephone loop for DSL deployment
without having to dispatch personnel to the field to manually perform such
tests. These products reduce the operational costs of deploying and maintaining
DSL services. The </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i>
</font><font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>3 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">is an upgrade from the original
</font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>1 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">, allowing service providers a 3-way
view of the network and is compatible with DSLAM's of most vendors. The </font>
<font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS </font>
<font FACE="Times New Roman PS" SIZE="2"><i>1 </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">is designed for use only with the
Lucent Stinger DSLAM. </p>
</font>
<font FACE="Times New Roman PS" SIZE="2"><i>
<p>Microfilters </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We have developed a complete line of microfilters, including a 2 and 4 pole
filter for use in single and multiphone households, as well as a network
interface splitter. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>mPhase Television.Net, Inc. </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase Television. Net, Inc. (mPhase TV) has established licensing agreements
with content originators thus allowing service providers to offer subscribers a
full complement of U.S. television programming. mPhase TV has secured rights to
rebroadcast television content from </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>U.S. network and cable broadcasters. mPhase TV can offer programming content
in the U.S. to U.S. telephone service providers seeking to deploy either of
mPhase's television platforms. This eliminates the need for service providers
from having to negotiate many separate contracts with U.S. broadcast television
programmers. </p>
<p>It is important to note that the role of mPhaseTV has changed since its
inception. Originally, mPhaseTV was to act as a content aggregator, downlinking
a complete lineup of channels, digitizing those channels and uplinking them via
satellite for further delivery to each telco site. The benefit of mPhaseTV
acting as a content aggregator was that service providers would not have to
build a full-scale headend that included encoders, and other equipment. However,
recent advances in technology have significantly reduced the costs for a
telephone company to build a full scale headend. Therefore the role of mPhaseTV
is now limited to providing the appropriate licenses and relationships as
opposed to offering a content aggregation solution. Telephone companies
purchasing content through mPhaseTV are required to build a full-scale digital
headend. </p>
<p>In March of 2000, mPhase provided the initial funding for mPhaseTV, by
lending it $1,000,000 at 8% per annum interest. The loan is repayable to us in
common stock at the time that mPhase Television qualifies for listing in the
NASDAQ Small Cap Market. We also contributed $20,000 in cash to the joint
venture and granted options to Alphastar Internal Inc. (Alphastar) to purchase
200,000 shares of our stock for $4.00 per share. The agreement required
Alphastar to provide mPhase Television the right to transmit television
broadcasts over Alphastar's digital satellite network. On May 1, 2000, we
acquired an additional 6.5% interest in mPhase Television for an additional
$1,500,000 in cash. We report mPhaseTV as a consolidated subsidiary. </p>
<p>As part of its cost reduction efforts in fiscal year 2002, mPhase
renegotiated its joint venture relationship with Alphastar that originally
established mPhaseTV. Under the new arrangement, mPhaseTV terminated its lease
of the rights to use Alphastar's earth station satellite uplink and downlink
facility in Oxford, CT. Such facilities had enabled mPhaseTV to aggregate
television content from the multiple networks and content providers eliminating
the need for telecommunications service providers in the United States from
building a master headend as an additional cost to the TV+ platform. As noted
above, recent developments in technology have significantly reduced the cost of
such master headend facilities which eliminates the need for mPhase to aggregate
television content. mPhaseTV may serve as a strategic asset for selling the
mPhase's video over DSL solutions in the U.S. by having secured the rights to
transmit over DSL over a number of television channels directly from the content
providers for test deployments. This experience should be helpful to a U.S.
telecommunication services provider from purchasing the TV+ television delivery
platform in future efforts to assemble such rights itself from each of such
content providers. mPhase currently owns a 56% controlling interest in mPhaseTV.
</p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Research and Development Activities </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>As of June 30, 2004, we had been billed approximately $13,563,000 for
research and development conducted by Georgia Tech Research Institute (GTRC) in
connection with the development, over 5 years of the legacy Traverser DVDDS
system .On March 26, 1998, we entered into a license agreement with Georgia Tech
which owns the Digital Video and Data System technology. GTRC and its affiliates
have granted us the exclusive license to use and re-sell Traverser DVDDS
worldwide. We are obligated to pay Georgia Tech royalties of up to 5% on future
sales of the Traverser&#153 The license agreement expires automatically when the
patents covering the invention expire. </p>
<p>The Company has paid Lucent Technologies, Inc, through December 31, 2004 a
total of $2,764,522 for development of its TV+ solution which commenced in the
second quarter of fiscal year 2003. In September of 2004, mPhase announced a new
Project Development contract with the Bell Labs division of Lucent Technologies
Inc to develop Version 3.0 of its TV+ platform as a new IP based system with an
open standards-based architecture based upon a new &quot;Soft Switch&quot; software
enabling the delivery of broadcast TV, high-speed internet and voice over fiber
and copper.The Company is obligated to pay $470,400 primarily to Lucent
Technologies Inc and Magpie as of March 1, 2005 in remaining payments in order
to complete Release 3.0 of the TV+ product . </p>
<p>In February of 2004 mPhase announced that it had entered into a new $1.2
million Project Development contract with the Bell Labs division of Lucent
Technology Inc. for the exploratory research of micro power cell arrays using
superhydrophobic nanotextured materials with the first commercial application
expected to be a new miniature power cell with a very long shelf life for
military and commercial applications. Under the terms of such agreement the
Company has paid Lucent $100,000 per month commencing in February of 2004 for a
12 month period for a total of $1.2 million. As of March 1, 2005, the Company
owes to Lucent Technologies Inc., two final monthly payments totaling $200,000
that have been invoiced under the contract. The Company and Lucent have extended such contract for another 12 months on similar terms
to continue development of the miniature power cell product. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Market </i></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Currently, mPhase's target market for its television over DSL solutions
include telephone companies and telecommunications service providers worldwide.
By deploying converged voice, video and data over their existing copper
telephone infrastructure, telecommunications service providers can increase
revenue and profitability and retain valuable market share. In most parts of the
world, the telephone company is strongly positioned to be first to market with
an integrated bundle of communications services. There are over 1 billion
telephone lines serving consumers around the globe compared to only 586.9
(source: Kagan World Media) million homes passed by cable. In today's
competitive telecommunications landscape, both the Traverser and the mPhaseTV+
platform have now become necessary solutions for all telecommunications service
providers to compete effectively in today's marketplace. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>We estimate that on average, a typical telco using mPhase's current Version
1.0 and 2.1 of its TV+ platform utilizing the Lucent Stinger can generate
significant revenue with a payback on its initial investment in either system
within 2-3 years depending on the size and scope of the deployment. Importantly,
this relatively short payback period is still applicable in countries where the
average cost of a basic cable television package is well below the US average.
The economics of mPhase's video over DSL platforms are such that, for example,
when charging as little as $7 per month per subscriber for a basic television
package, the system operator can expect a full return on investment within a
three-year period of time. Furthermore, over 5 years a telecommunications
service provider can achieved a significantly higher rate of return on its
investment in either of our TV platforms than would be possible with deploying
voice and data alone. mPhase has developed a detailed and highly customizable
return on investment model to assist the telco in assessing its rates of return
and profitability based on additional revenue generated by the new services. </p>
<p>mPhase expects to derive the majority of its revenue from the sale of its TV+
solution over DSL platform, developed in conjunction with Lucent Technologies,
for a number of reasons: </p>
<ol>
  <li>The platform has been designed to achieve maximum cost efficiencies.
  Initial versions 1.0 and 2.1 of this product will be cost-competitive by
  utilizing the Lucent Stinger for transport. It is anticipated that as Lucent
  continues to drive down the cost of the Stinger and as further engineering
  efforts are completed in the Stinger to better and more efficiently support
  broadcast video services, we believe the total per port cost of Versions 1.0
  and 2.0 TV+ platform will be the most cost-effective (ATM) solutions available
  on the market.<br>
&nbsp;</li>
  <li>mPhase believes its business partnership with Lucent will help validate
  our products and result in greater sales. mPhase will be able to leverage
  Lucent's relationships with its estimated 250 business partners around the
  globe, thereby increasing exposure for its mPhaseTV+ product set
  significantly.<br>
&nbsp;</li>
  <li>Version 3.0 of the TV+ solution, the Soft Switch product expected to be
  available in the third or fourth quarter of fiscal year 2005, will be an IP
  based solution and is a powerful software enabling tool providing complete
  standards-based flexibility for any combination of hardware DLAM's , set top
  boxes and other features necessary to optimize a solution by a telephone
  service provider for the delivery of broadcast television, voice and
  high-speed internet.</li>
</ol>
<p>mPhase is currently targeting international incumbent telephone companies and
rural independent domestic local exchange carriers for sale of its TV over DSL
platforms. The Company expects to derive the majority of its system sales
abroad, specifically from telephone service providers in Europe, Latin America,
Asia and Africa. Additionally, the modular video elements of mPhase's mPhaseTV+
platform (i.e., the BTS and INI) can be retrofitted to existing Lucent Stinger
deployments. mPhase, through the support of Lucent, anticipates targeting many
of the customers of Lucent that currently have deployed over 4 million ports of
the Stinger data and voice delivery product in over 20 countries around the
globe. </p>
<p ALIGN="JUSTIFY">mPhase believes that foreign telco markets will adopt its TV
over DSL product solutions more rapidly than domestic service providers since
there is not generally the demand outside of the United States for robust cable
features (such as simultaneous delivery of 3 different TV channels through one
set top box) as there is in the United States. Therefore, the Company has placed
much of its initial emphasis on targeting the international telco market. </p>
<p>The demand for alternative television options is high in Europe, Asia and
Latin America. According to the Yankee Group, European countries have been early
adopters of video-over-DSL and alternative video delivery technologies,
deploying and testing services more aggressively than North America. These
markets possess pockets of moderate to high-income households willing and able
to purchase advanced digital services, but very few alternatives exist.
According to the Gartner Group, another industry analyst, the number of carriers
in the Europe, Middle East and African regions planning on deploying video over
DSL services has &quot;leapt from 40 percent to almost 75% in 2002.&quot; Analysts from
the Gartner Group commented that, &quot;This is a clear sign that carriers realize
they need to move upstream with broadband value-added services.&quot; </p>
<p>Cable television and digital broadcast satellite (DBS) services are less
competitive internationally than in North America. Because of the limited
expansion of cable, especially two-way digital cable and satellite networks
abroad, access to advanced communications services such as high-speed Internet
and digital television in many areas is limited to copper-based delivery
methods. </p>
<p>Parts of the world representing the largest opportunities for mPhase include
Latin America, Eastern Europe and parts of Africa. For instance, multichannel
television service providers in Latin America have only penetrated 18.3% of the
94.7 million television-owning households (source: Kagan World Media). In Latin
American telecommunications service providers deploying one of mPhase's
solutions for TV over DSL will be able to offer television services at very
competitive rates. Currently, multichannel television services are only
available to the top-tier consumers in Latin America as well as in other
developing parts of the world. mPhase's return on investment models indicate
that telecommunications service providers charging as little as $7 a month for
basic services can anticipate a return on investment within a very short period
of time. This attractive business model will help make digital multichannel
television service available to a large number of potential new users. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>The U.S. multichannel television market is highly competitive, because the
penetration of cable services in North America is much higher than the rest of
the world and there are numerous service options for multichannel pay TV
customers, telecommunications service providers must provide incentives for
cable television subscribers to switch service providers. However, in foreign
markets, where (a) there is a high penetration of television sets, a very
limited number of broadcast television channels are received using antennas from
&quot;through-the-air&quot; broadcast and (b) direct-to-home satellite providers cannot
currently support the delivery of reliable, two-way data services. In such
markets we believe that a telephone company is much better positioned to be the
initial and primary provider of bundled converged services. </p>
<p>The following table represents the estimated number of television viewers in
select countries. </font><font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="75%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      TV</b></font></td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      *Multichannel</b></font></td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Households</b></font></td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Subscribers</b></font></td>
    </tr>
    <tr>
      <td WIDTH="33%">&nbsp;</td>
      <td WIDTH="33%" align="right">&nbsp;</td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      (in millions)</b></font></td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2"><b>Worldwide</b></font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      994</b></font></td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      430.55</b></font></td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2"><b>Asia</b></font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      519.3</b></font></td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      207.6</b></font></td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2"><b>Europe</b></font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      233.3</b></font></td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      94.8</b></font></td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2"><b>Latin America</b></font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      118.7</b></font></td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      24</b></font></td>
    </tr>
    <tr>
      <td WIDTH="33%"><font FACE="Times New Roman PS" SIZE="2"><b>North America</b></font></td>
      <td WIDTH="33%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      112.7</b></font></td>
      <td WIDTH="34%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      104.15</b></font></td>
    </tr>
  </table>
  </center>
</div>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>* Multichannel subscribers includes cable and DBS subscribers </p>
<p>Source: Global Multichannel Markets 2002: Performance and Projections for 59
countries. Kagan World Media. </p>
<p>Competition in the telco market is becoming increasingly aggressive due to
changing telecommunications regulation, heightened competitive threats from
alternative technologies, such as cable and digital broadcast satellite, and
price declines in local and long distance telephony services. </p>
<p>Domestic telecommunications service providers face difficulty in maintaining
market share and revenue. Price declines in traditional voice services and the
proliferation of Internet telephony are impacting operating margins. mPhase
believes that the independent, rural domestic telco is the especially vulnerable
to these competitive threats and has a need to develop new product delivery
capabilities to increaserevenues and margins. However, independent
telecommunications service providers are not as well capitalized as the larger
domestic regional bell operating companies and other large incumbent service
providers and therefore tend to be very cost conscious in equipment deployment.
</p>
<p ALIGN="JUSTIFY">In areas where there is sparse cable deployment, or the cable
infrastructure is antiquated, there is an increasing demand for better quality
of service, more programming channels and additional services. The independent
telecommunications service providers operating in these areas can benefit from
the incremental revenue generated by services offered through mPhase's
TV-over-DSL platforms. </p>
<p>Beyond selling its solution to telephone companies, mPhase believes it will
eventually experience success in serving the global multi-dwelling unit (MDU)
market. This market consists of large residential or multi-office complexes,
hotels, and campus environments. The MDU can effectively become its own
multichannel television content distributor using either the Traverser or the
mPhaseTV+ solution by building a digital video head-end to downlink broadcast
television programming and installing mPhase's equipment. </p>
<p>mPhase is in the process of evaluating market opportunities in North America
and around the world to address commercial applications of the Traverser DVDDS
and TV+ platforms. However, the Company believes that commercial sales to
manufacturing or enterprise customers will only represent a marginal source of
revenue because of the limited scope and demand for internal broadcasting
networks in the commercial market. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Sales Strategy </b></font><font FACE="Times New Roman PSMT"></p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>TV over DSL products </i></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>mPhase will pursue sales opportunities through a variety of channels,
including direct sales by the Company's internal sales team, distributors and in
conjunction with Lucent Technologies, Inc. </p>
<p>mPhase's initial product offerings, Versions 1.0 and 2.1 of the TV+ is
designed to utilize Lucent Technologies' Stinger for transport. By </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>adding an mPhase BTS at the central office and mPhase's standards-based
digital set top box at the customer premises, mPhaseTV+ services can be added
anywhere the Stinger is or going to be deployed. The Lucent Stinger is an
already proven solution with over 4 million ports deployed in 20 countries
around the globe. In parts of the world lacking cable infrastructure where the
Stinger is deployed represents an opportunity to retrofit these deployments with
television services. And for new deployment opportunities, </p>
<p>mPhase will be able to leverage the Lucent brand and the reputation of the
Stinger as a highly scaleable and cost-effective transport medium. An example of
this is found with respect to mPhase's initial deployment of 1000 ports of its
TV+ solution to a major telephone service provider in Russia through Lucent
Russia as an addition to the Lucent Stinger DSLAM. </p>
<p>mPhase has also established a reseller agreement with Lucent, making it a
part of Lucent's Global Business Partner organization. As a result of this
agreement, mPhase can sell carriers a complete solution by reselling the Lucent
Stinger along with mPhase's BTS and Set Top Box. In addition,
mPhase and Lucent are developing a joint marketing program. As part of this
program, the two companies will identify target markets where their combined
television, voice and data over DSL solution is most competitive. Together,
Lucent and mPhase will approach Lucent's established global business partners
with the mPhaseTV+ solution for further marketing to targeted telecommunications
service providers. This partnership represents a tremendous opportunity for
mPhase, as Lucent has over 250 business partners in more than 40 countries
around the globe. </p>
<p>In markets where Lucent is directly selling into accounts deemed to be strong
potential markets, the two companies can collaborate their efforts to bring
forth a compelling product solution. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Joint Venture Opportunities </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>There also exist opportunities for mPhase to capture recurring revenue from
the sale and deployment of its video over DSL systems through a joint venture
business model. Under this scenario, mPhase would sell its equipment to a joint
venture company, of which mPhase retains a minority position. This company would
negotiate either a line leasing or revenue share program with the incumbent
telephone company and subsequently deploy and operate one of mPhase's television
over DSL platforms. mPhase believes a JV may provide additional opportunities
for sales to international telephone carriers that may not have the funds to
procure mPhase's television over DSL system, yet recognize the potential
business opportunity for such a platform. </p>
<p>Funding of the equipment and operation of the system would be the
responsibility of the JV. Member companies of the JV would include entities
interested in controlling television services such as the government and large
media groups. For example, mPhase is pursuing a JV in Turkey where the funding
partners include companies that own newspapers and television stations that are
looking to expand their revenues. Although a JV requires greater involvement
from mPhase in terms of organizing and coordinating the appropriate parties, the
long term potential benefits to mPhase are great. mPhase would not only secure
equipment sales, but would benefit from the recurring revenues from a JV engaged
in being a broadcast television service provider. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>DSL Component Products </i></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>mPhase also sells a line of DSL component products including: POTS Splitter
Shelves </font><font FACE="Times New Roman PS" SIZE="2"><i>i </i></font>
<font FACE="Times New Roman PSMT" SIZE="2">POTS Splitters, in-line microfilters,
Continuity Test Cards and Network Intelligent Device splitters. These products
are essential components to any DSL installation, regardless of the DSL
equipment vendor. The mPhase components are interoperable with Digital
Subscriber Line Access Multiplexing equipment from a broad range of DSL
manufacturers. Potential customers for the DSL component products include other
DSL equipment manufacturers, re-sellers, network integrators and
telecommunications service providers deploying DSL worldwide. </p>
<p>To date, mPhase has deployed over 250,000 POTS Splitter ports. The mPhase DSL
component products are sold both by mPhase directly as well as through
established distribution agreements. </p>
<p>The Company recognizes the depressed market conditions that began in 2001
that continue to pervade the telecommunications equipment industry. Although the
Company experienced a rebound in the market in the first quarter sales of POTS
Splitters during fiscal year ended June 30, 2004, it has continued to experience
a decline in such sales in each quarter thereafter through the six months ended
December 31, 2004. </p>
<p>We are continuously in discussions with various original equipment
manufacturers of telecommunications equipment to identify opportunities for
joint bids for infrastructure deployment with major domestic and international
telecommunications service providers. We also continue to market our component
products directly. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Intellectual Property, Patents and Licenses </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company has recently entered into software development and licensing
agreements with Magpie with respect to certain software used in connection with
Version 3.0 of its TV+ product. Such development and licensing Agreement call
for aggregate payments of approximately $320,000 plus a licensing fee per set
top box sold as par of the TV+product. It is anticipated that the Company will
enter into a second development agreement with Magpie in the third quarter of
fiscal year 2005 calling for payments of approximately $430,000 in order to
complete software development necessary for Release 3.0 of its TV+ solution. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>We have filed and intend to file United States patent and/or copyright
applications relating to some of our proposed products and technologies, either
with our collaborators, strategic partners or on our own. There can be no
assurance, however, that any of the patents obtained will be adequate to protect
our technologies or that we will have sufficient resources to enforce our
patents. </p>
<p>Because we may license our technology and products in foreign markets, we may
also seek foreign patent protection. With respect to foreign patents, the patent
laws of other countries may differ significantly from those of the United States
regarding patent protection of our products or technology. In addition, it is
possible that competitors in both the United States and foreign countries, many
of which have substantially greater resources and have made substantial
investments in competing technologies, may have applied for, or may in the
future apply for and obtain, patents that will have an adverse impact on our
ability to make and sell our products. There can also be no assurance that
competitors will not infringe our patents or will not claim that we are
infringing on their patents. Defense and prosecution of patent suits, even if
successful, are both costly and time consuming. An adverse outcome in the
defense of a patent suit could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require us
to cease our operations. </p>
<p>The intellectual property owned and licensed by us falls into two general
categories, analog and digital intellectual property. We have a pending patent
application that was filed in June 1999 claiming priority to three provisional
patent applications for the analog portion of our technology used in relation to
the Traverser DVDDS platform. </p>
<p>Our DSL filter technology enables increased video clarity over copper wire,
longer transmission distances and decreased signal error rate. The intellectual
property related to the DSL filters includes: </p>
<p>low pass filter shelves and POTS Splitters, which combine the Traverser DSL
spectrum from the traditional voice service; and </p>
<p>ADSL filters, which are filters that conform to the worldwide DSL standard
and are utilized in the transmission of data and voice service at up to 8 Mbps.
We believe that both of these components are key to providing a DSL signal at
sufficient quality and service distances for combined video and data delivery.
</p>
<p>We license our digital intellectual property. We also have an exclusive,
worldwide license to manufacture and market products using the technology
developed by Georgia Tech under our contract with them. The exclusive license
with Georgia Tech is applicable for the duration of their patent protecting the
system design and other technology related to the legacy Traverser DVDDS platform. </p>
<p>The licensed patented and patent-pending technology developed at Georgia Tech
covers the capabilities of the Traverser DVDDS. </p>
<p>A patent for the System and Method for the Delivery of Digital Video and Data
over a Communications Channel was issued on November 28, 2000 to the Georgia
Tech Research Corporation. </p>
<p>The digital intellectual property that we license provides several unique
aspects of the Traverser DVDDS. Among these is the backplane design, which
provides every subscriber the ability to view any channel available. All
subscribers in a given system could be watching the same channel, or could be
watching different channels with no degradation of service. The proprietary
design, which does not incorporate a Digital Subscriber Line Access Multiplexer
architecture, makes the Traverser DVDDS a true broadcast system rather than a
mere video delivery system. </p>
<p>The patent issued on March 27, 2001 to the Georgia Tech Research Corporation
for the System and Method for Maintaining Timing Synchronization in a Digital
Video Network covers the development of the Framer and the Framer chip. The
Framer is an Integrated Circuit which gives the Traverser the capability of
allocating both the downstream and upstream bandwidth into virtually any
application required. This feature allows the Traverser to deliver both MPEG-2
Digital Video and Internet data simultaneously and also allows for future
applications of the Traverser&#153 This technology is exclusively licensed worldwide
to mPhase Technologies, Inc.The patent issued on November 27, 2001 to the
Georgia Tech Research Corporation for the Method and Apparatus for Combining a
Plurality of 8B/10B Encoded Data Streams addresses video data transport between
digital headends and the access network serving subscribers. A further patent is
pending covering other methods of video program transport. </p>
<p>We also have patents pending that protect: </p>
<p>the software management and control of the individual Traverser links, the
DVDDS, and the channel changing methodology and interface to the electronic
program guide at the customer site through the Intelligent Network Interface;
</p>
<p>apparatus and methods of remote control of the Intelligent Network Interface;
and, </p>
<p>systems and methods to provide subscribers means to playback previously
recorded video content. </p>
<p>We purchase from GlobeSpan telecommunication rate adaptive DSL chipsets used
in the Traverser DVDDS. </p>
<p>The Company plans to file joint patent applications with Lucent Technologies
Inc. with respect to the nanotechnology products currently under development.</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>We also rely on unpatented proprietary technology, and we can make no
assurance that others may not independently develop the same or similar
technology to ours or otherwise obtain access to our unpatented technology. If
we are unable to maintain the proprietary nature of the Traverser technology,
our future operations could be adversely affected. </p>
<p>With the migration of the Company's television delivery platform from the
Traverser to the TV+ solution, the Company is currently reexamining the need to
maintain the cost of patent protection with respect to the legacy Traverser
product. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Regulation </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>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
communications 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 component suppliers. Changes in current or future laws or
regulations, in the U.S. or elsewhere, could materially adversely affect our
business. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Competition </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase competes with broadband equipment manufacturers including cable and
digital broadcast satellite equipment manufacturers, as well as other equipment
vendors manufacturing DSL and/or video over DSL equipment. The global telco
customer base has the ability to adopt other forms of content distribution if it
chooses to compete in the multi-channel home entertainment market. However,
mPhase believes its television platforms are attractive to a broader range of
customers of telecommunication service providers. The following sections outline
the competitive landscape for mPhase. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Direct Broadcast Satellite Services </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>In the US, direct broadcast satellite (DBS) providers have experienced
increased market penetration over the past few years. DBS service is the only
alternative television delivery method in rural areas where cable has not been
deployed, or antiquated analog cable is predominant. However, in some cases, DBS
service does not include local off-air channels and most DBS operators are not
able to provide competitively-priced wireless high-speed Internet service.
Technology enabling two-way, high-speed Internet access over DBS is relatively
new and we expect it will take time to reach broad market acceptance as a
cost-effective, reliable data delivery method. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Cable Television Network Operators </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Although the cable industry is our indirect competitor, the Company believes
that two-way cable service provides incentive to telecommunications service
providers to explore additional services. Cable companies pose a serious
competitive threat to telephone company market share. However, in order for
cable companies to compete for high-speed Internet and telephony customers, the
cable plant must be upgraded to two-way digital cable. Cable companies have
invested large amounts of capital to upgrade dense service population areas in
the US. However, cable operators typically underserved less densely populated
regions with antiquated analog cable systems. Outside of the U.S., very little
two-way cable plants have been installed. </p>
<p>Telecommunications service providers around the world have the incentive to
deploy TV-over-DSL solutions either because of the threat of the cable
companies, or because of the lack of cable infrastructure. The Company believes
that its TV over DSL platforms are the most cost effective and robust video
delivery technology deployable by our primary target market of international
telecommunications service providers. Installing our platforms will facilitate
telephone companies in retaining and capturing market share, as well as
generating incremental revenue. mPhaseTV+ solution enable telecommunications
service providers to compete effectively in a converging services market with a
&quot;triple play&quot; of services-digital television, high-speed data and voice services
in an attractive bundled package. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Other DSL and Video over Copper (VoC) Equipment Manufacturers </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase competes with vendors of DSL equipment and system software. Companies
that supply DSL technology including 2Wire, ADC telecom, Advanced Fiber
Communications, Alcatel, Broadcom, Copper Mountain, Corning Cable System,
Ericson, Fujtsu, Motorola, Minerva, ECI Telecom, Turnstone, Westell, Teradyne,
TuT Systems, Marconi Communications, NEC, Nokia, Paradyne, Samsung, Texas
Instruments, DVTel, Inc., Pace Micro Tech., Net to Net, and Myrio. </p>
<p>Other Video-over-DSL technologies compete with the TV+ platform are
summarized below. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Differentiating Factors </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>mPhase believes that it offers the most reliable, scaleable and cost
effective television over copper solutions. The mPhase TV+ over DSL solution is
designed specifically to enable delivery of broadcast television over DSL.
Versions 1.0 and 2.0 of the TV+ platform are basic ATM solutions for delivery of
digital broadcast television over DSL without expensive features such as
interactive television, video-on-</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>demand and simultaneous multi channel delivery over a copper telephone line.
Such features will be available on our new IP based Version 3.0 of the TV+
system expected to be available during fiscal year 2005. Versions 1.0 and 2.0 of
the TV+ product are ATM solutions for parts of the world that are in need of
&quot;just TV&quot; rather than costly, feature rich solutions. We believe there is a
significant market that is not currently serviced world wide for delivery of
broadcast television programming on a cost-effective basis. mPhase's future IP
solution is a streamlined solution is designed to be the most cost-effective
scaleable solution in emerging international markets as well as flexible enough
to be upgraded with enhanced features of more robust systems for high end
customers. </p>
<p>There are a number of telecommunications equipment providers competing in the
television over DSL space. For instance, a new division of Motorola (formerly
known as Next Level Communications) has secured over 100 customers predominantly
in the United States. The majority of their video deployments utilize a specific
form of DSL known as VDSL (very fast digital subscriber line). VDSL requires
that telecommunications service providers install fiber optics into the
neighborhood, or close to the customer premises because signals can only travel
up to 3-4,000 feet over copper telephone wires. As a result, compared to the
mPhase solutions, the platform is significantly more capital intensive and
therefore expensive due to the cost of the infrastructure upgrade (i.e.,
installing fiber optics closer to the customer premises). Motorola has also
introduced an ADSL version of its equipment, which has a serviceable distance
radius of approximately 8,000 feet. This newer product could compete more
directly with both the ATM and IP versions of the TV+ over DSL solutions.
Motorola's Television over DSL products tend to be more feature rich and
expensive than mPhase's Version 1.0 and 2.0 TV+ solutions. Motorola concentrates
the majority of its sales efforts within the US market where consumers demand a
robust viewing experience due to the penetration of fiber and cable. </p>
<p>Another company that sells equipment similar to mPhase is Alcatel. Alcatel is
the leading supplier of DSLAMS (digital subscriber line access multiplexers)
around the globe. Alcatel has deployed several video over DSL trials although
its largest, with Aliant Telecom in Canada, was discontinued. Historically,
Alcatel has worked with multiple equipment vendors to create a complete,
end-to-end video solution, including software providers and set top box
provider, Pace. Recently Alcatel acquired iMagicTV, adding to its product line
for delivery of television over DSL. Alcatel recently announced upgrades to its
DSLAM line or products to better support the delivery of converged voice, video
and data. </p>
<p>Other major competition in the DSLAM market include UT Starcom and HUWAEI
Company. </p>
<p>Lucent also offers another video-over-DSL solution currently deployed at
SakTel in Canada. This solution, similar to Motorola's products, offers greater
functionality and features, however is more costly in terms of per port
equipment cost than the TV+ platform. Finally, other smaller vendors are
emerging, partnering with third party equipment vendors to create a
video-over-DSL platform. Equipment providers such as Net to Net and Paradyne are
modifying their data platforms to support the delivery of television services.
However, mPhase believes it has certain cost of equipment advantages over other
vendors making its system more economically viable for potential customers. The
Company believes that the strength of the video-centric BTS coupled with the
strength of the data-centric Lucent Stinger make its solution extremely
competitive in its target markets. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><i>
<p>Headend Equipment Providers </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>As discussed earlier, mPhase does not manufacturer digital head end gear. All
customers interested in deploying an mPhase video over DSL system must build a
digital headend to receive, digitize and groom the television signals. Through
extensive lab and field testing, mPhase has established an approved vendor list
of several headend providers. </p>
<p><b>Nanotechnology </b> </p>
<p>The science of nanotechnology is very new and evolving.&nbsp; There has been
significant venture capital fundings of start up companies during calendar year
2005 focusing upon development of a wide range of potential products and
applications.</p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Employees </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We presently have nineteen (19) full employees, two (2) of whom are also
employed by Microphase Corporation. See the description in the section entitled
&quot;Certain Relationships and Related Transactions.&quot; Properties. </p>
<p>We maintain our corporate headquarters at 587 Connecticut Avenue, Norwalk,
Connecticut 06854, under a facilities agreement with Microphase. The agreement
with Microphase provides that we lease office space, lab facilities and
administrative staff on a month-to-month basis. We also maintain offices in New
York, N.Y and Little Falls , New Jersey. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>LEGAL PROCEEDINGS </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company has recently been advised that, following an investigation by the
staff of the Securities and Exchange Commission, the staff intends to recommend
that the Commission file a civil injunctive action against Packetport and its
Officers and Directors. Such recommendation relates to alleged civil violations
by Packetport and such Officers and Directors of various sections of the Federal
Securities Laws. The staff has alleged civil violations of Sections 5 and
17(a)of the Securities Act of 1933 and Sections 10(b)and 13(d)of the Securities
Exchanges Act of 1934. As noted in other public filings of mPhase, the CEO and
COO of mPhase also serve as Directors and Officers of Packetport. Such persons
have advised mPhase that they deny any violation of law on their part and intend
to vigorously contest such recommendation. </p>
<p ALIGN="left">From time to time we may be involved in various legal
proceedings and other matters arising in the normal course of business. </font>
</p>
<p ALIGN="CENTER"><font FACE="Times New Roman PS" SIZE="2"><b>OUR MANAGEMENT </b>
</font></p>
<p ALIGN="left"><font FACE="Times New Roman PS" SIZE="2"><b>Executive Officers
and Directors </b></font></p>
<p ALIGN="left"><font FACE="Times New Roman PSMT" SIZE="2">Our officers and
directors, and their ages, as of June 30, 2004, are as follows: </font>
<font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Name</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    Age</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Position(s)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Necdet F. Ergul</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    81</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Chairman of the
    Board and Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Ronald A.
    Durando</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    47</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>President, Chief
    Executive Officer And Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Gustave T.
    Dotoli (2)</b></font></td>
    <td WIDTH="18%" align="center"><b><font face="Times New Roman PS" size="2">
    70</font></b></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Chief Operating
    Officer and Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Martin S. Smiley</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    57</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Executive Vice
    President, Chief Financial Officer</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%">&nbsp;</td>
    <td WIDTH="18%" align="center">&nbsp;</td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>and General
    Counsel</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Outside
    Directors</b></font></td>
    <td WIDTH="18%" align="center">&nbsp;</td>
    <td WIDTH="41%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>David L. Klimek</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    50</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Chief Technology
    Officer and Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Anthony H.
    Guerino, Esq. (1)(2)</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    58</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Abraham Biderman
    (1)(2)</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    56</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Michael P.
    McInerney</b></font></td>
    <td WIDTH="18%" align="center"><font FACE="Times New Roman PS" SIZE="2"><b>
    49</b></font></td>
    <td WIDTH="41%"><font FACE="Times New Roman PS" SIZE="2"><b>Director</b></font></td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>(1) Member of Audit Committee. <br>
(2) Member of Compensation Committee. </p>
<p>The following is biographical information about each of our Officers and
Directors. </font><font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Necdet F. Ergul </i></font><font FACE="Times New Roman PSMT" SIZE="2">has
served as our Chairman of the Board since October 1996 with the exception of a
three-month period in 2000 when he temporarily resigned. Mr. Ergul also
currently serves as the President and Chief Executive Officer of Microphase
Corporation, a leading developer of military electronic defense and
telecommunications technology, which he founded in 1955. He is also a Director
of Janifast Ltd. In addition to his management responsibilities at Microphase,
he is active in engineering design and related research and development. Mr.
Ergul holds a Masters Degree in Electrical Engineering from the Polytechnic
Institute of Brooklyn, New York. </font>
<font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Ronald A. Durando </i></font><font FACE="Times New Roman PSMT" SIZE="2">is a
co-founder of mPhase Technologies, Inc. and has served as our President, Chief
Executive Officer and a Director since its inception in October 1996. In
addition, Mr. Durando has been the Chief Operating Officer of Microphase
Corporation since 1994. From 1986 to 1994, he was President and Chief Executive
Officer of Nutley Securities, Inc., a registered broker-dealer. He is also
Chairman of the Board of Janifast Ltd., a Hong Kong corporation for operational
and manufacturing companies in China. Mr. Durando is also President and Chief
Executive Officer and Director of PacketPort.com, Inc. </font>
<font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Gustave T. Dotoli </i></font><font FACE="Times New Roman PSMT" SIZE="2">has
served as our Chief Operating Officer and a Director since our inception in
October 1996. In addition, Mr. Dotoli has been the Vice President of Corporate
Development of Microphase Corporation since December of 1996. Mr. Dotoli is also
a Director and Vice President Corporate Secretary of PacketPort.com, Inc. He
formerly was the President and Chief Executive Officer of the following
corporations: Imperial Electro-Plating, Inc., World Imports USA, Industrial
Chemical Supply, Inc., SISCO Beverage, Inc. and Met Pack, Inc. Mr. Dotoli
received a B.S. in Industrial Engineering from Fairleigh Dickinson University in
1959. </font><font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>David Klimek </i></font><font FACE="Times New Roman PSMT" SIZE="2">is a
co-founder of mPhase Technologies, Inc. and has served as our Chief Technology
Officer since June 1997 and as Director of Engineering since its inception in
October 1996. Mr. Klimek joined our Board of Directors in October 1996. From
1990- 1996, Mr. Klimek owned and operated Mashiyach Design, Inc., an engineering
consulting firm. He has more than 18 years of technical engineering and design
expertise and presently holds 14 individual or co-authored U.S. patents. From
1982 to 1990, Mr. Klimek was the R&amp;D manager of Digital Controls, Inc. Mr.
Klimek holds a B.S. in Electrical Engineering from Milwaukee School of
Engineering, Milwaukee, Wisconsin. </font>
<font FACE="Times New Roman PS" SIZE="2"><i></p>
</i></font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<font FACE="Times New Roman PS" SIZE="2"><i>
<p>Michael P. Mcinerney </i></font><font FACE="Times New Roman PSMT" SIZE="2">is
President of Lintel, Inc. subsidiaries; Hart Telephone Company, a 10,000-line
local exchange carrier in Northeast Georgia, Hart Communications, a
telecommunication company, Hart Cable, a cable television company and
Diversified Golf. Mr. McInerney was Vice President of Lintel, Inc. from 1994
until he became President in 2001. From 1991 to 1994, Mr. McInerney was
Executive Director of Standard Telephone Company. In the period from 1980-1991,
Mr. McInerney was a regional manager, state manager and an account executive
with AT&amp;T. Mr. McInerney earned a Masters of Business Administration degree at
Winthrop college and a B.S. degree at the University of Vermont. </font>
<font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Anthony H. Guerino </i></font><font FACE="Times New Roman PSMT" SIZE="2">has
been a member of the Board since February 23, 2000. Since December 1997, Mr.
Guerino has been an attorney in private practice in New Jersey. Prior thereto,
Mr. Guerino served as a judge of the Newark Municipal Courts for over twenty
(20) years, periodically sitting in the Essex County Central Judicial Processing
Court at the Essex County Courthouse. Mr. Guerino has been a chairperson for and
member of several judicial committees and associations in New Jersey, and has
been an instructor for the Seton Hall School of Law's Trial Moot Court Program.
</font><font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Abraham Biderman </i></font><font FACE="Times New Roman PSMT" SIZE="2">has
been a member of our board since August 3, 2000. Mr. Biderman is Executive Vice
President of Lipper &amp; Company; Executive Vice President, Secretary and Treasurer
of The Lipper Funds; and Co-Manager of Lipper Convertibles, L.P. Prior to
joining Lipper &amp; Company in 1990, Mr. Biderman was Commissioner of the New York
City Department of Housing, Preservation and Development from 1988 to 1989 and
Commissioner of the New York City Department of Finance from 1986 to 1987. He
was Chairman of the New York City Retirement System from 1986 to 1989. Mr.
Biderman was Special Advisor to former Mayor Edward I. Koch from 1985 to 1986
and assistant to former Deputy Mayor Kenneth Lipper from 1983 to 1985. Mr.
Biderman is a Director of the Municipal Assistance Corporation for the City of
New York. Mr. Biderman graduated from Brooklyn College and is a certified public
accountant. </font><font FACE="Times New Roman PS" SIZE="2"><i></p>
<p>Martin Smiley </i></font><font FACE="Times New Roman PSMT" SIZE="2">joined us
as Executive Vice President, Chief Financial Officer and General Counsel on
August 20, 2000. With over twenty years experience as a corporate finance and
securities attorney and as an investment banker, Mr. Smiley serves as mPhase's
strategic financial leader. Prior to joining the Company, Mr. Smiley served as a
Principal at Morrison &amp; Kibbey, Ltd., a mergers and acquisitions and investment
banking firm from 1998 to 2000, and as a Managing Director for CIBC Oppenheimer
Securities from 1994 to 1998. He served as a Vice President of Investment
Banking at Chase Manhattan Bank from 1989 to 1994, and as a Vice President and
Associate General Counsel for Chrysler Capital Corporation from 1984 to 1989.
Mr. Smiley graduated with a B.A. in Mathematics from the University of
Pennsylvania and earned his law degree from the University of Virginia School of
Law. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Board Committees </b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Our Board of Directors has an audit committee and a compensation committee.
The audit committee approves of our independent accountants and determines the
appropriateness of their fees, reviews the scope and results of the audit plans
of the independent accountants, oversees the scope and adequacy of our internal
accounting control and record-keeping systems and confers independently with the
independent accountants. The audit committee consists of Messrs. Biderman, and
Guerino. Consistent with NASD regulations, an audit charter was developed and
adopted by the Board and the audit committee on August 2, 2000. </p>
<p>The compensation committee makes recommendations to our Board of Directors
regarding our stock incentive plans and all matters of compensation. The
compensation committee consists of three (3) Directors, Messrs. Biderman, Dotoli
and Guerino. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Director Compensation </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p ALIGN="JUSTIFY">For their attendance of Board and Committee meetings, we
compensate the Directors in cash as well as in the form of stock options granted
under our Stock Incentive Plan, which grants are included in the table &quot;Security
Ownership of Certain Beneficial Owners and Management&quot; and the notes thereto.
</p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Executive Compensation </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>The following table sets forth, for the fiscal year ended June 30, 2004 and
the two previous fiscal years, the compensation paid by us to, as well as any
other compensation paid to or earned by, our Chief Executive Officer; and our
four most highly compensated executive officers, other than the Chief Executive
Officer, whose compensation during the fiscal year ended June 30, 2004 was
greater than $100,000 for services rendered to us in all capacities during such
year. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="108%" colspan="7" align="center" height="15">
    <font FACE="Times New Roman PS" SIZE="2"><b>Summary Compensation Table</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="39%" COLSPAN="3" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>Annual Compensation</b></font></td>
    <td WIDTH="40%" COLSPAN="3" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>Long-Term Compensation</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="26%" COLSPAN="2" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>Securities</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>Restricted</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="26%" COLSPAN="2" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>Underlying</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>Stock</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>Name
    And</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="26%" COLSPAN="2" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>Options/Sars</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%" height="15"><font FACE="Times New Roman PS" SIZE="2"><b>
    Principal Position</b></font></td>
    <td WIDTH="12%" align="center" height="15">
    <font FACE="Times New Roman PS" SIZE="2"><b>Year</b></font></td>
    <td WIDTH="12%" align="center" height="15">
    <font FACE="Times New Roman PS" SIZE="2"><b>Salary </b></font></td>
    <td WIDTH="12%" align="center" height="15">
    <font FACE="Times New Roman PS" SIZE="2"><b>Bonus</b></font></td>
    <td WIDTH="12%" align="center" height="15">
    <font FACE="Times New Roman PS" SIZE="2"><b>Award(s)</b></font></td>
    <td WIDTH="12%" align="center" height="15">
    <font FACE="Times New Roman PS" SIZE="2"><b>(Shares)</b></font></td>
    <td WIDTH="12%" align="center" height="15">
    <font FACE="Times New Roman PS" SIZE="2"><b>(Shares)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Ronald A. Durando(1)(2)</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$285,000</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>1,500,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Chief Executive Officer</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$234,504</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>450,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="20"><font FACE="Times New Roman PS" SIZE="2"><b>and
    President</b></font></td>
    <td WIDTH="12%" align="center" height="20">
    <font FACE="Times New Roman PS" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="12%" align="right" height="20">
    <font FACE="Times New Roman PS" SIZE="2"><b>$388,504</b></font></td>
    <td WIDTH="12%" align="center" height="20">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="20">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="20">&nbsp;</td>
    <td WIDTH="12%" height="20" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>1,850,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="right" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Gustave T. Dotoli(1)(2)</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$225,000</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>750,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Chief Operating Officer</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$193,254</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>350,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$313,504</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>1,225,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="right" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    David L. Klimek(1)</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$89,062</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>100,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Chief Technology Officer</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$90,958</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>75,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>$106,606</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>162,500</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="right" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Martin S. Smiley</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>103,958</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Executive VP, Chief</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>109,583</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>200,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>
    Financial Officer</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="12%" align="right" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>l58,712</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">
    <font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="12%" align="center" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19" align="right">
    <font FACE="Times New Roman PS" SIZE="2"><b>540,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="28%" height="19"><font FACE="Times New Roman PS" SIZE="2"><b>&amp;
    General Counsel</b></font></td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
    <td WIDTH="12%" height="19">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<ol>
  <li>Includes $7,500 stipend as a director for fiscal year ended June 30, 2002.
  No such cash stipend was recorded for fiscal years ended June 30, 2003 and
  June 30, 2004.<br>
&nbsp;</li>
  <li>Does not include warrants to purchase 1,395,400 shares of common stock
  issued Mr. Durando and Warrants to purchase 1,096,400 of common stock of Mr.
  Dotoli respectively to cancel previously unpaid compensation. Such warrants
  relate to $234,362 and $35,000 of unpaid cash compensation to Mr. Durando for
  fiscal years 2002 and 2003 and $184,105 and $27,500 of unpaid cash
  compensation to Mr. Dotoli for fiscal years 2002 and 2003, respectively the
  amount of which is included as cash compensation in the above table.<br>
&nbsp;</li>
  <li>No individual named above received prerequisites or non-cash compensation
  during the years indicated which exceeded the lesser of $50,000 or an amount
  equal to 10% of such person's salary. No other executive officer received
  compensation and bonuses that exceeded $100,000 during any year. </li>
</ol>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">STOCK OPTIONS </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The following table contains information regarding options granted in the
fiscal year ended June 30, 2004 to the executive officers named in the summary
compensation table above. For the fiscal year ended June 30, 2004, mPhase
granted options to acquire up to an aggregate of 1,615,000 shares to employees
and directors. </font><font FACE="Times New Roman PS" SIZE="5"><b></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="106%" colspan="9" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Option Grants in Last Fiscal
    Year</b></font></td>
  </tr>
  <tr>
    <td WIDTH="106%" colspan="9" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>(Individual Grants)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="3" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Potential Realizable</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="24%" colspan="3" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Value of</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Number of</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>%
    of Total</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Weighted</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Weighted</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="3" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Assumed Annual</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Securities</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Options/SARS</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Average</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Average</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="3" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Rates of Stock Price</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Underlying</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Granted to</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Exercise</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Market</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="3" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Appreciation for 5</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Options/SARS</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Employees</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>or
    Base</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Price</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="3" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Year Option Term</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Granted</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>in
    Fiscal</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Price</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>on
    Grant</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Expiration</b></font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font FACE="Times New Roman PS" SIZE="2"><b>Name</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    (#)</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Year</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    ($/Share)</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Date</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Date</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>0%</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>5%</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>10%</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font FACE="Times New Roman PS" SIZE="2"><b>Ronald A.</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font FACE="Times New Roman PS" SIZE="2"><b>Durando</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    1,500,000</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    44%</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $.45</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $.39</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2009</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>$0</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>$0</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $42,750</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font FACE="Times New Roman PS" SIZE="2"><b>Gustave</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    750,000</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    22%</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    .45</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    .39</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2009</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>0</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>$0</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $21,375</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font FACE="Times New Roman PS" SIZE="2"><b>T. Dotoli</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font FACE="Times New Roman PS" SIZE="2"><b>David</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    100,000</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>3%</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    .45</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    .39</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    2009</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>0</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>$0</b></font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    $2,850</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font FACE="Times New Roman PS" SIZE="2"><b>Klimek</b></font></td>
    <td WIDTH="11%">&nbsp;</td>
    <td WIDTH="11%">&nbsp;</td>
    <td WIDTH="11%">&nbsp;</td>
    <td WIDTH="12%">&nbsp;</td>
    <td WIDTH="12%">&nbsp;</td>
    <td WIDTH="8%">&nbsp;</td>
    <td WIDTH="8%">&nbsp;</td>
    <td WIDTH="8%">&nbsp;</td>
  </tr>
</table>
<p><font size="2">The following table sets forth information with respect to the
number and value of outstanding options held by executive officers named in the
summary compensation table above at June 30, 2004. During the fiscal year ended
June 30, 2003, no options were exercised. The value realized is the difference
between the closing price on the date of exercise and the exercise price. The
value of unexercised in-the-money options is based upon the difference between
the closing price of mPhase's common stock on June 30, 2004, and the exercise
price of the options. </font></p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="106%" colspan="7" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Fiscal Year-End Option Values</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="30%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Number of Securities</b></font></td>
    <td WIDTH="28%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Value of Unexercised</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Shares</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Value</b></font></td>
    <td WIDTH="30%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Underlying Unexercised</b></font></td>
    <td WIDTH="28%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>In-the-Money Options at</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Acquired</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Realized</b></font></td>
    <td WIDTH="30%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Options at year end (#)</b></font></td>
    <td WIDTH="28%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PS" SIZE="2"><b>Year-End ($)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>on</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>Name</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Exercise</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>$</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Exercisable</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Unexercisable</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Exercisable</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    Unexercisable</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>Ronald A.</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    4,730,000</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>$-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>$-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>Durando</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>Gustave</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    3,000,000</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>T. Dotoli</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>David</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    372,500</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>Klimek</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>Martin</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
    1,070,000</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="18%"><font FACE="Times New Roman PS" SIZE="2"><b>Smiley</b></font></td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman PS" SIZE="2"><b>
<p>Employment Agreements </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>All employment agreements with our current management have expired and are in
the process of being renegotiated subject to approval of the Board of Directors
of the Company. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Long-Term Stock Incentive Plan </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>We have a Long-Term Stock Incentive Plan, under which we have reserved for
issuance 15,000,000 shares of common stock. Our shareholders approved our 2001
Stock Incentive Plan at our annual meeting of shareholders on May 30, 2001. The
plan provides for grants of incentive stock options and nonqualified stock
options to our key employees and consultants and those key employees and
consultants of our subsidiaries. </p>
<p>With respect to our current plan, the compensation committee of the Board of
Directors administers and interprets our current plan. The exercise price of
common stock underlying an option may be greater, less than or equal to fair
market value. However, the exercise price of an incentive stock option must be
equal to or greater than the fair market value of a share of common stock on the
date such incentive stock option is granted. The maximum term of an option is
five years from the date of grant. In the event of a dissolution, liquidation or
change in control transaction, we may require option holders to either exercise
their options within 30 days or surrender such options (or unexercised portion
thereof). </p>
<p>Upon stockholder approval, the Board of Directors merged our prior Long-Term
Stock Incentive Plan into the 2001 Plan. </p>
<p>The purpose of the 2001 Plan is to promote our long-term growth and
profitability by providing key people with incentives to improve stockholder
value and contribute to our growth and financial success and by enabling us to
attract, retain and reward the best available people. </p>
<p>The maximum number of shares of common stock that we may issue with respect
to awards under the 2001 Plan is 20,000,000 shares, in addition to the shares
previously authorized for issuance under our Company plan, but which are not
issued before our current plan is merged into the 2001 Plan. </p>
<p>The maximum number of shares of common stock subject to awards of any
combination that may be granted under the 2001 Plan during any fiscal year to
any one individual is limited to 2,500,000 subject to the exceptions made by the
Board of Directors. These limits will be adjusted to reflect any stock
dividends, split-ups and reverse stock split, unless the Board determines
otherwise. If any award, or portion of an award, under the 2001 Plan expires or
terminates unexercised, becomes unexercisable or is forfeited or otherwise
terminated, surrendered or canceled as to any shares, or if any shares of common
stock are surrendered to us in connection with any award (whether or not such
surrendered shares were acquired pursuant to any award), or if any shares are
withheld by us, the shares subject to such award and the surrendered or withheld
shares will thereafter be available for further awards under the 2001 Plan.
Those shares that are surrendered to or withheld by us, or that are forfeited
after issuance, however, will not be available for incentive stock options. </p>
<p>The 2001 Plan is administered by our Board of Directors or by a committee or
committees as the Board of Directors may appoint from time to time. The
administrator has full power and authority to take all actions necessary to
carry out the purpose and intent of the 2001 Plan, including, but not limited
to, the authority to: (i) determine who is eligible for awards, and the time or
times at which such awards will be granted; (ii) determine the types of awards
to be granted; (iii) determine the number of shares covered by or used for
reference purposes for each award; (iv) impose such terms, limitations,
restrictions and conditions upon any such award as the administrator deems
appropriate; (v) modify, amend, extend or renew outstanding awards, or accept
the surrender of outstanding awards and substitute new awards (provided however,
that, except as noted below, any modification that would materially adversely
affect any outstanding award may not be made without the consent of the holder);
(vi) accelerate or otherwise change the time in which an award may be exercised
or becomes payable and to waive or accelerate the lapse, in whole or in part, of
any restriction or condition with respect to such award, including, but not
limited to, any restriction or condition with respect to the vesting or
exercisability of an award following termination of any grantee's employment or
consulting relationship; and (vii) establish objectives and conditions, if any,
for earning awards and determining whether awards will be paid after the end of
a performance period. </p>
<p>In the event of changes in our common stock by reason of any stock dividend,
split-up, recapitalization, merger, consolidation, business combination or
exchange of shares and the like, the administrator may make adjustments to the
number and kind of shares reserved for issuance or with respect to which awards
may be granted under the 2001 Plan, in the aggregate or per individual per year,
and to the number, kind and price of shares covered by outstanding award. </p>
<p>Without the consent of holders of awards, the administrator in its discretion
is authorized to make adjustments in the terms and conditions of, and the
criteria included in, awards in recognition of unusual or nonrecurring events
affecting us, or our financial statements or those of any of our affiliates, or
of changes in applicable laws, regulations, or accounting principles, whenever
the administrator determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the 2001 Plan. </p>
<p>Participation in the 2001 Plan will be open to all of our employees,
officers, directors and other individuals providing bona fide services to us or
any of our affiliates, as the administrator may select from time to time. All
three (3) non-employee directors and approximately ten </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>(10) employees will be eligible to participate in the 2001 Plan. </p>
<p>The 2001 Plan allows for the grant of stock options, stock appreciation
rights, stock awards, phantom stock awards and performance awards. The
administrator may grant these awards separately or in tandem with other awards.
The administrator will also determine the prices, expiration dates and other
material conditions governing the exercise of the awards. We, or any of our
affiliates, may make or guarantee loans to assist grantees in exercising awards
and satisfying any withholding tax obligations arising from awards. </p>
<p>Because participation and the types of awards available for grant under the
2001 Plan are subject to the discretion of the administrator, the benefits or
amounts that any participant or groups of participants may receive if the 2001
Plan is approved are not currently determinable. For this purpose, the benefits
or amounts that participants may receive if the 2001 Plan is approved do not
include awards granted under the Prior Plan that are amended and restated to
become awards covering the same number of shares under the terms of the 2001
Plan. These amended and restated awards are not contingent on stockholder
approval since the Prior Plan was previously approved by the stockholders. </p>
<p>Our Board of Directors may terminate, amend or modify all or any provision of
the 2001 Plan at any time.</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
</b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p ALIGN="left">The members of the Compensation Committee during fiscal 2004
were Messrs. Dotoli, Mr. Biderman and Guerino. Mr. Dotoli is our Chief Operating
Officer. Neither Messrs Guerino nor Biderman is not one of our officers or
employees. None of our directors or executive officers served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of such committee, the entire board of directors) of another
entity during fiscal 2004 that has a director or executive officer serving on
our Board of Directors except that Mr. Dotoli is also a member of the Board of
Directors of PacketPort.com, Inc., a company in which Mr. Durando serves as
Chief Executive Officer. Mr. Ergul is a controlling shareholder and Director of
Microphase corporation (which provides certain administrative services to mPhase)
and Mr. Dotoli and Mr. Durando are Officers of Microphase., Mr. Dotoli, together
with Mr. Durando and Mr. Ergul, are controlling shareholders, officers and
directors of Janifast Ltd. Janifast Ltd. has produced components for the
Traverser&#153 and is expected to produce a material amount of DSL components for us
in the future. </p>
</font>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
</b></font><font FACE="Times New Roman PSMT" SIZE="2"></p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT </b>
</font><font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The following table sets forth as of March 16, 2005 certain information
regarding the beneficial ownership of our shares: </p>
<ul>
  <li>by each person who is known by us to be the beneficial owner of more than
  five percent (5%) of its outstanding common stock;</li>
  <li>each of our directors;</li>
  <li>by each executive officer named in the Summary Compensation Table; and,</li>
  <li>by all of our directors and executive officers as a group.</li>
</ul>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="75%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="55%">&nbsp;</td>
      <td WIDTH="22%" align="right">&nbsp;</td>
      <td WIDTH="23%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PS" SIZE="2"><b>Name and
      Address of Beneficial</b></font></td>
      <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Number of</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Percentage</b></font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PS" SIZE="2"><b>Owner(1)</b></font></td>
      <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      &quot;Shares&quot;</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Ownership</b></font></td>
    </tr>
    <tr>
      <td WIDTH="55%">&nbsp;</td>
      <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      of Common Stock</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      of Common</b></font></td>
    </tr>
    <tr>
      <td WIDTH="55%">&nbsp;</td>
      <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Beneficially</b></font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Stock(2)</b></font></td>
    </tr>
    <tr>
      <td WIDTH="55%">&nbsp;</td>
      <td WIDTH="22%" align="right"><font FACE="Times New Roman PS" SIZE="2"><b>
      Owned</b></font></td>
      <td WIDTH="23%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="55%">&nbsp;</td>
      <td WIDTH="22%" align="right">&nbsp;</td>
      <td WIDTH="23%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Necdet F.
      Ergul(7)(9)</font></td>
      <td WIDTH="22%" align="right"><font size="2">2,616,250</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      2.7%</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Ronald A.
      Durando(3)(7)</font></td>
      <td WIDTH="22%" align="right"><font size="2">11,644,382</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      8.3%</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Gustave T.
      Dotoli(7)(10)</font></td>
      <td WIDTH="22%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      6,021,100</font></td>
      <td WIDTH="23%" align="right"><font size="2">4.6</font><font FACE="Times New Roman PSMT" SIZE="2">%</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">J. Lee
      Barton(4)(6)(8)</font></td>
      <td WIDTH="22%" align="right">&nbsp;</td>
      <td WIDTH="23%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">David Klimek(7)</font></td>
      <td WIDTH="22%" align="right"><font size="2" FACE="Times New Roman PSMT">
      424,500</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">*</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Lintel, Inc.(6)</font></td>
      <td WIDTH="22%" align="right">&nbsp;</td>
      <td WIDTH="23%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Abraham
      Biderman(5)(7)</font></td>
      <td WIDTH="22%" align="right"><font size="2">694,000</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">*</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Anthony
      Guerino(7)</font></td>
      <td WIDTH="22%" align="right"><font size="2">657,500</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">*</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Michael
      McInerney(7)(8)</font></td>
      <td WIDTH="22%" align="right"><font size="2">425,500</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">*</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Martin
      Smiley(11)</font></td>
      <td WIDTH="22%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      5,676,132</font></td>
      <td WIDTH="23%" align="right"><font size="2">4.17</font><font FACE="Times New Roman PSMT" SIZE="2">%</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Microphase
      Corp,(12)</font></td>
      <td WIDTH="22%" align="right"><font size="2">14,704,686</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      10.8%</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">Janifast(13)</font></td>
      <td WIDTH="22%" align="right"><font size="2">10,935,000</font></td>
      <td WIDTH="23%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      8.2%</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">All executive
      Officers Directors, and (2)</font></td>
      <td WIDTH="22%" align="right"><font size="2">49,640,418</font></td>
      <td WIDTH="23%" align="right"><font size="2">40</font><font FACE="Times New Roman PSMT" SIZE="2">%</font></td>
    </tr>
    <tr>
      <td WIDTH="55%"><font FACE="Times New Roman PSMT" SIZE="2">beneficial
      owners</font></td>
      <td WIDTH="22%">&nbsp;</td>
      <td WIDTH="23%">&nbsp;</td>
    </tr>
  </table>
  </center>
</div>
</font>
<p align="center">* Less than 1% </p>
<p>(1) Unless otherwise indicated, the address of each beneficial owner is 587
Connecticut Avenue, Norwalk, Connecticut 06854-1711. </p>
<p>(2) Unless otherwise indicated, mPhase believes that all persons named in the
table have sole voting and investment power with respect to all shares of the
Company shares beneficially owned by them. The percentage for each beneficial
owner listed above is based on107,364,442 shares outstanding on March 8, 2005,
and, with respect to each person holding options or warrants to purchase shares
that are exercisable within 60 days after February 24, 2005, the number of
options and warrants are deemed to be outstanding and beneficially owned by the
person for the purpose of computing such person's percentage ownership, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. The number of shares indicated in the table
include the following number of shares issuable upon the exercise of warrants or
options: </p>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="75%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Necdet F. Ergul</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      1,766,250</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Ronald A.
      Durando</font></td>
      <td WIDTH="50%" align="right"><font size="2">8,614,367</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Gustave Dotoli</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      6,537,067</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">J. Lee Barton</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      250,500</font></td>
    </tr>
  </table>
  </center>
</div>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="75%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="50%">&nbsp;</td>
      <td WIDTH="50%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">David Klimek</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      1,197,500</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Martin Smiley</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      3,554,543</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Michael
      McInerney</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      740,500</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Abraham
      Biderman</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      1,017,500</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Anthony Guerino</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      552,000</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Microphase
      Corporation</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      5,650,000</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman PSMT" SIZE="2">Janifast Ltd.</font></td>
      <td WIDTH="50%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
      2,200,000</font></td>
    </tr>
  </table>
  </center>
</div>
<p>(3) Includes 1,396,148 shares held by Durando Investment LLC, and does not
include, as separately stated below, 8,395,000
shares and 2,200,000 warrants held by Janifast which Mr. Durando controls and
530,000 shares owned by Karen and Ronald Durando Foundation; and 695,000 shares
owned by Durando Charitable Remainder Trust. </p>
<p>(4) Does not include shares held by Lintel Inc.</p>
<p>(5) Includes 5,233 shares of common stock, options and warrants for 272,500
shares of common stock. Does not include 1,103,225 shares held by Lipper &amp; Co,
where Mr. Biderman is a director. </p>
<p>(6) The address for Lintel, Inc. and J. Lee Barton, who is Chief Executive
Officer of Lintel, Inc. is 196 North Forest Avenue, P.O. Box 388, Hartwell, GA
30643. </p>
<p>(7) Includes options for 25,000 shares of common stock received as
compensation for participation on the Board of Directors. </p>
<p>(8) Mr. Michael P. McInerney, President of Lintel, Inc. subsidiaries, was
appointed to the Board at the 2002 Annual Shareholders meeting. </p>
<p>(9) Includes 200,000 shares owned by Berrin Snyder, his daughter and 150,000
owned by Eda Peterson, his daughter. This does not include, as separately stated
below,&nbsp; 8,244,667 shares and
3,200,000 warrants and 1,200,000 shares and warrants to purchase 1,200,000
shares issuable pursuant to the terms of a convertible note held by Microphase
Corporation, a company in which Mr. Ergul is the President and Chief Executive
Officer. </p>
<p>(10) Includes 277,500 shares owned by Patricia and Gustave Dotoli Foundation;
and 195,000 shares owned by Dotoli </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'></font><font FACE="Times New Roman PSMT" SIZE="2">
<p>Charitable Remainder Trust. </p>
<p>(11) Includes 333,334 shares and warrants to purchase 333,334 shares issuable
pursuant to the terms of a convertible note. </p>
<p>(12) Includes 8,244,667 shares and 3,200,000 warrants and 1,200,000 shares
and warrants to purchase 1,200,000 shares issuable pursuant to the terms of a
convertible note held by Microphase Corporation, the totals of which are
included in the total beneficially owned shares of Necedet F. Ergul. </p>
<p>(13) Includes 7,350,000 shares and 1,200,000 warrants, the totals of which
are included in the total beneficially owned shares of Ronald A. Durando. </p>
</font>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman PS">
<p align="center">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS </font>
<font FACE="Times New Roman PS" SIZE="2"></p>
<p>Material Related Party Transactions </font></b>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The Company records material related party transactions. The Company incurs
costs for engineering, design and production of prototypes and certain
administrative functions from Microphase Corporation and the purchase of
finished goods, primarily consisting of DSL splitter shelves and filters, from
Janifast Limited. The Company has incurred costs for obtaining transmission
rights. This enabled the Company to obtain retransmission accreditation to
proprietary television content that the Company plans to provide with its
flagship product, the TV+ within its incorporated joint venture mPhase
Television.Net, in which the Company owns a 56.5% interest. </p>
<p>The Company has also incurred charges for beta testing and on-site marketing,
including the display of a live working model at Hart Telephone. In addition,
the Company has entered into a supply agreement with Hart Telephone, which may
commence upon the commercial production of Version 3.0 of the TV+ solution. </p>
<p>In addition the Company is currently upgrading its testing of its Traverser&#153
product to its TV+ product with customers of Hart </p>
<p>Telephone. A member of mPhase's Board of Directors is employed by Lintel,
Inc., the parent corporation of Hart Telephone. Mr. Durando, the President and
CEO of mPhase, owns a controlling interest and is a director and COB of Janifast
Limited. Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr.
Dotoli is also a shareholder of Janifast Limited. Mr. Ergul, the chairman of the
board of mPhase, owns a controlling interest and is a director of Microphase
Corporation and is a director and shareholder of Janifast Limited. Microphase,
Janifast, Hart Telephone and Lintel Corporation are significant shareholders of
mPhase. Microphase, Janifast and Hart Telephone have converted significant
liabilities to equity in fiscal years June 30, 2001, 2002, and 2003. There have
been no significant conversions by such entities of liabilities to equity in the
current fiscal year. </p>
<p>Management believes the amounts charged to the Company by Microphase,
Janifast, mPhase Television.Net and Hart Telephone are commensurate to amounts
that would be incurred if outside parties were used. The Company believes
Microphase, Janifast and Hart Telephone have the ability to fulfill their
obligations to the Company without further support from the Company. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Transactions with Officers, Directors and their Affiliates </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Directors that are significant shareholders of Janifast Limited include
Messrs Ronald A. Durando, Gustave T. Dotoli, and Necdet F. Ergul. </p>
</font><font SIZE="2">
<p>During the six months ending December 31, 2004, accounts payable in the
amount of $ 250,000 owed by mPhase to MicroPhase Corporation was cancelled in
exchange for the 1,250,000 shares of common stock and a like number of 5 year
warrants to purchase shares at $.25 a share. In addition, Janifast Ltd cancelled
@ 200,000 of accounts payable owed by mPhase in exchange for 1,000,000 of common
stock and a like number of 5 year warrants to purchase shares at $.25 a share.
</p>
<p>In December, a demand not payable to Martin Smiley and accrued interest, CFO
and General Counsel of mPhase, in the amount of $75,000 and $9,975,
respectively, was converted into 424,875 shares of common stock plus a like
amount of warrants to purchase an additional share at $.25 per share. </p>
<p>Mr. Ronald Durando converted $ 13,000 of accrued and unpaid interest into
65,000 shares of stock plus a like amount of warrants to purchase an additional
share at $.25 per share. Additionally, Mr. Durando converted $ 13,954 of
principal in a $ 75,000 note into cash and utilized this cash to purchase
1,395,400 shares of common stock. This purchase was made upon exercise of
1,395,400 warrants entitling purchase of a share $.01 per share pursuant to a
previous award granted to Mr. Durando for unpaid compensation. </p>
<p>Mr. Gustave Dotoli, Chief Operating Officer of the Company, $3,750 of accrued
and unpaid interest on a $ 75,000 note into 375,000 shares of stock plus a like
amount of warrants to purchase an additional share at $.25 per share. Mr.
Gustave Dotoli, Chief Operating Officer of the Company, converted $ 3,750 of
accrued interest on a $ 75,000 note into cash and utilized this cash to purchase
375,000 shares of common stock. This purchase was made upon exercise of 375,000
warrants entitling purchase of a share $.01 per share pursuant to a previous
award granted to Mr. Dotoli for unpaid compensation. </p>
<p>In January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. </p>
</font>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>On October 8, 2004, Mr. Durando agreed to lend the Compnay $75,000 and the
Company issued a demand note for such amount at 12% interest. </p>
<p>On September 30, 2004, Mr. Durando agreed to lend the Company $175,000 and
the Company issued a demand note for such amount at 12% interest. </p>
<p>On September 28, 2004, Mr. Durando agreed to lend the Company $75,000 and the
Company issued a demand note for such amount at 12% interest. </p>
<p>On August 30,2004, Mr. Durando agreed to lend the Company $200,000 and the
Company issued a demand note for such amount at 12% interest. </p>
<p>On August 30, 2004, Messrs. Dotoli and Smiley each agreed to lend the Company
$75,000 and the Company issued two demand notes for such amount at 12% interest.
Mr. Smiley also invested $25,000 in the Company's August Private Placement
receiving 100,000 shares of the Company's common stock valued at $.25 per share
plus a 5 year warrant to purchase an additional 100,000 shares of common stock
at $.25 per share. </p>
<p>On July 25, 2004, Mr. Smiley agreed to convert his 12% convertible promissory
note for $100,000 that had matured into a demand promissory at the same interest
rate with interest payable quarterly, in arrears. </p>
<p>On November 11, 2002 and November 12, 2002, the Company issued warrants to
purchase 2,491,080 shares of common stock of the Company which were valued at
$480,917 or $.193 per share with an exercise price of $.01 per share for the
cancellation of unpaid compensation to two officer's of the Company as of
October 14, 2002. </p>
<p>In March of 2003, Messrs, Durando, Dotoli and Smiley participated in a
private placement of the company investing $20,000, $20,000 and $75,000
respectively, receiving common stock of mPhase at $.30 per share plus 5 year
warrants of mPhase to purchase a like amount of common stock at $.30 per share.
</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>In March of 2003, Messrs. Durando the CEO and President and Smiley the CFO
and General Counsel of the Company lent the Company $30,000 and $100,000
respectively evidenced by two promissory notes bearing interest at 12% per annum
due in September of 2003. As of June 30,2003 the Company prepaid Mr. Durando's
promissory note in full together with accrued interest. In June 2003, Mr. Smiley
agreed to extend his note until July, 2004. Also in June, 2003, Microphase
agreed to convert $360,000 of accounts payable to a note payable, interest at
12%, due in July, 2004. The notes have provisions for prepayment by the Company,
and, at the option of the holder, provide for the conversion of unpaid principal
and interest into units valued at $.30 each, each unit consisting of one share
of the Company's common stock and a one warrant to purchase the Company's common
stock at $.30 per share for a period of 5 years. </p>
<p>Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli, our Chairman, Chief
Executive Officer and Chief Operating Officer, respectively, are executive
officers and shareholders of Microphase and Ronald Durando and Gustave T. Dotoli
are president and vice- president of PacketPort.com., respectively. </p>
<p>On November 26, 1999, Mr. Durando acquired, via a 100% ownership of
PacketPort, Inc., a controlling interest in Linkon Corporation, now known as
PacketPort.com, Inc. On November 26, 1999, PacketPort, Inc., a company owned
100% by Mr. Durando, acquired controlling interest in Linkon Corp., which
subsequently changed its name to PacketPort.com, Inc. In connection with this
transaction, Mr. Durando transferred 350,000 shares of our common stock to
PacketPort, Inc. </p>
<p>Mr. Michael McInerney, an outside Director, is employed by Lintel Inc. and
Mr. Abraham Biderman was employed until September 30, 2003 by our former
investment banking firm Lipper &amp; Company. </p>
<p ALIGN="JUSTIFY">In July 2000, mPhase added a member to the Board of Directors
who is employed by an investment-banking firm that has assisted and is expected
to continue to assist the Company in raising capital through private financing.
During the year ended June 30, 2001, the Company issued 140,350 shares of common
stock for investment banking services rendered during the period and recorded an
additional $69,000 of fees which is included in accrued expenses at June 30,
2001. </p>
<p>Abraham Biderman became a member of our Board in August 2000. Mr. Biderman is
the Executive Vice President of Lipper &amp; Company, L.P., which received a total
of 265,125 shares of common stock for its services as a placement agent for our
May 2000, September 2000 and January 2001 private placements. In July, 2001 and
November, 2001 Lipper and Company received 138,000 shares and 300,000 shares in
additional common stock in mPhase for services rendered to the Company as
placement agent in a Private Placement and for general investment banking and
financial advice services. </p>
<p>In September 2001, certain of our officers and directors purchased an
aggregate of 2,000,000 shares of common stock for an aggregate investment of
$1,000,000. Theseissuances included 1,000,000 shares to Mr. L. Barton, a
director at that time, for an investment of $500,000; 400,000 shares to Mr.
Ronald A. Durando, the Company's president and a director, for an investment of
$200,000; 400,000 shares to Mr. Gustave Dotoli , the Company's vice-president
and a director, for an investment of $200,000; and; 200,000 shares to Mr. Martin
S. Smiley, the Company's vice-president, for an investment of $100,000; and were
exempt pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Act. </p>
<p>For consulting services rendered in connection with the joint venture, the
Company agreed to pay two officers of the Company and a related party $412,400,
which was included on the June 30, 2000 consolidated balance sheet of the
Company. This amount was paid by the Company during the year ended June 30,
2001. </p>
<p>Messrs. Biderman, McInerney and Mr. Anthony Guerino own a relatively small
amount of stock, warrants and options in mPhase Technologies, Inc. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Transactions with Microphase Corporation </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>On September 28, 2004, Microphase lent to mPhase the sum of $175,000 as
evidenced by a 12% demand promissory note issued from mPhase to Microphase. </p>
<p>mPhase's President and Chairman of the Board of the Company are also
employees of Microphase Corporation. On May 1, 1997, the Company entered into an
agreement with Microphase Corporation, whereby it will use office space as well
as the administrative services of Microphase Corporation, including the use of
accounting personnel. This agreement for fiscal year 2004 was for $10,000 per
month . Microphase Corporation also charges fees for specific projects on a
project-by-project basis. During the year ended June 30, 2004 and for the period
from inception (October 2, 1996) to June 30, 2004, 386,113 and $7,610,639 and
$7,224,526, respectively, have been charged to expense or inventory under these
Agreements and is included in operating expenses in the accompanying
consolidated statements of operations. Management believes that amounts charged
to the Company by Microphase are commensurate to amounts that would be incurred
if outside third parties were used. </p>
<p>The Company is obligated to pay a 3% royalty to Microphase Corporaiton on
revenues from its legacy Traversr DVDDS product andDSL component products.
During the year ended June 30, 2004 such amount equaled $140,123. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>At June 30, 2004, approximately $60,000 of undelivered purchase orders remain
outstanding at Microphase Corporation </p>
<p>On February 15, 1997, mPhase entered into a Technology, Patent and Trademark
License Agreement (the &quot;Agreement&quot;) with MicroTel (Note 4). The Agreement
permits the Company to utilize the patent and trademark technology of MicroTel
under a licensing arrangement. The Company made payments of $37,500 per month,
commencing June 1, 1997 for technology development. During the period ended June
30, 1997 and 1998, $37,500 and $450,000 had been charged to expense under this
Agreement and is included in licensing fees in the consolidated statement of
operations. As of June 25, 1998, the Company acquired MicroTel and as of that
date this Agreement was no longer in effect. </p>
<p>During the fiscal year ended June 30, 2000, $2,600,000 was advanced to
Microphase in the form of a note, which was repaid by Microphase during the
year. mPhase recorded $39,000 of interest income on this note for the year ended
June 30, 2000. </p>
<p>The Company is obligated to pay a 3% royalty to Microphase on revenues from
its proprietary Traverser Digital Video and Data Delivery System and DSL
component products. During the years ended June 30, 2001, 2002 and 2003 mPhase
recorded royalties to Microphase totaling $297,793, $78,762 and $47,304,
respectively. </p>
<p>Pursuant to a debt conversion agreement between the Company and Microphase
for the year ended June 30, 2001, Microphase received 1,278,000 shares of mPhase
common stock. For the year ended June 30, 2002, in consideration for a direct
investment of $100,000 and pursuant to debt conversion agreements, Microphase
received 2,900,000 shares of mPhase common stock and warrants to purchase
2,200,000 mPhase common stock in connection with the cancellation of $740,000 of
outstanding liabilities. </p>
<p>During the fiscal year ended June 30, 2003 Microphase received 4,033,333
shares of common stock plus five year warrants to purchase 1,000,000 shares of
common stock of mPhase at $.30 per share in exchange for the cancellation of
accounts payable totaling $920,000. As of June 30, 2002, the Company had $92,405
included in other liabilities-related parties in the accompanying consolidated
balance sheet and as of June 30, 2003 $360,000 in notes payable-related parties.
Additionally, at June 30, 2003, approximately $142,000 of undelivered purchase
orders remain outstanding with Microphase. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Transactions with Janifast </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Janifast Ltd., a Hong Kong corporation manufacturer, which has produced
components for our prototype Traverser DVDDS product, and may produce such
components for us in the future. Necdet F. Ergul, Ronald A. Durando and Gustave
T. Dotoli are controlling shareholders of Janifast Ltd. with an aggregate
ownership interest of greater than 75% of Janifast Ltd. Mr. Durando is Chairman
of the Board of Directors and Mr. Ergul is a Director of Janifast. During the
year ended June 30, 2004 and for the period from inception to June 30, 2004
respectively, $2,889,609 and $13,581,295 or products and services have been
charged to inventory expense-other liabilities-related parties as long term
liabilities in the consolidated balance sheet as of June 30, 2004. Additionally,
at June 30, 2004, approximately $470,857 of undelivered purchase orders remain
outstanding with Janifast Ltd. and outstanding payables to Janifast Ltd.
amounted to $150,000. </p>
<p>During the year ended June 30,2000, mPhase advanced money to Janifast Ltd.,
which is a related party of which three directors of mPhase are significant
shareholders, in connection with the manufacturing of POTS Splitter Shelves and
DSL component products. As of June 30, 2000, the amount advanced to Janifast was
approximately $1,106,000, which is included in production advances-related
parties on the accompanying balance sheet. There were no such advances as of
June 30, 2001 and June 30, 2002. </p>
<p>Pursuant to a debt conversion agreement between the Company and Janifast Ltd,
for the year ended June 30, 2001, Janifast Ltd received 1,200,000 shares of the
Company's common stock. For the hear ended June 30, 2002, pursuant to debt
conversion agreements, Janifast Ltd. received 3,450,000 shares of mPhase common
stock and warrants to purchase 1,200,000 shares of common stock in connection
with the cancellation of $720,000 of outstanding liabilities. During the year
ended June 30, 2003, Janfiast Ltd. was issued 1,500,000 shares of mPhase common
stock in connection with the cancellation of $360,000 of outstanding liabilities
of mPhase, the value of which was based upon the price of the Company's common
stock on the effective date of the settlement. No gain or loss was recognized in
connection with the conversion by Janifast Ltd. for the fiscal year ended June
30, 2003. During the years ended June 30, 2001, 2002 , 2003 and 2004, and the
period from inception (October 2, 1996) to June 30, 2004,
$8,932,378, $1,759,308, $178,959, $2,771,925 and $13,642,570 respectively, of invoices for
products and services have been charged to inventory or expense-other
liabilities-related parties and long term liabilities in the consolidated
balance sheet. And as of June 30, 2003 no amounts remained payable to Janifast
Ltd.. Additionally, at June 30, 2003, approximately $1,435,000 of undelivered
purchase orders remained outstanding with Janifast Ltd. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Transactions with Lintel, Inc and Affiliates </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>A member of mPhase's Board of Directors is employed by Lintel, Inc., the
parent corporation of Hart Telephone. The Company has installed its prototype
product and commenced beta testing at Hart Telephone. The Company is currently
installing with 25 customers of Hart Telephone its TV+ solution. </p>
<p>In addition the Company entered into a supply agreement with Hart Telephone
that was to commence upon the completion of beta testing </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>and commencement of production of its legacy Traverser DVDDS system. In May
2,000, mPhase issued Hart Telephone options to purchase 125,000 shares of mPhase
common stock at an exercise price of $1.00 (valued at $1,010,375), that is
included in research and development expenses in the accompanying statement o
operations as of June 30, 2000. Mr. J. Lee Barton the President and Chief
Executive Officer of Lintel, Inc. (the parent of Hart Telephone), and at such
time Mr. Barton was a Director of mPhase. Mr. Barton received a bonus of
$285,000, a stock award of 140,000 shares and options to acquire an additional
100,000 shares for the year ended June 30,2000 and options to acquire 120,000
shares of mPhase common stock for services as a Director or mPhase for the
fiscal year ended June 30, 2001. </p>
<p>Michael McInerney, one of our directors, is the president of Lintel, Inc. In
fiscal year 2004, Mr. McInerney received 5 year options to purchase 100,000
shares of mPhase common stock at $.45 per share as compensation for his services
as a director. </p>
</font><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Transactions with Other Related Parties </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>In March 2000, mPhase acquired a 50% interest in mPhaseTelevision.Net
(formerly Telco Television Network, Inc.), an incorporated joint venture, for
$20,000. The agreement provided for the grant of warrants to the joint venture
partner, in consideration of the execution of the Joint Venture Agreement, to
purchase 200,000 shares of the Company's common stock for $4.00 per share
(valued at $2,633,400). This non-cash charge was included in general and
administrative expenses in the statement of operations for the year ended June
30, 2000. The fair value of the warrants granted to the joint venture partner as
of the date of grant was based on the Black- Scholes stock option pricing model,
using the following weighted average assumptions: annual expected rate of return
of 0%, annual volatility of 115%, risk free interest rate of 5.85% and an
expected option life of 3 years. </p>
<p>The agreement stipulated for mPhase's joint venture partner, AlphaStar
International, Inc., (&quot;Alphastar&quot;), to provide mPhaseTelevision.Net right of
first transmission for its transmissions of MPEG-2 digital satellite television.
In addition, in March 2000, mPhase loaned the joint venture $1,000,000 at 8%
interest per annum. The loan is repayable to the Company from equity infusions
to the subsidiary, no later than such time that mPhaseTelevision.Net qualifies
for a NASDAQ Small Cap Market Listing. During April 2000, the Company acquired
an additional 6.5% interest in mPhaseTelevision.Net for $1,500,000. As of June
30, 2003 mPhase owns a 56.5% interest in mPhaseTelevision.net. The Company
terminated the lease of the earth station for business reasons, and there was no
material impact on mPhaseTelevision.net's operating activities. </p>
<p>Pursuant to an agreement dated as of June 18, 2002, mPhaseTelevision.Net has
terminated its lease of the earth station and Alphastar and its affiliated
entity have converted certain accounts payable into shares of the Company's
common stock. </p>
<p>Additionally, under this Agreement, mPhase is obligated to pay Alphastar and
its affiliates $35,000, which is included in amounts due to related parties in
the consolidated balance sheet as of June 30, 2003. </p>
<p>During the fiscal years ended June 30, 2002, 2003 and 2004, the joint venture
was charged $64,039, $0 and $0, respectively for fees and costs by its joint
venture partner and its affiliates. </font>
<font FACE="Times New Roman PS" SIZE="2"><b></p>
<p>Transactions with Strategic Vendors </p>
</b></font><font FACE="Times New Roman PSMT" SIZE="2">
<p>Transactions with Other Significant Beneficial Owners of mPhase Common Stock
and Warrants </p>
<p>As of June 30, 2004, the Company was approximately $473,787 in arrears with
respect to a Promissory Note issued to Piper Rudnick LLP plus other legal fees
of $118,773. It should be noted that Piper &amp; Rudnick received such Promissory
Note plus two warrants received in March of 2002 in exchange for cancellation of
certain payables. Such warrants have conversion rights into our common stock for
a total of 2,233,490 shares that have been registered under a recently effective
Form S-1 Registration Statement, and are cashless. On September 3, 2003, the
Company paid $100,000 in cash to Piper in exchange for reducing the total
payable to $550,000 plus the issuance of additional cashless warrant for
$150,000 worth of the Company's common stock valued at $.25 per share. The
remaining $300,000 payable has the following future payment schedule </font>
<font FACE="Times New Roman PS" SIZE="2"><i>: </i></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>1. Payments of $25,000 each on December 1, 2004, March 1, 2005, June 1, 2005,
September 1, 2005, March 1, 2006, June 1, 2006 and September 1, 2006. </p>
<p>2. A payment of $50,000 on December 1, 2005 </p>
<p>3. A payment of $75,000 due on December 1, 2006 </p>
<p>On February 18, 2004, the Company entered into an Agreement with Georgia Tech
Applied Research Corporation and Georgia Tech Research Corporation (collective &quot;GTRC&quot;)
to settle a payable of approximately $1.8 million pursuant to the issuance of a
warrant convertible into 5,069,200 shares of the Company's common stock on a
cash-less basis plus a note for $100,000 payable over a 18 month period of
installments of $16,667 per quarter. The Company is presently renegotiating the
amount and payment terms of the Note with GTRC since the Note covered certain
licensing fees for patents that the Company may determine are not necessary in
connection with its TV platforms going forward. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>Effective March 31, 2002, the Company converted $420,872 of liabilities due
to Piper Rudnick LLP, outside legal counsel to mPhase into a warrant to purchase
up to a total of 1,683,490 shares of the Company's common stock which pursuant
to EITF 96-18, has an approximate value of $.30 per share; and a warrant to
purchase 550,000 shares of the Company's common stock at an exercise price of
$.30 per share pursuant to the terms of payment agreement. In addition, Piper
agreed to accept a Promissory Note for $420,872 of current payables at an
interest rate of 8% with payments of $5,000 per month commencing June 1, 2002
and continuing through December 1, 2003, with a final payment of principal plus
accrued interest due at maturity on December 31, 2003. As of August 11, 2003 the
Company is $35,000 in arrears with respect to the $5,000 per month payment of
the Promissory Note. On December 31, 2003, the Company became in arrears with
respect to $420,872 of a balloon payment on a Note payable to its outside Law
Firm, Piper &amp; Rudnick LLC. The Company is in discussion with respect to such law
firm to extend and/or cancel all or portions of this debt. It should be noted
that Piper &amp; Rudnick hold warrants received in March of 2001 in exchange for
cancellation of certain payables. Such warrants have conversion rights into our
common stock for 2,233,490 shares that are being registered hereunder (see
Selling Shareholders list-page 65 hereof) and are cashless. Such warrants could
be exercised shares of our common stock which could then be sold in the open
market upon the effectiveness of this Registration Statement on Form S-1 in the
open market to recover our outstanding payable. See also Risk Factor Section on
Page 8 hereof. </p>
<p>On October 14, 2002, the Company entered into a memorandum on intention with
Georgia Tech Research Corporation (GTRC) and its affiliate, Georgia Tech Applied
Research Corporation (GTARC), which memorandum was revised on November 12, 2002
and in October of 2003 and is subject to the approval of the respective board of
directors of the parties thereto and the exchange of mutual releases. The
memorandum provides for the settlement of any and all amounts outstanding to
GTRC and GTARC in consideration of the issuance of warrants to purchase
5,069,242 shares of the Company's common stock at $.01 per share (with a
cashless exercise right) in exchange for cancellation of an approximately $1.3
million portion of the Company's accounts payable. In addition the Company would
issue a term promissory note in the principal amount of $674,235 with interest
at prime+1% and varied payments through 2008 in exchange for cancellation of an
account payable by the Company in an same amount. The non-current amount of two
promissory notes plus two warrants that were part of the proposed transaction as
originally negotiated and as reflected in the memorandum of November 12, 2002
are reflected on the balance sheet dated June 30, 2003 as long-term debt and
other liabilities for the amounts that were expected on June 30, 2003 to be
converted to the two promissory notes payable and the warrants respectively. As
of February 12, 2004 we are finalizing an agreement to convert all of such
payables, approximating $1.8 million and including amounts reflected as Notes
Payable as of June 30, 2003 and September 30, 2003, into a warrant convertible
into our Common Stock on a cashless basis of approximately $.35 per share. This
agreement is still subject to final execution of legal documentation by GTRC.
