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<title>mPhase Technologies, Inc.: Form S-1 - Prepared By TNT Filings Inc.</title>
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<b><font SIZE="2">
<p>&nbsp;</p>
<hr color="#000000" size="5"><p align="center">As filed with the Securities and Exchange Commission on August
8, 2005 </p>
<p align="right">Registration No. 333- </p>
</font>
<p align="center">SECURITIES AND EXCHANGE COMMISSION <br>
Washington, D.C. 20549 </p>
<p align="center"><font size="6">FORM S-1</font></p>
<font SIZE="2">
<p>REGISTRATION STATEMENT <br>
UNDER THE SECURITIES ACT OF 1933 </p>
</font><font SIZE="6">
<p align="center">mPHASE TECHNOLOGIES, INC. </font></b><font size="6"><br>
</font><font SIZE="2">(Exact name of registrant as specified in its charter) </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" size="2"><b>New
    Jersey</b></font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" size="2"><b>7385</b></font></td>
    <td WIDTH="34%" align="center"><font FACE="Times New Roman" size="2"><b>
    22-2287503</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" size="2">(State
    or other jurisdiction</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" size="2">
    (Primary Standard Industrial</font></td>
    <td WIDTH="34%" align="center"><font FACE="Times New Roman" size="2">(I.R.S.
    Employer</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" size="2">of
    incorporation or organization)</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" size="2">
    Classification Code Number)</font></td>
    <td WIDTH="34%" align="center"><font FACE="Times New Roman" size="2">
    Identification Number)</font></td>
  </tr>
</table>
</font><font size="2"><b>
<p ALIGN="CENTER">587 Connecticut Avenue <br>
Norwalk, Connecticut 06854-1711 <br>
Telephone: (203) 838-2741 </p>
</b>
<p>(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices) </p>
</font><font size="2"><b>
<p ALIGN="CENTER">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 </p>
</b>
<p align="center">(Name, address, including zip code, and telephone number,
including area code, of agent for service) </p>
</font><font SIZE="2" FACE="Times New Roman">
<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 </font>
<font SIZE="2">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>If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="102%" align="center" colspan="5" style="border-top-style: solid; border-top-width: 1">
    <font FACE="Times New Roman" SIZE="2"><b>CALCULATION OF REGISTRATION FEE</b></font></td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">
    Proposed</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">
    Proposed</font></td>
    <td WIDTH="20%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">maximum</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">maximum</font></td>
    <td WIDTH="20%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">
    offering</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">
    aggregate</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">Amount
    of</font></td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">Title
    of each class of</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">Amount
    to be</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">price
    per</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">
    offering</font></td>
    <td WIDTH="20%" align="center"><font FACE="Times New Roman" SIZE="2">
    Registration</font></td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    securities to be registered</font></td>
    <td WIDTH="20%" align="center" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    Registered</font></td>
    <td WIDTH="20%" align="center" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" 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" 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" SIZE="2">fee</font></td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2"><b>
    Stock, </b></font><b><font face="Times New Roman" size="2">$.01 par value</font></b></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 2">
    <b><font size="2">38,230,800</font></b></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2"><b>$.25</b></font></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2"><b>$9,557,700</b></font></td>
    <td WIDTH="20%" align="center" style="border-top-style: solid; border-top-width: 1; border-bottom-style: solid; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2"><b>$1,180</b></font></td>
  </tr>
  <tr>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
    <td WIDTH="20%" align="center">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" 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 August 4, 2005. </p>
<b>
<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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>August 8, 2005 </p>
<p align="center">PROSPECTUS <br>
mPHASE TECHNOLOGIES, INC. </p>
<b>
<p align="center">38,230,800 Shares of Common Stock </p>
</b>
<p>This prospectus relates to the resale of up to 38,230,800 shares of common
stock, of which 22,029,300 shares are issued and outstanding and up to
16,201,500
shares may be issued upon the exercise of warrants and options held by the selling stockholders. The selling stockholders listed on pages
55 - 58 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
August 4,
2005 was $.25 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 August 8, 2005 </p>
<b>
<p align="center">TABLE OF CONTENTS </p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="680">&nbsp;</td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>Page</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Prospectus Summary</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>1</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>The Offering</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>4</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Forward-Looking
    Statements</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>4</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Summary Financial