</p>
<p>Effective June 30, 2001 the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements. During the fiscal year ended June
30, 2002 certain strategic vendors and related parties converted approximately
$2.7 million of accounts payable and accrued expenses into 7,492,996 shares of
the Company's common stock and 5,953,490 warrants. During the twelve months
ending June 30, 2003, certain strategic vendors and related parties converted
approximately $1.9 million of accounts payable and accrued expenses into
5,923,333 shares of the Company's common stock and warrants to purchase
3,706,800 shares of common stock of mPhase. . Such vendors include Microphase
Corporation, Janifast, Ltd., and Strategic Vendors including Piper Rudnick LLP,
mPhase's outside counsel. Conversions with related parties only consisted of the
following: </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="32%">&nbsp;</td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="31%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PSMT" SIZE="2">For the Six Months</font></td>
  </tr>
  <tr>
    <td WIDTH="32%">&nbsp;</td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="31%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PSMT" SIZE="2">Ended December 31,</font></td>
  </tr>
  <tr>
    <td WIDTH="32%">&nbsp;</td>
    <td WIDTH="36%" COLSPAN="2"><font FACE="Times New Roman PSMT" SIZE="2">
    <p align="center">For the Years Ended June 30,</font></td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="31%" COLSPAN="2" align="center">
    <font FACE="Times New Roman PSMT" SIZE="2">(Unaudited)</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><i><b>Equity
    Conversions of</b></i></font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2002</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2003 </font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2004</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2003</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2004</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><i><b>Debt and
    Other</b></i></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><i><b>Financial
    Instruments</b></i></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><i><b>with Related
    Parties</b></i></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><b>Janifast</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">Number of shares</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    3,450,000</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,500,000</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">Number of
    warrants</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,200,000</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">Amount converted
    to</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $720,000</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $360,000</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $200,000</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">equity</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><b>Microphase</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><b>Corporation</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">Number of shares</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,700,000</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    4,033,333</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">Number of
    warrants</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,200,000</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,000,000</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">Amount converted
    to</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $740,000</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $920,000</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PSMT" SIZE="2">equity</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><b>Lintel
    Corporation and</b></font></td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font FACE="Times New Roman PS" SIZE="2"><b>Affiliates</b></font></td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="14%">&nbsp;</td>
  </tr>
</table>
<p>&nbsp;</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of shares</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of
    warrants</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Amount converted
    to</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">equity</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PS" SIZE="2"><b>Officers</b></font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of shares</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    333,334</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    489,875</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of
    warrants (A)</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    333,334</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,491,800</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    489,875</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Amount converted
    to</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $103,000</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $480,967</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    97,975</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">equity</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PS" SIZE="2"><b>Joint Venture
    Partner</b></font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PS" SIZE="2"><b>and Affiliates</b></font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of shares</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    63,216</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of
    warrants</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Amount converted
    to</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $31,628</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">equity</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PS" SIZE="2"><b>Total Related
    Party</b></font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PS" SIZE="2"><b>Conversions</b></font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of shares</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    6,546,550</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    5,533,333</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,739,875</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Number of
    warrants</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    3,733,334</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    3,491,800</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,739,875</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">Amount converted
    to</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $1,594,628</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $1,760,967</font></td>
    <td WIDTH="168" align="right">&nbsp;</td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$0</font></td>
    <td WIDTH="168" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    547,975</font></td>
  </tr>
  <tr>
    <td WIDTH="401"><font FACE="Times New Roman PSMT" SIZE="2">equity</font></td>
    <td WIDTH="168">&nbsp;</td>
    <td WIDTH="168">&nbsp;</td>
    <td WIDTH="168">&nbsp;</td>
    <td WIDTH="168">&nbsp;</td>
    <td WIDTH="168">&nbsp;</td>
  </tr>
  <tr>
    <td colspan="6" width="1241"><font FACE="Times New Roman PSMT" SIZE="2">(A)
    Includes $12,206 settlement expense incurred to the Company's President and
    Vice President in connection with the exchange of warrants to purchase the
    company's common stock to cancel unpaid compensation, which is included as a
    reduction to gain on Settlements in fiscal 2003.</font></td>
  </tr>
</table>
<b><font FACE="Times New Roman"><hr color="#000000" size="5"><p Style='page-break-before:always'>
</font></b>

<b><font FACE="Times New Roman PS">
<p align="center">SELLING STOCKHOLDERS </font>
<font FACE="Times New Roman PS" SIZE="2"></p>
</font></b><font FACE="Times New Roman PSMT" SIZE="2">
<p ALIGN="JUSTIFY">The following table sets forth information regarding the
beneficial ownership of shares of common stock by the selling stockholders as of
the date of this prospectus, and the number of shares of common stock covered by
this prospectus. Except as otherwise noted below, none of the selling
stockholders has held any position or office, or has had any other material
relationship with us or any of our affiliates within the past three years. </p>
<p>The number of shares of common stock that may be actually purchased by
certain selling stockholders under the warrants and the number of shares of
common stock that may be actually sold by each selling stockholder will be
determined by such selling stockholder. Because certain selling stockholder may
purchase all, some or none of the shares of common stock which can be purchased
under the warrants and each selling stockholder may sell all, some or none of
the shares of common stock which each holds, and because the offering
contemplated by this prospectus is not currently being underwritten, no estimate
can be given as to the number of shares of common stock that will be held by the
selling stockholders upon termination of the offering. The information set forth
in the following table regarding the beneficial ownership after resale of shares
is based on the basis that each selling stockholder will purchase the maximum
number of shares of common stock provided for by the warrants owned by the
selling stockholder and each selling stockholder will sell all of the shares of
common stock owned by that selling stockholder and covered by this prospectus.</p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="698" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    <td WIDTH="180" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    <td WIDTH="180" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
    <font FACE="Times New Roman" SIZE="2"><b>Maximum Number of</b></font></td>
    <td WIDTH="180" align="center" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">NAME</font></td>
    <td WIDTH="180" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>Beneficial Shares</b></font></td>
    <td WIDTH="180" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>Shares Being Offered</b></font></td>
    <td WIDTH="180" align="center" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>Note</b></font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ACE FOUNDATION</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-1</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ADVISOR ASSOCIATES</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">600,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">600,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-2</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">AIELLO, ROSE</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-3</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ALEXANDER HASENFELD INC. PROFIT
    SHARING AND RETIREMENT PLAN</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">364,841</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">364,841</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-4</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ALEXANDER HASENFELD, INC.</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">83,334</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">83,334</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-5</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">AMATO, SALVATORE</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-6</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ANDERSON, JAMES RONALD</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">45,500</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">45,500</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-7</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ANNESE, DAVID E.</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">600,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">600,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-8</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">AREIVIM - SHMUEL GLUCK - DIRECTOR</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">900,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">900,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-9</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ASHFORD, ALEXANDER WOODSON, MD</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">5,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">5,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-10</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ASHFORD, CLINTON B.</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-11</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ASPIOTES, NICHOLAS</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-12</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ASPIOTES, NICHOLAS &amp; ASPIOTES, NANCY</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,330,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,330,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-13</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ASSURED MORTGAGE LENDERS, INC.</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">83,334</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">83,334</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-14</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BALMORE S.A.</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-15</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BANDMAN, SHIMSON Z</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-16</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BARTON, J. LEE</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">545,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">545,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-17</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BERNARD, ADRIENNE</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">46,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">46,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-18</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BETH MAYER ASSOCIATES</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,333,160</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,333,160</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-19</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BIDERMAN, ABRAHAM</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">385,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">385,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-20</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BOGART, STEVEN &amp; FRANCINE (JT W/ROS)</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-21</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BOLLETTIERI, ANGELA</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">134,500</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">134,500</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-22</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BOWES, JOHN</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">5,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">5,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-23</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BRANDT, JOHN</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">19,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">19,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-24</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BRIZELLIFSHITZ, DAVID</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-25</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">BURNETT, ANDREW</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">44,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">44,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-26</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CAMEALJON FAMILY LTD PARTNERSHIP</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">70,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">70,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-27</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CAPASSO, STEPHEN</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">54,500</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">54,500</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-28</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CASTELLI, CHARLES</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-29</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHABAD COLEL</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">3,000,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">3,000,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-30</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHAIM SHOLOM &amp; SARAH R. BABAD</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">166,667</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">166,667</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-31</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHAIM, SHAREI</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">428,334</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">428,334</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-32</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHANCELLOR APARTMENTS</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">333,334</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">333,334</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-33</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHAYA SHAFRAN &amp; SALLY FRENKEL</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-34</font></td>
  </tr>
  <tr>
    <td WIDTH="698" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHENG, TOMMY</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,018,250</font></td>
    <td WIDTH="180" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,018,250</font></td>
    <td WIDTH="180" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-35</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="696" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    <td WIDTH="181" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    <td WIDTH="181" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
    <font FACE="Times New Roman" SIZE="2"><b>Maximum Number of</b></font></td>
    <td WIDTH="181" align="center" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">NAME</font></td>
    <td WIDTH="181" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>Beneficial Shares</b></font></td>
    <td WIDTH="181" align="right" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>Shares Being Offered</b></font></td>
    <td WIDTH="181" align="center" style="border-left-style: solid; border-left-width: 1; border-right-style: solid; border-right-width: 1; border-top-style: none; border-top-width: medium; border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>Note</b></font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHIODO, FRANK</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">44,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">44,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-36</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHITRIK, JOSEPH</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-37</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CHUN, CHHARM</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-38</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CONGREGATION IRGUN SHIURAI TORAH</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-39</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CONGREGATION KHAL BREZNA, INC.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">42,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">42,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-40</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CONGREGATION OF NEW SQUARE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-41</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CONGREGATION SHAREI CHAIM</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,262,500</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,262,500</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-42</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CONGREGATION SHARIT HAPLETA</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-43</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">COOKE, AMY</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-44</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">COONS, MARY E.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-45</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CORNELIO, DONALD</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-46</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CRUZ, ARTURO</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-47</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">CUSICK, MICHAEL</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">450,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">450,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-48</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DAVID FARBER &amp; DEBORAH FARBER JTWROS</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">475,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">475,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-49</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DAVIS, JR., PAUL L.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">5,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">5,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-50</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DEHASSE, ROGIER</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-51</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DENNIS, THOMAS</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-52</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DEVLIN, MICHAEL</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">775,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">775,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-53</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DIAZ, RUBEN</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-54</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DIPACE, JR., JOHN M.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-55</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DOTOLI CHARITABLE REMAINDER TRUST</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">195,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">195,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-56</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DOTOLI, FRANKLIN</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-57</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DOTOLI, GUSTAVE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font face="Times New Roman" size="2">5,773,600</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">5,773,660</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-58</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DOUBLE U MASTER FUND L.P.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-59</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DURANDO CHARITABLE REMAINDER TRUST</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">695,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">695,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-60</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DURANDO INVESTMENT LLC</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,396,148</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,396,148</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-61</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">DURANDO, RONALD</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">9,043,234</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">9,043,234</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-62</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">EDWARDS, T.W. JR.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-63</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ENGLARD, TZVI</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-64</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ERGUL, NECDET</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,141,250</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,141,250</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-65</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ESCHEL</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-66</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ESQUIRE TRADE &amp; FINANCE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">333,334</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">333,334</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-67</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ESTATE OF GEORGE SILCOTT</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-68</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ESTATE OF JAMES VIADELLA</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">19,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">19,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-69</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ESTATE OF KIN CHAU</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">159,500</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">159,500</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-70</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">EVANGELISTA, EVERETTE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-71</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">EXHIBIT CRAFTS</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">332,669</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">332,669</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-72</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">F&amp;N ASSOCIATES</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">435,269</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">435,269</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-73</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FARBER, DAVID</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">660,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">660,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-74</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FENMORE HOLDINGS LLC</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,142,858</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,142,858</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-75</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FIE, CATHERINE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-76</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FILAKOVSK, JOHN</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-77</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FIRST MEDIA GROUP</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-78</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FIRST MONTAUK FINANCIAL CORP.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">444,336</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">444,336</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-79</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FISERV SECURITIES</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">33,333</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">33,333</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-80</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FISHER, MAYER</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">90,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">90,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-81</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FLINT, SUE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">27,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">27,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-82</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FOX, HARRY</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">43,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">43,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-83</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FRIEDMAN, MORRIS</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">3,200,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">3,200,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-84</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">FUCHS, ROBERTA I.</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">440,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">440,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-85</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GASPARINI, PETER</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">254,500</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">254,500</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-86</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GAVRITY, CAMILLE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-87</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GEMILAS CHESED ACH TOV</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">150,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">150,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-88</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">Georgia Tech Research Corporation</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">4,949,684</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">4,949,684</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-89</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GIDAS, PETER</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">45,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">45,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-90</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GIDAS, PETER &amp; GIDAS, CINDY</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">730,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">730,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-91</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GOLDEN, BRUCE &amp; MARIA</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-92</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GOLDEN, HYMAN &amp; MILDRED</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-93</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GOLDENBURG, LEON</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">966,667</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">966,667</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">A-94</font></td>
  </tr>
  <tr>
    <td WIDTH="696" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GREENBERG FAMILY FUND, THE</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="181" align="right" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="181" align="center" style="border-style: solid; border-width: 1">
    <font size="2">A-95</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="693" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium">&nbsp;</td>
    <td WIDTH="179" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">&nbsp;</td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Maximum Number of</b></font></td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1">
    <font FACE="Times New Roman" SIZE="2">NAME</font></td>
    <td WIDTH="179" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Beneficial Shares</b></font></td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Shares Being Offered</b></font></td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>Note</b></font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GRENVILLE FINANCE LTD.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-96</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GRONNER, SAM</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-97</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GUARDINO, TORRY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">105,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">105,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-98</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">GUERINO, ANTHONY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">527,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">527,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-99</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HART, JEAN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-100</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HASENFELD STEIN, INC.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">266,459</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">266,459</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-101</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HASENFELD STEIN, INC., PENSION TRUST</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">426,858</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">426,858</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-102</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HASENFIELD, ALEXANDER</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">57,144</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">57,144</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-103</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HEIMAN, S.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">203,335</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">203,335</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-104</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HSI PARTNERSHIP</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">319,167</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">319,167</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-105</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HSU, EDDIE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">5,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">5,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-106</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HUANG, LEE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-107</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HURD, STEVEN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-108</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">HUYNH, AN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-109</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">IBER INTERNATIONAL LTD.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">6,671,429</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">6,671,429</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-110</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">INVESTEC</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">150,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">150,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-111</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">IRGUN SHIURAI TORAH</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,010,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,010,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-112</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">JAFFE, ROBERT</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">86,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">86,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-113</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">JANIFAST LTD.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,550,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,550,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-114</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">JEURKAR, SHRIRANG</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">151,492</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">151,492</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-115</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KAREN AND RONALD DURANDO CHARITABLE
    FOUNDATION</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">530,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">530,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-116</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KAUFMAN BROTHERS</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-117</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KENNEDY, PAUL</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">78,068</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">78,068</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-118</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KENTUCKY NATIONAL INSURANCE COMPANY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">119,644</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">119,644</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-119</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KESHET FUND, L.P., THE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">15,625</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">15,625</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-120</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KESHET, L.P.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">21,875</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">21,875</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-121</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KIVELL, BRITTA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">89,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">89,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-122</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KLEIN, MERVYN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,933,334</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,933,334</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-123</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KLIMEK, DAVID</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">424,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">424,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-124</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KLINE, RICHARD</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-125</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KOVACS, OLIVER</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-126</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">KOWALKOWSKI, SONIA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-127</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LAYCHAK, FRANCIS</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-128</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEBED AND LARA, LLC</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-129</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEBED, JOHN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">175,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">175,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-130</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEE, RONNIE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-131</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEVAL TRADING</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-132</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEVIN, CHANNA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-133</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEVITANSKI, MOSHE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">175,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">175,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-134</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEVITANSKI, RIVKAH</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-135</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LEVY, ROGER</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-136</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LIFTON, VICTOR</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-137</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LINCOLN TRUST COMPANY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-138</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LINTEL CORP</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">694,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">694,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-139</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LIPPER &amp; COMPANY. L.P.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-140</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LLB HOLDINGS</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-141</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LOEWY, ROBERT</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">120,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">120,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-142</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">LUZZI, JAMES</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">80,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">80,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-143</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MAI, MANNY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-144</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MANELA, NAFTALI</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">450,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">450,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-145</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MARCINIAK, NORA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-146</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MARY PARK PROPERTIES</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">8,185,526</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">8,185,526</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-147</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MATHEWS, BOYD</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-148</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MATHEWS, KIM</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-149</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MCCARTHY, JOHN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">115,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">115,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-150</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MCCARTHY, TIMOTHY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">650,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">650,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-151</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MCINERNY, MICHAEL</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">385,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">385,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-152</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">M-COM</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">30,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">30,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-153</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MEDEIROS, ANA CLAUDIA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-154</font></td>
  </tr>
  <tr>
    <td WIDTH="693" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MEEK, MICHAEL</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="center">
    <font size="2">A-155</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="695" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium">&nbsp;</td>
    <td WIDTH="179" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">&nbsp;</td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Maximum Number of</b></font></td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1">
    <font FACE="Times New Roman" SIZE="2">NAME</font></td>
    <td WIDTH="179" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Beneficial Shares</b></font></td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Shares Being Offered</b></font></td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>Note</b></font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MESIVTA OF LONG BEACH</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">300,001</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">300,001</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-156</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">METELITSA, ANGELA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">6,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">6,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-157</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MICROPHASE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">14,966,686</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">14,966,686</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-158</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MILLER, JEROME</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">66,668</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">66,668</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-159</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MILLER, PHYLLIS</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">70,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">70,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-160</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MILLER, WAYNE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">200,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">200,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-161</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MITRO, LORETTA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">89,750</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">89,750</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-162</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MJN ENTERPRISE, INC.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-163</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MOISE, BAIS YAAKOV</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">390,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">390,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-164</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MOSHEL, AVROHAM</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,766,668</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,766,668</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-165</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MUELLER, MARK</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">110,200</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">110,200</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-166</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">MURRAY HUBERFELD DAVID BODNER
    PARTNERSHIP</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-167</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">NELSON, TODD</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">255,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">255,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-168</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">NESHER LIMITED</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-169</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">NEUBART, GARRETT S.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">266,667</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">266,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-170</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">NGUYEN, HENRY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-171</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">NHOK, CHIN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-172</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">NUELLE, FRANK</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-173</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ONE STOP SYSTEMS INC</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">227,719</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">227,719</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-174</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">OSTRANDER, JAN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">550,751</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">550,751</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-175</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PAGLIUCA, VINCENT</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-176</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PARIELLO, LINDA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">74,750</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">74,750</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-177</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PARK, CANDACE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-178</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PARNES, CHAIM S.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-179</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PATEL, NISHA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-180</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PATH, SOVANN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-181</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PATRICIA AND GUSTAVE DOTOLI CHARITABLE
    FOUNDATION</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">277,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">277,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-182</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PELLEGRINO, ERNEST</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">203,976</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">203,976</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-183</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PETERKIN, TERESA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">39,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">39,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-184</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PETERSON, EDA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-185</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PETERSON, JEFFREY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-186</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PETREGLIA, CHRISTINE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-187</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PETTINELLI, JAMES</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-188</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PIPER MARBURY RUDNICK</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,233,490</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,233,490</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-189</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PLATINUM PARTNERS GLOBAL MACRO FUND</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">566,668</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">566,668</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-190</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PLATINUM PARTNERS LONG TERM GROWTH
    FUND</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,500,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,500,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-191</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">POVOLOTSKY, MAXIM</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-192</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PROPERTY TAX APPEALS II, LLC</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-193</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PSCHERAHOFER, GEORGE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">42,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">42,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-194</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">PUTNAM, WALTER F.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-195</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RAAB, SAMUEL</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">455,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">455,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-196</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RAFAEL, ALAN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-197</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RANDAZZO, JOHN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">69,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">69,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-198</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RAYMOND, BRITTANY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">67,750</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">67,750</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-199</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">REB EPHRAIM CHAIM &amp; MIRIAM RACHEL
    KLEIN CHARITABLE FOUNDATION</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,825,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,825,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-200</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">REUTER, BRIAN</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-201</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">REVA ENTERPRISES</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">35,468</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">35,468</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-202</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROBBINS, MICHAEL</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">30,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">30,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-203</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROBERTS, BEVERLY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">40,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">40,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-204</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RODRIGUEZ, CARLOS</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-205</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROMANO, REGINA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">41,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-206</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROOZ, MAYER</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-207</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROSENBERG, DAVID</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">180,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">180,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-208</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROSENTHAL, ELIEZER M.</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,433,334</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,433,334</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-209</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROSENTHAL, ELIEZER M. AND SHAYNIE</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">900,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">900,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-210</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ROSENTHAL, JUDY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-211</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RUDDER, RICHARD &amp; CYNTHIA</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">308,335</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">308,335</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-212</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RUTGERS CASUALTY INSURANCE COMPANY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">751,550</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">751,550</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-213</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RUTGERS ENHANCED INSURANCE COMPANY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">779,050</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">779,050</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-214</font></td>
  </tr>
  <tr>
    <td WIDTH="695" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">RYLANDER, SANDY</font></td>
    <td WIDTH="179" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font size="2">A-215</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="694" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium">&nbsp;</td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">&nbsp;</td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Maximum Number of</b></font></td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1">
    <font FACE="Times New Roman" SIZE="2">NAME</font></td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Beneficial Shares</b></font></td>
    <td WIDTH="182" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Shares Being Offered</b></font></td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>Note</b></font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SABIA, WILLIAM</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-216</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SANDBERG, JUDITH</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-217</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SANTIAGO, JUDITH</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-218</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SARNO, GIULIA</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-219</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SATTA, CAROLYN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-220</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SCARI, STEVEN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">350,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">350,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-221</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SCHOEMAKER, HOWARD</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">54,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">54,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-222</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SCHOTTENSTEIN, JAY L., TRUSTEE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">62,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">62,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-223</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SCHUHALTER, COUGHLIN &amp; SUOZZO, P.C.</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,085,800</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,085,800</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-224</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SEMINORO, JOSEPH</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-225</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SHEA, COLLEEN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">25,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-226</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SHEBAR, KEVIN J.</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">16,334</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">16,334</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-227</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SICILIANO, ANTHONY</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">204,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">204,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-228</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SILCOTT, JENNIFER</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">318,918</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">318,918</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-229</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SIM, SOKPHON</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-230</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SIMON, STEVE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-231</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SINGALIESE, MICHAEL</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">170,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">170,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-232</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SINICOLA, JOSEPHINE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-233</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SIU, STEVEN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">114,750</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">114,750</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-234</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SLOMOVICS, ABRAHAM</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">146,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">146,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-235</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SMILEY, MARTIN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">5,676,132</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">5,676,132</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-236</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SMITH, DAVID REVOCABLE LIVING TRUST</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">46,667</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">46,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-237</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SMITH, DAVID REVOCABLE LIVING TRUST</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">426,667</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">426,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-238</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SNYDER, BERRIN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">75,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-239</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SPENCER, RICHARD</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">260,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">260,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-240</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SPIELMAN, MARK</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">79,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">79,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-241</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SPITZER, MICHAEL</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">118,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">118,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-242</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">STEIN, NACHUM</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,343,365</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,343,365</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-243</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">STEIN, NACHUM &amp; FEIGE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">30,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">30,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-244</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">STEIN, S.</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-245</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">STEIN, YAKOV</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">240,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">240,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-246</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">STERNFELD, MURRAY</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,835,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,835,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-247</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">STUNKEL, DAVID</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-248</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SULLIVAN, PAUL</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-249</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SUTTER, ED</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-250</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">SYNDER, BERRIN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-251</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TABOLA, MICHAEL</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-252</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TACOPINO, COSIMO</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-253</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TALBIYA B. INVESTMENTS LTD.</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">3,125</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">3,125</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-254</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TEITELBAUM, JOSHUA AND HELEN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">750,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">750,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-255</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TEMEL, SELIM</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-256</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TENNENHAUS, EDMUND</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,000,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-257</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">THE SINAI HERITAGE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">60,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">60,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-258</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">THOMPSON, KATHY</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-259</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">THOMPSON, PHIL</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">450,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">450,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-260</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">THORNE, DANIEL K.</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-261</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TOCI, FATMIR</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">125,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-262</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TOWER 50 PARTNERS L.P.</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">6,000,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">6,000,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-263</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TRAUT, FRED</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">270,500</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">270,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-264</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TURCHAN, THEODORE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">240,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">240,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-265</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">TURCHAN, THEODORE &amp; TURCHAN, EILEEN</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">400,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-266</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">VIADELLA, SHIRLEYANNE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-267</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WARRENFELDS, MEL</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">29,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">29,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-268</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WASHBURN, E.R.</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-269</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WEC PARTNERS LLC</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">166,668</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">166,668</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-270</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WEI, JAMES</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-271</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WEINBERGER, GEORGE</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">4,672,900</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">4,672,900</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-272</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WEISS, HENRY</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-273</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WEITMAN, YITZCHAK</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">65,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">65,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-274</font></td>
  </tr>
  <tr>
    <td WIDTH="694" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WELZ, SIDNEY</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="182" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font size="2">A-275</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="453" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium">&nbsp;</td>
    <td WIDTH="233" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium">&nbsp;</td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">&nbsp;</td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Maximum Number of</b></font></td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:solid; border-top-width:1; border-bottom-style:none; border-bottom-width:medium" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1">
    <font FACE="Times New Roman" SIZE="2">NAME</font></td>
    <td WIDTH="233" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1">&nbsp;</td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Beneficial Shares</b></font></td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Shares Being Offered</b></font></td>
    <td WIDTH="183" style="border-left-style:solid; border-left-width:1; border-right-style:solid; border-right-width:1; border-top-style:none; border-top-width:medium; border-bottom-style:solid; border-bottom-width:1" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>Note</b></font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WENG, XIAOXI</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-276</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WERDIGER FAMILY FOUNDATION INC.</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,462,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,462,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-277</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WERDIGER, SOL</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">80,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">80,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-278</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WESCO, INC.</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">333,334</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">333,334</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-279</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WESTROCK ADVISORS</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,500,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">1,500,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-280</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WHELAN, MARY K.</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">550,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">550,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-281</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WHITE, THEODORE</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-282</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WHITWORTH, JOHN</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">91,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">91,667</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-283</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WILFORD, PAUL</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-284</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WILLIAMS, JOHN</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-285</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WILLIS, HAL</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">155,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">155,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-286</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WILLOUGHBY, VICTORIA</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">10,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-287</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WOLF, HIRSCH</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">12,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">12,500</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-288</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WOLFSON EQUITIES</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">4,883,334</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">4,883,334</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-289</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WOLFSON, AARON</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">950,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">950,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-290</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WOLFSON, ABRAHAM</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">200,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">200,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-291</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WOLFSON, MORRIS</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-292</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">WOLKOW, ALLEN &amp; SHEILA</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">20,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-293</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">YADRE, STEPHEN</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">78,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">78,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-294</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">YESHIVA D'VAR TORAH</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">70,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">70,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-295</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">YMSF FAMILY PARTNERSHIP</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">54,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">54,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-296</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">YOHO, MICHAEL</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">14,908</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">14,908</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-297</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">YU, CHRIS</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">50,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-298</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">ZADROVICZ, ROBERT</font></td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">&nbsp;</td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">2,000</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="center">
    <font FACE="Times New Roman" SIZE="2">A-299</font></td>
  </tr>
  <tr>
    <td WIDTH="453" style="border-left-style: none; border-left-width: medium; border-right-style: solid; border-right-width: 1; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">&nbsp;</td>
    <td WIDTH="233" style="border-style: solid; border-width: 1">
    <font FACE="Times New Roman" SIZE="2">
    <p align="center">TOTAL</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">178,046,810</font></td>
    <td WIDTH="183" style="border-style: solid; border-width: 1" align="right">
    <font FACE="Times New Roman" SIZE="2">178,046,810</font></td>
    <td WIDTH="183" style="border-left-style: solid; border-left-width: 1; border-right-style: none; border-right-width: medium; border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium" align="center">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<ol>
  <li>
  <p align="left">Mr. Biderman, Mr. Guerino, and Mr. McInerny are directors of
  our Company.<br>
&nbsp;</li>
  <li>
  <p align="left">Mr Smiley is Executive Vice President, Chief Financial
  Officer, and General Counsel of our Company. Total shares include 400,000
  shares plus a warrant to purchase 400,000 additional shares of common stock at
  $0..25 per share expiring 5 years from receipt upon the election to convert a
  $100,000 promisory note of the Company bearing interestat 12% per annum
  scheduled to mature July 25, 2005.<br>
&nbsp;</li>
  <li>
  <p align="left">Mr Durando, CEO of our Company, , Mr. Ergul, Chairman of the
  Board of our Company, and Mr. Dotoli, COO of our Company, are controlling
  shareholders of Janifast Ltd. With aggregate ownership interest of greater
  than 65% of Janifast Ltd.<br>
&nbsp;</li>
  <li>
  <p align="left">Mr. Ergul, Chairman of the Board of the Company, is a majority
  shareholder of Mircophase Corporation.<br>
&nbsp;</li>
  <li>
  <p align="left">Mircophase Corporation Total includes 600,000 shares plus a
  warrant to purchase 600,000 additional shares of common stock at $0.30 per
  share expiring 5 years from receipt upon the election to convert a $180,000
  promisory note of the company bearing interest at 12% per annum.<br>
&nbsp;</li>
  <li>
  <p align="left">Mr. Durando is the controlling shareholder of the Durando
  Charitable Remainder Trust and the Karen and Ronald Durnado Charitable
  Foundation.<br>
&nbsp;</li>
  <li>
  <p align="left">Mr. Dotoli is the controlling shareholder of the Dotoli
  Charitable Remainder Trust and the Patriica and Gustave Dotoli Charitable
  Foundation.</li>
</ol>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td><font FACE="Arial MT" size="2">(A-1) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-2) Includes warrants to purchase up to
    500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-3) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-4) Includes warrants to purchase up to
    201,983 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-5) Includes warrants to purchase up to
    66,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-6) Includes warrants to purchase up to
    250,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-7) Includes options to purchase up to
    45,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-8) Includes warrants to purchase up to
    300,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-9) Includes warrants to purchase up to
    600,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-10) Includes warrants to purchase up
    to 5,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-11) Includes warrants to purchase up
    to 15,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-12) Includes warrants to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-13) Includes warrants to purchase up
    to 770,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-14) Includes warrants to purchase up
    to 83,334 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-15) Includes warrants to purchase up
    to 75,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" size="2">(A-16) Includes warrants to purchase up
    to 250,000 shares of common stock.</font></td>
  </tr>
</table>
</font><hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-17) Includes options to purchase up to
    545,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-18) Includes options to purchase up to
    46,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-19) Includes options to purchase up to
    425,000 shares of common stock and warrants to purchase up to 783,493 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-20) Includes options to purchase up to
    350,000 shares of common stock and warrants to purchase up to 35,000 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-21) Includes warrants to purchase up
    to 25,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-22) Includes options to purchase up to
    132,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-23) Includes warrants to purchase up
    to 5,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-24) Includes options to purchase up to
    19,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-25) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-26) Includes options to purchase up to
    44,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-27) Includes warrants to purchase up
    to 70,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-28) Includes options to purchase up to
    52,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-29) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-30) Includes warrants to purchase up
    to 1,500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-31) Includes options to purchase up to
    33,333 shares of common stock and warrants to purchase up to 66,667 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-32) Includes warrants to purchase up
    to 226,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-33) Includes warrants to purchase up
    to 166,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-34) Includes warrants to purchase up
    to 20,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-35) Includes options to purchase up to
    916,250 shares of common stock and warrants to purchase up to 50,000 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-36) Includes options to purchase up to
    44,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-37) Includes warrants to purchase up
    to 10,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-38) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-39) Includes warrants to purchase up
    to 400,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-40) Includes warrants to purchase up
    to 42,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-41) Includes warrants to purchase up
    to 200,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-42) Includes warrants to purchase up
    to 662,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-43) Includes warrants to purchase up
    to 75,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-44) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-45) Includes warrants to purchase up
    to 500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-46) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-47) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-48) Includes warrants to purchase up
    to 225,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-49) Includes warrants to purchase up
    to 300,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-50) Includes warrants to purchase up
    to 5,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-51) Includes options to purchase up to
    100,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-52) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-53) Includes options to purchase up to
    475,000 shares of common stock and warrants to purchase up to 200,000 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-54) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-55) Includes warrants to purchase up
    to 200,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-56) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-57) Includes options to purchase up to
    50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-58) Includes options to purchase up to
    3,650,000 shares of common stock and warrants to purchase up to 1,138,067
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-59) Includes warrants to purchase up
    to 1,000,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-60) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-61) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-62) Includes options to purchase up to
    6,780,000 shares of common stock and warrants to purchase up to 581,667
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-63) Includes warrants to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-64) Includes warrants to purchase up
    to 25,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-65) Includes options to purchase up to
    1,091,250 shares of common stock and warrants to purchase up to 200,000
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-66) Includes warrants to purchase up
    to 250,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-67) Includes warrants to purchase up
    to 333,334 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-68) Includes warrants to purchase up
    to 41,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-69) Includes options to purchase up to
    19,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-70) Includes options to purchase up to
    157,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-71) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-72) Includes warrants to purchase up
    to 120,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-73) Includes warrants to purchase up
    to 266,697 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-74) Includes warrants to purchase up
    to 330,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-75) Includes warrants to purchase up
    to 714,286 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-76) Includes no warrants or options.</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-77) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-78) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-79) Includes options to purchase up to
    250,000 shares of common stock and warrants to purchase up to 115,918 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-80) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-81) Includes warrants to purchase up
    to 45,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-82) Includes options to purchase up to
    25,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-83) Includes options to purchase up to
    43,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-84) Includes options to purchase up to
    100,000 shares of common stock and warrants to purchase up to 1,850,000
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-85) Includes warrants to purchase up
    to 220,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-86) Includes options to purchase up to
    147,500 shares of common stock and warrants to purchase up to 105,000 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-87) Includes warrants to purchase up
    to 20,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-88) Includes warrants to purchase up
    to 150,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-89) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-90) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-91) Includes warrants to purchase up
    to 537,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-92) Includes warrants to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-93) Includes warrants to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-94) Includes warrants to purchase up
    to 716,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-95) Includes warrants to purchase up
    to 125,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-96) Includes warrants to purchase up
    to 500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-97) Includes options to purchase up to
    50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-98) Includes options to purchase up to
    103,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-99) Includes options to purchase up to
    492,500 shares of common stock and warrants to purchase up to 35,000 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-100) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-101) Includes warrants to purchase up
    to 143,125 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-102) Includes warrants to purchase up
    to 220,429 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-103) Includes warrants to purchase up
    to 28,572 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-104) Includes warrants to purchase up
    to 133,334 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-105) Includes warrants to purchase up
    to 140,833 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-106) Includes warrants to purchase up
    to 2,500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-107) Includes options to purchase up
    to 25,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-108) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-109) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-110) Includes warrants to purchase up
    to 4,121,429 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-111) Includes warrants to purchase up
    to 150,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-112) Includes warrants to purchase up
    to 1,210,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-113) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-114) Includes warrants to purchase up
    to 2,200,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-115) Includes warrants to purchase up
    to 96,996 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-116) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-117) Includes warrants to purchase up
    to 250,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-118) Includes options to purchase up
    to 30,000 shares of common stock and warrants to purchase up to 48,068
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-119) Includes warrants to purchase up
    to 91,072 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-120) Includes warrants to purchase up
    to 15,625 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-121) Includes warrants to purchase up
    to 21,875 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-122) Includes options to purchase up
    to 89,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-123) Includes options to purchase up
    to 200,000 shares of common stock and warrants to purchase up to 1,733,334
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-124) Includes options to purchase up
    to 347,500 shares of common stock and warrants to purchase up to 75,000
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-125) Includes options to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-126) Includes warrants to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-127) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-128) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-129) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-130) Includes options to purchase up
    to 175,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-131) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-132) Includes warrants to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-133) Includes warrants to purchase up
    to 500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-134) Includes options to purchase up
    to 25,000 shares of common stock and warrants to purchase up to 75,000
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-135) Includes warrants to purchase up
    to 500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-136) Includes options to purchase up
    to 25,000 shares of common stock.</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-137) Includes options to
    purchase up to 100,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-138) Includes warrants to
    purchase up to 250,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-139) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-140) Includes warrants to
    purchase up to 20,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-141) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-142) Includes warrants to
    purchase up to 60,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-143) Includes warrants to
    purchase up to 40,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-144) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-145) Includes warrants to
    purchase up to 225,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-146) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-147) Includes warrants to
    purchase up to 4,485,430 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-148) Includes options to
    purchase up to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-149) Includes options to
    purchase up to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-150) Includes options to
    purchase up to 100,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-151) Includes warrants to
    purchase up to 475,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-152) Includes options to
    purchase up to 350,500 shares of common stock and warrants to purchase up to
    35,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-153) Includes warrants to
    purchase up to 30,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-154) Includes warrants to
    purchase up to 150,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-155) Includes options to
    purchase up to 75,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-156) Includes warrants to
    purchase up to 100,001 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-157) Includes warrants to
    purchase up to 3,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-158) Includes warrants to
    purchase up to 4,450,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-159) Includes warrants to
    purchase up to 33,334 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-160) Includes warrants to
    purchase up to 70,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-161) Includes warrants to
    purchase up to 100,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-162) Includes options to
    purchase up to 33,750 shares of common stock and warrants to purchase up to
    54,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-163) Includes warrants to
    purchase up to 41,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-164) Includes warrants to
    purchase up to 300,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-165) Includes options to
    purchase up to 200,000 shares of common stock and warrants to purchase up to
    1,500,001 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-166) Includes warrants to
    purchase up to 20,100 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-167) Includes warrants to
    purchase up to 1,000,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-168) Includes options to
    purchase up to 203,500 shares of common stock and warrants to purchase up to
    50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-169) Includes warrants to
    purchase up to 125,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-170) Includes warrants to
    purchase up to 141,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-171) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-172) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-173) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-174) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-175) Includes options to
    purchase up to 283,750 shares of common stock and warrants to purchase up to
    147,501 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-176) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-177) Includes options to
    purchase up to 74,750 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-178) Includes options to
    purchase up to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-179) Includes warrants to
    purchase up to 125,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-180) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-181) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-182) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-183) Includes warrants to
    purchase up to 136,988 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-184) Includes options to
    purchase up to 37,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-185) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-186) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-187) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-188) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-189) Includes warrants to
    purchase up to 2,233,490 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-190) Includes warrants to
    purchase up to 233,334 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-191) Includes warrants to
    purchase up to 1,250,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-192) Includes warrants to
    purchase up to 5,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-193) Includes warrants to
    purchase up to 41,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-194) Includes warrants to
    purchase up to 42,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-195) Includes warrants to
    purchase up to 20,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-196) Includes warrants to
    purchase up to 290,000 shares of common stock.</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-197) Includes options to
    purchase up to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-198) Includes options to
    purchase up to 67,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-199) Includes options to
    purchase up to 67,750 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-200) Includes warrants to
    purchase up to 1,425,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-201) Includes options to
    purchase up to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-202) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-203) Includes options to
    purchase up to 30,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-204) Includes options to
    purchase up to 40,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-205) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-206) Includes warrants to
    purchase up to 41,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-207) Includes warrants to
    purchase up to 2,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-208) Includes warrants to
    purchase up to 180,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-209) Includes warrants to
    purchase up to 716,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-210) Includes warrants to
    purchase up to 600,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-211) Includes warrants to
    purchase up to 200,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-212) Includes warrants to
    purchase up to 175,001 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-213) Includes warrants to
    purchase up to 365,358 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-214) Includes warrants to
    purchase up to 357,858 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-215) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-216) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-217) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-218) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-219) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-220) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-221) Includes warrants to
    purchase up to 275,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-222) Includes warrants to
    purchase up to 54,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-223) Includes warrants to
    purchase up to 62,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-224) Includes options to
    purchase up to 495,000 shares of common stock and warrants to purchase up to
    415,800 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-225) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-226) Includes options to
    purchase up to 25,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-227) Includes warrants to
    purchase up to 8,167 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-228) Includes options to
    purchase up to 182,500 shares of common stock and warrants to purchase up to
    10,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-229) Includes options to
    purchase up to 256,250 shares of common stock and warrants to purchase up to
    60,668 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-230) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-231) Includes options to
    purchase up to 500,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-232) Includes options to
    purchase up to 168,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-233) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-234) Includes options to
    purchase up to 92,750 shares of common stock and warrants to purchase up to
    20,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-235) Includes warrants to
    purchase up to 96,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-236) Includes options to
    purchase up to 995,000 shares of common stock and warrants to purchase up to
    1,406,209 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-237) Includes warrants to
    purchase up to 46,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-238) Includes warrants to
    purchase up to 421,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-239) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-240) Includes warrants to
    purchase up to 130,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-241) Includes options to
    purchase up to 77,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-242) Includes warrants to
    purchase up to 80,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-243) Includes warrants to
    purchase up to 870,745 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-244) Includes warrants to
    purchase up to 30,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-245) Includes options to
    purchase up to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-246) Includes warrants to
    purchase up to 120,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-247) Includes warrants to
    purchase up to 1,836,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-248) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-249) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-250) Includes options to
    purchase up to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-251) Includes no warrants or
    options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-252) Includes options to
    purchase up to 125,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-253) Includes warrants to
    purchase up to 250,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-254) Includes warrants to
    purchase up to 3,125 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-255) Includes warrants to
    purchase up to 375,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman" SIZE="2">(A-256) Includes no warrants or
    options.</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p style="page-break-before: always">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-257) Includes warrants to purchase up
    to 1,000,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-258) Includes warrants to purchase up
    to 25,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-259) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-260) Includes options to purchase up
    to 450,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-261) Includes warrants to purchase up
    to 125,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-262) Includes options to purchase up
    to 103,500 shares of common stock and warrants to purchase up to 20,000
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-263) Includes warrants to purchase up
    to 3,700,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-264) Includes options to purchase up
    to 268,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-265) Includes warrants to purchase up
    to 160,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-266) Includes warrants to purchase up
    to 200,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-267) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-268) Includes options to purchase up
    to 29,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-269) Includes warrants to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-270) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-271) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-272) Includes warrants to purchase up
    to 2,225,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-273) Includes warrants to purchase up
    to 10,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-274) Includes warrants to purchase up
    to 22,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-275) Includes warrants to purchase up
    to 125,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-276) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-277) Includes warrants to purchase up
    to 762,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-278) Includes warrants to purchase up
    to 80,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-279) Includes warrants to purchase up
    to 333,334 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-280) Includes warrants to purchase up
    to 750,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-281) Includes options to purchase up
    to 250,000 shares of common stock and warrants to purchase up to 200,000
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-282) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-283) Includes warrants to purchase up
    to 91,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-284) Includes options to purchase up
    to 50,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-285) Includes no warrants or options.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-286) Includes options to purchase up
    to 75,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-287) Includes options to purchase up
    to 5,000 shares of common stock and warrants to purchase up to 5,000 shares
    of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-288) Includes warrants to purchase up
    to 12,500 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-289) Includes warrants to purchase up
    to 2,441,667 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-290) Includes warrants to purchase up
    to 475,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-291) Includes warrants to purchase up
    to 100,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-292) Includes warrants to purchase up
    to 150,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-293) Includes warrants to purchase up
    to 20,000 shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-294) Includes options to purchase up
    to 56,000 shares of common stock and warrants to purchase up to 20,000
    shares of common stock.</font></td>
  </tr>
  <tr>
    <td><font FACE="Arial MT" SIZE="2">(A-295) Includes warrants to purchase up
    to 10,000 shares of common stock.</font></td>
  </tr>
</table>
<hr color="#000000" SIZE="5"><p Style='page-break-before:always'>

<font FACE="Times New Roman"><b>
<p>PLAN OF DISTRIBUTION </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<p>We are registering for resale by the selling stockholders and certain
transferees a total of shares of common stock, of which shares are issued and
outstanding and up to shares are issuable upon exercise of warrants. We will not
receive any of the proceeds from the sale by the selling stockholders of the
shares of common stock, although we may receive up to approximately $39,122,942
upon the conversion of convertible notes and the exercise of all of the warrants
and options by the selling stockholders. We will bear all fees and expenses
incident to our obligation to register the shares of common stock. If the shares
of common stock are sold through broker-dealers or agents, the selling
stockholder will be responsible for any compensation to such broker-dealers or
agents. </p>
<p ALIGN="JUSTIFY">The selling stockholders may pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time pursuant
to this prospectus. </p>
<p>The selling stockholders also may transfer and donate the shares of common
stock in other circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling beneficial owners for purposes
of this prospectus. </p>
<p>The selling stockholders will sell their shares of common stock subject to
the following: </p>
<ol>
  <li>
  <p ALIGN="left">all or a portion of the shares of common stock beneficially
  owned by the selling stockholders or their respective pledgees, donees,
  transferees or successors in interest, may be sold on the OTC Bulletin Board
  Market, any national securities exchange or quotation service on which the
  shares of our common stock may be listed or quoted at the time of sale, in the
  over-the-counter market, in privately negotiated transactions, through the
  writing of options, whether such options are listed on an options exchange or
  otherwise, short sales or in a combination of such transactions;<br>
&nbsp;</li>
  <li>
  <p ALIGN="left">each sale may be made at market prices prevailing at the time
  of such sale, at negotiated prices, at fixed prices, or at varying prices
  determined at the time of sale;<br>
&nbsp;</li>
  <li>
  <p ALIGN="left">some or all of the shares of common stock may be sold through
  one or more broker-dealers or agents and may involve crosses, block
  transactions, or hedging transactions. The selling stockholders may enter into
  hedging transactions with broker-dealers or agents, which may in turn engage
  in short sales of the common stock in the course of hedging in positions they
  assume. The selling stockholders may also sell shares of common stock short
  and deliver shares of common stock to close out short positions, or loan or
  pledge shares of common stock to broker-dealers or agent that in turn may sell
  such shares; and<br>
&nbsp;</li>
  <li>
  <p ALIGN="left">in connection with such sales through one or more
  broker-dealers or agents, such broker-dealers or agents may receive
  compensation in the form of discounts, concessions or commissions from the
  selling stockholders and may receive commissions from the purchasers of the
  shares of common stock for whom they act as broker-dealer or agent or to whom
  they sell as principal (which discounts, concessions or commissions as to
  particular broker-dealers or agents may be in excess of those customary in the
  types of transactions involved). Any broker-dealer or agent participating in
  any such sale may be deemed to be an &quot;underwriter&quot; within the meaning of the
  Securities Act and will be required to deliver a copy of this prospectus to
  any person who purchases any share of common stock from or through such
  broker-dealer or agent. We have been advised that, as of the date hereof, none
  of the selling stockholders have made any arrangements with any broker-dealer
  or agent for the sale of their shares of common stock. </li>
</ol>
<p align="left">The selling stockholders and any broker-dealer participating in
the distribution of the shares of common stock may be deemed to be
&quot;underwriters&quot; within the meaning of the Securities Act, and any profits
realized by the selling stockholders and any commissions paid, or any discounts
or concessions allowed to any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. In addition, any
shares of common stock covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus. </p>
<p align="left">If required at the time a particular offering of the shares of
common stock is made, a prospectus supplement or, if appropriate, a
post-effective amendment to the shelf registration statement of which this
prospectus is a part, will be distributed which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholder and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers. </p>
<p ALIGN="left">Under the securities laws of some states, the shares of common
stock may be sold in such states only through registered or licensed brokers or
dealers. In addition, in some states the shares of common stock may not be sold
unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with. There can be no </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>assurance that any selling stockholder will sell any or all of the shares of
common stock registered pursuant to the shelf registration statement, of which
this prospectus forms a part. </p>
<p align="left">The selling stockholders and any other person participating in
such distribution will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation,
Regulation M of the Exchange Act, which may limit the timing of purchases and
sales of any of the shares of common stock by the selling stockholders and any
other participating person. Regulation M may also restrict the ability of any
person engaged in the distribution of the shares of common stock to engage in
market-making activities with respect to the shares of common stock. All of the
foregoing may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making activities with
respect to the shares of common stock. </p>
<p ALIGN="left">We will bear all expenses of the registration of the shares of
common stock including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or &quot;blue sky&quot; laws.
The selling stockholders will pay all underwriting discounts and selling
commissions and expenses, brokerage fees and transfer taxes, as well as the fees
and disbursements of counsel to and experts for the selling stockholders, if
any. We will indemnify the selling stockholders against liabilities, including
some liabilities under the Securities Act, in accordance with the registration
rights agreement or the selling stockholders will be entitled to contribution.
We will be indemnified by the selling stockholders against civil liabilities,
including liabilities under the Securities Act that may arise from any written
information furnished to us by the selling stockholders for use in this
prospectus, in accordance with the related registration rights agreement or will
be entitled to contribution. Once sold under this shelf registration statement,
of which this prospectus forms a part, the shares of common stock will be freely
tradable in the hands of persons other than our affiliates. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>

<font FACE="Times New Roman"><b>
<p align="center">DESCRIPTION OF SECURITIES </b></p>
</font><font FACE="Times New Roman" SIZE="2">
<p>Our authorized capital stock consists of 250,000,000 shares of common stock,
without par value. As of March 15, 2005, approximately 130 million  shares of our common stock are issued and outstanding and held by approximately
16,000 stockholders of record. Of the shares of our issued and outstanding
common stock, shares are covered by this prospectus. In addition shares or our
common stock authorized but unissued as of the date of this prospectus will be
issued on exercise of warrants held by certain selling stockholders. </p>
<p>The following description of our capital stock is a summary of the material
terms of such stock. It does not purport to be complete and is subject in all
respects to the provisions of our Certificate of Incorporation and our Bylaws,
copies of which have been filed as exhibits to the registration statement of
which this prospectus is a part and to applicable New Jersey law. <b></p>
<p>Common Stock </b></p>
<p>Each holder of our common stock is entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Cumulative voting
for the election of Directors is not provided for in our Certificate of
Incorporation, which means that the holders of a majority of the shares of
common stock voted elects the Directors then standing for election. The holders
of outstanding shares of common stock are entitled to receive dividends out of
assets legally available for dividends, at such appropriate times and in such
amounts as our Board of Directors decides. The common stock is not entitled to
preemptive rights or other subscription rights and is not subject to conversion
or redemption. Upon liquidation, dissolution or winding up of our affairs, the
holders of common stock will be entitled to share ratably in all assets
remaining after the payment of liabilities. Shares of common stock shall be
transferred only on our books upon surrender to us or a duly appointed transfer
agent of the certificate or certificates properly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer. <b></p>
<p>Common Stock Warrants </b></p>
<p>This prospectus also covers shares of common stock purchasable pursuant to
outstanding warrants and options. The exercise price of these warrants range
from $.20 to $.45. These warrants and options have expiration terms ranging from
years 2005-2010. <b></p>
<p>Filling Vacancies on the Board </b></p>
<p ALIGN="left">The Certificate of Incorporation provides that any vacancy on
the Board that results from an increase in the number of Directors during the
interim between annual meetings or special meetings of shareholders may be
filled by the Board. These provisions could temporarily prevent any shareholder
from obtaining majority representation on the Board by enlarging the Board and
filling the new directorships with its own nominees. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b>
<p align="center">New Jersey Shareholders Protection Act </b></p>
<font SIZE="2">
<p>There are provisions of New Jersey law, and our Certificate of Incorporation
and Bylaws, that may have an anti-takeover effect. These provisions are designed
to protect shareholders against coercive, unfair or inadequate tender offers and
other abusive tactics and to encourage any person contemplating a business
combination with us to negotiate with our Board of Directors for the fair and
equitable treatment of all shareholders. </p>
<p>New Jersey has adopted a type of anti-takeover statute known as the New
Jersey Shareholders Protection Act. Subject to numerous qualifications and
exceptions, the statute prohibits an interested shareholder of a corporation
from effecting a business combination with the corporation for a period of five
years unless the corporation's board approved the combination prior to the
shareholder becoming an interested shareholder. In addition, but not in
limitation of the five-year restriction, if applicable, corporations covered by
the New Jersey statute may not engage at any time in a business combination with
any interested shareholder of that corporation unless the combination is
approved by the board prior to the interested shareholder's stock acquisition
date, the combination receives the approval of two-thirds of the voting stock of
the corporation not beneficially owned by the interested shareholder, or the
combination meets minimum financial terms specified by the statute. An
&quot;interested shareholder&quot; is defined to include any beneficial owner of 10% or
more of the voting power of the outstanding voting stock of the corporation and
any affiliate or associate of the corporation who within the prior five year
period has at any time owned 10% or more of the voting power. The term &quot;business
combination&quot; is defined broadly to include, among other things: </p>
<p>the merger or consolidation of the corporation with the interested
shareholder or any corporation that after the merger or consolidation would be
an affiliate or associate of the interested shareholder, </p>
<p>the sale, lease, exchange, mortgage, pledge, transfer or other disposition to
an interested shareholder or any affiliate or associate of the interested
shareholder of 10% or more of the corporation's assets, or </p>
<p>the issuance or transfer to an interested shareholder or any affiliate or
associate of the interested shareholder of 5% or more of the aggregate market
value of the stock of the corporation. </p>
<p ALIGN="left">The effect of the statute is to protect non-tendering,
post-acquisition minority shareholders from mergers in which they will be
&quot;squeezed out&quot; after the merger, by prohibiting transactions in which an
acquirer could favor itself at the expense of minority shareholders. The New
Jersey statute generally applies to corporations that are organized under New
Jersey law, have either their principal executive offices or significant
business operations located in New Jersey, and have a class of stock registered
or traded on a national securities exchange or registered with the Securities
and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act
of 1934. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b>
<p align="center">LEGAL MATTERS </b></p>
<font SIZE="2">
<p ALIGN="left">The validity of the common stock we are offering pursuant to
this prospectus will be passed upon by Martin S. Smiley General Counsel to the
Company. Mr. Smiley beneficially owns an aggregate of 5,676,132 shares of common
stock and 5,676,132 shares are being registered as part of this prospectus. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman"><b>
<p align="center">EXPERTS </b></p>
</font><font FACE="Times New Roman" SIZE="2">
<p ALIGN="left">The financial statements and schedules included in this
prospectus and elsewhere in the registration statement, to the extent and for
the periods indicated in their reports, have been audited or reviewed, as the
case may be, by Rosenberg, Rich ,Baker, Berman &amp; Company and audited or
reviewed, as the case may be, by Arthur Andersen, LLP and Schuhalter, Coughlin &amp;
Suozzo, PC, independent public accountants, and are included in reliance upon
the authority of said firms as experts in giving said reports. Prior to the date
of this prospectus, Arthur Andersen was indicted in connection with its
rendering of services to another company. Therefore, Arthur Andersen withdrew
from practice before the SEC effective prior to the date hereof and many of the
accountants at Arthur Andersen have left their current jobs or have been
searching for a new place of employment. Based on these factors, after
reasonable efforts, including numerous phone calls, we were unable to contact
our former audit partner at Arthur Andersen and therefore were unable to obtain
Arthur Andersen's consent to the inclusion of their report dated October 12,
2001. Accordingly, we have dispensed with the requirement to file their consent
in reliance upon Rule 437a of the securities act. Because Arthur Andersen has
not consented to the inclusion of their report in this prospectus, you will not
be able to recover against Arthur Andersen under Section 11 of the securities
act for any untrue statements of a material fact contained in the financial
statements audited by Arthur Andersen or any omissions to state a material fact
required to be stated therein. As of March 11, 2005, Schuhalter, Coughlin &amp;
Suozzo, PC, owns approximately 250,000 shares of common stock directly and
indirectly; options to purchase 495,000 shares of common stock and warrants to
purchase 250,000 shares of common stock, of which 1,085,800 shares are being
registered pursuant to this prospectus. All of such securities owned by Schuhalter, Coughlin &amp; Suozzo, PC, other than 146,800 shares of common stock
which it has acquired on the open market subsequent to April 2001, were issued
to Schuhalter, Coughlin &amp; Suozzo, PC in consideration for non-audit consulting
services and/or satisfaction of payables related to non-audit consulting
services and were issued after Schuhalter, Coughlin &amp; Suozzo, PC was no longer
our independent public accountants. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman"><b>
<p align="center">WHERE YOU CAN FIND ADDITIONAL INFORMATION </b></p>
</font><font FACE="Times New Roman" SIZE="2">
<p>We are subject to the information requirements of the Securities Exchange Act
of 1934, as amended (the &quot;Exchange Act&quot;). In accordance with the Exchange Act,
we file reports, proxy statements and other information with the Securities and
Exchange Commission. Our reports, proxy statements and other information filed
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. Copies of such material also may be obtained at prescribed rates from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549-1004. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The SEC maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. </p>
<p>You may request a copy of these filings, at no cost by writing or telephoning
us at the following address: </p>
<p ALIGN="CENTER">mPhase Technologies, Inc. <br>
587 Connecticut Avenue <br>
Norwalk, Connecticut 06854-0566 <br>
Attention: General Counsel <br>
(203) 831-2242 </p>
<p ALIGN="left">You should rely only on the information incorporated by
reference or provided in this prospectus or any prospectus supplement. We have
not authorized anyone else to provide you with different information. The
selling security holders will not make an offer of the shares of our common
stock in any state where the offer is not permitted. You should not assume that
the information in this prospectus or any prospectus supplement is accurate as
of any date other than the date on the front of those documents. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman"><b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS </b></font>
<font FACE="Times New Roman" SIZE="2"></p>
</font>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="85%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Report of Rosenberg
      Rich Baker Berman &amp; Company</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-1</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Report of Arthur
      Andersen LLP</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-2</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Report of Schuhalter,
      Coughlin &amp; Suozzo, PC</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-3</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Consolidated Balance
      Sheets as of June 30, 2003, June 30, 2004 and</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-4</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">December 31, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">(Unaudited)</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Consolidated
      Statements of Operations for the years ended June 30, 2002,</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-5</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">2003, 2004, and for
      the</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">period from
      inception (October 2, 1996) through June 30, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Unaudited
      Consolidated Statements of Operations for the Six months ended</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-6</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">December 31, 2004
      and</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">for the period from
      inception (October 2, 1996) through December 31, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Consolidated
      Statements of Changes in Stockholders' Equity (Deficit) for the</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-7-12</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">period from
      inception</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">(October 2, 1996) to
      June 30, 1998 and for each of the six years in the period</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">ended June 30, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Unaudited
      Consolidated Statement of Changes in Shareholders' Deficit for</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-13</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">the six months ended</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">December 31, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Consolidated
      Statements of Cash Flows for the years ended June 30, 2002,</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-14</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">2003 and 2004, and
      for</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">the period from
      inception (October 2, 1996) through June 30, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Unaudited
      Consolidated Statements of Cash Flows for the six months ended</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-15</font></td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">December 31, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">and 2003, and for
      the period from inception (October 2, 1996) through</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">December 31, 2004</font></td>
      <td WIDTH="262" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="596"><font FACE="Times New Roman" SIZE="2">Notes to
      Consolidated Financial Statements</font></td>
      <td WIDTH="262" align="right"><font FACE="Times New Roman" SIZE="2">F-16</font></td>
    </tr>
  </table>
  </center>
</div>
<hr color="#000000" size="5"><p Style='page-break-before:always'><b>
<p align="center">REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS </b></p>
<font SIZE="2">
<p>To the Board of Directors and Stockholders of mPhase Technologies, Inc.: </p>
<p>We have audited the accompanying consolidated balance sheets of mPhase
Technologies, Inc. (a New Jersey corporation in the development stage) and
subsidiaries as of June 30, 2004 and June 30, 2003, and the related consolidated
statements of operations, changes in stockholders' equity (deficit), cash flows
and Schedule II (Valuation and Qualifying Accounts, Item 14B) for each of the
three years in the period ended June 30, 2004 and for the period from inception
(October 2, 1996) to June 30, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of mPhase Technologies, Inc. for the period from inception
to June 30, 2001. Such amounts are included in the cumulative from inception to
June 30, 2004 totals of the statements of operations, changes in stockholders'
equity and cash flows and reflect total net loss of 78 percent of the related
cumulative totals. Those statements were audited by other auditors whose report
has been furnished to us and our opinion, insofar as it relates to amounts for
the period from inception to June 30, 2001, included in the cumulative totals,
is based solely upon the report of the other auditors. </p>
<p>We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material accounting misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion. </p>
<p>In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of mPhase Technologies, Inc. and subsidiaries as of June
30, 2004 and 2003 and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2004 and for the period
from inception to June 30, 2004, in conformity with accounting principles
generally accepted in the United States. </p>
<p>The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and is in a working capital deficit position that raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. </p>
<p>Rosenberg Rich Baker Berman &amp; Company <br>
Bridgewater, NJ </p>
<p>August 27, 2004 </p>
</font><font size="2">F-1</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman"><b>
<p align="center">REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS </b></p>
</font><font FACE="Times New Roman" SIZE="2">
<p>To the Board of Directors and Stockholders of mPhase Technologies, Inc.: </p>
<p>We have audited the accompanying consolidated balance sheets of mPhase
Technologies, Inc. (a New Jersey corporation in the development stage) and
subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended June 30, 2001 and for the period
from inception (October 2, 1996) to June 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of mPhase Technologies, Inc. for the period from
inception to June 30, 1998. Such amounts are included in the cumulative from
inception to June 30, 2001 totals of the statements of operations, changes in
stockholders' equity and cash flows and reflect total net loss of 6 percent of
the related cumulative totals. Those statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
amounts for the period from inception to June 30, 1998, included in the
cumulative totals, is based solely upon the report of the other auditors. </p>
<p>We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion. </p>
<p>In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of mPhase Technologies, Inc. and subsidiaries as of June
30, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2001 and for the period
from inception to June 30, 2001, in conformity with accounting principles
generally accepted in the United States. </p>
<p>The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and is in a working capital deficit position that raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. </p>
<p>Arthur Andersen LLP <br>
Stamford, Connecticut </p>
<p>October 12, 2001 </p>
<p ALIGN="left">PURSUANT TO SEC RELEASE NO. 33-8070 AND RULE 437A UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, mPHASE TECHNOLOGIES, INC. HAS NOT RECEIVED
WRITTEN CONSENT AFTER REASONABLE EFFORT TO USE THIS REPORT. THIS REPORT IS A
COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT. THIS REPORT HAS NOT BEEN
REISSUED BY ARTHUR ANDERSEN LLP. WITH RESPECT TO THIS INSTANT 10K/A, YOU WILL
NOT BE ABLE TO RECOVER AGAINST ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE
SECURITIES ACT FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE
FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP OR ANY OMISSIONS TO STATE A
MATERIAL FACT REQUIRED TO BE STATED THEREIN. </p>
<p ALIGN="left"><font size="2">F-2</font></p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b>
<p align="center">REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS </p>
</b><font SIZE="2">
<p>To the Board of Directors and Stockholders of mPhase Technologies, Inc.: </p>
<p>We have audited the statements of operations, changes in stockholders's
equity, and cash flows for the period October 2, 1996 (date of inception)
through June 30, 1998 of mPhase Technologies, Inc. (a development stage
company). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit. </p>
<p>We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. </p>
<p>In our opinion, such financial statements present fairly, in all material
respects, the results of its operations and its cash flows for the period of
October 2, 1996 (date of inception) through June 30, 1998 in conformity with
generally accepted accounting principles. </p>
<p>Schuhalter, Coughlin &amp; Suozzo, PC <br>
Raritan, New Jersey </p>
<p>January 28, 1999 </p>
<p>F-3</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman"><b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED BALANCE SHEETS </b></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">June 30,</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">December
    31,</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">2003</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">(unaudited)</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2"><b>ASSETS</b></font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Current assets:</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Cash and cash
    equivalents</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">$396,860</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">$90,045</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,010,903</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Accounts receivable,
    net of bad debt reserve of $2,906</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">287,135</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">64,100</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">206,069</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">and $0, respectively</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Stock subscription
    receivable</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">110,000</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">886,000</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">50,000</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Inventory</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    2,103,328</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    1,237,972</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">790,500</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Prepaid expenses and
    other current assets</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">100,329</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">81,061</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">229,123</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Total current assets</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    2,997,652</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    2,359,178</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    2,286,595</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Property and
    equipment, net</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">581,890</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">52,685</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">240,393</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Patents and licenses,
    net</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">184,857</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">161,605</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">144,380</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Other assets</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">17,250</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">17,250</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">37,250</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Total assets</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $3,781,649</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $2,590,718</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $2,708,618</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2"><b>LIABILITIES AND
    STOCKHOLDERS' EQUITY</b></font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2"><b>(DEFICIT)</b></font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Current liabilities:</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Accounts payable</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    $2,352,961</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    2,088,658</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    2,633,363,</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Accrued expenses</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">885,735</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">691,033</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    1,131,529</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Due to related parties</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">187,372</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">625,956</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">310,960</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font face="Times New Roman" size="2">Notes payable, related
    party</font></td>
    <td WIDTH="156" align="right"><font face="Times New Roman" size="2">-</font></td>
    <td WIDTH="156" align="right"><font face="Times New Roman" size="2">300,000</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">686,046</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Notes payable, current</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">762,735</font></td>
    <td WIDTH="156" align="right"><font face="Times New Roman" size="2">550,803</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    517,805</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Deferred revenue</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: none; border-bottom-width: medium"><font FACE="Times New Roman" SIZE="2">214,180</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <font FACE="Times New Roman" SIZE="2">
    214,180</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: none; border-bottom-width: medium"><font FACE="Times New Roman" SIZE="2">100,295</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Total current liabilities</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    4,402,983</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    4,470,630</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    5,379,998</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Notes payable, net of
    current portion</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">586,303</font></td>
    <td WIDTH="156" align="right"><font size="2">139,500</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">175,000</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Other liabilities</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    1,561,249</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">618,550</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Other liabilities,
    related parties</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">280,000</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Notes payable, related
    parties</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">460,000</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">139,500</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">223,049</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2"><b>COMMITMENTS AND
    CONTINGENCIES (Note 13)</b></font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2"><b>STOCKHOLDERS'
    EQUITY (DEFICIT):</b></font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Common Stock, stated
    value $.01, 150,000,000 shares</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">authorized;</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">71,453,521, 88,899,962
    and 109,743,391 (unaudited),</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">shares issued and</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">outstanding,
    respectively</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">714,535</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">888,999</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    1,097,433</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Additional paid-in
    capital</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    104,081,049</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    111,976,095</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    116,754,086</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Deferred compensation</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Deficit accumulated
    during development stage</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    (108,016,497)</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    (115,775,083)</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">
    (120,912,875)</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Unrecognized capital
    losses</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Less-treasury stock,
    13,750 shares, at cost</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">(7,973)</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">(7.973)</font></td>
    <td WIDTH="156" align="right"><font FACE="Times New Roman" SIZE="2">(7,973)</font></td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;
    Total stockholders' equity (deficit)</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (3,228,886)</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (2,917,962)</font></td>
    <td WIDTH="156" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (3,069,329)</font></td>
  </tr>
  <tr>
    <td WIDTH="518">&nbsp;</td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2">&nbsp;</td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2">&nbsp;</td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="518"><font FACE="Times New Roman" SIZE="2">Total liabilities and
    stockholders' equity</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $3,781,649</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    2,590,718</font></td>
    <td WIDTH="156" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    2,708,718</font></td>
  </tr>
  <tr>
    <td WIDTH="830" COLSPAN="3"><font FACE="Times New Roman" SIZE="2">The
    accompanying notes are an integral part of these consolidated balance
    sheets.</font></td>
    <td WIDTH="156" align="right">&nbsp;</td>
  </tr>
</table>
<p><font size="2">F-4</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman"><b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) </b></font><b><font FACE="Times New Roman"><br>
CONSOLIDATED STATEMENTS OF </font><font FACE="Times New Roman" SIZE="4">
OPERATIONS </font></b></p>
<table style="border-collapse: collapse" borderColor="#111111" cellSpacing="0" cellPadding="0" width="100%" border="0">
  <tr>
    <td vAlign="top" width="35%">&nbsp;</td>
    <td vAlign="top" width="51%" colSpan="8"><font size="2"><b>
    <p align="center">For the Years Ended June 30, </b></font></td>
    <td vAlign="top" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2"><b>
    <p align="center">From Inception <br>
    (October 2, 1996) <br>
    to June 30, <br>
    2004 </b></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%">&nbsp;</td>
    <td vAlign="top" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><b>
    <p align="center">2002 </b></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><b>
    <p align="center">2003 </b></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><b>
    <p align="center">2004 </b></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">TOTAL NET REVENUES </font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">2,582,446 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">1,581,639 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">4,641,346</font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="14%"><font size="2">
    <p align="right">19,609,041</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">COSTS AND EXPENSES: </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">&nbsp;</td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">&nbsp;</td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Cost of Sales (see also note 11
    Related Party Transactions) </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">2,415,129 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">1,493,394 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">
    <p align="right"><font size="2">4,068,255</font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">
    <p align="right"><font size="2">13,913,207</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Research and development
    (including non-cash stock related charges of $267,338, $385,495, $72,000 and
    $2,117,669 respectively, see also note 11 Related Party Transactions) </font>
    </td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">3,819,583 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">3,538,305 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">
    <p align="right"><font size="2">4,069,721</font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">
    <p align="right"><font size="2">38,416,800</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">General and administrative
    (including non-cash stock related charges of $2,994,111, $748,840,$1,242,793
    and $47,333,142 respectively, see also note 11 Related Party Transactions)
    </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">7,038,923 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">2,683,534 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">
    <p align="right"><font size="2">4,177,961</font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">
    <p align="right"><font size="2">79,055,097</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Depreciation and Amortization
    </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">670,183 </u></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">515,417 </u></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">122,878</u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2"><u>
    <p align="right">2,889,907</u></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Total costs and expenses </font>
    </td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">13,943,818 </u></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">8,230,650 </u></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">12,438,815</u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2"><u>
    <p align="right">134,275,011</u></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Loss from operations </font>
    </td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(11,361,372 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(6,649,011 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(7,797,469)</u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2"><u>
    <p align="right">(114,665,970)</u></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">OTHER INCOME (EXPENSE): </font>
    </td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">&nbsp;</td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">&nbsp;</td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Gain On Extinguishments </font>
    </td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">142,236 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">61,226 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">150,058</font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2">
    <p align="right">353,520</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Minority interest loss in
    consolidated subsidiary </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">- </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">- </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><strike>
    <p align="right">----</strike></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2">
    <p align="right">20,000</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Loss from unconsolidated
    subsidiary </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">- </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">- </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><strike>
    <p align="right">----</strike></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2">
    <p align="right">(1,466,467)</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Loss on sale of securities
    </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">- </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">(11,258 </font></td>
    <td vAlign="top" width="1%"><font size="2">) </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><strike>
    <p align="right">----</strike></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2">
    <p align="right">(11,258)</font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Interest income (expense), net
    </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(26,225 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(51,168 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(111,175)</u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2"><u>
    <p align="right">(4,908)</u></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Total other income (expense)
    </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">116,011 </u></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(1,200 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">38,883</u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2"><u>
    <p align="right">(1,109,113)</u></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">NET LOSS </font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(11,245,361 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(6,650,211 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(7,758,586)</u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="14%"><font size="2"><u>
    <p align="right">(115,775,083)</u></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">Unrealized holding (loss) gain
    on securities </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">(4,026 </font></td>
    <td vAlign="top" width="1%"><font size="2">) </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2">
    <p align="right">4,026 </font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><strike>
    <p align="right">----</strike></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%"><font size="2"><strike>
    <p align="right">-----</strike></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">COMPREHENSIVE LOSS </font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(11,249,387 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(6,646,185 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(7,758,586)</u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="14%"><font size="2"><u>
    <p align="right">(115,775,083)</u></font></td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">LOSS PER COMMON SHARE, basic and
    diluted </font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(.23 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(.10 </u></font></td>
    <td vAlign="top" width="1%"><font size="2"><u>) </u></font></td>
    <td vAlign="top" align="right" width="2%"><font size="2">$ </font></td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">(.10)</u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">&nbsp;</td>
  </tr>
  <tr>
    <td vAlign="top" width="35%"><font size="2">WEIGHTED AVERAGE COMMON SHARES
    OUTSTANDING, basic and diluted </font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">49,617,280 </u></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">65,217,088 </u></font></td>
    <td vAlign="top" width="1%">&nbsp;</td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="13%"><font size="2"><u>
    <p align="right">77,677,120</u></font></td>
    <td vAlign="top" align="right" width="2%">&nbsp;</td>
    <td vAlign="top" width="14%">&nbsp;</td>
  </tr>
</table>
<p><font FACE="Times New Roman" SIZE="2">The
    accompanying notes are an integral part of these consolidated financial
statments.</font></p>
<p><font size="2">F-5</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
</b>(A Development Stage Company) </font><b><font FACE="Times New Roman"><br>
Consolidated Statements of Operations <br>
</font></b><font FACE="Times New Roman">(Unaudited) </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="295">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">October
    2, 1996</font></td>
  </tr>
  <tr>
    <td WIDTH="295">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="230" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">Six Months Ended</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">(Date of</font></td>
  </tr>
  <tr>
    <td WIDTH="295">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="230" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">December 31,</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">
    Inception) to</font></td>
  </tr>
  <tr>
    <td WIDTH="295">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">December
    31,</font></td>
  </tr>
  <tr>
    <td WIDTH="295">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">2003</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">REVENUES</font></td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">
    3,780,137</font></td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">474,687</font></td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">
    20,083,728</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">COSTS AND EXPENSES</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; Cost of
    Sales</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">
    3,289,937</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">374,905</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">
    14,288,122</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; Research
    and development</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    including non-cash stock related</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    charges of $7,200, $385,495</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    and $2,503,114, respectively)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">
    1,454,899</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">
    2,156,161</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">
    40,572,961</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; General
    and Administrative</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (including non-cash stock</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    related charges of $748,840</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    $1,127,833 and $48,460,975</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    respectively)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">
    1,518,411</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">
    2,780,291</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">
    81,835,388</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">74,082</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">128,506</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    3,018,413</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; TOTAL
    COSTS AND EXPENSES</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    6,337,329</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    5,439,862</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    139,714,874</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">LOSS FROM OPERATIONS</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    (2,557,192)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    (4,965,176)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    (119,631,146)</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">OTHER INCOME</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; Gain
    (Loss) on extinguishments</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">23,087</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">(40,500)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">318,020</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; Minority
    interest loss in</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    consolidated subsidiary</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">20,000</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; Capital
    Losses</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">(36,911)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">(48,169)</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; Loss from
    unconsolidated</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    subsidiary</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right"><font FACE="Times New Roman" SIZE="2">
    (1,466,467)</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; Interest
    Income (expense), net</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">(31,272)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">(95,205)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (100,113)</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp; TOTAL
    OTHER INCOME</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">8,185</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (172,616)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (1,281,729)</font></td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">(EXPENSE)</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">NET LOSS</font></td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="115" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">
    (2,565,377)</font></div>
    </td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="115" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">
    (5,137,972)</font></div>
    </td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="116" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">
    (120,912,875)</font></div>
    </td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">LOSS PER COMMON SHARE,</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">basic and diluted</font></td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="115" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">(.04)</font></div>
    </td>
    <td WIDTH="115" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="115" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">(.06)</font></div>
    </td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">WEIGHTED AVERAGE
    COMMON</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">SHARES</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="295"><font FACE="Times New Roman" SIZE="2">OUTSTANDING, basic and
    diluted</font></td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">
    72,251,251</font></div>
    </td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="115" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">
    91,474,828</font></div>
    </td>
    <td WIDTH="115" align="right">&nbsp;</td>
    <td WIDTH="116" align="right">&nbsp;</td>
  </tr>
</table>
</font><font FACE="Times New Roman" SIZE="2">
<p>The accompanying notes are an integral part of these consolidated financial
statements. </p>
<p><font size="2">F-6</font></p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b>
<p ALIGN="CENTER"><font size="2">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED STATEMENTS OF CHANGES IN <br>
STOCKHOLDERS' EQUITY (DEFICIT) <br>
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) <br>
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS <br>
IN THE PERIOD ENDED JUNE 30, 2004 </font> </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0">
  <tr>
    <td WIDTH="186">&nbsp;</td>
    <td WIDTH="226" align="right" colspan="2">
    <p align="center"><u><font size="2">Common Stock</font></u></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right"><font size="2">TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="186">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right"><font size="2">$.01</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right"><font size="2">Additional</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right"><font size="2">STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="186">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right"><font size="2">Stated</font></td>
    <td WIDTH="113" align="right"><font size="2">Treasury</font></td>
    <td WIDTH="113" align="right"><font size="2">Paid-In</font></td>
    <td WIDTH="113" align="right"><font size="2">Deferred</font></td>
    <td WIDTH="113" align="right"><font size="2">Accumulated</font></td>
    <td WIDTH="114" align="right"><font size="2">EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="186">&nbsp;</td>
    <td WIDTH="113" align="right"><font size="2">Shares</font></td>
    <td WIDTH="113" align="right"><font size="2">Value</font></td>
    <td WIDTH="113" align="right"><font size="2">Stock</font></td>
    <td WIDTH="113" align="right"><font size="2">Capital</font></td>
    <td WIDTH="113" align="right"><font size="2">Compensation</font></td>
    <td WIDTH="113" align="right"><font size="2">Deficit</font></td>
    <td WIDTH="114" align="right"><font size="2">(DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">BALANCE,</font></td>
    <td WIDTH="113" align="right"><font size="2">1,140,427</font></td>
    <td WIDTH="113" align="right"><font size="2">$11,404</font></td>
    <td WIDTH="113" align="right"><font size="2">$-</font></td>
    <td WIDTH="113" align="right"><font size="2">$459,753</font></td>
    <td WIDTH="113" align="right"><font size="2">$-</font></td>
    <td WIDTH="113" align="right"><font size="2">$(537,707)</font></td>
    <td WIDTH="114" align="right"><font size="2">$(66,550)</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">OCTOBER 2,</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">1996</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">(date of</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">inception)</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">Issuance of</font></td>
    <td WIDTH="113" align="right"><font size="2">6,600,000</font></td>
    <td WIDTH="113" align="right"><font size="2">66,000</font></td>
    <td WIDTH="113" align="right"><font size="2">-</font></td>
    <td WIDTH="113" align="right"><font size="2">(537,157)</font></td>
    <td WIDTH="113" align="right"><font size="2">-</font></td>
    <td WIDTH="113" align="right"><font size="2">537,707</font></td>
    <td WIDTH="114" align="right"><font size="2">66,550</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">common</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">stock of Tecma</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Laboratories, Inc.,</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">for 100% of the</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Company</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">594,270</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">5,943</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">752,531</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="114" align="right"><font FACE="Times New Roman" SIZE="2">758,474</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">stock, in private</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">placement, net of</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">offering costs of</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">$138,931</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (781,246)</font></td>
    <td WIDTH="114" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (781,246)</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2"><b>BALANCE, JUNE</b></font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    8,334,697</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$83,347</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$-</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$675,127
    </font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><b><font FACE="Times New Roman" SIZE="2">$-</font></b></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(781,246)</font></td>
    <td WIDTH="114" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(22,772)</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2"><b>30, 1997</b></font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="114" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">999,502</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">9,995</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">791,874</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="114" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">801,869</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">stock with warrants,</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">in private placement,</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">net of offering costs</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">of $84,065</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">3,000</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">147,000</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="114" align="right"><font FACE="Times New Roman" SIZE="2">150,000</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">stock for services</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">250,000</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">2,500</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">122,500</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="114" align="right"><font FACE="Times New Roman" SIZE="2">125,000</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">stock in connection</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">with investment in</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">unconsolidated</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">subsidiary</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Repurchase of</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">(7,973)</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="114" align="right"><font FACE="Times New Roman" SIZE="2">(7,973)</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">13,750 shares of</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">common stock</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">
    1,095,512</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">10,955</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">659,191</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="114" align="right"><font FACE="Times New Roman" SIZE="2">670,146</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">stock with warrants</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">in private placement,</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">net of offering costs</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">of $121,138</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">100,000</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">1,000</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">(1,000)</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="113" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="114" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">stock for financing</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font FACE="Times New Roman" SIZE="2">services</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">Issuance of common</font></td>
    <td WIDTH="113" align="right"><font size="2">2,500,000</font></td>
    <td WIDTH="113" align="right"><font size="2">25,000</font></td>
    <td WIDTH="113" align="right"><font size="2">-</font></td>
    <td WIDTH="113" align="right"><font size="2">1,685,000</font></td>
    <td WIDTH="113" align="right"><font size="2">-</font></td>
    <td WIDTH="113" align="right"><font size="2">-</font></td>
    <td WIDTH="114" align="right"><font size="2">1,710,000</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">stock in</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">consideration for</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">100% of the common</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">stock of Microphase</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">Telecommunications,</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">Inc.</font></td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="113" align="right">&nbsp;</td>
    <td WIDTH="114" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="186"><font size="2">Net loss</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">-</font></td>
    <td WIDTH="113" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">(4,341,059)</font></td>
    <td WIDTH="114" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">(4,341,059)</font></td>
  </tr>
  <tr>
    <td WIDTH="186"><b><font size="2">BALANCE, JUNE 30, 1998</font></b></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font size="2">13,579,711</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font size="2">$135,797</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font size="2">$(7,973)</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font size="2">$4,079,692</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font size="2">$-</font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font size="2">$(5,122,305)</font></td>
    <td WIDTH="114" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font size="2">$(914,789)</font></td>
  </tr>
  <tr>
    <td WIDTH="638" colspan="5"><font FACE="Times New Roman" SIZE="2">The
    accompanying notes are an integral part of these consolidated financial
    statements. </font></td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="113" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="114" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
</table>
</b>
<p><font size="2">F-7</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED STATEMENTS OF CHANGES IN <br>
STOCKHOLDERS' EQUITY (DEFICIT) <br>
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) <br>
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS <br>
IN THE PERIOD ENDED JUNE 30, 2004 </b></font></p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="23%" align="right" colspan="2">
    <p align="center"><u><font size="2">Common Stock</font></u></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">$.01</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">Additional</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">Stated</font></td>
    <td WIDTH="12%" align="right"><font size="2">Treasury</font></td>
    <td WIDTH="12%" align="right"><font size="2">Paid-In</font></td>
    <td WIDTH="12%" align="right"><font size="2">Deferred</font></td>
    <td WIDTH="12%" align="right"><font size="2">Accumulated</font></td>
    <td WIDTH="12%" align="right"><font size="2">EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">Shares</font></td>
    <td WIDTH="12%" align="right"><font size="2">Value</font></td>
    <td WIDTH="12%" align="right"><font size="2">Stock</font></td>
    <td WIDTH="12%" align="right"><font size="2">Capital</font></td>
    <td WIDTH="12%" align="right"><font size="2">Compensation</font></td>
    <td WIDTH="12%" align="right"><font size="2">Deficit</font></td>
    <td WIDTH="12%" align="right"><font size="2">(DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="14%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2"><b>BALANCE,</b></font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    13,579,711</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$135,797</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    $4,079,692</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(5,122,305)</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(914,789)</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2"><b>JUNE 30, 1998</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,120,000</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">31,200</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,981,800</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,013,000</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">common stock with</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">warrants in private</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">placements, net of</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">offering costs of</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">$107,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,599,332</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">15,993</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    8,744,873</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    8,760,866</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">common stock for</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">services</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">642,000</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">6,420</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,553,227</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,559,647</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">common stock with</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">warrants in private</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">placement, net of</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">offering costs of</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">$45,353</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    4,426,698</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">44,267</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    10,343,167</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    10,387,434</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">common stock in</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">private placement,</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">net of offering</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">costs of $679,311</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Issuance of stock</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    7,129,890</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    7,129,890</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">options for services</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">16,302</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">16,302</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">warrants for</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">services</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Deferred employee</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    (140,000)</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    (140,000)</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">stock option</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">compensation</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (22,838,344)</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (22,838,344)</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2"><b>BALANCE,</b></font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    23,367,741</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$233,677</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $34,848,951</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(140,000)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(27,960,649)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $6,974,006</font></td>
  </tr>
  <tr>
    <td WIDTH="14%"><font FACE="Times New Roman" SIZE="2"><b>JUNE 30, 1999</b></font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="65%" colspan="5"><font FACE="Times New Roman" SIZE="2">The
    accompanying notes are an integral part of these consolidated financial
    statements. </font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
</table>
<p><font size="2">F-8</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED STATEMENTS OF CHANGES IN <br>
STOCKHOLDERS' EQUITY (DEFICIT) <br>
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) <br>
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS <br>
IN THE PERIOD ENDED JUNE 30, 2004 </p>
</b>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="22%" align="right" colspan="2">
    <p align="center"><u><font size="2">Common Stock</font></u></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">$.01</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">Additional</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">&nbsp;STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">Stated</font></td>
    <td WIDTH="11%" align="right"><font size="2">Treasury</font></td>
    <td WIDTH="11%" align="right"><font size="2">Paid-In</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deferred</font></td>
    <td WIDTH="12%" align="right"><font size="2">Accumulated</font></td>
    <td WIDTH="12%" align="right"><font size="2">EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">Shares</font></td>
    <td WIDTH="11%" align="right"><font size="2">Value</font></td>
    <td WIDTH="11%" align="right"><font size="2">Stock</font></td>
    <td WIDTH="11%" align="right"><font size="2">Capital</font></td>
    <td WIDTH="11%" align="right"><font size="2">Compensation</font></td>
    <td WIDTH="12%" align="right"><font size="2">Deficit</font></td>
    <td WIDTH="12%" align="right"><font size="2">(DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2"><b>BALANCE,</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">23,367,741</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$233,677</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$(7,973)</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$34,848,951</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$(140,000)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(27,960,649)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$6,974,006</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2"><b>JUNE 30, 1999</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">75,000</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">750</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">971,711</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">972,461</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">common stock and</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">options in</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">settlement</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">4,632,084</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">46,321</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">5,406,938</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">5,453,259</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">common stock</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">upon exercise of</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">warrants and</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">options</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">1,000,000</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">10,000</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">3,790,000</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">3,800,000</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">common stock in</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">private placement,</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">net of cash offering</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">costs of $200,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">1,165,500</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">11,655</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">9,654,951</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">9,666,606</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">common stock in</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">private placement,</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">net of cash offering</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">costs of $466,480</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">1,164,215</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">11,642</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">8,612,265</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">8,623,907</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">common stock for</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">services</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Issuance of options</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">9,448,100</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">9,448,100</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">for services</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Deferred employee</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">1,637,375</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">(1,637,375)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">stock option</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">compensation</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Amortization of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">551,707</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">551,707</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">deferred employee</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">stock option</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">compensation</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2">Net loss</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(38,161,542)</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(38,161,542)</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2"><b>BALANCE, JUNE</b></font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">31,404,540</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$314,045</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(7,973)</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$74,370,291)</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(1,225,668)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(66,122,191)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$7,328,504</font></td>
  </tr>
  <tr>
    <td WIDTH="21%"><font SIZE="2"><b>30, 2000</b></font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="67%" COLSPAN="5"><font SIZE="2">The accompanying notes are an
    integral part of these consolidated financial statements.</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
</table>
<p><font size="2">F-9</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman">
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED STATEMENTS OF CHANGES IN <br>
STOCKHOLDERS' EQUITY (DEFICIT) <br>
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) <br>
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS <br>
IN THE PERIOD ENDED JUNE 30, 2004 </font><font FACE="Times New Roman" SIZE="1">
</p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="22%" align="right" colspan="2">
    <p align="center"><u><font size="2">Common Stock</font></u></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">$.01</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">Additional</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">Stated</font></td>
    <td WIDTH="11%" align="right"><font size="2">Treasury</font></td>
    <td WIDTH="11%" align="right"><font size="2">Paid-In</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deferred</font></td>
    <td WIDTH="12%" align="right"><font size="2">Accumulated</font></td>
    <td WIDTH="12%" align="right"><font size="2">EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="21%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">Shares</font></td>
    <td WIDTH="11%" align="right"><font size="2">Value</font></td>
    <td WIDTH="11%" align="right"><font size="2">Stock</font></td>
    <td WIDTH="11%" align="right"><font size="2">Capital</font></td>
    <td WIDTH="11%" align="right"><font size="2">Compensation</font></td>
    <td WIDTH="12%" align="right"><font size="2">Deficit</font></td>
    <td WIDTH="12%" align="right"><font size="2">(DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">BALANCE,</font></td>
    <td WIDTH="11%" align="right"><font size="2">31,404,540</font></td>
    <td WIDTH="12%" align="right"><font size="2">$314,045</font></td>
    <td WIDTH="12%" align="right"><font size="2">$(7,973)</font></td>
    <td WIDTH="12%" align="right"><font size="2">$74,370,291)</font></td>
    <td WIDTH="12%" align="right"><font size="2">$(1,225,668)</font></td>
    <td WIDTH="12%" align="right"><font size="2">$(66,122,191)</font></td>
    <td WIDTH="12%" align="right"><font size="2">$7,328,504</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">JUNE 30,</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">2000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font size="2">320,000</font></td>
    <td WIDTH="12%" align="right"><font size="2">3,200</font></td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right"><font size="2">324,300</font></td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right"><font size="2">327,500</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">common</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">stock</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">upon</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">exercise of</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">options</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font size="2">4,329,850</font></td>
    <td WIDTH="12%" align="right"><font size="2">43,298</font></td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right"><font size="2">7,766,547</font></td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right"><font size="2">7,809,845</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">common</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">stock</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">with</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">warrants in</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font size="2">private</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">placements, net of</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">cash offering costs</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">of $512,195</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">450,000</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">4,500</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">1,003,125</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">1,007,625</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">common stock for</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">services</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">Issuance of options</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">5,849,585</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">5,849,585</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">and warrants for</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">services</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">Deferred employee</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">607,885</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(607,885)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">stock option</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">compensation</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">Amortization of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">1,120,278</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">1,120,278</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">deferred employee</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">stock option</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">compensation</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">4,840,077</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">48,402</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">2,371,637</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">2,420,039</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">common stock in</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">settlement of debt</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">to directors and</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">related parties</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2">Net Loss</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(23,998,734)</font></td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(23,998,734)</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>BALANCE,</b></font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">41,344,467</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$413,445</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(7,973)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$92,293,370</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(713,275)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(90,120,925)</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$1,864,642</font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>JUNE 30, 2001</b></font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="68%" COLSPAN="5"><font SIZE="2">The accompanying notes are an
    integral part of these consolidated financial statements.</font></td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="12%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
</table>
<p><font size="2">F-10</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman">
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED STATEMENTS OF CHANGES IN <br>
STOCKHOLDERS' EQUITY (DEFICIT) <br>
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) <br>
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS <br>
IN THE PERIOD ENDED JUNE 30, 2004 </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">$.01</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Additional</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Stated</font></td>
    <td WIDTH="10%" align="right"><font size="2">Treasury</font></td>
    <td WIDTH="10%" align="right"><font size="2">Paid-In</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deferred</font></td>
    <td WIDTH="11%" align="right"><font size="2">Accumulated</font></td>
    <td WIDTH="11%" align="right"><font size="2">Comprehensive</font></td>
    <td WIDTH="11%" align="right"><font size="2">EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Shares</font></td>
    <td WIDTH="10%" align="right"><font size="2">Value</font></td>
    <td WIDTH="10%" align="right"><font size="2">Stock</font></td>
    <td WIDTH="10%" align="right"><font size="2">Capital</font></td>
    <td WIDTH="11%" align="right"><font size="2">Compensation</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deficit</font></td>
    <td WIDTH="11%" align="right"><font size="2">Loss</font></td>
    <td WIDTH="11%" align="right"><font size="2">(DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2"><b>BALANCE</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    41,344,467</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$413,445</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    $92,293,370</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(713,275)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(90,120,925)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,864,642</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2"><b>JUNE 30, 2001</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Sale of Common</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    6,980,643</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">69,807</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,903,943</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,973,750</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">stock with</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">warrants in</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">private</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">placement</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,976,068</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">29,760</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,169,241</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,199,001</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Common stock</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">for services</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,877,937</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,877,937</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">options and</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">warrants for</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">services</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Cancellation of</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    (140,802)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">140,802</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">unearned options</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">to former</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">employees</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Amortization of</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">548,550</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">548,550</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">deferred</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">employee stock</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">option</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">compensation</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    7,492,996</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">74,930</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,663,728</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,738,658</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">common stock</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">and warrants in</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">settlement of</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
</table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0">
  <tr>
    <td WIDTH="151"><font SIZE="2">debt to related</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">parties and</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">strategic vendors</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">Sale of Common</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">2,000,000</font></td>
    <td WIDTH="97" align="right"><font SIZE="2">20,000</font></td>
    <td WIDTH="96" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">980,000</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">stock to certain</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">Officers and</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">Directors in</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">private</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">placement</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">Issuance of</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">13,334</font></td>
    <td WIDTH="97" align="right"><font SIZE="2">133</font></td>
    <td WIDTH="96" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">3,867</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">4,000</font></td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">Common stock</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">upon exercise of</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">options</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">Net Loss</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="97" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="96" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">(11,245,361)</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">(11,245,361)</font></td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">Other</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="97" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="96" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="98" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">(4,026)</font></td>
    <td WIDTH="107" align="right"><font SIZE="2">(4,026)</font></td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">comprehensive</font></td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="97" align="right">&nbsp;</td>
    <td WIDTH="96" align="right">&nbsp;</td>
    <td WIDTH="98" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
    <td WIDTH="107" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2">loss</font></td>
    <td WIDTH="98" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="97" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="96" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="98" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2"><b>BALANCE,</b></font></td>
    <td WIDTH="98" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">60,807,508</font></td>
    <td WIDTH="97" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$608,075</font></td>
    <td WIDTH="96" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(7,973)</font></td>
    <td WIDTH="98" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$100,751,284</font></td>
    <td WIDTH="107" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(23,923)</font></td>
    <td WIDTH="107" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(101,366,286)</font></td>
    <td WIDTH="107" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(4,026)</font></td>
    <td WIDTH="107" align="right" style="border-top-style: solid; border-top-width: 1"><font SIZE="2">$(42,849)</font></td>
  </tr>
  <tr>
    <td WIDTH="151"><font SIZE="2"><b>JUNE 30, 2002</b></font></td>
    <td WIDTH="98" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="97" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="96" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="98" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="107" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>The accompanying notes are an integral part of these consolidated financial
statements. </p>
<p>F-11</p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
CONSOLIDATED STATEMENTS OF CHANGES IN <br>
STOCKHOLDERS' EQUITY (DEFICIT) <br>
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) <br>
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS <br>
IN THE PERIOD ENDED JUNE 30, 2004 </b></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">$.01</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Additional</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Stated</font></td>
    <td WIDTH="10%" align="right"><font size="2">Treasury</font></td>
    <td WIDTH="10%" align="right"><font size="2">Paid-In</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deferred</font></td>
    <td WIDTH="11%" align="right"><font size="2">Accumulated</font></td>
    <td WIDTH="11%" align="right"><font size="2">Comprehensive</font></td>
    <td WIDTH="11%" align="right"><font size="2">EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Shares</font></td>
    <td WIDTH="10%" align="right"><font size="2">Value</font></td>
    <td WIDTH="10%" align="right"><font size="2">Stock</font></td>
    <td WIDTH="10%" align="right"><font size="2">Capital</font></td>
    <td WIDTH="11%" align="right"><font size="2">Compensation</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deficit</font></td>
    <td WIDTH="11%" align="right"><font size="2">Loss</font></td>
    <td WIDTH="11%" align="right"><font size="2">(DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2"><b>BALANCE JUNE</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    60,807,508</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$608,075</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $100,751,284</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(23,923)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(101,366,286)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">$(4,026)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(42,849)</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2"><b>30, 2002</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    4,296,680</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">42,967</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,121,351</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,164,318</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">stock with warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">in private placement</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">426,000</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">4,260</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">107,985</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">112,245</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">stock for services</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">Issuance of options</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">274,100</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">274,100</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">and warrants for</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">services</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">Amortization of</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">23,923</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">23,923</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">deferred employee</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">stock option</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">compensation</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    5,923,333</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">59,233</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,826,329</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,885,562</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">stock and warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">in settlement of debt</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">to related parties and</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">strategic vendors</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (6,650,211)</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (6,650,211)</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">Other</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">4,026</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">4,026</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">comprehensive</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2">income</font></td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2"><b>BALANCE, JUNE</b></font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    71,453,521</font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$714,535</font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $104,081,049</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$-</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(108,016,497)</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$-</font></td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(3,228,886)</font></td>
  </tr>
  <tr>
    <td WIDTH="15%"><font FACE="Times New Roman" SIZE="2"><b>30, 2003</b></font></td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="60%" COLSPAN="5">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p><font size="2">F-12</font></p>
<b>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p align="center">&nbsp;</p>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
CONSOLIDATED STATEMENTS OF CHANGES IN <br>
STOCKHOLDERS' EQUITY (DEFICIT) <br>
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) <br>
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS <br>
IN THE PERIOD ENDED JUNE 30, 2004 </b></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">$.01</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Additional</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Stated</font></td>
    <td WIDTH="10%" align="right"><font size="2">Treasury</font></td>
    <td WIDTH="10%" align="right"><font size="2">Paid-In</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deferred</font></td>
    <td WIDTH="11%" align="right"><font size="2">Accumulated</font></td>
    <td WIDTH="11%" align="right"><font size="2">Comprehensive</font></td>
    <td WIDTH="11%" align="right"><font size="2">EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">Shares</font></td>
    <td WIDTH="10%" align="right"><font size="2">Value</font></td>
    <td WIDTH="10%" align="right"><font size="2">Stock</font></td>
    <td WIDTH="10%" align="right"><font size="2">Capital</font></td>
    <td WIDTH="11%" align="right"><font size="2">Compensation</font></td>
    <td WIDTH="11%" align="right"><font size="2">Deficit</font></td>
    <td WIDTH="11%" align="right"><font size="2">Loss</font></td>
    <td WIDTH="11%" align="right"><font size="2">(DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2"><b>BALANCE JUNE</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    71,453,521</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">714,535</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">(7,973)</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    $104,081,049</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(108,116,497)</font></td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(3,228,886)</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2"><b>30, 2003</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    15,177,973</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">151,779</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    4,322,394</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">stock with warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">in private placement</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">924,667</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">9,247</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">238,103</font></td>
    <td WIDTH="10%" align="right"><font size="2">-</font></td>
    <td WIDTH="11%" align="right"><font size="2">-</font></td>
    <td WIDTH="11%" align="right"><font size="2">-</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">stock for services</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of options</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">and warrants for</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">services</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,233,334</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">12,333</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,067,393</font></td>
    <td WIDTH="10%" align="right"><font size="2">304,467</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">stock pursuant to</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">exercise of warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of common</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">110,467</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">1,105</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">1,962,099</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">stock and warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">in settlement of debt</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">to related parties and</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">strategic vendors</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    (7,758,586)</font></td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Other</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">comprehensive</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">income</font></td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2"><b>BALANCE, JUNE</b></font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2"><b>30, 2004</b></font></td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    88,899,962</font></td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$888,999</font></td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(115,775,083)</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    0</td>
    <td WIDTH="11%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(2,590,718)</font></td>
  </tr>
  <tr>
    <td WIDTH="56%" colspan="5"><font FACE="Times New Roman" SIZE="2">The
    accompanying notes are an integral part of these consolidated financial
    statements. </font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
</table>
<p><font size="2">F-12 Cont'd</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED STATEMENT OF CHANGES IN <br>
SHAREHOLDERS' DEFICIT (UNAUDITED) </b></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Total</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    Additional</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    Shareholders</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">$.01
    Stated</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Treasury</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Paid-in</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    Accumulated</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    (Deficit)</font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Shares</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Value</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Stock</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Capital</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Deficit</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">Equity</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Balance June</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    89,899,962</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">$888,999</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    $111,976,095</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(115,775,083)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(2,917,962)</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">30,</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">2004</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">common stock</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">with</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">warrants in</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">private</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">placements net</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">of cash</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">expenses of</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">$15,900</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,672,000</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">16,720</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">--</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">385,380</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">--</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">402,100</font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">warrants to</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">purchase</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">common</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">stock in connection </font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">with settlement of</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">liabilities</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">--</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">--</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">169,500</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    (1,831,862)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">
    (1,831,862)</font></td>
  </tr>
  <tr>
    <td WIDTH="16%" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">Balance,</font></td>
    <td WIDTH="14%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="14%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%"><font FACE="Times New Roman" SIZE="2">September 30</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">31, 2004</font></td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    90,571,962</font></td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$905,719</font></td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $112,530,975</font></td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(117,606,945)</font></td>
    <td WIDTH="14%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(4,178,224)</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>The accompanying notes are an integral part of these consolidated financial
statements. </p>
<p><font size="2">F-12 Cont'd</font></p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">common stock</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">with warrants in</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">private</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">placements</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    10,717,700</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">107,177</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    2,009,423</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">
    2,166,600</font></td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Sale of common</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">stock through</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">exercise of</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">warrants</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    2,817,954</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">28,179</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">535,411</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">563,590</font></td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Issue of Stock</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Options to</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Consultants</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">936,333</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">936,333</font></td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Issuance of</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Common Stock</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">to Consultants for</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">services</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">134,500</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">1,345</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">25,555</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">26,900</font></td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Issue of</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">additional shares</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">and warrants to</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">effect revised</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">pricing on</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">previous private</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font face="Times New Roman" size="2">placements</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">891,000</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">8,910</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">176,811</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">185,721</font></td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Conversion of</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Debt to</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">Common Stock</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
    <td WIDTH="139" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">and Warrants</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    4,610,275</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">46,103</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">539,576</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">585,679</font></td>
  </tr>
  <tr>
    <td WIDTH="156" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="139" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(3,305,930)</font></td>
    <td WIDTH="139" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (3,305,930)</font></td>
  </tr>
  <tr>
    <td WIDTH="156" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">Balance,</font></td>
    <td WIDTH="138" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="138" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="138" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="138" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="139" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="139" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">December 31,</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    109,743,391</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,097,433</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">$(7,973)</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    $116,754,086</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">
    $(120,912,875)</font></td>
    <td WIDTH="139" align="right"><font FACE="Times New Roman" SIZE="2">
    $(3,069,329)</font></td>
  </tr>
  <tr>
    <td WIDTH="156"><font FACE="Times New Roman" SIZE="2">2004</font></td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="138" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="139" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="139" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
</table>
<p><font size="2">F-12 (Cont'd)</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC.<br>
&nbsp;(A DEVELOPMENT STAGE COMPANY) <br>
CONSOLIDATED STATEMENTS OF CASH FLOWS </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="32%" COLSPAN="2" align="right"><font SIZE="2">For the Years
    Ended</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font SIZE="2">Inception</font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font SIZE="2">June 30,</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font SIZE="2">(October 2,</font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font SIZE="2">1996) to</font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font SIZE="2">June 30,</font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right"><font SIZE="2">2002</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">2003</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">2004</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">CASH FLOWS FROM OPERATING</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">ACTIVITIES:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Net loss</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(11,245,361)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(6,650,211)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(7,758,586)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">$ (115,775,083)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Adjustments to reconcile net loss to net</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">cash used in operating activities:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Depreciation and amortization</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">1,653,346</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">1,425,952</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">736,099</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">6,330,239</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Book value of fixed assets disposed</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">74,272</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Loss on unconsolidated subsidiary</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">1,466,467</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Provision for doubtful accounts</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">2,906</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">32,124</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Impairment of note receivable</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">20,250</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">232,750</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Loss on securities</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">11,258</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">11,258</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Gain on Extinguishments</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(142,236 )</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(61,226 )</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(150,058)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(353,520)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Common stock and options and warrants for</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">3,261,449</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">1,134,335</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">1,314,793</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">49,458,890</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">purchase of common stock granted</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Changes in operating assets and</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">liabilities:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Accounts receivable</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">15,748</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(13,355)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">223,035</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(96,224)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Inventory</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">961,179</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">1,449,628</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">865,355</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(1,027,733)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Prepaid expenses and other</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">current assets</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">173,649</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(29,652)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">19,267</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(577,182)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Production advances-related parties</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Other assets</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">146,420</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">3,580</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Receivables from subsidiary</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(150,000)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Due from officer</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">100,000</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Accounts payable</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(340,057)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">174,939</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">171,712</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">4,329,107</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Accrued expenses</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">332,819</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">273,986</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(32,702)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">1,779,869</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Deferred revenue</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">214,180</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">214,180</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Due to related parties:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">&nbsp;&nbsp; Microphase</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">864,555</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">721,544</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">83,762</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">2,379,711</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">&nbsp;&nbsp; Janifast</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">907,450</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">99,841</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">422,905</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">2,702,905</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">&nbsp;&nbsp; Officers</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">312,504</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">246,835</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(90,583)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">468,756</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">&nbsp;&nbsp; Lintel</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">477,000</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">&nbsp;&nbsp; Due to Others</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">25,794</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(32,500)</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">179,472</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Net cash used in operating activities</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(2,735,405)</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(1,212,546)</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(4,227,501)</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(47,842,742)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">CASH FLOWS FROM INVESTING</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">ACTIVITIES:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Investment in patents and licensing rights</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(74,699)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(40,893)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(416,613)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Purchase of property and equipment</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(31,445)</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(73,305)</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(104,001)</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(2,641,106)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Net cash used in investing activities</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(106,094)</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(73,305)</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(144,894)</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(3,057,719)</font></td>
  </tr>
  </table>
<p><font size="2">F-13</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">CASH FLOWS FROM FINANCING</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">ACTIVITIES:</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Net proceeds from private placement of</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">2,977,750</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">1,090,474</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">3,964,558</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">50,472,476</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">common stock and exercise of options</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">and warrants</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2">Repurchase of treasury stock at cost</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(7,973)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Advances
    from/repayment to Microphase</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">527,840</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">(180,000)</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">347,840</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Proceeds from notes
    payable officers</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">130,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">300,000</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">430,000</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Repayment of notes
    payable - officers</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">(30,000 )</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">(30,000)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Repayment of notes
    payable</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">(120,191)</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">(82,668)</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">(18,978)</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">(221,837)</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Net cash (use
    in)/provided by financing</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">2,857,559</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">1,635,646</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">4,065,580</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">50,990,506</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">activities</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">Net increase
    (decrease) in cash</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">16,060</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">349,623</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">(306,815)</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">CASH AND CASH
    EQUIVALENTS,</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">31,005</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">47,065</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">396,860</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">90,045</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">beginning of period</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">CASH AND CASH
    EQUIVALENTS,</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">$
    47,065</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">$
    396,860</font></td>
    <td WIDTH="15%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">$
    90,045</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">$
    90,045</font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2">end of period</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>The accompanying notes are an integral part of these consolidated financial
statements. </p>
</font>
<p><font size="2">F-13 Cont'd</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A Development Stage Company) <br>
Consolidated Statements of Cash Flows <br>
(Unaudited) </b></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>Six Months Ended</b></font></td>
    <td WIDTH="26%" COLSPAN="2" align="right"><font SIZE="2"><b>October 2, 1996
    (Date of</b></font></td>
  </tr>
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>Inception)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>December 31,</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>to December 31,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>2003</b></font></td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>2004</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Cash Flow From Operating Activities:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Net Loss</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(2,565,377)</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(5,137,792)</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(120,912,875)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Adjustments to reconcile net loss to net cash
    used in</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">operating</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">activities:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Depreciation and amortization</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">402,257</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">128,506</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">6,458,745</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Book Value of fixed assets disposed</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">74,272</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Provision for doubtful accounts</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">32,124</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Gain on debt extinguishments</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(23,087 )</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">40,500</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(316,609)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Loss on unconsolidated subsidiary</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">1,466,467</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Impairment of note receivable</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">232,750</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Loss on securities</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">11,258</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Non-cash charges relating to issuance of
    common</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">307,245</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">1,122,054</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">50,580,944</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">stock, common</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">stock options and Warrants</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Changes in assets and liabilities:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Subscription Receivable</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Accounts receivable</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">104,999</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(141,969)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(238,193)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Inventories</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">614,876</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">237,251</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(790,482)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Prepaid expenses and other current assets</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">30,418</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(165,447)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(742,629)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Other non-current assets</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(20,000)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(20,000)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Accounts payable</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">401,394</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">564,705</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">4,893,812</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Accrued expenses</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(419,559 )</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">467,221</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">2,247,090</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Due to/from related parties</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Microphase</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">313,226</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(96,437)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">2,,283,274</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Janifast</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">534,887</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(64,636)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">2,638,269</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Officers</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(450,583 )</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">181,970</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">650,726</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Lintel</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">477,000</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Others</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(50,000)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">129,472</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Receivables from Subsidiary</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(150,000)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Deferred revenue</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(113,885)</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">100,295</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Net cash used in operating activities</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(749,304 )</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(3,037,959)</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(50,890,701)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Cash Flow from Investing Activities:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Payments related to patents and licensing
    rights</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">(64,902)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">(416,613)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Purchase of fixed assets</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(5,500)</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(105,973)</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">(2,747,079)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Net Cash used in investing activities</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font SIZE="2">(5,500)</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font SIZE="2">(170,875)</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font SIZE="2">(3,228,594)</font></td>
  </tr>
  </table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="35%"><font SIZE="2">Cash Flow from Financing Activities:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">Proceeds from issuance of common stock and</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">679,867</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">3,945,190</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">53,532,166</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font SIZE="2">exercises of options</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">and warrants</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Payments of notes
    payable</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">(2,000)</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    (105,498)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    (327,335)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Advances from
    Microphase Corporation</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">347,840</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Proceeds from notes
    payable-officers</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">600,000</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,030,000</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Repayments of notes
    payable-officers</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    (300,000)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    (300,000)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Repurchase of treasury
    stock at cost</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">(7,973)</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Net cash provided by
    financing activities</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">677,867</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    4,138,692</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    55,130,198</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Net increase
    (decrease) in cash</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">(76,937)</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">920,858</font></td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    1,010,903</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">CASH AND CASH
    EQUIVALENTS, beginning of</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">396,860</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">90,045</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">period</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="13%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">CASH AND CASH
    EQUIVALENTS, end of period</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    319,923</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    1,010,903</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    1,010,903</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p align="center">The accompanying notes are an integral part of these
consolidated financial statements. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman" size="2">
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
(A Development Stage Company) <br>
Notes to Consolidated Financial Statements <br>
June 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>1. ORGANIZATION AND NATURE OF BUSINESS </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>mPhase Technologies, Inc. (&quot;mPhase&quot; or the &quot;Company&quot;) was organized on
October 2, 1996. The primary business of mPhase is to design, develop,
manufacture and market high-bandwidth telecommunications products incorporating
digital subscriber line (&quot;DSL&quot;) technology. The present activities of the
Company are focused on the deployment of its TV+ System, which delivers MPEG2
digital television, high-speed Internet and voice over copper wire.
Additionally, the Company sells a line of DSL component products. In February of
2004 , the Company entered the field of Nanotechnology focused upon the
development of batteries and power cells with military applications as an
additional product line. </p>
<p>On February 17, 1997, mPhase acquired Tecma Laboratories, Inc., (&quot;Tecma&quot;) in
a transaction accounted for as a reverse merger. </p>
<p>On June 25, 1998, the Company acquired Microphase Telecommunications, Inc. (&quot;MicroTel&quot;)
a Delaware corporation, through the issuance of 2,500,000 shares of its common
stock in exchange for all the issued and outstanding shares of MicroTel (Note
4). The assets acquired in this acquisition were patents and patent applications
utilized in the Company's proprietary Traverser&#153 Digital Video and Data Deliver
System (&quot;Traverser&#153&quot;). </p>
<p>On August 21, 1998, the Company incorporated a 100% wholly-owned subsidiary
called mPhaseTV.net, Inc., a Delaware corporation, to market interactive
television and e-commerce revenue opportunities. This subsidiary is dissolved.
</p>
<p>On March 2, 2000 the Company acquired a 50% interest in mPhaseTelevision.Net,
Inc., an incorporated joint venture with AlphaStar International, Inc. (Note 8)
for $20,000. The Company acquired an additional interest in the joint venture of
6.5% in April of 2000 for $1.5 million. Based on its controlling interest in
mPhaseTelevision.Net, the operating results of mPhaseTelevision.Net are included
in the consolidated results of the Company since March 2, 2000. </p>
<p>The Company is in the development stage and its present activities are
focused on the commercial deployment of its legacy Traverser&#153 DVDDS and TV+
products for delivery of broadcast television over ADSL and associated DSL
component products which include POTS splitters and a line of intelligent POTS
splitter products and a new line of power cell batteries being developed through
the use of Nanotechnology. Since mPhase is in the development stage, the
accompanying consolidated financial statements should not be regarded as typical
for normal operating periods. <b></p>
<p>2. LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS </b></p>
<p>Through June 30, 2004, the Company had incurred development stage losses
totaling $115,775,083, and at June 30, 2004 had a stockholders' deficit of
$2,917,962. At June 30, 2004, the Company had $90,045 of cash and cash
equivalents and $64,100 of trade receivables to fund short-term working capital
requirements. </p>
<p>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) the successful wide scale development, deployment and marketing of its
products. </p>
<p ALIGN="JUSTIFY">The Company believes that it will be able to complete the
necessary steps in order to meet its cash flow requirements throughout fiscal
2005 and continue its development and commercialization efforts. Management's
plans in this regard include, but are not limited to, the following: </p>
<p>During the fiscal year ended June 30, 2004, the Company converted certain
payables and accrued expenses with a strategic vendor aggregating approximately
$1.8 million into 5 year cashless warrants to 5,069,200 restricted shares of the
Company's common stock . </p>
<p>Management estimates that the Company will need additional minimum capital of
$5.0-$10.0 million by June 30, 2005 to continue its operations either through
revenues from sales, external independent or related party funding further
expense reductions some combination thereof. The Company presently has ongoing
discussions and negotiations with a number of additional financing alternatives,
one or more of which it believes will be able to successfully close to provide
necessary working capital, while maintaining sensitivity to shareholder </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>dilution issues. However, the Company has no definitive agreements to provide
funding at this time. </p>
<p>In addition to the above financing activities, the following business
initiatives are also ongoing and are expected to provide additional working
capital to the Company. </p>
<p ALIGN="JUSTIFY">The Company is currently negotiating with several
organizations for the commencement of field trials that would lead to commercial
sales of its broadcast television platform products. The Company has had an
upturn in sales of its POTS splitter products for its fiscal year ended June 30,
2004, including sales to one customer of approximately $3,551,812 million during
such period. </p>
<p>Management believes that actions presently being taken to complete the
Company's development stage through the commercial roll-out of its broadcast
television platforms will be successful. However, there can be no assurance that
mPhase will generate sufficient revenues to provide positive cash flows from
operations or that sufficient capital will be available, when required, to
permit the Company to realize its plans. The accompanying financial statements
does not include any adjustments that might result from the outcome of this
uncertainty. </p>
<p>F-14 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman">
<p align="center"><font size="2">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS <br>
JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </font></p>
<p><font size="2">3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES </font></font>
</b></p>
<font FACE="Times New Roman">
<p><font size="2">PRINCIPLES OF CONSOLIDATION </font></p>
<p><font size="2">The consolidated financial statements include the accounts of
mPhase, its wholly-owned and majority owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
</font></p>
<p><font size="2">USE OF ESTIMATES </font></p>
<p><font size="2">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 period. Actual results could differ from those estimates. </font></p>
<p><font size="2">RECLASSIFICATIONS </font></p>
<p><font size="2">Certain reclassifications have been made in the prior period
consolidated financial statements to conform to the current period presentation.
</font></p>
<p><font size="2">CASH AND CASH EQUIVALENTS </font></p>
<p><font size="2">mPhase considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. </font></p>
<p><font size="2">STOCK BASED COMPENSATION </font></p>
<p><font size="2">Financial Accounting Statement No. 123, Accounting for Stock
Based Compensation, encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. The Company has
adopted the &quot;disclosure only&quot; alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied. Had compensation expense
for stock options granted under the Plan and certain warrants granted to
employees in 2003 and 2004 been determined based on fair value at the grant
dates. </font></p>
</font>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>PROPERTY AND EQUIPMENT </p>
<p>Property and equipment is recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of three to five years. </p>
<p>SHORT-TERM INVESTMENTS </p>
<p>Short-term investments principally consist of highly-liquid shares of
corporate securities. The Company classifies all these short-term investments as
available-for-sale securities. Unrealized gains and losses on these investments
are recorded in accumulated other comprehensive income (loss) as a separate
component of shareholders' equity. Any decline in market value judged to be
other than temporary is recognized in determining net income. Realized gains and
losses from the sale of these investments are included in determining net income
(loss). </p>
<p>REVENUE RECOGNITION </p>
<p>All revenue included in the accompanying consolidated statements of
operations for all periods presented relates to sales of mPhase's POTS Splitter
Shelves and DSL component products. </p>
<p>As required, mPhase has adopted the Securities and Exchange Commission
(&quot;SEC&quot;) Staff Accounting Bulletin (&quot;SAB&quot;) No. 101, &quot;Revenue Recognition in
Financial Statements,&quot; which provides guidelines on applying generally accepted
accounting principles to revenue recognition based on the interpretations and
practices of the SEC. The Company recognizes revenue for its POTS Splitter Shelf
and other DSL component products at the time of shipment, at which time, no
other significant obligations of the Company exist, other than normal warranty
support. </p>
<p>SHIPPING AND HANDLING CHARGES </p>
<p>The Company includes costs of shipping and handling billed to customers in
revenue and the related expense of shipping and handling costs is included in
cost of sales. </p>
<p>BUSINESS CONCENTRATIONS AND CREDIT RISK </p>
<p>To date the Company's products have been sold to a limited number of
customers, primarily in the telecommunications industry. </p>
<p>The Company had revenues from two customers representing 39% and 21% of total
revenues during the year ended June 30, 2002. The Company had revenue from two
customers of 31% and 25% during the fiscal year ended June 30, 2003. </p>
<p>The Company had revenue from two customers of 76% and 14% during the fiscal
year ended June 30, 2004. </p>
<p>F-15 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) </font></b></p>
<p><font FACE="Times New Roman" SIZE="2">ADVERTISING COSTS </font></p>
<p><font FACE="Times New Roman" SIZE="2">Advertising costs are expensed as
incurred. </font></p>
<p><font FACE="Times New Roman" SIZE="2">COMPREHENSIVE INCOME (LOSS) </p>
<p>In addition to net loss, comprehensive income (loss) includes all changes in
equity during a period, except those resulting from investments by and
distributions to owners. Items of comprehensive income include foreign currency
exchanges and unrealized gains and losses on investments classified as available
for sale. </p>
<p>In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income,
which establishes rules for the Reporting of Comprehensive Income and its
components. For the years ended June 30,2004, June 30, 2003 and June 30, 2002,
the items of comprehensive income include unrealized gains and losses on
investments the Company had classified as available for sale. </p>
<p>PATENTS AND LICENSES </p>
<p>Patents and licenses are capitalized when mPhase determines there will be a
future benefit derived from such assets, and are stated at cost. Amortization is
computed using the straight-line method over the estimated useful life of the
asset, generally five years. </p>
<p>Amortization expense was $471,629, $468,495 and $86,395 for the years ended
June 30, 2002, 2003, and 2004, respectively. </p>
<p>The impairment test for the Company's patents and license rights resulted in
the Company concluding that no impairment in addition to amortization previously
recorded was necessary during the year ended June 30, 2003. </p>
<p>INVENTORIES </p>
<p>Inventory consists mainly of the Company's POTS Splitter Shelf and Filters.
Inventory is comprised of the following: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="986" colspan="6" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="354"><font FACE="Times New Roman" SIZE="2">Raw materials</font></td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="142" align="right"><font FACE="Times New Roman" SIZE="2">131,797</font></td>
    <td WIDTH="143" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="143" align="right"><font FACE="Times New Roman" SIZE="2">75,834</font></td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="354"><font FACE="Times New Roman" SIZE="2">Work in Progress</font></td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right"><font FACE="Times New Roman" SIZE="2">728,537</font></td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right"><font FACE="Times New Roman" SIZE="2">525,647</font></td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="354"><font FACE="Times New Roman" SIZE="2">Finished goods</font></td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,729,344</font></td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,024,726</font></td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="354"><font FACE="Times New Roman" SIZE="2">Total</font></td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,589,678</font></td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">1,626,207</font></td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="416" COLSPAN="2"><font FACE="Times New Roman" SIZE="2">Less:
    Reserve for obsolescence</font></td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">(486,350)</font></td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">(388,235)</font></td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right">&nbsp;</td>
    <td WIDTH="142" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="143" align="right">&nbsp;</td>
    <td WIDTH="143" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="354">&nbsp;</td>
    <td WIDTH="62" align="right">&nbsp;</td>
    <td WIDTH="142" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="142" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">2,103,328</font></td>
    <td WIDTH="143" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="143" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">_1,237,972</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="72%">&nbsp;</td>
    <td WIDTH="30%" align="right"><font size="2">December 31, 2004</font></td>
  </tr>
  <tr>
    <td WIDTH="72%">&nbsp;</td>
    <td WIDTH="30%" align="right"><font size="2">(unaudited)</font></td>
  </tr>
  <tr>
    <td WIDTH="72%">&nbsp;</td>
    <td WIDTH="28%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="72%"><font FACE="Times New Roman" SIZE="2">Raw materials</font></td>
    <td WIDTH="28%" align="right"><font FACE="Times New Roman" SIZE="2">$&nbsp;&nbsp; 75,833</font></td>
  </tr>
  <tr>
    <td WIDTH="72%"><font FACE="Times New Roman" SIZE="2">Work in Progress</font></td>
    <td WIDTH="28%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="72%"><font FACE="Times New Roman" SIZE="2">Finished goods</font></td>
    <td WIDTH="28%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    1,102,284</font></td>
  </tr>
  <tr>
    <td WIDTH="72%"><font FACE="Times New Roman" SIZE="2">Total</font></td>
    <td WIDTH="28%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    1,178,717</font></td>
  </tr>
  <tr>
    <td WIDTH="72%"><font FACE="Times New Roman" SIZE="2">Less: Reserve for
    obsolescence</font></td>
    <td WIDTH="28%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (388,235)</font></td>
  </tr>
  <tr>
    <td WIDTH="72%">&nbsp;</td>
    <td WIDTH="28%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: none; border-bottom-width: medium">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">$ 790,482</font></div>
    </td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>LONG-LIVED ASSETS </p>
<p>The Company accounted for long-lived assets for the years ended June 30, 2001
and 2002 in accordance with SFAS No. 121, &quot;Accounting for the Impairment of
Long-Lived Assets to be Disposed of,&quot; the Company reviewed its long-lived assets
for impairment when changes in circumstances indicate, that the carrying amount
of an asset may not be recoverable. Such changes in circumstances may include,
among other factors, a significant change in technology that may render an asset
or an asset group obsolete or noncompetitive, a significant change in the extent
or manner in which an asset is used, evidence of a physical defect in an asset
or asset group or an operating loss. </p>
<p>In August 2001, the FASB issued Statement No. 144 &quot;Accounting for the
Impairment or Disposal of Long-Lived Assets,&quot; which became effective for the
Company July 1, 2002 for the fiscal years ended June 30, 2003 and June 30, 2004.
The Company assesses long-term assets for impairment under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No.
144, the Company reviews long-term assets for impairment whenever events or
circumstances indicate that the carrying amount of those assets may not be
recoverable. The Company also assesses these assets for impairment based on
their estimated future cash flows. </p>
<p>F-16 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>FAIR VALUE OF FINANCIAL INSTRUMENTS </p>
<p>The carrying amounts reported in the consolidated balance sheets for mPhase's
cash, accounts receivable, accounts payable, and accrued expenses approximate
their fair values due to the short maturities of these financial instruments.
</p>
<p>The carrying amounts reported in the consolidated balance sheets for mPhase's
notes payable, long-term debt, amounts due to related parties approximate their
fair values and the amounts recorded as other liabilities and other liabilities
- related parties approximate their fair values based on current rates at which
the Company could borrow funds with similar maturities. </p>
<p>LOSS PER COMMON SHARE, BASIC AND DILUTED </p>
<p>mPhase accounts for net loss per common share in accordance with the
provisions of SFAS No. 128, &quot;Earnings per Share&quot; (&quot;EPS&quot;). 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 since their effect is anti-dilutive. </p>
<p>WARRANTY RESERVE </p>
<p>The Company warrants that all equipment manufactured by it will be free from
defects in material and workmanship under normal use for a period of one year
from the date of shipment. Through June 30, 2004, substantially all sales by the
Company have been from component telephone equipment parts, primarily the
Company's POTS Splitter Shelves. The Company's actual experience for cost and
expenses incurred in connection with such warranties have been insignificant.
Warranty expense in the amount of $30,000 has been added to the reserve to
provide for future warranty costs on fiscal 2004 sales. This brings the
company's aggregate accrued liability to $70,000 at this time. </p>
<p>RECENT ACCOUNTING PRONOUNCEMENTS </p>
<p>In June 2002, the FASB issued SFAS No. 146, &quot;Accounting for Costs Associated
with Exit or Disposal Activities.&quot; This statement covers restructuring type
activities beginning with plans initiated after December 31, 2002. Activities
covered by this standard that are entered into after that date will be recorded
in accordance with the provisions of SFAS No. 146. The adoption of SFAS No. 146
did not have a significant impact on our consolidated financial position or
results of operations. </p>
<p>In December 2002, the FASB issued SFAS 148, &quot;Accounting for Stock-Based
Compensation-Transition and Disclosure,&quot; which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, &quot;Accounting for
Stock-Based Compensation.&quot; Additionally, SFAS 148 required more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The provisions of this Statement are effective for
fiscal years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed above under Stock Based
Compensation <b>. </b></p>
<p>In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (&quot; FIN 45&quot;). FIN 45 requires a company, at
the time it issues a guarantee, to recognize an initial liability for the fair
value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN 45 are effective for guarantees issued or
modified after December 31, 2002 and adoption of the disclosure requirements are
effective for the Company during the first quarter ending January 31, 2003. The
adoption of FIN 45 did not have a significant impact on our consolidated
financial position or results of operations. </p>
<p>F-17 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>In January 2003, the FASB issued FASB Interpretation No. 46 (&quot; FIN 46&quot;),
&quot;Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.&quot;
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on our consolidated financial position or results of
operations. </p>
<p>&lt;R&gt; </p>
<p>In May 2003, the FASB issued SFAS Statement No. 150, &quot;Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity&quot;. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities, if applicable. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the Statement and
still existing at the beginning of the interim period of adoption. The adoption
of this statement is not expected to have a significant impact on the Company's
results of operations or financial position. </p>
<p>&lt;/R&gt; </p>
<b>
<p>STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION </b></p>
</font><font FACE="Arial" SIZE="2">
<p></font><font FACE="Times New Roman" SIZE="2"><b>STATEMENT OF CASH FLOW
SUPPLEMENTAL INFORMATION </p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="26%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>JUNE 30</b></font></td>
    <td WIDTH="25%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>JUNE 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Interest paid</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">14,512</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">11,175</font></td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Taxes paid</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">250</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">550</font></td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Schedule of Non-Cash</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Investing and
    Financing Activities:</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Conversion of accounts
    payable and accrued expenses</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">to equity</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,931,788</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,963,202</font></td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Conversion of accounts
    payable and accrued expenses</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">to notes payable</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">360,000</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Research and
    development fixed assets transferred to</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Work in process
    inventory</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">210,239</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font FACE="Times New Roman" SIZE="2">Private Placement
    Reparation Expense</font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font size="2">Investments in Patents and Licenses paid with
    equity</font></td>
    <td WIDTH="12%" align="right"><font size="2">$</font></td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right"><font size="2">$</font></td>
    <td WIDTH="12%" align="right"><font size="2">38,750</font></td>
  </tr>
  <tr>
    <td WIDTH="52%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="52%"><font size="2">Non Cash Compensation</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font size="2">-</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="2" align="right"><font SIZE="2"><b>December 31</b></font></td>
    <td WIDTH="27%" COLSPAN="2" align="right"><font SIZE="2"><b>December 31</b></font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Interest paid</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">6,000</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Taxes paid</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">250</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Schedule of Non-Cash</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Investing and Financing Activities:</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Conversion of accounts payable and accrued
    expenses</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">to equity</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">496,726</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">470,000</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Conversion of Interest Accrued to Equity</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">26,725</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Conversion of notes payable to equity</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font SIZE="2">88,894</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Total Liability to Equity Conversions</font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2">585,679</font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
  </tr>
  </table>
<font FACE="Times New Roman" SIZE="2"><b>
<p>4. ACQUISITION OF MICROTEL </b></p>
<p>In June 1998, mPhase issued 2,500,000 shares of common stock in exchange for
all of the issued and outstanding shares of MicroTel, a wholly-owned subsidiary
of Microphase, Inc. (&quot;Microphase&quot;). The transaction was accounted for as a
purchase pursuant to APB Opinion No. 16 &quot;Accounting for Business Combinations&quot;.
The total purchase price of approximately $1,870,000, which was based on the
fair market value of the shares issued, was allocated to the patents acquired
and is being amortized over an estimated useful life of five years. Pursuant to
the agreement of merger, MicroTel has become a wholly-owned subsidiary of mPhase.
<b></p>
<p>5. NOTE RECEIVABLE </b></p>
<p>As consideration for a letter of settlement with a former consultant of
mPhase, the Company had loaned the former consultant $250,000 in the form of a
Note (the &quot;Note&quot;) secured by 75,000 shares of the former consultants common
stock of mPhase. The Note was due April 7, 2001. The Company decreased the Note
to $37,500, representing the estimated value of the underlying stock at June 30,
2001. The Company charged $212,500 to administrative expense as a result of this
impairment. The Company has included the $37,500, in long-term assets in the
accompanying consolidated balance sheet for the year ended June 30, 2001. The
Company decreased the Note to $17,250, representing the estimated value of the
underlying stock at June 30, 2002. The Company charged $20,250 to administrative
expenses as a result of the further impairment of the underlying stock value at
June 30, 2002 and has maintained the same balance for the Note throughout the
fiscal years ended June 30, 2003 and June 30, 2004. The Company has included the
$17,250 in long-term assets in the accompanying consolidated balance sheet for
the years ended June 30, 2003 and June 30, 2004. </p>
<p>F-18 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p align="left">6. PROPERTY AND EQUIPMENT </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p align="left">Property and equipment, at cost, consist of the following: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="51%">&nbsp;</td>
    <td WIDTH="50%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>
    <p>December 31, 2004 (unaudited)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="51%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="51%"><font FACE="Times New Roman" SIZE="2">Equipment</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">
    $2,765,604</font></td>
  </tr>
  <tr>
    <td WIDTH="51%"><font FACE="Times New Roman" SIZE="2">Office and marketing
    equipment</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">452,301</font></td>
  </tr>
  <tr>
    <td WIDTH="51%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $3,217,905</font></td>
  </tr>
  <tr>
    <td WIDTH="51%"><font FACE="Times New Roman" SIZE="2">Less-Accumulated
    depreciation</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (2,477,512)</font></td>
  </tr>
  <tr>
    <td WIDTH="51%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">$
    240,393</font></div>
    </td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>Depreciation expense for the six months ended December 31, 2004 and December
31, 2003 was $128,506 and $74,082 respectively, of which $125,403 and $74,069 respectively, relates to research
laboratory and testing equipment is included in research and development
expense. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="37%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="37%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="33%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>June 30</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="37%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="37%"><font FACE="Times New Roman" SIZE="2">Equipment</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,572,031</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,676,030</font></td>
  </tr>
  <tr>
    <td WIDTH="37%"><font FACE="Times New Roman" SIZE="2">Office and marketing
    equipment</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">482,464</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">482,464</font></td>
  </tr>
  <tr>
    <td WIDTH="37%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    3,054,495</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    3,158,494</font></td>
  </tr>
  <tr>
    <td WIDTH="37%"><font FACE="Times New Roman" SIZE="2">Less-Accumulated
    depreciation</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (2,472,605)</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    (3,105,809)</font></td>
  </tr>
  <tr>
    <td WIDTH="37%">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">581,890</font></div>
    </td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">52,685</font></div>
    </td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p ALIGN="JUSTIFY">Depreciation expense for the years ended June 30, 2002, 2003,
and 2004, was $1,181,717, $957,457 and $649,704, respectively, of which
$983,163,$442,040, and $613,221 respectively, relates to research laboratory and
testing equipment is included in research and development expense. </p>
<b>
<p>7. ACCRUED EXPENSES </b></p>
<p>Accrued expenses consist of the following: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="42%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="56%" COLSPAN="2">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    December</b></font></td>
  </tr>
  <tr>
    <td WIDTH="42%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>31,
    2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="42%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="31%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>(unaudited)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="42%"><font FACE="Times New Roman" SIZE="2">Lucent Projects (Note
    13)</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">247,600</font></td>
  </tr>
  <tr>
    <td WIDTH="42%"><font FACE="Times New Roman" SIZE="2">Other General Expenses</font></td>
    <td WIDTH="30%" COLSPAN="2" align="right">
    &nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">883,929</font></td>
  </tr>
  <tr>
    <td WIDTH="42%">&nbsp;</td>
    <td WIDTH="30%" COLSPAN="2" align="right">
    &nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">
    1,131,529</font></div>
    </td>
  </tr>
</table>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="41%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="31%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>June 30</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font FACE="Times New Roman" SIZE="2">Lucent Projects (Note
    13)</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">370,795</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">257,800</font></td>
  </tr>
  <tr>
    <td WIDTH="41%"><font size="2">Other General Expenses</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">514,940</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font size="2">433,233</font></td>
  </tr>
  <tr>
    <td WIDTH="41%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font size="2">$</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font size="2">885,735</font></div>
    </td>
    <td WIDTH="15%" align="right"><font size="2">$</font></td>
    <td WIDTH="15%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font size="2">691,033</font></div>
    </td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p>8. JOINT VENTURE </b></p>
<p>In March 2000, mPhase acquired a 50% interest in mPhaseTelevision.Net
(formerly Telco Television Network, Inc.), an incorporated joint venture, for
$20,000. The agreement provided for the grant of warrants to the joint venture
partner in consideration of the execution of the Joint Venture Agreement, to
purchase 200,000 shares of the Company's common stock for $4.00 per share
(valued at $2,633,400). This non-cash charge is included in general and
administrative expenses in the accompanying statement of operations for the year
ended June 30, 2000. The fair value of the warrants granted to the joint venture
partner as of the date of grant was based on the Black-Scholes stock option
pricing model, using the following weighted average assumptions: annual expected
rate of return of 0%, annual volatility of 115%, risk free interest rate of
5.85% and an expected option life of 3 years. </p>
<p>The agreement stipulates for mPhase's joint venture partner, AlphaStar
International, Inc., (&quot;Alphastar&quot;), to provide mPhaseTelevision.Net right of
first transmission for its transmissions of MPEG-2 digital satellite television.
In addition, in March 2000, mPhase loaned the joint venture $1,000,000 at 8%
interest per annum. The loan is repayable to the Company from equity infusions to the subsidiary, no later than such time that
mPhaseTelevision.Net qualifies for a NASDAQ Small Cap Market Listing. During
April 2000, the Company acquired an additional 6.5% interest in
mPhaseTelevision.Net for $1,500,000. </p>
<p>As of June 30, 2004 mPhase owns a 56.5% interest in mPhaseTelevision.net. The
Company terminated the lease of the earth station for business reasons, and
there was no material impact on mPhaseTelevision.net's operating activities. </p>
<p>Pursuant to an agreement dated as of June 18, 2002, mPhaseTelevision.Net has
terminated its lease of the earth station and Alphastar and its affiliated
entity have converted certain accounts payable into shares of the Company's
common stock. Additionally, under this Agreement, mPhase is obligated to pay
Alphastar and its affiliates $35,000, which is included in amounts due to
related parties in the accompanying consolidated balance sheet. </p>
<p>During the fiscal years ended June 30, 2002, June 30, 2003 and ended June 30,
2004, the joint venture was charged $69,000, $0 and $0, respectively for fees
and costs by its joint venture partner and its affiliates. </p>
<p>&nbsp;</p>
<p>F-19 </p>
</font><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman" SIZE="2">
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
</font></b>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">9. LONG TERM DEBT</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">December 31,</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Long-term debt is
    comprised of the following:</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="19%" COLSPAN="2" align="right">
    &nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="63%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">(unaudited)</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Settlement
    Agreements</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Accounts payable
    originally expected to be converted to a $150,000 Note payable to</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">GTRC bearing 7%
    interest, amended in March 2004, and reduced to $100,000, to be</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">amortized in equal</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">quarterly
    installments $16,667 plus interest at 7% through March 2005</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">(see also-Note
    13-Commitments and Contingencies)</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">83,333</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Accounts payable
    originally expected to be converted to Note payable to GTRC</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">bearing 7%
    interest, amortized in monthly payments scheduled to increase annually</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">until a maturity in
    September 2008, yet were settled in full together with other</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">liabilities</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">including the
    amended note above.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">(see also-Note 13 -
    Commitments and Contingencies)</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Note payable to law
    firm bearing 8% interest, originally monthly installments</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">of $5,000 per month
    commencing in June 2002 and continuing</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">through December 1,
    2003 with a final payment of principal plus</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">accrued interest
    originally due at maturity on December 31, 2003, this note was</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">in arrears as of
    June 30, 2004 and the company negotiated a new settlement</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">arrangement as of
    August 31, 2004. Under such settlement agreement, </font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">which the Company
    made a $100,000 cash
    payment and</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">gave a cashless
    warrant to purchase $150,000 worth of common stock valued at $.25</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">per share. In addition
    the Company agreed to pay $25,000 on each of December 1, 2004,</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">March 1, 2005, June
    1, 2005, September 1, 2005 and $50,000 shall be payable on</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">December 1, 2005.
    Thereafter the Company is obligated to pay $25,000 on each of</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">March 1, 2006, June
    1, 2006, September 1, 2006 with a final payment of $75,000 on</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">December 1, 2006.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">164,500</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Note payable to
    vendor bearing 8% interest due in weekly payments</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">of $5,000 including
    accrued interest. These payments commenced in</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">January 2002 and
    originally were scheduled to continue until June 2004.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">This note is
    presently in arrears and is included in current portion of long term debt.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">208,058</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Note payable to
    vendor non interest bearing average monthly</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">payments of $4,167
    in 2003 and $3,660 in 2004. These payments</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">commenced in April
    2002 and originally were scheduled to continue until May 2004.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">This note is
    presently in arrears and is included in current portion of long tem debt.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">209,767</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Note payable,
    vendor, interest at 8%, with average monthly payments of</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">$2,000 originally
    scheduled to through March, 2004.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">This note is
    presently in arrears and is included in current portion of long term debt.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">27,147</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Total</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">692,805</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Less: Current
    portion</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">517,805</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">Long-term Debt,
    non-current portion</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">175,000</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">At December 31, 2004
    total maturities of long-term debt are as follows:</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">2005</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">517,805</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">2006</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">100,000</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">2007</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">75,000</font></td>
  </tr>
  <tr>
    <td WIDTH="63%"><font FACE="Times New Roman" SIZE="2">TOTAL</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font FACE="Times New Roman" SIZE="2">692,805</font></div>
    </td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>F-20 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman" SIZE="2">
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
</font></b>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">9. LONG TERM DEBT</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Long-term debt is
    comprised of the following:</font></td>
    <td WIDTH="20%" align="right" colspan="2">
    &nbsp;</td>
    <td WIDTH="21%" COLSPAN="2" align="right">
    <p align="left"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; June 30,</font></td>
  </tr>
  <tr>
    <td WIDTH="62%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">2003</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Settlement
    Agreements</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Accounts payable
    originally expected to be converted to a $150,000 Note payable to</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">GTRC bearing 7%
    interest, amended in March 2004, and reduced to $100,000, to be</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">amortized in equal</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">quarterly
    installments $16,667 plus interest at 7% through March 2005</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">(see also-Note
    13-Commitments and Contingencies)</font></td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">$150,000</font></td>
    <td WIDTH="21%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">$83,333</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Accounts payable
    originally expected to be converted to Note payable to GTRC</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">bearing 7%
    interest, amortized in monthly payments scheduled to increase annually</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">until a maturity in
    September 2008, yet were settled in full together with other</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">liabilities</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">including the
    amended note above.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">(see also-Note 13 -
    Commitments and Contingencies)</font></td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">474,235</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="62%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Note payable to law
    firm bearing 8% interest, originally monthly installments</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">of $5,000 per month
    commencing in June 2002 and continuing</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">through December 1,
    2003 with a final payment of principal plus</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">accrued interest
    originally due at maturity on December 31, 2003, this note was</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">in arrears as of
    June 30, 2004 and the company negotiated a new settlement</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">arrangement as of August 31,
    2004. Under such settlement agreement, which the Company made a</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">$100,000 cash
    payment and</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">gave a cashless
    warrant to purchase $150,000 worth of common stock valued at $.25</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">per share. In addition
    the Company agreed to pay $25,000 on each of December 1, 2004,</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">March 1, 2005, June
    1, 2005, September 1, 2005 and $50,000 shall be payable on</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">December 1, 2005.
    Thereafter the Company is obligated to pay $25,000 on each of</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">March 1, 2006, June
    1, 2006, September 1, 2006 with a final payment of $75,000 on</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">December 1, 2006.</font></td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">405,022</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">289,500</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Note payable to
    vendor bearing 8% interest due in weekly payments</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">of $5,000 including
    accrued interest. These payments commenced in</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">January 2002 and
    originally were scheduled to continue until June 2004.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">This note is
    presently in arrears and is included in current portion of long term debt.</font></td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">210,558</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">210,558</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Note payable to
    vendor non interest bearing average monthly</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">payments of $4,167
    in 2003 and $3,660 in 2004. These payments</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">commenced in April
    2002 and originally were scheduled to continue until May 2004.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">This note is
    presently in arrears and is included in current portion of long tem debt.</font></td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">79,765</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">79,765</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Note payable,
    vendor, interest at 8%, with average monthly payments of</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">$2,000 originally
    scheduled to through March, 2004.</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">This note is
    presently in arrears and is included in current portion of long term debt.</font></td>
    <td WIDTH="10%" align="right">
    &nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font FACE="Times New Roman" SIZE="2">29,458</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">27,147</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Total</font></td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">$ 1,349,038</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">690,303</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Less: Current
    portion</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <div style="border-bottom-width: 2">
    <font FACE="Times New Roman" SIZE="2">$ 762,735</font></div>
    </td>
    <td WIDTH="11%" align="right">
    &nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <div style="border-bottom-width: 2">
    <font FACE="Times New Roman" SIZE="2">$550,803</font></div>
    </td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">Long-term Debt,
    non-current portion</font></td>
    <td WIDTH="10%" align="right">
    &nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font size="2">586,303</font></div>
    </td>
    <td WIDTH="11%" align="right">
    &nbsp;</td>
    <td WIDTH="10%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font size="2">139,500</font></div>
    </td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">At June 30, 2004
    total maturities of long-term debt are as follows:</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-top-style: none; border-top-width: medium">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right" style="border-top-style: none; border-top-width: medium">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">2005</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">
    &nbsp;</td>
    <td WIDTH="10%" align="right">
    <font FACE="Times New Roman" SIZE="2">$ 550,803</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">2006</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">100,000</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">2007</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">39,500</font></td>
  </tr>
  <tr>
    <td WIDTH="62%"><font FACE="Times New Roman" SIZE="2">TOTAL</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">
    <font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right">
    <div style="border-bottom-style: double; border-bottom-width: 2">
    <font FACE="Times New Roman" SIZE="2">690,303</font></div>
    </td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>F-20 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman" SIZE="2">
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>10. STOCKHOLDERS' EQUITY </font></b><font FACE="Times New Roman" SIZE="2">
</p>
<p>mPhase initially authorized capital of 50,000,000 shares of common stock with
no par value. On February 23, 2000, the Board of Directors proposed and on May
22, 2000 the shareholders approved an increase in the authorized capital to
150,000,000 shares of common stock. On June 15, 2004, a Special Meeting of
Shareholders of the Company approved a proposal by the Company to amend the
Company's Certificate of Incorporation under New Jersey law to increase the
authorized shares of common stock from 150 million to 250 million shares and
change the par value of all shares of common stock from no par to $0.01 par
stock. </p>
<p>On January 26, 2000 the Board of Directors of mPhase resolved that the stated
value of the common stock was $.01 for accounting purposes and, as such, the
financial statements have been retroactively restated to reflect this change.
</p>
<p>Tecma issued 6,600,000 shares of common stock for all of the issued and
outstanding shares of the Company in the reverse acquisition (Note 1). </p>
<p>In October 1997, mPhase issued 250,000 shares of its common stock in
connection with its investment in Complete Telecommunications Inc. </p>
<p>During the year ended June 30, 1998, mPhase sold, pursuant to private
placements, 2,095,014 shares of its common stock together with 1,745,179
warrants for proceeds to the Company of $1,472,015, net of offering costs of
$205,203. The warrants were issued to purchase one share each of common stock at
an exercise price of $0.75, and exercised during the year ended June 30, 2000
generating proceeds to the Company of $1,308,884. Included in offering costs are
100,000 shares of common stock issued for services provided by a third party
valued at $0.50 per share, the fair market value on the date of grant. </p>
<p ALIGN="JUSTIFY">During the year ended June 30, 1998, mPhase issued 300,000
shares of common stock to consultants for services at $0.50 per share, its fair
market value. The Company recorded a charge to operations of $150,000 included
in cumulative from inception in the accompanying consolidated statement of
operations. </p>
<p>On June 25, 1998, mPhase issued 2,500,000 shares of its common stock for all
of the outstanding stock of MicroTel (Note 4) for approximately $1,870,000, the
fair market value. </p>
<p>In November 1998, mPhase sold, 3,120,000 shares of its common stock at $1.00
per share, together with 1,000,000 warrants, with an exercise price of $1.00 per
share, for $3,013,000 net of offering costs of approximately $107,000 in private
transactions pursuant to Rule 506 of Regulation D of the Securities Act of 1933,
as amended, with accredited investors. On June 2, 2000 these warrants were
exercised, generating proceeds to the Company of $1,000,000. </p>
<p>During the year ended June 30, 1999, mPhase issued 1,599,332 shares of common
stock to employees and consultants for services performed. The Company
recognized a charge to operations of $8,760,866, based upon the fair market
value of the shares. </p>
<p>In April, May and June of 1999, mPhase sold a total of 642,000 shares of
common stock at $2.50 per share, together with 642,000 warrants for $1,559,647,
net of offering costs of $45,353 in private transactions pursuant to Rule 506 of
Regulation D of the Securities Act of 1933, as amended, with accredited
investors. </p>
<p>The warrants expire in June 2004. By June 30, 2000, 148,000 of these warrants
were exercised, generating proceeds to the Company of $370,000. </p>
<p>In June 1999, mPhase sold 4,426,698 shares of its common stock at a price of
$2.50 per share for $10,387,434, net of offering costs of $679,311, in private
transactions pursuant to Rule 506 of Regulation D of the Securities Act of 1933,
as amended, with accredited investors. </p>
<p ALIGN="JUSTIFY">In December 1999 and January 2000, mPhase sold, pursuant to
private placements, 1,000,000 shares of common stock at a price of $4.00 per
share, net of cash offering costs of $200,000, generating net proceeds to the
Company of $3,800,000 in private transactions pursuant to Rule 506 of Regulation
D of the Securities Act of 1933, as amended, with accredited investors. In
connection with the private placements, the Company issued 200,000 and 50,000
warrants to purchase common stock to the respective investors. The warrants had
an exercise price of $4.00 and $5.00, respectively. During February 2000, these
warrants were exercised, generating $1,050,000 of proceeds to the Company. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman">
<p ALIGN="JUSTIFY"><font size="2">In March 2000, mPhase sold 832,500 shares of
common stock at a price of $10.00 per share, net of cash offering costs of
$466,480, and issued 124,875 shares to a transaction advisor for services,
generating net proceeds to the Company of $7,858,520 in private transactions
pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended,
with accredited investors. On May 5, 2000 the Company issued an additional
208,125 shares to these investors due to a market value adjustment. These shares
were valued at $1,808,086, which is included in general and administrative
expenses in the accompanying statement of operations for the year ended June 30,
2000. </font></p>
<p><font size="2">F-21 </font></font><font FACE="Times New Roman" SIZE="2"><b>
</p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>10. STOCKHOLDERS' EQUITY - (Continued) </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>During the year ended June 30, 2000, mPhase issued 1,164,215 shares of common
stock to employees and consultants for services performed. The Company
recognized a charge to operations of $8,623,907, based upon the fair market
value of the common stock on the dates of grant. </p>
<p>In September 2000, mPhase issued 510,000 shares of its common stock,
generating net proceeds of $2,532,120, net of cash offering costs of $17,880 in
private transactions pursuant to Rule 506 of Regulation D of the Securities Act
of 1933, as amended, with accredited investors. In connection with the private
placement, the Company issued 105,750 shares of its common stock to transaction
advisors. </p>
<p>In February 2001, mPhase issued 2,342,500 shares of its common stock and a
like amount of warrants to purchase one share each of the Company's common stock
generating gross proceeds of $4,685,000 in private transactions pursuant to Rule
506 of Regulation D of the Securities Act of 1933, as amended with accredited
investors. The attached warrants permit the investor to purchase one share each
of common stock at an exercise price of $3.00 per share. The Company incurred
cash offering costs of $425,315 and also issued 284,600 shares of its common
stock and 162,600 warrants to purchase one share each at an exercise price of
$3.00 to transaction advisors. </p>
<p>In May and June 2001, mPhase issued 1,087,000 shares of its common stock and
a like amount of warrants to purchase one share each of the Company's common
stock generating gross proceeds of $1,087,000 in private transactions pursuant
to Rule 506 of Regulation D of the Securities Act of 1933, as amended with
accredited investors. The attached warrants permit the investor to purchase one
share each of common stock at an exercise price of $3.00. The Company incurred
offering costs of $69,000. </p>
<p>During the year ended June 30, 2001, the Company issued 450,000 shares of
common stock to consultants for services performed and to be performed. The
Company recognized a charge to operations of $886,534 and deferred $121,091 for
services to be performed in the fiscal year ending June 30, 2002. Total expense
of $1,007,625, based upon the fair market value of the common stock on the date
of the grant and the balance of $121,091 was charged to operations for the year
ended June 30, 2002. </p>
<p>Effective June 30, 2001 the Company issued 4,840,077 shares of the Company's
common stock in settlement of debt totaling $2,420,039 to directors and related
parties, based upon the fair market value of the common stock issued which
approximated the debt settled on the measurement date on September 6, 2001, such
date was determined pursuant to EITF00-19 as to when all contingent terms of the
conversion agreement were set. The shares are reflected as outstanding as of
June 30, 2001, pursuant to A9566 and SFAS 128. </p>
<p>In July 2001, the Company issued 75,000 shares of its common stock and a like
amount of warrants to purchase one share each of the Company's common stock at
an exercise price of $3.00 generating proceeds of $75,000 in a private
transaction with accredited investors. </p>
<p>In December 2001, the Company issued 3,474,671 shares of its common stock and
a like amount of warrants to purchase one share each of the Company's common
stock at an exercise price of $.30 generating gross proceeds of $1,042,000 in a
private transaction pursuant to Rule 506 of Regulation D of the Securities Act
of 1933, as amended with accredited investors, which included a subscription
receivable of $440,200, which was collected in January 2002. </p>
<p>In January 2002, the Company issued 2,754,503 shares of its common stock and
a like amount of warrants to purchase one share each at an exercise price of
$.30 generating gross proceeds of $826,351 and June 2002, the Company issued
100,000 shares of its common stock and a like amount of warrants to purchase one
share each at an exercise price of $.30, generating gross proceeds of $30,000 in
a private placements pursuant to Rule 506 of Regulation D of the Securities Act
of 1933, as amended, with accredited investors. </p>
<p ALIGN="JUSTIFY">In connection with the December 2001, January 2002, and June
2002, private placements, the Company issued 576,469 shares of its common stock
and a like amount of warrants to purchase one share each at an exercise price of
$.30 to finders and consultants whom assisted in the transaction. </p>
<p>During the year ended June 30, 2002 the Company issued 7,492,996 shares of
its common stock, and 5,953,490 warrants to related parties and strategic
vendors, in connection with the conversion of $2,738,658 of accounts payable and
accrued expenses, of which 6,150,000 shares of common stock and 3,400,000
warrants were issued in settlement of $1,460,000 of accounts payable to related
parties as follows: </p>
<p>Conversions Concurrent with Private Placements </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p align="left">Included in this total for the year ended June 30, 2002, related
parties and strategic vendors converted debt aggregating approximately
$1,020,000 and $96,000 respectively into: </p>
<p ALIGN="left">(a)3,400,000 shares and of common stock plus warrants to
purchase another 3,400,000 shares of common stock at $.30 for a term of 5 years
(2,200,000 units with Microphase for $660,000 and 1,200,000 units with Janifast
for $360,000) and; </p>
<p ALIGN="left">(b)320,000 shares of common stock plus warrants to purchase
another 320,000 shares of common stock at $.30 for a term of 5 years,
respectively, were issued to strategic vendors. </p>
<p align="left">Such conversions were upon the same terms of a concurrent
private placement of common stock by the Company of approximately $1.8 million
in cash received for 6 million shares of common stock plus warrants to purchase
another 6 million shares of Company's common stock for 5 years at $.30 per
share. No gain or loss was recognized in connection with conversions by related
parties and strategic vendors of the above total of $1,116,000 of debt. </p>
<p align="left">Conversions, Settlements and Gain on Extinguishments </p>
<p align="left">In addition this total for the year ended June 30, 2002 includes
4,873,333 shares of common stock and warrants to purchase 2,656,800 shares of
the Company's common stock which were issued as follows: </p>
<p ALIGN="left">(a)2,750,000 shares of common stock were issued to related
parties, the value of which was based upon the price of the Company's common
stock on the measurement date, such date was determined pursuant to EITF00-1 as
to when all contingent terms of conversion agreements were met, in which no gain
or loss was recognized on the conversion of $440,000 of debt; and </p>
<p ALIGN="left">(b)1,022,996 shares of common stock were issued to strategic
vendors, the value of which was based upon the price of the Company's common
stock on the effective date of settlement with each party, and, two warrants to
purchase 2,233,490 shares of the Company's common stock were issued the
Company's outside counsel to settle outstanding indebtedness of approximately
$450,000 as of March 15, 2002. The aggregate value of such warrants was
estimated using the Black Scholes options pricing model, assuming an anual
expected return of 0%, annual Beta volatility of 125.4 and a risk free interest
rate of 5.9% pursuant to EITF 96-18, for the conversion of $1,182,658 of such
liabilities which, together with gains from cash settelements of $27,860
resulted in an aggregate gain on extinguishments of $142,236. </p>
<p align="left">F-22 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>10. STOCKHOLDERS' EQUITY - (Continued) </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>During the year ended June 30, 2002, certain officers, directors and related
parties were issued 2,000,000 and 6,150,000 shares of mPhase common stock and
3,400,000 warrants in consideration of the investment of $1,000,000 cash and the
conversion of $1,460,000 accounts payable. (see Note 11). </p>
<p>During the year ended June 30, 2002, certain officers, directors and related
parties were issued 2,000,000 and 6,150,000 shares of mPhase common stock and
3,400,000 warrants in consideration of the investment of $1,000,000 cash and the
conversion of $1,460,000 accounts payable. (see Note 11). </p>
<p>Also, during the fiscal year ended June 30, 2002, the Company granted
2,923,000 shares of its common stock and 1,675,000 warrants to consultants for
services performed valued at $1,199,001 for common stock and $504,657 for
warrants based upon the fair market value of the Company's common stock on the
date of the grant using the Black-Scholes option premium model. These totaled
$1,703,658 and the Company recorded a charge to operations of $955,668 for the
year ended June 30, 2002 and the balance of $747,990 was charged to operations
for the year ended June 30, 2003. </p>
<p>During the year ended June 30, 2003, the Company issued 426,000 shares of its
common stock valued at $112,245 and 1,690,000 warrants, valued at $203,150 based
upon the fair market value of the Company's common stock on the date of the
grant using the Black-Scholes option pricing model. The Company recorded these
changes, totaling $318,395 to operations for the year ended June 30, 2003. </p>
<p>During the fiscal year ended June 30, 2003, the Company converted certain
payables and accrued expenses with officers, related parties and strategic
vendors aggregating approximately $1.9 million into 5,923,333 restricted shares
of the Company's common stock and 5 year warrants to purchase an additional
3,706,800 restricted shares of the Company's common stock, of which 5,533,333
shares of common stock and 3,491,800 warrants were issued in settlement of
$1,748,756 of debt to related parties as follows: </p>
<p>Conversions Concurrent with Private Placements </p>
<p>Included in this total for the year ended June 30, 2003, related parties and
strategic vendors converted debt aggregating approximately $300,000 and $15,000
respectively into: </p>
<p ALIGN="left">(a) 1,000,000 shares and 5 year warrants to purchase at $.30 a
share 1,000,000 shares of mPhase common stock by Microphase, a related party,
which converted $300,000 of liabilities; </p>
<p ALIGN="left">(b) 50,000 shares and 5 year warrants to purchase at $.30 a
share 50,000 shares of mPhase common stock by a strategic vendor which converted
$15,000 of liabilities. </p>
<p>Such conversions were upon the same terms of a concurrent private placement
of common stock by the Company and no gain or loss was recognized in connection
with these conversions. </p>
<p>Conversions, Settlements and Gain on Extinguishments </p>
<p>In addition this total for the year ended June 30, 2003 includes 3,772,996
shares of common stock and warrants to purchase 2,233,490 shares of the
Company's common stock which were issued as follows: </p>
<p>(a) During the year ended June 30, 2003, these included transactions with
related parties whereby the Company and the counter parties respective board of
director's approved, entering into an agreement in principle with the Company's
officers and affiliates, including Janiafst Ltd. and Microphase Corporation, to
convert up to an amount equal to accounts payable through September 30, 2002.
Such approval was received by the respective boards of directors authorizing
conversions of such payables effective September 30, 2002 resulting in the
conversion of $620,000 on and $360,000 on of liabilities due to Microphase
corporation, and Janifast Ltd. into 3,033,000 shares and 1,500,000 shares of
stock, respectively. The value attributable to the shares was based upon the
market price of the Company's common stock on the measurement date, such date
was determined pursuant to EITF00-1, as to when all the </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p ALIGN="left">contingent terms of the conversion agreement were met, in which
no gain or loss was recognized on the conversion of $980,000 of debt and, </p>
<p ALIGN="left">(b) Also included in such conversions during the year ended June
30, 2003, were transactions whereby the Company converted $525,967 of
liabilities due to the Company's president, vice president and a sales manager
who is also concurrently employed by Microphase, for unpaid management
compensation and sales commissions due from mPhase into warrants to purchase up
to a total of 2,656,800 shares of the Company's common stock. The aggregate
value of such warrants was estimated using the Black-Scholes options pricing
model, pursuant to EITF 96-18, having an approximate value of $.21 per share, or
$538,173. The Company recorded a settlement expense of approximately $12,206
with respect to these three individuals. </p>
<p ALIGN="left">(c) Strategic vendors converted $117,486 of payables into
340,000 shares of the Company's common stock on the measurement date the value
of which was based upon the price of the Company's common stock on the effective
date of settlement with each party. This resulted in a gain of $37,383, which,
when combined with all the conversions and gains from cash settlements of
$36,049 for the fiscal year 2003, resulted in a net gain on extinguishments in
the statements of operations of $61,226 for the year ended June 30, 2003. </p>
<p align="left">Conversions Concurrent with Private Placements </p>
<p align="left">Included in this total for the year ended June 30, 2003, related
parties and strategic vendors converted debt aggregating approximately $300,000
and $15,000 respectively into: </p>
<p ALIGN="left">(a) 1,000,000 shares and 5 year warrants to purchase at $.30 a
share 1,000,000 shares of mPhase common stock by Microphase, a related party,
which converted $300,000 of liabilities; </p>
<p ALIGN="left">(b)50,000 shares and 5 year warrants to purchase at $.30 a share
50,000 shares of mPhase common stock by a strategic vendor which converted
$15,000 of liabilities. </p>
<p align="left">Such conversions were upon the same terms of a concurrent
private placement of common stock by the Company and no gain or loss was
recognized in connection with these conversions. </p>
<p ALIGN="left">In August of 2003, the Company issued 333,334 shares of its
common stock together with 5 year warrants convertible into a like amount of
shares of common stock at $.30 per share generating net proceeds of $100,000 in
a Private Placement pursuant to Section 506 of Regulation D of the Securities
Act of 1933 to 1 Accredited Investors. The proceeds of such placement were used
for working capital purposes. </p>
<p align="left">In December of 2003, the Company issued 1,550,000 shares of its
common stock together with 5 year warrants convertible into a like amount of
shares at $.35 per share generating net proceeds of $542,500 in a Private
Placement pursuant to Section 506 of Regulation D of the Securities Act of 1933
to 1 Accredited Investor. The proceeds of such placement were used for working
capital purposes and to defray a portion of the costs of Research and
Development expenses with Lucent Technologies, Inc. </p>
<p align="left">From January through March of 2004, the Company issued 8,509,543
shares of common stock together with 5 year warrants convertible into a like
amount of common stock at $.35 per share generating net proceeds of $2,729,213
in a Private Placement pursuant to Section 506 of Regulation D of the Securities
Act of 1933 to 25 Accredited Investors. The proceeds of such placement were used
for working capital purposes and to defray a portion of the costs of Research
and Development expenses with Lucent Technologies, Inc. </p>
<p align="left">In March of 2004, the Company issued 691,429 shares of common
stock together with 5 year warrants convertible into a like amount of common
stock at $.35 per share generating net proceeds of $242,000 in a Private
Placement pursuant to Section 506 of Regulation D of the Securities Act of 1933
to 2 Accredited Investors. The proceeds of such private placement were used for
working capital purposes. </p>
<p align="left">F-22 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>In June of 2004, the Company issued 3,844,000 shares plus 5 year callable
warrants to purchase a like amount of shares at $.35 plus 5 year callable
warrants to purchase shares at $.50 generating net proceeds of $961,000 in a
Private Placement pursuant to Section 506 of Regulation D of the Securities Act
of 1933 to 5 Accredited Investors. The proceeds of such private placement were
used to pay Research and Development Expenses with Lucent Technologies, Inc and
for general corporate working capital. In July of 2004 such placement was
completed with the issuance by the Company of 620,000 shares of common stock
plus a like amount of 5 year callable warrants at $.35 and $.50 to 5 Accredited
Investors generating net proceeds of $155,000. </p>
<p>During the fiscal year ended June 30, 2004, the Company converted certain
payables and accrued expenses with GTRC aggregating approximately $1.9 million
into a cashless 5 year warrant to purchase 5,069,200, restricted shares of the
Company's common stock plus a $100,000 term promissory note . In addition, the
Company converted a total of $36,890 in payables to other vendors in exchange
for 10,467 shares of common stock. </p>
<p>Conversions, Settlements and Gain on Extinguishments </p>
<p>As a result of the preceding, during the three years ended June 30, 2004,
extinguishments, cancellations and conversions of debt for issuance of the
Company's common stock to related parties is summarized in Note 11 and amounts
relating to strategic investors is summarized as follows: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2"><b>For the Years Ended
    June 30</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Equity Conversions of
    Debt with Strategic Vendors</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Number of Shares</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">999,662</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">390,000</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">110,467</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Number of Warrants</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">870,000</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">215,000</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">
    5,069,200</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Amount Converted to
    Equity</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$
    529,503</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$
    198,032</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,963,202</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Gain on Extinguishment
    of Debt</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$
    142,236</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$ 61,226</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$
    150,058</font></td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="65%" COLSPAN="2"><font FACE="Times New Roman" SIZE="2"><b>For the
    Six Months Ended December 31 (Unaudited)</b></font></td>
    <td WIDTH="18%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Equity Conversions of
    Debt with Strategic Vendors</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Number of Shares</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Number of Warrants</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Amount Converted to
    Equity</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Gain on Extinguishment
    of Debt</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>During the year ended June 30, 2004, the Company recorded non-cash
extinguishments gains from settlements of $173,145 and after adjusting $23,087
for cash settlement expenses, resulted in net gains on extinguishments of
$150,058. </p>
<p>The Company has no commitments from affiliates or related parties to provide
additional financings. The Company has, from time to time, been able to obtain
financings from affiliates when conditions in the capital markets make third
party financing difficult to obtain or when external financing is available only
upon very unattractive terms to the Company, and when such capital has been
available from the affiliates. (See also-Note 11-Related Party Transactions) </p>
<p>STOCK INCENTIVE PLANS </p>
<p ALIGN="JUSTIFY">On August 15, 1997, mPhase established its Long Term Stock
Incentive Plan. Included as part of the Long Term Stock Incentive Plan, is the
Stock Option Plan (the &quot;Plan&quot;), in which incentive stock options and
nonqualified stock options may be granted to officers, employees and consultants
of the Company. On February 23, 2000 the Board of Directors proposed and on May
22, 2000 the stockholders approved an increase in the total shares eligible
under this plan to 15,000,000 shares. Vesting terms of the options range from
immediately to two years and generally expire in five years. </p>
<p>On May 30, 2001, mPhase established the 2001 Stock Incentive Plan (the &quot;2001
Plan&quot;), in which incentive stock options and non-qualified stock options may be
granted to officers, employees and consultants of the Company. The total shares
eligible under the 2001 Plan is 20,000,000 shares, in addition to the shares
previously authorized for issuance under the prior plan. Vesting terms of the
options range from immediately to two years and options generally expire in five
years. The maximum number of shares that may be granted during any one fiscal
year to any one individual under the 2001 Plan is limited to 2,500,000 shares.
</p>
<p>F-23 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>10. STOCKHOLDERS' EQUITY - (Continued) </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>A summary of the stock option activity for the years ended June 30, 2002,
2003, 2004 pursuant to the terms of both plans, which include incentive stock
options and non-qualified stock options, is set forth on the below: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" height="322" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%" height="19">&nbsp;</td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2"><b>NUMBER OF</b></font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2"><b>WEIGHTED</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19">&nbsp;</td>
    <td WIDTH="33%" align="right" height="19">&nbsp;</td>
    <td WIDTH="34%" align="right" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%" height="17"></td>
    <td WIDTH="33%" align="right" height="17"><font SIZE="2"><b>OPTIONS</b></font></td>
    <td WIDTH="34%" align="right" height="17"><font SIZE="2"><b>AVERAGE</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19">&nbsp;</td>
    <td WIDTH="33%" align="right" height="19">&nbsp;</td>
    <td WIDTH="34%" align="right" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19">&nbsp;</td>
    <td WIDTH="33%" align="right" height="19">&nbsp;</td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2"><b>EXERCISE PRICE</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="15"><font SIZE="2">Outstanding at June 30, 2002</font></td>
    <td WIDTH="33%" align="right" height="15"><font SIZE="2">19,107,000</font></td>
    <td WIDTH="34%" align="right" height="15"><font SIZE="2">$ 1.27</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19"><font SIZE="2">Granted</font></td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">625,000</font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2">.30</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19"><font SIZE="2">Exercised</font></td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">-</font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19"><font SIZE="2">Canceled /Expired</font></td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">(2,565,000 )</font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2">(1.00 )</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19"><font SIZE="2">Outstanding at June 30, 2003</font></td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">17,167,000</font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2">1.24</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19"><font SIZE="2">Granted</font></td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">4,730,000</font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2">.42.</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19"><font SIZE="2">Exercised</font></td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">-</font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19"><font SIZE="2">Canceled/Expired</font></td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">(4,172,000)</font></td>
    <td WIDTH="34%" align="right" height="19"><font SIZE="2">(1.43)</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="15"><font SIZE="2">Outstanding at June 30, 2004</font></td>
    <td WIDTH="33%" align="right" height="15"><font SIZE="2">17,725,00</font></td>
    <td WIDTH="34%" align="right" height="15"><font SIZE="2">$&nbsp; .87</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" height="19">&nbsp;</td>
    <td WIDTH="33%" align="right" height="19"><font SIZE="2">0</font></td>
    <td WIDTH="34%" align="right" height="19">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%" height="15"><font SIZE="2">Exercisable at June 30, 2004</font></td>
    <td WIDTH="33%" align="right" height="15"><font SIZE="2">17,725,000</font></td>
    <td WIDTH="34%" align="right" height="15"><font SIZE="2">$&nbsp; .87</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>The fair value of options granted in 2002 and 2003 and options and
compensatory warrants granted in 2004 was estimated as of the date of grant
using the Black-Scholes stock option pricing model, based on the following
weighted average assumptions: annual expected return of 0%, annual volatility of
125.4% in 2002, 144.4% in 2003 and 145.3% in 2004 based upon a risk-free
interest rate ranging from 2.1% to 5.8% and expected option life of 4 years. </p>
<p>The per share weighted average fair value of stock options granted during
2002, 2003 and 2004 was $.26, $.21, and $.35, respectively. The per share
weighted average remaining life of the options outstanding at June 30, 2002,
2003, and 2004 is 3.29, 2.80 and 2.88 years, respectively. </p>
<p>mPhase has elected to continue to account for stock-based compensation under
APB Opinion No. 25, under which no compensation expense has been recognized for
stock options and certain compensating warrants granted to employees at fair
market value. Had compensation expense for stock options granted under the Plan
and certain warrants granted to employees in 2004, been determined based on fair
value at the grant dates, mPhase's net loss for 2002, 2003 and 2004 would have
been increased to the pro forma amounts shown below. </p>
<p>During the second quarter of fiscal 2004, the Company adopted the fair value
recognition provisions of FASB Statement No. 123, </p>
<i>
<p>Accounting for Stock-Based Compensation </i>, for stock-based employee
compensation, effective as of the beginning of the fiscal year. Under the
modified prospective method of adoption selected by the Company, stock-based
employee compensation cost recognized in 2003 is the same as that which would
have been recognized had the fair value recognition provisions of Statement 123
been applied to all awards granted after October 1, 1995. The following table
illustrates the effect on net income and earnings per share as if the fair value
based method has been applied to all outstanding and unvested awards in each
period. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="547">&nbsp;</td>
    <td WIDTH="439" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2">Six Months ended December
    31(unaudited),</font></td>
  </tr>
  <tr>
    <td WIDTH="547">&nbsp;</td>
    <td WIDTH="219" align="right"><font FACE="Times New Roman" SIZE="2">2003</font></td>
    <td WIDTH="220" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">Net loss, as reported</font></td>
    <td WIDTH="219" align="right"><font FACE="Times New Roman" SIZE="2">
    $(2,563,377)</font></td>
    <td WIDTH="220" align="right"><font FACE="Times New Roman" SIZE="2">
    $(5,137,992)</font></td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">Add: Stock-based
    employee</font></td>
    <td WIDTH="219" align="right">&nbsp;</td>
    <td WIDTH="220" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">compensation expense
    net</font></td>
    <td WIDTH="219" align="right">&nbsp;</td>
    <td WIDTH="220" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">included in report of
    net income,</font></td>
    <td WIDTH="219" align="right"><font FACE="Times New Roman" SIZE="2">--</font></td>
    <td WIDTH="220" align="right"><font FACE="Times New Roman" SIZE="2">--</font></td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">net of related tax
    effects</font></td>
    <td WIDTH="219" align="right">&nbsp;</td>
    <td WIDTH="220" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">Deduct: Total
    stock-based</font></td>
    <td WIDTH="219" align="right"><font FACE="Times New Roman" SIZE="2">--</font></td>
    <td WIDTH="220" align="right"><font size="2">(5,672,615)</font></td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">employee compensation
    expense</font></td>
    <td WIDTH="219" align="right">&nbsp;</td>
    <td WIDTH="220" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">determined under fair</font></td>
    <td WIDTH="219" align="right">&nbsp;</td>
    <td WIDTH="220" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">value based method for
    all</font></td>
    <td WIDTH="219" align="right">&nbsp;</td>
    <td WIDTH="220" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">awards, net of related
    tax effects</font></td>
    <td WIDTH="219" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="220" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">534,623</font></td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">Pro forma net loss</font></td>
    <td WIDTH="219" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(2,563,337)</font></td>
    <td WIDTH="220" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $(5,672,615)</font></td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">Loss per share:</font></td>
    <td WIDTH="219" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="220" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">Basic and diluted-as
    reported</font></td>
    <td WIDTH="219" align="right"><font FACE="Times New Roman" SIZE="2">$(.04)</font></td>
    <td WIDTH="220" align="right"><font FACE="Times New Roman" SIZE="2">$(.06)</font></td>
  </tr>
  <tr>
    <td WIDTH="547"><font FACE="Times New Roman" SIZE="2">Basic and diluted-pro
    forma</font></td>
    <td WIDTH="219" align="right"><font FACE="Times New Roman" SIZE="2">$(.04)</font></td>
    <td WIDTH="220" align="right"><font FACE="Times New Roman" SIZE="2">$(.06)</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="434">&nbsp;</td>
    <td WIDTH="546" align="center" colspan="3">
    <font FACE="Times New Roman" SIZE="2">Twelve months ended June 30,</font></td>
  </tr>
  <tr>
    <td WIDTH="434">&nbsp;</td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">2002</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">2003</font></td>
    <td WIDTH="184" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">Net loss, as reported</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">
    $(11,245,361)</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">
    $(6,650,211)</font></td>
    <td WIDTH="184" align="right"><font FACE="Times New Roman" SIZE="2">
    $(7,758,586)</font></td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">Add: Stock-based
    employee</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">548,550</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">23,923</font></td>
    <td WIDTH="184" align="right"><font FACE="Times New Roman" SIZE="2">72,000</font></td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">compensation expense
    net</font></td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="184" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">included in report of
    net income,</font></td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="184" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">net of related tax
    effects</font></td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="184" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">Deduct: Total
    stock-based</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">
    (976,280)</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">
    (239,983)</font></td>
    <td WIDTH="184" align="right"><font FACE="Times New Roman" SIZE="2">
    (810,080)</font></td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">employee compensation
    expense</font></td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="184" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">determined under fair</font></td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="184" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">value based method for
    all</font></td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="184" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">awards, net of related
    tax effects</font></td>
    <td WIDTH="183" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="183" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="184" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">Pro forma net loss</font></td>
    <td WIDTH="183" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $(11,673,491)</font></td>
    <td WIDTH="183" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $6,866,231)</font></td>
    <td WIDTH="184" align="right" style="border-top-style: solid; border-top-width: 1; border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">
    $(8,486,666)</font></td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">Loss per share:</font></td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="183" align="right">&nbsp;</td>
    <td WIDTH="184" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">Basic and diluted-as
    reported</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">$(.23)</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">$(.10)</font></td>
    <td WIDTH="184" align="right"><font FACE="Times New Roman" SIZE="2">$(.10)</font></td>
  </tr>
  <tr>
    <td WIDTH="434"><font FACE="Times New Roman" SIZE="2">Basic and diluted-pro
    forma</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">$(.24)</font></td>
    <td WIDTH="183" align="right"><font FACE="Times New Roman" SIZE="2">$(.11)</font></td>
    <td WIDTH="184" align="right"><font FACE="Times New Roman" SIZE="2">$(.11)</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>For the year ended June 30, 2002, the Company recorded non-cash charges and
deferred compensation totaling $927,420 and $0, respectively, in connection with
the grant of 6,570,000 options to employees and options to consultants for
services rendered or to be rendered. Such charges are the result of the
differences between the quoted market value of the Company's common stock on the
date of grant and the exercise price for options issued to employees and Black-Scholes
stock option pricing calculations for options issued to consultants. </p>
<p>F-24 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>10. STOCKHOLDERS' EQUITY - (Continued) </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>For the year ended June 30, 2003, the Company recorded non-cash charges and
deferred compensation totaling $70,950 and $0, respectively, in connection with
the grant of 625,000 options to employees and consultants and the Company
recorded non-cash charges of $203,155 in connection with the grant of 1,690,000
compensating warrants to employees and consultants for services rendered or to
be rendered. Such charges are the result of the differences between the quoted
market value of the Company's common stock on the date of grant and the exercise
price for option and warrants issued to employees and Black-Scholes stock option
pricing calculations for options and warrants issued to consultants. </p>
<p>For the year ended June 30, 2004 the Company recorded non-cash charges and
deferred compensation totaling $833,100 and $0 respectively , in connection with
the grant of options covering 4,370,000 shares of common stock to employees and
consultants and the Company recorded non-cash charges of $170,451 in connection
with the grant of 500,000 compensating warrants to employees and consultants for
services rendered or to be rendered. Such charges are the result of the
differences between the quoted market value of the Company's common stock on the
date of grant and the exercise price for option and warrants issued to employees
and Black-Scholes stock option pricing calculations for options and warrants
issued to consultants. </p>
<p>The following summarizes information about stock options outstanding at June
30, 2004 and December 31, 2004 respectively: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    RANGE OF</b></font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    NUMBER</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    WEIGHTED</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    WEIGHTED</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    NUMBER</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    WEIGHTED</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    EXERCISE</b></font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    OUTSTANDING</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    AVERAGE</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    AVERAGE</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    EXERCISABLE</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    AVERAGE</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    PRICE</b></font></td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    REMAINING</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    EXERCISE</b></font></td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    EXERCISE</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    CONTRACTUAL</b></font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    PRICE</b></font></td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    PRICE</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>LIFE</b></font></td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>June
    30,2004</b></font></td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">$0 -
    $.50</font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    11,705,000</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">3.53</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">$.39</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">
    11,705,000</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">$.39</font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    $.51-$1.50</font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    4,603,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">1.83</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">$.83</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">
    4,603,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">$.83</font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    $1.50-$16.38</font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    1,416,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">.91</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">$4.93</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">
    1,416,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">$ 4.93</font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    December 31,</b></font></td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2"><b>(Unaudited)</b></font></td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="16%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
    <td WIDTH="17%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">$0-$.50</font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    18,913,333</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">3.75</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">.38</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">
    18,913,333</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">.39</font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    $.51-$1.50</font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    4,607,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">1.32</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">.83</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">
    4,607,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">.83</font></td>
  </tr>
  <tr>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    $1.50-$16.38</font></td>
    <td WIDTH="16%" align="center"><font FACE="Times New Roman" SIZE="2">
    1,476,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">.76</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">4.77</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">
    1,476,500</font></td>
    <td WIDTH="17%" align="center"><font FACE="Times New Roman" SIZE="2">4.93</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2"><b>
<p>WARRANTS </b></p>
<p>In January and April 1998, mPhase issued 25,000 and 50,000 warrants,
respectively, each to purchase one share of common stock at an exercise price of
$1.06 and $2.44, respectively, for consulting services. The warrants expire five
years from the date of issuance. At any time after the date of issuance, the
Company may, at its option, elect to redeem all of these warrants at $0.01,
subject to adjustment, as defined, per warrant, provided that the average
closing price of the common stock for 20 business days within any period of 30
consecutive business days exceeds $5.00 per share. As of June 30, 2001, none of
these warrants remain outstanding. </p>
<p>In July 1998, in connection with the private placements, mPhase issued
400,000 warrants, each to purchase one share of common stock at an exercise
price of $1.00 per share. The Company allocated the net proceeds from the sale
of the common stock to the common stock and the warrants. On July 26, 1999,
pursuant to the warrant agreement these 400,000 warrants were converted into
352,239 shares of common stock. In accordance with the warrant agreement, the
warrant holder had the right to initiate a cashless exercise to convert the
warrants into </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>shares of common stock in lieu of exchanging cash. The number of shares
received was determined by dividing the aggregate fair market value of the
shares minus the aggregate exercise price of the warrants by the fair market
value of one share. </p>
<p>In September 1998, mPhase issued 6,666 warrants for services, each to
purchase one share of common stock at an exercise price of $0.75 per share. The
warrants expire five years from the date of grant. The Company determined the
fair market value of the warrants issued under the Black-Scholes Option Pricing
Model to be $16,302. This amount is included in the Company's general and
administrative expenses in the accompanying consolidated statement of operations
as of June 30, 1999. These warrants were exercised during the year ended June
30, 2000 generating proceeds to the Company of $5,000. </p>
<p>In June 1999, in connection with the private placements, mPhase also issued
400,000 warrants each to purchase one share of common stock at an exercise price
of $1.00 per share. The warrants were to expire five years from the date of
grant. These warrants were exercised during the year ended June 30, 2000
generating proceeds of to the Company of $400,000. </p>
<p ALIGN="JUSTIFY">In January 2000, in connection with private placements,
mPhase issued 200,000 and 50,000 warrants, each to purchase one share of common
stock, at an exercise price of $4.00 and $5.00, respectively. The net proceeds
of the private placement were allocated to the warrants and the common stock
based on their respective fair values. The warrants were to expire five years
from the date of issuance. These warrants were exercised in February 2000. </p>
<p>During the year ended June 30, 2001, mPhase issued 4,980,125 warrants to
investors including 1,550,625 warrants to existing investors as compensation
which resulted in a charge of $1,249,804 to operations based upon the fair value
of the warrants issued as determined under the Black-Scholes option pricing
model, and 162,600 to finders, consultants and investment banking firms, each of
these warrants to purchase one share each of the Company's common stock at
$3.00, for five years, in connection with private placements. </p>
<p>F-25 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman">
<p align="center"><font size="2">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </font></p>
<p><font size="2">10. STOCKHOLDERS' EQUITY - (Continued) </font></font></b></p>
<font FACE="Times New Roman">
<p><font size="2">During the year ended June 30, 2001, mPhase granted 1,180,000
warrants to consultants for services performed and for services to be performed
at prices ranging from $1.25 to $5.00, which resulted in a charge of $1,185,874
to operations and deferred $457,942 for services to be performed in the fiscal
year to end June 30, 2002, totaling $1,643,816 based upon the fair value of the
warrants issued as determined under the Black-Scholes option pricing model.
</font></p>
<p><font size="2">As of June 30, 2001, 6,816,725 warrants were outstanding with
a weighted average exercise price of $2.93. </font></p>
<p><font size="2">During the year ended June 30, 2002, the Company issued 75,000
and 6,797,643 warrants to investors and to finders, consultants and investment
banking firms, each of these warrants to purchase one share each of the
Company's common stock at $3.00 and $.30, for five years, in connection with
private placements. The Company also issued 13,334 shares of its common stock
following the exercise of warrants resulting in gross proceeds $4,000. Also,
during the year ended June 30, 2002, the Company granted 1,675,000 warrants to
consultants for services performed and 6,043,490 warrants to creditors,
including related parties, in connection with the conversion of outstanding
liabilities. </font></p>
<p><font size="2">As of June 30, 2002, 21,965,260 warrants were outstanding with
a weighted average exercise price of $1.05. </font></p>
<p><font size="2">During the year ended June 30, 2003, the Company issued
4,701,696 warrants to investors and to finders, consultants and investment
banking firms, each of these warrants to purchase one share each of the
Company's common stock at $.30, for five years, in connection with private
placements. Also, during the year ended June 30, 2003, the Company granted
1,690,000 5 year warrants to employees and consultants for services performed
with an exercise price of $.40 per share of common stock and 3,706,800 warrants
to creditors, including related parties (see Note 11), in connection with the
conversion of outstanding liabilities. </font></p>
<p><font size="2">As of June 30, 2003, 31,777,735 warrants remain outstanding
with a weighted average exercise price of $.84 </font></p>
<p><font size="2">During the year ended June 30, 2004, the Company issued
warrants to purchase 18,795,487 shares of common stock to investors and warrants
to purchase 628,826 shares of common stock to finders, consultants and
investment banking firms. Of such warrants, 11,106,487 shares of the Company's
common stock may be purchased at $.30, for five years, 3,844,000 shares may be
purchased at $.35 and 3,844,000 shares may be purchased at $.50 in connection
with private placements. Also, during the year ended June 30, 2004, the Company
granted 5 year warrants to purchase 500,000 shares to consultants for services
performed with an exercise price of $.30 per share of common stock and 5,069,242
warrants to creditors, including related parties (see Note 11), in connection
with the conversion of outstanding liabilities. Additionally, warrants cover
1,233,334 of common stock were exercised during the fiscal year ended June
30,2004, generating net proceeds to the Company of $316, 800. Also during the
fiscal year ended June 30, 2004, warrants covering 519,000 shares with a
weighted average exercise price of $2.50 were cancelled or expired. </font></p>
<p><font size="2">As of June 30, 2004, 55,017,953 warrants remain outstanding
with a weighted average exercise price of $.55. </font></p>
<p><font size="2">F-26 </font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'></font><font FACE="Times New Roman" SIZE="2">
<p>The following summarizes information about warrants issued pursuant to
various financing transactions and for services through June 30, 2004 and
December 31, 2004 respectively. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Range of</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Number</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Weighted</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Weighted</b></font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Exercise Price</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Outstanding</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Average</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Average</b></font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>And</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Remaining</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Exercise Price</b></font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Exercisable</b></font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    Contractual</b></font></td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>Life</b></font></td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>June
    30, 2004</b></font></td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$0 -
    $.30</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    27,996,253</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">3.30</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$ .20</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    $.31-$.50</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    21,148,975</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">4.64</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$ .38</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    $.51-$2.50</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">500,000</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">2.92</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$ .68</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    $2.51-$5.10</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    5,372,225</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">1.24</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$ 3.06</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    December</b></font></td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="26%" align="center">&nbsp;</td>
    <td WIDTH="26%" align="center"><font FACE="Times New Roman" SIZE="2"><b>
    31,2004(Unaudited)</b></font></td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
    <td WIDTH="25%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$0-$.30</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    46,117,186</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">3.28</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$.27</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    $.31-$.50</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    20,098,309</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">4.57</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$.37</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    $.51-$2.50</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">500,500</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">2.32</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$.68</font></td>
  </tr>
  <tr>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    $2.51-$5.10</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">
    5,372,725</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">.74</font></td>
    <td WIDTH="25%" align="center"><font FACE="Times New Roman" SIZE="2">$3.06</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>RESERVED SHARES </p>
<p ALIGN="JUSTIFY">The Company has reserved approximately 3,360,000 shares
issuable upon provisions of convertible notes to related parties, which provide
for, at the option of the holder's of $280,000 of notes payable, the conversion
of unpaid principal and interest into units valued at $.25 each, each unit
consisting of one share of the Company's common stock and a one warrant each to
purchase the Company's common stock at $.25 per share and $.50 per share for a
period of 5 years. </p>
<p>F-26 (continued) <b></p>
</b> </font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 </b></font><b>
<font FACE="Times New Roman" SIZE="2"><br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>11. RELATED PARTY TRANSACTIONS </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>The Company records material related party transactions. The Company incurs
costs for engineering, design and production of prototypes and certain
administrative functions from Microphase Corporation and the purchase of
finished goods, primarily consisting of DSL splitter shelves and filters, from
Janifast Limited. The Company has incurred costs for obtaining transmission
rights. This enabled the Company to obtain re-transmission accreditation to
proprietary television content that the Company plans to provide with its
flagship product, the Traverser&#153 within its incorporated joint venture mPhase
Television.net, in which the Company owns a 56.5% interest. </p>
<p>The Company has also incurred charges for beta testing and on-site marketing,
including the display of a live working model at Hart Telephone. In addition,
the Company has entered into a supply agreement with Hart Telephone, which is
scheduled to commence upon the commercial production of the legacy Traverser&#153
DVDDS television platform. A member of mPhase's Board of Directors is employed
by Lintel, Inc., the parent corporation of Hart Telephone. </p>
<p>Mr. Durando, the President and CEO of mPhase, and together with Mr. Ergul
owns a controlling interest and is a director of Janifast Limited. Mr. Durando
and Mr. Dotoli are officers of Microphase Corporation. Mr. Ergul, the chairman
of the board of mPhase, owns a controlling interest and is a director of
Microphase Corporation. Microphase, Janifast, Hart Telephone and Lintel
Corporation are significant shareholders of mPhase. Microphase, Janifast and
Hart Telephone have converted significant liabilities to equity in fiscal years
June 30, 2001, 2002 and in the current fiscal year. Management believes the
amounts charged to the Company by Microphase, Janifast, mPhase Television.net
and Hart Telephone are commensurate to amounts that would be incurred if outside
parties were used. The Company believes Microphase, Janifast and Hart Telephone
have the ability to fulfill their obligations to the Company without further
support from the Company. mPhase's President, Executive Vice President and
Chairman of the Board of the Company are also officers of Microphase (Note 4).
</p>
<p>On May 1, 1997, the Company entered into an agreement with Microphase,
whereby it 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 and in January 2000 to $11,050 per month.
In July 2001, the agreement was revised to $11,340 a month. In July, 2002 this
was increased to $12,200 per month and as of January 1, 2003 such rent was
reduced to 10,000 per month. Additionally, in July 1998, mPhase entered into an
agreement with Microphase, whereby mPhase reimburses Microphase $40,000 per
month for technical research and development assistance. Such agreement was
amended as of January 1, 2002 to reduce such payment to $20,000 per month.