    Data</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>6</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Risk Factors</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>8</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Use of Proceeds</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>11</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Price Range of
    Common Stock</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>12</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Selected Financial
    Data</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>13</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Selected Quarterly
    Financial Data</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>14</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Company Operations</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>17</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Business</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>36</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Legal Proceedings</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>52</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Our Management</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>52</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Stock Options</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>55</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Security Ownership
    of Certain Beneficial Owners and Management</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>58</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Certain
    Relationships and Related Transactions</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>60</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Selling
    Stockholders</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>66</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Plan of
    Distribution</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>72</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Description of
    Securities</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>74</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Legal Matters</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>75</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Experts</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>76</b></font></td>
  </tr>
  <tr>
    <td WIDTH="680"><font FACE="Times New Roman" SIZE="2"><b>Where You Can Find
    Additional Information</b></font></td>
    <td WIDTH="306" align="right"><font FACE="Times New Roman" SIZE="2"><b>76</b></font></td>
  </tr>
</table>
<font FACE="Times New Roman" 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>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>
<p align="center">PROSPECTUS SUMMARY </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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>From inception (October 2, 1996), through March 31, 2004 the Company had
incurred (unaudited) development stage losses and has an accumulated deficit of
approximately $125,259,323 million and a stockholders' deficit of approximately
$2,537,180 respectively. Cumulatively, through June 30, 2004 and March 31, 2005,
(unaudited) the Company had negative cash flows from operations of approximately
$47.8 million and $54.1 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. </p>
<b>
<p align="center">mPHASE TECHNOLOGIES, INC. </p>
</b>
<p>mPhase Technologies, Inc. (mPhase, the Company, we or us), a New Jersey
corporation, founded in 1996 is a publicly-held company with approximately
14,830 shareholders and approximately 141 million shares of common stock
outstanding as of July 26, 2005. 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>mPhase is a developer of broadband communications products, specifically,
middleware, set top boxes and systems integration solutions for the delivery of
broadcast quality television, video on demand, high speed internet and voice
utilizing internet protocol. (IPTV) mPhase's believes that Release 3.0 of its
TV+ solution, scheduled for September of 2005 is the most cost-effective,
standards based, scalable solution with carrier class quality and security
available for telecommunications service providers around the world. mPhase
believes that telecommunication service providers in countries outside of the
United States that generally lack extensive fiber to the home infrastructure
will find the Company's TV+ solution as an attractive way to retain traditional
telephone customers by offering a full package of services. The TV+ solution is
designed to enable telecommunication service providers to solve the &quot;last mile&quot;
from a central office location to a customer over any existing infrastructure
including copper, fiber or coax. Version 3.0 of the TV+ solution is a
culmination of years of development of a world class television delivery
solution for telecommunication service providers. The Company also develops and
sells DSL products including &quot;intelligent&quot; POTS Splitter DSL loop diagnostic
systems and Plain Old Telephone Service (POTS) Splitters necessary to split a
telephone signal into a high frequency digital and low digital data component
and low frequency analog voice component necessary for a telephone service
provider to provide high-speed internet services over copper from its central
office to its customer's premises. Since our inception in 1996 we have been a
development-stage company. </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
having significantly longer shelf life prior to activation, instant on
capabilities due to their extremely small internal size, and power management
capabilities to significantly extend their duty cycle periods 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 extremely sensitive uncooled magnetic  sensors, commonly known as
a magnetometer,&nbsp; as a new product line. </p>
<p ALIGN="left"><b><u>IPTV Solution</u></b></p>
<p>Our primary activities currently consist of designing, manufacturing and
testing Release 3.0 of our TV+ middleware solution and next generation set top
box designed as the key ingredients for the deliver of IP (Internet Protocol)