Microphase also charges fees for specific projects on a project-by-project
basis. During the years ended June 30, 2001, 2002, and 2003 and for the period
from inception (October 2, 1996) to June 30, 2003, $2,128,983, $1,212,594,
$648,102 and $7,224,526, respectively, have been charged to expense or inventory
under these Agreements and is included in operating expenses in the accompanying
consolidated statements of operations. </p>
<p>On February 15, 1997, mPhase entered into a Technology, Patent and Trademark
License Agreement (the &quot;Agreement&quot;) with MicroTel (Note 4). The Agreement
permits the Company to utilize the patent and trademark technology of MicroTel
under a licensing arrangement. The Company made payments of $37,500 per month,
commencing June 1, 1997 for technology development. During the period ended June
30, 1997 and 1998, $37,500 and $450,000 has been charged to expense under this
Agreement and is included in licensing fees in the accompanying consolidated
statement of operations. As of June 25, 1998, the Company acquired MicroTel and
as of that date this Agreement is no longer in effect. </p>
<p>Also, during the fiscal year ended June 30, 2000, $2,600,000 was advanced to
Microphase in the form of a note, which was repaid by Microphase during the
year. mPhase recorded $39,000 of interest income on this note for the year ended
June 30, 2000. The Company is obligated to pay a 3% royalty to Microphase on
revenues from its legacy Traverser&#153 Digital Video and Data Delivery System and
its DSL component products. During the years ended June 30, 2001 <b>, </b>2002
and 2003 mPhase recorded royalties to Microphase totaling $297,793, $78,762 and
$47,304, respectively. </p>
<p>F-27 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>Pursuant to a debt conversion agreement between the Company and Microphase,
for the year ended June 30, 2001, Microphase received 1,278,000 shares of mPhase
common stock and for the year ended June 30, 2002, in consideration for a direct
investment of $100,000 and pursuant to debt conversion agreements canceling
$740,000 of liabilities of the Company , Microphase received 2,900,000 shares of
mPhase common stock and 2,200,000 warrants to purchase mPhase common stock, as
discussed in Note 10. For the fiscal year ended June 30, 2003 Microphase
received 4,033,333 shares of common stock , such shares included 3,033,333
shares that the value of which was based upon the price of the Company's common
stock on the effective date of settlement, plus 1,000,000 shares and 1,000,000
five year warrants to purchase shares of common stock of mPhase at $.30 per
share whereby such conversions were upon the same terms of a concurrent private
placement of common stock by the Company. No gain or loss was recognized in
connection with conversions by Microphase for fiscal 2003 in exchange for the
cancellation of accounts payable totaling $920,000. As of June 30, 2003 and
2004, the Company had $61,789 and $145,550 current accounts payable to
Microphase, which are included in amounts due to related partiesas current
liabilities in the accompanying consolidated balance sheet. As of June 30, 2002,
the Company had $92,405 included in other liabilities- related parties and as of
June 30, 2003 and June 30, 2004, $360,000 and $180,000 respectively in notes
payable - related parties as long term liabilities in the accompanying
consolidated balance sheet. Additionally, at June 30, 2004, no undelivered
purchase orders remain outstanding with Microphase. </p>
<p>F-27 (continued) <b></p>
</b> </font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman" SIZE="2">
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p>11. RELATED PARTY TRANSACTIONS - (continued) </p>
<p>JANIFAST </font></b><font FACE="Times New Roman" SIZE="2"></p>
<p>During the year ended June 30, 2000, mPhase advanced money to Janifast
Limited, which is owned by U.S. Janifast Holdings, Ltd, a related party of which
three directors of mPhase are significant shareholders, in connection with the
manufacturing of POTS Splitter shelves and DSL component products. As of June
30, 2000 the amount advanced to Janifast was approximately $1,106,000, which is
included in production advances-related parties on the accompanying balance
sheet. There were no such advances during the years ended June 30, 2002 and
2003. Pursuant to debt conversion agreements between the Company and Janifast,
for the year ended June 30, 2001 Janifast received 1,200,000 shares of mPhase
common stock canceling liabilities of $600,000, and for the year ended June 30,
2002 Janifast received 3,450,000 shares of mPhase common stock and 1,200,000
warrants to purchase mPhase common stock for the cancellation of $720,000 of
liabilities, as discussed in Note 10. During the year ended June 30,2003
Janifast was issued 1,500,000 shares of mPhase common stock in connection with
the cancellation of $360,000 of outstanding liabilities of mPhase, the value of
which was based upon the price of the Company's common stock on the effective
date of settlement. No gain or loss was recognized in connection with
conversions by Janifast for fiscal 2003. During the years ended June 30, 2002,
2003 and 2004 and the period from inception (October 2, 1996) to June 30, 2004,
there has been $1,754,308, $174,959, $2,771,925 and $13,463,611, respectively,
of invoices for products and services have been charged to inventory or expense
and is included in operating expenses in the accompanying statements of
operations. At June 30, 2004 the Company had $422,905 current accounts payable,
which are included in due to related parties and additionally, at June 30, 2004,
approximately $400,000 of undelivered purchase orders remain outstanding with
Janifast. <b></p>
<p>OTHER RELATED PARTIES </b></p>
<p ALIGN="JUSTIFY">For consulting services rendered in connection with the joint
venture (Note 8), the Company agreed to pay two officers of the Company and a
related party $412,400, which was included on the June 30, 2000 consolidated
balance sheet of the Company. This amount was paid by the Company during the
year ended June 30, 2001. </p>
<p>In July 2000, mPhase added a member to the Board of Directors who is employed
by an investment-banking firm that has assisted and is expected to continue to
assist the Company in raising capital through private financing. During the year
ended June 30, 2001, the Company issued 140,350 shares of common stock for
investment banking services rendered during the period and recorded an
additional $69,000 of fees which is included in accrued expenses at June 30,
2001. The Company has installed its prototype product and commenced beta testing
at Hart Telephone. In addition, the Company has entered into a supply agreement
with Hart Telephone upon the completion of beta testing and the commencement of
production of the Traverser&#153. As consideration for the execution of the
agreement with Hart Telephone, in May 2000, mPhase issued Hart Telephone 125,000
options each to purchase one share of common stock at an exercise price of $1.00
(valued at $1,010,375), which is included in research and development expenses
in the accompanying statement of operations for the year ended June 30, 2000.
Mr. J. Lee Baron, the president and chief executive officer of Lintel Inc.,
(Lintel is the parent of Hart Telephone Company), and at that time a Director of
the Company, received a $285,000 bonus, a stock award of 140,000 shares and
100,000 options in addition to the 125,000 granted to Hart for Beta testing
services in the year ended June 30, 2000 and 120,000 options for services as a
Director for the year ended June 30, 2001. </p>
<p>F-28 <b></p>
</b></font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2"><b>Charges and
    Expenses with Related Parties</b></font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="36%" COLSPAN="4" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>For the Years Ended June 30,</b></font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Janifast included in:</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">1,759,308</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">178,959</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Total Janifast</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">1,759,308</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">178,959</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="57%" COLSPAN="2"><font FACE="Times New Roman" SIZE="2">Charges
    incurred with Microphase Corp. included in:</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory (Including</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">200,440</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">86,468</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">140,123</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Royalties)</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">876,074</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">478,434</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">84494</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">136,080</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">133,200</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">161,496</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Total Microphase Corp.</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">1,212,594</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">648,102</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">386,113</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Lintel &amp; Affiliates included</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">in:</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Total Lintel &amp;
    Affiliates</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Joint Venture Partners &amp;</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Affiliates included
    in:</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">64,039</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">64,039</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties included in:</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">1,959,748</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">265,427</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">2,912,048</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">940,113</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">428,434</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">84,494</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">136,080</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">133,200</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">161,496</font></td>
  </tr>
  <tr>
    <td WIDTH="48%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties:</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">3,035,941</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">827,061</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">3,158,038</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2"><b>Charges and
    Expenses with Related Parties</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="41%" align="center" colspan="3">
    <font FACE="Times New Roman" SIZE="2"><b>For the Six Months Ended December
    30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="41%" COLSPAN="3" align="center">
    <font FACE="Times New Roman" SIZE="2"><b>
    <p align="center">(Unaudited),</b></font></td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Janifast included in:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,816,019</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Total Janifast</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,816,019</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="61%" COLSPAN="2"><font FACE="Times New Roman" SIZE="2">Charges
    incurred with Microphase Corp. included</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">in:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory (Including</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">22,948</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">11,784</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Royalties)</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">54,000</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">41,000</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">147,213</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Total Microphase Corp.</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">91,948</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">199,990</font></td>
  </tr>
  <tr>
    <td WIDTH="61%" COLSPAN="2"><font FACE="Times New Roman" SIZE="2">Charges
    incurred with Lintel &amp; Affiliates included</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">in:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Affiliates included
    in:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties included in:</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,838,967</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">410,490</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">54,000</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">41,000</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">15,000</font></td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">147,213</font></td>
  </tr>
  <tr>
    <td WIDTH="47%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties:</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,907,967</font></td>
    <td WIDTH="13%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="14%" align="right"><font FACE="Times New Roman" SIZE="2">598,712</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2"><hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>A member of mPhase's Board of Directors is employed by Lintel, Inc, the
parent corporation of Hart Telephone. Prior to becoming a director, this
individual received 25,000 options during the fiscal year ended June 30, 1999,
of which 5,000 options were exercised during the fiscal year ended June 30,
2000; 23,000 options during the fiscal year ended June 30, 2001 and 15,000
options as a consultant for beta testing service during fiscal year ended June
30, 2002. In addition, during the years ended June 30, 2002, 2003 and June 30,
2004 he received options and warrants covering 62,500 shares, 35,000 shares and
100,000 shares of common stock, respectively, for services as a director. </p>
<p>Effective June 30, 2001, the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements. </p>
<p>Effective March 31, 2002, the Company converted $420,872 of liabilities due
to Piper Rudnick LLP, outside legal counsel to mPhase into a warrant to purchase
up to a total of 1,683,490 shares of the Company's common stock which pursuant
to EITF 96-18, has an approximate value of $.30 per share; and a warrant to
purchase 550,000 shares of the Company's common stock at an exercise price of
$.30 per share pursuant to the terms of payment agreement. In addition, Piper
agreed to accept a Promissory note for $420,872 of current payables at an
interest rate of 8% with payments of $5,000 per month commencing June 1, 2002
and continuing through December 1, 2003, with a final payment of principal plus
accrued interest due at maturity on December 31, 2003. As of August 11, 2003 the
Company has an arrearage of $ 35,000 with respect to the payments on the
promissory note. </p>
<p>During the year ended June, 30 2003, the Company converted $525,967 of
liabilities due to the Company's president, vice president and a sales manager
who is also concurrently employed by Microphase, for unpaid management
compensation and sales commissions due from mPhase into warrants to purchase up
to a total of shares of the Company's common stock which, pursuant to EITF
96-18, have an approximate value of $.21 per share or $538,173. The Company
recorded a settlement expense of approximately $12,206, which is included as a
reduction to gain on settlements in the statements of operations for the year
ended June 30, 2003. </p>
<p>F-29 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>In March of 2003, Messrs, Durando, Dotoli and Smiley participated in a
private placement of the company investing $20,000, $20,000 and $75,000
respectively, receiving common stock of mPhase at $.30 per share plus 5 year
warrants of mPhase to purchase a like amount of common stock at $.30 per share.
In March of 2003, Messrs Durando and Smiley lent to mPhase $30,000 and $100,000
respectively at 12% interest pursuant to two promissory notes originally due in
September of 2003. In June 2003, Mr. Durando was repaid and Mr. Smiley agreed to
extend his note until July, 2004. Also in June, 2003, Microphase agreed to
convert $360,000 of accounts payable to a note payable, interest at 12%, due in
July, 2004. The notes have provisions for prepayment by the Company and at the
option of the holder, provide for the conversion of unpaid principal and
interest into units valued at $.30 each, each unit consisting of one share of
the Company's common stock and a one warrant to purchase the Company's common
stock at $.30 per share for a period of 5 years. During the fiscal year ended
June 30, 2004 Microphase was repaid $180,000 and $180,000 remains outstanding.
</p>
<p>As of June 30, 2004, Mr. Smiley and Microphase each agreed to extend to July
25, 2005, the maturity on their 12% convertible promissory notes in the
principal amount of $100,000 and $180,000 respectively. </p>
<p>Additionally at June 30, 2004, Mr. Durando was owed $300,000 by the Company
as evidenced by a non-interest bearing promissory note that was repaid in July
2004. As of June 30, 2004 a total of $55,000 in the aggregate was due to Mr.
Durando and Mr. Dotoli for unpaid compensation. </p>
<p>Generally, as summarized below, the Company has offered conversion of debts
to related parties on substantially the same terms as concurrent private
placements (typically in $.30 units, such units including both shares of common
stock and warrants to purchase a like amount of common stock) in addition to
conversion of debts pursuant to terms of concurrent private placements and
financial instruments which, pursuant to EITF 00-19 have been settled with the
Company's common stock as conditioned by benchmarks, generally coinciding with
the Company's negotiations to settle any and all obligations with Georgia Tech
Research and its affiliate (see also Note 13) as follows: </p>
<p>F-29 (continued) <b></p>
</b> </font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman" SIZE="2">
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </p>
<p align="left">11. RELATED PARTY TRANSACTIONS - <i>(continued) </i></font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<i><b>
<p align="center">Equity Conversions of Debt and Other Financial Instruemnets
with Related Parties </p>
</b></i></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="40%">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    <p align="left">June 30,</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="40%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2"><b>Janifast:</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,450,000</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,500,000</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    12,000,000</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">720,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">360,000</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2"><b>Microphase
    Corporation:</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,700,000</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    4,033,333</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,200,000</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">740,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">920,000</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2"><b>Strategic Vendor
    Conversions:</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2"><b>Officers</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">333,334</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of warrants (A)</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">334.334</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,491,800</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">103,000</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">480,967</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2"><b>Joint Venture
    Partners and Affiliates</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">63,216</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">31,628</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2"><b>Total Related Party
    Conversions</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    6,546,550</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    5,533,333</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,733,334</font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    3,491,800</font></td>
  </tr>
  <tr>
    <td WIDTH="40%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,594,628</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,760,967</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>(A) Includes $12,206 settlement expense incurred to the Company's Chief
Operating Officer in connection with the exchange of warrants to purchase the
Company's common stock to cancel unpaid compensation, which is included as a
reduction to gain on settlements in fiscal 2003. </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><i><b>
<p align="center">Equity Conversions of Debt and Other Financial Instruemnets
with Related Parties </b></i></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="71%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2"><b>Janifast:</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2"><b>Microphase
    Corporation:</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2"><b>Strategic Vendor
    Conversions:</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">110,467</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    5,069,242</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,963,202</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2"><b>Officers</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of warrants (A)</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2"><b>Joint Venture
    Partners and Affiliates</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2"><b>Total Related Party
    Conversions</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font face="Times New Roman" size="2">110,0467</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font face="Times New Roman" size="2">
    5,069,242</font></td>
  </tr>
  <tr>
    <td WIDTH="71%"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="11%" align="right"><font face="Times New Roman" size="2">
    1,963,202</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2"><i><b>
<p align="center">Equity Conversions of Debt and Other Financial Instruemnets
with Related Parties </b></i></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="437">&nbsp;</td>
    <td WIDTH="274" COLSPAN="2" align="right">
    &nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="437">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2"><b>Janifast:</b></font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">200,000</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2"><b>Microphase
    Corporation:</b></font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    1,250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    1,250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2"><b>Strategic Vendor
    Conversions:</b></font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2"><b>Officers</b></font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">489,875</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Number of warrants (A)</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">489,875</font></td>
  </tr>
  <tr>
    <td WIDTH="437"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="137" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">97,975</font></td>
  </tr>
</table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2"><b>Joint Venture
    Partners and Affiliates</b></font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2"><b>Total Related Party
    Conversions</b></font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right">&nbsp;</td>
    <td WIDTH="138" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2">Number of shares</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    2,739,875</font></td>
  </tr>
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2">Number of warrants</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right">&nbsp;</td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">
    2,739,875</font></td>
  </tr>
  <tr>
    <td WIDTH="436"><font FACE="Times New Roman" SIZE="2">Amount converted to
    equity</font></td>
    <td WIDTH="137" align="right">&nbsp;</td>
    <td WIDTH="275" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="138" align="right"><font FACE="Times New Roman" SIZE="2">547,975</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>F-28 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman" SIZE="2">
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
(A DEVELOPMENT STAGE COMPANY) <br>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 <br>
(Unaudited for the Periods Ended December 31, 2003 and 2004) </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<b>
<p>12. INCOME TAXES </b></p>
<p>No provision has been made for corporate income taxes due to cumulative
losses incurred. At June 30, 2004, mPhase has operating loss carryforwards of
approximately $63.2 million and $62.6 million to offset future federal and state
income taxes respectively, which expire at various times from 2016 through 2024.
Certain changes in stock ownership can result in a limitation in the amount of
net operating loss and tax credit carryovers that can be utilized each year. </p>
<p>At June 30, 2004 the Company has net deferred income tax assets of
approximately $24.2 million comprised principally of the future tax benefit of
net operating loss carryforwards, which represents an increase of $.6 million
for the fiscal year ended June 30, 2004. A full valuation reserve has been
recorded against such assets due to the uncertainty as to their future
realizability. <b></p>
<p>13. COMMITMENTS AND CONTINGENCIES </p>
<p>COMMITMENTS </b></p>
<p>mPhase has entered into various agreements with Georgia Tech Research (&quot;GTRC&quot;)
and its affiliate, Georgia Tech Applied Research Corporation, (&quot;GTARC&quot;),
pursuant to which the Company receives technical assistance in developing the
commercialization of its Digital Video and Data Delivery System. The amount
incurred by the Company for GTRC technical assistance with respect to its
research and development activities during the years ended , 2002, 2003 and 2004
totaled $450,000, $100,000 and $0 respectively, and $13,539,952 from the period
from inception through June 30, 2004. </p>
<p>If and when sales commence utilizing its legacy DVDDS digital broadcast
television platform, mPhase will be obligated to pay to GTRC a royalty up to 5%
of product sales, as defined. </p>
<p>As of June 30, 2004, mPhase is obligated to pay Lucent Technologies, Inc.
$100,000 per month through and including the first of each month from July 1,
2004 through and including February 1, 2004 in connection with the development
of its Nanotechnology product line. Additionally, the Company engages Lucent on
a project-by-project basis for research and development of technical product
related enhancements for its TV+ product. The Company owed Lucent $257,800 for
amounts accrued through June 30, 2004. The amount incurred by the Company with
Lucent for assistance with respect to its research and development activities
during the years ended June 30, 2002, 2003, and 2004 totaled $156,250 and
$1,112,500, and $2,328,602 respectively, and $3,597,102 from the period from
inception through June 30, 2004. </p>
<p>From time to time, mPhase may be involved in various legal proceedings and
other matters arising in the normal course of business. The Company currently
has no material outstanding legal proceedings, nor does it anticipate any
actions which would result in liabilities in excess of amounts recorded in these
financial statements. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p>14. Subsequent Events (Unaudited) </p>
</b>
<p>The December 31, 2004 and outstanding subscriptions receivable balance of $
50,000 was fully collected in January of 2005. </p>
<p>Additionally, the December 2004 private placement was closed out in January
of 2005 with the placement of 3,600,000 equity units at $.20 per unit consisting
of one share of common stock plus5 year warrants for a like amount of shares
with a strike price of $.25 per share generating net proceeds of $720,000 to the
Company. </p>
<p>A January Private Placement realized net proceeds of $357,250 upon issuance
of 1,793,750 shares of Common Stock at $.20 per share plus 5 year warrants to
purchase 1,793,750 shares of Common Stock at $.25 per share. A later Private
Placement realized net proceeds of $1,351,000 upon issuance of 4,920,000 shares
of Common Stock plus 5 year warrants to purchase 4,920,000 shares of Common
Stock at $.25 per share. A March Private Placement resulted in the realization
of net proceeds of $1,217,000 upon issuance of 4,396,667 shares of Common Stock
at $.30 per share plus 5 year warrants to purchase 4,396,667 shares of Common
Stock at $.30 per share </p>
<p>In January of 2005 there were stock option awards issued to two consultants
for services performed. The company granted 250,000 options to a consultant for
professional services, these options provide for the right of stock purchase at
an exercise price of $.25, these options have a five year life and expire in
January of 2010. A second award issued a like number of options to another
service provider under similar terms, except that the options associated with
this second award offer a call feature, available to the company, for redemption
of such options at a call price of $.45 at any time during their five year life.
In aggregate, 400,000 options were issued in connection with these awards and
will result in a charge to General and Administrative non-cash expense in the
amount of $ 133,990 in the third quarter of fiscal 2005. The valuation of this
charge was made on the basis of the fair market value of the Company's common
stock on the date of grant using the Black-Scholes option premium model. </p>
<p>In February of 2005, GTARC tendered 5,069,242 of cashless warrants which they
held in connection with a previous debt settlement in exchange for 4,949,684 if
the company's shares of common stock, the balance of the 119,558 warrants were
effectively cancelled as a result of certain warrant exercise exchange
provisions adjusting the exchange rate based on specified stock pricing
experience as per the original debt settlement agreement. </p>
<p>On February 17 of 2005, the Company granted 2,600,000 warrants and 400,000
options to consultants for services performed valued at $ 1,328,600 and $
204,400, respectively. The warrants and options provide the right to purchase a
share of mPhase common stock at an exercise price $.45 and $.30 per share,
respectively, over their 5 year life expiring in February of 2010. These warrant
and option awards were valued on the basis of the fair market value of the
Company's common stock on the date of grant using the Black-Scholes option
premium model and the value of the award will be expensed to General and
Administrative non-cash expenses in the third quarter of fiscal 2005. </p>
<p>On January 15, 2005, the company converted a $ 100, 000 convertible note
payable to Martin Smiley in exchange for 400,000 shares and a like number of
warrants that were price at $25 per unit or $100,000 in aggregate. </p>
<p>Also in January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.35 on the date of that award. </p>
<p>In late February and early March of 2005, the Company converted approximately
$173,898 in accounts payable due various vendors into 535,296 shares of common
stock aggregating $183,310 in full settlement of those obligations. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman">
<p align="center">PART I </p>
</font><font FACE="Times New Roman" SIZE="2">
<p>Item 14. Controls and Procedures </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<p>Under the supervision and with the participation of management including the
Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14c and of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedures are effective. There were no changes in our internal control over
financial reporting during the fiscal year ended June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting<b>
</b>
</p>
<p><b> ITEM 14B. VALUATION AND QUALIFYING ACCOUNTS
</p>
<p align="center">mPHASE TECHNOLOGIES, INC. <br>
VALUATION AND QUALIFYING ACCOUNTS <br>
</b>Years Ended June 30, 2004, 2003 and 2002 <br>
(In Thousands) </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Additions</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Balance at</b></font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Charged to</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Charged to</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Deductions</b></font></td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>Balance at</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>beginning</b></font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2"><b>costs
    and</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2"><b>other</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="20%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>end of year</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="22%" COLSPAN="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>of year</b></font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    expenses</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    accounts</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Description</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Year ended June 30,
    2004</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Allowance for doubtful
    accounts</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">(deducted from
    accounts receivable)</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Allowance for
    obsolescence</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">486</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">(87)</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">(11)</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">388</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">(deducted from
    inventory, at cost)</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Year ended June 30,
    2003</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Allowance for doubtful
    accounts</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">(deducted from
    accounts</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">receivable)</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">3</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">(3)</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Allowance for
    obsolescence</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">1,243</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">302</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">(1,059)</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">486</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">(deducted from
    inventory, at cost)</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Year ended June 30,
    2002</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Allowance for doubtful
    accounts</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">29</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">3</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">(29 )</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">3</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">(deducted from
    accounts receivable)</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Allowance for
    obsolescence</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">315</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">928</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" SIZE="2">1,243</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">(deducted from
    inventory, at cost)</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
</table>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><b><font FACE="Times New Roman">
<p align="center">PART II </p>
</font><font FACE="Times New Roman" SIZE="2">
<p align="center">INFORMATION NOT REQUIRED IN PROSPECTUS </font></b>
<font FACE="Times New Roman" SIZE="2"></p>
<b>
<p>Item 13. Other Expenses of Issuance and Distribution </b></p>
<p>The following sets forth the estimated expenses payable in connection with
the preparation and filing of this Registration Statement: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="740">&nbsp;</td>
    <td WIDTH="246" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Securities and
    Exchange Commission Registration Fee</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">
    $10,593</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">NASD Filing Fee</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Nasdaq Listing Fee</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Printing Expenses</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">$2,000</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Accounting Fees and
    Expenses</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">$12,500</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Legal Fees and
    Expenses</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">$15,000</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Transfer Agent's and
    Registrar's Fees and Expenses</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Miscellaneous Expenses</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="740"><font FACE="Times New Roman" SIZE="2">Total</font></td>
    <td WIDTH="246" align="right"><font FACE="Times New Roman" SIZE="2">$40,093</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2"><b>
<p>Item 14. Indemnification of Directors and Officers </b></p>
<p>Our Certificate of Incorporation, as amended, and Bylaws provide that we
shall indemnify any Director, officer, employee or agent of ours to the full
extent permitted by the New Jersey Business Corporations Act. </p>
<p>Under Section 14A:3-5 of the New Jersey Business Corporation Act, we have the
power to indemnify any person, against his expenses and liabilities in
connection with any proceeding, whether civil or criminal, who is or was a
Director, officer, employee or agent, provided that such person acted in good
faith and with reasonable business prudence. Should the proceeding involve
criminal liability, the Director, officer, employee or agent shall be
indemnified if he reasonably believed that his conduct was not unlawful. Should
the Director, officer, employee or agent be liable to us, indemnification shall
not be provided unless the court in such proceeding determines that, in light of
all surrounding circumstances of the case, such Director, officer, employee or
agent is reasonably entitled to expenses as the court deems proper.
Additionally, we shall indemnify any Director, officer, employee or agent
against expenses should such Director, officer, employee or agent be successful
on the merits in any proceeding referred to in this paragraph. </p>
<p>Our determination as to whether the Director, officer, employee or agent
should be indemnified shall be made: </p>
<p align="left">1. by way of a majority vote of a quorum of the Board of
Directors who were not parties to or otherwise involved in the proceeding; </p>
<p ALIGN="left">2. or if such quorum is not obtainable, or, even if obtainable
and directed by such quorum or by a majority vote of the disinterested
Directors, by independent legal counsel in a written opinion; or </p>
<p align="left">3. by our stockholders if directed by a resolution of the Board
of Directors or of the stockholders. </p>
<p>We shall not indemnify any Director, officer, employee or agent if a judgment
or other final adjudication establishes that his acts or omissions (a) were in
breach of his duty of loyalty to us or our shareholders, (b) were not in good
faith or involved a knowing violation of law, or (c) resulted in receipt by the
Director, officer, employee or agent of an improper personal benefit. </p>
<p ALIGN="JUSTIFY">We may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of ours, whether or
not we would have the power to indemnify such corporate agent against expenses
and liabilities under the provisions of Section 14A:3-5 of the New Jersey
Business Corporation Act. <b></p>
</b></font>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Item 15. Recent Sales of Unregistered Securities </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>The following securities were issued by us within the past three years and
were not registered under the Securities Act of 1933, as amended (the &quot;Act&quot;).
Each of the transactions is claimed to be exempt from registration under the
Act, pursuant to either Rule 506 of Regulation D of the Act in connection with
private placements or Section 4(2) of the act in connection with respect to
services perfomed. </p>
<p>During the year ended June 30, 1999, we issued 1,599,332 shares of common
stock to employees and consultants for services performed. We recognized a
charge to operations of $8,760,866, based upon the fair market value of the
shares. </p>
<p>In April 1999, we issued 642,000 shares of our common stock and warrants to
purchase up to 642,000 shares of our common stock at a combined price of $2.50
per share and warrant pursuant to Rule 506 of Regulation D of the Act for an
aggregate of $1,605,000 in cash. </p>
<p>In June and July 1999, we issued 4,426,698 shares of our common stock at
$2.50 per share pursuant to Rule 506 of Regulation D of the Act for an aggregate
of $11,066,745 in cash. </p>
<p>On July 26, 1999, 400,000 warrants previously issued pursuant to Section 4(2)
of the Act for services performed were converted into 352,239 shares of common
stock in a cashless exercise. </p>
<p>In June 1999, we also issued 400,000 warrants pursuant to Section 4(2) of the
Act for services performed, each to purchase one share of common stock at an
exercise price of $1.00 per share which expire in June 2004. During the year
ended June 30, 2000 these warrants to purchase 400,000 shares of common stock
were exercised generating proceeds of $400,000. </p>
<p>In December 1999 and January 2000, we sold, pursuant to Rule 506 of
Regulation D of the Act, 1,000,000 shares of common stock at a price of $4.00
per share, for an aggregate of $4,000,000. In connection with the private
placement, we issued 200,000 and 50,000 warrants to purchase common stock for
services rendered pursuant to Section 4(2) of the Act. The warrants had an
exercise price of $4.00 and $5.00, respectively. </p>
<p ALIGN="JUSTIFY">During February 2000, warrants were issued pursuant to
Section 4(2) of the Act for services performed to purchase 200,000 and 50,000
shares of common stock and were also exercised, at an exercise price of $4.00
and $5.00, respectively, generating additional proceeds of $1,050,000. </p>
<p>In May 2000, we issued 1,040,625 shares of our common stock at $8.00 per
share pursuant to Rule 506 of Regulation D of the Act for an aggregate of
$8,325,000 in cash. </p>
<p>In September 2000, we issued 510,000 shares of our common stock at $5.00 per
share pursuant to Rule 506 of Regulation D of the Act for an aggregate of
$2,550,000 in cash and in connection therewith 38,250 shares of common stock for
services rendered pursuant to Section 4(2) of the Act. </p>
<p>During the year ended June 30, 2000, we issued 1,164,215 shares of common
stock to employees and consultants pursuant to Section 4(2) of the Act for
services performed. </p>
<p>On November 30, 2000, we granted 150,000 shares of common stock for services
rendered pursuant to Section 4(2) of the Act. </p>
<p>During the quarter ended December 31, 2000, we granted 30,000 warrants to a
consultant for services performed pursuant to Section 4(2) of the Act. </p>
<p ALIGN="JUSTIFY">During the six month period ended December 31, 2000, we
issued 320,000 shares of our common stock following the exercise of options and
warrants resulting in gross proceeds of $327,500 and granted 1,035,000 options
to employees and 1,572,000 options to consultants for services performed
pursuant to Section 4(2) of the Act. </p>
<p>In January 2001, we granted 102,000 shares of common stock for services
rendered pursuant to Section 4(2) of the Act. </p>
<p>In January 2001, we granted 250,000 shares of common stock for services
rendered pursuant to Section 4(2) of the Act. </p>
<p>On January 26, 2001 and February 9, 2001 we raised approximately $4,685,000
in cash through the issuance of 2,342,500 shares of our common stock and a like
amount of warrants to purchase one share each of our common stock at an exercise
price of $3.00 and a term of four years pursuant to Rule 506 of Regulation D of
the Act. The Company issued 162,600 warrants to purchase one share each of our
common stock at an exercise price of $3.00 and a term of four years to
consultants in connection with these private placements. </p>
<p>On April 3, 2001 we issued warrants to purchase 1,550,625 shares of common
stock at an exercise price of $3.00 per share expiring on April 3, 2005 to
accredited investors, who, as consideration for consent to certain additional
issuances, in May 2000, were issued 1,040,625 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>shares of our common stock at $8.00 per share pursuant to Rule 506 of
Regulation D of the Act and in September 2000, were issued 510,000 shares of our
common stock at $5.00 per share pursuant to Rule 506 of Regulation D of the Act.
</p>
<p>On April 16, 2001, we issued warrants to purchase 250,000, 250,000 and
500,000 shares of common stock at respective exercise prices of $5.00, $2.50 and
$1.25 per share in connection with consulting services rendered pursuant to
Section 4(2) of the Act. </p>
<p>On May 7, 2001, we issued 300,000 shares of common stock and warrants to
purchase 150,000 shares of common stock at an exercise price of $5.00 per share
expiring on May 7, 2006 in connection with consulting services rendered pursuant
to Section 4(2) of the Act. </p>
<p>On May 25, 2001, we issued 587,000 shares of our common stock and a like
amount of warrants at an exercise price of $3.00 per share and a term of five
years pursuant to Rule 506 of Regulation D of the Act for approximately $587,000
in cash. </p>
<p>On July 18, 2001, we issued 575,000 shares of our common stock and a like
amount of warrants at an exercise price of $3.00 per share and a term of five
years pursuant to Rule 506 of Regulation D of the Act for approximately $575,000
in cash. </p>
<p>Effective June 30, 2001 the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements pursuant to Section 3(a)(9) of the
Act. These issuances included 2,400,000 shares for the conversion of $1,200,000
of liabilities by Janifast; 1,278,000 shares for the conversion of $639,000 of
liabilities by Microphase; 954,000 shares for the conversion of $477,000 of
liabilities by Lintel Corporation and its affiliates at that time including Mr.
L. Barton, a Director of the Company at that time; and 208,077 shares for the
conversion of $104,038 of liabilities by the Company's Joint venture
partner-Alpha-Star and Affiliates. </p>
<p>In September 2001, certain of our officers and directors purchased an
aggregate of 2,000,000 shares of common stock for an aggregate investment of
$1,000,000. These issuances included 1,000,000 shares to Mr. L. Barton, a
director at that time, for an investment of $500,000; 400,000 shares to Mr.
Ronald A. Durando, the Company's president and a director, for an investment of
$200,000; 400,000 shares to Mr. Gustave Dotoli , the Company's vice-president
and a director, for an investment of $200,000; and 200,000 shares to Mr. Martin
S. Smiley, the Company's vice-president, for an investment of $100,000; and were
exempt pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Act. </p>
<p>In December 2001 and January 2002, we issued 6,797,643 shares of common stock
and a like amount of warrants at an exercise price of $.30 per share for a term
of five (5) years pursuant to Rule 506 of Regulation D of the Act for
approximately $2,000,000 in cash. This issuance was exempt pursuant to Section
4(2) and/or Rule 506 of Regulation D of the Act. </p>
<p>During the year ended June 30, 2002 the Company issued 7,492,996 shares of
its common stock, and 5,953,490 warrants to related parties and strategic
vendors, in connection with the conversion of $2,738,658 of accounts payable and
accrued expenses, of which 6,150,000 shares of common stock and 3,400,000
warrants were issued in settlement of $1,460,000 of accounts payable to related
parties as follows: </p>
<ol>
  <li>During December 2001, the Company converted $660,000 of liabilities due to
  Microphase and $360,000 of liabilities due to Janifast into 2,200,000 and
  1,200,000, respectively, shares of the Company's common stock and a like
  amount of warrants to purchase one share each of the Company's common stock at
  an exercise price of $.30 pursuant to debt conversion agreements pursuant to
  Section 3(a)(9) of the Act and 320,000 shares of common stock plus warrants to
  purchase another 320,000 shares of common stock at $.30 for a term of 5 years,
  respectively, were issued to strategic vendors pursuant to Section 3(a)(9) of
  the Act.<br>
&nbsp;</li>
  <li>During the quarter ended March 31,2002 the Company converted $96,000 of
  liabilities due to Strategic Vendors into 320,000 shares of the Company's
  common stock and a like amount of warrants to purchase one share each of the
  Company's common stock at an exercise price of $.30 pursuant to debt
  conversion agreements pursuant to Section 3(a)(9) of the Act.<br>
&nbsp;</li>
  <li>Effective March 31, 2002, the Company converted $420,872 of liabilities
  due to Piper Rudnick LLP, outside legal counsel to mPhase pursuant to Section
  3(a)(9) of the Act into a warrant to purchase up to a total of $1,683,490
  shares of the Company's common stock which pursuant to EITF 96 18, has an
  approximate value of $.30 per share and a warrant to purchase 550,000 shares
  of the Company's common stock at an exercise price of $.30 per share pursuant
  to the terms of payment agreement. In addition, Piper agreed to accept a
  Promissory note for $420,872 of current payables at an interest rate of 8%
  with payments of $5,000 per month commencing June 1, 2002 and continuing
  through December 1, 2003, with a final payment of principal plus accrued
  interest due at maturity on December 31, 2003. Additionally, 1,022,996 shares
  of common stock were issued to strategic vendors, the value of which was based
  upon the price of the Company's common stock on the effective date of
  settlement with each strategic vendor, to settle $761,786 of liabilities
  pursuant to Section 3(a)(9) of the Act. The conversion of $1,182,658 of such
  liabilities which, together with gains from cash settlements of $27,960
  resulted in an aggregate gain on</li>
</ol>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<blockquote>
  <p>extinguishments of $142,236.</p>
</blockquote>
<ol start="4">
  <li>Effective for June 30 2002, the Company converted $360,000 of liabilities
  due to Microphase and $80,000 of liabilities due to Janifast into 2,250,000
  and 500,000 shares of the Company's common stock, respectively, pursuant to
  debt conversion agreements pursuant to Section 3(a)(9) of the Act. </li>
</ol>
<p>During the year ended June 30, 2003, we issued 4,296,680 shares of Common
Stock at $.30 per share plus 5 year warrants to purchase 4,296,680 shares of
Common Stock at $.30 per share in a Private Placement pursuant to Rule 506 of
Regulation D of the Act, generating net proceeds to the company of approximately
$1,164,000. </p>
<p>From August 2001 to June 2002, we issued an aggregate of 2,976,068 shares of
common stock to consultants for an aggregate of $1,202,997. We also issued an
aggregate of 2,675,000 warrants to consultants for an aggregate of $1,040,000.
</p>
<p>During the year ended June 30, 2003, the Company issued 426,000 shares of its
common stock valued at $112,245 and 1,690,000 warrants, valued at $203,150 based
upon the fair market value of the Company's common stock on the date of the
grant using the Black-Scholes option pricing model. The Company recorded these
charges, totaling $318,395 to operations for the year ended June 30, 2003. Each
transaction was pursuant to Section 4(2) of the Act. </p>
<p>During the fiscal year ended June 30, 2003, the Company converted certain
payables and accrued expenses with officers, related parties and strategic
vendors pursuant to Section 4(2) and to Section 3(a)(9) of the Act aggregating
approximately $1.9 million into 5,923,333 restricted shares of the Company's
common stock and 5 year warrants to purchase an additional 3,706,800 restricted
shares of the Company's common stock. Of these 5,533,333 shares of common stock
and 3,491,800 warrants were issued in settlement of $1,748,756 of debt to
related parties as follows: </p>
<ol>
  <li>The conversion of $620,000 on and $360,000 on of liabilities due to
  Microphase corporation, and Janifast Ltd into 3,033,000 shares and 1,500,000
  shares of stock, respectively. The value attributable to the shares was based
  upon the market price of the Company's common stock on the measurement date,
  such date was determined pursuant to EITF00-1, as to when all the contingent
  terms of the conversion agreements were met, in which no gain or loss was
  recognized on the conversion of $980,000 of debt.<br>
&nbsp;</li>
  <li>Also included in such conversions during the year ended June, 30 2003,
  were transactions whereby the Company converted $525,967 of liabilities;
  $269,362 due to the Company's president, $211,605 due to the vice president
  and $45,000 due to the a sales manager who is also concurrently employed by
  Microphase, for unpaid management compensation and sales commissions due from
  mPhase into warrants to purchase up to a total of 2,656,500 shares of the
  Company's common stock. The aggregate value of such warrants was estimated
  using the Black-Scholes options pricing model, pursuant to EITF 96-18, having
  an approximate value of $.21 per share, or $538,173. The Company recorded a
  settlement expense of approximately $12,206 with respect to the Company's
  president and vice president.<br>
&nbsp;</li>
  <li>Strategic vendors converted $117,486 of payables into 340,000 shares of
  the Company's common stock on the measurement date the value of which was
  based upon the price of the Company,'s common stock on the effective date of
  settlement with each party. This resulted in a gain of $37,383, which, when
  combined with all conversions and the gains from cash settlements of $36,049
  for the fiscal year 2003, resulted in a net gain on extinguishments in the
  statements of operations of $61,226 for the year ended June 30, 2003.</li>
</ol>
<p>In August of 2003, the Company issued 333,334 shares of its common stock
together with a like amount of warrants in a private placement pursuant to Rule
506 of Regulation D of the Act, generating net proceeds of $100,000 which was
collected during the three month period ended on September 30, 2003. </p>
<p ALIGN="JUSTIFY">During the six months ending December 31, 2003, the Company
granted 924,667 shares of its common stock and warrants to purchase 249,667
shares of its common stock to consultants for services performed value at
$307,243 and charged to operations during the period. Each transaction was
pursuant to Section 4(2) of the Act. </p>
<p>During the three months ended December 31, 2003, the Company issued 500,000
shares of its common stock pursuant to warrants previously issued to purchase
said shares pursuant to Rule 506 of Regulation D of the Act for an aggregate of
$150,000 in cash. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PSMT" SIZE="2">
<p>In December of 2003, the Company issued to five accredited investors
2,300,000shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share, in a private placement pursuant to Rule 506 of
Regulation D of the Act generating net proceeds of $805,000, $175,000 of which
was collected in January, 2004. An advisor of the Company was issued 100,000
shares for assisting in this transaction. </p>
<p>In January of 2004, the Company issued to twenty-three accredited investors
7,160,720 shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share, in a private placement pursuant to Rule 506 of
Regulation D of the Act generating net proceeds of $2,506,250, all of which was
collected in January, 2004. </p>
<p>In March and April of 2004, the Company issued to six accredited investors
1,811,429 shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share, in a private placement pursuant to Rule 506 of
Regulation D of the Act generating net proceeds of $634,000, all of which was
collected in March and April, 2004. Two advisors of the company were issued
128,826 shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share for assisting in this transaction. </p>
<p>The December 31, 2004 and outstanding subscriptions receivable balance of $
50,000 was fully collected in January of 2005. </p>
<p>Additionally, the December 2004 private placement was closed out in January
of 2005 with the placement of 3,600,000 equity units at $.20 per unit consisting
of one share of common stock plus5 year warrants for a like amount of shares
with a strike price of $.25 per share generating net proceeds of $720,000 to the
Company pursuant to Rule 506 of Regulation D of the Act. </p>
<p>A January Private Placement realized net proceeds of $357,250 upon issuance
of 1,793,750 shares of Common Stock at $.20 per share plus 5 year warrants to
purchase 1,793,750 shares of Common Stock at $.25 per share. A later Private
Placement realized net proceeds of $1,351,000 upon issuance of 4,920,000 shares
of Common Stock plus 5 year warrants to purchase 4,920,000 shares of Common
Stock at $.25 per share. A March Private Placement resulted in the realization
of net proceeds of $1,217,000 upon issuance of 4,396,667 shares of Common Stock
at $.30 per share plus 5 year warrants to purchase 4,396,667 shares of Common
Stock at $.30 per share. Each transaction pursuant to Rule 506 of Regulation D
of the Act </p>
<p>In January of 2005 there were stock option awards issued to two consultants
for services performed. The company granted 250,000 options to a consultant for
professional services, these options provide for the right of stock purchase at
an exercise price of $.25, these options have a five year life and expire in
January of 2010. A second award issued a like number of options to another
service provider under similar terms, except that the options associated with
this second award offer a call feature, available to the company, for redemption
of such options at a call price of $.45 at any time during their five year life.
In aggregate, 400,000 options were issued in connection with these awards and
will result in a charge to General and Administrative non-cash expense in the
amount of $ 133,990 in the third quarter of fiscal 2005. The valuation of this
charge was made on the basis of the fair market value of the Company's common
stock on the date of grant using the Black-Scholes option premium model. Each
transaction was pursuant to Section 4(2) of the Act. </p>
<p>In February of 2005, GTARC tendered 5,069,242 of cashless warrants which they
held in connection with a previous debt settlement in exchange for 4,949,684 if
the company's shares of common stock, the balance of the 119,558 warrants were
effectively cancelled as a result of certain warrant exercise exchange
provisions adjusting the exchange rate based on specified stock pricing
experience as per the original debt settlement agreement. </p>
<p>On February 17 of 2005, the Company granted 2,600,000 warrants and 400,000
options to consultants for services performed valued at $ 1,328,600 and $
204,400, respectively. The warrants and options provide the right to purchase a
share of mPhase common stock at an exercise price $.45 and $.30 per share,
respectively, over their 5 year life expiring in February of 2010. These warrant
and option awards were valued on the basis of the fair market value of the
Company's common stock on the date of grant using the Black-Scholes option
premium model and the value of the award will be expensed to General and
Administrative non-cash expenses in the third quarter of fiscal 2005. Each
transaction was pursuant to Section 4(2) of the Act. </p>
<p>In January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.35 on the date of that award. </p>
<p>In late February and early March of 2005, the Company converted approximately
$173,898 in accounts payable due various vendors into 535,296 shares of common
stock aggregating $183,310 in full settlement of those obligations and pursuant
to Section 3(a)(9) of the Act. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Item 16. Exhibits and Financial Statements </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105"><font FACE="Times New Roman PSMT" SIZE="2">Exhibit</font></td>
    <td WIDTH="1050">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105"><font FACE="Times New Roman PSMT" SIZE="2">Number</font></td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Description</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">2.1*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Exchange of
    Stock Agreement and Plan of Reorganization dated January 15, 1997</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">(incorporated by
    reference to Exhibit 2(a) to our registration statement on Form</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">10SB-12G filed
    on October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">2.2*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Exchange of
    Stock Agreement and Plan of Reorganization dated June 25, 1998</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">(incorporated by
    reference to Exhibit 2(b) to our registration statement on Form</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">10SB-12G filed
    on May 6, 1999 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">3.1*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Certificate of
    Incorporation of Tecma Laboratory, Inc. filed December 20, 1979</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">(incorporated by
    reference to Exhibit 3(a) to our registration statement on Form</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">10SB-12G filed
    on October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">3.2*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Certificate of
    Correction to Certificate of Incorporation of Tecma Laboratory, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">dated June 19,
    1987 (incorporated by reference to Exhibit 3(b) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105"><font FACE="Times New Roman PSMT" SIZE="2">Exhibit</font></td>
    <td WIDTH="1050">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105"><font FACE="Times New Roman PSMT" SIZE="2">Number</font></td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Description</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">3.3*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Certificate of
    Amendment of Certificate of Incorporation of Tecma Laboratory, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">filed August 28,
    1987 (incorporated by reference to Exhibit 3(c) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">3.4*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Certificate of
    Amendment of Certificate of Incorporation of Tecma Laboratories, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">filed April 7,
    1997 (incorporated by reference to Exhibit 3(d) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">3.5*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Certificate of
    Amendment of Certificate of Incorporation of Lightpaths TP</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Technologies,
    Inc. filed June 2, 1997 (incorporated by reference to Exhibit 3(e) to</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">our registration
    statement on Form 10SB-12G filed on October 16, 1998 (file no.</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">3.6*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Certificate of
    Amendment of Certificate of Incorporation of mPhase Technologies,</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Inc. filed
    September 15, 2000 (incorporated by reference to Exhibit 3i to our</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">quarterly report
    on Form 10Q filed on November 13, 2000 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">3.7*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Bylaws of the
    Company (incorporated by reference to Exhibit 3(g) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">4.1*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Form of
    Registration Rights Agreement, dated January 26, 2001, by and among the</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Company and the
    purchasers listed on Schedule A attached thereto (incorporated by</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">reference to
    Exhibit 4.1 to our registration statement on Form S-1 filed on June 18,</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">2001 (file no.
    33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">4.2*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Form of
    Registration Rights Agreement, dated February 9, 2001, by and among the</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Company and the
    purchasers listed on Schedule A attached thereto (incorporated by</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">reference to
    Exhibit 4.2 to our registration statement on Form S-1 filed on June 18,</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">2001 (file no.
    33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">4.3**</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Form of Warrant.</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">4.4**</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Warrant issued
    to Piper Rudnick LLP.</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">4.5**</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Warrant issued
    to Piper Rudnick LLP.</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">4.6**</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Form of
    Subscription Agreement, dated December 15, 2001.</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">5.1</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Opinion of
    Martin S. Smiley, General Counsel to the Company.</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">10.1*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">License
    Agreement, dated March 26, 1998, between the Company and Georgia Tech</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Research
    Corporation (incorporated by reference to Exhibit 10(e) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">10.2*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">First Amendment
    to the License Agreement, dated January 8, 2001, between the</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Company and
    Georgia Tech Research Corporation (incorporated by reference to</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Exhibit 10.2 to
    our registration statement on Form S-1 filed on June 18, 2001 (file</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">10.3*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Employment
    Agreement between Ronald A. Durando and the Company</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">(incorporated by
    reference to Exhibit 10.8 to our registration statement on Form SB-2</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">filed on August
    13, 1999 (file no. 333-85147)).</font></td>
  </tr>
  <tr>
    <td WIDTH="86"><font FACE="Times New Roman PSMT" SIZE="2">10.4*</font></td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">Employment
    Agreement between Gustave T. Dotoli and the Company (incorporated</font></td>
  </tr>
  <tr>
    <td WIDTH="86">&nbsp;</td>
    <td WIDTH="105">&nbsp;</td>
    <td WIDTH="1050"><font FACE="Times New Roman PSMT" SIZE="2">by reference to
    Exhibit 10.9 to our registration statement on Form SB-2 filed on</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">August 13, 1999
    (file no. 333-85147)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.5*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Employment
    Agreement between Martin S. Smiley and the Company, dated as of</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">August 15, 2000
    (incorporated by reference to Exhibit 10.5 to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">statement on Form
    S-1 filed on June 18, 2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.6*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Employment
    Agreement between David C. Klimek and the Company, dated as of</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">April 1, 2001
    (incorporated by reference to Exhibit 10.6 to our registration statement</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">on Form S-1 filed
    on June 18, 2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.7*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Manufacturing
    Services Agreement, dated March 14, 2001, by and between the</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Company and
    Flextronics International USA, Inc (incorporated by reference to</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Exhibit 10.7 to
    our registration statement on Form S-1 filed on June 18, 2001 (file</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.8*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Supply Agreement
    by and between the Company and Hart Telephone Company, Inc.,</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">date of August
    19, 1998 (incorporated by reference to Exhibit 10.8 to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">statement on Form
    S-1 filed on June 18, 2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%"><font FACE="Times New Roman PSMT" SIZE="2">Exhibit</font></td>
    <td WIDTH="84%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%"><font FACE="Times New Roman PSMT" SIZE="2">Number</font></td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Description</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.9*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">
    Facilities/Services Agreement between the Company and Microphase
    Corporation,</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">dated as of July
    1, 1998. (incorporated by reference to Exhibit 10.9 to our</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">registration
    statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.10*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Company's 2001
    Stock Incentive (incorporated by reference to Exhibit C to our</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">preliminary proxy
    statement on Form Pre 14A filed on March 21, 2001 (file no.000-</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">30202)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.11*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">License
    Agreement, dated July 31, 1996, by and between AT&amp;T Paradyne</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Corporation and
    Microphase Corporation. (incorporated by reference to Exhibit 10.11</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">to our
    registration statement on Form S-1 filed on June 18, 2001 (file no.
    33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.12(a)*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Assignment
    Agreement, dated February 17, 1997, by and between the Company and</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Microphase
    Corporation. (incorporated by reference to Exhibit 10.12 to our</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">registration
    statement on Form S-1 filed on June 18, 2001 (file no. 33- 63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.12(b)*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Distribution
    Agreement effective May 15, 2002 by and between Corning Cable</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">System and the
    Company.</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.13*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Development
    Agreement between Lucent Technologies, Inc. and mPhase</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Technologies,
    Inc., effective as of December 1, 2002, relating to Video Services</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Switch and
    Statement of Work, dated December 9, 2002.***</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.14*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Purchase Order
    between the Company and Lucent Technologies, Inc., dated</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">December 15,
    2002, for cost reduction of the mPhase Traverser INI set box.***</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.15*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Co-Branding
    Agreement, dated as of January 21, 2003, between the Company and</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Lucent
    Technologies, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.16*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Systems
    Integrator Agreement, dated as of April 4, 2003, between the Company and</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Lucent
    Technologies, Inc.***</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.17*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Development
    Agreement between Lucent Technologies, Inc. and mPhase</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Technologies,
    Inc., relating to Broadcast Television Switch (BTS) effective as of</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">September 15,
    2003.***</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.18*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Development
    Agreement effective February 3, 2004 between Lucent Technologies,</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Inc. and mPhase
    Technologies, Inc. for development of micro fuel cell</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">NanoTechnology.***</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.19***</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Software License
    Agreement between Espial Group, Inc, a Canadian Corporation and</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">mPhase
    Technologies entered into November 28, 2004</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.20***</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Software
    Development Agreement between Magpie Telecom Insiders, Inc, and</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">mPhase
    Technologies, dated September 2, 2004 and Work Order dated January 3,</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">2005</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.21***</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Development
    Agreement effective March 11, 2005 between Lucent Technologies Inc</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">and mPhase
    Technologies relating to development of Magnetometers</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">10.22***</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Amendment No. 2
    to Development Agreement dated as of March 9, 2005 relating to</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Micro Power
    Source Cells between mPhase Technologies, Inc and Lucent</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Technologies Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">21*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">List of
    Subsidiaries (incorporated by reference to Exhibit 21 to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">statement on Form
    S-1 filed on June 18, 2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="7%"><font FACE="Times New Roman PSMT" SIZE="2">23.1*</font></td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">Consents of
    Schuhalter, Coughlin &amp; Suozzo, LLC dated August 31, 1998 and</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">reference to
    Exhibit 23 to our registration statement on Form 10SB-12G filed on</font></td>
  </tr>
  <tr>
    <td WIDTH="7%">&nbsp;</td>
    <td WIDTH="9%">&nbsp;</td>
    <td WIDTH="84%"><font FACE="Times New Roman PSMT" SIZE="2">October 16, 1998
    (file no. 000-24969)).</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="83"><font FACE="Times New Roman PSMT" SIZE="2">23.2*</font></td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">Consents of
    Schuhalter, Coughlin &amp; Suozzo, LLC dated April 23, 1999 and</font></td>
  </tr>
  <tr>
    <td WIDTH="83">&nbsp;</td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">Mauriello,
    Franklin &amp; LoBrace, P.C. dated April 23, 1999 (incorporated by reference</font></td>
  </tr>
  <tr>
    <td WIDTH="83">&nbsp;</td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">to Exhibit 23 to
    our registration statement on Form 10SB-12G filed on May 6, 1999</font></td>
  </tr>
  <tr>
    <td WIDTH="83">&nbsp;</td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">(file no.
    000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="83"><font FACE="Times New Roman PSMT" SIZE="2">23.3*</font></td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">Consent of
    Schuhalter, Coughlin &amp; Suozzo, LLC dated August 13, 1999</font></td>
  </tr>
  <tr>
    <td WIDTH="83">&nbsp;</td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">(incorporated by
    reference to Exhibit 23.1 to our registration statement on Form SB-2</font></td>
  </tr>
  <tr>
    <td WIDTH="83">&nbsp;</td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">filed on August
    13, 1999 (file no. 333-85147)).</font></td>
  </tr>
  <tr>
    <td WIDTH="83"><font FACE="Times New Roman PSMT" SIZE="2">23.4</font></td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">Consent of
    Schuhalter, Coughlin &amp; Suozzo, LLC.</font></td>
  </tr>
  <tr>
    <td WIDTH="83"><font FACE="Times New Roman PSMT" SIZE="2">23.5</font></td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">Consent of
    Rosenberg Rich Baker Berman and Company.</font></td>
  </tr>
  <tr>
    <td WIDTH="83"><font FACE="Times New Roman PSMT" SIZE="2">24.1**</font></td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">Power of
    Attorney (included as a part of the signature page of the initial filing of
    this</font></td>
  </tr>
  <tr>
    <td WIDTH="83">&nbsp;</td>
    <td WIDTH="114">&nbsp;</td>
    <td WIDTH="1044"><font FACE="Times New Roman PSMT" SIZE="2">Registration
    Statement).</font></td>
  </tr>
</table>
<p>&nbsp;</p>
<font FACE="Times New Roman PSMT" SIZE="2">
<p>--- <br>
* Incorporated by reference. <br>
** Previously filed. <br>
*** Portions of such documents have been omitted pursuant to Rule 406 of the
Securities Act of 1933, or Rule 424(b) of the Securities Exchange Act of 1934.
Omitted portions of documents have been separately filed with the Securities and
Exchange Commission. </font></p>
<p>&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p>Item 17. Undertakings. </b></font><font FACE="Times New Roman PSMT" SIZE="2">
</p>
<ol>
  <li>The undersigned registrant hereby undertakes:<br>
&nbsp;<ol>
    <li>To file, during any period in which offers or sales are being made, a
    post-effective amendment to this registration statement:<br>
&nbsp;<ol>
      <li>To include any prospectus required by Section 10(a)(3) of the
      Securities Act of 1933;<br>
&nbsp;</li>
      <li>To reflect in the prospectus any facts or events arising after the
      effective date of this registration statement (or the most recent
      post-effective amendment thereof) which, individually or in the aggregate,
      represent a fundamental change in the information set forth in this
      Registration Statement. Notwithstanding the foregoing, any increase or
      decrease in volume of securities offered (if the total dollar value of
      securities offered would not exceed that which was registered) and any
      deviation from the low or high end of the estimated maximum offering range
      may be reflected in the form of prospectus filed with the Commission
      pursuant to Rule 424(b) promulgated under the Securities Act of 1933 if,
      in the aggregate, the changes in volume and price represent no more than a
      20% change in the maximum aggregate offering price set forth in the
      Calculation of Registration Fee&quot; table in this Registration Statement;<br>
&nbsp;</li>
      <li>To include any material information with respect to the plan of
      distribution not previously disclosed in this registration statement or
      any material change to such information in this Registration Statement.
      </li>
    </ol>
    </li>
  </ol>
  </li>
</ol>
<p>Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) shall not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this registration statement. </p>
<ol start="2">
  <li>That, for the purpose of determining any liability under the Securities
  Act of 1933, each such post-effective amendment shall be deemed to be a new
  registration statement relating to the securities offered therein, and the
  offering of such securities at that time shall be deemed to be the initial
  bona fide offering thereof.<br>
&nbsp;</li>
  <li>To remove from registration by means of a post-effective amendment any of
  the securities being registered which remain unsold at the termination of the
  offering.<br>
&nbsp;</li>
  <li>Insofar as indemnification for liabilities arising under the Securities
  Act may be permitted to directors, officers, and controlling persons of the
  registrant pursuant to the foregoing provisions, or otherwise, the registrant
  has been advised that in the opinion of the Securities and Exchange Commission
  such indemnification is against public policy as expressed in the Securities
  Act and is, therefore, unenforceable. In the event that a claim for
  indemnification against such liabilities (other than the payment by the
  Registrant of expenses incurred or paid by a director, officer, or controlling
  person of the registrant in the successful defense of any action, suit or
  proceeding) is asserted by such director, officer or controlling person in
  connection with the securities being registered, the registrant will, unless
  in the opinion of counsel the matter has been settled by controlling
  precedent, submit to a court of appropriate jurisdiction the question of
  whether such indemnification by it is against public policy as expressed in
  the Securities Act and will be governed by the final adjudication of each
  issue.</li>
</ol>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="2"><b>
<p align="center">SIGNATURES </b></font>
<font FACE="Times New Roman PSMT" SIZE="2"></p>
<p>Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Norwalk,
State of Connecticut, on the17th day of March, 2005. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="60%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td COLSPAN="2"><font FACE="Times New Roman" SIZE="2">mPHASE TECHNOLOGIES,
    INC.</font></td>
  </tr>
  <tr>
    <td WIDTH="13%"><font FACE="Times New Roman" SIZE="2">B</font></td>
    <td WIDTH="87%"><font FACE="Times New Roman" SIZE="2">/s/ Ronald A. Durando</font></td>
  </tr>
  <tr>
    <td WIDTH="13%"><font FACE="Times New Roman" SIZE="2">y:</font></td>
    <td WIDTH="87%"><font FACE="Times New Roman" SIZE="2">Ronald A. Durando</font></td>
  </tr>
  <tr>
    <td WIDTH="13%">&nbsp;</td>
    <td WIDTH="87%"><font FACE="Times New Roman" SIZE="2">President and Chief
    Executive Officer</font></td>
  </tr>
</table>
<font FACE="Times New Roman PSMT" SIZE="2">
<p align="center">Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. </p>
</font>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="85%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Signature</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Title</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Date</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      *</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Chairman of the Board of Directors</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Necdet F. Ergul</font></td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      *</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      President, Chief Executive Officer</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Ronald A. Durando</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      and Director (Principal Executive Officer)</font></td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      /s/ Martin S. Smiley</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Executive Vice President of Finance,</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Chief Financial Officer, and General Counsel</font></td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Martin S. Smiley</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      (Principal Financial and Accounting Officer)</font></td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      *</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Director</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Michael P. McInerney</font></td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      *</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Director</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Anthony H. Guerino</font></td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      *</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Chief Operating Officer and Director</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Gustave T. Dotoli</font></td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      *</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Chief Technology Officer and Director</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      David L. Klimek</font></td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      *</font></td>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Director</font></td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      March 17,</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      2005</font></td>
    </tr>
    <tr>
      <td WIDTH="33%" align="center"><font FACE="Times New Roman PSMT" SIZE="2">
      Abraham Biderman</font></td>
      <td WIDTH="33%" align="center">&nbsp;</td>
      <td WIDTH="34%" align="center">&nbsp;</td>
    </tr>
  </table>
  </center>
</div>
<table CELLSPACING="0" BORDER="0" WIDTH="50%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman PSMT" SIZE="2">By: /s/ Martin S. Smiley</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman PSMT" SIZE="2">Martin S. Smiley</font></td>
  </tr>
  <tr>
    <td><font FACE="Times New Roman PSMT" SIZE="2">Attorney-in-fact</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman PS" SIZE="5"><b>
<p align="center">End of Filing</b></font><font FACE="Times New Roman PSMT"> </p>
</font>
<p>&nbsp;</p>
<p>&nbsp;</p>
<hr color="#000000" size="5">

</body>

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mPhase Technologies, Inc.: Form S-1 - Prepared by TNT Filings Inc.
As filed with the Securities and Exchange Commission on March
17, 2005
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
mPHASE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
New Jersey
7385
22-2287503
(State or other jurisdiction
(Primary Standard Industrial
(I.R.S.
      Employer
of
      incorporation or organization)
Classification Code Number)
Identification Number)
587 Connecticut Avenue
Norwalk, Connecticut 06854-1711
Telephone: (203) 838-2741
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Martin S. Smiley
Chief Financial Officer
mPHASE TECHNOLOGIES, INC.
587 Connecticut Avenue
Norwalk, Connecticut 06854-1711
Telephone: (203) 831-2242
Telecopy: (203) 853-3304
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box.
CALCULATION OF REGISTRATION FEE
Proposed
Proposed
maximum
maximum
offering
aggregate
Amount of
Title of each class of
Amount to be
price per
offering
Registration
securities to be registered
Registered
share(1)
price(1)
fee
Stock, no par value
178,046,810
$0.505
$ 89,913,639
$10,593
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, on the
basis of the average of the bid and ask prices per share of our common stock, as
reported on the OTC Bulletin Board, on March 16, 2005.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
March 17, 2005
PROSPECTUS
mPHASE TECHNOLOGIES, INC.
178,046,810
Shares of Common Stock
This prospectus relates to the resale of up to 178,046,810 shares of common
stock, of which 77,676,057 shares are issued and outstanding and up to
100,370,753 shares may be issued upon the exercise of warrants, options and
convertible notes
held by the selling stockholders. The selling stockholders listed on pages 67-78
may sell the shares from time to time.
Our common stock is listed on the Over-the-Counter Bulletin Board under the
symbol "XDSL.OB" The last reported sales price of our common stock on March 16,
2005 was $.49 per share.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. PLEASE
REFER TO "RISK FACTORS" BEGINNING ON PAGE 8.
Our principal executive offices are located at 587 Connecticut Avenue,
Norwalk, Connecticut 06854-1711. Our phone number is (203) 838-2741.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
REGULATORY BODY HAS APPROVED OR DISAPPROVED ANY OF THESE SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is March 17, 2005
TABLE OF CONTENTS
Page
Prospectus
      Summary
1
The Offering
4
Forward-Looking Statements
4
Summary
      Financial Data
6
Risk Factors
8
Use of
      Proceeds
11
Price Range of
      Common Stock
12
Selected
      Financial Data
13
Selected
      Quarterly Financial Data
14
Company
      Operations
17
Business
36
Legal
      Proceedings
52
Our Management
52
Stock Options
55
Security Ownership of Certain Beneficial Owners and Management
58
Certain Relationships and Related Transactions
60
Selling
      Stockholders
66
Plan of
      Distribution
72
Description of
      Securities
74
Legal Matters
75
Experts
76
Where You Can Find Additional Information
76
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THOSE
DOCUMENTS TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED
WHERE IT IS LEGAL TO SELL THESE SECURITIES.
THE DELIVERY OF THIS PROSPECTUS OR ANY ACCOMPANYING SALE DOES
NOT IMPLY THAT: (1) THERE HAVE BEEN NO CHANGES IN OUR AFFAIRS AFTER THE DATE OF
THIS PROSPECTUS; OR (2) THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
AFTER THE DATE OF THIS PROSPECTUS.
PROSPECTUS SUMMARY
You should read this Prospectus Summary together with the more detailed
information contained in this prospectus, including the risk factors and
financial statements and the notes to the financial statements. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those discussed in the forward-looking
statements. Factors that might cause such a difference include those discussed
in the Risk Factors section and elsewhere in this prospectus.
From inception (October 2, 1996), through December 31, 2004 the Company had
incurred (unaudited) development stage losses and has an accumulated deficit of
approximately $120,912,875 million and a stockholders' deficit of approximately
$3,069,329 respectively. Cumulatively, through June 30, 2004 and December 31,
2004, (unaudited) the Company had negative cash flows from operations of
approximately $47.8 million and $50.9 million respectively. The auditors report
for the fiscal year ended June 30, 2004 is qualified as to the Company's ability
to continue as a going concern. Management estimates the Company needs to raise
between $5 million and $10 million
during the next 12 months to
sustain its current level of operations.
mPHASE TECHNOLOGIES, INC.
mPhase Technologies, Inc. (mPhase, the Company, we or us), a New Jersey
corporation, founded in 1996 is a publicly-held company with approximately
12,000 shareholders and approximately 130,410,957 million shares of common stock
outstanding as of March 15, 2005. mPhase is a developer of broadband
communications products, specifically, digital subscriber line (DSL) products
for telecommunications service providers around the world. Since our inception
in 1996 we have been a development-stage company.
The Company's common stock is traded on the NASDAQ Over the Counter Bulletin
Board under the ticker symbol XDSL. We are headquartered in Norwalk, Connecticut
with offices in Little Falls, New Jersey and New York, N.Y. mPhase shares common
office space and common management with Microphase Corporation, a privately-held
company. Microphase sells radio frequency and filtering technologies to the
defense and telecommunications industry. Microphase has been in operation for 50
years and supports mPhase with engineering, administrative and financial
resources, as needed.
Our primary activities have consisted of designing, manufacturing and testing
our flagship products designed to deliver broadcast television over DSL. We have
not, as yet, derived significant sales revenue from such products. Our products
facilitate telephone companies becoming full service communications providers by
enabling the simultaneous delivery of digital broadcast television, high speed
data and voice services over the existing telephone line infrastructure. mPhase
has developed its flagship line of products primarily for telephone companies in
parts of the world where access to multi-channel television is limited.
In February of 2004, the Company entered into the field
of Nanotechnology research and development of micro power cell batteries of
various voltages. The initial goal is to develop batteries for military
applications capable of operating for significantly longer periods of time than
are currently available in the market. The Company believes that such
development is consistent with its strategy of being a pioneer in areas of high
growth technology and potentially diversifies its mix of products.  On
March 11, 2005 the Company announced that it had expanded its nanotechnology
research and efforts to develop uncooled magnetic ultra sensors as a new product
line.
mPhase introduced its first TV over DSL platform, the Traverser Digital Video
and Data Delivery System (DVDDS) in 1998. The DVDDS, is a patented end-to-end
system that enables a telecommunications service provider to deliver up to
several hundred channels of motion picture experts group two (MPEG-2) standard
broadcast digital television, high speed internet and plain old telephone
service (POTS) over copper telephone lines between a central office facility
(CO) of the provider and a customer's premise. mPhase has not, derived any
material revenues from sales of the DVDDS and has replaced the product with its
newer TV+ platform. The DVDDS is a proprietary technology developed in
conjunction with Georgia Tech Research Corporation (GTRC) that allows for the
delivery of any television channel to all users at any given time without a
dilution in quality. The system is the only system that utilizes non-internet
protocol for the delivery of broadcast television over Asymmetric DSL (ADSL).
The DVDDS is installed at Hart Telephone Company in Hartwell, Georgia, where a
limited user system is currently operational that is currently being replaced by
the Company's newer TV + system. A DVDDS system is also installed at the BMW
manufacturing plant in Spartanburg, South Carolina for use as a telebroadcast
system in a commercial setting.
The new mPhase TV+ system replaced the legacy  Traverser DVDDS system
and is developed in conjunction with Bell Laboratories
division of Lucent Technologies, Inc.  The TV+ solution is also designed to allow for the
simultaneous delivery of voice, high speed data, and broadcast TV over copper
telephone lines between a telephone service provider's central office (CO) and
the customer premises. The TV+ system was developed in conjunction with Bell
Laboratories as an outgrowth of mPhase's engagement of Bell Labs in fiscal year
2003 to cost reduce mPhase's set top box that operated with the legacy DVDDS
system developed by GTRC. The TV+ system replaces the DVDDS system with an open
industry standards-based platform. Release 1 of the mPhaseTV+ system is complete
and ready for commercial deployment. The TV+ system delivers 255 broadcast
television channels over ADSL and utilizes an industry-leading, standards-based
Lucent Technologies, Inc.'s Stinger™ DSL Access Concentrator (DSLAM) for
transport of digital television plus high speed internet and voice. The mPhase
TV+ system consists of a powerful software platform and a cost reduced set top
box located in a telephone customer's premises plus the Lucent
Stinger located at the Central Office of a telecommunications service
provider or in the loop servicing the customer.
The mPhase TV+ system provides comprehensive end to end management of
delivery of digital broadcast television by interfacing with the Stinger and a
video headend built by a telephone service provider to downlink broadcast
television programming from satellites. mPhase software manages the broadcast
television compressed data prior to the distribution to a customer by the
Stinger and supports administrative tasks associated with subscriber management.
The use of the Lucent Stinger (digital subscriber line access mutiplexer
commonly known as a DSLAM) for transport in the TV+ system results in a highly
scalable architecture for the delivery of broadcast television. This is
accomplished by internally multicasting each television channel for delivery
from the CO to a larger number of end users. Release 1.0 of the TV+ system is
capable of distributing 255 channels of broadcast television simultaneously to
455 customers by one Lucent Stinger DSLAM concentrator. We believe that the TV+
platform is the most cost-effective standards-based solution for delivery of
broadcast television using ADSL. For mPhase the alliance with Lucent marks a
change in strategy from selling a complete proprietary platform to providing an
industry-standards solution.
The Company believes that the demand for the TV+ system will be greatest in
markets primarily outside of the United States that do not have a hybrid fiber
coaxial cable ("HFC") infrastructure necessary for cable TV or fiber to the curb
necessary for very fast DSL (VDSL). We believe there is a significant cost
advantage when our mPhase TV+ solution is compared against other platforms
utilizing existing telephone lines containing the
same
features. Release 2.1 of the mPhase
TV+ system completed in March of 2005 does not contain features such as the
delivery of two or more TV channels over a single DSL copper telephone line,
video on demand, or interactive TV. Release 2.1 of the TV+ contains the same basic characteristics of Release 1.0 plus
an enhanced electronic program guide. Releases 1.0 and 2.0 of the TV+ system are
designed to operate only with the Lucent Stinger DSLAM.
In December of 2004, the Company announced that Lucent Russia selected the
mPhase TV+ platform to deploy to 1000 customers of one of seven regional
telecommunications operators in Russia that are part of a Russian Holding
Company with over 15 million customers. The Company also announced that it had
reached agreement with Beyaz Holding Company, an owner of Turkey's leading
television news and entertainment station to provide technology for the
introduction of an array of new digital television services throughout Turkey.
Release 3.0 of the TV+ solution, expected to be completed in the fourth
quarter of fiscal year 2005, will utilize a communications framework based upon
Internet Protocol (IP) instead of Asynchronous Transfer Mode (ATM) that is
utilized by Releases 1.0 and 2.1. ATM is an industry standard for transportation
of data based upon a packaging of information into a fixed-size cell format for
transportation across networks. Many telecommunications service providers
currently deploy equipment that handles this protocol because it can support
voice, video, data and multimedia applications simultaneously with a high degree
of reliability. IP is another transport protocol that maintains network
information and routes packets across networks. IP packets are larger and can
hold more data than ATM cells. Historically, there have been concerns that
service providers would be unable to provide the same quality of service with IP
because it is not optimized for time-sensitive signals such as broadcast
television and voice. Nevertheless, there is a greater demand by
telecommunication service providers for IP systems for delivery of television,
voice and high-speed data because such systems are significantly more cost
effective to deploy based upon greater scalability.
Release 3.0 of the TV+ system consists primarily of highly scalable system
management software designed to deliver IP television, video on demand, high
speed internet and voice over both fiber and copper infrastructures of a
telephone service provider. It will operate with both the Lucent Stinger as
well as the DSLAM's of other major vendors. Release 3.0 of the TV system will
also be able to send multiple TV channels down a single DSL line using ADSL2
supported DSLAM's and be capable of delivery of Video on Demand. As ADSL
technology migrates forward to ADSL2 or ADSL2+, mPhase plans to include
additional features in future versions of the TV+ system in a scalable, cost -
effective manner depending upon
actual
market demand
for such features in markets that mPhase is targeting. In addition, mPhase will
be continuously updating its set top box to be used as part of the TV+ system
and as a stand - alone product.
In those television markets in the United States that are not served by HFC,
we believe that the availability of programming content is essential to
facilitate potential sales of our systems enabling delivery of broadcast
television over ADSL. In March of 2000, we established mPhase Television net.,
Inc. (mPhase TV), a joint venture between mPhase and Alphastar International,
Inc. mPhase TV is experienced in negotiation contracts with broadcast television
programming providers for U.S. markets. mPhase TV has secured licenses to resell
programming for a significant number of channels of U.S. broadcast television
over DSL. mPhase TV is capable of providing and arranging with packagers of
television content a full complement of broadcast television channel content for
U.S. telecommunications service providers that may be sent over DSL. This
enables a U.S. telecommunications service provider to avoid the necessity of
securing such contracting rights individually with many different providers of
broadcast television content. mPhase owns approximately 57% of mPhase TV.
NanoTechnology Products
Effective February 3, 2004, mPhase entered into a 12 month research and
development agreement with the Bell Labs division of Lucent Technologies, Inc.
to develop micro power cell battery arrays employing nantextured
superhydrophobic materials for $1.2 million. The Company has extended the
contract with Lucent for another 12 months at approximately the same cost to
continue development of such product. Under the terms of the contract, the
Company will share in royalties from any licensing of the products developed
with Lucent.
mPhase believes that the initial market for the product will be military
applications. A feasibility prototype of the product was completed during the
second quarter in fiscal year 2005.
On March 11, 2005, the Company announced that it had entered into a new 12
month research and development agreement with the Bell Labs division of Lucent
Technologies Inc at a cost of approximately $1.2 million to co -develop and
commercialize uncooled magnetic ultra-sensitive sensors for a host of defense
and civilian applications. The sensors, technically referred to as
magnetometers, are based upon Micro Electro Mechanical Systems, and are being
designed to create a new generation of uncooled ultra sensitive magnetic field
sensors.
mPhase DSL Component Products
mPhase also has designed and markets a line of DSL component products ranging
from items such as Plain Old Telephone Service (POTS) splitters to innovative
loop management products. From our inception in 1996 to date virtually all of
mPhase's revenue has been derived from sales of our DSL products such as POTS
splitters and low pass filters.
Our newest innovation in our suite of DSL component products is our
i
POTS or Intelligent POTS splitter
product. This product enables telephone service providers comprehensive remote
and automated test access to all elements of a DSL network. The
i
POTS, and
i
POTS3 allow a telephone service
provider to bypass POTS splitters on a DSL network and avoid having to manually
intervene and disrupt line usage so a test signal can pass through a DSL
network. This product marks an advancement in automating DSL loop management. As
DSL deployments increase, it is becoming more important for telecommunications
service providers to streamline the process for rolling-out and troubleshooting
DSL services. Additionally, as competition for high speed Internet expands, the
market is witnessing a reduction in the price for such service. Therefore, it
has become imperative that telecommunications service providers lower the
operational costs involved with deploying and supporting DSL services. Currently
our
i
POTS
1
is designed for use with the Lucent
Stinger, whereas, the
iPOTS3
(recently renamed the
Broadband Loop Watch product)
is compatible with digital
subscriber line access multiplexers (data transport devices) DSLAM's
manufactured by other vendors. mPhase has a non-exclusive worldwide distribution
agreement with Corning Cable Systems for the sale of the
i
POTS products and continues to market
such products directly.
In November of 2004, the Company announced that Lucent
Technologies Saudi Arabia's telecommunications deployment selected the Company's
Broadband Loop Watch product. The broadband loop management system is designed
to reduce operating and maintenance expenses associated with DSL deployments by
telecommunications service providers.
For the year ending June 30, 2004 sales from our POTS Splitter Shelves were
$4,641,346 with a Net Loss of $7,758,586 as compared to POTS Splitter Shelf
sales of $351,027 and a Net Loss of $6,650,211 for the fiscal year ended June
30, 2003. For the six months ending December 31, 2004 (unaudited), sales from
POTS Splitter Shelves and our TV + platform totalled $474,687 with a Net Loss of $5,137,792 compared to
sales (exclusively of POTS SPLITTERS) of $3,780,137 and a Net Loss of $2,565,373 for the same period ending
December 31, 2003. (See Financial Statements which commence on page F-1.)
THE OFFERING
Common stock offered: Up to 178,046,810 shares of common stock, of which
77,676,057 shares are issued and outstanding and up to 100,370,753 shares may be
issued pursuant to convertible notes and upon exercise of warrants and options
held by the selling stockholders.
Common Stock to be outstanding after this offering: Approximately 130,410,957
shares of common stock. This does not include an aggregate of 102,932,753 shares
that are reserved for issuance pursuant to convertible notes, outstanding
employee stock options, non-employee stock options and warrants.
Use of proceeds: We will not receive any proceeds from the
sale and issuance of the common stock included in this offering. However, we
will receive approximately $39,123,042 upon the conversion of convertible notes
and the exercise of all of the warrants and options by the selling stockholders,
which would be used for general working capital.
Risk Factors: An investment in our common stock is subject to
significant risks. You should carefully consider the information set forth in
the "Risk Factors" section of this prospectus as well as other information set
forth in this prospectus, including our financial statements and related notes.
Dividend policy: We do not expect to pay dividends on our common stock in the
foreseeable future. We anticipate that all future earnings, if any, generated
from operations will be retained to develop and expand our business.
Plan of Distribution: The shares of common stock (OTC Bulletin Board symbol:
XDSL.OB) offered for resale may be sold by the selling stockholders pursuant to
this prospectus in the manner described under "Plan of Distribution."
We have applied for trademarks on certain marks which relate to our products.  This prospectus also contains product names, trade
names and trademarks of ours as well as those of other organizations. All other
brand names and trademarks appearing in this prospectus are the property of
their respective holders.
FORWARD-LOOKING STATEMENTS
In addition to the other information contained in this prospectus, investors
should carefully consider the risk factors disclosed in this prospectus,
including those beginning on page 12, in evaluating an investment in our common
stock. This prospectus includes "forward-looking statements". All statements
other than statements of historical fact are "forward-looking statements" for
purposes of these provisions, including any projections of earnings, revenues or
other financial items, any statements of the plans and objectives of management
for future operations, any statements concerning proposed new products or
services, any statements regarding future economic conditions or performance,
and any statement of assumptions underlying any of the foregoing. In some cases,
forward-looking statements can be identified by the use of terminology such as
"may", "will", "expects", "plans", "anticipates", "estimates", "potential", or
"continue" or the negative thereof or other comparable terminology.
Although we believe that the expectations reflected in the
forward-looking statements contained herein and in such incorporated documents
are reasonable, there can be no assurance that such expectations or any of the
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to inherent risks and uncertainties,
including but not limited to the risk factors set forth above and for the
reasons described elsewhere in this prospectus. All forward-looking statements
and reasons why results may differ included in this prospectus are made as of
the date hereof, and we assume no obligation to update any such forward-looking
statement or reason why actual results might differ.
SUMMARY FINANCIAL DATA
The summary financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements and notes
included in this prospectus. The statements of operations data from October 2,
1996 (date of inception) to June 30, 1998 are derived from financial statements
that have been audited by (i) Schuhalter, Coughlin & Suozzo, PC, independent
auditors from inception to June 30, 1998, and (ii) by Arthur Andersen for the
years ended 1999, 2000 and 2001 included in this prospectus. The statement of
operations data for the year ended June 30, 2002, June 30, 2003 and June 30,
2004 are derived from the financial statements that have been audited by
Rosenberg, Rich, Baker, Berman & Company in this prospectus.
Year Ended June 30,
Cumulative
from inception
October 2, 1996
to June 30, 2004
2000
2001
2002
2003
2004
(in thousands,
    except share data)
STATEMENT OF
OPERATIONS DATA:
Total revenues
$
279
$
10,524
$
2,582
$
1,582
$
4,641
$
19,609
Costs and Expenses:
Cost of sales
132
5,805
2,415
1,493
4,270
14,115
Research and
development
10,157
10,780
3,820
3,538
3,928
38,275
General and
administrative
27,859
17,322
7,039
2,684
4,118
78,995
Depreciation and
amortization
471
660
670
515
123
2,889
Operating loss
(38,340)
(24,043)
(11,361)
(6,649)
(7,798)
(114,666)
Other income (expense), net
20
-
142
50
150
(1,104)
Interest income (expense)
158
43
(26)
(51)
(111)
5
Net loss
$
(38,162)
$
(24,000)
$
(11,245)
$
(6,650)
$
(7,759)
$
(115,775)
Basic and diluted net
loss per share
$
(1.41)
$
(.72)
$
(.23)
$
(.10)
$
(.10)
Shares used in basic and
diluted
net loss per share
26,974,997
33,436,641
49,617,280
65,217,088
77,677,120
* Does not include any common stock equivalents since their effect would be
anti-dilutive.
Year Ended June 30
(in thousands)
2000
2001
2002
2003
2004
BALANCE SHEET DATA:
Cash and cash
    equivalents
$
6,432
$
31
$
47
$
397
$
90
Working capital
    (deficit)
3,557
(1,458)
(94)
(1,405)
(2,112)
Total assets
11,184
8,997
6,942
3,782
2,591
Long-term obligations,
    net of current portion
-
90
2,891
2,608
1,038
Total stockholders'
    equity (deficit)
$
7,329
$
1,865
$
(42)
$
(3,229)
$
(2,918)
As of
December
31,
      2004
(Unaudited)
(in
      thousands)
BALANCE SHEET DATA:
Cash and cash
      equivalents
1,011
Working capital
      (deficit)
(3,094)
Total assets
$2,708
Total stockholders'
      equity (deficit)
$(3,069)
The balance sheet data as of June 30, 2003 and 2004 is
derived from the financial statements that have been audited by Rosenberg, Rich,
Baker, Berman & Company in this prospectus and the balance sheet data for
December 31, 2004, and include all adjustments (consisting of normal recurring
items) that management considers necessary for a fair presentation of the financial statements have been derived from the unaudited financial
statements reviewed by Rosenberg, Rich, Baker, Berman & Company included in this
prospectus.
The statement of operations data for the six months ended December 31, 2004
and December 31, 2003 have been derived from the unaudited financial statements
reviewed by Rosenberg, Rich Baker Berman & Company included in this prospectus
and include all adjustments (consisting of normal recurring items) that
management considers necessary for a fair presentation of the financial
statements. The (unaudited) results for the six month period ended December 31,
2004 are not necessarily indicative of the operating results to be expected in
the future.
Cumulative
Totals
From
    Inception
Six Months Ended
(October
    2,
December 31,
1996)
to
    December 31,
2003
2004
2004
(in thousands, except per share data)
(Unaudited)
(Unaudited)
(Unaudited)
Total revenues
$3,780
$475
20,084
Expenses:
Cost of sales
3,290
375
14,288
Research and development
1,455
2,156
40,573
General and administrative
1,518,411
2,780,291
81,835,388
Depreciation and amortization
74
129
3,018
Operating loss
(2,557)
(4,965)
(119,631)
Other income
    (expense), net
23
(173)
(1,282)
Interest income
    (expense)
(31)
(95)
(100)
Net loss
$(2,565)
(5,138)
(120,913)
Basic and diluted net
    loss per share*
$(0.04)
$(0.06)
Shares used in basic
    and diluted
net loss per share*
72,251,251
91,474,828
*Does not include any common stock equivalents since their effect would be
anti-dilutive.
RISK FACTORS
An investment in the common stock offered by this prospectus involves a high
degree of risk. In addition to the other information in this prospectus and any
supplements to this prospectus, you should carefully consider the following
risks before making an investment decision.
Risks Related to Financial Aspects of Our Business
In fiscal year 2004, the Company entered into the new and emerging business
of Nanotechnology which entails significant development and commercial risk.
The Company has expended a total of $1.2 million pursuant to a contract with
Lucent Technologies, Inc. to initially develop longer life fuel cells for
military applications. The Company expects to continue exploratory research with
Lucent Technologies, Inc. and has extended  its current Development Agreement
with Lucent for an additional 12 months at a cost of $100,000 per month. The
Company believes that it will be a minimum of two years to develop a
commercially viable revenue producing product. Even though a feasibility
prototype product has been successfully developed, pure research involves a high
degree of risk with significant uncertainty as to whether a commercially viable
product will result. On March 10, 2005 the Company undertook an additional
capital commitment of $1.2 million to Lucent Technologies Inc for new research
and development of uncooled magnetic ultra sensors using the science of
Nanotechnology
mPhase's stock price has suffered significant declines during the past four
years and remains volatile.
The market price of our common stock closed at $1.91 on February 20, 2001 and
closed at $.465 on March 16, 2005. Stocks in telecommunications equipment
providers of DSL products have been very volatile during such period. Our common
stock is a highly speculative investment and is suitable only for such investors
with financial resources that enable them to sustain the loss of their entire
investment in such stock. Because the price of our common stock is less than
$5.00 per share and is not traded on the NASDAQ National or NASDAQ Small Cap
exchanges, it is considered to be a "penny stock" limiting the type of customers
that broker/dealers can sell to. Such customers consist only of "established
customers" and "Accredited Investors" (within the meaning of Rule 501 of
Regulation D of the Securities Act of 1933, as amended-generally individuals and
entities of substantial net worth) thereby limiting the liquidity of our common
stock.
We have reported net losses for each of our fiscal years from our inception
in 1996 and for the six months (unaudited) ended December 31, 2004 and December
31, 2003 respectively and may
not be able to operate profitability in the future.
We have had substantial operating losses since our inception in 1996
(including $7,758,586 and $6,650,211 for the fiscal year ended June 30, 2004 and
fiscal year ended June 30, 2003, respectively and (unaudited) $5,137,977 and
$2,565,377 for the six month period ending December 31, 2004 and December 31, 2003
respectively) and cannot be certain when or if we will ever be profitable. We
expect to continue to have net losses for the foreseeable future and have a need
to raise not less than $5-10 million in additional cash in the next 12 months
through further offerings to continue operations. We have never been profitable
from our inception in October, 1996 through December 31, 2004 (unaudited) and we
have incurred (a) accumulated losses of $120,912,875 and a stockholder's deficit
of $3,069,329 and (b) cumulative negative cash flow of $50,890,701. As of
December 31, 2004 (unaudited) we have a negative net worth of $3,069,329 and
negative working capital of $3,093,403.
Our independent auditor's report express doubt about our ability to continue
as a going concern.
The reports of the Company's outside auditors' Rosenberg, Rich, Baker, Berman
& Company with respect to its latest audited 10K for the fiscal years ended June
30, 2004, June 30, 2003 and June 30, 2002 stated that "there is substantial
doubt of the Company's ability to continue as a going concern." Such opinion
from our outside auditors makes it significantly more difficult and expensive
for the Company to raise additional capital necessary to continue our
operations.
Our common stock is subject to significant dilution upon issuance of shares
we have reserved for future issuance.
As of March 16, 2005, we have warrants, options and convertible notes outstanding convertible into
approximately 76,110,420 shares and 24,822,333 shares restricted and 2,000,000
shares respectively of mPhase common stock
which, upon conversion, may adversely affect the future price of our common
stock. As of March 16, 2005 we have warrants and options convertible into
approximately 66,267,795 and 13,215,000 shares of our common stock at $.35 per
share or less that, upon exercise, will result in significant dilution to many
of our current shareholders and may adversely affect the future price of our
common stock. As of March 16, 2005, the Company has approximately 2,000,000
shares of common stock reserved for the issuance upon the conversion of certain
12% convertible notes to related parties at an average exercise price $.28 per
share which may adversely affect the
future price of our common stock. We may be forced to raise additional cash
for operations by selling additional shares of our common stock at depressed
prices causing further dilution to our shareholders.
Risk Factors Related to Our Operations
We have been a development-stage company since our inception in 1996 and have
not to date had a significant deployment of either of our platform for delivery
of televison over DSL.
We have had to date no material revenues derived from sales of our legacy
Traverser Digital Video Data Delivery System (DVDDS) that has been replaced by
our mPhaseTV+ products or our new line of Intelligence POTS Splitters. There
have been to date only one deployment of our TV+ platform for 1000 customers of
a telecommunications service provider in Russia and no major deployments of
Television over DSL by telephone service providers globally of our products and
there currently is uncertainty as to the extent, if at all, that deployments
will occur in the future.
We depend upon outsourcing of our research and product development of our
television platform and Nanotechnology proucts to Lucent Technologies Inc.
We depend upon Lucent Technologies Inc. for the successful
development of our TV+ product, certain design and software used in our
Broadband Watch product and our lines of Nanotechnology products and our
business would be materially adversely affected if Lucent Technologies Inc. were
to terminate our relationship.
The loss of key personnel could adversely effect our business.
Management and employment contracts with all of our officers have expired and
no assurances can be given that such executives will remain with the Company or
that the Company will be able to successfully enter into agreements with such
key executives. All of our officers and other key employees have been granted
stock options that are intended to represent a key component of their
compensation. Such options may not provided the intended incentives to such
persons if our stock price declines or experiences significant volatility.
Economic support from affiliated companies has been significant.
During the downturn in the telecommunications industry that has continued
over the past 4 years , both Microphase Corporation, and Janifast Ltd. had
provided significant financial support to mPhase in the form of either cash
infusions or conversions of related party debt. Such companies, which share
common management with mPhase, are under no legal obligation to and may not be
able to sustain such economic support of mPhase in the future should such
support be necessary.
Sales and margins from our component DSL products has varied dramatically
during the past four years and remains volatile.
Sales and gross margins from our POTS Splitter and other DSL products have
experienced a general decline and significant volatility during the period from
June 30, 2001 through December 31, 2005 as a result of the significant downturn
in capital spending by telecommunications service providers. Sales have declined
during each quarter of the fiscal year ended June 30, 2004 and continued to
decline during the first quarter of fiscal year 2005. Such decline has continued
through the second quarter of fiscal year 2005 and the outlook for continuing
growth in sales remains uncertain. Failure to achieve significant sales with
adequate gross margins with respect to our component DSL products will
negatively effect the cash available to the Company prior to commencement of
sales of our flagship television platforms thereby having a negative effect upon
the overall financial condition of the Company and the price of our common
stock.
We rely on single sources for supply of a certain component for out POTS
splitter product that has been the source of all of our revenues to date.
We purchase the core torroid which is a key component in our POTS Splitter
Product from VAC corporation. We purchase such component on a purchase order
basis and have no long term contract for the supply of such component. The loss
of this current source of supply could result in us having to redesign our
product at additional cost and result in lost revenues from our main source of
sales to date.
We may incur substantial expenditures in the future in order to protect our
intellectual property.
Although our legacy Traverser DVDDS television platform is
patent-protected and not the subject of any infringement allegations we do not
have currently patents or patents pending for our TV+ product. The
telecommunications industry, in general, is characterized by a large number of
patents and frequent patent litigation based upon claims of patent infringement
when compared to other industries.
Risk Factors Related to Our Targeted Markets
Historically the sale of infrastructure products to telecommunication
providers in the international markets has a long lead time
and a multiplicity of risks.
We expect the majority of our future revenues from our TV+ product to be
derived from international emerging markets and our success depends upon our
ability to sell our flagship television platform outside of the United States
where political, currency and regulatory risks are significantly greater. As a
result of their distance from the United States, different time zones, culture,
management and language differences, these operations pose greater risk than
selling in the United States. Our sales cycle for our TV + platform is
lengthy (since it involves a major strategic decision by an international
telecommunications service provider) and we may incur significant marketing
expenses with no guarantee of future sales. A significant market for our legacy Traverser DVDDS
never developed  may never develop for our TV + platform 
if international telephone service providers fail to successfully deploy
broadband services including high speed data and television Telephone service
providers worldwide have significantly decreased capital expenditures for
broadband and other deployment as a result of the current economic downturn in
the industry. Future market demand that will cause telephone service providers
to continue to aggressively roll out DSL, in general, is highly unpredictable
especially in markets outside of the United States. Certain telephone companies
(especially in developing international economies) may have copper wire
infrastructure that is not of sufficient quality to accommodate the mPhaseTV+
platform. Changes in foreign taxes and import duties and economic and political
instability in international markets pose a greater risk to our operations than
U.S. markets.
Our televison platform may not achieve compliance with regulatory
requirements in foreign countries.
Our mPhaseTV+ platform may fail to meet foreign regulatory
standards. Since our targeted markets for our television platform involves
countries outside of the United States, such product is subject to greater
regulatory risks since it must comply with different standards of different
countries than can vary widely in the telecommunications industry. The failure
to meet such regulatory standards would result in potential customers in
countries outside of the United States not deploying of our TV+ platform.
The telecommunications industry is subject to intense competition
characterized by swift changes in technology.
The telecommunications equipment industry is subject to swift and continuing
innovation and technological changes that could render our TV+ product obsolete
and intense competition in the industry could prevent our ever becoming
profitable. Our competitors that sell DSL systems that compete with and mPhaseTV+
system include much larger and better known and capitalized companies with
significantly greater selling and marketing experience and financial resources
such as ADC, Alcatel S.A and Microsoft in a joint venture., Calis, Catena
Networks, Copper Mountain, Diegeo, Advanced Fiber Communications, ECT
Telecommunications, Ericsson, Fujitsu, Marconi, Motorola, NEC, Nortel, Huawei
Technologies, Net to Net Technology, Nokia, UTS Starcom, DVTEL, Inc., Turnstone,
Paradyne Networks, Samsung, 2 Wire, Siemens, TuT Systems Scientific Atlantic,
and Optibase Wesell. We also face competition from companies that provide
infrastructure software products to deliver multi-channel digital television
over telephone such as Imagic TV, Minerva Corporation and Myrio
Corporation.Telephone service providers that are our targeted customers face
competition from cable-based technologies, fixed wireless technologies and
satellite technologies that may cause them not to deploy our TV+ product.
Deployment of our television platform requires certain additional investments
by telecommunications service providers.
Our Customers may need to build a digital head-end to download television
content from satellites involving a significant additional capital expenditure
to utilize the digital Television capabilities of our TV+ product. Such
additional capital costs to build a digital headend may cause a number of
potential customers not to deploy our TV+ platform.
We may not be able to evolve our technology, products and services or develop
new technology, products and services that are acceptable to our customers.
The market for our broadcast digital television platforms over DSL is
characterized by:
Rapid technology change;
New and improved product introductions;
Changing customer Demands; and
Evolving industry standards and product obsolescence.
Our future success will depend upon our ability to continually enhance our
existing broadcast digital television platforms as Asymmetric Digital Subscriber
Line (ADSL) technology migrates forward to ADSL2 and ADSL2+ with enhanced
features such as the ability to deliver multiple television channels to one set
top box and continually cost-reduce our platforms consistent with the demands of
telecommunications service providers. The development of enhanced and new
technology, products and services is a complex and uncertain process requiring
high levels of innovation, highly-skilled engineering and development personnel,
and the accurate anticipation of
technological and market trends. We may not be able to identify, develop,
market or support new or enhanced technology, products, or services on a timely
basis, if at all owing to our size and limited financial resources.
Telecommunications service providers outside of the United States must be
able to access sources for broadcast television content in order to deploy our
either of our television platforms.
In order to have an incentive to deploy either the TV+ platform, an
international telecommunications service provider must have access, to multiple
channels of Television programming from content providers at prices that enable
such provider to earn a profit from the deployment of television programming. In
certain of our key target markets, such as Brazil, only cable companies are
permitted under current law to provided such content and therefore a local
service provider must either establish a working relationship with such a cable
provider to have an incentive to utilize our products.
USE OF PROCEEDS
The selling stockholders will receive the proceeds from the resale of the
shares of common stock. We will not receive any proceeds from the resale of the
shares of common stock by the selling stockholders. However, we will receive
approximately $39,168,942 if all of the warrants, options and convertible notes
are converted to purchase shares of common stock registered under this
prospectus are exercised, which would be used for general working capital.
PRICE RANGE OF COMMON STOCK
The primary market for our common stock is the OTC Bulletin
Board, where it trades under the symbol "XDSL.OB". The following table sets
forth the high and low closing bid prices for the shares for the periods
indicated as provided by the National Quotation Bureau, Inc. The quotations
shown reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
Year/Quarter
High
Low
Fiscal year
      ended June 30, 1999
First Quarter
$4.25
$0.75
Second Quarter
3.65625
1.5625
Third Quarter
5.625
1.875
Fourth Quarter
8.75
2.90625
Fiscal year
      ended June 30, 2000
First Quarter
$9.25
$2.96875
Second Quarter
6.1875
2.50
Third Quarter
19.125
6.50
Fourth Quarter
14.125
6.00
Fiscal year
      ended June 30, 2001
First Quarter
$9.25
$3.00
Second Quarter
5.9375
1.4688
Third Quarter
3.38
1.22
Fourth Quarter
2.61
1.03
Fiscal year
      ended June 30, 2002
First Quarter
$1.67
$.31
Second Quarter
.86
.31
Third Quarter
.62
.27
Fourth Quarter
.50
.23
Fiscal year
      ended June 30, 2003
First Quarter
$.32
$.15
Second Quarter
.31
.15
Third Quarter
.36
.19
Fourth Quarter
.42
.28
Fiscal Year
      ended June 30, 2004
First Quarter
$.42
$.29
Second Quarter
$.61
$.26
Third Quarter
$.69
$.41
Fourth Quarter
$.46
$.29
Fiscal Year
      ended June 30, 2005
First Quarter
$.31
$.21
Second Quarter
$.35
$.23
As of March 16, 2005 (unaudited), we had 130,410,957 shares of common stock
outstanding and approximately 12,000 stockholders. The last reported sales price
of our common stock on March 16, 2005 was $.465 per share.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and do
not anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be based upon our
financial condition, operating results, capital requirements, plans for
expansion, restrictions imposed by any financing arrangements and any other
factors that the board of directors deems are relevant.
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Company Operations" and the historical financial statements and notes
included in this prospectus The statement of operations data for the years ended
June 30, 1999, 2000 and 2001, are derived from financial statements that have
been audited by Arthur Andersen LLP, and the statement of operations data for
the years ended June 30, 2002, 2003 and 2004 are derived from financial
statements that have been audited by Rosenberg, Rich, Baker, Berman & Company,
independent auditors, and are included in this prospectus. The operations data
for the quarterly periods ended September 30, 1999 and each quarter thereafter
to and including the quarter ended December 31, 2001 are derived from unaudited
financial statements reviewed by Arthur Andersen LLP and the operations data for
the quarterly periods from March 31, 2002 and each quarter thereafter through
and including the quarter ended December 31, 2004, have been derived from
unaudited financial statements reviewed by Rosenberg, Rich, Baker, Berman &
Company, which include all adjustments (consisting of normal recurring items)
that management considers necessary for a fair presentation. The results for the
fiscal year ended June 30, 2004 and the results for the six months ended
December 31, 2004 are not necessarily indicative of the operating results to be
expected in the future.
For The Year Ended
For the Six Months Ended December
June 30,
31, (Unaudited)
2000
2001
2002
2003
2004
2003
2004
STATEMENT OF
OPERATIONS
DATA:
Total revenues
$279,476
$10,524,134
$2,582,446
$1,581,639
$4,641,346
$3,780,137
$474,687
Costs and
Expenses:
Cost of sales
131,756
5,804,673
2,415,129
1,493,394
4,068,255
3,289,937
374,905
Research and
development
10,156,936
10,779,570
3,819,583
3,538,305
4,069,721
1,454,899
2,156,161
General &
administrative
27,859,330
17,321,614
7,038,923
2,683,534
4,177,961
1,518,411
2,780,291
Depreciation &
amortization
471,101
660,372
670,183
515,417
122,878
74,082
128,805
Operating loss
(38,339,647)
(24,042,095)
(11,361,372)
(6,649,011)
(7,797,469)
(2,557,192)
(4,965,176)
Other income
(expense), net
20,000
-
142,236
49,968
38,833
23,087
(40,500)
Interest income
(expense)
158,105
43,361
(26,225)
(51,168)
(111,175)
(31,272)
(95,205)
Net Loss
$(38,161,542)
$(23,998,734)
$(11,245,361)
$(6,650,211)
$(7,758,586)
(2,565,377)
(5,137,792)
Basic and diluted
net loss per share
$(1.41)
$(0.72)
$(0.23)
$(0.10)
$(.10)
(.04)
(.06)
Shares used in
basic and diluted
net loss per
share(1)
26,974,997
33,436,641
49,617,280
65,217,088
77,677,120
72,251,251
91,474,828
(1) Does not include shares on a pro forma basis for all periods presented
for shares which may be issued pursuant to warrants issued in private
placements, options or conversion rights for certain notes; of which the
underlying shares of the Company's common stock for such
common equivalent shares are subject to registration by this prospectus,
since their effect is anti-dilutive. Common equivalent shares for such shares
other than the options, warrants and convertible rights subject to registration
herein, have also been excluded from the computation of diluted earnings per
share since their effect is anti-dilutive.
The balance sheet data as of June 30, 1999, 2000, 2001 are derived from
financial statements that have been audited by Arthur Andersen LLP and June 30,
2002, 2003 and 2004 are derived from financial statements that have been audited
by Rosenberg, Rich, Baker, Berman & Company and the balance sheet data as of
December 31, 2004, have been derived from unaudited financial statements
reviewed by Rosenberg, Rich, Baker, Berman & Company, and include all
adjustments (consisting of normal recurring items) that management considers
necessary for a fair presentation.
Balance Sheet Data as of:
June 30,
2000
2001
2002
2003
2004
Cash and cash
equivalents
$6,432,417
$31,005
$47,065
$396,860
$90,045
Working capital
(deficit)
3,556,587
(1,458,227)
(94)
(1,405,331)
(2,111,452)
Total assets
11,184,246
8,997,182
6,942,515
3,781,649
2,590,718
Total Long-term
obligations, net of
current portion
0
90,000
2,890,535
2,607,552
1,038,050
Total stockholders'
equity (deficit)
$7,328,504
$1,864,642
$(42,849)
$(3,228,886)
$(2,917,962)
December 31, 2004
Cash and
      cash
equivalents
$1,010,903
Working
      capital
(deficit)
(3,093,405)
Total
      assets
2,708,618
Total
      Long-term
obligations, net of
current
      portion
398,049
Total
      stockholders'
equity
      (deficit)
$(3,069,329)
SELECTED QUARTERLY FINANCIAL DATA
The statement of operations data as of the periods indicated below are
derived from unaudited financial statements, of which the quarterly periods
ended September 30, 1999 and each quarter thereafter to and including the
quarter ended December 31, 2001 are derived from unaudited financial statements
reviewed by Arthur Andersen LLP. The operations data for the quarterly periods
ended March 31, 2002 and each quarter thereafter through and including the
quarter ended December 31, 2004, have been derived from unaudited financial
statements reviewed by Rosenberg, Rich, Baker, Berman & Company. The foregoing
include all adjustments (consisting of normal recurring items) that management
considers necessary for a fair presentation of the financial statements.
Three Months Ended
September 30,
December 31
(in thousands, except share amounts)
FISCAL 2005
    QUARTERLY
STATEMENT OF
    OPERATIONS DATA:
Total revenues
$179
$295
Costs and Expenses:
Cost of sales
130
245
Research and development
1,101
1,055
General and administrative
709
2,071
Depreciation and amortization
1,00
127
Operating loss
(1,762)
(3,203)
Interest expense,
    Net
(29)
(66)
Gain (Loss) on Debt
    extinguishment
(41)
(37)
Net Loss
$(1,832)
(3,306)
Basic and diluted
    net loss per share
$(.02)
(.04)
Shares used in
    basic and diluted net loss per share(1)
89,719,962
93,388,584
Three Months Ended
September 30
December 31
March 31
June 30
(in thousands, except share amounts)
FISCAL 2004
    QUARTERLY
STATEMENT OF
OPERATIONS DATA:
Total revenues
$2,489
$1,291
$555
$294
Costs and Expenses:
Cost of sales
2,099
1,191
484
294
Research and development
611
843
1,404
1,212
General and administrative
605
914
803
1,856
Depreciation and amortization
46
28
27
22
Operating loss
(872)
(1,685)
(2,162)
(3,078)
Interest expense,
    Net
(16)
(16)
(20)
(59)
Gain (Loss) on debt
    extinguishment
23
-
(152)
278
Net Loss
$(865)
$(1,701)
$(2,334)
$(2,859)
Basic and diluted
    net loss per share
$(.01)
$(.02)
$(.03)
$(.03)
Shares used in
    basic and dilute net loss
71,725,318
72,814,272
81,564,405
84,885,017
per share
Three Months Ended
September 30
December 31
March 31
June 30
(in thousands, except share
    amounts)
FISCAL 2003
    QUARTERLY
STATEMENT OF
OPERATIONS DATA:
Total revenues
$210
$562
$210
$600
Costs and Expenses:
Cost of sales
197
547
205
544
Research and development
803
753
906
1,077
General and administrative
893
731
544
516
Depreciation and amortization
131
129
129
127
Operating loss
(1,814)
(1,598)
(1,574)
(1,664)
Interest expense,
    Net
(18)
(15)
(11)
(6)
Gain on debt
    extinguishment
41
-
9
11
Gain (Loss) on
    investments
-
(16)
(12)
17
Net Loss
$(1,791)
$(1,629)
$(1,588)
$(1,642)
Basic and diluted
    net loss per share
$(.03)
$(.07)
$(.02)
$(.02)
Shares used in
    basic and diluted net
60,881,131
65,914,466
65,956,810
68,164,160
loss per share(1)
Three Months Ended
September 30
December 31
March 31
June 30
(in thousands, except share amounts)
FISCAL 2002
    QUARTERLY
STATEMENT OF
OPERATIONS DATA:
Total revenues
$537
$545
$866
$634
Costs and Expenses:
Cost of Sales
457
530
724
704
Research and development
1,111
1,257
539
912
General and administrative
2,862
1,641
1,355
1,182
Depreciation and amortization
193
209
136
132
Operating loss
(4,086)
(3,092)
(1,888)
(2,296)
Interest expense,
    Net
(10)
(1)
(5)
(10)
Gain (Loss) on debt
    extinguishment
33
5
85
19
Net Loss
$(4,063)
$(3,088)
$(1,808)
$(2,287)
Basic and diluted
    net loss per share
$(.10)
$(.07)
$(.03)
$(.04)
Shares used in
    basic and diluted net
42,037,506
44,645,458
55,606,168
56,459,167
loss per share(1)
Three Months Ended
September 30
December 31
March 31
June 30
(in thousands, except share amounts)
FISCAL 2001
    QUARTERLY
STATEMENT OF
OPERATIONS DATA:
Total revenues
$1,865
$5,231
$2,959
$469
Costs and Expenses:
Cost of Sales
872
2,779
1,689
465
Research and development
3,162
3,318
2,220
2,080
General and administrative
3,485
3,314
3,105
7,406
Depreciation and amortization
123
136
200
201
Operating loss
(5,779)
(4,316)
(4,255)
(9,683)
Interest income,
    Net
28
8
4
3
Net loss
$(5,751)
$(4,308)
$(4,251)
$(9,680)
Basic and diluted
    net loss per share
$(.18)
$(.13)
$(.12)
$(.27)
Shares used in
    basic and diluted net
31,562,727
32,324,964
34,205,000
35,702,797
loss per share(1)
Three Months Ended
September 30
December 31
March 31
June 30
(in thousands, except share amounts)
FISCAL 2000
    QUARTERLY
STATEMENT OF
OPERATIONS DATA:
Total revenues
$-
$-
$40
$240
Costs and Expenses:
Cost of sales
-
-
19
113
Research and development
1,491
1,904
2,858
3,904
General and administrative
1,210
1,226
12,776
12,648
Depreciation and amortization
114
116
118
123
Operating loss
(2,815)
(3,246)
(15,731)
(16,548)
Other income, net
-
-
-
20
Interest income,
    Net
18
41
57
42
Net Loss
$(2,797)
$(3,205)
$(15,674)
$(16,486)
Basic and diluted
    net loss per share
$(.11)
$(.12)
$(.56)
$(.55)
Shares used in
    basic and diluted net
24,942,965
25,907,602
27,743,996
29,729,060
loss per share(1)
(1) The quarterly earnings per share data above are computed
independently for each of the quarters presented. As such, the sum of the
quarterly per common share information may not equal the full year amounts due
to rounding differences resulting from changes in the weighted-average number of
common shares outstanding.
(1)
SELECTED BALANCE SHEET DATA
The summary financial data set forth below should be read in conjunction with
"Company's Operations" and the historical consolidated financial statements and
notes included in this prospectus. The balance sheet data including the effects
of Changes in the Statement of Stockholders from October 2, 1996 (date of
inception) to June 30, 1998 are derived from financial statements that have been
audited by (i) Schuhalter, Coughlin & Suozzo, PC, independent auditors from
inception to June 30, 1998 (ii) from financial statements that have been audited
by Arthur Andersen for the years ended 1999, 2000 and 2001 and the balance sheet
data as of June 30, 2002, 2003, and 2004 which are included in this prospectus,
are derived from financial statements that have been audited by Rosenberg, Rich,
Baker, Berman & Company.
Year
Ended
June 30,
2000
2001
2002
2003
BALANCE SHEET DATA:
Cash and cash
    equivalents
$6,432
$31
$47
$397
$90
Working capital
    (deficit)
3,557
(1,458)
(94)
(1,405)
(2,111)
Total assets
11,184
8,997
6,943
3,781
2,591
Long-term
    obligations, net
of current portion
-
90
2,890
2,608
1,038
Total stockholders'
    equity
(deficit)
$7,329
$1,865
$(43)
$(3,229)
$(2,918)
COMPANY OPERATIONS
The following is management's discussion and analysis of the operations of
mPhase, since its inception in 1996 which should be read in conjunction with the
accompanying financial statements, financial data, and the related notes.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995:
Some of the statements contained in or incorporated by reference in this
Prospectus discuss the Company's plans and strategies for its business or state
other forward-looking statements, as this term is defined in the Private
Securities Litigation Reform Act of 1995. The words "anticipate," "believe,"
"estimate," "expect," "plan," "intend," "should," "seek," "will," and similar
expressions are intended to identify these forward-looking statements, but are
not the exclusive means of identifying them. These forward-looking statements
include, among others, statements concerning the Company's expectations
regarding its working capital requirements, gross margins, results of
operations, business, growth prospects, competition and other statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. Any forward-looking statements contained in this Prospectus are subject
to risks and uncertainties that could cause actual results to differ materially
from those results expressed in or implied by the statements contained herein.
OVERVIEW
mPhase Technologies, Inc. (mPhase, the Company, we or us), a New Jersey
corporation, founded in 1996 is a publicly-held company with approximately
12,000 shareholders and approximately 130 million shares of common stock
outstanding. The Company's common stock is traded on the NASDAQ Over the Counter
Bulletin Board under the ticker symbol XDSL.
mPhase is a developer of broadband communications products, specifically,
digital subscriber line (DSL) products for telecommunications service providers
around the world. In February of 2004 mPhase has entered into the new and
emerging area of NanoTechnology. Since our inception in 1996 we have been a
development-stage company and operating activities have related primarily to
research and development, establishing third-party manufacturing relationships
and developing product brand recognition among telecommunications service
providers.
We are headquartered in Norwalk, Connecticut with offices in Little Falls,
New Jersey and New York, New York. mPhase shares common office space and common
management with Microphase Corporation, a privately-held company. Microphase is
a seller of radio frequency and filtering technologies to the defense industry.
Microphase has been in operation for almost 50 years and supports mPhase with
engineering, administrative and financial resources, as needed.
Description of Operations
Since our inception in 1996 our primary activities have consisted of
designing, manufacturing and testing our flagship products designed to deliver
digital broadcast television over DSL. We have not, as yet, derived any
significant revenue from such products. The Company's recent entry into the
field of nanotechnology is focused upon exploratory development of batteries
with significantly longer shelf lives and enhanced capabilities. The Company
believes that such development is consistent with its strategy of being a
pioneer of high growth technology products and potentially diversifies its
product mix.
mPhase introduced its first TV over DSL platform, the Traverser™ Digital
Video and Data Delivery System ("DVDDS"), in 1998. The DVDDS is a patented end
to end system that enables a telecommunications service provider to deliver up
to several hundred channels of motion picture experts group two ("MPEG-2")
standard broadcast digital television, high speed internet and voice over copper
telephone lines between a central office facility of the provider and a
customer's premise. mPhase has not, as yet, derived any material revenues from
sales of the DVDDS. The DVDDS is a proprietary technology developed in
conjunction with Georgia Tech Research Corporation (GTRC) and is one of the
first systems of its kind developed.. The system is the only system on the
market that utilizes non- Internet Protocol ("IP") transmission over ADSL. The
DVDDS is installed at Hart Telephone Company in Hartwell, Georgia, where a
limited user system is currently operational. This trial system is being
replaced and updated with Version 1.0 of our new TV+ system at Hart Telephone
that is expected to be operational with a limited number of trial customers of broadcast television during  fiscal year 2005. A DVDDS™ system is also installed at the BMW manufacturing plant in Spartanburg,
South Carolina for use as a television broadcast system in a commercial setting.
The new mPhase TV+ system, developed in conjunction with Bell Laboratories
division of Lucent Technologies, Inc., is also designed to allow for the
simultaneous delivery of voice, high speed data, and broadcast TV over copper
telephone lines between a telephone service provider's central office (CO) and
the customer premises. The TV+ system was developed in conjunction with Bell
Laboratories as an outgrowth of mPhase's engagement of Bell Labs in fiscal year
2003 to cost reduce mPhase's set top box that operates with the legacy DVDDS
sytem developed by Georgia Tech Research Corporation (GTRC). The TV+ system has
replaced the legacy DVDDS system with an open
industry standards-based platform. Release 1 and 2.1 of the mPhaseTV+ system is complete
and ready for commercial deployment. The TV+ system delivers 255 broadcast
television channels over ADSL and utilizes an industry-leading, standards-based
Lucent Technologies, Inc.'s Stinger™ DSL Access Concentrator for
transport of digital television plus high speed internet and voice. The
mPhase TV+ system consists of a powerful software platform and a cost reduced
set top box located in a telephone customer's premises plus the Lucent Stinger
located at the CO or in the loop servicing the customer.
The mPhase TV+ system provides comprehensive end to end management of
delivery of digital broadcast television by interfacing with the Stinger and a
video headend built by a telephone service provider to downlink broadcast
television programming from satellites. mPhase software manages the broadcast
television compressed data prior to the distribution to a customer by the
Stinger and supports administrative tasks associated with subscriber management.
The use of the Lucent Stinger (digital subscriber line access mutiplexer
commonly known as a DSLAM) for transport in the TV+ system results in a highly
scalable architecture for the delivery of broadcast television. This is
accomplished by internally multicasting each television channel for delivery
from the CO to a larger number of end users. Release 1.0 and 2.1 of the TV+ system is
capable of distributing 255 channels of broadcast television simultaneously to
455 customers by one Lucent Stinger DSLAM concentrator. We believe that the TV+
platform is the most cost-effective standards-based solution for delivery of
broadcast television using ADSL. For mPhase the alliance with Lucent marks a
change in strategy from selling a complete proprietary platform to providing an
industry-standards solution.
The Company believes that the demand for the TV+ system will be greatest in
markets primarily outside of the United States that do not have a hybrid fiber
coaxial cable ("HFC") infrastructure necessary for cable TV or fiber to the curb
necessary for very fast DSL (VDSL). We believe there is a significant cost
advantage when our mPhase TV+ solution is compared against other platforms
utilizing existing telephone lines containing the
same
features. Release 1.0 of the mPhase
TV+ system completed in July of 2004 does not contain features such as the
delivery of two or more TV channels over a single DSL copper telephone line,
video on demand, or interactive TV. Release 2.1 of the TV+, completed in March
of 2005, contains the same basic characteristics of Release 1.0 plus
an enhanced electronic program guide. Releases 1.0 and 2.1 of the TV+ system are
designed to operate only with the Lucent Stinger DSLAM.
In December of 2004, the Company announced that a major telecommunications
service provider in Russia had chosen to deploy to 1,000 of its customers
mPhase's TV+ platform. The Russian service provider has over 1 million customers
and is part of a holding company with 15 million customers.
Release 3.0 of the TV+ solution, expected to be completed in the fourth
quarter of fiscal year 2005, will utilize a communications framework based upon
Internet Protocol (IP) instead of Asynchornous Transfer Mode (ATM) that is
utilized by Releases 1.0 and 2.1. ATM is an industry standard for transportation
of data based upon a packaging of information into a fixed-size cell format for
transportation across networks. Many telecommunications service providers
currently deploy equipment that handles this protocol because it can support
voice, video, data and multimedia applications simultaneously with a high degree
of reliability. IP is another transport protocol that maintains network
information and routes packets across networks. IP packets are larger and can
hold more data than ATM cells. Historically, there have been concerns that
service providers would be unable to provide the same quality of service with IP
because it is not optimized for time-sensitive signals such as broadcast
television and voice. Nevertheless, there is a greater demand by
telecommunication service providers for IP systems for delivery of television,
voice and high-speed data because such systems are significantly more cost
effective to deploy based upon greater scalability.
Release 3.0 of the TV+ system is a system management software product that will operate with both the Lucent Stinger as
well as the DSLAM's of other major vendors. Release 3.0 of the TV system will
also be able to send multiple TV channels over both fiber as well as down a single DSL line using ADSL2
supported DSLAM's and be capable of delivery of Video on Demand. As ADSL
technology migrates forward to ADSL2 or ADSL2+, mPhase plans to include
additional features in future versions of the TV+ system in a scalable, cost -
effective manner depending upon
actual
market demand
for such features in markets that mPhase is targeting. In addition, mPhase will
be continuously updating its set top box to be used as part of the TV+ system
and as a stand - alone product.
In those television markets in the United States that are not served by HFC,
we believe that the availability of programming content is essential to
facilitate potential sales of our systems enabling delivery of broadcast
television over ADSL. In March of 2000, we established mPhase Television net.,
Inc. (mPhase TV), a joint venture between mPhase and Alphastar International,
Inc. mPhase TV is experienced in negotiation contracts with broadcast television
programming providers for U.S. markets. mPhase TV has secured licenses to resell
programming for a significant number of channels of U.S. broadcast television
over DSL. mPhase TV is capable of providing and arranging with packagers of
television content a full complement of broadcast television channel content for
U.S. telecommunications service providers that may be sent over DSL. This
enables a U.S. telecommunications service provider to avoid the necessity of
securing such contracting rights individually with many different providers of
broadcast television content. mPhase owns approximately 57% of mPhase TV.
mPhase DSL Component Products
. mPhase also has designed and
markets a line of DSL component products ranging from commodity items such as
POTS splitters to innovative loop management products. Most notable in the suite
of DSL component products is the recently introduced
i
POTS or Intelligent POTS Splitter
product. The
i
POTS
1
product is designed to work in
conjunction the Lucent Stinger DSLAM. A newly developed version of the product
called the
i
POTS
3
(renamed the Broadband Watch product)
is compatible with the
Lucent Stinger as well as DSLAM's manufactured by other vendors. This product
marks a significant advancement in automating loop management. As DSL
deployments scale, it is becoming increasingly more important for
telecommunications service providers to
streamline the process for provisioning and troubleshooting DSL services.
Additionally, as competition for high speed Internet expands, the market is
witnessing a reduction in price. Therefore, it has become imperative that
telecommunications service providers lower the operational costs involved with
supporting DSL services. The
i
POTS is a device that
allows service providers to perform full loop testing without having to deploy
manual assets by allowing service providers to temporarily bypass the POTS
Splitter and have a comprehensive view of their DSL networks. Prior to the
introduction of this product in order to perform full testing, service providers
would have to manually intervene so that so that test signals could be passed
through the network. In November of 2004, the Company announced that it had been
selected to provide its automated Broadband Watch product for Saudi Arabia
Telecom under an initial purchase order in excess of $1 million.
Nanotechnology
Effective February 3, 2004, mPhase has entered into a Development Agreement
with Lucent Technologies, Inc. to commercialize the use of nano power cell
technology. The initial Agreement was for a 12 month period of exploratory
development at the cost of $100,000 per month of a new form of power cell having
a shelf life far in excess of conventional battery technology. The Company has
extended such Agreement for another 12 months at the cost of $100,000 per month
through February of 2006 to continue development of the nano power cell product.
We believe that this arrangement with the Bell Labs division of Lucent will give
mPhase the opportunity to develop and offer breakthrough battery technology and
other potential applications, initially to the government market for defense and
homeland security and ultimately to the commercial market. It is anticipated
that the initial applications for nano power cells will address the need to
supply emergency and reserve power to a broad range of products for the defense
department.
The Company believes that its entry into this new field of high technology
growth will provide product diversification without negatively affecting its
focus upon its traditional products aimed at delivery of Television over DSL.
The Company developed a lab prototype of its first nano power cell product that was completed
in the second quarter of fiscal year 2005. The Company is
unable, at this time, to predict when significant commercialization and material
revenues will be derived from its entry into the NanoTechnology business.
On March 10, 2005 the Company announced and agreement with the Bell Labs
research and development arm of Lucent Technologies, Inc. to codevelop and
commercialize uncooled magnetic ultra-sensitive sensors for a host of defense
and civilian applications. The sensors, technically referred to as
magnetometers, are based upon Micro Electro Mechanical Systems (MEMS) using
designs based upon fundamental breakthroughs made in the past few years at Bell
Labs as part of the New Jersey Nanotechnology Consortium. Initial tests of
theses MEMS magnetometers indicate sensitivities 1000 times those achieved in
presently available uncooled magnetometers. Such devices are designed to create
a new generation of ultrasensitive magnetic field sensors that will enable
military combatants to detect with greater accuracy and range hostile military
forces. Commercial applications may include inexpensive navigational components
for mobile phones to sensing devices for identification and other homeland
security products.
Revenues
. To date, all
material revenues have been generated from sales of the POTS Splitter Shelves
and other DSL component products to a small number of telecommunications
companies. mPhase believes that future revenues are difficult to predict because
of "the length and variability of the commercial roll-out of the mPhase TV+
product to various telecommunications service providers and (ii) the Company's
recent entry into the NanoTechnology business. Since the Company believes that
there may be a significant international market for the mPhaseTV+ products
involving many different countries, with different regulations, certifications
and commercial practices than the United States, future revenues are highly
subject to the changing variables and uncertainties. Additionally, the recent
instability of the telecommunications market evidenced by reduction in capital
spending across the whole in the telecom sector contributes to our difficulty in
accurately predicting future revenues.
Cost of revenues
. The
costs necessary to generate revenues from the sale of POTS Splitter Shelves and
other related DSL component products include direct material, labor and
manufacturing. mPhase paid these costs to Janifast Ltd., which has facilities in
the People's Republic of China and is owned by and managed by certain senior
executives of the Company. The cost of revenues also includes certain royalties
paid to Microphase Corporation, a privately held corporation organized in 1955,
which shares certain common management with the Company and is majority-owned by
a director of mPhase. Costs for future production of the  TV + 
Platform will consist primarily of payments to manufacturers to acquire
the necessary components and assemble the product including Lucent Technologies
Inc., Espiral Group and Magpie Telecom Insiders, Inc.
Research and development
. Research and development expenses
consist principally of the payments made to  Microphase and Lucent,
respectively, for development of the Traverser, the
i
POTS, the TV+ and nanotechnology
products
respectively. The TV+ solution consists of the newly developed mPhase Broadcast
Television Switch together with the Lucent Stinger voice and data delivery
system product. All research and development costs are expensed as incurred.
General and administrative
. Selling, general and administrative
expenses consist primarily of salaries and related expenses for personnel
engaged in direct marketing of the TV+ platform, the POTS
Splitter Shelves, the
i
POTS and other DSL component
products, as well as support functions including executive, legal and accounting
personnel. Certain administrative activities are outsourced on a monthly fee
basis to Microphase and mPhase leases its principal office in Norwalk,
Connecticut from Microphase.
Non-Cash compensation charges
. The Company makes extensive use of
stock options and warrants as a form of compensation to
employees, directors and outside consultants. We incurred non-cash
compensation charges totaling $67,932,341 from inception (October 2, 1996)
through June 30, 2004, of which $2,117,769 was included in research and
development expenses and $47,133,142 was included in general and administrative
expenses.
TWELVE MONTHS ENDED JUNE 30, 2004 VS. JUNE 30, 2003
Revenues. Total revenues for the year ended June 30, 2004 increased to
$4,641,346 from $1,581,639 for the year ended June 30, 2003. The increase was
primarily attributable to increased sales of the Company's POTS Splitter product
line especially during the first quarter of
fiscal year ended June 30, 2004, caused by an upturn in July and August of
2004 of orders from one customer that orders component products from the
Company. The Company continues to believe that its line of POTS Splitter
products is positioned to be competitively priced with high reliability and
connectivity, and as such has the potential to be significant part of DSL
deployment. The Company cannot predict when the demand for telecommunication
equipment will resume, however we do not expect significant sales in the first
two quarters of fiscal 2005.
Cost of revenues. Cost of sales was $4,068,255 for the year ended June 30,
2004 as compared to $1,493,394 in the year ended 30, 2003. Cost of revenues
increased for the twelve months ended June 30, 2004 compared to the prior period
ending June 30, 2003 primarily because of increased sales. Gross margins for the
period ended June 30, 2004 were 12%. The gross margins have varied dramatically
as spending among telecommunication providers has contracted, coupled with
downward pressures related to the supply and demand of telecommunications
products. The single most significant reason the margins decreased dramatically
was due to the reduced selling price of our POTS Splitter product. Discounts,
consisting of a 2% discount from the amount invoiced if paid within 10 days were
offered during fiscal year 2004
.
Such discounts
amounted to $71,425 for the period ended June 30, 2004, and were offered to
Covad Communication our leading telecommunications service provider customer
.
Discounts were offered in fiscal 2003
to an existing customer to accelerate collections in connection with an order of
our POTS Splitter product and was treated as a purchase discount to each our
customers, and the reduction to net sales lowered the gross margins in the
period.
Research and Development. Research and development expenses were $4,069,721
for the year ended June 30, 2004 as compared to $3,538,305 in the year ended
June 30, 2003, an increase of $531,416. Such expenditures included $2,328,602
incurred with Lucent Technologies, Inc. for the year ended June 30, 2004 as
compared to $1,112,500 during the comparable period in 2003. In addition we
incurred $99,494 with Microphase and other strategic vendors for the year ended
June 30, 2004 as compared to $528,434 during the comparable period in 2003.
The significant increase in research and development expenses with Lucent
Technologies, Inc. is due to the continued and accelerated development of the
TV+ product together with the entry into a $1.2 million 12 month Development
Agreement for battery and power pack product development utilizing
Nanotechnology. Such expenditures are expected to increase in fiscal year 2005
since the Company's strategy is to further enhance the features and cost reduce
its TV+ and expand its product line in the Nanotechnology area.
The elimination in research expenditures incurred with GTRC is due to the
Company's refocus in development from its legacy Traverser DVDDS television
delivery platform to its TV+ product.
Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of POTS Splitters and Microfilters and the Company's newest products, the
iPOTS™.
General and Administrative Expenses. Selling, general and administrative
expenses were $4,177,961 for the year ended June 30, 2004 up from $2,683,534 for
the comparable period in 2003, an increase of $149,427. The increase in the
selling, general and administrative costs was primarily the result of the
addition of a number of new employees critical to the Company's needs in
developing, marketing and selling the TV+ and NanoTechnology product lines with
Lucent a respectively.
Included is an increase of non-cash charges relating to the issuance of
common stock and options to consultants, which totaled $1,010,895 for the year
ended June 30, 2004 as compared to $477,836 during the comparable period in
2003. Other components of the increase in selling, general and administrative
expenses were increases in payroll of approximately $461,226 to $953,602,
increase in the use of outside consultants of approximately $251,103 to
$987,720, marketing expenses such as trade shows of $30,148 to $40,347, and
advertising expenses of $20,439 to $21,948, all of which approximated $1,295,975
or 87% of the increase in spending.
Net loss. mPhase recorded a net loss of $7,758,586 for the year ended June
30, 2004 as compared to a loss of $6,650,211 for the same period ended June 30,
2003. This represents a loss per common share of $(.10) in 2004 as compared to
$(.10) in 2003, based upon weighted average common shares outstanding of
77,677,120 and 65,217,088 during the periods ending June 30, 2004 and June 30,
2003 respectively.
Twelve Months Ended June 30, 2003 vs. June 30, 2002
Revenue
Total revenues were $1,581,639 for the year ended June 30, 2003 compared to
$2,582,446 for the year ended June 30, 2002. The decrease was attributable to
the continued slowing sales during fiscal year 2003 of the Company's POTS
Splitter product line, caused by the general downturn in the telecommunications
market, including customers that order component products from the Company. The
Company continues to believe that its line of POTS Splitter products is
positioned to be competitively priced with high reliability and connectivity,
and as such has the potential to be a significant part of DSL deployment
worldwide. The Company cannot say when the demand for telecommunication
equipment will resume.
Cost of Revenues
Cost of sales was $1,493,394 for the fiscal year ended June, 2003 as compared
to $2,415,219 in the prior period, representing 94% of gross revenues, for each
of the fiscal years ended June 30, 2003 and 2002, respectively. The margins have
contracted dramatically in the past two fiscal years as spending among the
telecommunications providers has contracted, coupled with downward pressures
related to the supply and demand of telecommunications products.
Research and Development
Research and development expenses were $3,538,305 for the fiscal year ended
June 30, 2003 as compared to $3,819,583 during the comparable period in 2002; or
a decrease of $281,278.
Such expenditures include $100,000 incurred with GTRC for the fiscal year
ended June 30, 2003 as compared to $450,000 during the comparable period in
2002. In addition, the Company incurred research and development expenses for
depreciation of test equipment located at Hart Telephone Company and at mPhase
of $839,735 and $845,783 for the fiscal years ended June 30, 2003 and 2002,
respectively.
Other portions of research and development expenses include (a) a decrease of
research and development expenses incurred with
Microphase by $322,640 to $428,434 for the fiscal year ended June 30, 2003
from $751,074 for the comparable period ended June 30,2002, (b) non cash
compensation of $385,495 for the twelve month period ended June 30, 2003
compared to $267,338 for the same period ending June 30, 2002 and (c)
miscellaneous expenses of $143,024 and $298,227 for the periods ended June 30,
2003 and June 30, 2002, respectively.
The Company incurred increased charges with Lucent Technologies, Inc. in the
current year, totaling $1,112,500 incurred on development of the Broadcast
Television Switch for use with Lucent's Stinger DSL product, $437,500 incurred
for the cost reduction effort for mPhase's set top box. In addition, $75,000 was
incurred for software development associated with mPhase's
i
POTS3 product, as compared with
$156,250 incurred in the year ended June 30, 2002.
The elements contributing to the decrease in other research and development
expenses included a decrease in the operations of the Company's joint venture,
mPhase Television.net. The major costs incurred by the joint venture were
payroll expenses attributable to research and development of the Company's
transmission capabilities and acquisition of television content. Costs incurred
by the joint venture during the fiscal year ended June 30, 2002 were $232,334 as
compared to $62,352 for the period ended June 30, 2003. Additionally, this
decrease can be attributed to the Company abandoning certain research projects
on DSL components the Company believed were no
longer commercially viable, this approximated $12,960 in fiscal 2003 compared
to $440,295 in fiscal 2002.
The decrease in research expenditures incurred with GTRC is due to the
Company's shift of capital expenditures from the Traverser DVDDS to the TV+
product. The Company's project with Lucent provides for cost reduction of the
INI set top box and other product enhancements as well as development of a
Broadcast Television Switch for use with Lucent's Stinger product. To date
expenses incurred with respect to the TV+ platform and development of the new
cost reduced InI are $593,750, and $437,500 respectively for the fiscal year
ended June 30, 2003.
Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of POTS Splitters and Microfilters and the Company's newest products, the
i
POTS and the mPhase Stretch. We
believe the mPhase
i
POTS offers a much needed
solution for the DSL industry; the
i
POTS enables telecommunications
service providers to remotely and cost-effectively perform loop management and
maintenance including line testing, qualification and troubleshooting. Prior to
the introduction of the
i
POTS™ loop management could
not be remotely performed through a conventional POTS Splitter without the use
of expensive cross connects or relay banks because of the mandatory DC blocking
capacitors in traditional POTS splitters, as required by various telephone
protocol and regulatory standards. The unique (patent pending)
i
POTS circuit allows most test heads
to perform both narrow and wideband testing of the local loop through the
central office POTS Splitter without having to physically disconnect the POTS
Splitter, thereby eliminating the need to dispatch personnel and a truckroll.
The Company anticipates future demand for this product, as it significantly
reduces the cost of deploying and maintaining DSL services. Also recently
developed is the DSL loop extender product called mPhaseStretch. This product
extends the service distance for the mPhase Traverser and can be used in
conjunction with other DSL services. The Company believes there will be future
demand for the Stretch loop extender product as it addresses a primary issue in
DSL services.
General and Administrative Expenses
General and administrative expenses were $2,654,971 for the twelve-month
period ended on June 30, 2003 as compared to $6,490,373 for the same period
ended June 30, 2002. This represents a decrease of these expenses of $3,836,402,
or approximately 59% in fiscal 2003 as a percentage of these expenses in fiscal
2002. The decrease in administrative costs included a decrease of $1,696,771 in
non-cash changes for the issuance of options to consultants which totaled
$748,840 for the year ended June 30, 2003 as compared to $2,445,561 during the
comparable period in 2002. The decrease also occurred as a result of the
reduction in workforce and the reduction in marketing expenses which the Company
began in Fiscal 2002 in response to the current contraction in the
telecommunications equipment market. Other components of the decrease in
selling, general and administrative expenses included decreases in (a) executive
compensation and administrative payroll and related costs of approximately
$775,000, (b) marketing expenses such as trade shows of approximately $250,000,
(c) reductions in occupancy costs by approximately $290,000, (d) decreases in
shareholder services and related expenses by approximately $190,000, (e)
insurance and risk management costs by approximately $145,000 and (f) various
decreases in other administrative categories aggregating approximating $490,000.
The foregoing approximated reductions of general and administraive expenses
other than non-cash charges of $2,125,000 in the twelve months ended June 30,
2003 compared to the same period ended June 30, 2002.
We do not expect this downward trend to continue, yet administrative expenses
are expected to remain at the current levels until the Company begins its
marketing effort to roll out its TV+ products in the second quarter, and at such
time we expect that selling and travel expenses will grow. Further when the
Company begins to implement and support its Television over DSL platforms then
administrative payroll and related costs will again rise as the Company will
need to add employees to its administrative workforce.
Depreciation and Amortization
Depreciation and amortization expense was $515,417 in fiscal 2003 as compared
to $670,183 for 2002. These expenses decreased $154,766, or approximately 23% of
the prior years expense as a result of the Company's reduced need for and
outlays on capital expenditures in its two preceding fiscal years. We do not
expect such downward trend to continue but such depreciation and amortization
expense should remain at the current reduced levels until the Company commences
deployment of its Television over DSL platforms. We expect to increase capital
expenditures in connecting with the deployment of equipment at test sites with
various telecommunications service providers globally as deployment of our TV+
product progresses and such equipment will need to be depreciated or amortized,
as the case may be, that will result in increased depreciation at that time.
Net Loss
The Company recorded a net loss of $6,650,211 for the period ended June 30,
2003 as compared to a loss of $11,245,361 for the period ended June 30, 2002.
This represents a loss per common share of $.10 for the fiscal year ended June
30, 2003 as compared to a loss per common share of $.23 for the fiscal year
ended June 30, 2002 based upon weighted average common shares outstanding of
65,217,088 and 49,617,280 during the fiscal years ended June 30, 2003 and 2002,
respectively.
Twelve Months Ended June 30, 2002 vs. June 30, 2001
Revenue
Total revenues for the year ended June 30, 2002 decreased to $2,582,446 from
$10,524,134 for the year ended June 30, 2001. The decrease was primarily
attributable to slowing sales of the Company's POTS Splitter product line,
caused by the general downturn in the telecommunications market, including among
customers that order component products from the Company. The Company continues
to believe that its line of POTS Splitter products is positioned to be
competitively priced with high reliability and connectivity, and as such has the
potential to be significant part of DSL deployment. The Company cannot predict
when the demand for telecommunication equipment will resume, however we do not
expect significant sales in the first two quarters of fiscal 2003.
Cost of Revenues
Cost of sales was $2,415,129 for the year ended June 30, 2002 as compared to
$5,804,673 in the year ended June 30, 2001. Cost of revenues declined for the
twelve months ended June 30, 2002 compared to the prior period ending June 30,
2001 primarily because of decreased sales. Operating margins for the period
ended June 30, 2002 were 6%. The gross margins have varied dramatically as
spending among telecommunication providers has contracted, coupled with downward
pressures related to the supply and demand of telecommunications products. The
single most significant reason the margins decreased dramatically was due to the
reduced selling price of our POTS Splitter product. Discounts, consisting of 2%
of the amount invoiced if paid within 29 days of the invoice date, amounted to
$14,389 for the period ended June 30, 2002. Such discounts were offered to two
major customers that are leading telecommunications service providers. In each
case, the discount was offered to an existing customer to accelerate collections
in connection with a reorder of our POTS Splitter product and was treated as a
purchase discount to our customer, and the resultant reduction to net sales
lowered the gross margins in the period.
Research and Development
Research and development expenses were $3,819,583 for the year ended June 30,
2002 as compared to $10,779,570 in the year ended June 30, 2001. Such
expenditures include $450,000 incurred with GTRC for the year ended June 30,
2002 as compared to $3,814,000 during the comparable period in 2001. In addition
we incurred $1,212,594 with Microphase and additional expenses with other
strategic vendors for the year ended June 30, 2002 as compared to $3,405,975
during the comparable period in 2001.
The decrease in research and development expenses with
Microphase is due to the completion of the development of the POTS Splitter
product line. The decrease in research and development expense of approximately
$3.1 million is due to the termination of the Company's relationship with a
third party manufacturer, Flextronics, with whom the Company had incurred
substantial costs for prototypes and pre-manufacturing costs.
The decrease in research expenditures incurred with GTRC is due to the
Company's nearing completion of the design and manufacture of prototypes of the
set top box and the central office equipment associated with its Traverser
product in 2002. Generally, as the Company anticipates the completion of its
Traverser product, overall research and development expenses are expected to
decline, with variations based upon product cost reductions, product
enhancements, if any, when such are undertaken.
Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of POTS Splitters and Microfilters and the Company's newest products, the
iPOTS and mPhase Stretch. We believe the mPhase iPOTS offers a much needed
solution for the DSL industry; the iPOTS enables telcos to remotely and
cost-effectively perform loop management and maintenance including line testing,
qualification and troubleshooting. Prior to the introduction of the iPOTS™ loop
management could not be remotely performed through a conventional POTS Splitter
without manual deployment of personnel. The unique (patent pending) iPOTS
circuit allows most test heads to perform both narrow and wideband testing of
the local telephone loop from a network operations center central office POTS
Splitter without having to physically disconnect the POTS Splitter, thereby
eliminating the need to dispatch personnel and a truckroll to either a central
office in the field or a customer premises. The Company believes there will be a
demand for this product, as it significantly reduces the cost of deploying and
maintaining DSL services. Also recently developed is the DSL loop extender
product called mPhaseStretch. This product extends the service distance for the
mPhase Traverser and can be used in conjunction with other DSL services.
The Company believes there will be demand for the Stretch loop extender
product as it extends the reach of delivery of television and data over DSL.
General And Administrative Expenses
Selling, general and administrative expenses were $6,490,373
for the year ended June 30, 2002 down from $16,150,711 for the comparable period
in 2001. The decrease in the selling, general and administrative costs included
a decrease of non-cash charges relating to the issuance of common stock and
options to consultants, which totaled $2,445,561 for the year ended June 30,
2002 as compared to $6,227,552 during the comparable period in 2001. The
decrease also occurred as a result of the reduction in workforce in Fiscal 2002
and the reduction in
marketing expenses in Fiscal 2002 in response to the current contraction in
the telecommunications equipment market. Other components of the decrease in
selling, general and administrative expenses were a substantial decrease in
payroll of approximately $1,100,000 to $450,000, use of outside consultants of
approximately $870,000 to $70,000, marketing expenses such as trade shows of
$1,200,000 to $270,000, and advertising expenses of $415,000 to $13,000, all of
which approximated $2,800,000.
Net Loss
mPhase recorded a net loss of $11,245,361 for the year ended June 30, 2002 as
compared to a loss of $23,998,734 for the same period ended June 30, 2001. This
represents a loss per common share of $(.23) in 2002 as compared to $(.72) in
2001, based upon weighted average common shares outstanding of 49,617,280 and
33,436,641 during the periods ending June 30, 2002 and June 30, 2001,
respectively.
Six Months Ended December 31, 2004 vs. December 31, 2003
Revenue
Total revenues were $474,687 for the six months ended December 31, 2004
compared to $3,780,137 for the six months ended December 31, 2004 representing a
decrease of $3,305,450. The decrease was primarily attributable to a decrease in
sales of the Company's Pots Splitter product line. The Company continues to
believe that its line of Pots Splitter products is positioned to be
competitively priced with high reliability and connectivity, and as such has the
potential to be a significant part of DSL deployment worldwide. The Company has
experienced declines during each quarter of fiscal year 2004 that has continued
into the first half of fiscal year 2005. The Company cannot predict if the
downturn in sales of its Pots Splitter line will continue going forward.
Cost of Revenues
Cost of sales were $374,905 for the six months ended December 31, 2004 as
compared to $3,289,937 in the prior period, representing 79% of gross revenues
for the first six months of fiscal 2005 which ended December 31, 2004 and 87%
for the six months of fiscal 2004 which ended December 31, 2003, respectively.
Our gross margins have been very volatile over the past three years as spending
among the telecommunications providers has contracted, coupled with downward
pressures related to the supply and demand of telecommunications products.
Margins for the first six months of fiscal 2005, which ended December 31, 2004,
increased by 10% over the margins for the same period ended December 31, 2003
due to better cost of materials used in the Pots Splitter product line. We are
unable to determine whether such increase in margins will continue for the
remainder of fiscal year 2005.
Research and Development
Research and development expenses were $2,156,161 for the six
months ended December 31, 2004 as compared $1,454,899 during the comparable
period in 2003, or an increase of $701,262. This increase consisted of increased
spending in the TV+ product development of $201,262 and Nanotechnology battery
exploratory research of $500,000 both contracted with Lucent Technologies Inc.
This increase was partially offset by a reduction of expenses incurred with Microphase Corporation for Research and Development.
The Company does, expect to increase such level of expenditures for research
and development costs during the remainder of fiscal year 2005 In order to
broaden and diversify its current line of business into additional high growth
technology areas, the Company entered into a Development Agreement, effective
February 3, 2004, with the Bell Labs division of Lucent Technologies, Inc. to
commercialize the use of nano power cell technology. Under the terms of the $1.2
million contract, Lucent/Bell Labs will develop for mPhase micro-power source
arrays fabricated using nanotextured, superhydrophobic materials. This new
business arrangement with Lucent Bell Labs will give mPhase the opportunity to
develop and offer breakthrough battery technology applications, initially to
government market segments including defense and homeland security, and
ultimately to the commercial market. The initial applications for the nano power
cell technology will address the need to supply emergency and reserved power to
a wide range of electronic devices for the defense department. In addition the
Company entered into a Second Amendment to its Development Agreement with Lucent
Technologies, Inc effective September 20, 2004 for Development of Release 3.0 of
its TV+ product which is expected to be completed during the third quarter of
fiscal year 2005. The contracts call for payments totaling $1,536,680 payable in
project milestones of $158.6 thousand each over the contract. As of December 31,
2004 the Company has made payments equal to $752,680 under such contract with an
aggregate of $784,000 remaining in 5 equal payments. In addition the Company
anticipates additional development cost to be incurred during fiscal year 2005
of approximately $800,000 for software from other vendors and other development
of its Release 3.0 of its TV+ product.
Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of pots Splitters and microfilters and the Company's newest products, the
ipots
and the mPhase stretch. We believe
the mPhase
ipots
offers a much-needed solution for the
DSL industry; the
ipots
enables telcos to remotely and
cost-effectively perform loop management and maintenance including line testing,
qualification and troubleshooting. Prior to the introduction of the
ipots
, loop management could not be
remotely performed without manual intervention. The unique (patent pending)
ipots
circuit allows most test heads to
perform both narrow and wideband testing of the local loop through the central
office Pots splitter without having to physically disconnect the Pots splitter,
thereby eliminating the need to dispatch personnel and a truckroll. On November
23, 2004, the Company announced the first sale of its IPOTS3 product to a
European broadband networking company. The Company anticipates future demand for
this product, as it significantly reduces the cost of deploying and
maintaining DSL services
General and Administrative Expenses
Selling, general and administrative expenses were $2,780,291 for the six
months ending December 31, 2004 up from $1,518,411 or an increase of $1,261,880
from the comparable period in 2003. The increase in the selling, general and
administrative costs is comprised primarily of non-cash charges relating to the
issuance of common stock and options to consultants, which totaled $1,127,283
for the six months ended December 31, 2004 as compared to $307,245 for the
comparable period ended December 31, 2003 resulting in an increase of $820,038.
The increase in selling, general and administrative expenses is also
attributable to $185,721 of expenses associated with adjustments of offering
prices of certain of the private placements completed in fiscal year 2005.
Additionally travel expenses increased by $69,494 and increased spending in
advertising, trade shows and marketing and resulting expenses amounted to an
aggregate of $119,503.We expect sales and travel expenses to grow as the
Company's approaches the deployment of its TV+ products in the future.
Depreciation and
Amortization
Depreciation and amortization expense was $128,506 for the six months ending
December 31, 2004, up from $74,082, or an increase of $54,424 from the
comparable period in 2003. The decrease is a result of the company's reduced
outlays for capital expenditures in its two most recent fiscal years. We do not
expect such downward trend to continue but such depreciation and amortization
expense should remain at the current reduced levels until the company commences
deployment of its television over DSL platforms. We expect to increase capital
expenditures in connecting with the deployment of equipment at test sites with
various telecommunications service providers globally as deployment of our TV+
product progresses.
Net Loss
The Company recorded a net loss of $5,137,192 for the six months ended
December 31, 2004 as compared to a loss of $2,565,377 for the six months ended
December 31, 2003. This represents a loss per common share of $.06 for the six
month period ended December 31, 2004 as compared to a loss per common share of
$.04 for the six months ending December 31, 2003; based upon weighted average
common shares outstanding of 91,474,828 and 72,251,251 during the periods ending
December 31, 2004 and 2003, respectively.
Although it is difficult to predict the exact timing of additional material
deployments of its TV+ product, the Company believes that significant revenue is
not expected until the fourth quarter of fiscal year 2005, which along with any
upturn of spending in the telephone industry, will also increase sales and
improve the Company's operating margins and provide the Company with the
opportunity to attain profitability sometime in fiscal year 2006.
The Outlook for the
Company's Flagship Product
The Company believes the initial deployments and resultant
revenues of its Flagship product the TV+ are not expected until the second half
of fiscal year 2005, which, if accompanied by a material upturn in spending in
the telephone industry could lead to increased sales and improve the Company's
margins and provide the Company with the opportunity to become profitable.
Research and Development Activities
mPhase throughout its history has outsourced its research and development
activity with respect to both of its TV platforms as well as its POTS splitter
products. GTARC has conducted a significant amount of research and development
for mPhase pursuant to a research 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 DVDDS
legacy product. Microphase has performed research and development for mPhase
with respect to certain component DSL products such as the iPOTS products, low
pass filters and POTS Splitters and the legacy DVDDS product. Most recently,
mPhase has engaged Lucent for development of Version 3.0 of its TV+ product and
for development of a new extended shelf life battery using nanotechnology.
For the years ended June 30, 2004, 2003 and 2002 and for the period since
inception (October 2, 1996) to June 30, 2004, approximately $4,069,721,
$3,538,305, $3,819,583 and $38,416,800 , respectively, has been billed to mPhase
for research and development conducted by Lucent Technologies, Inc, Microphase
Corporation and GTARC. With the completion of the DVDDS legacy product, the
Company has shifted its research and development from GTARC to Lucent
Technologies Inc. The Company has recently expanded its research and development
efforts with Lucent Technologies to the NanoTechnology business segment. The
Company incurred research and development expenses with Lucent for fiscal years
ended June 30, 2004, June 30, 2003 and 2002 of $2,328,602, $1,112,500 and
$156,250, respectively.
In February of 2004, the Company and GTRC entered into a final agreement to
convert approximately $1.8 million in payables outstanding to GTRC and exchange
mutual releases in consideration for the issuance to GTRC of a Warrant (which
may be exercised on a cashless basis) to purchase 5,069,242 shares of the
Company's common stock valued at $.35 per share. In January of 2005, GTRC
exercised its cashless warrant an received 4,949,684 shares of common stock
based upon a formula which took into account the then current value of
the Company's common stock. In addition the, under the terms of the final
settlement, the Company was obligated to pay GTRC a total of $100,000 in
quarterly installments payments commencing at the end of March of 2004 which is
currently the subject of a renegotiation of the parties downward as the Company
reexamines the need to continue to maintain certain patent protection for the
TraverserDVDDS. Under the terms of its license from GTRC mPhase is the sole,
worldwide licensee of the technology developed by GTARC in conjunction with the
legacy DVDDS product. Upon completion of the legacy DVDDS product, GTRC may
receive a royalty of up to 5% of product sales.
The amount of research and development costs the Company has expended from
October 2, 1996, its inception date, through June 30, 2004 is $38,416,800.
During the year ended June 30, 2004, the Company incurred research and
development expenses of $4,069,721 related to the continued development of its
current TV+, IPOTS3 products plus exploratory development of certain
nanotechnology battery product as compared to $3,538,305 for the same period
ended June 30, 2003.
Strategic Alliances Implemented
The Company has entered into a Co-Branding Agreement with Lucent for its
redesigned cost reduced INI set top box as part of its TV+ product solution. In
addition, pursuant to a Systems Integration Agreement with Lucent, the Company
has been designated as the exclusive worldwide reseller of the Lucent Stinger
when bundled as part of the mPhase TV+ product.
Critical Accounting Policies
Revenue Recognition
All revenue included in the accompanying consolidated statements of
operations for all periods presented relates to sales of mPhase's POTS Splitter
Shelves and DSL component products.
As required, mPhase has adopted the Securities and Exchange Commission
("SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements", which provides guidelines on applying generally accepted
accounting principals to revenue recognition based upon the interpretations and
practices of the SEC. The Company recognizes revenue for its POTS Splitter Shelf
and other DSL component products at the time of shipment, at which time, no
other significant obligations of the Company exist, other than normal warranty
support.
The deferred revenues balance recorded on the Balance Sheet for the fiscal
year ended June 30, 2004 is made up of three customer deposits consisting of
$214,180 in the aggregate for the POTS product.
Research and Development
Research and development costs are charged to operations as incurred in
accordance with Statement of Financial Accounting Standards ("SFAS"), No.2,
"Accounting for Research and Development Cost."
Income Taxes
mPhase accounts for income taxes using the asset and liability method in
accordance with SFAS No.109 "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are measured using currently enacted tax
rates. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in results of operations in the period that includes the
enactment date. 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 financial statements.
Utilization of net operating losses generated through June 30, 2004 may be
limited due to "changes in control" of our common stock that occurred.
Stock-based Compensation
Financial Accounting Statement No. 123, Accounting for Stock Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation for grants to
employees using the intrinsic method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock. The
Company has adopted the "disclosure only" alternative described in SFAS 123 and
SFAS 148, which require pro forma disclosures of net income and earnings per
share as if the fair value method of accounting had been applied.
The Company accounts for non-employee stock based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more readily determinable.
Inventory Reserve and Valuation Allowance
The Company carries its inventory at the lower of cost, determined on a
first-in, first-out basis, or market. Inventory consists mainly of the Company's
POTS Splitter Shelf and Filters. In determining the lower of cost or market, the
Company periodically reviews and estimates a valuation allowance to reserve for
technical obsolescence and marketability. The allowance represents management's
assessment and reserve for the technical obsolescence based upon the
inter-operability of its component products, primarily filters and splitters,
with presently deployed and next generation DSL infrastructures as well as a
reserve for marketability based upon current prices and the overall demand for
the individual inventory items. Material changes in either the technical
standards of future DSL deployments or further erosion in the demand for
deployments of DSL infrastructures could affect the estimates and assumptions
resulting in the amounts reported. The allowance represents management's
assessment and reserve for the technical obsolescence based upon the
inter-operability of its component products, primarily filters and splitters,
with presently deployed and next generation DSL infrastructures as well as a
reserve for marketability based upon current prices and the overall demand for
the individual inventory items. Material changes in either the technical
standards of future DSL deployments or further erosion in the demand for
deployments of DSL infrastructures could affect the estimates and assumptions
resulting in the amounts reported. The allowance is estimated as the difference
between inventory at historical cost, on a first in first out basis, and market
based upon assumptions about future demand, current prices and product
liability, and charged to the provision for inventory, which is a component of
cost of sales. At the point the historical cost is adjusted, a lower cost-basis
for that inventory is established, and subsequent changes in facts and
circumstances do not result in the restoration or increase in that newly
established cost basis.
During the fiscal years ended June 30, 2004, 2003 and 2002, the Company
reserved approximately $98,000, approximately $302,000, and approximately
$928,000, respectively, for technical obsolescence and marketability based upon
current prices and overall demand and charged a like amount to expense,
representing 5.9% of average inventory, at cost, of approximately $1,671,000 on
hand during the period in fiscal 2004; 8.4% of average inventory, at cost, of
approximately $3,588,000 on hand during the period in fiscal 2003; and 13.6% of
average inventory, at cost, of approximately $4,602,000 on hand during fiscal
2002. The reserve and corresponding charges in fiscal 2002 were increased as the
Company experienced a dramatic decrease, along with the entire telephonic
industry, in demand for our component products in addition to the decision to
table the production of certain product line items built on certain European
standards and which the Company does not expect to pursue in the near future. As
of June 30, 2004, the Company recorded a cost adjustment of approximately
$86,902, recognizing permanent cost reductions due to price adjustments
approximating $11,212 and reductions due to obsolescence resulting from a lack
of inter-operability of certain components in inventory with the Company's
present product line approximating $11,212. As a result on June 30, 2004 the
Company had a total inventory valuation reserve of $388,235 against its
inventory with a total balance, at cost, of $1,627,207, or 24%. If there was to
be a sudden and significant decrease in demand for our products, or if there
were a higher incidence of inventory obsolescence because of rapidly changing
technology and customer requirements, we could be required to increase our
inventory allowances and our gross margins could be adversely affected.
Material Related Party Transactions
The Company records material related party transactions. The Company incurs
costs for engineering, design and production of prototypes and certain
administrative functions from Microphase Corporation and the purchase of
finished goods, primarily consisting of DSL splitter shelves and filters, from
Janifast Limited. The Company has incurred costs for obtaining transmission
rights. This enabled the Company to obtain retransmission accreditation to
proprietary television content that the Company plans to provide with its
flagship product, the Traverser within its incorporated joint venture mPhase
Television.Net, in which the Company owns a 56.5% interest.
Directors that are significant shareholders of Janifast Limited include
Messrs Ronald A. Durando, Gustave T. Dotoli, and Necdet F. Ergul.
Mr. Michael McInerney, an outside Director, is employed by Lintel Inc. and
Mr. Abraham Biderman was employed until September 30, 2003 by our former
investment banking firm Lipper & Company.
Messrs, Biderman, McInerney and Mr. Anthony Guerino own a relatively small
amount of stock, warrants and options in mPhase Technologies, Inc.
The Company has also incurred charges for beta testing and on-site marketing,
including the display of a live working model at Hart Telephone. In addition,
the Company has entered into a supply agreement with Hart Telephone, which may
commence upon the commercial production of Version 3.0 of the TV+ solution. In
addition the Company is currently replacing the Traverser with its new TV+
solution with customers of Hart Telephone. A member of mPhase's Board of
Directors is employed by Lintel, Inc., the parent corporation of Hart Telephone.
Mr. Durando, the President and CEO of mPhase, owns a controlling interest and
is a director and COB of Janifast Limited. Mr. Durando and Mr. Dotoli are
officers of Microphase Corporation. Mr. Dotoli is also a shareholder of Janifast
Limited. Mr. Ergul, the chairman of the
board of mPhase, owns a controlling interest and is a director of Microphase
Corporation and is a director and shareholder of Janifast Limited. Microphase,
Janifast, Hart Telephone and Lintel Corporation are significant shareholders of
mPhase. Microphase, Janifast and Hart Telephone have converted significant
liabilities to equity in fiscal years June 30, 2001, 2002 and in the current
fiscal year. Management believes the amounts charged to the Company by
Microphase, Janifast, mPhase Television.Net and Hart Telephone are commensurate
to amounts that would be incurred if outside parties were used. The Company
believes Microphase, Janifast and Hart Telephone have the ability to fulfill
their obligations to the Company without further support from the Company.
Significant charges from related parties are summarized for
the periods enumerated as follows:
Charges and Expenses with Related Parties
For the Years Ended June 30,
2001
2002
2003
2004
Charges incurred
    with Janifast
included in:
Cost of sales and
    ending inventory
$8,932,378
$1,759,308
$178,959
$2,771,925
Total Janifast
$8,932,378
$1,759,308
$178,959
$2,771,925
Charges incurred
    with Microphase
Corp.
included in:
Cost of sales and
    ending inventory
(Including
    Royalties)
$335,777
$200,440
$86,468
$140,123
Research and
    development
1,660,606
876,074
478,434
84,494
General and
    administrative
132,600
136,080
133,200
231,068
Total Microphase
    Corp.
$2,128,983
$1,212,594
$648,102
$386,113
Charges incurred
    with Lintel &
Affiliates
included in:
Research and
    development
$192,000
$0
$0
$0
General and
    administrative
285,000
0
0
0
Total Lintel &
    Affiliates
$477,000
$0
$0
$0
Charges incurred
    with Joint Venture
Partners &
    Affiliates
included in:
Research and
    development
$949,420
$64,039
$0
$0
General and
    administrative
60,000
0
0
0
Total Joint Venture
    Partner & Affiliates
$1,009,420
$64,039
$0
$0
Total Charges with
    Related Parties
included in:
Cost of sales and
    ending inventory
$9,268,155
$1,959,748
$265,427
$2,912,048
Research and
    development
2,802,026
940,113
428,434
84,494
General and
    administrative
477,600
136,080
133,200
231,068
Total Charges with
    Related Parties
$12,547,781
$3,035,941
$827,061
$3,158,038
Six Months Ended December 31
2003
2004
Charges incurred
    with Janifast
included in:
Cost of sales and
    ending inventory
$1,816,019
$398,715
Total Janifast
$1,816,019
$398,715
Charges incurred
    with Microphase
Corp.
included in:
Cost of sales and
    ending inventory
$191,133
$11,784
(Including
    Royalties)
Research and
    development
$54,000
$41,000
General and
    administrative
$15,000
$147,213
Total Microphase
    Corp.
$260,133
$199,997
Charges incurred
    with Lintel &
Affiliates
included in:
Research and
    development
$0
$ 0
General and
    administrative
$0
$0
Total Lintel &
    Affiliates
$0
$0
Charges incurred
    with Joint Venture
Partners &
    Affiliates
included in:
Research and
    development
$0
$0
General and
    administrative
$0
0
Total Joint Venture
    Partner & Affiliates
$0
$0
Total Charges with
    Related Parties
included in:
Cost of sales and
    ending inventory
$2,007,152
$410,499
Research and
    development
$54,000
$41,000
General and
    administrative
$15,000
$147,213
Total Charges with
    Related Parties
$2,076,152
$598,712
Liquidity and Capital
Resources
From inception (October 2, 1996) through December 31, 2004 and June 30, 2004
the Company has incurred cumulative (a) development stage losses and has an
accumulated deficit of $120,912,875 and $115,775,083 respectively and (b)
negative cash flow from operations of $50,890,701 and $47,842,742 respectively.
The auditors report for the fiscal year ended June 30, 2004 includes the
statement that "there is substantial doubt of the Company's ability to continue
as a going concern". Management estimates that the Company needs to raise
approximately $5-10 million during the next 12 months to continue operations. As
of June 30, 2004, the Company had a negative net worth of $2,917,962 down from a
negative net worth of $3,228,886.
At June 30, 2004 mPhase had working capital deficit of $2,111,452 as compared
to a working capital deficit of $1,405,331 at June 30, 2003. Through June 30,
2004, the Company had incurred development stage losses totaling $115,775,083.
At June 30, 2004, the Company had $90,045 of cash and cash equivalents and
$64,100 of net accounts receivables to fund short-term working capital
requirements. At December 31, 2004 mPhase had working capital deficit of
$3,093,403 as compared to working capital deficit of $2,111,452 at June 30,
2004. Through December 31, 2004, the Company had incurred development stage
losses totaling approximately $120,912,875. At December 31, 2004, the Company
had approximately $1,010,903 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)
the successful wide scale development, deployment and marketing of its products.
Historically, mPhase has funded its operations and capital expenditures
primarily through private placements of common stock.
Management expects that its ongoing financial needs will be provided by
financing activities and believes that the sales of its line of POTS Splitter
products and other related DSL component products will provide some offset to
cash flow used in operations, although there can be no assurance as to the level
and growth rate of such sales in future periods as seen with quarter to quarter
fluctuations in component sales. At June 30, 2004, the Company had cash and cash
equivalents of $90,045 compared to $396,860 at June 30, 2003, net accounts
receivable of $64,100 and net inventory of $1,237,972. This compared to $287,135
of net accounts receivable and $2,103,328 of net inventory at June 30,
2003. At December 31, 2004, the Company had cash and cash
equivalents of $1,010,903 compared to $90,045 at June 30, 2004, accounts
receivable of $13,909 and inventory of $1,153,232. This compared to $64,100 of
accounts receivable and $1,237,972 of inventory at June 30, 2004.
Cash used in operating activities was $3,037,959 during the six months ending
December 31, 2004. The cash used by operating activities principally consists of
the net loss, and significant changes in assets and liabilities, including
additional cash provided by increasing accounts payable and accrued expenses by
approximately $1,031,926 offset by depreciation and amortization of $128,506,
and by non-cash charges of $1,222,054 for common stock options and warrants
issued for services and offset by cash outflow from an increase in inventory of
approximately $237,251. The Company expects that it will not have a need to
increase inventory until the roll out of our TV+ platform.
The Company has entered into various agreements with GTARC, pursuant to which
the Company receives technical assistance in developing the Digital Video and
Data Delivery System. The Company has incurred expenses in connection with
technical assistance from GTARC totaling approximately $0 and $0, for the three
month periods ended December 31, 2004 and 2003, respectively, and $13,539,932
from the period from inception through December 31, 2004..
In February of 2004, the Company and GTRC entered into a final agreement to
convert approximately $1.8 million in payables outstanding to GTRC and exchange
mutual releases in consideration for the issuance to GTRC of a Warrant (which
has been exercised on a cashless basis in February of 2005) resulting in the
issuance of 4,949,684 shares of the Company's common stock valued at $.35 per
share. In addition the Company was obligated to pay GTRC a total of $100,000 in
quarterly installments payments commencing at the end of March of 2004 that is
currently the subject of a renegotiation downward as the Company reexamines its
need to maintain certain patents with respect to the Traverser DVDDS product..
mPhase is the sole, worldwide licensee of the technology developed by GTARC in
conjunction with the Traverser DVDDS product line. Upon completion of the
commercial product, GTRC may receive a royalty of up to 5% of product sales.
Effective June 30, 2001 the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements.
During the fiscal year ended June 30, 2002 certain strategic vendors and
related parties converted approximately $2.7 million of accounts payable and
accrued expenses into 7,492,996 shares of the Company's common stock and
5,953,490 warrants. Such vendors include Microphase Corporation, Janifast, Ltd.,
and Piper Rudnick LLP, mPhase's outside counsel.
During the twelve months ending June 30, 2003, certain strategic vendors and
related parties converted approximately $1.9 million of accounts payable and
accrued expenses into 5,923,333 shares of the Company's common stock and
warrants to purchase 3,706,800 shares of common stock of mPhase.
During the twelve months ending June 30, 2004, certain strategic vendors and
related parties converted approximately 1,963,202 million of accounts payable and
accrued expenses into 110,467 shares of the Company's common stock and warrants
to purchase 5,069,242 shares of common stock of mPhase.
During the six months ending December 31, 2004, certain strategic vendors and
related parties converted approximately $543,975 million of accounts payable and
accrued expenses into 2,739,875 shares of the Company's common stock and warrants to
purchase 2,739,575 shares of common stock of mPhase.
As of December 31, 2004, mPhase is obligated to pay Lucent Technologies,
Inc., the sum of $784,000 in 5 payments of $156,800 each against project
milestones under its current Development Agreement for development of Version
3.0 of its TV+ product. In addition, the Company is obligated to make payments
of $100,000 per month through December of 2004 under a separate Development
Agreement with Lucent covering development of its new battery developed through
the science of NanoTechnology.
The Company does, however, expects an increase in research and development
costs beginning in February, 2005 with the expansion of its research and
development efforts with Lucent Technologies Inc in the science of
Nanotechnology commencing with a renewal for an additional 12 months of a $1.2
million contract with Lucent to continue work on its nano power cell technology
and the entering of a second Research and Development Agreement in March of 2005
to develop a Magnetometer product through the science of Nanotechnology for an
additional $1.2 million contract for 12 months. In order to broaden and
diversify its current line of business into additional high growth technology
areas, the Company has previously entered into a Development Agreement,
effective February 3, 2004, with the Bell labs division of Lucent Technologies,
Inc. to commercialize the use of nano power cell technology. Under the terms of
the $1.2 million contract, Lucent/ Bell Labs will develop for mPhase micro-power
source arrays fabricated using nanotextured, superhydrophobic materials. This
new business arrangement with Lucent Bell Labs will give mPhase the opportunity
to develop and offer breakthrough battery technology applications, initially to
government market segments including defense and homeland security, and
ultimately to the commercial market. The initial applications for the nano power
cell technology will address the need to supply emergency and reserved power t o
a wide range of electronic devices for the defense department.
The Company has no commitments from affiliates or related parties to provide
additional financing. The Company has, from time to time, been able to obtain
financing from affiliates when conditions in the capital markets make third
party financing difficult to obtain or when external financing is available only
upon very unattractive terms to the Company, and when such capital has been
available from the affiliates. As a result, conversions of Debt with related
parties and strategic vendors during the periods enumerated is a follows:
For the Six Months
Ended December 31,
For the Years Ended June 30,
(Unaudited)
Equity
    Conversions of Debt With Related
2002
2003
2003
2004
Parties and
    Strategic Vendors
Related Party
    Conversions
Number of shares
6,546,550
5,533,333
0
4,510,275
Number of
    warrants
3,733,334
3,491,800
0
4,510,275
Amount converted
    to equity
$1,594,628
$1,760,967
$0
$565,679
Strategic Vendor
    Conversions
Number of shares
999,662
390,000
0
100,000
Number of
    warrants
870,000
215,000
0
100,000
Amount converted
    to equity
$529,503
$198,032
$0
$20,000
Total Related
    Party and Strategic
Party
    Conversions
Number of shares
7,546,212
5,923,333
0
4,610,275
Number of
    warrants
4,603,334
3,706,800
0
4,610,275
Amount converted
    to equity
$2,124,131
$1,958,999
$0
$585,679
Gain (Loss) on
    Extinguishment of Debt
$142,236
$61,226
$0
$(40,500)
Effective November 28, 2004 and September 2,, 2004, the Company entered into
software development agreements with Espiral and Magpie respectively calling for
the payments of $95,000and $312,000 in connection with development of Version
3.0 of its TV+ system. Effective September 22, 2004, the Company became
obligated to pay Lucent Technologies Inc. a total amount of $1.2 million for
development of Version 3.0 of its TV+ product. Such amount is payable in 8
installments of $158,600 each against 7 project milestones all of which are
expected to be completed during fiscal year 2005.
Effective February 3, 2004, the Company became obligated to pay a total of
$1.2 million to Lucent Technologies Inc. under a new Development Agreement in
installments of $100,000 per month for a period of 12 months to develop a micro
power source array using nanotextured superhydrophobic materials.
Effective August 30, 2004, the Company successfully renegotiated its payment
agreement originally entered into in March of 2002 with Piper&Rudnick LLC, its
outside counsel to cure all past arrearages owed under the original payment
agreement. On August 30, 2004, the Company paid Piper &Rudnick the sum of
$100,000 cash and agreed to make future payments of $25,000 each on December 1,
2004, March 1, 2005, June 1, 2005, September 1, 2005 with a payment of $50,000
on December 1, 2005 and payments of $25,000 each on March 1, 2006, June 1,2006,
September 1, 2006 and a final payment of $75,000 on December 1, 2006. In
addition, the Company issued a 5 year cashless warrant for 750,000 shares of its
common stock valued at $.25 per share. The common stock in which such warrant is
convertible into is being registered hereunder on this Form S-1 (See Selling
Shareholders list on page 65) and could be sold in the open market (see Risk
Factor on Page 8 hereof). In addition, Piper Rudnick LLC holds a cashless
warrant covering 2,233,490 shares of its common stock that was originally issued
as part of its original payment agreement in March of 2002 which shares are
being registered as part of this Registration Statement filed on form S-1 by the
Company (see Selling Shareholders).
Effective February 18, 2004 of fiscal year ended June 30, 2004, GTRC agreed
to convert approximately $1.8 million of aggregate invoices for work performed
for the Company in development of its TraverserDVDDS product into a 5 year
cashless warrant to purchase5,069,200 shares of the Company's common stock or
stock valued at $.35 per share.
During the fiscal years ended June 30, 2002 and 2003 the Company was able to
negotiate extended payment terms for overdue accounts payable with strategic
vendors. These obligations are now classified as notes payable and included in
current and long-term portions of notes payable in the accompanying balance
sheets, based upon the revised payment terms. The company believes they can
maintain its
present repayment schedule, or otherwise renegotiate such terms that are
satisfactory to the Company and these vendors.
We have evaluated our cash requirements for fiscal year 2005 and beyond based
upon certain assumptions, including our ability to raise additional working
capital from equity financing and increased sales of our POTS Splitter. The
Company anticipated that it would need to raise, at a minimum, approximately
$5-10 million primarily in private placement of its common stock with accredited
investors, in the current fiscal year. As of December 31, 2004, the Company has
raised in the current fiscal year approximately $3,945,190.
Management believes that the $5-10 million to be raised, in new Private
Placements in the capital markets, will be sufficient to cover its current
operating expenses and permit the company to maintain its present operational
levels. This amount may be supplemented with additional funds that could be
received from investors, including selling shareholders' listed in this
prospectus, currently holding warrants to purchase up to a total of
approximately 56,216,363 million shares of common stock at exercise prices
ranging from $.25 to approximately $.45 per share which may trade "in the money"
and can be exercised during the next 12 months; the likelihood and potential for
which will increase should this prospectus become effective and should the price
of the Company's common stock rise.
Should these cash flows not be available to us, we believe we would have the
ability to revise our operating plan and make certain further reductions in
expenses, so that our resources which were available at June 30, 2004, plus
financing to be secured during fiscal year 2005, and expected POTS splitter
revenues, will be sufficient to meet our obligations until the end of fiscal
year 2004 and for the second half of fiscal year 2005. We have continued to
experience operating losses and negative cash flows. To date, we have funded our
operations with a combination of component sales, debt conversions with related
parties and strategic vendors, and private equity offerings. Management believes
that we will be able to secure the necessary financing in the short-term to fund
our operations into our next fiscal year. However, failure to raise additional
funds, or generate significant cash flows through revenues, could have a
material adverse effect on our ability to achieve our intended business
objectives.
Subsequent to the December 31 Quarterly Report Date, outstanding
subscriptions receivable of $ 50,000 was fully collected in January of 2005.
Additionally, the December 2004 private placement was closed out in January of
2005 with the placement of an additional 3,600,000 equity units at $.20 per unit
consisting of one share of common stock plus 5 year warrants for a like amount
of shares with a strike price of $.25 per share. This generated net proceeds of
$720,000 to the Company.
A January Private Placement realized additional net proceeds of $357,250 upon
issuance of 1,793,750 shares of Common Stock at $.20 per share plus 5 year
warrants to purchase 1,793,750 shares of Common Stock at $.25 per share. A later
Private Placement realized net proceeds of $1,351,000 upon issuance of 4,920,000
shares of Common Stock plus 5 year warrants to purchase 4,920,000 shares of
Common Stock at $.25 per share. A March Private Placement resulted in the
realization of net proceeds of $1,217,000 upon issuance of 4,396,667 shares of
Common Stock at $.30 per share plus 5 year warrants to purchase 4,396,667 shares
of Common Stock at $.30 per share
On January 15, 2005, the company converted a $ 100, 000 convertible note
payable to Martin Smiley in exchange for 400,000 shares and a like number of
warrants that were price at $25 per unit or $100,000 in aggregate.
Also in January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.35 on the date of that award.
In late February and early March of 2005, the Company converted approximately
$173,898 in accounts payable due various vendors into 535,296 shares of common
stock aggregating $183,310 in full settlement of those obligations.
Current Developments
During the months of January, February and March of 2005, the Company raised
a total of $2,759,000 in two Private Placements pursuant to Section 506 of
Regulation D of the Securities Act of 1933 with approximately 21 Accredited
Investors. The proceeds received from such placements is being used by the
Company for general corporate purposes including working capital and the payment
of Research and Development Expenses primarily to Lucent Technologies Inc. in
connection with the continuing development of the Company's TV+ and
Nanotechnology fuel cell products. The Company is focusing upon a dual strategy
of maximizing sales from its new cutting edge products and continued development
of such products to achieve maximum returns to its shareholders as a high growth
technology enterprise.
On February 28, 2005, the Company announced that it will collaborate with
Rutgers, the State University of New Jersey, on broadening of its nanotechnology
based battery to include chemistries such as Lithium as well as the Zinc and
Manganese Dioxide chemistries that it is developing through the Bell Labs
division of Lucent Technologies Inc. The agreement with Rutgers is contingent
upon obtaining federal and state funding for the project.
BUSINESS
Overview
We develop, market and sell innovative DSL broadband telecommunications
equipment. Our main focus is developing the most cost effective products to
enable telecommunications service providers to deliver digital quality
television (together with data and voice) over ordinary copper telephone lines.
The primary markets for mPhase's television delivery products are regions of the
world outside of the United State that do not have coaxial fiber infrastructure
capable of delivering a large number of digital broadcast television channels.
mPhase is not seeking, at this point in time, to develop robust
feature-intensive expensive television platforms to compete with cable in the
United States currently both of our TV over DSL solutions support a single
television stream over a telephone wire. Therefore our television products are
targeted primarily for International markets outside of the United States.
On February 3, 2004, mPhase entered into the emerging area of NanoTechnology
as a new and second line of business with its execution of a new Research and
Development Agreement with the Bell Labs division of Lucent Technologies, Inc.
NanoTechnology involves the synthetic assembly of new structures and materials
at the molecular level. NanoTechnology has many potential applications including
in industries such as biotechnology, semi conductors and power cells and sensors. The
Company is initially focusing its efforts in developing new power cells and
sensors NanoTechnology products designed for military applications.
Outsourcing
The Company practices an outsourcing model whereby it contracts with third
party vendors to perform certain functions rather than performing those
functions internally. For instance, mPhase out sources its research and Micro
Electro Mechanical Systems
development of both its TV+ product and its exploratory development of power
source array fabrication using nanotextured superhydrophobic materials to Lucent
Tecnologies Inc.. It also out sources analog engineering development and certain
administrative functions to Microphase Corporation and manufacturing of its POTS
Splitter product to Janifast Ltd.
We have currently have no contracts in place for the manufacturing of our
products with either Microphase Corporation or Janifast Ltd. or any other
non-affiliated third party manufacturers. We periodically execute purchase
orders for the the manufacture of quantities of POTS Splitters that are made by
Janifast Ltd.
With respect to manufacturing of its TV+ Platform, mPhase is targeting
leading contract manufacturing companies with strategically located facilities
globally with which it can establish long-term relationships. By using contract
manufacturers, mPhase will attempt to avoid the substantial capital investments
required for internal production.
The Company has entered into various Project Development Agreements with
Lucent Technologies, Inc in fiscal years 2004 and 2005 described above, as well as other
significant agreements that include a Co-Branding Agreement, dated as of January
21, 2003, allowing the Company to add the Lucent name and Logo to its
cost-reduced INI set top box for use with its TV+ products. Such agreement is
for an initial period of one year and is subject to renewal on an annual basis
by mutual consent. In addition, the Company has entered into a Systems
Integrator Agreement, dated as of April 4, 2003 designating the Company as a
reseller of the Lucent Stinger DSL transport product when bundled as part of the
mPhase TV+ platform globally. Such agreement gives mPhase the exclusive right to
sell the TV+ product worldwide containing the Lucent Stinger as the DSL
transport mechanism for delivering broadcast television, high speed data and
voice over copper telephone wires. In order to qualify for such status, as an
accredited reseller, Lucent Technologies, Inc. determined that the Company's TV+
platform added significant software and hardware value to the Stinger DSL
product by enabling such product to deliver broadcast television over ADSL in
addition to the Stinger's well known existing world-class capabilities for the
delivery of voice and high-speed data over copper telephone lines. Such
agreement is for an initial two year term provided that either party may cancel
such agreement with 60 days' notice to the other party.
As a member of the Lucent Business Partner organization, mPhase is able to
leverage established relationships with an existing Stinger customer base
without having to expand its sales force. To date there are approximately 4
million ports of the Stinger deployed around the world. mPhase and the Lucent
Global Business Partners group are also targeting other Business partners in
markets where there currently is a lack of cable television infrastructure.
mPhase also develops and designs component DSL products including Plain Old
Telephone Service Splitters (POTS Splitters) and low pass filters. Since its
inception in 1996, virtually all of mPhase's sales revenue has been derived from
the sales of POTS Splitters and other DSL component products. mPhase's product
line also includes its
intelligent
line of POTS Splitter
products. The
i
POTS is a device which allows
telecommunications service providers to perform DSL loop qualification from a
central office without having to deploy workers to the field. mPhase has
established a worldwide non-exclusive distribution agreement with Corning Cable
for the
i
POTS product and continues to market
such product directly.
Industry Background
The Company believes there is a significant market for its television over
DSL products, in particular, for its latest TV+ Platform. Telephone companies
worldwide need to deliver a combination of services (i.e., voice, television and
data) in order to reverse negative
economic trends of reduced margins and customers. The multichannel television
business is a growing industry. Much of the world is largely underserved, with
little access to digital television programming. Cable, outside the US and
pockets of Europe, is in the early stages of deployment. In fact, according to
Kagan World Media, the percent of television-owning households subscribing to
multi-channel television services outside of North America in 2002 was only 36%.
The mPhaseTV+ platform empowers telecommunications service providers to (a)
capitalize upon this growing revenue-generating segment and (b) be able to
compete more effectively with other technologies, such as cable where installed,
and direct broadcast satellite (DBS) services.
We believe the incentive for telephone companies to deploy advanced digital
services is significant. The traditional revenue model for telecommunications
service providers is shifting as fixed line calling revenues are continuing to
decline with the advent of as wireless telephony and voice delivered over the
Internet. Traditional telephone companies can no longer rely on a captured
market and need to offer new, revenue-generating services in order to maintain
or increase profitability and by offering new services to their customers.
Cable television providers are also beginning to offer cable telephony and
cable modems for high-speed Internet service, in addition to their traditional
multichannel television services. Additionally, in the U.S., direct broadcast
satellites providers (DBS) are upgrading to two-way satellite communication to
provide data services. In more advanced markets, these technologies have
converged, leaving telephone, cable and direct satellite television providers
competing for the same customers and the same dollars.
mPhase's flagship TV+ solution enables telephone companies and other
communications service providers utilizing twisted pair telephone wires to
respond to these competitive threats and immediately offer fully integrated
broadband service packages to their subscribers. Importantly, with mPhase's
products, telecommunications service providers are able to compete with cable
and satellite providers in the high-margin multichannel digital television
market. mPhase's product solution do not require a capital-intensive fiber nor
cable build- out, long lead times, or a technically challenging deployment.
Instead, utilizing their already installed copper telephone line infrastructure,
telephone companies can increase their per subscriber revenue, capture
additional marketshare, stave off competition and ultimately increase their
overall market valuation by becoming full-service communications providers
today.
Incumbent telecommunications service providers will have an opportunity to
preempt wide digital cable or satellite adoption that deploy mPhase's systems
DSL and become market leaders in providing data and video services. Most
telecommunications companies and industry analysts currently understand that
data-only solutions are not sufficient to attract new customers, retain existing
ones, and maintain or achieve profitability.
Our Television Over DSL Solution
mPhase markets and sells a line of innovative DSL (digital subscriber
line)-based broadband telecommunications equipment. Our flagship product line is
our TV+ solution enabling the delivery of television over DSL. This product
facilitates telephone companies becoming full service communications providers
by enabling the simultaneous delivery of digital broadcast television, high
speed data and voice services over the existing telephone line infrastructure.
mPhase has developed its TV+ solution with a specific target in mind,
specifically, telephone companies in parts of the world where access to
multi-channel television is limited, as well as domestic, rural telephone
operators.
mPhase introduced its first TV over DSL product, the Traverser Digital Video
and Data Delivery System, (DVDDS) in 1998. The DVDDS, is an end-to-end system
based upon proprietary technology developed in conjunction with Georgia Tech
Research Corporation. Because it is an end-to-end video-over-ADSL (asymmetric
digital subscriber line) equipment. The proprietary transport method utilized in
the Traverser System is patent protected. The intellectual property embodied by
the DVDDS System includes the ability to deliver a plurality of channels to a
plurality of users, ensuring that all channels are available to all users at all
times. The Company has replaced this legacy product with its newer TV+ solution.
The DVDDS is installed at Hart Telephone Company in Hartwell, Georgia, that
is currently being upgraded to the TV+ solution. Another DVDDS system is
installed at the BMW manufacturing plant in Spartanburg, South Carolina for use
as a closed television system in a commercial setting.
mPhase recently has completed development of Versions 1.0 and 2.0 of the TV+
product and has recently commenced development of its new IP based Version 3.0
of the TV+ solution.
Bell Labs approached mPhase about creating a hybrid, mPhaseTV+
solution that would capitalize upon the strengths of each company's DSL platform
in December of 2002. Prior to this, Bell Labs had been working in a contract
engineering capacity helping mPhase to cost-reduce its digital set top box.
The two companies elected to team and create what we believe to be the most
reliable, scaleable and cost-effective system for the delivery of television
services over copper telephone wires. This collaborative platform combines the
data centric strengths of Lucent's Stinger with the TV-centric strengths of
mPhase's Traverser™ resulting in a best of breed solution. For mPhase, the TV+
Solution marks a shift in strategy from selling a complete, proprietary platform
to providing an industry-standard, modular solution. This joint approach offered
a number of advantages. For instance, by utilizing the Lucent Stinger for
transport, mPhase's mPhaseTV+ platform can capitalize upon the proven, extremely
robust and cost effective method of supporting and delivering data combined with
the Traverser's method of supporting
video.
Versions 1.0 and 2.o of the TV+ platform eliminates the need for telephone
companies to replace their already installed equipment. Because this solution is
modular, telephone companies that already have Stingers deployed can quickly and
easily upgrade to support television in addition to data and voice services.
There are currently 4 million Stinger ports deployed in 20 countries around the
globe that deliver voice and data over DSL. With minor modifications, mPhase's
BTS and Traverser CPE are also interoperable with other leading vendor's DSLAMs
on the market today, making it possible for any telephone company with an
installed base of equipment to quickly and relatively inexpensively become full
service communications providers.
Version 3.0 of the TV+ platform will be an IP based solution ideally suited
for large-scale deployments, and in parts of the world which cannot afford the
cost of upgrading to cable infastructure. In contrast to the Versions 1.0 and
2.0, Version 3.0 will interoperate with the Stinger as well as DSLAM's of all
other major vendors and give a telephone service provider ultimate software
enabling flexibility resulting the lowest cost of deployment by providing a
total open architecture allowing a telephone company to optimize its own system
solution for delivery of a "triple play" of services based upon the
characteristics of its customer base and the topology of its current
infrastructure.
NanoTechnology
mPhase has recently entered the business of NanoTechnology which represents
the latest scientific area involving the disciplines of molecular engineering,
quantum physics and electrochemistry, amongst others to create new advances in
products. mPhase is currently focusing primarily upon exploratory research for
the development of advanced battery and power cell products and Electro
Mechanical Systems for a new generations of sensors for military
applications.
Business Development, Organization, and Acquisition Activities
We were incorporated in New Jersey in 1979 under the name Tecma Laboratory,
Inc. In 1987, we changed our name to Tecma Laboratories, Inc. As Tecma
Laboratories, Inc., the Company has primarily engaged in the research,
development and exploitation of products in the skin care field. On February 17,
1997, we acquired Lightpaths, Inc., a Delaware corporation, which was engaged in
the development of telecommunications products incorporating DSL technology, and
we changed our name to Lightpaths TP Technologies, Inc.
On January 29, 1997, we formed another wholly-owned subsidiary called TLI
Industries, Inc. The shares of TLI were spun off to our stockholders on March
31,1997 after we transferred the assets and liabilities, including primarily
fixed assets, patents and shareholder loans related to the prior business of
Tecma Laboratories. As a consequence of these transactions, we became the
holding company of our wholly owned subsidiary, Lightpaths, Inc. on February 17,
1997.
On June 2, 1997, we completed a reverse merger with Lightpaths TP
Technologies, Inc. and changed our name to mPhase Technologies, Inc.
On June 25, 1998, we acquired Microphase Telecommunications, Inc., a Delaware
corporation, by issuing 2,500,000 shares of our common stock. Microphase
Telecommunications' principal assets were patents and patent applications
utilized in the development of our proprietary Traverser technology (as
discussed in related footnote 11 of financial statements on P F-35). See also
"Material Related Party Transactions," contained with "Critical Accounts
Policies" on P 27 and "Certain Relationships and Related Transaction" P 51.