based broadcast television over a telephone service providers existing
infrastructure including copper, fiber and coaxial networks or combinations
thereof. We have not, as yet, derived significant sales revenue from our TV+
solution. Our solutions facilitate telephone companies becoming full service
communications providers by enabling the simultaneous delivery of digital
broadcast television, stored video from network based servers, high -speed data and voice services over the existing
infrastructure and topology. mPhase has developed Release 3.0 of its TV+
solution primarily for telephone companies in parts of the world where access to
multi-channel television is limited. We have engaged the Bell Labs division of
Lucent Technologies Inc. to develop portions of our TV+ solution as well as to
perform exploratory research with respect to our nanotechnology product
development. </p>
<p>mPhase is a pioneer in the field of development of solutions for the delivery
of television, high speed internet and voice by telecommunications service
providers from such provider's central offices to its customers. This has been
commonly referred to as the &quot;last mile to the home solution&quot; for delivery of a
full menu of services to a customer that the Company believes is compelling
where the existing infrastructure of a service provider is composed of copper
wires rather than fiber in the &quot;last mile to the house. Such infrastructure is
found primarily outside of the United States, since (except for rural areas)
most areas of significant population in the United States contains significant
fiber to the home infrastructure. 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 the newer TV+ solution. 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 was installed for serving
over 80 customers at Hart Telephone Company in Hartwell, Georgia, as a limited
user beta system was operational. 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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>The new mPhase TV+solution replaced the legacy Traverser DVDDS system and is
developed in conjunction with Bell Laboratories division of Lucent Technologies,
Inc. The TV+ solution marks a change in the Company's product emphasis from a
proprietary end to end solution designed to deliver television over DSL as a
solution for telephone companies that had copper from their central officers to
their customer premises. The TV+ system was developed 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.
Releases 1 and 2 (containing an enhanced programming guide) of the mPhaseTV+
system are complete and ready for commercial deployment and Release 3.0 is due
to be released during September of 2005. Releases 1.0 and 2.0 of the TV+ system
each deliver 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>
<p>Stinger located at the Central Office of a telecommunications service
provider or in the loop servicing the customer. </p>
<p>Release 1.0 and 2.0 of the TV+ solution 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 for transport in the TV+ system
results in a highly reliable architecture for the delivery of broadcast
television. This is accomplished by internally multicasting each television
channel for delivery from the central office of a telecommunications service
provider to a larger number of end users. Release 2.0 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 a reliable 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>As noted above, 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). </p>
<p>In December of 2004, the Company announced that Lucent Russia selected the
mPhase TV+ solution 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. Installation of the broadcast television
switch (the &quot;BTS&quot;) software as well as mPhase's set top box is expected to begin
in September of 2005 and be completed by the end of December of 2005. In
December of 2004, 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 marks the culmination of mPhase's 7 year
effort to develop a world class solution for telecommunication service providers
seeking to provide carrier class, highly scaleable and cost effective delivery
of feature rich broadcast television over its existing infrastructure. Release
3.0 of the TV+ solution consist of a state of the art middleware system that
enables a telecommunication service provider seeking to delivery feature risk
broadcast television over ANY infrastructure including fiber, copper, coaxial
solution or any combination of the foregoing to its customers. The Company is
also developing a next generation set top box designed to further enhance its
overall product solution. It is important to note, however that the middleware
that is the key solutions ingredient is designed to work with the DSLAM or other
transportation technologies plus any set top box as a completely OPEN STANDARDS
BASED solution. Our middleware is transport agnostic and operates with any IP
based network including any DSL, ethernet or fiber infrastructure or combination
thereof and may be deployed IP Multicast Router or DSLAM transportation method
used for the delivery of digital television and high-speed data. </p>
<p>Furthermore Release 3.0 of the TV+ solution utilizes 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>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>Release 3.0 of the TV+ system consists primarily of highly scalable system
management software/middleware designed to deliver IP television, video on
demand, high speed internet and voice over both fiber and copper infrastructures
of a telephone service provider. As noted above it will operate with both the
Lucent Stinger as well as the DSLAM's of other major vendors. Release 3.0 of the
TV+ solution will also be able to send multiple TV channels down a single DSL
line using ADSL2. The Company believes that the current TV+ solution offers the
premiere solution in IPTV that telecommunications service providers are seeking
for the delivery of converged services to preserve and enhance their traditional
telephone voice delivery capabilities and compete against cable and satellite
technologies for delivery of converged services to their traditional customers.