In March 2000, we entered into a joint venture with Alphastar
International, Inc. to form a company called mPhase Television.net, Inc., (mPhaseTV)
in which we held a 50% interest. On May 1, 2000, we acquired an additional 6.5%
interest in mPhaseTV, and made it one of our consolidated subsidiaries.
On March 14, 2000, we entered into an agreement with BMW Manufacturing Corp.,
located in South Carolina. Under the agreement, we installed version 1.0 of the
Traverser for BMW's telephone transmission network. BMW has agreed that, upon
its notice and consent, we will be able to demonstrate to potential customers
the functioning system at BMW's facilities. BMW has made two (2) subsequent
purchases increasing the size of its deployment to 48 unique units.
Our flagship installation, Hart Telephone, has completed the
build and development of its digital headend during fourth quarter of 2001. The
completion of their digital headend marks the move from beta to commercial
deployment of the Traverser platform. Hart currently has approximately 70
customers receiving about 80 channels of television services.
In May of 2002 mPhase initiated discussions for development of a cost-reduced
intelligent network interface (INI) set top box with the Bell Laboratories
division of Lucent Technologies, Inc.
Effective December 1, 2002, mPhase entered into a Development Agreement with
the Bell Laboratories division of Lucent Technologies, Inc. for the development
of mPhase's broadcast television switch (BTS) as an intergrated platform with
the Lucent Stinger DSL Access Concentrator.
On December 9, 2002, pursuant to a Statement of Work, Lucent commenced
development of the BTS for mPhase.
On December 15, 2003, mPhase engaged Lucent for the cost-reduction of its
Traverser INI set top box.
On January 21, 2003, mPhase entered into a Co-Branding Agreement with Lucent
under which mPhase's INI set top box will be co-branded with the Lucent
Technologies, Inc. name and logo.
On April 4, 2003, mPhase entered into a Systems Integration Agreement with
Lucent. Under the terms of the agreement, mPhase has been given the exclusive
right to sell worldwide a "bundled" solution consisting of mPhase BTS and the
Lucent Stinger.
In May of 2003, MPhase has announced development of the mPhaseTV+ Platform
with Lucent Technologies' Bell Labs. This modular product, as described in the
"Our Solutions" section earlier, utilizes the industry-standard Lucent Stinger
for transport. Bell Labs has been design contracted to design the mPhase BTS and
Traverser CPE to be used in conjunction with the Lucent Stinger. A redesigned
cost reduced second generation set top box CPE equipment has been completed. A
prototype version of the BTS is also completed and has been successfully tested
with 3 customers at Hart telephone in July of 2003. The first version of our TV+
product is scheduled to be completed during the second quarter of fiscal year
2004.
In November of 2003, mPhase announced that it had entered into a $1.0 million
Project Development contract with Lucent Technologies' Bell Labs division to
complete development of Version 1.0 of its TV+ solution by the summer of 2004.
In February of 2004, mPhase announced that it had entered into a $1.2 million
Project Development contract with Lucent Technologies' Bell Labs division to
perform exploratory research and development of micro power source arrays
fabricated using nanotextured, superhydrophobic materials.
In September of 2004, mPhase announced that it had entered into a new $1.2
million Project Development contract with Lucent Technologies' Bell Labs
division to develop Version 3.0 of the TV+ solution centered around a new "Video
Soft Switch" enabling the delivery of broadcast television, high speed internet
and voice over an new IP based system with an open standards architecture.
In November of 2004, mPhase announced the selection by Lucent Russia to
deploy 1,000 ports of mPhase's TV+ solution to a telecom services company in the
far eastern region of Russia that is one of 7 regional mega communications
service providers. In addition the Company announced that it had received a $1
million order for its IPOT3 product renamed as the Broadband Loop Watch from
Lucent Saudi Arabia.
In March of 2005, mPhase extended its Project Development Agreement with
Lucent Technologies Inc. covering its power cell product for an additional 12 months at a cost of $1.2 million
and also entered into a new 12 month Project Development Agreement for
development of its new MEMS based Magnetometer sensor product.
Our revenue, historically, has been derived from sales of component telephone
equipment parts, the majority of which has come from our sales of POTS Splitter
Shelves. In our fiscal years ended June 30, 2003 and June 30, 2004 respectively,
we generated approximately $2.6 million and $4.8 million in revenue and $474,687
in revenue for the six months ended December 31, 2004,
respectively, from the commercial sale of our component products. Our other
component products, including Filters and Central Office POTS Filter Shelves,
are marketed to other DSL equipment vendors. We do not believe that the sales of
our TV+ feature product will be materially impaired by the sale of these
component products to these potential competitors.
mPhase is in the process of evaluating a full range of contract
manufacturers, including manufacturers outside of the U.S. We believe that there
are many qualified manufacturers around the world. mPhase is likely to contract
with multiple companies depending on which countries the TV+ product is deployed
and depending upon cost-competitiveness.
Our Products & Services
To date mPhase's revenue has been derived almost exclusively from sales of
DSL component telephone equipment parts, the majority of which has come from our
sales of POTS Splitter Shelves. We have just received our first order for 1000
ports of our broadcast television platform over DSL platform and our first order
for $1 million of our IPOTS-s or Broadband Loop watch Product. In our fiscal
years ended June 30, 2004 and June 30, 2003 we generated approximately $4.8
million and $1.6 million in revenue, respectively, from the commercial sale of
our component products and overall losses for such years of $7,758,586 and
$6,650,211, respectively.
mPhase supplies the telecommunications industry with products designed to
enable, enhance or support broadband DSL services. mPhase's line of TV-over-DSL
products include Versions 1.0 and 2.0 of its TV+ Platform with Version 3.0 of
its TV+ product expected to be available during the third quarter of fiscal year
2002. Additionally, mPhase markets a line of DSL component products ranging from
commodity items such as traditional POTS Splitters and microfilters to
higher-end, feature-rich products such as the recently introduced Intelligent
POTS Splitter.
Traverser DVDDS
mPhase's legacy television-over-DSL System is the Traverser DVDDS. This
system is a patented end-to-end solution enabling the delivery of digital
broadcast television, high speed data services, and traditional voice services
(requires Class5E voice switch) over a pair of
copper telephone wires. It has been recently replaced by the mPhase TV+
platform.
mPhaseTV+ Platform
mPhase and Bell Labs Lucent Technologies have teamed together to create an
industry-standard, high quality and cost effective television over DSL platform
known as the mPhaseTV+ Platform.Versions 1.0 and 2.1 of this solution consists
of three key elements:
The mPhase BTS (broadcast television switch) layer interfacing the video
headend and the DSLAM;
Lucent's Stinger DSL Access Concentrator, a field-tested central office (CO)
piece of equipment which provides DSL connections to individual customers; and
mPhase CPE, a highly integrated set top box to deliver video in the home
environment from the DSL link.
This hybrid, collaborative platform capitalizes upon the strengths of both
Lucent's and mPhase's technology. The BTS embodies the same video networking
intelligence as the Traverser DVDDS. However, when combined with the proven,
robust Stinger, which effectively and cost-effectively supports data, the end
result is what we believe to be a best-of-breed, industry-standard solution.
The mPhase BTS resides between the DSLAM and the video
headend and provides video networking intelligence that enables television
services over DSL. The BTS is also responsible for video-related functionality
such as demuxing and mapping MPEG-2 bitstreams, video subscriber management,
video content management and billing management.
MPhase has developed, in conjunction with Bell Labs, a low cost, efficient
and compact digital set top box with an integrated DSL Modem called the INI
Version 400. Various versions of this device exist or are in development such as
a standards-based product inoperable with the Lucent Stinger as well as other
manufactures' DSLAMs.
Together with a digital video headend (or PCC) and the Lucent Stinger, the
Versions 1.0 and 2.0 of the TV+ platform provide an ATM (asynchronous transfer
mode) based end-to-end solution for customers wanting to provide television and
high-speed data services over their existing copper infrastructure. Based on a
streamlined, modular architecture, future upgrade, additional features and
ancillary services can be implemented without major modifications to the entire
system.
The Company expects to sell Version 3.0 or its IP(internet protocol) based
TV+ platform to customers planning to support large scale deployments,
delivering both high speed data and television services. Such system is designed
for maximum flexibility cost effectiveness and highly scaleable for large
deployments by telephone service providers and represents a shift of the
Company's focus from hardware to software.
The Company believes the initial major deployments and any revenues from
sales of its flagship TV+ product, are not expected until the third or fourth
quarter of fiscal year 2005. An upturn of spending in the telephone industry
should also increase sales and improve the Company's margins and provide the
Company with the opportunity to attain profitability.
Component Parts Pots Splitter Shelves Intelligent Pots Splitter (iPots)
mPhase also designs and markets a line of DSL component products ranging from
commodity items such as carrier-class POTS splitters located at the central
office as well as CPE splitters and filters located in the home. Recently,
mPhase has introduced a line of innovative loop management products intended to
lower the operational costs involved with supporting DSL services. The
i
POTS, (intelligent POTS Splitter),
product line includes the
i
POTS
1
and the
i
POTS
3
. These products mark a significant
advancement in automating loop management by utilizing "intelligent
functionality" thereby enabling testing of a telephone loop for DSL deployment
without having to dispatch personnel to the field to manually perform such
tests. These products reduce the operational costs of deploying and maintaining
DSL services. The
i
POTS
3
is an upgrade from the original
i
POTS
1
, allowing service providers a 3-way
view of the network and is compatible with DSLAM's of most vendors. The
i
POTS
1
is designed for use only with the
Lucent Stinger DSLAM.
Microfilters
We have developed a complete line of microfilters, including a 2 and 4 pole
filter for use in single and multiphone households, as well as a network
interface splitter.
mPhase Television.Net, Inc.
mPhase Television. Net, Inc. (mPhase TV) has established licensing agreements
with content originators thus allowing service providers to offer subscribers a
full complement of U.S. television programming. mPhase TV has secured rights to
rebroadcast television content from
U.S. network and cable broadcasters. mPhase TV can offer programming content
in the U.S. to U.S. telephone service providers seeking to deploy either of
mPhase's television platforms. This eliminates the need for service providers
from having to negotiate many separate contracts with U.S. broadcast television
programmers.
It is important to note that the role of mPhaseTV has changed since its
inception. Originally, mPhaseTV was to act as a content aggregator, downlinking
a complete lineup of channels, digitizing those channels and uplinking them via
satellite for further delivery to each telco site. The benefit of mPhaseTV
acting as a content aggregator was that service providers would not have to
build a full-scale headend that included encoders, and other equipment. However,
recent advances in technology have significantly reduced the costs for a
telephone company to build a full scale headend. Therefore the role of mPhaseTV
is now limited to providing the appropriate licenses and relationships as
opposed to offering a content aggregation solution. Telephone companies
purchasing content through mPhaseTV are required to build a full-scale digital
headend.
In March of 2000, mPhase provided the initial funding for mPhaseTV, by
lending it $1,000,000 at 8% per annum interest. The loan is repayable to us in
common stock at the time that mPhase Television qualifies for listing in the
NASDAQ Small Cap Market. We also contributed $20,000 in cash to the joint
venture and granted options to Alphastar Internal Inc. (Alphastar) to purchase
200,000 shares of our stock for $4.00 per share. The agreement required
Alphastar to provide mPhase Television the right to transmit television
broadcasts over Alphastar's digital satellite network. On May 1, 2000, we
acquired an additional 6.5% interest in mPhase Television for an additional
$1,500,000 in cash. We report mPhaseTV as a consolidated subsidiary.
As part of its cost reduction efforts in fiscal year 2002, mPhase
renegotiated its joint venture relationship with Alphastar that originally
established mPhaseTV. Under the new arrangement, mPhaseTV terminated its lease
of the rights to use Alphastar's earth station satellite uplink and downlink
facility in Oxford, CT. Such facilities had enabled mPhaseTV to aggregate
television content from the multiple networks and content providers eliminating
the need for telecommunications service providers in the United States from
building a master headend as an additional cost to the TV+ platform. As noted
above, recent developments in technology have significantly reduced the cost of
such master headend facilities which eliminates the need for mPhase to aggregate
television content. mPhaseTV may serve as a strategic asset for selling the
mPhase's video over DSL solutions in the U.S. by having secured the rights to
transmit over DSL over a number of television channels directly from the content
providers for test deployments. This experience should be helpful to a U.S.
telecommunication services provider from purchasing the TV+ television delivery
platform in future efforts to assemble such rights itself from each of such
content providers. mPhase currently owns a 56% controlling interest in mPhaseTV.
Research and Development Activities
As of June 30, 2004, we had been billed approximately $13,563,000 for
research and development conducted by Georgia Tech Research Institute (GTRC) in
connection with the development, over 5 years of the legacy Traverser DVDDS
system .On March 26, 1998, we entered into a license agreement with Georgia Tech
which owns the Digital Video and Data System technology. GTRC and its affiliates
have granted us the exclusive license to use and re-sell Traverser DVDDS
worldwide. We are obligated to pay Georgia Tech royalties of up to 5% on future
sales of the Traverser™ The license agreement expires automatically when the
patents covering the invention expire.
The Company has paid Lucent Technologies, Inc, through December 31, 2004 a
total of $2,764,522 for development of its TV+ solution which commenced in the
second quarter of fiscal year 2003. In September of 2004, mPhase announced a new
Project Development contract with the Bell Labs division of Lucent Technologies
Inc to develop Version 3.0 of its TV+ platform as a new IP based system with an
open standards-based architecture based upon a new "Soft Switch" software
enabling the delivery of broadcast TV, high-speed internet and voice over fiber
and copper.The Company is obligated to pay $470,400 primarily to Lucent
Technologies Inc and Magpie as of March 1, 2005 in remaining payments in order
to complete Release 3.0 of the TV+ product .
In February of 2004 mPhase announced that it had entered into a new $1.2
million Project Development contract with the Bell Labs division of Lucent
Technology Inc. for the exploratory research of micro power cell arrays using
superhydrophobic nanotextured materials with the first commercial application
expected to be a new miniature power cell with a very long shelf life for
military and commercial applications. Under the terms of such agreement the
Company has paid Lucent $100,000 per month commencing in February of 2004 for a
12 month period for a total of $1.2 million. As of March 1, 2005, the Company
owes to Lucent Technologies Inc., two final monthly payments totaling $200,000
that have been invoiced under the contract. The Company and Lucent have extended such contract for another 12 months on similar terms
to continue development of the miniature power cell product.
Market
Currently, mPhase's target market for its television over DSL solutions
include telephone companies and telecommunications service providers worldwide.
By deploying converged voice, video and data over their existing copper
telephone infrastructure, telecommunications service providers can increase
revenue and profitability and retain valuable market share. In most parts of the
world, the telephone company is strongly positioned to be first to market with
an integrated bundle of communications services. There are over 1 billion
telephone lines serving consumers around the globe compared to only 586.9
(source: Kagan World Media) million homes passed by cable. In today's
competitive telecommunications landscape, both the Traverser and the mPhaseTV+
platform have now become necessary solutions for all telecommunications service
providers to compete effectively in today's marketplace.
We estimate that on average, a typical telco using mPhase's current Version
1.0 and 2.1 of its TV+ platform utilizing the Lucent Stinger can generate
significant revenue with a payback on its initial investment in either system
within 2-3 years depending on the size and scope of the deployment. Importantly,
this relatively short payback period is still applicable in countries where the
average cost of a basic cable television package is well below the US average.
The economics of mPhase's video over DSL platforms are such that, for example,
when charging as little as $7 per month per subscriber for a basic television
package, the system operator can expect a full return on investment within a
three-year period of time. Furthermore, over 5 years a telecommunications
service provider can achieved a significantly higher rate of return on its
investment in either of our TV platforms than would be possible with deploying
voice and data alone. mPhase has developed a detailed and highly customizable
return on investment model to assist the telco in assessing its rates of return
and profitability based on additional revenue generated by the new services.
mPhase expects to derive the majority of its revenue from the sale of its TV+
solution over DSL platform, developed in conjunction with Lucent Technologies,
for a number of reasons:
The platform has been designed to achieve maximum cost efficiencies.
  Initial versions 1.0 and 2.1 of this product will be cost-competitive by
  utilizing the Lucent Stinger for transport. It is anticipated that as Lucent
  continues to drive down the cost of the Stinger and as further engineering
  efforts are completed in the Stinger to better and more efficiently support
  broadcast video services, we believe the total per port cost of Versions 1.0
  and 2.0 TV+ platform will be the most cost-effective (ATM) solutions available
  on the market.
mPhase believes its business partnership with Lucent will help validate
  our products and result in greater sales. mPhase will be able to leverage
  Lucent's relationships with its estimated 250 business partners around the
  globe, thereby increasing exposure for its mPhaseTV+ product set
  significantly.
Version 3.0 of the TV+ solution, the Soft Switch product expected to be
  available in the third or fourth quarter of fiscal year 2005, will be an IP
  based solution and is a powerful software enabling tool providing complete
  standards-based flexibility for any combination of hardware DLAM's , set top
  boxes and other features necessary to optimize a solution by a telephone
  service provider for the delivery of broadcast television, voice and
  high-speed internet.
mPhase is currently targeting international incumbent telephone companies and
rural independent domestic local exchange carriers for sale of its TV over DSL
platforms. The Company expects to derive the majority of its system sales
abroad, specifically from telephone service providers in Europe, Latin America,
Asia and Africa. Additionally, the modular video elements of mPhase's mPhaseTV+
platform (i.e., the BTS and INI) can be retrofitted to existing Lucent Stinger
deployments. mPhase, through the support of Lucent, anticipates targeting many
of the customers of Lucent that currently have deployed over 4 million ports of
the Stinger data and voice delivery product in over 20 countries around the
globe.
mPhase believes that foreign telco markets will adopt its TV
over DSL product solutions more rapidly than domestic service providers since
there is not generally the demand outside of the United States for robust cable
features (such as simultaneous delivery of 3 different TV channels through one
set top box) as there is in the United States. Therefore, the Company has placed
much of its initial emphasis on targeting the international telco market.
The demand for alternative television options is high in Europe, Asia and
Latin America. According to the Yankee Group, European countries have been early
adopters of video-over-DSL and alternative video delivery technologies,
deploying and testing services more aggressively than North America. These
markets possess pockets of moderate to high-income households willing and able
to purchase advanced digital services, but very few alternatives exist.
According to the Gartner Group, another industry analyst, the number of carriers
in the Europe, Middle East and African regions planning on deploying video over
DSL services has "leapt from 40 percent to almost 75% in 2002." Analysts from
the Gartner Group commented that, "This is a clear sign that carriers realize
they need to move upstream with broadband value-added services."
Cable television and digital broadcast satellite (DBS) services are less
competitive internationally than in North America. Because of the limited
expansion of cable, especially two-way digital cable and satellite networks
abroad, access to advanced communications services such as high-speed Internet
and digital television in many areas is limited to copper-based delivery
methods.
Parts of the world representing the largest opportunities for mPhase include
Latin America, Eastern Europe and parts of Africa. For instance, multichannel
television service providers in Latin America have only penetrated 18.3% of the
94.7 million television-owning households (source: Kagan World Media). In Latin
American telecommunications service providers deploying one of mPhase's
solutions for TV over DSL will be able to offer television services at very
competitive rates. Currently, multichannel television services are only
available to the top-tier consumers in Latin America as well as in other
developing parts of the world. mPhase's return on investment models indicate
that telecommunications service providers charging as little as $7 a month for
basic services can anticipate a return on investment within a very short period
of time. This attractive business model will help make digital multichannel
television service available to a large number of potential new users.
The U.S. multichannel television market is highly competitive, because the
penetration of cable services in North America is much higher than the rest of
the world and there are numerous service options for multichannel pay TV
customers, telecommunications service providers must provide incentives for
cable television subscribers to switch service providers. However, in foreign
markets, where (a) there is a high penetration of television sets, a very
limited number of broadcast television channels are received using antennas from
"through-the-air" broadcast and (b) direct-to-home satellite providers cannot
currently support the delivery of reliable, two-way data services. In such
markets we believe that a telephone company is much better positioned to be the
initial and primary provider of bundled converged services.
The following table represents the estimated number of television viewers in
select countries.
TV
*Multichannel
Households
Subscribers
(in millions)
Worldwide
994
430.55
Asia
519.3
207.6
Europe
233.3
94.8
Latin America
118.7
24
North America
112.7
104.15
* Multichannel subscribers includes cable and DBS subscribers
Source: Global Multichannel Markets 2002: Performance and Projections for 59
countries. Kagan World Media.
Competition in the telco market is becoming increasingly aggressive due to
changing telecommunications regulation, heightened competitive threats from
alternative technologies, such as cable and digital broadcast satellite, and
price declines in local and long distance telephony services.
Domestic telecommunications service providers face difficulty in maintaining
market share and revenue. Price declines in traditional voice services and the
proliferation of Internet telephony are impacting operating margins. mPhase
believes that the independent, rural domestic telco is the especially vulnerable
to these competitive threats and has a need to develop new product delivery
capabilities to increaserevenues and margins. However, independent
telecommunications service providers are not as well capitalized as the larger
domestic regional bell operating companies and other large incumbent service
providers and therefore tend to be very cost conscious in equipment deployment.
In areas where there is sparse cable deployment, or the cable
infrastructure is antiquated, there is an increasing demand for better quality
of service, more programming channels and additional services. The independent
telecommunications service providers operating in these areas can benefit from
the incremental revenue generated by services offered through mPhase's
TV-over-DSL platforms.
Beyond selling its solution to telephone companies, mPhase believes it will
eventually experience success in serving the global multi-dwelling unit (MDU)
market. This market consists of large residential or multi-office complexes,
hotels, and campus environments. The MDU can effectively become its own
multichannel television content distributor using either the Traverser or the
mPhaseTV+ solution by building a digital video head-end to downlink broadcast
television programming and installing mPhase's equipment.
mPhase is in the process of evaluating market opportunities in North America
and around the world to address commercial applications of the Traverser DVDDS
and TV+ platforms. However, the Company believes that commercial sales to
manufacturing or enterprise customers will only represent a marginal source of
revenue because of the limited scope and demand for internal broadcasting
networks in the commercial market.
Sales Strategy
TV over DSL products
mPhase will pursue sales opportunities through a variety of channels,
including direct sales by the Company's internal sales team, distributors and in
conjunction with Lucent Technologies, Inc.
mPhase's initial product offerings, Versions 1.0 and 2.1 of the TV+ is
designed to utilize Lucent Technologies' Stinger for transport. By
adding an mPhase BTS at the central office and mPhase's standards-based
digital set top box at the customer premises, mPhaseTV+ services can be added
anywhere the Stinger is or going to be deployed. The Lucent Stinger is an
already proven solution with over 4 million ports deployed in 20 countries
around the globe. In parts of the world lacking cable infrastructure where the
Stinger is deployed represents an opportunity to retrofit these deployments with
television services. And for new deployment opportunities,
mPhase will be able to leverage the Lucent brand and the reputation of the
Stinger as a highly scaleable and cost-effective transport medium. An example of
this is found with respect to mPhase's initial deployment of 1000 ports of its
TV+ solution to a major telephone service provider in Russia through Lucent
Russia as an addition to the Lucent Stinger DSLAM.
mPhase has also established a reseller agreement with Lucent, making it a
part of Lucent's Global Business Partner organization. As a result of this
agreement, mPhase can sell carriers a complete solution by reselling the Lucent
Stinger along with mPhase's BTS and Set Top Box. In addition,
mPhase and Lucent are developing a joint marketing program. As part of this
program, the two companies will identify target markets where their combined
television, voice and data over DSL solution is most competitive. Together,
Lucent and mPhase will approach Lucent's established global business partners
with the mPhaseTV+ solution for further marketing to targeted telecommunications
service providers. This partnership represents a tremendous opportunity for
mPhase, as Lucent has over 250 business partners in more than 40 countries
around the globe.
In markets where Lucent is directly selling into accounts deemed to be strong
potential markets, the two companies can collaborate their efforts to bring
forth a compelling product solution.
Joint Venture Opportunities
There also exist opportunities for mPhase to capture recurring revenue from
the sale and deployment of its video over DSL systems through a joint venture
business model. Under this scenario, mPhase would sell its equipment to a joint
venture company, of which mPhase retains a minority position. This company would
negotiate either a line leasing or revenue share program with the incumbent
telephone company and subsequently deploy and operate one of mPhase's television
over DSL platforms. mPhase believes a JV may provide additional opportunities
for sales to international telephone carriers that may not have the funds to
procure mPhase's television over DSL system, yet recognize the potential
business opportunity for such a platform.
Funding of the equipment and operation of the system would be the
responsibility of the JV. Member companies of the JV would include entities
interested in controlling television services such as the government and large
media groups. For example, mPhase is pursuing a JV in Turkey where the funding
partners include companies that own newspapers and television stations that are
looking to expand their revenues. Although a JV requires greater involvement
from mPhase in terms of organizing and coordinating the appropriate parties, the
long term potential benefits to mPhase are great. mPhase would not only secure
equipment sales, but would benefit from the recurring revenues from a JV engaged
in being a broadcast television service provider.
DSL Component Products
mPhase also sells a line of DSL component products including: POTS Splitter
Shelves
i
POTS Splitters, in-line microfilters,
Continuity Test Cards and Network Intelligent Device splitters. These products
are essential components to any DSL installation, regardless of the DSL
equipment vendor. The mPhase components are interoperable with Digital
Subscriber Line Access Multiplexing equipment from a broad range of DSL
manufacturers. Potential customers for the DSL component products include other
DSL equipment manufacturers, re-sellers, network integrators and
telecommunications service providers deploying DSL worldwide.
To date, mPhase has deployed over 250,000 POTS Splitter ports. The mPhase DSL
component products are sold both by mPhase directly as well as through
established distribution agreements.
The Company recognizes the depressed market conditions that began in 2001
that continue to pervade the telecommunications equipment industry. Although the
Company experienced a rebound in the market in the first quarter sales of POTS
Splitters during fiscal year ended June 30, 2004, it has continued to experience
a decline in such sales in each quarter thereafter through the six months ended
December 31, 2004.
We are continuously in discussions with various original equipment
manufacturers of telecommunications equipment to identify opportunities for
joint bids for infrastructure deployment with major domestic and international
telecommunications service providers. We also continue to market our component
products directly.
Intellectual Property, Patents and Licenses
The Company has recently entered into software development and licensing
agreements with Magpie with respect to certain software used in connection with
Version 3.0 of its TV+ product. Such development and licensing Agreement call
for aggregate payments of approximately $320,000 plus a licensing fee per set
top box sold as par of the TV+product. It is anticipated that the Company will
enter into a second development agreement with Magpie in the third quarter of
fiscal year 2005 calling for payments of approximately $430,000 in order to
complete software development necessary for Release 3.0 of its TV+ solution.
We have filed and intend to file United States patent and/or copyright
applications relating to some of our proposed products and technologies, either
with our collaborators, strategic partners or on our own. There can be no
assurance, however, that any of the patents obtained will be adequate to protect
our technologies or that we will have sufficient resources to enforce our
patents.
Because we may license our technology and products in foreign markets, we may
also seek foreign patent protection. With respect to foreign patents, the patent
laws of other countries may differ significantly from those of the United States
regarding patent protection of our products or technology. In addition, it is
possible that competitors in both the United States and foreign countries, many
of which have substantially greater resources and have made substantial
investments in competing technologies, may have applied for, or may in the
future apply for and obtain, patents that will have an adverse impact on our
ability to make and sell our products. There can also be no assurance that
competitors will not infringe our patents or will not claim that we are
infringing on their patents. Defense and prosecution of patent suits, even if
successful, are both costly and time consuming. An adverse outcome in the
defense of a patent suit could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require us
to cease our operations.
The intellectual property owned and licensed by us falls into two general
categories, analog and digital intellectual property. We have a pending patent
application that was filed in June 1999 claiming priority to three provisional
patent applications for the analog portion of our technology used in relation to
the Traverser DVDDS platform.
Our DSL filter technology enables increased video clarity over copper wire,
longer transmission distances and decreased signal error rate. The intellectual
property related to the DSL filters includes:
low pass filter shelves and POTS Splitters, which combine the Traverser DSL
spectrum from the traditional voice service; and
ADSL filters, which are filters that conform to the worldwide DSL standard
and are utilized in the transmission of data and voice service at up to 8 Mbps.
We believe that both of these components are key to providing a DSL signal at
sufficient quality and service distances for combined video and data delivery.
We license our digital intellectual property. We also have an exclusive,
worldwide license to manufacture and market products using the technology
developed by Georgia Tech under our contract with them. The exclusive license
with Georgia Tech is applicable for the duration of their patent protecting the
system design and other technology related to the legacy Traverser DVDDS platform.
The licensed patented and patent-pending technology developed at Georgia Tech
covers the capabilities of the Traverser DVDDS.
A patent for the System and Method for the Delivery of Digital Video and Data
over a Communications Channel was issued on November 28, 2000 to the Georgia
Tech Research Corporation.
The digital intellectual property that we license provides several unique
aspects of the Traverser DVDDS. Among these is the backplane design, which
provides every subscriber the ability to view any channel available. All
subscribers in a given system could be watching the same channel, or could be
watching different channels with no degradation of service. The proprietary
design, which does not incorporate a Digital Subscriber Line Access Multiplexer
architecture, makes the Traverser DVDDS a true broadcast system rather than a
mere video delivery system.
The patent issued on March 27, 2001 to the Georgia Tech Research Corporation
for the System and Method for Maintaining Timing Synchronization in a Digital
Video Network covers the development of the Framer and the Framer chip. The
Framer is an Integrated Circuit which gives the Traverser the capability of
allocating both the downstream and upstream bandwidth into virtually any
application required. This feature allows the Traverser to deliver both MPEG-2
Digital Video and Internet data simultaneously and also allows for future
applications of the Traverser™ This technology is exclusively licensed worldwide
to mPhase Technologies, Inc.The patent issued on November 27, 2001 to the
Georgia Tech Research Corporation for the Method and Apparatus for Combining a
Plurality of 8B/10B Encoded Data Streams addresses video data transport between
digital headends and the access network serving subscribers. A further patent is
pending covering other methods of video program transport.
We also have patents pending that protect:
the software management and control of the individual Traverser links, the
DVDDS, and the channel changing methodology and interface to the electronic
program guide at the customer site through the Intelligent Network Interface;
apparatus and methods of remote control of the Intelligent Network Interface;
and,
systems and methods to provide subscribers means to playback previously
recorded video content.
We purchase from GlobeSpan telecommunication rate adaptive DSL chipsets used
in the Traverser DVDDS.
The Company plans to file joint patent applications with Lucent Technologies
Inc. with respect to the nanotechnology products currently under development.
We also rely on unpatented proprietary technology, and we can make no
assurance that others may not independently develop the same or similar
technology to ours or otherwise obtain access to our unpatented technology. If
we are unable to maintain the proprietary nature of the Traverser technology,
our future operations could be adversely affected.
With the migration of the Company's television delivery platform from the
Traverser to the TV+ solution, the Company is currently reexamining the need to
maintain the cost of patent protection with respect to the legacy Traverser
product.
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
communications 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 component suppliers. Changes in current or future laws or
regulations, in the U.S. or elsewhere, could materially adversely affect our
business.
Competition
mPhase competes with broadband equipment manufacturers including cable and
digital broadcast satellite equipment manufacturers, as well as other equipment
vendors manufacturing DSL and/or video over DSL equipment. The global telco
customer base has the ability to adopt other forms of content distribution if it
chooses to compete in the multi-channel home entertainment market. However,
mPhase believes its television platforms are attractive to a broader range of
customers of telecommunication service providers. The following sections outline
the competitive landscape for mPhase.
Direct Broadcast Satellite Services
In the US, direct broadcast satellite (DBS) providers have experienced
increased market penetration over the past few years. DBS service is the only
alternative television delivery method in rural areas where cable has not been
deployed, or antiquated analog cable is predominant. However, in some cases, DBS
service does not include local off-air channels and most DBS operators are not
able to provide competitively-priced wireless high-speed Internet service.
Technology enabling two-way, high-speed Internet access over DBS is relatively
new and we expect it will take time to reach broad market acceptance as a
cost-effective, reliable data delivery method.
Cable Television Network Operators
Although the cable industry is our indirect competitor, the Company believes
that two-way cable service provides incentive to telecommunications service
providers to explore additional services. Cable companies pose a serious
competitive threat to telephone company market share. However, in order for
cable companies to compete for high-speed Internet and telephony customers, the
cable plant must be upgraded to two-way digital cable. Cable companies have
invested large amounts of capital to upgrade dense service population areas in
the US. However, cable operators typically underserved less densely populated
regions with antiquated analog cable systems. Outside of the U.S., very little
two-way cable plants have been installed.
Telecommunications service providers around the world have the incentive to
deploy TV-over-DSL solutions either because of the threat of the cable
companies, or because of the lack of cable infrastructure. The Company believes
that its TV over DSL platforms are the most cost effective and robust video
delivery technology deployable by our primary target market of international
telecommunications service providers. Installing our platforms will facilitate
telephone companies in retaining and capturing market share, as well as
generating incremental revenue. mPhaseTV+ solution enable telecommunications
service providers to compete effectively in a converging services market with a
"triple play" of services-digital television, high-speed data and voice services
in an attractive bundled package.
Other DSL and Video over Copper (VoC) Equipment Manufacturers
mPhase competes with vendors of DSL equipment and system software. Companies
that supply DSL technology including 2Wire, ADC telecom, Advanced Fiber
Communications, Alcatel, Broadcom, Copper Mountain, Corning Cable System,
Ericson, Fujtsu, Motorola, Minerva, ECI Telecom, Turnstone, Westell, Teradyne,
TuT Systems, Marconi Communications, NEC, Nokia, Paradyne, Samsung, Texas
Instruments, DVTel, Inc., Pace Micro Tech., Net to Net, and Myrio.
Other Video-over-DSL technologies compete with the TV+ platform are
summarized below.
Differentiating Factors
mPhase believes that it offers the most reliable, scaleable and cost
effective television over copper solutions. The mPhase TV+ over DSL solution is
designed specifically to enable delivery of broadcast television over DSL.
Versions 1.0 and 2.0 of the TV+ platform are basic ATM solutions for delivery of
digital broadcast television over DSL without expensive features such as
interactive television, video-on-
demand and simultaneous multi channel delivery over a copper telephone line.
Such features will be available on our new IP based Version 3.0 of the TV+
system expected to be available during fiscal year 2005. Versions 1.0 and 2.0 of
the TV+ product are ATM solutions for parts of the world that are in need of
"just TV" rather than costly, feature rich solutions. We believe there is a
significant market that is not currently serviced world wide for delivery of
broadcast television programming on a cost-effective basis. mPhase's future IP
solution is a streamlined solution is designed to be the most cost-effective
scaleable solution in emerging international markets as well as flexible enough
to be upgraded with enhanced features of more robust systems for high end
customers.
There are a number of telecommunications equipment providers competing in the
television over DSL space. For instance, a new division of Motorola (formerly
known as Next Level Communications) has secured over 100 customers predominantly
in the United States. The majority of their video deployments utilize a specific
form of DSL known as VDSL (very fast digital subscriber line). VDSL requires
that telecommunications service providers install fiber optics into the
neighborhood, or close to the customer premises because signals can only travel
up to 3-4,000 feet over copper telephone wires. As a result, compared to the
mPhase solutions, the platform is significantly more capital intensive and
therefore expensive due to the cost of the infrastructure upgrade (i.e.,
installing fiber optics closer to the customer premises). Motorola has also
introduced an ADSL version of its equipment, which has a serviceable distance
radius of approximately 8,000 feet. This newer product could compete more
directly with both the ATM and IP versions of the TV+ over DSL solutions.
Motorola's Television over DSL products tend to be more feature rich and
expensive than mPhase's Version 1.0 and 2.0 TV+ solutions. Motorola concentrates
the majority of its sales efforts within the US market where consumers demand a
robust viewing experience due to the penetration of fiber and cable.
Another company that sells equipment similar to mPhase is Alcatel. Alcatel is
the leading supplier of DSLAMS (digital subscriber line access multiplexers)
around the globe. Alcatel has deployed several video over DSL trials although
its largest, with Aliant Telecom in Canada, was discontinued. Historically,
Alcatel has worked with multiple equipment vendors to create a complete,
end-to-end video solution, including software providers and set top box
provider, Pace. Recently Alcatel acquired iMagicTV, adding to its product line
for delivery of television over DSL. Alcatel recently announced upgrades to its
DSLAM line or products to better support the delivery of converged voice, video
and data.
Other major competition in the DSLAM market include UT Starcom and HUWAEI
Company.
Lucent also offers another video-over-DSL solution currently deployed at
SakTel in Canada. This solution, similar to Motorola's products, offers greater
functionality and features, however is more costly in terms of per port
equipment cost than the TV+ platform. Finally, other smaller vendors are
emerging, partnering with third party equipment vendors to create a
video-over-DSL platform. Equipment providers such as Net to Net and Paradyne are
modifying their data platforms to support the delivery of television services.
However, mPhase believes it has certain cost of equipment advantages over other
vendors making its system more economically viable for potential customers. The
Company believes that the strength of the video-centric BTS coupled with the
strength of the data-centric Lucent Stinger make its solution extremely
competitive in its target markets.
Headend Equipment Providers
As discussed earlier, mPhase does not manufacturer digital head end gear. All
customers interested in deploying an mPhase video over DSL system must build a
digital headend to receive, digitize and groom the television signals. Through
extensive lab and field testing, mPhase has established an approved vendor list
of several headend providers.
Nanotechnology
The science of nanotechnology is very new and evolving.  There has been
significant venture capital fundings of start up companies during calendar year
2005 focusing upon development of a wide range of potential products and
applications.
Employees
We presently have nineteen (19) full employees, two (2) of whom are also
employed by Microphase Corporation. See the description in the section entitled
"Certain Relationships and Related Transactions." Properties.
We maintain our corporate headquarters at 587 Connecticut Avenue, Norwalk,
Connecticut 06854, under a facilities agreement with Microphase. The agreement
with Microphase provides that we lease office space, lab facilities and
administrative staff on a month-to-month basis. We also maintain offices in New
York, N.Y and Little Falls , New Jersey.
LEGAL PROCEEDINGS
The Company has recently been advised that, following an investigation by the
staff of the Securities and Exchange Commission, the staff intends to recommend
that the Commission file a civil injunctive action against Packetport and its
Officers and Directors. Such recommendation relates to alleged civil violations
by Packetport and such Officers and Directors of various sections of the Federal
Securities Laws. The staff has alleged civil violations of Sections 5 and
17(a)of the Securities Act of 1933 and Sections 10(b)and 13(d)of the Securities
Exchanges Act of 1934. As noted in other public filings of mPhase, the CEO and
COO of mPhase also serve as Directors and Officers of Packetport. Such persons
have advised mPhase that they deny any violation of law on their part and intend
to vigorously contest such recommendation.
From time to time we may be involved in various legal
proceedings and other matters arising in the normal course of business.
OUR MANAGEMENT
Executive Officers
and Directors
Our officers and
directors, and their ages, as of June 30, 2004, are as follows:
Name
Age
Position(s)
Necdet F. Ergul
81
Chairman of the
    Board and Director
Ronald A.
    Durando
47
President, Chief
    Executive Officer And Director
Gustave T.
    Dotoli (2)
70
Chief Operating
    Officer and Director
Martin S. Smiley
57
Executive Vice
    President, Chief Financial Officer
and General
    Counsel
Outside
    Directors
David L. Klimek
50
Chief Technology
    Officer and Director
Anthony H.
    Guerino, Esq. (1)(2)
58
Director
Abraham Biderman
    (1)(2)
56
Director
Michael P.
    McInerney
49
Director
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
The following is biographical information about each of our Officers and
Directors.
Necdet F. Ergul
has
served as our Chairman of the Board since October 1996 with the exception of a
three-month period in 2000 when he temporarily resigned. Mr. Ergul also
currently serves as the President and Chief Executive Officer of Microphase
Corporation, a leading developer of military electronic defense and
telecommunications technology, which he founded in 1955. He is also a Director
of Janifast Ltd. In addition to his management responsibilities at Microphase,
he is active in engineering design and related research and development. Mr.
Ergul holds a Masters Degree in Electrical Engineering from the Polytechnic
Institute of Brooklyn, New York.
Ronald A. Durando
is a
co-founder of mPhase Technologies, Inc. and has served as our President, Chief
Executive Officer and a Director since its inception in October 1996. In
addition, Mr. Durando has been the Chief Operating Officer of Microphase
Corporation since 1994. From 1986 to 1994, he was President and Chief Executive
Officer of Nutley Securities, Inc., a registered broker-dealer. He is also
Chairman of the Board of Janifast Ltd., a Hong Kong corporation for operational
and manufacturing companies in China. Mr. Durando is also President and Chief
Executive Officer and Director of PacketPort.com, Inc.
Gustave T. Dotoli
has
served as our Chief Operating Officer and a Director since our inception in
October 1996. In addition, Mr. Dotoli has been the Vice President of Corporate
Development of Microphase Corporation since December of 1996. Mr. Dotoli is also
a Director and Vice President Corporate Secretary of PacketPort.com, Inc. He
formerly was the President and Chief Executive Officer of the following
corporations: Imperial Electro-Plating, Inc., World Imports USA, Industrial
Chemical Supply, Inc., SISCO Beverage, Inc. and Met Pack, Inc. Mr. Dotoli
received a B.S. in Industrial Engineering from Fairleigh Dickinson University in
1959.
David Klimek
is a
co-founder of mPhase Technologies, Inc. and has served as our Chief Technology
Officer since June 1997 and as Director of Engineering since its inception in
October 1996. Mr. Klimek joined our Board of Directors in October 1996. From
1990- 1996, Mr. Klimek owned and operated Mashiyach Design, Inc., an engineering
consulting firm. He has more than 18 years of technical engineering and design
expertise and presently holds 14 individual or co-authored U.S. patents. From
1982 to 1990, Mr. Klimek was the R&D manager of Digital Controls, Inc. Mr.
Klimek holds a B.S. in Electrical Engineering from Milwaukee School of
Engineering, Milwaukee, Wisconsin.
Michael P. Mcinerney
is
President of Lintel, Inc. subsidiaries; Hart Telephone Company, a 10,000-line
local exchange carrier in Northeast Georgia, Hart Communications, a
telecommunication company, Hart Cable, a cable television company and
Diversified Golf. Mr. McInerney was Vice President of Lintel, Inc. from 1994
until he became President in 2001. From 1991 to 1994, Mr. McInerney was
Executive Director of Standard Telephone Company. In the period from 1980-1991,
Mr. McInerney was a regional manager, state manager and an account executive
with AT&T. Mr. McInerney earned a Masters of Business Administration degree at
Winthrop college and a B.S. degree at the University of Vermont.
Anthony H. Guerino
has
been a member of the Board since February 23, 2000. Since December 1997, Mr.
Guerino has been an attorney in private practice in New Jersey. Prior thereto,
Mr. Guerino served as a judge of the Newark Municipal Courts for over twenty
(20) years, periodically sitting in the Essex County Central Judicial Processing
Court at the Essex County Courthouse. Mr. Guerino has been a chairperson for and
member of several judicial committees and associations in New Jersey, and has
been an instructor for the Seton Hall School of Law's Trial Moot Court Program.
Abraham Biderman
has
been a member of our board since August 3, 2000. Mr. Biderman is Executive Vice
President of Lipper & Company; Executive Vice President, Secretary and Treasurer
of The Lipper Funds; and Co-Manager of Lipper Convertibles, L.P. Prior to
joining Lipper & Company in 1990, Mr. Biderman was Commissioner of the New York
City Department of Housing, Preservation and Development from 1988 to 1989 and
Commissioner of the New York City Department of Finance from 1986 to 1987. He
was Chairman of the New York City Retirement System from 1986 to 1989. Mr.
Biderman was Special Advisor to former Mayor Edward I. Koch from 1985 to 1986
and assistant to former Deputy Mayor Kenneth Lipper from 1983 to 1985. Mr.
Biderman is a Director of the Municipal Assistance Corporation for the City of
New York. Mr. Biderman graduated from Brooklyn College and is a certified public
accountant.
Martin Smiley
joined us
as Executive Vice President, Chief Financial Officer and General Counsel on
August 20, 2000. With over twenty years experience as a corporate finance and
securities attorney and as an investment banker, Mr. Smiley serves as mPhase's
strategic financial leader. Prior to joining the Company, Mr. Smiley served as a
Principal at Morrison & Kibbey, Ltd., a mergers and acquisitions and investment
banking firm from 1998 to 2000, and as a Managing Director for CIBC Oppenheimer
Securities from 1994 to 1998. He served as a Vice President of Investment
Banking at Chase Manhattan Bank from 1989 to 1994, and as a Vice President and
Associate General Counsel for Chrysler Capital Corporation from 1984 to 1989.
Mr. Smiley graduated with a B.A. in Mathematics from the University of
Pennsylvania and earned his law degree from the University of Virginia School of
Law.
Board Committees
Our Board of Directors has an audit committee and a compensation committee.
The audit committee approves of our independent accountants and determines the
appropriateness of their fees, reviews the scope and results of the audit plans
of the independent accountants, oversees the scope and adequacy of our internal
accounting control and record-keeping systems and confers independently with the
independent accountants. The audit committee consists of Messrs. Biderman, and
Guerino. Consistent with NASD regulations, an audit charter was developed and
adopted by the Board and the audit committee on August 2, 2000.
The compensation committee makes recommendations to our Board of Directors
regarding our stock incentive plans and all matters of compensation. The
compensation committee consists of three (3) Directors, Messrs. Biderman, Dotoli
and Guerino.
Director Compensation
For their attendance of Board and Committee meetings, we
compensate the Directors in cash as well as in the form of stock options granted
under our Stock Incentive Plan, which grants are included in the table "Security
Ownership of Certain Beneficial Owners and Management" and the notes thereto.
Executive Compensation
The following table sets forth, for the fiscal year ended June 30, 2004 and
the two previous fiscal years, the compensation paid by us to, as well as any
other compensation paid to or earned by, our Chief Executive Officer; and our
four most highly compensated executive officers, other than the Chief Executive
Officer, whose compensation during the fiscal year ended June 30, 2004 was
greater than $100,000 for services rendered to us in all capacities during such
year.
Summary Compensation Table
Annual Compensation
Long-Term Compensation
Securities
Restricted
Underlying
Stock
Name
    And
Options/Sars
Principal Position
Year
Salary
Bonus
Award(s)
(Shares)
(Shares)
Ronald A. Durando(1)(2)
2004
$285,000
-
-
1,500,000
Chief Executive Officer
2003
$234,504
-
-
450,000
and
    President
2002
$388,504
-
-
1,850,000
Gustave T. Dotoli(1)(2)
2004
$225,000
-
-
750,000
Chief Operating Officer
2003
$193,254
-
-
350,000
2002
$313,504
-
-
1,225,000
-
-
David L. Klimek(1)
2004
$89,062
-
-
100,000
Chief Technology Officer
2003
$90,958
-
-
75,000
2002
$106,606
-
-
162,500
Martin S. Smiley
2004
103,958
-
-
Executive VP, Chief
2003
109,583
-
-
200,000
Financial Officer
2002
l58,712
-
-
540,000
&
    General Counsel
Includes $7,500 stipend as a director for fiscal year ended June 30, 2002.
  No such cash stipend was recorded for fiscal years ended June 30, 2003 and
  June 30, 2004.
Does not include warrants to purchase 1,395,400 shares of common stock
  issued Mr. Durando and Warrants to purchase 1,096,400 of common stock of Mr.
  Dotoli respectively to cancel previously unpaid compensation. Such warrants
  relate to $234,362 and $35,000 of unpaid cash compensation to Mr. Durando for
  fiscal years 2002 and 2003 and $184,105 and $27,500 of unpaid cash
  compensation to Mr. Dotoli for fiscal years 2002 and 2003, respectively the
  amount of which is included as cash compensation in the above table.
No individual named above received prerequisites or non-cash compensation
  during the years indicated which exceeded the lesser of $50,000 or an amount
  equal to 10% of such person's salary. No other executive officer received
  compensation and bonuses that exceeded $100,000 during any year.
STOCK OPTIONS
The following table contains information regarding options granted in the
fiscal year ended June 30, 2004 to the executive officers named in the summary
compensation table above. For the fiscal year ended June 30, 2004, mPhase
granted options to acquire up to an aggregate of 1,615,000 shares to employees
and directors.
Option Grants in Last Fiscal
    Year
(Individual Grants)
Potential Realizable
Value of
Number of
%
    of Total
Weighted
Weighted
Assumed Annual
Securities
Options/SARS
Average
Average
Rates of Stock Price
Underlying
Granted to
Exercise
Market
Appreciation for 5
Options/SARS
Employees
or
    Base
Price
Year Option Term
Granted
in
    Fiscal
Price
on
    Grant
Expiration
Name
(#)
Year
($/Share)
Date
Date
0%
5%
10%
Ronald A.
Durando
1,500,000
44%
$.45
$.39
2009
$0
$0
$42,750
Gustave
750,000
22%
.45
.39
2009
0
$0
$21,375
T. Dotoli
David
100,000
3%
.45
.39
2009
0
$0
$2,850
Klimek
The following table sets forth information with respect to the
number and value of outstanding options held by executive officers named in the
summary compensation table above at June 30, 2004. During the fiscal year ended
June 30, 2003, no options were exercised. The value realized is the difference
between the closing price on the date of exercise and the exercise price. The
value of unexercised in-the-money options is based upon the difference between
the closing price of mPhase's common stock on June 30, 2004, and the exercise
price of the options.
Fiscal Year-End Option Values
Number of Securities
Value of Unexercised
Shares
Value
Underlying Unexercised
In-the-Money Options at
Acquired
Realized
Options at year end (#)
Year-End ($)
on
Name
Exercise
$
Exercisable
Unexercisable
Exercisable
Unexercisable
Ronald A.
-
-
4,730,000
-
$-
$-
Durando
Gustave
-
-
3,000,000
-
-
-
T. Dotoli
David
-
-
372,500
-
-
-
Klimek
Martin
-
-
1,070,000
-
-
-
Smiley
Employment Agreements
All employment agreements with our current management have expired and are in
the process of being renegotiated subject to approval of the Board of Directors
of the Company.
Long-Term Stock Incentive Plan
We have a Long-Term Stock Incentive Plan, under which we have reserved for
issuance 15,000,000 shares of common stock. Our shareholders approved our 2001
Stock Incentive Plan at our annual meeting of shareholders on May 30, 2001. The
plan provides for grants of incentive stock options and nonqualified stock
options to our key employees and consultants and those key employees and
consultants of our subsidiaries.
With respect to our current plan, the compensation committee of the Board of
Directors administers and interprets our current plan. The exercise price of
common stock underlying an option may be greater, less than or equal to fair
market value. However, the exercise price of an incentive stock option must be
equal to or greater than the fair market value of a share of common stock on the
date such incentive stock option is granted. The maximum term of an option is
five years from the date of grant. In the event of a dissolution, liquidation or
change in control transaction, we may require option holders to either exercise
their options within 30 days or surrender such options (or unexercised portion
thereof).
Upon stockholder approval, the Board of Directors merged our prior Long-Term
Stock Incentive Plan into the 2001 Plan.
The purpose of the 2001 Plan is to promote our long-term growth and
profitability by providing key people with incentives to improve stockholder
value and contribute to our growth and financial success and by enabling us to
attract, retain and reward the best available people.
The maximum number of shares of common stock that we may issue with respect
to awards under the 2001 Plan is 20,000,000 shares, in addition to the shares
previously authorized for issuance under our Company plan, but which are not
issued before our current plan is merged into the 2001 Plan.
The maximum number of shares of common stock subject to awards of any
combination that may be granted under the 2001 Plan during any fiscal year to
any one individual is limited to 2,500,000 subject to the exceptions made by the
Board of Directors. These limits will be adjusted to reflect any stock
dividends, split-ups and reverse stock split, unless the Board determines
otherwise. If any award, or portion of an award, under the 2001 Plan expires or
terminates unexercised, becomes unexercisable or is forfeited or otherwise
terminated, surrendered or canceled as to any shares, or if any shares of common
stock are surrendered to us in connection with any award (whether or not such
surrendered shares were acquired pursuant to any award), or if any shares are
withheld by us, the shares subject to such award and the surrendered or withheld
shares will thereafter be available for further awards under the 2001 Plan.
Those shares that are surrendered to or withheld by us, or that are forfeited
after issuance, however, will not be available for incentive stock options.
The 2001 Plan is administered by our Board of Directors or by a committee or
committees as the Board of Directors may appoint from time to time. The
administrator has full power and authority to take all actions necessary to
carry out the purpose and intent of the 2001 Plan, including, but not limited
to, the authority to: (i) determine who is eligible for awards, and the time or
times at which such awards will be granted; (ii) determine the types of awards
to be granted; (iii) determine the number of shares covered by or used for
reference purposes for each award; (iv) impose such terms, limitations,
restrictions and conditions upon any such award as the administrator deems
appropriate; (v) modify, amend, extend or renew outstanding awards, or accept
the surrender of outstanding awards and substitute new awards (provided however,
that, except as noted below, any modification that would materially adversely
affect any outstanding award may not be made without the consent of the holder);
(vi) accelerate or otherwise change the time in which an award may be exercised
or becomes payable and to waive or accelerate the lapse, in whole or in part, of
any restriction or condition with respect to such award, including, but not
limited to, any restriction or condition with respect to the vesting or
exercisability of an award following termination of any grantee's employment or
consulting relationship; and (vii) establish objectives and conditions, if any,
for earning awards and determining whether awards will be paid after the end of
a performance period.
In the event of changes in our common stock by reason of any stock dividend,
split-up, recapitalization, merger, consolidation, business combination or
exchange of shares and the like, the administrator may make adjustments to the
number and kind of shares reserved for issuance or with respect to which awards
may be granted under the 2001 Plan, in the aggregate or per individual per year,
and to the number, kind and price of shares covered by outstanding award.
Without the consent of holders of awards, the administrator in its discretion
is authorized to make adjustments in the terms and conditions of, and the
criteria included in, awards in recognition of unusual or nonrecurring events
affecting us, or our financial statements or those of any of our affiliates, or
of changes in applicable laws, regulations, or accounting principles, whenever
the administrator determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the 2001 Plan.
Participation in the 2001 Plan will be open to all of our employees,
officers, directors and other individuals providing bona fide services to us or
any of our affiliates, as the administrator may select from time to time. All
three (3) non-employee directors and approximately ten
(10) employees will be eligible to participate in the 2001 Plan.
The 2001 Plan allows for the grant of stock options, stock appreciation
rights, stock awards, phantom stock awards and performance awards. The
administrator may grant these awards separately or in tandem with other awards.
The administrator will also determine the prices, expiration dates and other
material conditions governing the exercise of the awards. We, or any of our
affiliates, may make or guarantee loans to assist grantees in exercising awards
and satisfying any withholding tax obligations arising from awards.
Because participation and the types of awards available for grant under the
2001 Plan are subject to the discretion of the administrator, the benefits or
amounts that any participant or groups of participants may receive if the 2001
Plan is approved are not currently determinable. For this purpose, the benefits
or amounts that participants may receive if the 2001 Plan is approved do not
include awards granted under the Prior Plan that are amended and restated to
become awards covering the same number of shares under the terms of the 2001
Plan. These amended and restated awards are not contingent on stockholder
approval since the Prior Plan was previously approved by the stockholders.
Our Board of Directors may terminate, amend or modify all or any provision of
the 2001 Plan at any time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 2004
were Messrs. Dotoli, Mr. Biderman and Guerino. Mr. Dotoli is our Chief Operating
Officer. Neither Messrs Guerino nor Biderman is not one of our officers or
employees. None of our directors or executive officers served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of such committee, the entire board of directors) of another
entity during fiscal 2004 that has a director or executive officer serving on
our Board of Directors except that Mr. Dotoli is also a member of the Board of
Directors of PacketPort.com, Inc., a company in which Mr. Durando serves as
Chief Executive Officer. Mr. Ergul is a controlling shareholder and Director of
Microphase corporation (which provides certain administrative services to mPhase)
and Mr. Dotoli and Mr. Durando are Officers of Microphase., Mr. Dotoli, together
with Mr. Durando and Mr. Ergul, are controlling shareholders, officers and
directors of Janifast Ltd. Janifast Ltd. has produced components for the
Traverser™ and is expected to produce a material amount of DSL components for us
in the future.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 16, 2005 certain information
regarding the beneficial ownership of our shares:
by each person who is known by us to be the beneficial owner of more than
  five percent (5%) of its outstanding common stock;
each of our directors;
by each executive officer named in the Summary Compensation Table; and,
by all of our directors and executive officers as a group.
Name and
      Address of Beneficial
Number of
Percentage
Owner(1)
"Shares"
Ownership
of Common Stock
of Common
Beneficially
Stock(2)
Owned
Necdet F.
      Ergul(7)(9)
2,616,250
2.7%
Ronald A.
      Durando(3)(7)
11,644,382
8.3%
Gustave T.
      Dotoli(7)(10)
6,021,100
4.6
%
J. Lee
      Barton(4)(6)(8)
David Klimek(7)
424,500
*
Lintel, Inc.(6)
Abraham
      Biderman(5)(7)
694,000
*
Anthony
      Guerino(7)
657,500
*
Michael
      McInerney(7)(8)
425,500
*
Martin
      Smiley(11)
5,676,132
4.17
%
Microphase
      Corp,(12)
14,704,686
10.8%
Janifast(13)
10,935,000
8.2%
All executive
      Officers Directors, and (2)
49,640,418
40
%
beneficial
      owners
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is 587
Connecticut Avenue, Norwalk, Connecticut 06854-1711.
(2) Unless otherwise indicated, mPhase believes that all persons named in the
table have sole voting and investment power with respect to all shares of the
Company shares beneficially owned by them. The percentage for each beneficial
owner listed above is based on107,364,442 shares outstanding on March 8, 2005,
and, with respect to each person holding options or warrants to purchase shares
that are exercisable within 60 days after February 24, 2005, the number of
options and warrants are deemed to be outstanding and beneficially owned by the
person for the purpose of computing such person's percentage ownership, but are
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. The number of shares indicated in the table
include the following number of shares issuable upon the exercise of warrants or
options:
Necdet F. Ergul
1,766,250
Ronald A.
      Durando
8,614,367
Gustave Dotoli
6,537,067
J. Lee Barton
250,500
David Klimek
1,197,500
Martin Smiley
3,554,543
Michael
      McInerney
740,500
Abraham
      Biderman
1,017,500
Anthony Guerino
552,000
Microphase
      Corporation
5,650,000
Janifast Ltd.
2,200,000
(3) Includes 1,396,148 shares held by Durando Investment LLC, and does not
include, as separately stated below, 8,395,000
shares and 2,200,000 warrants held by Janifast which Mr. Durando controls and
530,000 shares owned by Karen and Ronald Durando Foundation; and 695,000 shares
owned by Durando Charitable Remainder Trust.
(4) Does not include shares held by Lintel Inc.
(5) Includes 5,233 shares of common stock, options and warrants for 272,500
shares of common stock. Does not include 1,103,225 shares held by Lipper & Co,
where Mr. Biderman is a director.
(6) The address for Lintel, Inc. and J. Lee Barton, who is Chief Executive
Officer of Lintel, Inc. is 196 North Forest Avenue, P.O. Box 388, Hartwell, GA
30643.
(7) Includes options for 25,000 shares of common stock received as
compensation for participation on the Board of Directors.
(8) Mr. Michael P. McInerney, President of Lintel, Inc. subsidiaries, was
appointed to the Board at the 2002 Annual Shareholders meeting.
(9) Includes 200,000 shares owned by Berrin Snyder, his daughter and 150,000
owned by Eda Peterson, his daughter. This does not include, as separately stated
below,  8,244,667 shares and
3,200,000 warrants and 1,200,000 shares and warrants to purchase 1,200,000
shares issuable pursuant to the terms of a convertible note held by Microphase
Corporation, a company in which Mr. Ergul is the President and Chief Executive
Officer.
(10) Includes 277,500 shares owned by Patricia and Gustave Dotoli Foundation;
and 195,000 shares owned by Dotoli
Charitable Remainder Trust.
(11) Includes 333,334 shares and warrants to purchase 333,334 shares issuable
pursuant to the terms of a convertible note.
(12) Includes 8,244,667 shares and 3,200,000 warrants and 1,200,000 shares
and warrants to purchase 1,200,000 shares issuable pursuant to the terms of a
convertible note held by Microphase Corporation, the totals of which are
included in the total beneficially owned shares of Necedet F. Ergul.
(13) Includes 7,350,000 shares and 1,200,000 warrants, the totals of which
are included in the total beneficially owned shares of Ronald A. Durando.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Material Related Party Transactions
The Company records material related party transactions. The Company incurs
costs for engineering, design and production of prototypes and certain
administrative functions from Microphase Corporation and the purchase of
finished goods, primarily consisting of DSL splitter shelves and filters, from
Janifast Limited. The Company has incurred costs for obtaining transmission
rights. This enabled the Company to obtain retransmission accreditation to
proprietary television content that the Company plans to provide with its
flagship product, the TV+ within its incorporated joint venture mPhase
Television.Net, in which the Company owns a 56.5% interest.
The Company has also incurred charges for beta testing and on-site marketing,
including the display of a live working model at Hart Telephone. In addition,
the Company has entered into a supply agreement with Hart Telephone, which may
commence upon the commercial production of Version 3.0 of the TV+ solution.
In addition the Company is currently upgrading its testing of its Traverser™
product to its TV+ product with customers of Hart
Telephone. A member of mPhase's Board of Directors is employed by Lintel,
Inc., the parent corporation of Hart Telephone. Mr. Durando, the President and
CEO of mPhase, owns a controlling interest and is a director and COB of Janifast
Limited. Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr.
Dotoli is also a shareholder of Janifast Limited. Mr. Ergul, the chairman of the
board of mPhase, owns a controlling interest and is a director of Microphase
Corporation and is a director and shareholder of Janifast Limited. Microphase,
Janifast, Hart Telephone and Lintel Corporation are significant shareholders of
mPhase. Microphase, Janifast and Hart Telephone have converted significant
liabilities to equity in fiscal years June 30, 2001, 2002, and 2003. There have
been no significant conversions by such entities of liabilities to equity in the
current fiscal year.
Management believes the amounts charged to the Company by Microphase,
Janifast, mPhase Television.Net and Hart Telephone are commensurate to amounts
that would be incurred if outside parties were used. The Company believes
Microphase, Janifast and Hart Telephone have the ability to fulfill their
obligations to the Company without further support from the Company.
Transactions with Officers, Directors and their Affiliates
Directors that are significant shareholders of Janifast Limited include
Messrs Ronald A. Durando, Gustave T. Dotoli, and Necdet F. Ergul.
During the six months ending December 31, 2004, accounts payable in the
amount of $ 250,000 owed by mPhase to MicroPhase Corporation was cancelled in
exchange for the 1,250,000 shares of common stock and a like number of 5 year
warrants to purchase shares at $.25 a share. In addition, Janifast Ltd cancelled
@ 200,000 of accounts payable owed by mPhase in exchange for 1,000,000 of common
stock and a like number of 5 year warrants to purchase shares at $.25 a share.
In December, a demand not payable to Martin Smiley and accrued interest, CFO
and General Counsel of mPhase, in the amount of $75,000 and $9,975,
respectively, was converted into 424,875 shares of common stock plus a like
amount of warrants to purchase an additional share at $.25 per share.
Mr. Ronald Durando converted $ 13,000 of accrued and unpaid interest into
65,000 shares of stock plus a like amount of warrants to purchase an additional
share at $.25 per share. Additionally, Mr. Durando converted $ 13,954 of
principal in a $ 75,000 note into cash and utilized this cash to purchase
1,395,400 shares of common stock. This purchase was made upon exercise of
1,395,400 warrants entitling purchase of a share $.01 per share pursuant to a
previous award granted to Mr. Durando for unpaid compensation.
Mr. Gustave Dotoli, Chief Operating Officer of the Company, $3,750 of accrued
and unpaid interest on a $ 75,000 note into 375,000 shares of stock plus a like
amount of warrants to purchase an additional share at $.25 per share. Mr.
Gustave Dotoli, Chief Operating Officer of the Company, converted $ 3,750 of
accrued interest on a $ 75,000 note into cash and utilized this cash to purchase
375,000 shares of common stock. This purchase was made upon exercise of 375,000
warrants entitling purchase of a share $.01 per share pursuant to a previous
award granted to Mr. Dotoli for unpaid compensation.
In January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock.
On October 8, 2004, Mr. Durando agreed to lend the Compnay $75,000 and the
Company issued a demand note for such amount at 12% interest.
On September 30, 2004, Mr. Durando agreed to lend the Company $175,000 and
the Company issued a demand note for such amount at 12% interest.
On September 28, 2004, Mr. Durando agreed to lend the Company $75,000 and the
Company issued a demand note for such amount at 12% interest.
On August 30,2004, Mr. Durando agreed to lend the Company $200,000 and the
Company issued a demand note for such amount at 12% interest.
On August 30, 2004, Messrs. Dotoli and Smiley each agreed to lend the Company
$75,000 and the Company issued two demand notes for such amount at 12% interest.
Mr. Smiley also invested $25,000 in the Company's August Private Placement
receiving 100,000 shares of the Company's common stock valued at $.25 per share
plus a 5 year warrant to purchase an additional 100,000 shares of common stock
at $.25 per share.
On July 25, 2004, Mr. Smiley agreed to convert his 12% convertible promissory
note for $100,000 that had matured into a demand promissory at the same interest
rate with interest payable quarterly, in arrears.
On November 11, 2002 and November 12, 2002, the Company issued warrants to
purchase 2,491,080 shares of common stock of the Company which were valued at
$480,917 or $.193 per share with an exercise price of $.01 per share for the
cancellation of unpaid compensation to two officer's of the Company as of
October 14, 2002.
In March of 2003, Messrs, Durando, Dotoli and Smiley participated in a
private placement of the company investing $20,000, $20,000 and $75,000
respectively, receiving common stock of mPhase at $.30 per share plus 5 year
warrants of mPhase to purchase a like amount of common stock at $.30 per share.
In March of 2003, Messrs. Durando the CEO and President and Smiley the CFO
and General Counsel of the Company lent the Company $30,000 and $100,000
respectively evidenced by two promissory notes bearing interest at 12% per annum
due in September of 2003. As of June 30,2003 the Company prepaid Mr. Durando's
promissory note in full together with accrued interest. In June 2003, Mr. Smiley
agreed to extend his note until July, 2004. Also in June, 2003, Microphase
agreed to convert $360,000 of accounts payable to a note payable, interest at
12%, due in July, 2004. The notes have provisions for prepayment by the Company,
and, at the option of the holder, provide for the conversion of unpaid principal
and interest into units valued at $.30 each, each unit consisting of one share
of the Company's common stock and a one warrant to purchase the Company's common
stock at $.30 per share for a period of 5 years.
Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli, our Chairman, Chief
Executive Officer and Chief Operating Officer, respectively, are executive
officers and shareholders of Microphase and Ronald Durando and Gustave T. Dotoli
are president and vice- president of PacketPort.com., respectively.
On November 26, 1999, Mr. Durando acquired, via a 100% ownership of
PacketPort, Inc., a controlling interest in Linkon Corporation, now known as
PacketPort.com, Inc. On November 26, 1999, PacketPort, Inc., a company owned
100% by Mr. Durando, acquired controlling interest in Linkon Corp., which
subsequently changed its name to PacketPort.com, Inc. In connection with this
transaction, Mr. Durando transferred 350,000 shares of our common stock to
PacketPort, Inc.
Mr. Michael McInerney, an outside Director, is employed by Lintel Inc. and
Mr. Abraham Biderman was employed until September 30, 2003 by our former
investment banking firm Lipper & Company.
In July 2000, mPhase added a member to the Board of Directors
who is employed by an investment-banking firm that has assisted and is expected
to continue to assist the Company in raising capital through private financing.
During the year ended June 30, 2001, the Company issued 140,350 shares of common
stock for investment banking services rendered during the period and recorded an
additional $69,000 of fees which is included in accrued expenses at June 30,
2001.
Abraham Biderman became a member of our Board in August 2000. Mr. Biderman is
the Executive Vice President of Lipper & Company, L.P., which received a total
of 265,125 shares of common stock for its services as a placement agent for our
May 2000, September 2000 and January 2001 private placements. In July, 2001 and
November, 2001 Lipper and Company received 138,000 shares and 300,000 shares in
additional common stock in mPhase for services rendered to the Company as
placement agent in a Private Placement and for general investment banking and
financial advice services.
In September 2001, certain of our officers and directors purchased an
aggregate of 2,000,000 shares of common stock for an aggregate investment of
$1,000,000. Theseissuances included 1,000,000 shares to Mr. L. Barton, a
director at that time, for an investment of $500,000; 400,000 shares to Mr.
Ronald A. Durando, the Company's president and a director, for an investment of
$200,000; 400,000 shares to Mr. Gustave Dotoli , the Company's vice-president
and a director, for an investment of $200,000; and; 200,000 shares to Mr. Martin
S. Smiley, the Company's vice-president, for an investment of $100,000; and were
exempt pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Act.
For consulting services rendered in connection with the joint venture, the
Company agreed to pay two officers of the Company and a related party $412,400,
which was included on the June 30, 2000 consolidated balance sheet of the
Company. This amount was paid by the Company during the year ended June 30,
2001.
Messrs. Biderman, McInerney and Mr. Anthony Guerino own a relatively small
amount of stock, warrants and options in mPhase Technologies, Inc.
Transactions with Microphase Corporation
On September 28, 2004, Microphase lent to mPhase the sum of $175,000 as
evidenced by a 12% demand promissory note issued from mPhase to Microphase.
mPhase's President and Chairman of the Board of the Company are also
employees of Microphase Corporation. On May 1, 1997, the Company entered into an
agreement with Microphase Corporation, whereby it will use office space as well
as the administrative services of Microphase Corporation, including the use of
accounting personnel. This agreement for fiscal year 2004 was for $10,000 per
month . Microphase Corporation also charges fees for specific projects on a
project-by-project basis. During the year ended June 30, 2004 and for the period
from inception (October 2, 1996) to June 30, 2004, 386,113 and $7,610,639 and
$7,224,526, respectively, have been charged to expense or inventory under these
Agreements and is included in operating expenses in the accompanying
consolidated statements of operations. Management believes that amounts charged
to the Company by Microphase are commensurate to amounts that would be incurred
if outside third parties were used.
The Company is obligated to pay a 3% royalty to Microphase Corporaiton on
revenues from its legacy Traversr DVDDS product andDSL component products.
During the year ended June 30, 2004 such amount equaled $140,123.
At June 30, 2004, approximately $60,000 of undelivered purchase orders remain
outstanding at Microphase Corporation
On February 15, 1997, mPhase entered into a Technology, Patent and Trademark
License Agreement (the "Agreement") with MicroTel (Note 4). The Agreement
permits the Company to utilize the patent and trademark technology of MicroTel
under a licensing arrangement. The Company made payments of $37,500 per month,
commencing June 1, 1997 for technology development. During the period ended June
30, 1997 and 1998, $37,500 and $450,000 had been charged to expense under this
Agreement and is included in licensing fees in the consolidated statement of
operations. As of June 25, 1998, the Company acquired MicroTel and as of that
date this Agreement was no longer in effect.
During the fiscal year ended June 30, 2000, $2,600,000 was advanced to
Microphase in the form of a note, which was repaid by Microphase during the
year. mPhase recorded $39,000 of interest income on this note for the year ended
June 30, 2000.
The Company is obligated to pay a 3% royalty to Microphase on revenues from
its proprietary Traverser Digital Video and Data Delivery System and DSL
component products. During the years ended June 30, 2001, 2002 and 2003 mPhase
recorded royalties to Microphase totaling $297,793, $78,762 and $47,304,
respectively.
Pursuant to a debt conversion agreement between the Company and Microphase
for the year ended June 30, 2001, Microphase received 1,278,000 shares of mPhase
common stock. For the year ended June 30, 2002, in consideration for a direct
investment of $100,000 and pursuant to debt conversion agreements, Microphase
received 2,900,000 shares of mPhase common stock and warrants to purchase
2,200,000 mPhase common stock in connection with the cancellation of $740,000 of
outstanding liabilities.
During the fiscal year ended June 30, 2003 Microphase received 4,033,333
shares of common stock plus five year warrants to purchase 1,000,000 shares of
common stock of mPhase at $.30 per share in exchange for the cancellation of
accounts payable totaling $920,000. As of June 30, 2002, the Company had $92,405
included in other liabilities-related parties in the accompanying consolidated
balance sheet and as of June 30, 2003 $360,000 in notes payable-related parties.
Additionally, at June 30, 2003, approximately $142,000 of undelivered purchase
orders remain outstanding with Microphase.
Transactions with Janifast
Janifast Ltd., a Hong Kong corporation manufacturer, which has produced
components for our prototype Traverser DVDDS product, and may produce such
components for us in the future. Necdet F. Ergul, Ronald A. Durando and Gustave
T. Dotoli are controlling shareholders of Janifast Ltd. with an aggregate
ownership interest of greater than 75% of Janifast Ltd. Mr. Durando is Chairman
of the Board of Directors and Mr. Ergul is a Director of Janifast. During the
year ended June 30, 2004 and for the period from inception to June 30, 2004
respectively, $2,889,609 and $13,581,295 or products and services have been
charged to inventory expense-other liabilities-related parties as long term
liabilities in the consolidated balance sheet as of June 30, 2004. Additionally,
at June 30, 2004, approximately $470,857 of undelivered purchase orders remain
outstanding with Janifast Ltd. and outstanding payables to Janifast Ltd.
amounted to $150,000.
During the year ended June 30,2000, mPhase advanced money to Janifast Ltd.,
which is a related party of which three directors of mPhase are significant
shareholders, in connection with the manufacturing of POTS Splitter Shelves and
DSL component products. As of June 30, 2000, the amount advanced to Janifast was
approximately $1,106,000, which is included in production advances-related
parties on the accompanying balance sheet. There were no such advances as of
June 30, 2001 and June 30, 2002.
Pursuant to a debt conversion agreement between the Company and Janifast Ltd,
for the year ended June 30, 2001, Janifast Ltd received 1,200,000 shares of the
Company's common stock. For the hear ended June 30, 2002, pursuant to debt
conversion agreements, Janifast Ltd. received 3,450,000 shares of mPhase common
stock and warrants to purchase 1,200,000 shares of common stock in connection
with the cancellation of $720,000 of outstanding liabilities. During the year
ended June 30, 2003, Janfiast Ltd. was issued 1,500,000 shares of mPhase common
stock in connection with the cancellation of $360,000 of outstanding liabilities
of mPhase, the value of which was based upon the price of the Company's common
stock on the effective date of the settlement. No gain or loss was recognized in
connection with the conversion by Janifast Ltd. for the fiscal year ended June
30, 2003. During the years ended June 30, 2001, 2002 , 2003 and 2004, and the
period from inception (October 2, 1996) to June 30, 2004,
$8,932,378, $1,759,308, $178,959, $2,771,925 and $13,642,570 respectively, of invoices for
products and services have been charged to inventory or expense-other
liabilities-related parties and long term liabilities in the consolidated
balance sheet. And as of June 30, 2003 no amounts remained payable to Janifast
Ltd.. Additionally, at June 30, 2003, approximately $1,435,000 of undelivered
purchase orders remained outstanding with Janifast Ltd.
Transactions with Lintel, Inc and Affiliates
A member of mPhase's Board of Directors is employed by Lintel, Inc., the
parent corporation of Hart Telephone. The Company has installed its prototype
product and commenced beta testing at Hart Telephone. The Company is currently
installing with 25 customers of Hart Telephone its TV+ solution.
In addition the Company entered into a supply agreement with Hart Telephone
that was to commence upon the completion of beta testing
and commencement of production of its legacy Traverser DVDDS system. In May
2,000, mPhase issued Hart Telephone options to purchase 125,000 shares of mPhase
common stock at an exercise price of $1.00 (valued at $1,010,375), that is
included in research and development expenses in the accompanying statement o
operations as of June 30, 2000. Mr. J. Lee Barton the President and Chief
Executive Officer of Lintel, Inc. (the parent of Hart Telephone), and at such
time Mr. Barton was a Director of mPhase. Mr. Barton received a bonus of
$285,000, a stock award of 140,000 shares and options to acquire an additional
100,000 shares for the year ended June 30,2000 and options to acquire 120,000
shares of mPhase common stock for services as a Director or mPhase for the
fiscal year ended June 30, 2001.
Michael McInerney, one of our directors, is the president of Lintel, Inc. In
fiscal year 2004, Mr. McInerney received 5 year options to purchase 100,000
shares of mPhase common stock at $.45 per share as compensation for his services
as a director.
Transactions with Other Related Parties
In March 2000, mPhase acquired a 50% interest in mPhaseTelevision.Net
(formerly Telco Television Network, Inc.), an incorporated joint venture, for
$20,000. The agreement provided for the grant of warrants to the joint venture
partner, in consideration of the execution of the Joint Venture Agreement, to
purchase 200,000 shares of the Company's common stock for $4.00 per share
(valued at $2,633,400). This non-cash charge was included in general and
administrative expenses in the statement of operations for the year ended June
30, 2000. The fair value of the warrants granted to the joint venture partner as
of the date of grant was based on the Black- Scholes stock option pricing model,
using the following weighted average assumptions: annual expected rate of return
of 0%, annual volatility of 115%, risk free interest rate of 5.85% and an
expected option life of 3 years.
The agreement stipulated for mPhase's joint venture partner, AlphaStar
International, Inc., ("Alphastar"), to provide mPhaseTelevision.Net right of
first transmission for its transmissions of MPEG-2 digital satellite television.
In addition, in March 2000, mPhase loaned the joint venture $1,000,000 at 8%
interest per annum. The loan is repayable to the Company from equity infusions
to the subsidiary, no later than such time that mPhaseTelevision.Net qualifies
for a NASDAQ Small Cap Market Listing. During April 2000, the Company acquired
an additional 6.5% interest in mPhaseTelevision.Net for $1,500,000. As of June
30, 2003 mPhase owns a 56.5% interest in mPhaseTelevision.net. The Company
terminated the lease of the earth station for business reasons, and there was no
material impact on mPhaseTelevision.net's operating activities.
Pursuant to an agreement dated as of June 18, 2002, mPhaseTelevision.Net has
terminated its lease of the earth station and Alphastar and its affiliated
entity have converted certain accounts payable into shares of the Company's
common stock.
Additionally, under this Agreement, mPhase is obligated to pay Alphastar and
its affiliates $35,000, which is included in amounts due to related parties in
the consolidated balance sheet as of June 30, 2003.
During the fiscal years ended June 30, 2002, 2003 and 2004, the joint venture
was charged $64,039, $0 and $0, respectively for fees and costs by its joint
venture partner and its affiliates.
Transactions with Strategic Vendors
Transactions with Other Significant Beneficial Owners of mPhase Common Stock
and Warrants
As of June 30, 2004, the Company was approximately $473,787 in arrears with
respect to a Promissory Note issued to Piper Rudnick LLP plus other legal fees
of $118,773. It should be noted that Piper & Rudnick received such Promissory
Note plus two warrants received in March of 2002 in exchange for cancellation of
certain payables. Such warrants have conversion rights into our common stock for
a total of 2,233,490 shares that have been registered under a recently effective
Form S-1 Registration Statement, and are cashless. On September 3, 2003, the
Company paid $100,000 in cash to Piper in exchange for reducing the total
payable to $550,000 plus the issuance of additional cashless warrant for
$150,000 worth of the Company's common stock valued at $.25 per share. The
remaining $300,000 payable has the following future payment schedule
:
1. Payments of $25,000 each on December 1, 2004, March 1, 2005, June 1, 2005,
September 1, 2005, March 1, 2006, June 1, 2006 and September 1, 2006.
2. A payment of $50,000 on December 1, 2005
3. A payment of $75,000 due on December 1, 2006
On February 18, 2004, the Company entered into an Agreement with Georgia Tech
Applied Research Corporation and Georgia Tech Research Corporation (collective "GTRC")
to settle a payable of approximately $1.8 million pursuant to the issuance of a
warrant convertible into 5,069,200 shares of the Company's common stock on a
cash-less basis plus a note for $100,000 payable over a 18 month period of
installments of $16,667 per quarter. The Company is presently renegotiating the
amount and payment terms of the Note with GTRC since the Note covered certain
licensing fees for patents that the Company may determine are not necessary in
connection with its TV platforms going forward.
Effective March 31, 2002, the Company converted $420,872 of liabilities due
to Piper Rudnick LLP, outside legal counsel to mPhase into a warrant to purchase
up to a total of 1,683,490 shares of the Company's common stock which pursuant
to EITF 96-18, has an approximate value of $.30 per share; and a warrant to
purchase 550,000 shares of the Company's common stock at an exercise price of
$.30 per share pursuant to the terms of payment agreement. In addition, Piper
agreed to accept a Promissory Note for $420,872 of current payables at an
interest rate of 8% with payments of $5,000 per month commencing June 1, 2002
and continuing through December 1, 2003, with a final payment of principal plus
accrued interest due at maturity on December 31, 2003. As of August 11, 2003 the
Company is $35,000 in arrears with respect to the $5,000 per month payment of
the Promissory Note. On December 31, 2003, the Company became in arrears with
respect to $420,872 of a balloon payment on a Note payable to its outside Law
Firm, Piper & Rudnick LLC. The Company is in discussion with respect to such law
firm to extend and/or cancel all or portions of this debt. It should be noted
that Piper & Rudnick hold warrants received in March of 2001 in exchange for
cancellation of certain payables. Such warrants have conversion rights into our
common stock for 2,233,490 shares that are being registered hereunder (see
Selling Shareholders list-page 65 hereof) and are cashless. Such warrants could
be exercised shares of our common stock which could then be sold in the open
market upon the effectiveness of this Registration Statement on Form S-1 in the
open market to recover our outstanding payable. See also Risk Factor Section on
Page 8 hereof.
On October 14, 2002, the Company entered into a memorandum on intention with
Georgia Tech Research Corporation (GTRC) and its affiliate, Georgia Tech Applied
Research Corporation (GTARC), which memorandum was revised on November 12, 2002
and in October of 2003 and is subject to the approval of the respective board of
directors of the parties thereto and the exchange of mutual releases. The
memorandum provides for the settlement of any and all amounts outstanding to
GTRC and GTARC in consideration of the issuance of warrants to purchase
5,069,242 shares of the Company's common stock at $.01 per share (with a
cashless exercise right) in exchange for cancellation of an approximately $1.3
million portion of the Company's accounts payable. In addition the Company would
issue a term promissory note in the principal amount of $674,235 with interest
at prime+1% and varied payments through 2008 in exchange for cancellation of an
account payable by the Company in an same amount. The non-current amount of two
promissory notes plus two warrants that were part of the proposed transaction as
originally negotiated and as reflected in the memorandum of November 12, 2002
are reflected on the balance sheet dated June 30, 2003 as long-term debt and
other liabilities for the amounts that were expected on June 30, 2003 to be
converted to the two promissory notes payable and the warrants respectively. As
of February 12, 2004 we are finalizing an agreement to convert all of such
payables, approximating $1.8 million and including amounts reflected as Notes
Payable as of June 30, 2003 and September 30, 2003, into a warrant convertible
into our Common Stock on a cashless basis of approximately $.35 per share. This
agreement is still subject to final execution of legal documentation by GTRC.
Effective June 30, 2001 the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements. During the fiscal year ended June
30, 2002 certain strategic vendors and related parties converted approximately
$2.7 million of accounts payable and accrued expenses into 7,492,996 shares of
the Company's common stock and 5,953,490 warrants. During the twelve months
ending June 30, 2003, certain strategic vendors and related parties converted
approximately $1.9 million of accounts payable and accrued expenses into
5,923,333 shares of the Company's common stock and warrants to purchase
3,706,800 shares of common stock of mPhase. . Such vendors include Microphase
Corporation, Janifast, Ltd., and Strategic Vendors including Piper Rudnick LLP,
mPhase's outside counsel. Conversions with related parties only consisted of the
following:
For the Six Months
Ended December 31,
For the Years Ended June 30,
(Unaudited)
Equity
    Conversions of
2002
2003
2004
2003
2004
Debt and
    Other
Financial
    Instruments
with Related
    Parties
Janifast
Number of shares
3,450,000
1,500,000
0
0
1,000,000
Number of
    warrants
1,200,000
0
0
0
1,000,000
Amount converted
    to
$720,000
$360,000
$0
$0
$200,000
equity
Microphase
Corporation
Number of shares
2,700,000
4,033,333
0
0
1,250,000
Number of
    warrants
2,200,000
1,000,000
0
0
1,250,000
Amount converted
    to
$740,000
$920,000
$0
$0
250,000
equity
Lintel
    Corporation and
Affiliates
Number of shares
0
0
0
0
Number of
    warrants
0
0
0
0
Amount converted
    to
$0
$0
$0
$0
equity
Officers
Number of shares
333,334
0
0
489,875
Number of
    warrants (A)
333,334
2,491,800
0
489,875
Amount converted
    to
$103,000
$480,967
$0
97,975
equity
Joint Venture
    Partner
and Affiliates
Number of shares
63,216
0
0
0
Number of
    warrants
0
0
0
0
Amount converted
    to
$31,628
$0
$0
$0
equity
Total Related
    Party
Conversions
Number of shares
6,546,550
5,533,333
0
2,739,875
Number of
    warrants
3,733,334
3,491,800
0
2,739,875
Amount converted
    to
$1,594,628
$1,760,967
$0
547,975
equity
(A)
    Includes $12,206 settlement expense incurred to the Company's President and
    Vice President in connection with the exchange of warrants to purchase the
    company's common stock to cancel unpaid compensation, which is included as a
    reduction to gain on Settlements in fiscal 2003.
SELLING STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of shares of common stock by the selling stockholders as of
the date of this prospectus, and the number of shares of common stock covered by
this prospectus. Except as otherwise noted below, none of the selling
stockholders has held any position or office, or has had any other material
relationship with us or any of our affiliates within the past three years.
The number of shares of common stock that may be actually purchased by
certain selling stockholders under the warrants and the number of shares of
common stock that may be actually sold by each selling stockholder will be
determined by such selling stockholder. Because certain selling stockholder may
purchase all, some or none of the shares of common stock which can be purchased
under the warrants and each selling stockholder may sell all, some or none of
the shares of common stock which each holds, and because the offering
contemplated by this prospectus is not currently being underwritten, no estimate
can be given as to the number of shares of common stock that will be held by the
selling stockholders upon termination of the offering. The information set forth
in the following table regarding the beneficial ownership after resale of shares
is based on the basis that each selling stockholder will purchase the maximum
number of shares of common stock provided for by the warrants owned by the
selling stockholder and each selling stockholder will sell all of the shares of
common stock owned by that selling stockholder and covered by this prospectus.
Maximum Number of
NAME
Beneficial Shares
Shares Being Offered
Note
ACE FOUNDATION
250,000
250,000
A-1
ADVISOR ASSOCIATES
600,000
600,000
A-2
AIELLO, ROSE
2,000
2,000
A-3
ALEXANDER HASENFELD INC. PROFIT
    SHARING AND RETIREMENT PLAN
364,841
364,841
A-4
ALEXANDER HASENFELD, INC.
83,334
83,334
A-5
AMATO, SALVATORE
500,000
500,000
A-6
ANDERSON, JAMES RONALD
45,500
45,500
A-7
ANNESE, DAVID E.
600,000
600,000
A-8
AREIVIM - SHMUEL GLUCK - DIRECTOR
900,000
900,000
A-9
ASHFORD, ALEXANDER WOODSON, MD
5,000
5,000
A-10
ASHFORD, CLINTON B.
15,000
15,000
A-11
ASPIOTES, NICHOLAS
100,000
100,000
A-12
ASPIOTES, NICHOLAS & ASPIOTES, NANCY
1,330,000
1,330,000
A-13
ASSURED MORTGAGE LENDERS, INC.
83,334
83,334
A-14
BALMORE S.A.
75,000
75,000
A-15
BANDMAN, SHIMSON Z
500,000
500,000
A-16
BARTON, J. LEE
545,000
545,000
A-17
BERNARD, ADRIENNE
46,000
46,000
A-18
BETH MAYER ASSOCIATES
1,333,160
1,333,160
A-19
BIDERMAN, ABRAHAM
385,000
385,000
A-20
BOGART, STEVEN & FRANCINE (JT W/ROS)
25,000
25,000
A-21
BOLLETTIERI, ANGELA
134,500
134,500
A-22
BOWES, JOHN
5,000
5,000
A-23
BRANDT, JOHN
19,000
19,000
A-24
BRIZELLIFSHITZ, DAVID
25,000
25,000
A-25
BURNETT, ANDREW
44,000
44,000
A-26
CAMEALJON FAMILY LTD PARTNERSHIP
70,000
70,000
A-27
CAPASSO, STEPHEN
54,500
54,500
A-28
CASTELLI, CHARLES
2,000
2,000
A-29
CHABAD COLEL
3,000,000
3,000,000
A-30
CHAIM SHOLOM & SARAH R. BABAD
166,667
166,667
A-31
CHAIM, SHAREI
428,334
428,334
A-32
CHANCELLOR APARTMENTS
333,334
333,334
A-33
CHAYA SHAFRAN & SALLY FRENKEL
20,000
20,000
A-34
CHENG, TOMMY
1,018,250
1,018,250
A-35
Maximum Number of
NAME
Beneficial Shares
Shares Being Offered
Note
CHIODO, FRANK
44,000
44,000
A-36
CHITRIK, JOSEPH
10,000
10,000
A-37
CHUN, CHHARM
2,000
2,000
A-38
CONGREGATION IRGUN SHIURAI TORAH
400,000
400,000
A-39
CONGREGATION KHAL BREZNA, INC.
42,000
42,000
A-40
CONGREGATION OF NEW SQUARE
400,000
400,000
A-41
CONGREGATION SHAREI CHAIM
1,262,500
1,262,500
A-42
CONGREGATION SHARIT HAPLETA
75,000
75,000
A-43
COOKE, AMY
2,000
2,000
A-44
COONS, MARY E.
1,000,000
1,000,000
A-45
CORNELIO, DONALD
2,000
2,000
A-46
CRUZ, ARTURO
2,000
2,000
A-47
CUSICK, MICHAEL
450,000
450,000
A-48
DAVID FARBER & DEBORAH FARBER JTWROS
475,000
475,000
A-49
DAVIS, JR., PAUL L.
5,000
5,000
A-50
DEHASSE, ROGIER
100,000
100,000
A-51
DENNIS, THOMAS
2,000
2,000
A-52
DEVLIN, MICHAEL
775,000
775,000
A-53
DIAZ, RUBEN
2,000
2,000
A-54
DIPACE, JR., JOHN M.
300,000
300,000
A-55
DOTOLI CHARITABLE REMAINDER TRUST
195,000
195,000
A-56
DOTOLI, FRANKLIN
50,000
50,000
A-57
DOTOLI, GUSTAVE
5,773,600
5,773,660
A-58
DOUBLE U MASTER FUND L.P.
2,000,000
2,000,000
A-59
DURANDO CHARITABLE REMAINDER TRUST
695,000
695,000
A-60
DURANDO INVESTMENT LLC
1,396,148
1,396,148
A-61
DURANDO, RONALD
9,043,234
9,043,234
A-62
EDWARDS, T.W. JR.
100,000
100,000
A-63
ENGLARD, TZVI
50,000
50,000
A-64
ERGUL, NECDET
2,141,250
2,141,250
A-65
ESCHEL
500,000
500,000
A-66
ESQUIRE TRADE & FINANCE
333,334
333,334
A-67
ESTATE OF GEORGE SILCOTT
41,667
41,667
A-68
ESTATE OF JAMES VIADELLA
19,000
19,000
A-69
ESTATE OF KIN CHAU
159,500
159,500
A-70
EVANGELISTA, EVERETTE
2,000
2,000
A-71
EXHIBIT CRAFTS
332,669
332,669
A-72
F&N ASSOCIATES
435,269
435,269
A-73
FARBER, DAVID
660,000
660,000
A-74
FENMORE HOLDINGS LLC
2,142,858
2,142,858
A-75
FIE, CATHERINE
2,000
2,000
A-76
FILAKOVSK, JOHN
2,000
2,000
A-77
FIRST MEDIA GROUP
75,000
75,000
A-78
FIRST MONTAUK FINANCIAL CORP.
444,336
444,336
A-79
FISERV SECURITIES
33,333
33,333
A-80
FISHER, MAYER
90,000
90,000
A-81
FLINT, SUE
27,000
27,000
A-82
FOX, HARRY
43,000
43,000
A-83
FRIEDMAN, MORRIS
3,200,000
3,200,000
A-84
FUCHS, ROBERTA I.
440,000
440,000
A-85
GASPARINI, PETER
254,500
254,500
A-86
GAVRITY, CAMILLE
20,000
20,000
A-87
GEMILAS CHESED ACH TOV
150,000
150,000
A-88
Georgia Tech Research Corporation
4,949,684
4,949,684
A-89
GIDAS, PETER
45,000
45,000
A-90
GIDAS, PETER & GIDAS, CINDY
730,000
730,000
A-91
GOLDEN, BRUCE & MARIA
50,000
50,000
A-92
GOLDEN, HYMAN & MILDRED
50,000
50,000
A-93
GOLDENBURG, LEON
966,667
966,667
A-94
GREENBERG FAMILY FUND, THE
125,000
125,000
A-95
Maximum Number of
NAME
Beneficial Shares
Shares Being Offered
Note
GRENVILLE FINANCE LTD.
500,000
500,000
A-96
GRONNER, SAM
50,000
50,000
A-97
GUARDINO, TORRY
105,500
105,500
A-98
GUERINO, ANTHONY
527,500
527,500
A-99
HART, JEAN
2,000
2,000
A-100
HASENFELD STEIN, INC.
266,459
266,459
A-101
HASENFELD STEIN, INC., PENSION TRUST
426,858
426,858
A-102
HASENFIELD, ALEXANDER
57,144
57,144
A-103
HEIMAN, S.
203,335
203,335
A-104
HSI PARTNERSHIP
319,167
319,167
A-105
HSU, EDDIE
5,000,000
5,000,000
A-106
HUANG, LEE
25,000
25,000
A-107
HURD, STEVEN
2,000
2,000
A-108
HUYNH, AN
2,000
2,000
A-109
IBER INTERNATIONAL LTD.
6,671,429
6,671,429
A-110
INVESTEC
150,000
150,000
A-111
IRGUN SHIURAI TORAH
2,010,000
2,010,000
A-112
JAFFE, ROBERT
86,000
86,000
A-113
JANIFAST LTD.
10,550,000
10,550,000
A-114
JEURKAR, SHRIRANG
151,492
151,492
A-115
KAREN AND RONALD DURANDO CHARITABLE
    FOUNDATION
530,000
530,000
A-116
KAUFMAN BROTHERS
250,000
250,000
A-117
KENNEDY, PAUL
78,068
78,068
A-118
KENTUCKY NATIONAL INSURANCE COMPANY
119,644
119,644
A-119
KESHET FUND, L.P., THE
15,625
15,625
A-120
KESHET, L.P.
21,875
21,875
A-121
KIVELL, BRITTA
89,500
89,500
A-122
KLEIN, MERVYN
1,933,334
1,933,334
A-123
KLIMEK, DAVID
424,500
424,500
A-124
KLINE, RICHARD
50,000
50,000
A-125
KOVACS, OLIVER
50,000
50,000
A-126
KOWALKOWSKI, SONIA
2,000
2,000
A-127
LAYCHAK, FRANCIS
2,000
2,000
A-128
LEBED AND LARA, LLC
100,000
100,000
A-129
LEBED, JOHN
175,000
175,000
A-130
LEE, RONNIE
2,000
2,000
A-131
LEVAL TRADING
50,000
50,000
A-132
LEVIN, CHANNA
1,000,000
1,000,000
A-133
LEVITANSKI, MOSHE
175,000
175,000
A-134
LEVITANSKI, RIVKAH
1,000,000
1,000,000
A-135
LEVY, ROGER
25,000
25,000
A-136
LIFTON, VICTOR
100,000
100,000
A-137
LINCOLN TRUST COMPANY
500,000
500,000
A-138
LINTEL CORP
694,000
694,000
A-139
LIPPER & COMPANY. L.P.
20,000
20,000
A-140
LLB HOLDINGS
15,000
15,000
A-141
LOEWY, ROBERT
120,000
120,000
A-142
LUZZI, JAMES
80,000
80,000
A-143
MAI, MANNY
2,000
2,000
A-144
MANELA, NAFTALI
450,000
450,000
A-145
MARCINIAK, NORA
2,000
2,000
A-146
MARY PARK PROPERTIES
8,185,526
8,185,526
A-147
MATHEWS, BOYD
50,000
50,000
A-148
MATHEWS, KIM
50,000
50,000
A-149
MCCARTHY, JOHN
115,000
115,000
A-150
MCCARTHY, TIMOTHY
650,000
650,000
A-151
MCINERNY, MICHAEL
385,500
385,500
A-152
M-COM
30,000
30,000
A-153
MEDEIROS, ANA CLAUDIA
300,000
300,000
A-154
MEEK, MICHAEL
75,000
75,000
A-155
Maximum Number of
NAME
Beneficial Shares
Shares Being Offered
Note
MESIVTA OF LONG BEACH
300,001
300,001
A-156
METELITSA, ANGELA
6,000
6,000
A-157
MICROPHASE
14,966,686
14,966,686
A-158
MILLER, JEROME
66,668
66,668
A-159
MILLER, PHYLLIS
70,000
70,000
A-160
MILLER, WAYNE
200,000
200,000
A-161
MITRO, LORETTA
89,750
89,750
A-162
MJN ENTERPRISE, INC.
41,667
41,667
A-163
MOISE, BAIS YAAKOV
390,000
390,000
A-164
MOSHEL, AVROHAM
1,766,668
1,766,668
A-165
MUELLER, MARK
110,200
110,200
A-166
MURRAY HUBERFELD DAVID BODNER
    PARTNERSHIP
2,000,000
2,000,000
A-167
NELSON, TODD
255,500
255,500
A-168
NESHER LIMITED
125,000
125,000
A-169
NEUBART, GARRETT S.
266,667
266,667
A-170
NGUYEN, HENRY
2,000
2,000
A-171
NHOK, CHIN
2,000
2,000
A-172
NUELLE, FRANK
2,000
2,000
A-173
ONE STOP SYSTEMS INC
227,719
227,719
A-174
OSTRANDER, JAN
550,751
550,751
A-175
PAGLIUCA, VINCENT
2,000
2,000
A-176
PARIELLO, LINDA
74,750
74,750
A-177
PARK, CANDACE
50,000
50,000
A-178
PARNES, CHAIM S.
250,000
250,000
A-179
PATEL, NISHA
2,000
2,000
A-180
PATH, SOVANN
2,000
2,000
A-181
PATRICIA AND GUSTAVE DOTOLI CHARITABLE
    FOUNDATION
277,500
277,500
A-182
PELLEGRINO, ERNEST
203,976
203,976
A-183
PETERKIN, TERESA
39,000
39,000
A-184
PETERSON, EDA
125,000
125,000
A-185
PETERSON, JEFFREY
2,000
2,000
A-186
PETREGLIA, CHRISTINE
15,000
15,000
A-187
PETTINELLI, JAMES
2,000
2,000
A-188
PIPER MARBURY RUDNICK
2,233,490
2,233,490
A-189
PLATINUM PARTNERS GLOBAL MACRO FUND
566,668
566,668
A-190
PLATINUM PARTNERS LONG TERM GROWTH
    FUND
2,500,000
2,500,000
A-191
POVOLOTSKY, MAXIM
10,000
10,000
A-192
PROPERTY TAX APPEALS II, LLC
41,667
41,667
A-193
PSCHERAHOFER, GEORGE
42,000
42,000
A-194
PUTNAM, WALTER F.
20,000
20,000
A-195
RAAB, SAMUEL
455,000
455,000
A-196
RAFAEL, ALAN
50,000
50,000
A-197
RANDAZZO, JOHN
69,500
69,500
A-198
RAYMOND, BRITTANY
67,750
67,750
A-199
REB EPHRAIM CHAIM & MIRIAM RACHEL
    KLEIN CHARITABLE FOUNDATION
2,825,000
2,825,000
A-200
REUTER, BRIAN
50,000
50,000
A-201
REVA ENTERPRISES
35,468
35,468
A-202
ROBBINS, MICHAEL
30,000
30,000
A-203
ROBERTS, BEVERLY
40,000
40,000
A-204
RODRIGUEZ, CARLOS
2,000
2,000
A-205
ROMANO, REGINA
41,667
41,667
A-206
ROOZ, MAYER
2,000
2,000
A-207
ROSENBERG, DAVID
180,000
180,000
A-208
ROSENTHAL, ELIEZER M.
1,433,334
1,433,334
A-209
ROSENTHAL, ELIEZER M. AND SHAYNIE
900,000
900,000
A-210
ROSENTHAL, JUDY
400,000
400,000
A-211
RUDDER, RICHARD & CYNTHIA
308,335
308,335
A-212
RUTGERS CASUALTY INSURANCE COMPANY
751,550
751,550
A-213
RUTGERS ENHANCED INSURANCE COMPANY
779,050
779,050
A-214
RYLANDER, SANDY
2,000
2,000
A-215
Maximum Number of
NAME
Beneficial Shares
Shares Being Offered
Note
SABIA, WILLIAM
2,000
2,000
A-216
SANDBERG, JUDITH
2,000
2,000
A-217
SANTIAGO, JUDITH
2,000
2,000
A-218
SARNO, GIULIA
2,000
2,000
A-219
SATTA, CAROLYN
2,000
2,000
A-220
SCARI, STEVEN
350,000
350,000
A-221
SCHOEMAKER, HOWARD
54,000
54,000
A-222
SCHOTTENSTEIN, JAY L., TRUSTEE
62,500
62,500
A-223
SCHUHALTER, COUGHLIN & SUOZZO, P.C.
1,085,800
1,085,800
A-224
SEMINORO, JOSEPH
2,000
2,000
A-225
SHEA, COLLEEN
25,000
25,000
A-226
SHEBAR, KEVIN J.
16,334
16,334
A-227
SICILIANO, ANTHONY
204,500
204,500
A-228
SILCOTT, JENNIFER
318,918
318,918
A-229
SIM, SOKPHON
2,000
2,000
A-230
SIMON, STEVE
500,000
500,000
A-231
SINGALIESE, MICHAEL
170,500
170,500
A-232
SINICOLA, JOSEPHINE
2,000
2,000
A-233
SIU, STEVEN
114,750
114,750
A-234
SLOMOVICS, ABRAHAM
146,000
146,000
A-235
SMILEY, MARTIN
5,676,132
5,676,132
A-236
SMITH, DAVID REVOCABLE LIVING TRUST
46,667
46,667
A-237
SMITH, DAVID REVOCABLE LIVING TRUST
426,667
426,667
A-238
SNYDER, BERRIN
75,000
75,000
A-239
SPENCER, RICHARD
260,000
260,000
A-240
SPIELMAN, MARK
79,500
79,500
A-241
SPITZER, MICHAEL
118,000
118,000
A-242
STEIN, NACHUM
1,343,365
1,343,365
A-243
STEIN, NACHUM & FEIGE
30,000
30,000
A-244
STEIN, S.
50,000
50,000
A-245
STEIN, YAKOV
240,000
240,000
A-246
STERNFELD, MURRAY
2,835,500
2,835,500
A-247
STUNKEL, DAVID
2,000
2,000
A-248
SULLIVAN, PAUL
2,000
2,000
A-249
SUTTER, ED
50,000
50,000
A-250
SYNDER, BERRIN
2,000
2,000
A-251
TABOLA, MICHAEL
125,000
125,000
A-252
TACOPINO, COSIMO
500,000
500,000
A-253
TALBIYA B. INVESTMENTS LTD.
3,125
3,125
A-254
TEITELBAUM, JOSHUA AND HELEN
750,000
750,000
A-255
TEMEL, SELIM
2,000
2,000
A-256
TENNENHAUS, EDMUND
1,000,000
1,000,000
A-257
THE SINAI HERITAGE
60,000
60,000
A-258
THOMPSON, KATHY
2,000
2,000
A-259
THOMPSON, PHIL
450,000
450,000
A-260
THORNE, DANIEL K.
125,000
125,000
A-261
TOCI, FATMIR
125,500
125,500
A-262
TOWER 50 PARTNERS L.P.
6,000,000
6,000,000
A-263
TRAUT, FRED
270,500
270,500
A-264
TURCHAN, THEODORE
240,000
240,000
A-265
TURCHAN, THEODORE & TURCHAN, EILEEN
400,000
400,000
A-266
VIADELLA, SHIRLEYANNE
2,000
2,000
A-267
WARRENFELDS, MEL
29,000
29,000
A-268
WASHBURN, E.R.
50,000
50,000
A-269
WEC PARTNERS LLC
166,668
166,668
A-270
WEI, JAMES
2,000
2,000
A-271
WEINBERGER, GEORGE
4,672,900
4,672,900
A-272
WEISS, HENRY
10,000
10,000
A-273
WEITMAN, YITZCHAK
65,000
65,000
A-274
WELZ, SIDNEY
250,000
250,000
A-275
Maximum Number of
NAME
Beneficial Shares
Shares Being Offered
Note
WENG, XIAOXI
2,000
2,000
A-276
WERDIGER FAMILY FOUNDATION INC.
1,462,500
1,462,500
A-277
WERDIGER, SOL
80,000
80,000
A-278
WESCO, INC.
333,334
333,334
A-279
WESTROCK ADVISORS
1,500,000
1,500,000
A-280
WHELAN, MARY K.
550,000
550,000
A-281
WHITE, THEODORE
2,000
2,000
A-282
WHITWORTH, JOHN
91,667
91,667
A-283
WILFORD, PAUL
50,000
50,000
A-284
WILLIAMS, JOHN
2,000
2,000
A-285
WILLIS, HAL
155,000
155,000
A-286
WILLOUGHBY, VICTORIA
10,000
10,000
A-287
WOLF, HIRSCH
12,500
12,500
A-288
WOLFSON EQUITIES
4,883,334
4,883,334
A-289
WOLFSON, AARON
950,000
950,000
A-290
WOLFSON, ABRAHAM
200,000
200,000
A-291
WOLFSON, MORRIS
300,000
300,000
A-292
WOLKOW, ALLEN & SHEILA
20,000
20,000
A-293
YADRE, STEPHEN
78,000
78,000
A-294
YESHIVA D'VAR TORAH
70,000
70,000
A-295
YMSF FAMILY PARTNERSHIP
54,000
54,000
A-296
YOHO, MICHAEL
14,908
14,908
A-297
YU, CHRIS
50,000
50,000
A-298
ZADROVICZ, ROBERT
2,000
2,000
A-299
TOTAL
178,046,810
178,046,810
Mr. Biderman, Mr. Guerino, and Mr. McInerny are directors of
  our Company.
Mr Smiley is Executive Vice President, Chief Financial
  Officer, and General Counsel of our Company. Total shares include 400,000
  shares plus a warrant to purchase 400,000 additional shares of common stock at
  $0..25 per share expiring 5 years from receipt upon the election to convert a
  $100,000 promisory note of the Company bearing interestat 12% per annum
  scheduled to mature July 25, 2005.
Mr Durando, CEO of our Company, , Mr. Ergul, Chairman of the
  Board of our Company, and Mr. Dotoli, COO of our Company, are controlling
  shareholders of Janifast Ltd. With aggregate ownership interest of greater
  than 65% of Janifast Ltd.
Mr. Ergul, Chairman of the Board of the Company, is a majority
  shareholder of Mircophase Corporation.
Mircophase Corporation Total includes 600,000 shares plus a
  warrant to purchase 600,000 additional shares of common stock at $0.30 per
  share expiring 5 years from receipt upon the election to convert a $180,000
  promisory note of the company bearing interest at 12% per annum.
Mr. Durando is the controlling shareholder of the Durando
  Charitable Remainder Trust and the Karen and Ronald Durnado Charitable
  Foundation.
Mr. Dotoli is the controlling shareholder of the Dotoli
  Charitable Remainder Trust and the Patriica and Gustave Dotoli Charitable
  Foundation.
(A-1) Includes no warrants or options.
(A-2) Includes warrants to purchase up to
    500,000 shares of common stock.
(A-3) Includes no warrants or options.
(A-4) Includes warrants to purchase up to
    201,983 shares of common stock.
(A-5) Includes warrants to purchase up to
    66,667 shares of common stock.
(A-6) Includes warrants to purchase up to
    250,000 shares of common stock.
(A-7) Includes options to purchase up to
    45,500 shares of common stock.
(A-8) Includes warrants to purchase up to
    300,000 shares of common stock.
(A-9) Includes warrants to purchase up to
    600,000 shares of common stock.
(A-10) Includes warrants to purchase up
    to 5,000 shares of common stock.
(A-11) Includes warrants to purchase up
    to 15,000 shares of common stock.
(A-12) Includes warrants to purchase up
    to 50,000 shares of common stock.
(A-13) Includes warrants to purchase up
    to 770,000 shares of common stock.
(A-14) Includes warrants to purchase up
    to 83,334 shares of common stock.
(A-15) Includes warrants to purchase up
    to 75,000 shares of common stock.
(A-16) Includes warrants to purchase up
    to 250,000 shares of common stock.
(A-17) Includes options to purchase up to
    545,000 shares of common stock.
(A-18) Includes options to purchase up to
    46,000 shares of common stock.
(A-19) Includes options to purchase up to
    425,000 shares of common stock and warrants to purchase up to 783,493 shares
    of common stock.
(A-20) Includes options to purchase up to
    350,000 shares of common stock and warrants to purchase up to 35,000 shares
    of common stock.
(A-21) Includes warrants to purchase up
    to 25,000 shares of common stock.
(A-22) Includes options to purchase up to
    132,500 shares of common stock.
(A-23) Includes warrants to purchase up
    to 5,000 shares of common stock.
(A-24) Includes options to purchase up to
    19,000 shares of common stock.
(A-25) Includes no warrants or options.
(A-26) Includes options to purchase up to
    44,000 shares of common stock.
(A-27) Includes warrants to purchase up
    to 70,000 shares of common stock.
(A-28) Includes options to purchase up to
    52,500 shares of common stock.
(A-29) Includes no warrants or options.
(A-30) Includes warrants to purchase up
    to 1,500,000 shares of common stock.
(A-31) Includes options to purchase up to
    33,333 shares of common stock and warrants to purchase up to 66,667 shares
    of common stock.
(A-32) Includes warrants to purchase up
    to 226,667 shares of common stock.
(A-33) Includes warrants to purchase up
    to 166,667 shares of common stock.
(A-34) Includes warrants to purchase up
    to 20,000 shares of common stock.
(A-35) Includes options to purchase up to
    916,250 shares of common stock and warrants to purchase up to 50,000 shares
    of common stock.
(A-36) Includes options to purchase up to
    44,000 shares of common stock.
(A-37) Includes warrants to purchase up
    to 10,000 shares of common stock.
(A-38) Includes no warrants or options.
(A-39) Includes warrants to purchase up
    to 400,000 shares of common stock.
(A-40) Includes warrants to purchase up
    to 42,000 shares of common stock.
(A-41) Includes warrants to purchase up
    to 200,000 shares of common stock.
(A-42) Includes warrants to purchase up
    to 662,500 shares of common stock.
(A-43) Includes warrants to purchase up
    to 75,000 shares of common stock.
(A-44) Includes no warrants or options.
(A-45) Includes warrants to purchase up
    to 500,000 shares of common stock.
(A-46) Includes no warrants or options.
(A-47) Includes no warrants or options.
(A-48) Includes warrants to purchase up
    to 225,000 shares of common stock.
(A-49) Includes warrants to purchase up
    to 300,000 shares of common stock.
(A-50) Includes warrants to purchase up
    to 5,000 shares of common stock.
(A-51) Includes options to purchase up to
    100,000 shares of common stock.
(A-52) Includes no warrants or options.
(A-53) Includes options to purchase up to
    475,000 shares of common stock and warrants to purchase up to 200,000 shares
    of common stock.
(A-54) Includes no warrants or options.
(A-55) Includes warrants to purchase up
    to 200,000 shares of common stock.
(A-56) Includes no warrants or options.
(A-57) Includes options to purchase up to
    50,000 shares of common stock.
(A-58) Includes options to purchase up to
    3,650,000 shares of common stock and warrants to purchase up to 1,138,067
    shares of common stock.
(A-59) Includes warrants to purchase up
    to 1,000,000 shares of common stock.
(A-60) Includes no warrants or options.
(A-61) Includes no warrants or options.
(A-62) Includes options to purchase up to
    6,780,000 shares of common stock and warrants to purchase up to 581,667
    shares of common stock.
(A-63) Includes warrants to purchase up
    to 50,000 shares of common stock.
(A-64) Includes warrants to purchase up
    to 25,000 shares of common stock.
(A-65) Includes options to purchase up to
    1,091,250 shares of common stock and warrants to purchase up to 200,000
    shares of common stock.
(A-66) Includes warrants to purchase up
    to 250,000 shares of common stock.
(A-67) Includes warrants to purchase up
    to 333,334 shares of common stock.
(A-68) Includes warrants to purchase up
    to 41,667 shares of common stock.
(A-69) Includes options to purchase up to
    19,000 shares of common stock.
(A-70) Includes options to purchase up to
    157,500 shares of common stock.
(A-71) Includes no warrants or options.
(A-72) Includes warrants to purchase up
    to 120,000 shares of common stock.
(A-73) Includes warrants to purchase up
    to 266,697 shares of common stock.
(A-74) Includes warrants to purchase up
    to 330,000 shares of common stock.
(A-75) Includes warrants to purchase up
    to 714,286 shares of common stock.
(A-76) Includes no warrants or options.
(A-77) Includes no warrants or options.
(A-78) Includes no warrants or options.
(A-79) Includes options to purchase up to
    250,000 shares of common stock and warrants to purchase up to 115,918 shares
    of common stock.
(A-80) Includes no warrants or options.
(A-81) Includes warrants to purchase up
    to 45,000 shares of common stock.
(A-82) Includes options to purchase up to
    25,000 shares of common stock.
(A-83) Includes options to purchase up to
    43,000 shares of common stock.
(A-84) Includes options to purchase up to
    100,000 shares of common stock and warrants to purchase up to 1,850,000
    shares of common stock.
(A-85) Includes warrants to purchase up
    to 220,000 shares of common stock.
(A-86) Includes options to purchase up to
    147,500 shares of common stock and warrants to purchase up to 105,000 shares
    of common stock.
(A-87) Includes warrants to purchase up
    to 20,000 shares of common stock.
(A-88) Includes warrants to purchase up
    to 150,000 shares of common stock.
(A-89) Includes no warrants or options.
(A-90) Includes no warrants or options.
(A-91) Includes warrants to purchase up
    to 537,500 shares of common stock.
(A-92) Includes warrants to purchase up
    to 50,000 shares of common stock.
(A-93) Includes warrants to purchase up
    to 50,000 shares of common stock.
(A-94) Includes warrants to purchase up
    to 716,667 shares of common stock.
(A-95) Includes warrants to purchase up
    to 125,000 shares of common stock.
(A-96) Includes warrants to purchase up
    to 500,000 shares of common stock.
(A-97) Includes options to purchase up to
    50,000 shares of common stock.
(A-98) Includes options to purchase up to
    103,500 shares of common stock.
(A-99) Includes options to purchase up to
    492,500 shares of common stock and warrants to purchase up to 35,000 shares
    of common stock.
(A-100) Includes no warrants or options.
(A-101) Includes warrants to purchase up
    to 143,125 shares of common stock.
(A-102) Includes warrants to purchase up
    to 220,429 shares of common stock.
(A-103) Includes warrants to purchase up
    to 28,572 shares of common stock.
(A-104) Includes warrants to purchase up
    to 133,334 shares of common stock.
(A-105) Includes warrants to purchase up
    to 140,833 shares of common stock.
(A-106) Includes warrants to purchase up
    to 2,500,000 shares of common stock.
(A-107) Includes options to purchase up
    to 25,000 shares of common stock.
(A-108) Includes no warrants or options.
(A-109) Includes no warrants or options.
(A-110) Includes warrants to purchase up
    to 4,121,429 shares of common stock.
(A-111) Includes warrants to purchase up
    to 150,000 shares of common stock.
(A-112) Includes warrants to purchase up
    to 1,210,000 shares of common stock.
(A-113) Includes no warrants or options.
(A-114) Includes warrants to purchase up
    to 2,200,000 shares of common stock.
(A-115) Includes warrants to purchase up
    to 96,996 shares of common stock.
(A-116) Includes no warrants or options.
(A-117) Includes warrants to purchase up
    to 250,000 shares of common stock.
(A-118) Includes options to purchase up
    to 30,000 shares of common stock and warrants to purchase up to 48,068
    shares of common stock.
(A-119) Includes warrants to purchase up
    to 91,072 shares of common stock.
(A-120) Includes warrants to purchase up
    to 15,625 shares of common stock.
(A-121) Includes warrants to purchase up
    to 21,875 shares of common stock.
(A-122) Includes options to purchase up
    to 89,500 shares of common stock.
(A-123) Includes options to purchase up
    to 200,000 shares of common stock and warrants to purchase up to 1,733,334
    shares of common stock.
(A-124) Includes options to purchase up
    to 347,500 shares of common stock and warrants to purchase up to 75,000
    shares of common stock.
(A-125) Includes options to purchase up
    to 50,000 shares of common stock.
(A-126) Includes warrants to purchase up
    to 50,000 shares of common stock.
(A-127) Includes no warrants or options.
(A-128) Includes no warrants or options.
(A-129) Includes no warrants or options.
(A-130) Includes options to purchase up
    to 175,000 shares of common stock.
(A-131) Includes no warrants or options.
(A-132) Includes warrants to purchase up
    to 50,000 shares of common stock.
(A-133) Includes warrants to purchase up
    to 500,000 shares of common stock.
(A-134) Includes options to purchase up
    to 25,000 shares of common stock and warrants to purchase up to 75,000
    shares of common stock.
(A-135) Includes warrants to purchase up
    to 500,000 shares of common stock.
(A-136) Includes options to purchase up
    to 25,000 shares of common stock.
(A-137) Includes options to
    purchase up to 100,000 shares of common stock.
(A-138) Includes warrants to
    purchase up to 250,000 shares of common stock.
(A-139) Includes no warrants or
    options.
(A-140) Includes warrants to
    purchase up to 20,000 shares of common stock.
(A-141) Includes no warrants or
    options.
(A-142) Includes warrants to
    purchase up to 60,000 shares of common stock.
(A-143) Includes warrants to
    purchase up to 40,000 shares of common stock.
(A-144) Includes no warrants or
    options.
(A-145) Includes warrants to
    purchase up to 225,000 shares of common stock.
(A-146) Includes no warrants or
    options.
(A-147) Includes warrants to
    purchase up to 4,485,430 shares of common stock.
(A-148) Includes options to
    purchase up to 50,000 shares of common stock.
(A-149) Includes options to
    purchase up to 50,000 shares of common stock.
(A-150) Includes options to
    purchase up to 100,000 shares of common stock.
(A-151) Includes warrants to
    purchase up to 475,000 shares of common stock.
(A-152) Includes options to
    purchase up to 350,500 shares of common stock and warrants to purchase up to
    35,000 shares of common stock.
(A-153) Includes warrants to
    purchase up to 30,000 shares of common stock.
(A-154) Includes warrants to
    purchase up to 150,000 shares of common stock.
(A-155) Includes options to
    purchase up to 75,000 shares of common stock.
(A-156) Includes warrants to
    purchase up to 100,001 shares of common stock.
(A-157) Includes warrants to
    purchase up to 3,000 shares of common stock.
(A-158) Includes warrants to
    purchase up to 4,450,000 shares of common stock.
(A-159) Includes warrants to
    purchase up to 33,334 shares of common stock.
(A-160) Includes warrants to
    purchase up to 70,000 shares of common stock.
(A-161) Includes warrants to
    purchase up to 100,000 shares of common stock.
(A-162) Includes options to
    purchase up to 33,750 shares of common stock and warrants to purchase up to
    54,000 shares of common stock.
(A-163) Includes warrants to
    purchase up to 41,667 shares of common stock.
(A-164) Includes warrants to
    purchase up to 300,000 shares of common stock.
(A-165) Includes options to
    purchase up to 200,000 shares of common stock and warrants to purchase up to
    1,500,001 shares of common stock.
(A-166) Includes warrants to
    purchase up to 20,100 shares of common stock.
(A-167) Includes warrants to
    purchase up to 1,000,000 shares of common stock.
(A-168) Includes options to
    purchase up to 203,500 shares of common stock and warrants to purchase up to
    50,000 shares of common stock.
(A-169) Includes warrants to
    purchase up to 125,000 shares of common stock.
(A-170) Includes warrants to
    purchase up to 141,667 shares of common stock.
(A-171) Includes no warrants or
    options.
(A-172) Includes no warrants or
    options.
(A-173) Includes no warrants or
    options.
(A-174) Includes no warrants or
    options.
(A-175) Includes options to
    purchase up to 283,750 shares of common stock and warrants to purchase up to
    147,501 shares of common stock.
(A-176) Includes no warrants or
    options.
(A-177) Includes options to
    purchase up to 74,750 shares of common stock.
(A-178) Includes options to
    purchase up to 50,000 shares of common stock.
(A-179) Includes warrants to
    purchase up to 125,000 shares of common stock.
(A-180) Includes no warrants or
    options.
(A-181) Includes no warrants or
    options.
(A-182) Includes no warrants or
    options.
(A-183) Includes warrants to
    purchase up to 136,988 shares of common stock.
(A-184) Includes options to
    purchase up to 37,000 shares of common stock.
(A-185) Includes no warrants or
    options.
(A-186) Includes no warrants or
    options.
(A-187) Includes no warrants or
    options.
(A-188) Includes no warrants or
    options.
(A-189) Includes warrants to
    purchase up to 2,233,490 shares of common stock.
(A-190) Includes warrants to
    purchase up to 233,334 shares of common stock.
(A-191) Includes warrants to
    purchase up to 1,250,000 shares of common stock.
(A-192) Includes warrants to
    purchase up to 5,000 shares of common stock.
(A-193) Includes warrants to
    purchase up to 41,667 shares of common stock.
(A-194) Includes warrants to
    purchase up to 42,000 shares of common stock.
(A-195) Includes warrants to
    purchase up to 20,000 shares of common stock.
(A-196) Includes warrants to
    purchase up to 290,000 shares of common stock.
(A-197) Includes options to
    purchase up to 50,000 shares of common stock.
(A-198) Includes options to
    purchase up to 67,500 shares of common stock.
(A-199) Includes options to
    purchase up to 67,750 shares of common stock.
(A-200) Includes warrants to
    purchase up to 1,425,000 shares of common stock.
(A-201) Includes options to
    purchase up to 50,000 shares of common stock.
(A-202) Includes no warrants or
    options.
(A-203) Includes options to
    purchase up to 30,000 shares of common stock.
(A-204) Includes options to
    purchase up to 40,000 shares of common stock.
(A-205) Includes no warrants or
    options.
(A-206) Includes warrants to
    purchase up to 41,667 shares of common stock.
(A-207) Includes warrants to
    purchase up to 2,000 shares of common stock.
(A-208) Includes warrants to
    purchase up to 180,000 shares of common stock.
(A-209) Includes warrants to
    purchase up to 716,667 shares of common stock.
(A-210) Includes warrants to
    purchase up to 600,000 shares of common stock.
(A-211) Includes warrants to
    purchase up to 200,000 shares of common stock.
(A-212) Includes warrants to
    purchase up to 175,001 shares of common stock.
(A-213) Includes warrants to
    purchase up to 365,358 shares of common stock.
(A-214) Includes warrants to
    purchase up to 357,858 shares of common stock.
(A-215) Includes no warrants or
    options.
(A-216) Includes no warrants or
    options.
(A-217) Includes no warrants or
    options.
(A-218) Includes no warrants or
    options.
(A-219) Includes no warrants or
    options.
(A-220) Includes no warrants or
    options.
(A-221) Includes warrants to
    purchase up to 275,000 shares of common stock.
(A-222) Includes warrants to
    purchase up to 54,000 shares of common stock.
(A-223) Includes warrants to
    purchase up to 62,500 shares of common stock.
(A-224) Includes options to
    purchase up to 495,000 shares of common stock and warrants to purchase up to
    415,800 shares of common stock.
(A-225) Includes no warrants or
    options.
(A-226) Includes options to
    purchase up to 25,000 shares of common stock.
(A-227) Includes warrants to
    purchase up to 8,167 shares of common stock.
(A-228) Includes options to
    purchase up to 182,500 shares of common stock and warrants to purchase up to
    10,000 shares of common stock.
(A-229) Includes options to
    purchase up to 256,250 shares of common stock and warrants to purchase up to
    60,668 shares of common stock.
(A-230) Includes no warrants or
    options.
(A-231) Includes options to
    purchase up to 500,000 shares of common stock.
(A-232) Includes options to
    purchase up to 168,500 shares of common stock.
(A-233) Includes no warrants or
    options.
(A-234) Includes options to
    purchase up to 92,750 shares of common stock and warrants to purchase up to
    20,000 shares of common stock.
(A-235) Includes warrants to
    purchase up to 96,000 shares of common stock.
(A-236) Includes options to
    purchase up to 995,000 shares of common stock and warrants to purchase up to
    1,406,209 shares of common stock.
(A-237) Includes warrants to
    purchase up to 46,667 shares of common stock.
(A-238) Includes warrants to
    purchase up to 421,667 shares of common stock.
(A-239) Includes no warrants or
    options.
(A-240) Includes warrants to
    purchase up to 130,000 shares of common stock.
(A-241) Includes options to
    purchase up to 77,500 shares of common stock.
(A-242) Includes warrants to
    purchase up to 80,000 shares of common stock.
(A-243) Includes warrants to
    purchase up to 870,745 shares of common stock.
(A-244) Includes warrants to
    purchase up to 30,000 shares of common stock.
(A-245) Includes options to
    purchase up to 50,000 shares of common stock.
(A-246) Includes warrants to
    purchase up to 120,000 shares of common stock.
(A-247) Includes warrants to
    purchase up to 1,836,500 shares of common stock.
(A-248) Includes no warrants or
    options.
(A-249) Includes no warrants or
    options.
(A-250) Includes options to
    purchase up to 50,000 shares of common stock.
(A-251) Includes no warrants or
    options.
(A-252) Includes options to
    purchase up to 125,000 shares of common stock.
(A-253) Includes warrants to
    purchase up to 250,000 shares of common stock.
(A-254) Includes warrants to
    purchase up to 3,125 shares of common stock.
(A-255) Includes warrants to
    purchase up to 375,000 shares of common stock.
(A-256) Includes no warrants or
    options.
(A-257) Includes warrants to purchase up
    to 1,000,000 shares of common stock.
(A-258) Includes warrants to purchase up
    to 25,000 shares of common stock.
(A-259) Includes no warrants or options.
(A-260) Includes options to purchase up
    to 450,000 shares of common stock.
(A-261) Includes warrants to purchase up
    to 125,000 shares of common stock.
(A-262) Includes options to purchase up
    to 103,500 shares of common stock and warrants to purchase up to 20,000
    shares of common stock.
(A-263) Includes warrants to purchase up
    to 3,700,000 shares of common stock.
(A-264) Includes options to purchase up
    to 268,500 shares of common stock.
(A-265) Includes warrants to purchase up
    to 160,000 shares of common stock.
(A-266) Includes warrants to purchase up
    to 200,000 shares of common stock.
(A-267) Includes no warrants or options.
(A-268) Includes options to purchase up
    to 29,000 shares of common stock.
(A-269) Includes warrants to purchase up
    to 50,000 shares of common stock.
(A-270) Includes no warrants or options.
(A-271) Includes no warrants or options.
(A-272) Includes warrants to purchase up
    to 2,225,000 shares of common stock.
(A-273) Includes warrants to purchase up
    to 10,000 shares of common stock.
(A-274) Includes warrants to purchase up
    to 22,500 shares of common stock.
(A-275) Includes warrants to purchase up
    to 125,000 shares of common stock.
(A-276) Includes no warrants or options.
(A-277) Includes warrants to purchase up
    to 762,500 shares of common stock.
(A-278) Includes warrants to purchase up
    to 80,000 shares of common stock.
(A-279) Includes warrants to purchase up
    to 333,334 shares of common stock.
(A-280) Includes warrants to purchase up
    to 750,000 shares of common stock.
(A-281) Includes options to purchase up
    to 250,000 shares of common stock and warrants to purchase up to 200,000
    shares of common stock.
(A-282) Includes no warrants or options.
(A-283) Includes warrants to purchase up
    to 91,667 shares of common stock.
(A-284) Includes options to purchase up
    to 50,000 shares of common stock.
(A-285) Includes no warrants or options.
(A-286) Includes options to purchase up
    to 75,000 shares of common stock.
(A-287) Includes options to purchase up
    to 5,000 shares of common stock and warrants to purchase up to 5,000 shares
    of common stock.
(A-288) Includes warrants to purchase up
    to 12,500 shares of common stock.
(A-289) Includes warrants to purchase up
    to 2,441,667 shares of common stock.
(A-290) Includes warrants to purchase up
    to 475,000 shares of common stock.
(A-291) Includes warrants to purchase up
    to 100,000 shares of common stock.
(A-292) Includes warrants to purchase up
    to 150,000 shares of common stock.
(A-293) Includes warrants to purchase up
    to 20,000 shares of common stock.
(A-294) Includes options to purchase up
    to 56,000 shares of common stock and warrants to purchase up to 20,000
    shares of common stock.
(A-295) Includes warrants to purchase up
    to 10,000 shares of common stock.
PLAN OF DISTRIBUTION
We are registering for resale by the selling stockholders and certain
transferees a total of shares of common stock, of which shares are issued and
outstanding and up to shares are issuable upon exercise of warrants. We will not
receive any of the proceeds from the sale by the selling stockholders of the
shares of common stock, although we may receive up to approximately $39,122,942
upon the conversion of convertible notes and the exercise of all of the warrants
and options by the selling stockholders. We will bear all fees and expenses
incident to our obligation to register the shares of common stock. If the shares
of common stock are sold through broker-dealers or agents, the selling
stockholder will be responsible for any compensation to such broker-dealers or
agents.
The selling stockholders may pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time pursuant
to this prospectus.
The selling stockholders also may transfer and donate the shares of common
stock in other circumstances in which case the transferees, donees, pledgees or
other successors in interest will be the selling beneficial owners for purposes
of this prospectus.
The selling stockholders will sell their shares of common stock subject to
the following:
all or a portion of the shares of common stock beneficially
  owned by the selling stockholders or their respective pledgees, donees,
  transferees or successors in interest, may be sold on the OTC Bulletin Board
  Market, any national securities exchange or quotation service on which the
  shares of our common stock may be listed or quoted at the time of sale, in the
  over-the-counter market, in privately negotiated transactions, through the
  writing of options, whether such options are listed on an options exchange or
  otherwise, short sales or in a combination of such transactions;
each sale may be made at market prices prevailing at the time
  of such sale, at negotiated prices, at fixed prices, or at varying prices
  determined at the time of sale;
some or all of the shares of common stock may be sold through
  one or more broker-dealers or agents and may involve crosses, block
  transactions, or hedging transactions. The selling stockholders may enter into
  hedging transactions with broker-dealers or agents, which may in turn engage
  in short sales of the common stock in the course of hedging in positions they
  assume. The selling stockholders may also sell shares of common stock short
  and deliver shares of common stock to close out short positions, or loan or
  pledge shares of common stock to broker-dealers or agent that in turn may sell
  such shares; and
in connection with such sales through one or more
  broker-dealers or agents, such broker-dealers or agents may receive
  compensation in the form of discounts, concessions or commissions from the
  selling stockholders and may receive commissions from the purchasers of the
  shares of common stock for whom they act as broker-dealer or agent or to whom
  they sell as principal (which discounts, concessions or commissions as to
  particular broker-dealers or agents may be in excess of those customary in the
  types of transactions involved). Any broker-dealer or agent participating in
  any such sale may be deemed to be an "underwriter" within the meaning of the
  Securities Act and will be required to deliver a copy of this prospectus to
  any person who purchases any share of common stock from or through such
  broker-dealer or agent. We have been advised that, as of the date hereof, none
  of the selling stockholders have made any arrangements with any broker-dealer
  or agent for the sale of their shares of common stock.
The selling stockholders and any broker-dealer participating in
the distribution of the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profits
realized by the selling stockholders and any commissions paid, or any discounts
or concessions allowed to any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. In addition, any
shares of common stock covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus.
If required at the time a particular offering of the shares of
common stock is made, a prospectus supplement or, if appropriate, a
post-effective amendment to the shelf registration statement of which this
prospectus is a part, will be distributed which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholder and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.
Under the securities laws of some states, the shares of common
stock may be sold in such states only through registered or licensed brokers or
dealers. In addition, in some states the shares of common stock may not be sold
unless such shares have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with. There can be no
assurance that any selling stockholder will sell any or all of the shares of
common stock registered pursuant to the shelf registration statement, of which
this prospectus forms a part.
The selling stockholders and any other person participating in
such distribution will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation,
Regulation M of the Exchange Act, which may limit the timing of purchases and
sales of any of the shares of common stock by the selling stockholders and any
other participating person. Regulation M may also restrict the ability of any
person engaged in the distribution of the shares of common stock to engage in
market-making activities with respect to the shares of common stock. All of the
foregoing may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making activities with
respect to the shares of common stock.
We will bear all expenses of the registration of the shares of
common stock including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or "blue sky" laws.
The selling stockholders will pay all underwriting discounts and selling
commissions and expenses, brokerage fees and transfer taxes, as well as the fees
and disbursements of counsel to and experts for the selling stockholders, if
any. We will indemnify the selling stockholders against liabilities, including
some liabilities under the Securities Act, in accordance with the registration
rights agreement or the selling stockholders will be entitled to contribution.
We will be indemnified by the selling stockholders against civil liabilities,
including liabilities under the Securities Act that may arise from any written
information furnished to us by the selling stockholders for use in this
prospectus, in accordance with the related registration rights agreement or will
be entitled to contribution. Once sold under this shelf registration statement,
of which this prospectus forms a part, the shares of common stock will be freely
tradable in the hands of persons other than our affiliates.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 250,000,000 shares of common stock,
without par value. As of March 15, 2005, approximately 130 million  shares of our common stock are issued and outstanding and held by approximately
16,000 stockholders of record. Of the shares of our issued and outstanding
common stock, shares are covered by this prospectus. In addition shares or our
common stock authorized but unissued as of the date of this prospectus will be
issued on exercise of warrants held by certain selling stockholders.
The following description of our capital stock is a summary of the material
terms of such stock. It does not purport to be complete and is subject in all
respects to the provisions of our Certificate of Incorporation and our Bylaws,
copies of which have been filed as exhibits to the registration statement of
which this prospectus is a part and to applicable New Jersey law.
Common Stock
Each holder of our common stock is entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Cumulative voting
for the election of Directors is not provided for in our Certificate of
Incorporation, which means that the holders of a majority of the shares of
common stock voted elects the Directors then standing for election. The holders
of outstanding shares of common stock are entitled to receive dividends out of
assets legally available for dividends, at such appropriate times and in such
amounts as our Board of Directors decides. The common stock is not entitled to
preemptive rights or other subscription rights and is not subject to conversion
or redemption. Upon liquidation, dissolution or winding up of our affairs, the
holders of common stock will be entitled to share ratably in all assets
remaining after the payment of liabilities. Shares of common stock shall be
transferred only on our books upon surrender to us or a duly appointed transfer
agent of the certificate or certificates properly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer.
Common Stock Warrants
This prospectus also covers shares of common stock purchasable pursuant to
outstanding warrants and options. The exercise price of these warrants range
from $.20 to $.45. These warrants and options have expiration terms ranging from
years 2005-2010.
Filling Vacancies on the Board
The Certificate of Incorporation provides that any vacancy on
the Board that results from an increase in the number of Directors during the
interim between annual meetings or special meetings of shareholders may be
filled by the Board. These provisions could temporarily prevent any shareholder
from obtaining majority representation on the Board by enlarging the Board and
filling the new directorships with its own nominees.
New Jersey Shareholders Protection Act
There are provisions of New Jersey law, and our Certificate of Incorporation
and Bylaws, that may have an anti-takeover effect. These provisions are designed
to protect shareholders against coercive, unfair or inadequate tender offers and
other abusive tactics and to encourage any person contemplating a business
combination with us to negotiate with our Board of Directors for the fair and
equitable treatment of all shareholders.
New Jersey has adopted a type of anti-takeover statute known as the New
Jersey Shareholders Protection Act. Subject to numerous qualifications and
exceptions, the statute prohibits an interested shareholder of a corporation
from effecting a business combination with the corporation for a period of five
years unless the corporation's board approved the combination prior to the
shareholder becoming an interested shareholder. In addition, but not in
limitation of the five-year restriction, if applicable, corporations covered by
the New Jersey statute may not engage at any time in a business combination with
any interested shareholder of that corporation unless the combination is
approved by the board prior to the interested shareholder's stock acquisition
date, the combination receives the approval of two-thirds of the voting stock of
the corporation not beneficially owned by the interested shareholder, or the
combination meets minimum financial terms specified by the statute. An
"interested shareholder" is defined to include any beneficial owner of 10% or
more of the voting power of the outstanding voting stock of the corporation and
any affiliate or associate of the corporation who within the prior five year
period has at any time owned 10% or more of the voting power. The term "business
combination" is defined broadly to include, among other things:
the merger or consolidation of the corporation with the interested
shareholder or any corporation that after the merger or consolidation would be
an affiliate or associate of the interested shareholder,
the sale, lease, exchange, mortgage, pledge, transfer or other disposition to
an interested shareholder or any affiliate or associate of the interested
shareholder of 10% or more of the corporation's assets, or
the issuance or transfer to an interested shareholder or any affiliate or
associate of the interested shareholder of 5% or more of the aggregate market
value of the stock of the corporation.
The effect of the statute is to protect non-tendering,
post-acquisition minority shareholders from mergers in which they will be
"squeezed out" after the merger, by prohibiting transactions in which an
acquirer could favor itself at the expense of minority shareholders. The New
Jersey statute generally applies to corporations that are organized under New
Jersey law, have either their principal executive offices or significant
business operations located in New Jersey, and have a class of stock registered
or traded on a national securities exchange or registered with the Securities
and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act
of 1934.
LEGAL MATTERS
The validity of the common stock we are offering pursuant to
this prospectus will be passed upon by Martin S. Smiley General Counsel to the
Company. Mr. Smiley beneficially owns an aggregate of 5,676,132 shares of common
stock and 5,676,132 shares are being registered as part of this prospectus.
EXPERTS
The financial statements and schedules included in this
prospectus and elsewhere in the registration statement, to the extent and for
the periods indicated in their reports, have been audited or reviewed, as the
case may be, by Rosenberg, Rich ,Baker, Berman & Company and audited or
reviewed, as the case may be, by Arthur Andersen, LLP and Schuhalter, Coughlin &
Suozzo, PC, independent public accountants, and are included in reliance upon
the authority of said firms as experts in giving said reports. Prior to the date
of this prospectus, Arthur Andersen was indicted in connection with its
rendering of services to another company. Therefore, Arthur Andersen withdrew
from practice before the SEC effective prior to the date hereof and many of the
accountants at Arthur Andersen have left their current jobs or have been
searching for a new place of employment. Based on these factors, after
reasonable efforts, including numerous phone calls, we were unable to contact
our former audit partner at Arthur Andersen and therefore were unable to obtain
Arthur Andersen's consent to the inclusion of their report dated October 12,
2001. Accordingly, we have dispensed with the requirement to file their consent
in reliance upon Rule 437a of the securities act. Because Arthur Andersen has
not consented to the inclusion of their report in this prospectus, you will not
be able to recover against Arthur Andersen under Section 11 of the securities
act for any untrue statements of a material fact contained in the financial
statements audited by Arthur Andersen or any omissions to state a material fact
required to be stated therein. As of March 11, 2005, Schuhalter, Coughlin &
Suozzo, PC, owns approximately 250,000 shares of common stock directly and
indirectly; options to purchase 495,000 shares of common stock and warrants to
purchase 250,000 shares of common stock, of which 1,085,800 shares are being
registered pursuant to this prospectus. All of such securities owned by Schuhalter, Coughlin & Suozzo, PC, other than 146,800 shares of common stock
which it has acquired on the open market subsequent to April 2001, were issued
to Schuhalter, Coughlin & Suozzo, PC in consideration for non-audit consulting
services and/or satisfaction of payables related to non-audit consulting
services and were issued after Schuhalter, Coughlin & Suozzo, PC was no longer
our independent public accountants.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). In accordance with the Exchange Act,
we file reports, proxy statements and other information with the Securities and
Exchange Commission. Our reports, proxy statements and other information filed
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. Copies of such material also may be obtained at prescribed rates from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549-1004. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The SEC maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
You may request a copy of these filings, at no cost by writing or telephoning
us at the following address:
mPhase Technologies, Inc.
587 Connecticut Avenue
Norwalk, Connecticut 06854-0566
Attention: General Counsel
(203) 831-2242
You should rely only on the information incorporated by
reference or provided in this prospectus or any prospectus supplement. We have
not authorized anyone else to provide you with different information. The
selling security holders will not make an offer of the shares of our common
stock in any state where the offer is not permitted. You should not assume that
the information in this prospectus or any prospectus supplement is accurate as
of any date other than the date on the front of those documents.
mPHASE TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Rosenberg
      Rich Baker Berman & Company
F-1
Report of Arthur
      Andersen LLP
F-2
Report of Schuhalter,
      Coughlin & Suozzo, PC
F-3
Consolidated Balance
      Sheets as of June 30, 2003, June 30, 2004 and
F-4
December 31, 2004
(Unaudited)
Consolidated
      Statements of Operations for the years ended June 30, 2002,
F-5
2003, 2004, and for
      the
period from
      inception (October 2, 1996) through June 30, 2004
Unaudited
      Consolidated Statements of Operations for the Six months ended
F-6
December 31, 2004
      and
for the period from
      inception (October 2, 1996) through December 31, 2004
Consolidated
      Statements of Changes in Stockholders' Equity (Deficit) for the
F-7-12
period from
      inception
(October 2, 1996) to
      June 30, 1998 and for each of the six years in the period
ended June 30, 2004
Unaudited
      Consolidated Statement of Changes in Shareholders' Deficit for
F-13
the six months ended
December 31, 2004
Consolidated
      Statements of Cash Flows for the years ended June 30, 2002,
F-14
2003 and 2004, and
      for
the period from
      inception (October 2, 1996) through June 30, 2004
Unaudited
      Consolidated Statements of Cash Flows for the six months ended
F-15
December 31, 2004
and 2003, and for
      the period from inception (October 2, 1996) through
December 31, 2004
Notes to
      Consolidated Financial Statements
F-16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of mPhase Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of mPhase
Technologies, Inc. (a New Jersey corporation in the development stage) and
subsidiaries as of June 30, 2004 and June 30, 2003, and the related consolidated
statements of operations, changes in stockholders' equity (deficit), cash flows
and Schedule II (Valuation and Qualifying Accounts, Item 14B) for each of the
three years in the period ended June 30, 2004 and for the period from inception
(October 2, 1996) to June 30, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of mPhase Technologies, Inc. for the period from inception
to June 30, 2001. Such amounts are included in the cumulative from inception to
June 30, 2004 totals of the statements of operations, changes in stockholders'
equity and cash flows and reflect total net loss of 78 percent of the related
cumulative totals. Those statements were audited by other auditors whose report
has been furnished to us and our opinion, insofar as it relates to amounts for
the period from inception to June 30, 2001, included in the cumulative totals,
is based solely upon the report of the other auditors.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material accounting misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of mPhase Technologies, Inc. and subsidiaries as of June
30, 2004 and 2003 and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2004 and for the period
from inception to June 30, 2004, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and is in a working capital deficit position that raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Rosenberg Rich Baker Berman & Company
Bridgewater, NJ
August 27, 2004
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of mPhase Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of mPhase
Technologies, Inc. (a New Jersey corporation in the development stage) and
subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended June 30, 2001 and for the period
from inception (October 2, 1996) to June 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of mPhase Technologies, Inc. for the period from
inception to June 30, 1998. Such amounts are included in the cumulative from
inception to June 30, 2001 totals of the statements of operations, changes in
stockholders' equity and cash flows and reflect total net loss of 6 percent of
the related cumulative totals. Those statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
amounts for the period from inception to June 30, 1998, included in the
cumulative totals, is based solely upon the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of mPhase Technologies, Inc. and subsidiaries as of June
30, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 2001 and for the period
from inception to June 30, 2001, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and is in a working capital deficit position that raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Arthur Andersen LLP
Stamford, Connecticut
October 12, 2001
PURSUANT TO SEC RELEASE NO. 33-8070 AND RULE 437A UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, mPHASE TECHNOLOGIES, INC. HAS NOT RECEIVED
WRITTEN CONSENT AFTER REASONABLE EFFORT TO USE THIS REPORT. THIS REPORT IS A
COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT. THIS REPORT HAS NOT BEEN
REISSUED BY ARTHUR ANDERSEN LLP. WITH RESPECT TO THIS INSTANT 10K/A, YOU WILL
NOT BE ABLE TO RECOVER AGAINST ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE
SECURITIES ACT FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE
FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP OR ANY OMISSIONS TO STATE A
MATERIAL FACT REQUIRED TO BE STATED THEREIN.
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of mPhase Technologies, Inc.:
We have audited the statements of operations, changes in stockholders's
equity, and cash flows for the period October 2, 1996 (date of inception)
through June 30, 1998 of mPhase Technologies, Inc. (a development stage
company). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of its operations and its cash flows for the period of
October 2, 1996 (date of inception) through June 30, 1998 in conformity with
generally accepted accounting principles.
Schuhalter, Coughlin & Suozzo, PC
Raritan, New Jersey
January 28, 1999
F-3
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
June 30,
December
    31,
2003
2004
2004
(unaudited)
ASSETS
Current assets:
Cash and cash
    equivalents
$396,860
$90,045
$1,010,903
Accounts receivable,
    net of bad debt reserve of $2,906
287,135
64,100
206,069
and $0, respectively
Stock subscription
    receivable
110,000
886,000
50,000
Inventory
2,103,328
1,237,972
790,500
Prepaid expenses and
    other current assets
100,329
81,061
229,123
Total current assets
2,997,652
2,359,178
2,286,595
Property and
    equipment, net
581,890
52,685
240,393
Patents and licenses,
    net
184,857
161,605
144,380
Other assets
17,250
17,250
37,250
Total assets
$3,781,649
$2,590,718
$2,708,618
LIABILITIES AND
    STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable
$2,352,961
2,088,658
2,633,363,
Accrued expenses
885,735
691,033
1,131,529
Due to related parties
187,372
625,956
310,960
Notes payable, related
    party
-
300,000
686,046
Notes payable, current
762,735
550,803
517,805
Deferred revenue
214,180
214,180
100,295
Total current liabilities
4,402,983
4,470,630
5,379,998
Notes payable, net of
    current portion
586,303
139,500
175,000
Other liabilities
1,561,249
618,550
-
Other liabilities,
    related parties
-
280,000
Notes payable, related
    parties
460,000
139,500
223,049
COMMITMENTS AND
    CONTINGENCIES (Note 13)
STOCKHOLDERS'
    EQUITY (DEFICIT):
Common Stock, stated
    value $.01, 150,000,000 shares
authorized;
71,453,521, 88,899,962
    and 109,743,391 (unaudited),
shares issued and
outstanding,
    respectively
714,535
888,999
1,097,433
Additional paid-in
    capital
104,081,049
111,976,095
116,754,086
Deferred compensation
-
Deficit accumulated
    during development stage
(108,016,497)
(115,775,083)
(120,912,875)
Unrecognized capital
    losses
-
Less-treasury stock,
    13,750 shares, at cost
(7,973)
(7.973)
(7,973)
Total stockholders' equity (deficit)
(3,228,886)
(2,917,962)
(3,069,329)
Total liabilities and
    stockholders' equity
$3,781,649
2,590,718
2,708,718
The
    accompanying notes are an integral part of these consolidated balance
    sheets.
F-4
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Years Ended June 30,
From Inception
(October 2, 1996)
to June 30,
2004
2002
2003
2004
TOTAL NET REVENUES
$
2,582,446
$
1,581,639
$
4,641,346
$
19,609,041
COSTS AND EXPENSES:
Cost of Sales (see also note 11
    Related Party Transactions)
2,415,129
1,493,394
4,068,255
13,913,207
Research and development
    (including non-cash stock related charges of $267,338, $385,495, $72,000 and
    $2,117,669 respectively, see also note 11 Related Party Transactions)
3,819,583
3,538,305
4,069,721
38,416,800
General and administrative
    (including non-cash stock related charges of $2,994,111, $748,840,$1,242,793
    and $47,333,142 respectively, see also note 11 Related Party Transactions)
7,038,923
2,683,534
4,177,961
79,055,097
Depreciation and Amortization
670,183
515,417
122,878
2,889,907
Total costs and expenses
13,943,818
8,230,650
12,438,815
134,275,011
Loss from operations
(11,361,372
)
(6,649,011
)
(7,797,469)
(114,665,970)
OTHER INCOME (EXPENSE):
Gain On Extinguishments
142,236
61,226
150,058
353,520
Minority interest loss in
    consolidated subsidiary
-
-
----
20,000
Loss from unconsolidated
    subsidiary
-
-
----
(1,466,467)
Loss on sale of securities
-
(11,258
)
----
(11,258)
Interest income (expense), net
(26,225
)
(51,168
)
(111,175)
(4,908)
Total other income (expense)
116,011
(1,200
)
38,883
(1,109,113)
NET LOSS
$
(11,245,361
)
$
(6,650,211
)
$
(7,758,586)
$
(115,775,083)
Unrealized holding (loss) gain
    on securities
(4,026
)
4,026
----
-----
COMPREHENSIVE LOSS
$
(11,249,387
)
$
(6,646,185
)
$
(7,758,586)
$
(115,775,083)
LOSS PER COMMON SHARE, basic and
    diluted
$
(.23
)
$
(.10
)
$
(.10)
WEIGHTED AVERAGE COMMON SHARES
    OUTSTANDING, basic and diluted
49,617,280
65,217,088
77,677,120
The
    accompanying notes are an integral part of these consolidated financial
statments.
F-5
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
October
    2, 1996
Six Months Ended
(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 $2,503,114, respectively)
1,454,899
2,156,161
40,572,961
General
    and Administrative
(including non-cash stock
related charges of $748,840
$1,127,833 and $48,460,975
respectively)
1,518,411
2,780,291
81,835,388
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
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
8,185
(172,616)
(1,281,729)
(EXPENSE)
NET LOSS
$
(2,565,377)
$
(5,137,972)
$
(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
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS
IN THE PERIOD ENDED JUNE 30, 2004
Common Stock
TOTAL
$.01
Additional
STOCKHOLDERS
Stated
Treasury
Paid-In
Deferred
Accumulated
EQUITY
Shares
Value
Stock
Capital
Compensation
Deficit
(DEFICIT)
BALANCE,
1,140,427
$11,404
$-
$459,753
$-
$(537,707)
$(66,550)
OCTOBER 2,
1996
(date of
inception)
Issuance of
6,600,000
66,000
-
(537,157)
-
537,707
66,550
common
stock of Tecma
Laboratories, Inc.,
for 100% of the
Company
Issuance of common
594,270
5,943
-
752,531
-
-
758,474
stock, in private
placement, net of
offering costs of
$138,931
Net loss
-
-
-
-
-
(781,246)
(781,246)
BALANCE, JUNE
8,334,697
$83,347
$-
$675,127
$-
$(781,246)
$(22,772)
30, 1997
Issuance of common
999,502
9,995
-
791,874
-
-
801,869
stock with warrants,
in private placement,
net of offering costs
of $84,065
Issuance of common
300,000
3,000
-
147,000
-
-
150,000
stock for services
Issuance of common
250,000
2,500
-
122,500
-
-
125,000
stock in connection
with investment in
unconsolidated
subsidiary
Repurchase of
-
-
(7,973)
-
-
-
(7,973)
13,750 shares of
common stock
Issuance of common
1,095,512
10,955
-
659,191
-
-
670,146
stock with warrants
in private placement,
net of offering costs
of $121,138
Issuance of common
100,000
1,000
-
(1,000)
-
-
-
stock for financing
services
Issuance of common
2,500,000
25,000
-
1,685,000
-
-
1,710,000
stock in
consideration for
100% of the common
stock of Microphase
Telecommunications,
Inc.
Net loss
-
-
-
-
-
(4,341,059)
(4,341,059)
BALANCE, JUNE 30, 1998
13,579,711
$135,797
$(7,973)
$4,079,692
$-
$(5,122,305)
$(914,789)
The
    accompanying notes are an integral part of these consolidated financial
    statements.
F-7
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS
IN THE PERIOD ENDED JUNE 30, 2004
Common Stock
TOTAL
$.01
Additional
STOCKHOLDERS
Stated
Treasury
Paid-In
Deferred
Accumulated
EQUITY
Shares
Value
Stock
Capital
Compensation
Deficit
(DEFICIT)
BALANCE,
13,579,711
$135,797
$(7,973)
$4,079,692
$-
$(5,122,305)
$(914,789)
JUNE 30, 1998
Issuance of
3,120,000
31,200
-
2,981,800
-
-
3,013,000
common stock with
warrants in private
placements, net of
offering costs of
$107,000
Issuance of
1,599,332
15,993
-
8,744,873
-
-
8,760,866
common stock for
services
Issuance of
642,000
6,420
-
1,553,227
-
-
1,559,647
common stock with
warrants in private
placement, net of
offering costs of
$45,353
Issuance of
4,426,698
44,267
-
10,343,167
-
-
10,387,434
common stock in
private placement,
net of offering
costs of $679,311
Issuance of stock
-
-
-
7,129,890
-
-
7,129,890
options for services
Issuance of
-
-
-
16,302
-
-
16,302
warrants for
services
Deferred employee
-
-
-
-
(140,000)
-
(140,000)
stock option
compensation
Net loss
-
-
-
-
-
(22,838,344)
(22,838,344)
BALANCE,
23,367,741
$233,677
$(7,973)
$34,848,951
$(140,000)
$(27,960,649)
$6,974,006
JUNE 30, 1999
The
    accompanying notes are an integral part of these consolidated financial
    statements.
F-8
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS
IN THE PERIOD ENDED JUNE 30, 2004
Common Stock
TOTAL
$.01
Additional
STOCKHOLDERS
Stated
Treasury
Paid-In
Deferred
Accumulated
EQUITY
Shares
Value
Stock
Capital
Compensation
Deficit
(DEFICIT)
BALANCE,
23,367,741
$233,677
$(7,973)
$34,848,951
$(140,000)
$(27,960,649)
$6,974,006
JUNE 30, 1999
Issuance of
75,000
750
-
971,711
-
-
972,461
common stock and
options in
settlement
Issuance of
4,632,084
46,321
-
5,406,938
-
-
5,453,259
common stock
upon exercise of
warrants and
options
Issuance of
1,000,000
10,000
-
3,790,000
-
-
3,800,000
common stock in
private placement,
net of cash offering
costs of $200,000
Issuance of
1,165,500
11,655
-
9,654,951
-
-
9,666,606
common stock in
private placement,
net of cash offering
costs of $466,480
Issuance of
1,164,215
11,642
-
8,612,265
-
-
8,623,907
common stock for
services
Issuance of options
-
-
-
9,448,100
-
-
9,448,100
for services
Deferred employee
-
-
-
1,637,375
(1,637,375)
-
-
stock option
compensation
Amortization of
-
-
-
-
551,707
-
551,707
deferred employee
stock option
compensation
Net loss
-
-
-
-
-
(38,161,542)
(38,161,542)
BALANCE, JUNE
31,404,540
$314,045
$(7,973)
$74,370,291)
$(1,225,668)
$(66,122,191)
$7,328,504
30, 2000
The accompanying notes are an
    integral part of these consolidated financial statements.
F-9
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS
IN THE PERIOD ENDED JUNE 30, 2004
Common Stock
TOTAL
$.01
Additional
STOCKHOLDERS
Stated
Treasury
Paid-In
Deferred
Accumulated
EQUITY
Shares
Value
Stock
Capital
Compensation
Deficit
(DEFICIT)
BALANCE,
31,404,540
$314,045
$(7,973)
$74,370,291)
$(1,225,668)
$(66,122,191)
$7,328,504
JUNE 30,
2000
Issuance of
320,000
3,200
-
324,300
-
-
327,500
common
stock
upon
exercise of
options
Issuance of
4,329,850
43,298
-
7,766,547
-
-
7,809,845
common
stock
with
warrants in
private
placements, net of
cash offering costs
of $512,195
Issuance of
450,000
4,500
-
1,003,125
-
-
1,007,625
common stock for
services
Issuance of options
-
-
-
5,849,585
-
-
5,849,585
and warrants for
services
Deferred employee
-
-
-
607,885
(607,885)
-
-
stock option
compensation
Amortization of
-
-
-
-
1,120,278
-
1,120,278
deferred employee
stock option
compensation
Issuance of
4,840,077
48,402
-
2,371,637
-
-
2,420,039
common stock in
settlement of debt
to directors and
related parties
Net Loss
-
-
-
-
-
(23,998,734)
(23,998,734)
BALANCE,
41,344,467
$413,445
$(7,973)
$92,293,370
$(713,275)
$(90,120,925)
$1,864,642
JUNE 30, 2001
The accompanying notes are an
    integral part of these consolidated financial statements.
F-10
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS
IN THE PERIOD ENDED JUNE 30, 2004
TOTAL
$.01
Additional
STOCKHOLDERS
Stated
Treasury
Paid-In
Deferred
Accumulated
Comprehensive
EQUITY
Shares
Value
Stock
Capital
Compensation
Deficit
Loss
(DEFICIT)
BALANCE
41,344,467
$413,445
$(7,973)
$92,293,370
$(713,275)
$(90,120,925)
$-
$1,864,642
JUNE 30, 2001
Sale of Common
6,980,643
69,807
-
1,903,943
-
-
-
1,973,750
stock with
warrants in
private
placement
Issuance of
2,976,068
29,760
-
1,169,241
-
-
-
1,199,001
Common stock
for services
Issuance of
-
-
-
1,877,937
-
-
-
1,877,937
options and
warrants for
services
Cancellation of
-
-
-
(140,802)
140,802
-
-
-
unearned options
to former
employees
Amortization of
-
-
-
-
548,550
-
-
548,550
deferred
employee stock
option
compensation
Issuance of
7,492,996
74,930
-
2,663,728
-
-
-
2,738,658
common stock
and warrants in
settlement of
debt to related
parties and
strategic vendors
Sale of Common
2,000,000
20,000
-
980,000
-
-
-
1,000,000
stock to certain
Officers and
Directors in
private
placement
Issuance of
13,334
133
-
3,867
-
-
-
4,000
Common stock
upon exercise of
options
Net Loss
-
-
-
-
-
(11,245,361)
-
(11,245,361)
Other
-
-
-
-
-
-
(4,026)
(4,026)
comprehensive
loss
BALANCE,
60,807,508
$608,075
$(7,973)
$100,751,284
$(23,923)
$(101,366,286)
$(4,026)
$(42,849)
JUNE 30, 2002
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
mPHASE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS
IN THE PERIOD ENDED JUNE 30, 2004
TOTAL
$.01
Additional
STOCKHOLDERS
Stated
Treasury
Paid-In
Deferred
Accumulated
Comprehensive
EQUITY
Shares
Value
Stock
Capital
Compensation
Deficit
Loss
(DEFICIT)
BALANCE JUNE
60,807,508
$608,075
$(7,973)
$100,751,284
$(23,923)
$(101,366,286)
$(4,026)
$(42,849)
30, 2002
Issuance of common
4,296,680
42,967
-
1,121,351
-
-
-
1,164,318
stock with warrants
in private placement
Issuance of common
426,000
4,260
-
107,985
-
-
-
112,245
stock for services
Issuance of options
-
-
-
274,100
-
-
-
274,100
and warrants for
services
Amortization of
-
-
-
-
23,923
-
-
23,923
deferred employee
stock option
compensation
Issuance of common
5,923,333
59,233
-
1,826,329
-
-
-
1,885,562
stock and warrants
in settlement of debt
to related parties and
strategic vendors
Net loss
-
-
-
-
-
(6,650,211)
-
(6,650,211)
Other
-
-
-
-
-
-
4,026
4,026
comprehensive
income
BALANCE, JUNE
71,453,521
$714,535
$(7,973)
$104,081,049
$-
$(108,016,497)
$-
$(3,228,886)
30, 2003
F-12
mPHASE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE SEVEN YEARS
IN THE PERIOD ENDED JUNE 30, 2004
TOTAL
$.01
Additional
STOCKHOLDERS
Stated
Treasury
Paid-In
Deferred
Accumulated
Comprehensive
EQUITY
Shares
Value
Stock
Capital
Compensation
Deficit
Loss
(DEFICIT)
BALANCE JUNE
71,453,521
714,535
(7,973)
$104,081,049
0
$(108,116,497)
0
$(3,228,886)
30, 2003
Issuance of common
15,177,973
151,779
4,322,394
stock with warrants
in private placement
Issuance of common
924,667
9,247
238,103
-
-
-
stock for services
Issuance of options
and warrants for
services
1,233,334
12,333
1,067,393
304,467
Issuance of common
stock pursuant to
exercise of warrants
Issuance of common
110,467
1,105
1,962,099
stock and warrants
in settlement of debt
to related parties and
strategic vendors
Net loss
(7,758,586)
0
Other
comprehensive
income
BALANCE, JUNE
30, 2004
88,899,962
$888,999
$(7,973)
0
$(115,775,083)
0
$(2,590,718)
The
    accompanying notes are an integral part of these consolidated financial
    statements.
F-12 Cont'd
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' DEFICIT (UNAUDITED)
Total
Additional
Shareholders
$.01
    Stated
Treasury
Paid-in
Accumulated
(Deficit)
Shares
Value
Stock
Capital
Deficit
Equity
Balance June
89,899,962
$888,999
$(7,973)
$111,976,095
$(115,775,083)
$(2,917,962)
30,
2004
Issuance of
common stock
with
warrants in
private
placements net
of cash
expenses of
$15,900
1,672,000
16,720
--
385,380
--
402,100
Issuance of
warrants to
purchase
common
stock in connection
with settlement of
liabilities
--
--
169,500
(1,831,862)
(1,831,862)
Net loss
Balance,
September 30
31, 2004
90,571,962
$905,719
$(7,973)
$112,530,975
$(117,606,945)
$(4,178,224)
The accompanying notes are an integral part of these consolidated financial
statements.
F-12 Cont'd
Issuance of
common stock
with warrants in
private
placements
10,717,700
107,177
-
2,009,423
-
2,166,600
Sale of common
stock through
exercise of
warrants
2,817,954
28,179
-
535,411
-
563,590
Issue of Stock
Options to
Consultants
-
-
-
936,333
-
936,333
Issuance of
Common Stock
to Consultants for
services
134,500
1,345
-
25,555
-
26,900
Issue of
additional shares
and warrants to
effect revised
pricing on
previous private
placements
891,000
8,910
-
176,811
-
185,721
Conversion of
Debt to
Common Stock
and Warrants
4,610,275
46,103
-
539,576
-
585,679
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
F-12 (Cont'd)
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years
    Ended
Inception
June 30,
(October 2,
1996) to
June 30,
2002
2003
2004
2004
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
(11,245,361)
(6,650,211)
(7,758,586)
$ (115,775,083)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization
1,653,346
1,425,952
736,099
6,330,239
Book value of fixed assets disposed
-
-
-
74,272
Loss on unconsolidated subsidiary
-
-
-
1,466,467
Provision for doubtful accounts
2,906
-
-
32,124
Impairment of note receivable
20,250
-
-
232,750
Loss on securities
-
11,258
-
11,258
Gain on Extinguishments
(142,236 )
(61,226 )
(150,058)
(353,520)
Common stock and options and warrants for
3,261,449
1,134,335
1,314,793
49,458,890
purchase of common stock granted
Changes in operating assets and
liabilities:
Accounts receivable
15,748
(13,355)
223,035
(96,224)
Inventory
961,179
1,449,628
865,355
(1,027,733)
Prepaid expenses and other
current assets
173,649
(29,652)
19,267
(577,182)
Production advances-related parties
-
Other assets
146,420
3,580
-
-
Receivables from subsidiary
-
-
-
(150,000)
Due from officer
100,000
-
-
-
Accounts payable
(340,057)
174,939
171,712
4,329,107
Accrued expenses
332,819
273,986
(32,702)
1,779,869
Deferred revenue
214,180
-
-
214,180
Due to related parties:
Microphase
864,555
721,544
83,762
2,379,711
Janifast
907,450
99,841
422,905
2,702,905
Officers
312,504
246,835
(90,583)
468,756
Lintel
-
-
-
477,000
Due to Others
25,794
-
(32,500)
179,472
Net cash used in operating activities
(2,735,405)
(1,212,546)
(4,227,501)
(47,842,742)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investment in patents and licensing rights
(74,699)
-
(40,893)
(416,613)
Purchase of property and equipment
(31,445)
(73,305)
(104,001)
(2,641,106)
Net cash used in investing activities
(106,094)
(73,305)
(144,894)
(3,057,719)
F-13
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from private placement of
2,977,750
1,090,474
3,964,558
50,472,476
common stock and exercise of options
and warrants
Repurchase of treasury stock at cost
-
-
-
(7,973)
Advances
    from/repayment to Microphase
-
527,840
(180,000)
347,840
Proceeds from notes
    payable officers
-
130,000
300,000
430,000
Repayment of notes
    payable - officers
-
(30,000 )
-
(30,000)
Repayment of notes
    payable
(120,191)
(82,668)
(18,978)
(221,837)
Net cash (use
    in)/provided by financing
2,857,559
1,635,646
4,065,580
50,990,506
activities
Net increase
    (decrease) in cash
16,060
349,623
(306,815)
-
CASH AND CASH
    EQUIVALENTS,
31,005
47,065
396,860
90,045
beginning of period
CASH AND CASH
    EQUIVALENTS,
$
    47,065
$
    396,860
$
    90,045
$
    90,045
end of period
The accompanying notes are an integral part of these consolidated financial
statements.
F-13 Cont'd
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
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
307,245
1,122,054
50,580,944
stock, common
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
(5,500)
(105,973)
(2,747,079)
Net Cash used in investing activities
(5,500)
(170,875)
(3,228,594)
Cash Flow from Financing Activities:
Proceeds from issuance of common stock and
679,867
3,945,190
53,532,166
exercises of options
and warrants
Payments of notes
    payable
(2,000)
(105,498)
(327,335)
Advances from
    Microphase Corporation
-
-
347,840
Proceeds from notes
    payable-officers
-
600,000
1,030,000
Repayments of notes
    payable-officers
-
(300,000)
(300,000)
Repurchase of treasury
    stock at cost
-
-
(7,973)
Net cash provided by
    financing activities
677,867
4,138,692
55,130,198
Net increase
    (decrease) in cash
(76,937)
920,858
1,010,903
CASH AND CASH
    EQUIVALENTS, beginning of
396,860
90,045
-
period
CASH AND CASH
    EQUIVALENTS, end of period
$
319,923
$     
    1,010,903
$
1,010,903
The accompanying notes are an integral part of these
consolidated financial statements.
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
1. ORGANIZATION AND NATURE OF BUSINESS
mPhase Technologies, Inc. ("mPhase" or the "Company") was organized on
October 2, 1996. The primary business of mPhase is to design, develop,
manufacture and market high-bandwidth telecommunications products incorporating
digital subscriber line ("DSL") technology. The present activities of the
Company are focused on the deployment of its TV+ System, which delivers MPEG2
digital television, high-speed Internet and voice over copper wire.
Additionally, the Company sells a line of DSL component products. In February of
2004 , the Company entered the field of Nanotechnology focused upon the
development of batteries and power cells with military applications as an
additional product line.
On February 17, 1997, mPhase 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")
a Delaware corporation, through the issuance of 2,500,000 shares of its common
stock in exchange for all the issued and outstanding shares of MicroTel (Note
4). The assets acquired in this acquisition were patents and patent applications
utilized in the Company's proprietary Traverser™ Digital Video and Data Deliver
System ("Traverser™").
On August 21, 1998, the Company incorporated a 100% wholly-owned subsidiary
called mPhaseTV.net, Inc., a Delaware corporation, to market interactive
television and e-commerce revenue opportunities. This subsidiary is dissolved.
On March 2, 2000 the Company acquired a 50% interest in mPhaseTelevision.Net,
Inc., an incorporated joint venture with AlphaStar International, Inc. (Note 8)
for $20,000. The Company acquired an additional interest in the joint venture of
6.5% in April of 2000 for $1.5 million. Based on its controlling interest in
mPhaseTelevision.Net, the operating results of mPhaseTelevision.Net are included
in the consolidated results of the Company since March 2, 2000.
The Company is in the development stage and its present activities are
focused on the commercial deployment of its legacy Traverser™ DVDDS and TV+
products for delivery of broadcast television over ADSL and associated DSL
component products which include POTS splitters and a line of intelligent POTS
splitter products and a new line of power cell batteries being developed through
the use of Nanotechnology. Since mPhase is in the development stage, the
accompanying consolidated financial statements should not be regarded as typical
for normal operating periods.
2. LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS
Through June 30, 2004, the Company had incurred development stage losses
totaling $115,775,083, and at June 30, 2004 had a stockholders' deficit of
$2,917,962. At June 30, 2004, the Company had $90,045 of cash and cash
equivalents and $64,100 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) the successful wide scale development, deployment and marketing of its
products.
The Company believes that it will be able to complete the
necessary steps in order to meet its cash flow requirements throughout fiscal
2005 and continue its development and commercialization efforts. Management's
plans in this regard include, but are not limited to, the following:
During the fiscal year ended June 30, 2004, the Company converted certain
payables and accrued expenses with a strategic vendor aggregating approximately
$1.8 million into 5 year cashless warrants to 5,069,200 restricted shares of the
Company's common stock .
Management estimates that the Company will need additional minimum capital of
$5.0-$10.0 million by June 30, 2005 to continue its operations either through
revenues from sales, external independent or related party funding further
expense reductions some combination thereof. The Company presently has ongoing
discussions and negotiations with a number of additional financing alternatives,
one or more of which it believes will be able to successfully close to provide
necessary working capital, while maintaining sensitivity to shareholder
dilution issues. However, the Company has no definitive agreements to provide
funding at this time.
In addition to the above financing activities, the following business
initiatives are also ongoing and are expected to provide additional working
capital to the Company.
The Company is currently negotiating with several
organizations for the commencement of field trials that would lead to commercial
sales of its broadcast television platform products. The Company has had an
upturn in sales of its POTS splitter products for its fiscal year ended June 30,
2004, including sales to one customer of approximately $3,551,812 million during
such period.
Management believes that actions presently being taken to complete the
Company's development stage through the commercial roll-out of its broadcast
television platforms will be successful. However, there can be no assurance that
mPhase will generate sufficient revenues to provide positive cash flows from
operations or that sufficient capital will be available, when required, to
permit the Company to realize its plans. The accompanying financial statements
does not include any adjustments that might result from the outcome of this
uncertainty.
F-14
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
mPhase, its wholly-owned and majority owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
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 period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior period
consolidated financial statements to conform to the current period presentation.
CASH AND CASH EQUIVALENTS
mPhase considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
STOCK BASED COMPENSATION
Financial Accounting Statement No. 123, Accounting for Stock
Based Compensation, encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. The Company has
adopted the "disclosure only" alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if
the fair value method of accounting had been applied. Had compensation expense
for stock options granted under the Plan and certain warrants granted to
employees in 2003 and 2004 been determined based on fair value at the grant
dates.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of three to five years.
SHORT-TERM INVESTMENTS
Short-term investments principally consist of highly-liquid shares of
corporate securities. The Company classifies all these short-term investments as
available-for-sale securities. Unrealized gains and losses on these investments
are recorded in accumulated other comprehensive income (loss) as a separate
component of shareholders' equity. Any decline in market value judged to be
other than temporary is recognized in determining net income. Realized gains and
losses from the sale of these investments are included in determining net income
(loss).
REVENUE RECOGNITION
All revenue included in the accompanying consolidated statements of
operations for all periods presented relates to sales of mPhase's POTS Splitter
Shelves and DSL component products.
As required, mPhase has adopted the Securities and Exchange Commission
("SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements," which provides guidelines on applying generally accepted
accounting principles to revenue recognition based on the interpretations and
practices of the SEC. The Company recognizes revenue for its POTS Splitter Shelf
and other DSL component products at the time of shipment, at which time, no
other significant obligations of the Company exist, other than normal warranty
support.
SHIPPING AND HANDLING CHARGES
The Company includes costs of shipping and handling billed to customers in
revenue and the related expense of shipping and handling costs is included in
cost of sales.
BUSINESS CONCENTRATIONS AND CREDIT RISK
To date the Company's products have been sold to a limited number of
customers, primarily in the telecommunications industry.
The Company had revenues from two customers representing 39% and 21% of total
revenues during the year ended June 30, 2002. The Company had revenue from two
customers of 31% and 25% during the fiscal year ended June 30, 2003.
The Company had revenue from two customers of 76% and 14% during the fiscal
year ended June 30, 2004.
F-15
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
ADVERTISING COSTS
Advertising costs are expensed as
incurred.
COMPREHENSIVE INCOME (LOSS)
In addition to net loss, comprehensive income (loss) includes all changes in
equity during a period, except those resulting from investments by and
distributions to owners. Items of comprehensive income include foreign currency
exchanges and unrealized gains and losses on investments classified as available
for sale.
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income,
which establishes rules for the Reporting of Comprehensive Income and its
components. For the years ended June 30,2004, June 30, 2003 and June 30, 2002,
the items of comprehensive income include unrealized gains and losses on
investments the Company had classified as available for sale.
PATENTS AND LICENSES
Patents and licenses are capitalized when mPhase determines there will be a
future benefit derived from such assets, and are stated at cost. Amortization is
computed using the straight-line method over the estimated useful life of the
asset, generally five years.
Amortization expense was $471,629, $468,495 and $86,395 for the years ended
June 30, 2002, 2003, and 2004, respectively.
The impairment test for the Company's patents and license rights resulted in
the Company concluding that no impairment in addition to amortization previously
recorded was necessary during the year ended June 30, 2003.
INVENTORIES
Inventory consists mainly of the Company's POTS Splitter Shelf and Filters.
Inventory is comprised of the following:
June 30
2003
2004
Raw materials
$
131,797
$
75,834
Work in Progress
728,537
525,647
Finished goods
1,729,344
1,024,726
Total
2,589,678
1,626,207
Less:
    Reserve for obsolescence
(486,350)
(388,235)
$
2,103,328
$
_1,237,972
December 31, 2004
(unaudited)
2004
Raw materials
$   75,833
Work in Progress
Finished goods
1,102,284
Total
1,178,717
Less: Reserve for
    obsolescence
(388,235)
$ 790,482
LONG-LIVED ASSETS
The Company accounted for long-lived assets for the years ended June 30, 2001
and 2002 in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed of," the Company reviewed its long-lived assets
for impairment when changes in circumstances indicate, that the carrying amount
of an asset may not be recoverable. Such changes in circumstances may include,
among other factors, a significant change in technology that may render an asset
or an asset group obsolete or noncompetitive, a significant change in the extent
or manner in which an asset is used, evidence of a physical defect in an asset
or asset group or an operating loss.
In August 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets," which became effective for the
Company July 1, 2002 for the fiscal years ended June 30, 2003 and June 30, 2004.
The Company assesses long-term assets for impairment under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No.
144, the Company reviews long-term assets for impairment whenever events or
circumstances indicate that the carrying amount of those assets may not be
recoverable. The Company also assesses these assets for impairment based on
their estimated future cash flows.
F-16
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for mPhase's
cash, accounts receivable, accounts payable, and accrued expenses approximate
their fair values due to the short maturities of these financial instruments.
The carrying amounts reported in the consolidated balance sheets for mPhase's
notes payable, long-term debt, amounts due to related parties approximate their
fair values and the amounts recorded as other liabilities and other liabilities
- related parties approximate their fair values based on current rates at which
the Company could borrow funds with similar maturities.
LOSS PER COMMON SHARE, BASIC AND DILUTED
mPhase 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 since their effect is anti-dilutive.
WARRANTY RESERVE
The Company warrants that all equipment manufactured by it will be free from
defects in material and workmanship under normal use for a period of one year
from the date of shipment. Through June 30, 2004, substantially all sales by the
Company have been from component telephone equipment parts, primarily the
Company's POTS Splitter Shelves. The Company's actual experience for cost and
expenses incurred in connection with such warranties have been insignificant.
Warranty expense in the amount of $30,000 has been added to the reserve to
provide for future warranty costs on fiscal 2004 sales. This brings the
company's aggregate accrued liability to $70,000 at this time.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement covers restructuring type
activities beginning with plans initiated after December 31, 2002. Activities
covered by this standard that are entered into after that date will be recorded
in accordance with the provisions of SFAS No. 146. The adoption of SFAS No. 146
did not have a significant impact on our consolidated financial position or
results of operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, "Accounting for
Stock-Based Compensation." Additionally, SFAS 148 required more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The provisions of this Statement are effective for
fiscal years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions in
these consolidated financial statements as disclosed above under Stock Based
Compensation
.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (" FIN 45"). FIN 45 requires a company, at
the time it issues a guarantee, to recognize an initial liability for the fair
value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements related to guarantees and warranties. The initial
recognition requirements of FIN 45 are effective for guarantees issued or
modified after December 31, 2002 and adoption of the disclosure requirements are
effective for the Company during the first quarter ending January 31, 2003. The
adoption of FIN 45 did not have a significant impact on our consolidated
financial position or results of operations.
F-17
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
In January 2003, the FASB issued FASB Interpretation No. 46 (" FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have a significant impact on our consolidated financial position or results of
operations.
<R>
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities, if applicable. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of the Statement and
still existing at the beginning of the interim period of adoption. The adoption
of this statement is not expected to have a significant impact on the Company's
results of operations or financial position.
</R>
STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION
STATEMENT OF CASH FLOW
SUPPLEMENTAL INFORMATION
JUNE 30
JUNE 30
2003
2004
Interest paid
$
14,512
$
11,175
Taxes paid
$
250
$
550
Schedule of Non-Cash
Investing and
    Financing Activities:
Conversion of accounts
    payable and accrued expenses
to equity
$
1,931,788
$
1,963,202
Conversion of accounts
    payable and accrued expenses
-
to notes payable
$
360,000
$
Research and
    development fixed assets transferred to
-
Work in process
    inventory
$
210,239
$
Private Placement
    Reparation Expense
$
Investments in Patents and Licenses paid with
    equity
$
-
$
38,750
Non Cash Compensation
-
-
December 31
December 31
2003
2004
Interest paid
$
6,000
$
0
Taxes paid
$
250
$
0
Schedule of Non-Cash
Investing and Financing Activities:
Conversion of accounts payable and accrued
    expenses
to equity
$
496,726
$
470,000
Conversion of Interest Accrued to Equity
26,725
Conversion of notes payable to equity
$
$
88,894
Total Liability to Equity Conversions
585,679
4. ACQUISITION OF MICROTEL
In June 1998, mPhase issued 2,500,000 shares of common stock in exchange for
all of the issued and outstanding shares of MicroTel, a wholly-owned subsidiary
of Microphase, Inc. ("Microphase"). The transaction was accounted for as a
purchase pursuant to APB Opinion No. 16 "Accounting for Business Combinations".
The total purchase price of approximately $1,870,000, which was based on the
fair market value of the shares issued, was allocated to the patents acquired
and is being amortized over an estimated useful life of five years. Pursuant to
the agreement of merger, MicroTel has become a wholly-owned subsidiary of mPhase.
5. NOTE RECEIVABLE
As consideration for a letter of settlement with a former consultant of
mPhase, the Company had loaned the former consultant $250,000 in the form of a
Note (the "Note") secured by 75,000 shares of the former consultants common
stock of mPhase. The Note was due April 7, 2001. The Company decreased the Note
to $37,500, representing the estimated value of the underlying stock at June 30,
2001. The Company charged $212,500 to administrative expense as a result of this
impairment. The Company has included the $37,500, in long-term assets in the
accompanying consolidated balance sheet for the year ended June 30, 2001. The
Company decreased the Note to $17,250, representing the estimated value of the
underlying stock at June 30, 2002. The Company charged $20,250 to administrative
expenses as a result of the further impairment of the underlying stock value at
June 30, 2002 and has maintained the same balance for the Note throughout the
fiscal years ended June 30, 2003 and June 30, 2004. The Company has included the
$17,250 in long-term assets in the accompanying consolidated balance sheet for
the years ended June 30, 2003 and June 30, 2004.
F-18
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
6. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
December 31, 2004 (unaudited)
Equipment
$2,765,604
Office and marketing
    equipment
452,301
$3,217,905
Less-Accumulated
    depreciation
(2,477,512)
$
    240,393
Depreciation expense for the six months ended December 31, 2004 and December
31, 2003 was $128,506 and $74,082 respectively, of which $125,403 and $74,069 respectively, relates to research
laboratory and testing equipment is included in research and development
expense.
June 30
2003
2004
Equipment
$
2,572,031
$
2,676,030
Office and marketing
    equipment
482,464
482,464
3,054,495
3,158,494
Less-Accumulated
    depreciation
(2,472,605)
(3,105,809)
$
581,890
$
52,685
Depreciation expense for the years ended June 30, 2002, 2003,
and 2004, was $1,181,717, $957,457 and $649,704, respectively, of which
$983,163,$442,040, and $613,221 respectively, relates to research laboratory and
testing equipment is included in research and development expense.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
December
31,
    2004
(unaudited)
Lucent Projects (Note
    13)
$
247,600
Other General Expenses
883,929
$
1,131,529
June 30
2003
2004
Lucent Projects (Note
    13)
$
370,795
$
257,800
Other General Expenses
514,940
433,233
$
885,735
$
691,033
8. JOINT VENTURE
In March 2000, mPhase acquired a 50% interest in mPhaseTelevision.Net
(formerly Telco Television Network, Inc.), an incorporated joint venture, for
$20,000. The agreement provided for the grant of warrants to the joint venture
partner in consideration of the execution of the Joint Venture Agreement, to
purchase 200,000 shares of the Company's common stock for $4.00 per share
(valued at $2,633,400). This non-cash charge is included in general and
administrative expenses in the accompanying statement of operations for the year
ended June 30, 2000. The fair value of the warrants granted to the joint venture
partner as of the date of grant was based on the Black-Scholes stock option
pricing model, using the following weighted average assumptions: annual expected
rate of return of 0%, annual volatility of 115%, risk free interest rate of
5.85% and an expected option life of 3 years.
The agreement stipulates for mPhase's joint venture partner, AlphaStar
International, Inc., ("Alphastar"), to provide mPhaseTelevision.Net right of
first transmission for its transmissions of MPEG-2 digital satellite television.
In addition, in March 2000, mPhase loaned the joint venture $1,000,000 at 8%
interest per annum. The loan is repayable to the Company from equity infusions to the subsidiary, no later than such time that
mPhaseTelevision.Net qualifies for a NASDAQ Small Cap Market Listing. During
April 2000, the Company acquired an additional 6.5% interest in
mPhaseTelevision.Net for $1,500,000.
As of June 30, 2004 mPhase owns a 56.5% interest in mPhaseTelevision.net. The
Company terminated the lease of the earth station for business reasons, and
there was no material impact on mPhaseTelevision.net's operating activities.
Pursuant to an agreement dated as of June 18, 2002, mPhaseTelevision.Net has
terminated its lease of the earth station and Alphastar and its affiliated
entity have converted certain accounts payable into shares of the Company's
common stock. Additionally, under this Agreement, mPhase is obligated to pay
Alphastar and its affiliates $35,000, which is included in amounts due to
related parties in the accompanying consolidated balance sheet.
During the fiscal years ended June 30, 2002, June 30, 2003 and ended June 30,
2004, the joint venture was charged $69,000, $0 and $0, respectively for fees
and costs by its joint venture partner and its affiliates.
F-19
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
9. LONG TERM DEBT
December 31,
Long-term debt is
    comprised of the following:
2004
(unaudited)
Settlement
    Agreements
Accounts payable
    originally expected to be converted to a $150,000 Note payable to
GTRC bearing 7%
    interest, amended in March 2004, and reduced to $100,000, to be
amortized in equal
quarterly
    installments $16,667 plus interest at 7% through March 2005
(see also-Note
    13-Commitments and Contingencies)
$
83,333
Accounts payable
    originally expected to be converted to Note payable to GTRC
bearing 7%
    interest, amortized in monthly payments scheduled to increase annually
until a maturity in
    September 2008, yet were settled in full together with other
liabilities
including the
    amended note above.
(see also-Note 13 -
    Commitments and Contingencies)
0
Note payable to law
    firm bearing 8% interest, originally monthly installments
of $5,000 per month
    commencing in June 2002 and continuing
through December 1,
    2003 with a final payment of principal plus
accrued interest
    originally due at maturity on December 31, 2003, this note was
in arrears as of
    June 30, 2004 and the company negotiated a new settlement
arrangement as of
    August 31, 2004. Under such settlement agreement,
which the Company
    made a $100,000 cash
    payment and
gave a cashless
    warrant to purchase $150,000 worth of common stock valued at $.25
per share. In addition
    the Company agreed to pay $25,000 on each of December 1, 2004,
March 1, 2005, June
    1, 2005, September 1, 2005 and $50,000 shall be payable on
December 1, 2005.
    Thereafter the Company is obligated to pay $25,000 on each of
March 1, 2006, June
    1, 2006, September 1, 2006 with a final payment of $75,000 on
December 1, 2006.
164,500
Note payable to
    vendor bearing 8% interest due in weekly payments
of $5,000 including
    accrued interest. These payments commenced in
January 2002 and
    originally were scheduled to continue until June 2004.
This note is
    presently in arrears and is included in current portion of long term debt.
208,058
Note payable to
    vendor non interest bearing average monthly
payments of $4,167
    in 2003 and $3,660 in 2004. These payments
commenced in April
    2002 and originally were scheduled to continue until May 2004.
This note is
    presently in arrears and is included in current portion of long tem debt.
209,767
Note payable,
    vendor, interest at 8%, with average monthly payments of
$2,000 originally
    scheduled to through March, 2004.
This note is
    presently in arrears and is included in current portion of long term debt.
27,147
Total
$
692,805
Less: Current
    portion
517,805
Long-term Debt,
    non-current portion
$
175,000
At December 31, 2004
    total maturities of long-term debt are as follows:
2005
$
517,805
2006
100,000
2007
75,000
TOTAL
$
692,805
F-20
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
9. LONG TERM DEBT
Long-term debt is
    comprised of the following:
June 30,
2003
2004
Settlement
    Agreements
Accounts payable
    originally expected to be converted to a $150,000 Note payable to
GTRC bearing 7%
    interest, amended in March 2004, and reduced to $100,000, to be
amortized in equal
quarterly
    installments $16,667 plus interest at 7% through March 2005
(see also-Note
    13-Commitments and Contingencies)
$150,000
$83,333
Accounts payable
    originally expected to be converted to Note payable to GTRC
bearing 7%
    interest, amortized in monthly payments scheduled to increase annually
until a maturity in
    September 2008, yet were settled in full together with other
liabilities
including the
    amended note above.
(see also-Note 13 -
    Commitments and Contingencies)
474,235
0
Note payable to law
    firm bearing 8% interest, originally monthly installments
of $5,000 per month
    commencing in June 2002 and continuing
through December 1,
    2003 with a final payment of principal plus
accrued interest
    originally due at maturity on December 31, 2003, this note was
in arrears as of
    June 30, 2004 and the company negotiated a new settlement
arrangement as of August 31,
    2004. Under such settlement agreement, which the Company made a
$100,000 cash
    payment and
gave a cashless
    warrant to purchase $150,000 worth of common stock valued at $.25
per share. In addition
    the Company agreed to pay $25,000 on each of December 1, 2004,
March 1, 2005, June
    1, 2005, September 1, 2005 and $50,000 shall be payable on
December 1, 2005.
    Thereafter the Company is obligated to pay $25,000 on each of
March 1, 2006, June
    1, 2006, September 1, 2006 with a final payment of $75,000 on
December 1, 2006.
405,022
289,500
Note payable to
    vendor bearing 8% interest due in weekly payments
of $5,000 including
    accrued interest. These payments commenced in
January 2002 and
    originally were scheduled to continue until June 2004.
This note is
    presently in arrears and is included in current portion of long term debt.
210,558
210,558
Note payable to
    vendor non interest bearing average monthly
payments of $4,167
    in 2003 and $3,660 in 2004. These payments
commenced in April
    2002 and originally were scheduled to continue until May 2004.
This note is
    presently in arrears and is included in current portion of long tem debt.
79,765
79,765
Note payable,
    vendor, interest at 8%, with average monthly payments of
$2,000 originally
    scheduled to through March, 2004.
This note is
    presently in arrears and is included in current portion of long term debt.
29,458
27,147
Total
$ 1,349,038
$
690,303
Less: Current
    portion
$ 762,735
$550,803
Long-term Debt,
    non-current portion
586,303
139,500
At June 30, 2004
    total maturities of long-term debt are as follows:
2005
$ 550,803
2006
100,000
2007
39,500
TOTAL
$
690,303
F-20
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
10. STOCKHOLDERS' EQUITY
mPhase initially authorized capital of 50,000,000 shares of common stock with
no par value. On February 23, 2000, the Board of Directors proposed and on May
22, 2000 the shareholders approved an increase in the authorized capital to
150,000,000 shares of common stock. On June 15, 2004, a Special Meeting of
Shareholders of the Company approved a proposal by the Company to amend the
Company's Certificate of Incorporation under New Jersey law to increase the
authorized shares of common stock from 150 million to 250 million shares and
change the par value of all shares of common stock from no par to $0.01 par
stock.
On January 26, 2000 the Board of Directors of mPhase resolved that the stated
value of the common stock was $.01 for accounting purposes and, as such, the
financial statements have been retroactively restated to reflect this change.
Tecma issued 6,600,000 shares of common stock for all of the issued and
outstanding shares of the Company in the reverse acquisition (Note 1).
In October 1997, mPhase issued 250,000 shares of its common stock in
connection with its investment in Complete Telecommunications Inc.
During the year ended June 30, 1998, mPhase sold, pursuant to private
placements, 2,095,014 shares of its common stock together with 1,745,179
warrants for proceeds to the Company of $1,472,015, net of offering costs of
$205,203. The warrants were issued to purchase one share each of common stock at
an exercise price of $0.75, and exercised during the year ended June 30, 2000
generating proceeds to the Company of $1,308,884. Included in offering costs are
100,000 shares of common stock issued for services provided by a third party
valued at $0.50 per share, the fair market value on the date of grant.
During the year ended June 30, 1998, mPhase issued 300,000
shares of common stock to consultants for services at $0.50 per share, its fair
market value. The Company recorded a charge to operations of $150,000 included
in cumulative from inception in the accompanying consolidated statement of
operations.
On June 25, 1998, mPhase issued 2,500,000 shares of its common stock for all
of the outstanding stock of MicroTel (Note 4) for approximately $1,870,000, the
fair market value.
In November 1998, mPhase sold, 3,120,000 shares of its common stock at $1.00
per share, together with 1,000,000 warrants, with an exercise price of $1.00 per
share, for $3,013,000 net of offering costs of approximately $107,000 in private
transactions pursuant to Rule 506 of Regulation D of the Securities Act of 1933,
as amended, with accredited investors. On June 2, 2000 these warrants were
exercised, generating proceeds to the Company of $1,000,000.
During the year ended June 30, 1999, mPhase issued 1,599,332 shares of common
stock to employees and consultants for services performed. The Company
recognized a charge to operations of $8,760,866, based upon the fair market
value of the shares.
In April, May and June of 1999, mPhase sold a total of 642,000 shares of
common stock at $2.50 per share, together with 642,000 warrants for $1,559,647,
net of offering costs of $45,353 in private transactions pursuant to Rule 506 of
Regulation D of the Securities Act of 1933, as amended, with accredited
investors.
The warrants expire in June 2004. By June 30, 2000, 148,000 of these warrants
were exercised, generating proceeds to the Company of $370,000.
In June 1999, mPhase sold 4,426,698 shares of its common stock at a price of
$2.50 per share for $10,387,434, net of offering costs of $679,311, in private
transactions pursuant to Rule 506 of Regulation D of the Securities Act of 1933,
as amended, with accredited investors.
In December 1999 and January 2000, mPhase sold, pursuant to
private placements, 1,000,000 shares of common stock at a price of $4.00 per
share, net of cash offering costs of $200,000, generating net proceeds to the
Company of $3,800,000 in private transactions pursuant to Rule 506 of Regulation
D of the Securities Act of 1933, as amended, with accredited investors. In
connection with the private placements, the Company issued 200,000 and 50,000
warrants to purchase common stock to the respective investors. The warrants had
an exercise price of $4.00 and $5.00, respectively. During February 2000, these
warrants were exercised, generating $1,050,000 of proceeds to the Company.
In March 2000, mPhase sold 832,500 shares of
common stock at a price of $10.00 per share, net of cash offering costs of
$466,480, and issued 124,875 shares to a transaction advisor for services,
generating net proceeds to the Company of $7,858,520 in private transactions
pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended,
with accredited investors. On May 5, 2000 the Company issued an additional
208,125 shares to these investors due to a market value adjustment. These shares
were valued at $1,808,086, which is included in general and administrative
expenses in the accompanying statement of operations for the year ended June 30,
2000.
F-21
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
10. STOCKHOLDERS' EQUITY - (Continued)
During the year ended June 30, 2000, mPhase issued 1,164,215 shares of common
stock to employees and consultants for services performed. The Company
recognized a charge to operations of $8,623,907, based upon the fair market
value of the common stock on the dates of grant.
In September 2000, mPhase issued 510,000 shares of its common stock,
generating net proceeds of $2,532,120, net of cash offering costs of $17,880 in
private transactions pursuant to Rule 506 of Regulation D of the Securities Act
of 1933, as amended, with accredited investors. In connection with the private
placement, the Company issued 105,750 shares of its common stock to transaction
advisors.
In February 2001, mPhase issued 2,342,500 shares of its common stock and a
like amount of warrants to purchase one share each of the Company's common stock
generating gross proceeds of $4,685,000 in private transactions pursuant to Rule
506 of Regulation D of the Securities Act of 1933, as amended with accredited
investors. The attached warrants permit the investor to purchase one share each
of common stock at an exercise price of $3.00 per share. The Company incurred
cash offering costs of $425,315 and also issued 284,600 shares of its common
stock and 162,600 warrants to purchase one share each at an exercise price of
$3.00 to transaction advisors.
In May and June 2001, mPhase issued 1,087,000 shares of its common stock and
a like amount of warrants to purchase one share each of the Company's common
stock generating gross proceeds of $1,087,000 in private transactions pursuant
to Rule 506 of Regulation D of the Securities Act of 1933, as amended with
accredited investors. The attached warrants permit the investor to purchase one
share each of common stock at an exercise price of $3.00. The Company incurred
offering costs of $69,000.
During the year ended June 30, 2001, the Company issued 450,000 shares of
common stock to consultants for services performed and to be performed. The
Company recognized a charge to operations of $886,534 and deferred $121,091 for
services to be performed in the fiscal year ending June 30, 2002. Total expense
of $1,007,625, based upon the fair market value of the common stock on the date
of the grant and the balance of $121,091 was charged to operations for the year
ended June 30, 2002.
Effective June 30, 2001 the Company issued 4,840,077 shares of the Company's
common stock in settlement of debt totaling $2,420,039 to directors and related
parties, based upon the fair market value of the common stock issued which
approximated the debt settled on the measurement date on September 6, 2001, such
date was determined pursuant to EITF00-19 as to when all contingent terms of the
conversion agreement were set. The shares are reflected as outstanding as of
June 30, 2001, pursuant to A9566 and SFAS 128.
In July 2001, the Company issued 75,000 shares of its common stock and a like
amount of warrants to purchase one share each of the Company's common stock at
an exercise price of $3.00 generating proceeds of $75,000 in a private
transaction with accredited investors.
In December 2001, the Company issued 3,474,671 shares of its common stock and
a like amount of warrants to purchase one share each of the Company's common
stock at an exercise price of $.30 generating gross proceeds of $1,042,000 in a
private transaction pursuant to Rule 506 of Regulation D of the Securities Act
of 1933, as amended with accredited investors, which included a subscription
receivable of $440,200, which was collected in January 2002.
In January 2002, the Company issued 2,754,503 shares of its common stock and
a like amount of warrants to purchase one share each at an exercise price of
$.30 generating gross proceeds of $826,351 and June 2002, the Company issued
100,000 shares of its common stock and a like amount of warrants to purchase one
share each at an exercise price of $.30, generating gross proceeds of $30,000 in
a private placements pursuant to Rule 506 of Regulation D of the Securities Act
of 1933, as amended, with accredited investors.
In connection with the December 2001, January 2002, and June
2002, private placements, the Company issued 576,469 shares of its common stock
and a like amount of warrants to purchase one share each at an exercise price of
$.30 to finders and consultants whom assisted in the transaction.
During the year ended June 30, 2002 the Company issued 7,492,996 shares of
its common stock, and 5,953,490 warrants to related parties and strategic
vendors, in connection with the conversion of $2,738,658 of accounts payable and
accrued expenses, of which 6,150,000 shares of common stock and 3,400,000
warrants were issued in settlement of $1,460,000 of accounts payable to related
parties as follows:
Conversions Concurrent with Private Placements
Included in this total for the year ended June 30, 2002, related
parties and strategic vendors converted debt aggregating approximately
$1,020,000 and $96,000 respectively into:
(a)3,400,000 shares and of common stock plus warrants to
purchase another 3,400,000 shares of common stock at $.30 for a term of 5 years
(2,200,000 units with Microphase for $660,000 and 1,200,000 units with Janifast
for $360,000) and;
(b)320,000 shares of common stock plus warrants to purchase
another 320,000 shares of common stock at $.30 for a term of 5 years,
respectively, were issued to strategic vendors.
Such conversions were upon the same terms of a concurrent
private placement of common stock by the Company of approximately $1.8 million
in cash received for 6 million shares of common stock plus warrants to purchase
another 6 million shares of Company's common stock for 5 years at $.30 per
share. No gain or loss was recognized in connection with conversions by related
parties and strategic vendors of the above total of $1,116,000 of debt.
Conversions, Settlements and Gain on Extinguishments
In addition this total for the year ended June 30, 2002 includes
4,873,333 shares of common stock and warrants to purchase 2,656,800 shares of
the Company's common stock which were issued as follows:
(a)2,750,000 shares of common stock were issued to related
parties, the value of which was based upon the price of the Company's common
stock on the measurement date, such date was determined pursuant to EITF00-1 as
to when all contingent terms of conversion agreements were met, in which no gain
or loss was recognized on the conversion of $440,000 of debt; and
(b)1,022,996 shares of common stock were issued to strategic
vendors, the value of which was based upon the price of the Company's common
stock on the effective date of settlement with each party, and, two warrants to
purchase 2,233,490 shares of the Company's common stock were issued the
Company's outside counsel to settle outstanding indebtedness of approximately
$450,000 as of March 15, 2002. The aggregate value of such warrants was
estimated using the Black Scholes options pricing model, assuming an anual
expected return of 0%, annual Beta volatility of 125.4 and a risk free interest
rate of 5.9% pursuant to EITF 96-18, for the conversion of $1,182,658 of such
liabilities which, together with gains from cash settelements of $27,860
resulted in an aggregate gain on extinguishments of $142,236.
F-22
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
10. STOCKHOLDERS' EQUITY - (Continued)
During the year ended June 30, 2002, certain officers, directors and related
parties were issued 2,000,000 and 6,150,000 shares of mPhase common stock and
3,400,000 warrants in consideration of the investment of $1,000,000 cash and the
conversion of $1,460,000 accounts payable. (see Note 11).
During the year ended June 30, 2002, certain officers, directors and related
parties were issued 2,000,000 and 6,150,000 shares of mPhase common stock and
3,400,000 warrants in consideration of the investment of $1,000,000 cash and the
conversion of $1,460,000 accounts payable. (see Note 11).
Also, during the fiscal year ended June 30, 2002, the Company granted
2,923,000 shares of its common stock and 1,675,000 warrants to consultants for
services performed valued at $1,199,001 for common stock and $504,657 for
warrants based upon the fair market value of the Company's common stock on the
date of the grant using the Black-Scholes option premium model. These totaled
$1,703,658 and the Company recorded a charge to operations of $955,668 for the
year ended June 30, 2002 and the balance of $747,990 was charged to operations
for the year ended June 30, 2003.
During the year ended June 30, 2003, the Company issued 426,000 shares of its
common stock valued at $112,245 and 1,690,000 warrants, valued at $203,150 based
upon the fair market value of the Company's common stock on the date of the
grant using the Black-Scholes option pricing model. The Company recorded these
changes, totaling $318,395 to operations for the year ended June 30, 2003.
During the fiscal year ended June 30, 2003, the Company converted certain
payables and accrued expenses with officers, related parties and strategic
vendors aggregating approximately $1.9 million into 5,923,333 restricted shares
of the Company's common stock and 5 year warrants to purchase an additional
3,706,800 restricted shares of the Company's common stock, of which 5,533,333
shares of common stock and 3,491,800 warrants were issued in settlement of
$1,748,756 of debt to related parties as follows:
Conversions Concurrent with Private Placements
Included in this total for the year ended June 30, 2003, related parties and
strategic vendors converted debt aggregating approximately $300,000 and $15,000
respectively into:
(a) 1,000,000 shares and 5 year warrants to purchase at $.30 a
share 1,000,000 shares of mPhase common stock by Microphase, a related party,
which converted $300,000 of liabilities;
(b) 50,000 shares and 5 year warrants to purchase at $.30 a
share 50,000 shares of mPhase common stock by a strategic vendor which converted
$15,000 of liabilities.
Such conversions were upon the same terms of a concurrent private placement
of common stock by the Company and no gain or loss was recognized in connection
with these conversions.
Conversions, Settlements and Gain on Extinguishments
In addition this total for the year ended June 30, 2003 includes 3,772,996
shares of common stock and warrants to purchase 2,233,490 shares of the
Company's common stock which were issued as follows:
(a) During the year ended June 30, 2003, these included transactions with
related parties whereby the Company and the counter parties respective board of
director's approved, entering into an agreement in principle with the Company's
officers and affiliates, including Janiafst Ltd. and Microphase Corporation, to
convert up to an amount equal to accounts payable through September 30, 2002.
Such approval was received by the respective boards of directors authorizing
conversions of such payables effective September 30, 2002 resulting in the
conversion of $620,000 on and $360,000 on of liabilities due to Microphase
corporation, and Janifast Ltd. into 3,033,000 shares and 1,500,000 shares of
stock, respectively. The value attributable to the shares was based upon the
market price of the Company's common stock on the measurement date, such date
was determined pursuant to EITF00-1, as to when all the
contingent terms of the conversion agreement were met, in which
no gain or loss was recognized on the conversion of $980,000 of debt and,
(b) Also included in such conversions during the year ended June
30, 2003, were transactions whereby the Company converted $525,967 of
liabilities due to the Company's president, vice president and a sales manager
who is also concurrently employed by Microphase, for unpaid management
compensation and sales commissions due from mPhase into warrants to purchase up
to a total of 2,656,800 shares of the Company's common stock. The aggregate
value of such warrants was estimated using the Black-Scholes options pricing
model, pursuant to EITF 96-18, having an approximate value of $.21 per share, or
$538,173. The Company recorded a settlement expense of approximately $12,206
with respect to these three individuals.
(c) Strategic vendors converted $117,486 of payables into
340,000 shares of the Company's common stock on the measurement date the value
of which was based upon the price of the Company's common stock on the effective
date of settlement with each party. This resulted in a gain of $37,383, which,
when combined with all the conversions and gains from cash settlements of
$36,049 for the fiscal year 2003, resulted in a net gain on extinguishments in
the statements of operations of $61,226 for the year ended June 30, 2003.
Conversions Concurrent with Private Placements
Included in this total for the year ended June 30, 2003, related
parties and strategic vendors converted debt aggregating approximately $300,000
and $15,000 respectively into:
(a) 1,000,000 shares and 5 year warrants to purchase at $.30 a
share 1,000,000 shares of mPhase common stock by Microphase, a related party,
which converted $300,000 of liabilities;
(b)50,000 shares and 5 year warrants to purchase at $.30 a share
50,000 shares of mPhase common stock by a strategic vendor which converted
$15,000 of liabilities.
Such conversions were upon the same terms of a concurrent
private placement of common stock by the Company and no gain or loss was
recognized in connection with these conversions.
In August of 2003, the Company issued 333,334 shares of its
common stock together with 5 year warrants convertible into a like amount of
shares of common stock at $.30 per share generating net proceeds of $100,000 in
a Private Placement pursuant to Section 506 of Regulation D of the Securities
Act of 1933 to 1 Accredited Investors. The proceeds of such placement were used
for working capital purposes.
In December of 2003, the Company issued 1,550,000 shares of its
common stock together with 5 year warrants convertible into a like amount of
shares at $.35 per share generating net proceeds of $542,500 in a Private
Placement pursuant to Section 506 of Regulation D of the Securities Act of 1933
to 1 Accredited Investor. The proceeds of such placement were used for working
capital purposes and to defray a portion of the costs of Research and
Development expenses with Lucent Technologies, Inc.
From January through March of 2004, the Company issued 8,509,543
shares of common stock together with 5 year warrants convertible into a like
amount of common stock at $.35 per share generating net proceeds of $2,729,213
in a Private Placement pursuant to Section 506 of Regulation D of the Securities
Act of 1933 to 25 Accredited Investors. The proceeds of such placement were used
for working capital purposes and to defray a portion of the costs of Research
and Development expenses with Lucent Technologies, Inc.
In March of 2004, the Company issued 691,429 shares of common
stock together with 5 year warrants convertible into a like amount of common
stock at $.35 per share generating net proceeds of $242,000 in a Private
Placement pursuant to Section 506 of Regulation D of the Securities Act of 1933
to 2 Accredited Investors. The proceeds of such private placement were used for
working capital purposes.
F-22
In June of 2004, the Company issued 3,844,000 shares plus 5 year callable
warrants to purchase a like amount of shares at $.35 plus 5 year callable
warrants to purchase shares at $.50 generating net proceeds of $961,000 in a
Private Placement pursuant to Section 506 of Regulation D of the Securities Act
of 1933 to 5 Accredited Investors. The proceeds of such private placement were
used to pay Research and Development Expenses with Lucent Technologies, Inc and
for general corporate working capital. In July of 2004 such placement was
completed with the issuance by the Company of 620,000 shares of common stock
plus a like amount of 5 year callable warrants at $.35 and $.50 to 5 Accredited
Investors generating net proceeds of $155,000.
During the fiscal year ended June 30, 2004, the Company converted certain
payables and accrued expenses with GTRC aggregating approximately $1.9 million
into a cashless 5 year warrant to purchase 5,069,200, restricted shares of the
Company's common stock plus a $100,000 term promissory note . In addition, the
Company converted a total of $36,890 in payables to other vendors in exchange
for 10,467 shares of common stock.
Conversions, Settlements and Gain on Extinguishments
As a result of the preceding, during the three years ended June 30, 2004,
extinguishments, cancellations and conversions of debt for issuance of the
Company's common stock to related parties is summarized in Note 11 and amounts
relating to strategic investors is summarized as follows:
For the Years Ended
    June 30
2002
2003
2004
Equity Conversions of
    Debt with Strategic Vendors
Number of Shares
999,662
390,000
110,467
Number of Warrants
870,000
215,000
5,069,200
Amount Converted to
    Equity
$
    529,503
$
    198,032
$1,963,202
Gain on Extinguishment
    of Debt
$
    142,236
$ 61,226
$
    150,058
For the
    Six Months Ended December 31 (Unaudited)
2003
2004
Equity Conversions of
    Debt with Strategic Vendors
Number of Shares
0
0
Number of Warrants
0
0
Amount Converted to
    Equity
$0
$0
Gain on Extinguishment
    of Debt
0
$0
During the year ended June 30, 2004, the Company recorded non-cash
extinguishments gains from settlements of $173,145 and after adjusting $23,087
for cash settlement expenses, resulted in net gains on extinguishments of
$150,058.
The Company has no commitments from affiliates or related parties to provide
additional financings. The Company has, from time to time, been able to obtain
financings from affiliates when conditions in the capital markets make third
party financing difficult to obtain or when external financing is available only
upon very unattractive terms to the Company, and when such capital has been
available from the affiliates. (See also-Note 11-Related Party Transactions)
STOCK INCENTIVE PLANS
On August 15, 1997, mPhase established its Long Term Stock
Incentive Plan. Included as part of the Long Term Stock Incentive Plan, is the
Stock Option Plan (the "Plan"), in which incentive stock options and
nonqualified stock options may be granted to officers, employees and consultants
of the Company. On February 23, 2000 the Board of Directors proposed and on May
22, 2000 the stockholders approved an increase in the total shares eligible
under this plan to 15,000,000 shares. Vesting terms of the options range from
immediately to two years and generally expire in five years.
On May 30, 2001, mPhase established the 2001 Stock Incentive Plan (the "2001
Plan"), in which incentive stock options and non-qualified stock options may be
granted to officers, employees and consultants of the Company. The total shares
eligible under the 2001 Plan is 20,000,000 shares, in addition to the shares
previously authorized for issuance under the prior plan. Vesting terms of the
options range from immediately to two years and options generally expire in five
years. The maximum number of shares that may be granted during any one fiscal
year to any one individual under the 2001 Plan is limited to 2,500,000 shares.
F-23
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
10. STOCKHOLDERS' EQUITY - (Continued)
A summary of the stock option activity for the years ended June 30, 2002,
2003, 2004 pursuant to the terms of both plans, which include incentive stock
options and non-qualified stock options, is set forth on the below:
NUMBER OF
WEIGHTED
OPTIONS
AVERAGE
EXERCISE PRICE
Outstanding at June 30, 2002
19,107,000
$ 1.27
Granted
625,000
.30
Exercised
-
-
Canceled /Expired
(2,565,000 )
(1.00 )
Outstanding at June 30, 2003
17,167,000
1.24
Granted
4,730,000
.42.
Exercised
-
-
Canceled/Expired
(4,172,000)
(1.43)
Outstanding at June 30, 2004
17,725,00
$  .87
0
Exercisable at June 30, 2004
17,725,000
$  .87
The fair value of options granted in 2002 and 2003 and options and
compensatory warrants granted in 2004 was estimated as of the date of grant
using the Black-Scholes stock option pricing model, based on the following
weighted average assumptions: annual expected return of 0%, annual volatility of
125.4% in 2002, 144.4% in 2003 and 145.3% in 2004 based upon a risk-free
interest rate ranging from 2.1% to 5.8% and expected option life of 4 years.
The per share weighted average fair value of stock options granted during
2002, 2003 and 2004 was $.26, $.21, and $.35, respectively. The per share
weighted average remaining life of the options outstanding at June 30, 2002,
2003, and 2004 is 3.29, 2.80 and 2.88 years, respectively.
mPhase has elected to continue to account for stock-based compensation under
APB Opinion No. 25, under which no compensation expense has been recognized for
stock options and certain compensating warrants granted to employees at fair
market value. Had compensation expense for stock options granted under the Plan
and certain warrants granted to employees in 2004, been determined based on fair
value at the grant dates, mPhase's net loss for 2002, 2003 and 2004 would have
been increased to the pro forma amounts shown below.
During the second quarter of fiscal 2004, the Company adopted the fair value
recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation
, for stock-based employee
compensation, effective as of the beginning of the fiscal year. Under the
modified prospective method of adoption selected by the Company, stock-based
employee compensation cost recognized in 2003 is the same as that which would
have been recognized had the fair value recognition provisions of Statement 123
been applied to all awards granted after October 1, 1995. The following table
illustrates the effect on net income and earnings per share as if the fair value
based method has been applied to all outstanding and unvested awards in each
period.
Six Months ended December
    31(unaudited),
2003
2004
Net loss, as reported
$(2,563,377)
$(5,137,992)
Add: Stock-based
    employee
compensation expense
    net
included in report of
    net income,
--
--
net of related tax
    effects
Deduct: Total
    stock-based
--
(5,672,615)
employee compensation
    expense
determined under fair
value based method for
    all
awards, net of related
    tax effects
534,623
Pro forma net loss
$(2,563,337)
$(5,672,615)
Loss per share:
Basic and diluted-as
    reported
$(.04)
$(.06)
Basic and diluted-pro
    forma
$(.04)
$(.06)
Twelve months ended June 30,
2002
2003
2004
Net loss, as reported
$(11,245,361)
$(6,650,211)
$(7,758,586)
Add: Stock-based
    employee
548,550
23,923
72,000
compensation expense
    net
included in report of
    net income,
net of related tax
    effects
Deduct: Total
    stock-based
(976,280)
(239,983)
(810,080)
employee compensation
    expense
determined under fair
value based method for
    all
awards, net of related
    tax effects
Pro forma net loss
$(11,673,491)
$6,866,231)
$(8,486,666)
Loss per share:
Basic and diluted-as
    reported
$(.23)
$(.10)
$(.10)
Basic and diluted-pro
    forma
$(.24)
$(.11)
$(.11)
For the year ended June 30, 2002, the Company recorded non-cash charges and
deferred compensation totaling $927,420 and $0, respectively, in connection with
the grant of 6,570,000 options to employees and options to consultants for
services rendered or to be rendered. Such charges are the result of the
differences between the quoted market value of the Company's common stock on the
date of grant and the exercise price for options issued to employees and Black-Scholes
stock option pricing calculations for options issued to consultants.
F-24
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
10. STOCKHOLDERS' EQUITY - (Continued)
For the year ended June 30, 2003, the Company recorded non-cash charges and
deferred compensation totaling $70,950 and $0, respectively, in connection with
the grant of 625,000 options to employees and consultants and the Company
recorded non-cash charges of $203,155 in connection with the grant of 1,690,000
compensating warrants to employees and consultants for services rendered or to
be rendered. Such charges are the result of the differences between the quoted
market value of the Company's common stock on the date of grant and the exercise
price for option and warrants issued to employees and Black-Scholes stock option
pricing calculations for options and warrants issued to consultants.
For the year ended June 30, 2004 the Company recorded non-cash charges and
deferred compensation totaling $833,100 and $0 respectively , in connection with
the grant of options covering 4,370,000 shares of common stock to employees and
consultants and the Company recorded non-cash charges of $170,451 in connection
with the grant of 500,000 compensating warrants to employees and consultants for
services rendered or to be rendered. Such charges are the result of the
differences between the quoted market value of the Company's common stock on the
date of grant and the exercise price for option and warrants issued to employees
and Black-Scholes stock option pricing calculations for options and warrants
issued to consultants.
The following summarizes information about stock options outstanding at June
30, 2004 and December 31, 2004 respectively:
RANGE OF
NUMBER
WEIGHTED
WEIGHTED
NUMBER
WEIGHTED
EXERCISE
OUTSTANDING
AVERAGE
AVERAGE
EXERCISABLE
AVERAGE
PRICE
REMAINING
EXERCISE
EXERCISE
CONTRACTUAL
PRICE
PRICE
LIFE
June
    30,2004
$0 -
    $.50
11,705,000
3.53
$.39
11,705,000
$.39
$.51-$1.50
4,603,500
1.83
$.83
4,603,500
$.83
$1.50-$16.38
1,416,500
.91
$4.93
1,416,500
$ 4.93
December 31,
2004
(Unaudited)
$0-$.50
18,913,333
3.75
.38
18,913,333
.39
$.51-$1.50
4,607,500
1.32
.83
4,607,500
.83
$1.50-$16.38
1,476,500
.76
4.77
1,476,500
4.93
WARRANTS
In January and April 1998, mPhase issued 25,000 and 50,000 warrants,
respectively, each to purchase one share of common stock at an exercise price of
$1.06 and $2.44, respectively, for consulting services. The warrants expire five
years from the date of issuance. At any time after the date of issuance, the
Company may, at its option, elect to redeem all of these warrants at $0.01,
subject to adjustment, as defined, per warrant, provided that the average
closing price of the common stock for 20 business days within any period of 30
consecutive business days exceeds $5.00 per share. As of June 30, 2001, none of
these warrants remain outstanding.
In July 1998, in connection with the private placements, mPhase issued
400,000 warrants, each to purchase one share of common stock at an exercise
price of $1.00 per share. The Company allocated the net proceeds from the sale
of the common stock to the common stock and the warrants. On July 26, 1999,
pursuant to the warrant agreement these 400,000 warrants were converted into
352,239 shares of common stock. In accordance with the warrant agreement, the
warrant holder had the right to initiate a cashless exercise to convert the
warrants into
shares of common stock in lieu of exchanging cash. The number of shares
received was determined by dividing the aggregate fair market value of the
shares minus the aggregate exercise price of the warrants by the fair market
value of one share.
In September 1998, mPhase issued 6,666 warrants for services, each to
purchase one share of common stock at an exercise price of $0.75 per share. The
warrants expire five years from the date of grant. The Company determined the
fair market value of the warrants issued under the Black-Scholes Option Pricing
Model to be $16,302. This amount is included in the Company's general and
administrative expenses in the accompanying consolidated statement of operations
as of June 30, 1999. These warrants were exercised during the year ended June
30, 2000 generating proceeds to the Company of $5,000.
In June 1999, in connection with the private placements, mPhase also issued
400,000 warrants each to purchase one share of common stock at an exercise price
of $1.00 per share. The warrants were to expire five years from the date of
grant. These warrants were exercised during the year ended June 30, 2000
generating proceeds of to the Company of $400,000.
In January 2000, in connection with private placements,
mPhase issued 200,000 and 50,000 warrants, each to purchase one share of common
stock, at an exercise price of $4.00 and $5.00, respectively. The net proceeds
of the private placement were allocated to the warrants and the common stock
based on their respective fair values. The warrants were to expire five years
from the date of issuance. These warrants were exercised in February 2000.
During the year ended June 30, 2001, mPhase issued 4,980,125 warrants to
investors including 1,550,625 warrants to existing investors as compensation
which resulted in a charge of $1,249,804 to operations based upon the fair value
of the warrants issued as determined under the Black-Scholes option pricing
model, and 162,600 to finders, consultants and investment banking firms, each of
these warrants to purchase one share each of the Company's common stock at
$3.00, for five years, in connection with private placements.
F-25
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
10. STOCKHOLDERS' EQUITY - (Continued)
During the year ended June 30, 2001, mPhase granted 1,180,000
warrants to consultants for services performed and for services to be performed
at prices ranging from $1.25 to $5.00, which resulted in a charge of $1,185,874
to operations and deferred $457,942 for services to be performed in the fiscal
year to end June 30, 2002, totaling $1,643,816 based upon the fair value of the
warrants issued as determined under the Black-Scholes option pricing model.
As of June 30, 2001, 6,816,725 warrants were outstanding with
a weighted average exercise price of $2.93.
During the year ended June 30, 2002, the Company issued 75,000
and 6,797,643 warrants to investors and to finders, consultants and investment
banking firms, each of these warrants to purchase one share each of the
Company's common stock at $3.00 and $.30, for five years, in connection with
private placements. The Company also issued 13,334 shares of its common stock
following the exercise of warrants resulting in gross proceeds $4,000. Also,
during the year ended June 30, 2002, the Company granted 1,675,000 warrants to
consultants for services performed and 6,043,490 warrants to creditors,
including related parties, in connection with the conversion of outstanding
liabilities.
As of June 30, 2002, 21,965,260 warrants were outstanding with
a weighted average exercise price of $1.05.
During the year ended June 30, 2003, the Company issued
4,701,696 warrants to investors and to finders, consultants and investment
banking firms, each of these warrants to purchase one share each of the
Company's common stock at $.30, for five years, in connection with private
placements. Also, during the year ended June 30, 2003, the Company granted
1,690,000 5 year warrants to employees and consultants for services performed
with an exercise price of $.40 per share of common stock and 3,706,800 warrants
to creditors, including related parties (see Note 11), in connection with the
conversion of outstanding liabilities.
As of June 30, 2003, 31,777,735 warrants remain outstanding
with a weighted average exercise price of $.84
During the year ended June 30, 2004, the Company issued
warrants to purchase 18,795,487 shares of common stock to investors and warrants
to purchase 628,826 shares of common stock to finders, consultants and
investment banking firms. Of such warrants, 11,106,487 shares of the Company's
common stock may be purchased at $.30, for five years, 3,844,000 shares may be
purchased at $.35 and 3,844,000 shares may be purchased at $.50 in connection
with private placements. Also, during the year ended June 30, 2004, the Company
granted 5 year warrants to purchase 500,000 shares to consultants for services
performed with an exercise price of $.30 per share of common stock and 5,069,242
warrants to creditors, including related parties (see Note 11), in connection
with the conversion of outstanding liabilities. Additionally, warrants cover
1,233,334 of common stock were exercised during the fiscal year ended June
30,2004, generating net proceeds to the Company of $316, 800. Also during the
fiscal year ended June 30, 2004, warrants covering 519,000 shares with a
weighted average exercise price of $2.50 were cancelled or expired.
As of June 30, 2004, 55,017,953 warrants remain outstanding
with a weighted average exercise price of $.55.
F-26
The following summarizes information about warrants issued pursuant to
various financing transactions and for services through June 30, 2004 and
December 31, 2004 respectively.
Range of
Number
Weighted
Weighted
Exercise Price
Outstanding
Average
Average
And
Remaining
Exercise Price
Exercisable
Contractual
Life
June
    30, 2004
$0 -
    $.30
27,996,253
3.30
$ .20
$.31-$.50
21,148,975
4.64
$ .38
$.51-$2.50
500,000
2.92
$ .68
$2.51-$5.10
5,372,225
1.24
$ 3.06
December
31,2004(Unaudited)
$0-$.30
46,117,186
3.28
$.27
$.31-$.50
20,098,309
4.57
$.37
$.51-$2.50
500,500
2.32
$.68
$2.51-$5.10
5,372,725
.74
$3.06
RESERVED SHARES
The Company has reserved approximately 3,360,000 shares
issuable upon provisions of convertible notes to related parties, which provide
for, at the option of the holder's of $280,000 of notes payable, the conversion
of unpaid principal and interest into units valued at $.25 each, each unit
consisting of one share of the Company's common stock and a one warrant each to
purchase the Company's common stock at $.25 per share and $.50 per share for a
period of 5 years.
F-26 (continued)
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
11. RELATED PARTY TRANSACTIONS
The Company records material related party transactions. The Company incurs
costs for engineering, design and production of prototypes and certain
administrative functions from Microphase Corporation and the purchase of
finished goods, primarily consisting of DSL splitter shelves and filters, from
Janifast Limited. The Company has incurred costs for obtaining transmission
rights. This enabled the Company to obtain re-transmission accreditation to
proprietary television content that the Company plans to provide with its
flagship product, the Traverser™ within its incorporated joint venture mPhase
Television.net, in which the Company owns a 56.5% interest.
The Company has also incurred charges for beta testing and on-site marketing,
including the display of a live working model at Hart Telephone. In addition,
the Company has entered into a supply agreement with Hart Telephone, which is
scheduled to commence upon the commercial production of the legacy Traverser™
DVDDS television platform. A member of mPhase's Board of Directors is employed
by Lintel, Inc., the parent corporation of Hart Telephone.
Mr. Durando, the President and CEO of mPhase, and together with Mr. Ergul
owns a controlling interest and is a director of Janifast Limited. Mr. Durando
and Mr. Dotoli are officers of Microphase Corporation. Mr. Ergul, the chairman
of the board of mPhase, owns a controlling interest and is a director of
Microphase Corporation. Microphase, Janifast, Hart Telephone and Lintel
Corporation are significant shareholders of mPhase. Microphase, Janifast and
Hart Telephone have converted significant liabilities to equity in fiscal years
June 30, 2001, 2002 and in the current fiscal year. Management believes the
amounts charged to the Company by Microphase, Janifast, mPhase Television.net
and Hart Telephone are commensurate to amounts that would be incurred if outside
parties were used. The Company believes Microphase, Janifast and Hart Telephone
have the ability to fulfill their obligations to the Company without further
support from the Company. mPhase's President, Executive Vice President and
Chairman of the Board of the Company are also officers of Microphase (Note 4).
On May 1, 1997, the Company entered into an agreement with Microphase,
whereby it 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 and in January 2000 to $11,050 per month.
In July 2001, the agreement was revised to $11,340 a month. In July, 2002 this
was increased to $12,200 per month and as of January 1, 2003 such rent was
reduced to 10,000 per month. Additionally, in July 1998, mPhase entered into an
agreement with Microphase, whereby mPhase reimburses Microphase $40,000 per
month for technical research and development assistance. Such agreement was
amended as of January 1, 2002 to reduce such payment to $20,000 per month.
Microphase also charges fees for specific projects on a project-by-project
basis. During the years ended June 30, 2001, 2002, and 2003 and for the period
from inception (October 2, 1996) to June 30, 2003, $2,128,983, $1,212,594,
$648,102 and $7,224,526, respectively, have been charged to expense or inventory
under these Agreements and is included in operating expenses in the accompanying
consolidated statements of operations.
On February 15, 1997, mPhase entered into a Technology, Patent and Trademark
License Agreement (the "Agreement") with MicroTel (Note 4). The Agreement
permits the Company to utilize the patent and trademark technology of MicroTel
under a licensing arrangement. The Company made payments of $37,500 per month,
commencing June 1, 1997 for technology development. During the period ended June
30, 1997 and 1998, $37,500 and $450,000 has been charged to expense under this
Agreement and is included in licensing fees in the accompanying consolidated
statement of operations. As of June 25, 1998, the Company acquired MicroTel and
as of that date this Agreement is no longer in effect.
Also, during the fiscal year ended June 30, 2000, $2,600,000 was advanced to
Microphase in the form of a note, which was repaid by Microphase during the
year. mPhase recorded $39,000 of interest income on this note for the year ended
June 30, 2000. The Company is obligated to pay a 3% royalty to Microphase on
revenues from its legacy Traverser™ Digital Video and Data Delivery System and
its DSL component products. During the years ended June 30, 2001
,
2002
and 2003 mPhase recorded royalties to Microphase totaling $297,793, $78,762 and
$47,304, respectively.
F-27
Pursuant to a debt conversion agreement between the Company and Microphase,
for the year ended June 30, 2001, Microphase received 1,278,000 shares of mPhase
common stock and for the year ended June 30, 2002, in consideration for a direct
investment of $100,000 and pursuant to debt conversion agreements canceling
$740,000 of liabilities of the Company , Microphase received 2,900,000 shares of
mPhase common stock and 2,200,000 warrants to purchase mPhase common stock, as
discussed in Note 10. For the fiscal year ended June 30, 2003 Microphase
received 4,033,333 shares of common stock , such shares included 3,033,333
shares that the value of which was based upon the price of the Company's common
stock on the effective date of settlement, plus 1,000,000 shares and 1,000,000
five year warrants to purchase shares of common stock of mPhase at $.30 per
share whereby such conversions were upon the same terms of a concurrent private
placement of common stock by the Company. No gain or loss was recognized in
connection with conversions by Microphase for fiscal 2003 in exchange for the
cancellation of accounts payable totaling $920,000. As of June 30, 2003 and
2004, the Company had $61,789 and $145,550 current accounts payable to
Microphase, which are included in amounts due to related partiesas current
liabilities in the accompanying consolidated balance sheet. As of June 30, 2002,
the Company had $92,405 included in other liabilities- related parties and as of
June 30, 2003 and June 30, 2004, $360,000 and $180,000 respectively in notes
payable - related parties as long term liabilities in the accompanying
consolidated balance sheet. Additionally, at June 30, 2004, no undelivered
purchase orders remain outstanding with Microphase.
F-27 (continued)
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
11. RELATED PARTY TRANSACTIONS - (continued)
JANIFAST
During the year ended June 30, 2000, mPhase advanced money to Janifast
Limited, which is owned by U.S. Janifast Holdings, Ltd, a related party of which
three directors of mPhase are significant shareholders, in connection with the
manufacturing of POTS Splitter shelves and DSL component products. As of June
30, 2000 the amount advanced to Janifast was approximately $1,106,000, which is
included in production advances-related parties on the accompanying balance
sheet. There were no such advances during the years ended June 30, 2002 and
2003. Pursuant to debt conversion agreements between the Company and Janifast,
for the year ended June 30, 2001 Janifast received 1,200,000 shares of mPhase
common stock canceling liabilities of $600,000, and for the year ended June 30,
2002 Janifast received 3,450,000 shares of mPhase common stock and 1,200,000
warrants to purchase mPhase common stock for the cancellation of $720,000 of
liabilities, as discussed in Note 10. During the year ended June 30,2003
Janifast was issued 1,500,000 shares of mPhase common stock in connection with
the cancellation of $360,000 of outstanding liabilities of mPhase, the value of
which was based upon the price of the Company's common stock on the effective
date of settlement. No gain or loss was recognized in connection with
conversions by Janifast for fiscal 2003. During the years ended June 30, 2002,
2003 and 2004 and the period from inception (October 2, 1996) to June 30, 2004,
there has been $1,754,308, $174,959, $2,771,925 and $13,463,611, respectively,
of invoices for products and services have been charged to inventory or expense
and is included in operating expenses in the accompanying statements of
operations. At June 30, 2004 the Company had $422,905 current accounts payable,
which are included in due to related parties and additionally, at June 30, 2004,
approximately $400,000 of undelivered purchase orders remain outstanding with
Janifast.
OTHER RELATED PARTIES
For consulting services rendered in connection with the joint
venture (Note 8), the Company agreed to pay two officers of the Company and a
related party $412,400, which was included on the June 30, 2000 consolidated
balance sheet of the Company. This amount was paid by the Company during the
year ended June 30, 2001.
In July 2000, mPhase added a member to the Board of Directors who is employed
by an investment-banking firm that has assisted and is expected to continue to
assist the Company in raising capital through private financing. During the year
ended June 30, 2001, the Company issued 140,350 shares of common stock for
investment banking services rendered during the period and recorded an
additional $69,000 of fees which is included in accrued expenses at June 30,
2001. The Company has installed its prototype product and commenced beta testing
at Hart Telephone. In addition, the Company has entered into a supply agreement
with Hart Telephone upon the completion of beta testing and the commencement of
production of the Traverser™. As consideration for the execution of the
agreement with Hart Telephone, in May 2000, mPhase issued Hart Telephone 125,000
options each to purchase one share of common stock at an exercise price of $1.00
(valued at $1,010,375), which is included in research and development expenses
in the accompanying statement of operations for the year ended June 30, 2000.
Mr. J. Lee Baron, the president and chief executive officer of Lintel Inc.,
(Lintel is the parent of Hart Telephone Company), and at that time a Director of
the Company, received a $285,000 bonus, a stock award of 140,000 shares and
100,000 options in addition to the 125,000 granted to Hart for Beta testing
services in the year ended June 30, 2000 and 120,000 options for services as a
Director for the year ended June 30, 2001.
F-28
Charges and
    Expenses with Related Parties
For the Years Ended June 30,
2002
2003
2004
Charges incurred with
    Janifast included in:
Cost of sales and
    ending inventory
$
1,759,308
$
178,959
$
2,771,925
Total Janifast
$
1,759,308
$
178,959
$
2,771,925
Charges
    incurred with Microphase Corp. included in:
Cost of sales and
    ending inventory (Including
$
200,440
$
86,468
$
140,123
Royalties)
Research and
    Development
876,074
478,434
84494
General and
    administrative
136,080
133,200
161,496
Total Microphase Corp.
$
1,212,594
$
648,102
$
386,113
Charges incurred with
    Lintel & Affiliates included
in:
Research and
    Development
$
0
$
0
$
0
General and
    administrative
0
0
0
Total Lintel &
    Affiliates
$
0
$
0
$
0
Charges incurred with
    Joint Venture Partners &
Affiliates included
    in:
Research and
    Development
$
64,039
$
0
$
0
General and
    administrative
0
0
0
Total Joint Venture
    Partner & Affiliates
$
64,039
$
0
$
0
Total Charges with
    Related Parties included in:
Cost of sales and
    ending inventory
$
1,959,748
$
265,427
$
2,912,048
Research and
    development
940,113
428,434
84,494
General and
    administrative
136,080
133,200
161,496
Total Charges with
    Related Parties:
$
3,035,941
$
827,061
$
3,158,038
Charges and
    Expenses with Related Parties
For the Six Months Ended December
    30
(Unaudited),
2003
2004
Charges incurred with
    Janifast included in:
Cost of sales and
    ending inventory
$
1,816,019
$
398,715
Total Janifast
$
1,816,019
$
398,715
Charges
    incurred with Microphase Corp. included
in:
Cost of sales and
    ending inventory (Including
$
22,948
$
11,784
Royalties)
Research and
    Development
54,000
41,000
General and
    administrative
15,000
147,213
Total Microphase Corp.
$
91,948
$
199,990
Charges
    incurred with Lintel & Affiliates included
in:
Affiliates included
    in:
Research and
    Development
$
$
General and
    administrative
Total Joint Venture
    Partner & Affiliates
$
$
Total Charges with
    Related Parties included in:
Cost of sales and
    ending inventory
$
1,838,967
$
410,490
Research and
    development
54,000
41,000
General and
    administrative
15,000
147,213
Total Charges with
    Related Parties:
$
1,907,967
$
598,712
A member of mPhase's Board of Directors is employed by Lintel, Inc, the
parent corporation of Hart Telephone. Prior to becoming a director, this
individual received 25,000 options during the fiscal year ended June 30, 1999,
of which 5,000 options were exercised during the fiscal year ended June 30,
2000; 23,000 options during the fiscal year ended June 30, 2001 and 15,000
options as a consultant for beta testing service during fiscal year ended June
30, 2002. In addition, during the years ended June 30, 2002, 2003 and June 30,
2004 he received options and warrants covering 62,500 shares, 35,000 shares and
100,000 shares of common stock, respectively, for services as a director.
Effective June 30, 2001, the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements.
Effective March 31, 2002, the Company converted $420,872 of liabilities due
to Piper Rudnick LLP, outside legal counsel to mPhase into a warrant to purchase
up to a total of 1,683,490 shares of the Company's common stock which pursuant
to EITF 96-18, has an approximate value of $.30 per share; and a warrant to
purchase 550,000 shares of the Company's common stock at an exercise price of
$.30 per share pursuant to the terms of payment agreement. In addition, Piper
agreed to accept a Promissory note for $420,872 of current payables at an
interest rate of 8% with payments of $5,000 per month commencing June 1, 2002
and continuing through December 1, 2003, with a final payment of principal plus
accrued interest due at maturity on December 31, 2003. As of August 11, 2003 the
Company has an arrearage of $ 35,000 with respect to the payments on the
promissory note.
During the year ended June, 30 2003, the Company converted $525,967 of
liabilities due to the Company's president, vice president and a sales manager
who is also concurrently employed by Microphase, for unpaid management
compensation and sales commissions due from mPhase into warrants to purchase up
to a total of shares of the Company's common stock which, pursuant to EITF
96-18, have an approximate value of $.21 per share or $538,173. The Company
recorded a settlement expense of approximately $12,206, which is included as a
reduction to gain on settlements in the statements of operations for the year
ended June 30, 2003.
F-29
In March of 2003, Messrs, Durando, Dotoli and Smiley participated in a
private placement of the company investing $20,000, $20,000 and $75,000
respectively, receiving common stock of mPhase at $.30 per share plus 5 year
warrants of mPhase to purchase a like amount of common stock at $.30 per share.
In March of 2003, Messrs Durando and Smiley lent to mPhase $30,000 and $100,000
respectively at 12% interest pursuant to two promissory notes originally due in
September of 2003. In June 2003, Mr. Durando was repaid and Mr. Smiley agreed to
extend his note until July, 2004. Also in June, 2003, Microphase agreed to
convert $360,000 of accounts payable to a note payable, interest at 12%, due in
July, 2004. The notes have provisions for prepayment by the Company and at the
option of the holder, provide for the conversion of unpaid principal and
interest into units valued at $.30 each, each unit consisting of one share of
the Company's common stock and a one warrant to purchase the Company's common
stock at $.30 per share for a period of 5 years. During the fiscal year ended
June 30, 2004 Microphase was repaid $180,000 and $180,000 remains outstanding.
As of June 30, 2004, Mr. Smiley and Microphase each agreed to extend to July
25, 2005, the maturity on their 12% convertible promissory notes in the
principal amount of $100,000 and $180,000 respectively.
Additionally at June 30, 2004, Mr. Durando was owed $300,000 by the Company
as evidenced by a non-interest bearing promissory note that was repaid in July
2004. As of June 30, 2004 a total of $55,000 in the aggregate was due to Mr.
Durando and Mr. Dotoli for unpaid compensation.
Generally, as summarized below, the Company has offered conversion of debts
to related parties on substantially the same terms as concurrent private
placements (typically in $.30 units, such units including both shares of common
stock and warrants to purchase a like amount of common stock) in addition to
conversion of debts pursuant to terms of concurrent private placements and
financial instruments which, pursuant to EITF 00-19 have been settled with the
Company's common stock as conditioned by benchmarks, generally coinciding with
the Company's negotiations to settle any and all obligations with Georgia Tech
Research and its affiliate (see also Note 13) as follows:
F-29 (continued)
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
11. RELATED PARTY TRANSACTIONS -
(continued)
Equity Conversions of Debt and Other Financial Instruemnets
with Related Parties
June 30,
2002
2003
Janifast:
Number of shares
3,450,000
1,500,000
Number of warrants
12,000,000
0
Amount converted to
    equity
$
720,000
$
360,000
Microphase
    Corporation:
Number of shares
2,700,000
4,033,333
Number of warrants
2,200,000
1,000,000
Amount converted to
    equity
$
740,000
$
920,000
Strategic Vendor
    Conversions:
Number of shares
0
0
Number of warrants
0
0
Amount converted to
    equity
$
0
$
0
Officers
Number of shares
333,334
0
Number of warrants (A)
334.334
2,491,800
Amount converted to
    equity
$
103,000
$
480,967
Joint Venture
    Partners and Affiliates
Number of shares
63,216
0
Number of warrants
0
0
Amount converted to
    equity
$
31,628
$
0
Total Related Party
    Conversions
Number of shares
6,546,550
5,533,333
Number of warrants
3,733,334
3,491,800
Amount converted to
    equity
$
1,594,628
$
1,760,967
(A) Includes $12,206 settlement expense incurred to the Company's Chief
Operating Officer in connection with the exchange of warrants to purchase the
Company's common stock to cancel unpaid compensation, which is included as a
reduction to gain on settlements in fiscal 2003.
Equity Conversions of Debt and Other Financial Instruemnets
with Related Parties
2004
Janifast:
Number of shares
0
Number of warrants
0
Amount converted to
    equity
$
0
Microphase
    Corporation:
Number of shares
0
Number of warrants
0
Amount converted to
    equity
$
0
Strategic Vendor
    Conversions:
Number of shares
110,467
Number of warrants
5,069,242
Amount converted to
    equity
$
1,963,202
Officers
Number of shares
0
Number of warrants (A)
0
Amount converted to
    equity
$
0
Joint Venture
    Partners and Affiliates
Number of shares
0
Number of warrants
0
Amount converted to
    equity
$
Total Related Party
    Conversions
Number of shares
110,0467
Number of warrants
5,069,242
Amount converted to
    equity
$
1,963,202
Equity Conversions of Debt and Other Financial Instruemnets
with Related Parties
2004
Janifast:
Number of shares
1,000,000
Number of warrants
1,000,000
Amount converted to
    equity
$
200,000
Microphase
    Corporation:
Number of shares
1,250,000
Number of warrants
1,250,000
Amount converted to
    equity
$
250,000
Strategic Vendor
    Conversions:
Number of shares
0
Number of warrants
0
Amount converted to
    equity
$
0
Officers
Number of shares
489,875
Number of warrants (A)
489,875
Amount converted to
    equity
$
97,975
Joint Venture
    Partners and Affiliates
Number of shares
Number of warrants
Amount converted to
    equity
$
Total Related Party
    Conversions
Number of shares
2,739,875
Number of warrants
2,739,875
Amount converted to
    equity
$
547,975
F-28
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004
(Unaudited for the Periods Ended December 31, 2003 and 2004)
12. INCOME TAXES
No provision has been made for corporate income taxes due to cumulative
losses incurred. At June 30, 2004, mPhase has operating loss carryforwards of
approximately $63.2 million and $62.6 million to offset future federal and state
income taxes respectively, which expire at various times from 2016 through 2024.
Certain changes in stock ownership can result in a limitation in the amount of
net operating loss and tax credit carryovers that can be utilized each year.
At June 30, 2004 the Company has net deferred income tax assets of
approximately $24.2 million comprised principally of the future tax benefit of
net operating loss carryforwards, which represents an increase of $.6 million
for the fiscal year ended June 30, 2004. A full valuation reserve has been
recorded against such assets due to the uncertainty as to their future
realizability.
13. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
mPhase has entered into various agreements with Georgia Tech Research ("GTRC")
and its affiliate, Georgia Tech Applied Research Corporation, ("GTARC"),
pursuant to which the Company receives technical assistance in developing the
commercialization of its Digital Video and Data Delivery System. The amount
incurred by the Company for GTRC technical assistance with respect to its
research and development activities during the years ended , 2002, 2003 and 2004
totaled $450,000, $100,000 and $0 respectively, and $13,539,952 from the period
from inception through June 30, 2004.
If and when sales commence utilizing its legacy DVDDS digital broadcast
television platform, mPhase will be obligated to pay to GTRC a royalty up to 5%
of product sales, as defined.
As of June 30, 2004, mPhase is obligated to pay Lucent Technologies, Inc.
$100,000 per month through and including the first of each month from July 1,
2004 through and including February 1, 2004 in connection with the development
of its Nanotechnology product line. Additionally, the Company engages Lucent on
a project-by-project basis for research and development of technical product
related enhancements for its TV+ product. The Company owed Lucent $257,800 for
amounts accrued through June 30, 2004. The amount incurred by the Company with
Lucent for assistance with respect to its research and development activities
during the years ended June 30, 2002, 2003, and 2004 totaled $156,250 and
$1,112,500, and $2,328,602 respectively, and $3,597,102 from the period from
inception through June 30, 2004.
From time to time, mPhase may be involved in various legal proceedings and
other matters arising in the normal course of business. The Company currently
has no material outstanding legal proceedings, nor does it anticipate any
actions which would result in liabilities in excess of amounts recorded in these
financial statements.
14. Subsequent Events (Unaudited)
The December 31, 2004 and outstanding subscriptions receivable balance of $
50,000 was fully collected in January of 2005.
Additionally, the December 2004 private placement was closed out in January
of 2005 with the placement of 3,600,000 equity units at $.20 per unit consisting
of one share of common stock plus5 year warrants for a like amount of shares
with a strike price of $.25 per share generating net proceeds of $720,000 to the
Company.
A January Private Placement realized net proceeds of $357,250 upon issuance
of 1,793,750 shares of Common Stock at $.20 per share plus 5 year warrants to
purchase 1,793,750 shares of Common Stock at $.25 per share. A later Private
Placement realized net proceeds of $1,351,000 upon issuance of 4,920,000 shares
of Common Stock plus 5 year warrants to purchase 4,920,000 shares of Common
Stock at $.25 per share. A March Private Placement resulted in the realization
of net proceeds of $1,217,000 upon issuance of 4,396,667 shares of Common Stock
at $.30 per share plus 5 year warrants to purchase 4,396,667 shares of Common
Stock at $.30 per share
In January of 2005 there were stock option awards issued to two consultants
for services performed. The company granted 250,000 options to a consultant for
professional services, these options provide for the right of stock purchase at
an exercise price of $.25, these options have a five year life and expire in
January of 2010. A second award issued a like number of options to another
service provider under similar terms, except that the options associated with
this second award offer a call feature, available to the company, for redemption
of such options at a call price of $.45 at any time during their five year life.
In aggregate, 400,000 options were issued in connection with these awards and
will result in a charge to General and Administrative non-cash expense in the
amount of $ 133,990 in the third quarter of fiscal 2005. The valuation of this
charge was made on the basis of the fair market value of the Company's common
stock on the date of grant using the Black-Scholes option premium model.
In February of 2005, GTARC tendered 5,069,242 of cashless warrants which they
held in connection with a previous debt settlement in exchange for 4,949,684 if
the company's shares of common stock, the balance of the 119,558 warrants were
effectively cancelled as a result of certain warrant exercise exchange
provisions adjusting the exchange rate based on specified stock pricing
experience as per the original debt settlement agreement.
On February 17 of 2005, the Company granted 2,600,000 warrants and 400,000
options to consultants for services performed valued at $ 1,328,600 and $
204,400, respectively. The warrants and options provide the right to purchase a
share of mPhase common stock at an exercise price $.45 and $.30 per share,
respectively, over their 5 year life expiring in February of 2010. These warrant
and option awards were valued on the basis of the fair market value of the
Company's common stock on the date of grant using the Black-Scholes option
premium model and the value of the award will be expensed to General and
Administrative non-cash expenses in the third quarter of fiscal 2005.
On January 15, 2005, the company converted a $ 100, 000 convertible note
payable to Martin Smiley in exchange for 400,000 shares and a like number of
warrants that were price at $25 per unit or $100,000 in aggregate.
Also in January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.35 on the date of that award.
In late February and early March of 2005, the Company converted approximately
$173,898 in accounts payable due various vendors into 535,296 shares of common
stock aggregating $183,310 in full settlement of those obligations.
PART I
Item 14. Controls and Procedures
Under the supervision and with the participation of management including the
Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14c and of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedures are effective. There were no changes in our internal control over
financial reporting during the fiscal year ended June 30, 2004 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting
ITEM 14B. VALUATION AND QUALIFYING ACCOUNTS
mPHASE TECHNOLOGIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 2004, 2003 and 2002
(In Thousands)
Additions
Balance at
Charged to
Charged to
Deductions
Balance at
beginning
costs
    and
other
end of year
of year
expenses
accounts
Description
Year ended June 30,
    2004
Allowance for doubtful
    accounts
$
0
0
0
0
$
0
(deducted from
    accounts receivable)
Allowance for
    obsolescence
$
486
0
(87)
(11)
$
388
(deducted from
    inventory, at cost)
Year ended June 30,
    2003
Allowance for doubtful
    accounts
(deducted from
    accounts
receivable)
$
3
0
0
(3)
0
Allowance for
    obsolescence
$
1,243
302
0
(1,059)
486
(deducted from
    inventory, at cost)
Year ended June 30,
    2002
Allowance for doubtful
    accounts
$
29
3
0
(29 )
3
(deducted from
    accounts receivable)
Allowance for
    obsolescence
$
315
928
0
0
1,243
(deducted from
    inventory, at cost)
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following sets forth the estimated expenses payable in connection with
the preparation and filing of this Registration Statement:
Securities and
    Exchange Commission Registration Fee
$10,593
NASD Filing Fee
-
Nasdaq Listing Fee
-
Printing Expenses
$2,000
Accounting Fees and
    Expenses
$12,500
Legal Fees and
    Expenses
$15,000
Transfer Agent's and
    Registrar's Fees and Expenses
-
Miscellaneous Expenses
-
Total
$40,093
Item 14. Indemnification of Directors and Officers
Our Certificate of Incorporation, as amended, and Bylaws provide that we
shall indemnify any Director, officer, employee or agent of ours to the full
extent permitted by the New Jersey Business Corporations Act.
Under Section 14A:3-5 of the New Jersey Business Corporation Act, we have the
power to indemnify any person, against his expenses and liabilities in
connection with any proceeding, whether civil or criminal, who is or was a
Director, officer, employee or agent, provided that such person acted in good
faith and with reasonable business prudence. Should the proceeding involve
criminal liability, the Director, officer, employee or agent shall be
indemnified if he reasonably believed that his conduct was not unlawful. Should
the Director, officer, employee or agent be liable to us, indemnification shall
not be provided unless the court in such proceeding determines that, in light of
all surrounding circumstances of the case, such Director, officer, employee or
agent is reasonably entitled to expenses as the court deems proper.
Additionally, we shall indemnify any Director, officer, employee or agent
against expenses should such Director, officer, employee or agent be successful
on the merits in any proceeding referred to in this paragraph.
Our determination as to whether the Director, officer, employee or agent
should be indemnified shall be made:
1. by way of a majority vote of a quorum of the Board of
Directors who were not parties to or otherwise involved in the proceeding;
2. or if such quorum is not obtainable, or, even if obtainable
and directed by such quorum or by a majority vote of the disinterested
Directors, by independent legal counsel in a written opinion; or
3. by our stockholders if directed by a resolution of the Board
of Directors or of the stockholders.
We shall not indemnify any Director, officer, employee or agent if a judgment
or other final adjudication establishes that his acts or omissions (a) were in
breach of his duty of loyalty to us or our shareholders, (b) were not in good
faith or involved a knowing violation of law, or (c) resulted in receipt by the
Director, officer, employee or agent of an improper personal benefit.
We may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of ours, whether or
not we would have the power to indemnify such corporate agent against expenses
and liabilities under the provisions of Section 14A:3-5 of the New Jersey
Business Corporation Act.
Item 15. Recent Sales of Unregistered Securities
The following securities were issued by us within the past three years and
were not registered under the Securities Act of 1933, as amended (the "Act").
Each of the transactions is claimed to be exempt from registration under the
Act, pursuant to either Rule 506 of Regulation D of the Act in connection with
private placements or Section 4(2) of the act in connection with respect to
services perfomed.
During the year ended June 30, 1999, we issued 1,599,332 shares of common
stock to employees and consultants for services performed. We recognized a
charge to operations of $8,760,866, based upon the fair market value of the
shares.
In April 1999, we issued 642,000 shares of our common stock and warrants to
purchase up to 642,000 shares of our common stock at a combined price of $2.50
per share and warrant pursuant to Rule 506 of Regulation D of the Act for an
aggregate of $1,605,000 in cash.
In June and July 1999, we issued 4,426,698 shares of our common stock at
$2.50 per share pursuant to Rule 506 of Regulation D of the Act for an aggregate
of $11,066,745 in cash.
On July 26, 1999, 400,000 warrants previously issued pursuant to Section 4(2)
of the Act for services performed were converted into 352,239 shares of common
stock in a cashless exercise.
In June 1999, we also issued 400,000 warrants pursuant to Section 4(2) of the
Act for services performed, each to purchase one share of common stock at an
exercise price of $1.00 per share which expire in June 2004. During the year
ended June 30, 2000 these warrants to purchase 400,000 shares of common stock
were exercised generating proceeds of $400,000.
In December 1999 and January 2000, we sold, pursuant to Rule 506 of
Regulation D of the Act, 1,000,000 shares of common stock at a price of $4.00
per share, for an aggregate of $4,000,000. In connection with the private
placement, we issued 200,000 and 50,000 warrants to purchase common stock for
services rendered pursuant to Section 4(2) of the Act. The warrants had an
exercise price of $4.00 and $5.00, respectively.
During February 2000, warrants were issued pursuant to
Section 4(2) of the Act for services performed to purchase 200,000 and 50,000
shares of common stock and were also exercised, at an exercise price of $4.00
and $5.00, respectively, generating additional proceeds of $1,050,000.
In May 2000, we issued 1,040,625 shares of our common stock at $8.00 per
share pursuant to Rule 506 of Regulation D of the Act for an aggregate of
$8,325,000 in cash.
In September 2000, we issued 510,000 shares of our common stock at $5.00 per
share pursuant to Rule 506 of Regulation D of the Act for an aggregate of
$2,550,000 in cash and in connection therewith 38,250 shares of common stock for
services rendered pursuant to Section 4(2) of the Act.
During the year ended June 30, 2000, we issued 1,164,215 shares of common
stock to employees and consultants pursuant to Section 4(2) of the Act for
services performed.
On November 30, 2000, we granted 150,000 shares of common stock for services
rendered pursuant to Section 4(2) of the Act.
During the quarter ended December 31, 2000, we granted 30,000 warrants to a
consultant for services performed pursuant to Section 4(2) of the Act.
During the six month period ended December 31, 2000, we
issued 320,000 shares of our common stock following the exercise of options and
warrants resulting in gross proceeds of $327,500 and granted 1,035,000 options
to employees and 1,572,000 options to consultants for services performed
pursuant to Section 4(2) of the Act.
In January 2001, we granted 102,000 shares of common stock for services
rendered pursuant to Section 4(2) of the Act.
In January 2001, we granted 250,000 shares of common stock for services
rendered pursuant to Section 4(2) of the Act.
On January 26, 2001 and February 9, 2001 we raised approximately $4,685,000
in cash through the issuance of 2,342,500 shares of our common stock and a like
amount of warrants to purchase one share each of our common stock at an exercise
price of $3.00 and a term of four years pursuant to Rule 506 of Regulation D of
the Act. The Company issued 162,600 warrants to purchase one share each of our
common stock at an exercise price of $3.00 and a term of four years to
consultants in connection with these private placements.
On April 3, 2001 we issued warrants to purchase 1,550,625 shares of common
stock at an exercise price of $3.00 per share expiring on April 3, 2005 to
accredited investors, who, as consideration for consent to certain additional
issuances, in May 2000, were issued 1,040,625
shares of our common stock at $8.00 per share pursuant to Rule 506 of
Regulation D of the Act and in September 2000, were issued 510,000 shares of our
common stock at $5.00 per share pursuant to Rule 506 of Regulation D of the Act.
On April 16, 2001, we issued warrants to purchase 250,000, 250,000 and
500,000 shares of common stock at respective exercise prices of $5.00, $2.50 and
$1.25 per share in connection with consulting services rendered pursuant to
Section 4(2) of the Act.
On May 7, 2001, we issued 300,000 shares of common stock and warrants to
purchase 150,000 shares of common stock at an exercise price of $5.00 per share
expiring on May 7, 2006 in connection with consulting services rendered pursuant
to Section 4(2) of the Act.
On May 25, 2001, we issued 587,000 shares of our common stock and a like
amount of warrants at an exercise price of $3.00 per share and a term of five
years pursuant to Rule 506 of Regulation D of the Act for approximately $587,000
in cash.
On July 18, 2001, we issued 575,000 shares of our common stock and a like
amount of warrants at an exercise price of $3.00 per share and a term of five
years pursuant to Rule 506 of Regulation D of the Act for approximately $575,000
in cash.
Effective June 30, 2001 the Company converted $2,420,039 of liabilities due
to directors and related parties into 4,840,077 shares of the Company's common
stock pursuant to debt conversion agreements pursuant to Section 3(a)(9) of the
Act. These issuances included 2,400,000 shares for the conversion of $1,200,000
of liabilities by Janifast; 1,278,000 shares for the conversion of $639,000 of
liabilities by Microphase; 954,000 shares for the conversion of $477,000 of
liabilities by Lintel Corporation and its affiliates at that time including Mr.
L. Barton, a Director of the Company at that time; and 208,077 shares for the
conversion of $104,038 of liabilities by the Company's Joint venture
partner-Alpha-Star and Affiliates.
In September 2001, certain of our officers and directors purchased an
aggregate of 2,000,000 shares of common stock for an aggregate investment of
$1,000,000. These issuances included 1,000,000 shares to Mr. L. Barton, a
director at that time, for an investment of $500,000; 400,000 shares to Mr.
Ronald A. Durando, the Company's president and a director, for an investment of
$200,000; 400,000 shares to Mr. Gustave Dotoli , the Company's vice-president
and a director, for an investment of $200,000; and 200,000 shares to Mr. Martin
S. Smiley, the Company's vice-president, for an investment of $100,000; and were
exempt pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Act.
In December 2001 and January 2002, we issued 6,797,643 shares of common stock
and a like amount of warrants at an exercise price of $.30 per share for a term
of five (5) years pursuant to Rule 506 of Regulation D of the Act for
approximately $2,000,000 in cash. This issuance was exempt pursuant to Section
4(2) and/or Rule 506 of Regulation D of the Act.
During the year ended June 30, 2002 the Company issued 7,492,996 shares of
its common stock, and 5,953,490 warrants to related parties and strategic
vendors, in connection with the conversion of $2,738,658 of accounts payable and
accrued expenses, of which 6,150,000 shares of common stock and 3,400,000
warrants were issued in settlement of $1,460,000 of accounts payable to related
parties as follows:
During December 2001, the Company converted $660,000 of liabilities due to
  Microphase and $360,000 of liabilities due to Janifast into 2,200,000 and
  1,200,000, respectively, shares of the Company's common stock and a like
  amount of warrants to purchase one share each of the Company's common stock at
  an exercise price of $.30 pursuant to debt conversion agreements pursuant to
  Section 3(a)(9) of the Act and 320,000 shares of common stock plus warrants to
  purchase another 320,000 shares of common stock at $.30 for a term of 5 years,
  respectively, were issued to strategic vendors pursuant to Section 3(a)(9) of
  the Act.
During the quarter ended March 31,2002 the Company converted $96,000 of
  liabilities due to Strategic Vendors into 320,000 shares of the Company's
  common stock and a like amount of warrants to purchase one share each of the
  Company's common stock at an exercise price of $.30 pursuant to debt
  conversion agreements pursuant to Section 3(a)(9) of the Act.
Effective March 31, 2002, the Company converted $420,872 of liabilities
  due to Piper Rudnick LLP, outside legal counsel to mPhase pursuant to Section
  3(a)(9) of the Act into a warrant to purchase up to a total of $1,683,490
  shares of the Company's common stock which pursuant to EITF 96 18, has an
  approximate value of $.30 per share and a warrant to purchase 550,000 shares
  of the Company's common stock at an exercise price of $.30 per share pursuant
  to the terms of payment agreement. In addition, Piper agreed to accept a
  Promissory note for $420,872 of current payables at an interest rate of 8%
  with payments of $5,000 per month commencing June 1, 2002 and continuing
  through December 1, 2003, with a final payment of principal plus accrued
  interest due at maturity on December 31, 2003. Additionally, 1,022,996 shares
  of common stock were issued to strategic vendors, the value of which was based
  upon the price of the Company's common stock on the effective date of
  settlement with each strategic vendor, to settle $761,786 of liabilities
  pursuant to Section 3(a)(9) of the Act. The conversion of $1,182,658 of such
  liabilities which, together with gains from cash settlements of $27,960
  resulted in an aggregate gain on
extinguishments of $142,236.
Effective for June 30 2002, the Company converted $360,000 of liabilities
  due to Microphase and $80,000 of liabilities due to Janifast into 2,250,000
  and 500,000 shares of the Company's common stock, respectively, pursuant to
  debt conversion agreements pursuant to Section 3(a)(9) of the Act.
During the year ended June 30, 2003, we issued 4,296,680 shares of Common
Stock at $.30 per share plus 5 year warrants to purchase 4,296,680 shares of
Common Stock at $.30 per share in a Private Placement pursuant to Rule 506 of
Regulation D of the Act, generating net proceeds to the company of approximately
$1,164,000.
From August 2001 to June 2002, we issued an aggregate of 2,976,068 shares of
common stock to consultants for an aggregate of $1,202,997. We also issued an
aggregate of 2,675,000 warrants to consultants for an aggregate of $1,040,000.
During the year ended June 30, 2003, the Company issued 426,000 shares of its
common stock valued at $112,245 and 1,690,000 warrants, valued at $203,150 based
upon the fair market value of the Company's common stock on the date of the
grant using the Black-Scholes option pricing model. The Company recorded these
charges, totaling $318,395 to operations for the year ended June 30, 2003. Each
transaction was pursuant to Section 4(2) of the Act.
During the fiscal year ended June 30, 2003, the Company converted certain
payables and accrued expenses with officers, related parties and strategic
vendors pursuant to Section 4(2) and to Section 3(a)(9) of the Act aggregating
approximately $1.9 million into 5,923,333 restricted shares of the Company's
common stock and 5 year warrants to purchase an additional 3,706,800 restricted
shares of the Company's common stock. Of these 5,533,333 shares of common stock
and 3,491,800 warrants were issued in settlement of $1,748,756 of debt to
related parties as follows:
The conversion of $620,000 on and $360,000 on of liabilities due to
  Microphase corporation, and Janifast Ltd into 3,033,000 shares and 1,500,000
  shares of stock, respectively. The value attributable to the shares was based
  upon the market price of the Company's common stock on the measurement date,
  such date was determined pursuant to EITF00-1, as to when all the contingent
  terms of the conversion agreements were met, in which no gain or loss was
  recognized on the conversion of $980,000 of debt.
Also included in such conversions during the year ended June, 30 2003,
  were transactions whereby the Company converted $525,967 of liabilities;
  $269,362 due to the Company's president, $211,605 due to the vice president
  and $45,000 due to the a sales manager who is also concurrently employed by
  Microphase, for unpaid management compensation and sales commissions due from
  mPhase into warrants to purchase up to a total of 2,656,500 shares of the
  Company's common stock. The aggregate value of such warrants was estimated
  using the Black-Scholes options pricing model, pursuant to EITF 96-18, having
  an approximate value of $.21 per share, or $538,173. The Company recorded a
  settlement expense of approximately $12,206 with respect to the Company's
  president and vice president.
Strategic vendors converted $117,486 of payables into 340,000 shares of
  the Company's common stock on the measurement date the value of which was
  based upon the price of the Company,'s common stock on the effective date of
  settlement with each party. This resulted in a gain of $37,383, which, when
  combined with all conversions and the gains from cash settlements of $36,049
  for the fiscal year 2003, resulted in a net gain on extinguishments in the
  statements of operations of $61,226 for the year ended June 30, 2003.
In August of 2003, the Company issued 333,334 shares of its common stock
together with a like amount of warrants in a private placement pursuant to Rule
506 of Regulation D of the Act, generating net proceeds of $100,000 which was
collected during the three month period ended on September 30, 2003.
During the six months ending December 31, 2003, the Company
granted 924,667 shares of its common stock and warrants to purchase 249,667
shares of its common stock to consultants for services performed value at
$307,243 and charged to operations during the period. Each transaction was
pursuant to Section 4(2) of the Act.
During the three months ended December 31, 2003, the Company issued 500,000
shares of its common stock pursuant to warrants previously issued to purchase
said shares pursuant to Rule 506 of Regulation D of the Act for an aggregate of
$150,000 in cash.
In December of 2003, the Company issued to five accredited investors
2,300,000shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share, in a private placement pursuant to Rule 506 of
Regulation D of the Act generating net proceeds of $805,000, $175,000 of which
was collected in January, 2004. An advisor of the Company was issued 100,000
shares for assisting in this transaction.
In January of 2004, the Company issued to twenty-three accredited investors
7,160,720 shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share, in a private placement pursuant to Rule 506 of
Regulation D of the Act generating net proceeds of $2,506,250, all of which was
collected in January, 2004.
In March and April of 2004, the Company issued to six accredited investors
1,811,429 shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share, in a private placement pursuant to Rule 506 of
Regulation D of the Act generating net proceeds of $634,000, all of which was
collected in March and April, 2004. Two advisors of the company were issued
128,826 shares of its common stock together with a like amount of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.35 per share for assisting in this transaction.
The December 31, 2004 and outstanding subscriptions receivable balance of $
50,000 was fully collected in January of 2005.
Additionally, the December 2004 private placement was closed out in January
of 2005 with the placement of 3,600,000 equity units at $.20 per unit consisting
of one share of common stock plus5 year warrants for a like amount of shares
with a strike price of $.25 per share generating net proceeds of $720,000 to the
Company pursuant to Rule 506 of Regulation D of the Act.
A January Private Placement realized net proceeds of $357,250 upon issuance
of 1,793,750 shares of Common Stock at $.20 per share plus 5 year warrants to
purchase 1,793,750 shares of Common Stock at $.25 per share. A later Private
Placement realized net proceeds of $1,351,000 upon issuance of 4,920,000 shares
of Common Stock plus 5 year warrants to purchase 4,920,000 shares of Common
Stock at $.25 per share. A March Private Placement resulted in the realization
of net proceeds of $1,217,000 upon issuance of 4,396,667 shares of Common Stock
at $.30 per share plus 5 year warrants to purchase 4,396,667 shares of Common
Stock at $.30 per share. Each transaction pursuant to Rule 506 of Regulation D
of the Act
In January of 2005 there were stock option awards issued to two consultants
for services performed. The company granted 250,000 options to a consultant for
professional services, these options provide for the right of stock purchase at
an exercise price of $.25, these options have a five year life and expire in
January of 2010. A second award issued a like number of options to another
service provider under similar terms, except that the options associated with
this second award offer a call feature, available to the company, for redemption
of such options at a call price of $.45 at any time during their five year life.
In aggregate, 400,000 options were issued in connection with these awards and
will result in a charge to General and Administrative non-cash expense in the
amount of $ 133,990 in the third quarter of fiscal 2005. The valuation of this
charge was made on the basis of the fair market value of the Company's common
stock on the date of grant using the Black-Scholes option premium model. Each
transaction was pursuant to Section 4(2) of the Act.
In February of 2005, GTARC tendered 5,069,242 of cashless warrants which they
held in connection with a previous debt settlement in exchange for 4,949,684 if
the company's shares of common stock, the balance of the 119,558 warrants were
effectively cancelled as a result of certain warrant exercise exchange
provisions adjusting the exchange rate based on specified stock pricing
experience as per the original debt settlement agreement.
On February 17 of 2005, the Company granted 2,600,000 warrants and 400,000
options to consultants for services performed valued at $ 1,328,600 and $
204,400, respectively. The warrants and options provide the right to purchase a
share of mPhase common stock at an exercise price $.45 and $.30 per share,
respectively, over their 5 year life expiring in February of 2010. These warrant
and option awards were valued on the basis of the fair market value of the
Company's common stock on the date of grant using the Black-Scholes option
premium model and the value of the award will be expensed to General and
Administrative non-cash expenses in the third quarter of fiscal 2005. Each
transaction was pursuant to Section 4(2) of the Act.
In January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.35 on the date of that award.
In late February and early March of 2005, the Company converted approximately
$173,898 in accounts payable due various vendors into 535,296 shares of common
stock aggregating $183,310 in full settlement of those obligations and pursuant
to Section 3(a)(9) of the Act.
Item 16. Exhibits and Financial Statements
Exhibit
Number
Description
2.1*
Exchange of
    Stock Agreement and Plan of Reorganization dated January 15, 1997
(incorporated by
    reference to Exhibit 2(a) to our registration statement on Form
10SB-12G filed
    on October 16, 1998 (file no. 000-24969)).
2.2*
Exchange of
    Stock Agreement and Plan of Reorganization dated June 25, 1998
(incorporated by
    reference to Exhibit 2(b) to our registration statement on Form
10SB-12G filed
    on May 6, 1999 (file no. 000-24969)).
3.1*
Certificate of
    Incorporation of Tecma Laboratory, Inc. filed December 20, 1979
(incorporated by
    reference to Exhibit 3(a) to our registration statement on Form
10SB-12G filed
    on October 16, 1998 (file no. 000-24969)).
3.2*
Certificate of
    Correction to Certificate of Incorporation of Tecma Laboratory, Inc.
dated June 19,
    1987 (incorporated by reference to Exhibit 3(b) to our registration
statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).
Exhibit
Number
Description
3.3*
Certificate of
    Amendment of Certificate of Incorporation of Tecma Laboratory, Inc.
filed August 28,
    1987 (incorporated by reference to Exhibit 3(c) to our registration
statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).
3.4*
Certificate of
    Amendment of Certificate of Incorporation of Tecma Laboratories, Inc.
filed April 7,
    1997 (incorporated by reference to Exhibit 3(d) to our registration
statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).
3.5*
Certificate of
    Amendment of Certificate of Incorporation of Lightpaths TP
Technologies,
    Inc. filed June 2, 1997 (incorporated by reference to Exhibit 3(e) to
our registration
    statement on Form 10SB-12G filed on October 16, 1998 (file no.
000-24969)).
3.6*
Certificate of
    Amendment of Certificate of Incorporation of mPhase Technologies,
Inc. filed
    September 15, 2000 (incorporated by reference to Exhibit 3i to our
quarterly report
    on Form 10Q filed on November 13, 2000 (file no. 000-24969)).
3.7*
Bylaws of the
    Company (incorporated by reference to Exhibit 3(g) to our registration
statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).
4.1*
Form of
    Registration Rights Agreement, dated January 26, 2001, by and among the
Company and the
    purchasers listed on Schedule A attached thereto (incorporated by
reference to
    Exhibit 4.1 to our registration statement on Form S-1 filed on June 18,
2001 (file no.
    33-63262)).
4.2*
Form of
    Registration Rights Agreement, dated February 9, 2001, by and among the
Company and the
    purchasers listed on Schedule A attached thereto (incorporated by
reference to
    Exhibit 4.2 to our registration statement on Form S-1 filed on June 18,
2001 (file no.
    33-63262)).
4.3**
Form of Warrant.
4.4**
Warrant issued
    to Piper Rudnick LLP.
4.5**
Warrant issued
    to Piper Rudnick LLP.
4.6**
Form of
    Subscription Agreement, dated December 15, 2001.
5.1
Opinion of
    Martin S. Smiley, General Counsel to the Company.
10.1*
License
    Agreement, dated March 26, 1998, between the Company and Georgia Tech
Research
    Corporation (incorporated by reference to Exhibit 10(e) to our registration
statement on
    Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).
10.2*
First Amendment
    to the License Agreement, dated January 8, 2001, between the
Company and
    Georgia Tech Research Corporation (incorporated by reference to
Exhibit 10.2 to
    our registration statement on Form S-1 filed on June 18, 2001 (file
no. 33-63262)).
10.3*
Employment
    Agreement between Ronald A. Durando and the Company
(incorporated by
    reference to Exhibit 10.8 to our registration statement on Form SB-2
filed on August
    13, 1999 (file no. 333-85147)).
10.4*
Employment
    Agreement between Gustave T. Dotoli and the Company (incorporated
by reference to
    Exhibit 10.9 to our registration statement on Form SB-2 filed on
August 13, 1999
    (file no. 333-85147)).
10.5*
Employment
    Agreement between Martin S. Smiley and the Company, dated as of
August 15, 2000
    (incorporated by reference to Exhibit 10.5 to our registration
statement on Form
    S-1 filed on June 18, 2001 (file no. 33-63262)).
10.6*
Employment
    Agreement between David C. Klimek and the Company, dated as of
April 1, 2001
    (incorporated by reference to Exhibit 10.6 to our registration statement
on Form S-1 filed
    on June 18, 2001 (file no. 33-63262)).
10.7*
Manufacturing
    Services Agreement, dated March 14, 2001, by and between the
Company and
    Flextronics International USA, Inc (incorporated by reference to
Exhibit 10.7 to
    our registration statement on Form S-1 filed on June 18, 2001 (file
no. 33-63262)).
10.8*
Supply Agreement
    by and between the Company and Hart Telephone Company, Inc.,
date of August
    19, 1998 (incorporated by reference to Exhibit 10.8 to our registration
statement on Form
    S-1 filed on June 18, 2001 (file no. 33-63262)).
Exhibit
Number
Description
10.9*
Facilities/Services Agreement between the Company and Microphase
    Corporation,
dated as of July
    1, 1998. (incorporated by reference to Exhibit 10.9 to our
registration
    statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).
10.10*
Company's 2001
    Stock Incentive (incorporated by reference to Exhibit C to our
preliminary proxy
    statement on Form Pre 14A filed on March 21, 2001 (file no.000-
30202)).
10.11*
License
    Agreement, dated July 31, 1996, by and between AT&T Paradyne
Corporation and
    Microphase Corporation. (incorporated by reference to Exhibit 10.11
to our
    registration statement on Form S-1 filed on June 18, 2001 (file no.
    33-63262)).
10.12(a)*
Assignment
    Agreement, dated February 17, 1997, by and between the Company and
Microphase
    Corporation. (incorporated by reference to Exhibit 10.12 to our
registration
    statement on Form S-1 filed on June 18, 2001 (file no. 33- 63262)).
10.12(b)*
Distribution
    Agreement effective May 15, 2002 by and between Corning Cable
System and the
    Company.
10.13*
Development
    Agreement between Lucent Technologies, Inc. and mPhase
Technologies,
    Inc., effective as of December 1, 2002, relating to Video Services
Switch and
    Statement of Work, dated December 9, 2002.***
10.14*
Purchase Order
    between the Company and Lucent Technologies, Inc., dated
December 15,
    2002, for cost reduction of the mPhase Traverser INI set box.***
10.15*
Co-Branding
    Agreement, dated as of January 21, 2003, between the Company and
Lucent
    Technologies, Inc.
10.16*
Systems
    Integrator Agreement, dated as of April 4, 2003, between the Company and
Lucent
    Technologies, Inc.***
10.17*
Development
    Agreement between Lucent Technologies, Inc. and mPhase
Technologies,
    Inc., relating to Broadcast Television Switch (BTS) effective as of
September 15,
    2003.***
10.18*
Development
    Agreement effective February 3, 2004 between Lucent Technologies,
Inc. and mPhase
    Technologies, Inc. for development of micro fuel cell
NanoTechnology.***
10.19***
Software License
    Agreement between Espial Group, Inc, a Canadian Corporation and
mPhase
    Technologies entered into November 28, 2004
10.20***
Software
    Development Agreement between Magpie Telecom Insiders, Inc, and
mPhase
    Technologies, dated September 2, 2004 and Work Order dated January 3,
2005
10.21***
Development
    Agreement effective March 11, 2005 between Lucent Technologies Inc
and mPhase
    Technologies relating to development of Magnetometers
10.22***
Amendment No. 2
    to Development Agreement dated as of March 9, 2005 relating to
Micro Power
    Source Cells between mPhase Technologies, Inc and Lucent
Technologies Inc.
21*
List of
    Subsidiaries (incorporated by reference to Exhibit 21 to our registration
statement on Form
    S-1 filed on June 18, 2001 (file no. 33-63262)).
23.1*
Consents of
    Schuhalter, Coughlin & Suozzo, LLC dated August 31, 1998 and
reference to
    Exhibit 23 to our registration statement on Form 10SB-12G filed on
October 16, 1998
    (file no. 000-24969)).
23.2*
Consents of
    Schuhalter, Coughlin & Suozzo, LLC dated April 23, 1999 and
Mauriello,
    Franklin & LoBrace, P.C. dated April 23, 1999 (incorporated by reference
to Exhibit 23 to
    our registration statement on Form 10SB-12G filed on May 6, 1999
(file no.
    000-24969)).
23.3*
Consent of
    Schuhalter, Coughlin & Suozzo, LLC dated August 13, 1999
(incorporated by
    reference to Exhibit 23.1 to our registration statement on Form SB-2
filed on August
    13, 1999 (file no. 333-85147)).
23.4
Consent of
    Schuhalter, Coughlin & Suozzo, LLC.
23.5
Consent of
    Rosenberg Rich Baker Berman and Company.
24.1**
Power of
    Attorney (included as a part of the signature page of the initial filing of
    this
Registration
    Statement).
---
* Incorporated by reference.
** Previously filed.
*** Portions of such documents have been omitted pursuant to Rule 406 of the
Securities Act of 1933, or Rule 424(b) of the Securities Exchange Act of 1934.
Omitted portions of documents have been separately filed with the Securities and
Exchange Commission.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
    post-effective amendment to this registration statement:
To include any prospectus required by Section 10(a)(3) of the
      Securities Act of 1933;
To reflect in the prospectus any facts or events arising after the
      effective date of this registration statement (or the most recent
      post-effective amendment thereof) which, individually or in the aggregate,
      represent a fundamental change in the information set forth in this
      Registration Statement. Notwithstanding the foregoing, any increase or
      decrease in volume of securities offered (if the total dollar value of
      securities offered would not exceed that which was registered) and any
      deviation from the low or high end of the estimated maximum offering range
      may be reflected in the form of prospectus filed with the Commission
      pursuant to Rule 424(b) promulgated under the Securities Act of 1933 if,
      in the aggregate, the changes in volume and price represent no more than a
      20% change in the maximum aggregate offering price set forth in the
      Calculation of Registration Fee" table in this Registration Statement;
To include any material information with respect to the plan of
      distribution not previously disclosed in this registration statement or
      any material change to such information in this Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) shall not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this registration statement.
That, for the purpose of determining any liability under the Securities
  Act of 1933, each such post-effective amendment shall be deemed to be a new
  registration statement relating to the securities offered therein, and the
  offering of such securities at that time shall be deemed to be the initial
  bona fide offering thereof.
To remove from registration by means of a post-effective amendment any of
  the securities being registered which remain unsold at the termination of the
  offering.
Insofar as indemnification for liabilities arising under the Securities
  Act may be permitted to directors, officers, and controlling persons of the
  registrant pursuant to the foregoing provisions, or otherwise, the registrant
  has been advised that in the opinion of the Securities and Exchange Commission
  such indemnification is against public policy as expressed in the Securities
  Act and is, therefore, unenforceable. In the event that a claim for
  indemnification against such liabilities (other than the payment by the
  Registrant of expenses incurred or paid by a director, officer, or controlling
  person of the registrant in the successful defense of any action, suit or
  proceeding) is asserted by such director, officer or controlling person in
  connection with the securities being registered, the registrant will, unless
  in the opinion of counsel the matter has been settled by controlling
  precedent, submit to a court of appropriate jurisdiction the question of
  whether such indemnification by it is against public policy as expressed in
  the Securities Act and will be governed by the final adjudication of each
  issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Norwalk,
State of Connecticut, on the17th day of March, 2005.
mPHASE TECHNOLOGIES,
    INC.
B
/s/ Ronald A. Durando
y:
Ronald A. Durando
President and Chief
    Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature
Title
Date
*
Chairman of the Board of Directors
March 17,
2005
Necdet F. Ergul
*
President, Chief Executive Officer
March 17,
2005
Ronald A. Durando
and Director (Principal Executive Officer)
/s/ Martin S. Smiley
Executive Vice President of Finance,
March 17,
2005
Chief Financial Officer, and General Counsel
Martin S. Smiley
(Principal Financial and Accounting Officer)
*
Director
March 17,
2005
Michael P. McInerney
*
Director
March 17,
2005
Anthony H. Guerino
*
Chief Operating Officer and Director
March 17,
2005
Gustave T. Dotoli
*
Chief Technology Officer and Director
March 17,
2005
David L. Klimek
*
Director
March 17,
2005
Abraham Biderman
By: /s/ Martin S. Smiley
Martin S. Smiley
Attorney-in-fact
End of Filing