</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 in which mPhase owns approximately 57% of. Through such joint venture mPhase
TV has compiled significant experienced in negotiation contracts with broadcast
television programming providers for U.S. markets. Such experience should prove
useful in assisting a U.S. telecommunications service provider to arrange
contact packages with various content providers of broadcast television. </p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>NanoTechnology Products </p>
</b>
<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. In March of 2005, the Company has
extended the contract with Lucent for another 12 months at approximately the
same cost to continue development of such product, with additional agreements to
extend our relationship with Lucent Bell Labs on an ongoing basis past this
period.&nbsp; Under the terms of the
contract, the Company will share in royalties from any licensing of the products
developed with Lucent. </p>
<p>mPhase believes that the initial market for the product will be military
applications. A first generation laboratory 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 (MEMS), and are being
designed to create a new generation of uncooled ultra sensitive magnetic field
sensors. </p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>mPhase DSL Component Products </p>
</b>
<p>Although the Company has changed significantly with respect to its
telecommunications solutions from a hardware to a software provider, mPhase
continues to design 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" SIZE="2"><i>i</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 </font>
<font FACE="Times New Roman" SIZE="2"><i>i</i>POTS, and</font><font FACE="Times New Roman" SIZE="2"><i>i</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</font><font FACE="Times New Roman" SIZE="2"><i>i</i>POTS</font><font FACE="Times New Roman" SIZE="2"><i>1</i>is
designed for use with the Lucent Stinger, whereas, the</font><font FACE="Times New Roman" SIZE="2"><i>iPOTS3</i>(recently
renamed the Broadband Loop Watch product)is compatible with digital subscriber
line access multiplexers (data transport devices or DSLAM's) manufactured by
other vendors. </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. The first delivery of such product is
expected during the beginning of the second quarter of fiscal year 2006. </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 nine months ending March 31, 2005 (unaudited), sales from POTS
Splitter Shelves and our TV + platform totaled $1,039,003 with a Net Loss of
$9,484,240 compared to sales (exclusively of POTS SPLITTERS) of $4,335,476 and a
Net Loss of $4,889,771 for the same period ending March 31, 2004. (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" SIZE="2">
<p>THE OFFERING </p>
<p ALIGN="JUSTIFY">Common stock offered: Up to 38,230,800 shares of common stock,
of which 22,029,300 shares are issued and outstanding and up to 16,201,500
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
178 million shares of common stock. This does not include an aggregate of&nbsp;
approximately 110 million 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 $4,075,375 upon 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.
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. </p>
<b>
<p align="center">FORWARD-LOOKING STATEMENTS </p>
</b>
<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>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>
<p align="center">SUMMARY FINANCIAL DATA </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. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="23%">&nbsp;</td>
    <td WIDTH="96%" align="right" colspan="12">
    <p align="center"><font size="2">Year Ended June 30,</font></td>
  </tr>
  <tr>
    <td WIDTH="23%">&nbsp;</td>
    <td WIDTH="77%" align="right" colspan="12">
    <p align="center"><font size="2">(in thousands except per share data)</font></td>
  </tr>
  <tr>
    <td WIDTH="23%">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="64%" align="right" colspan="10">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>Cumulative</b></font></td>
  </tr>
  <tr>
    <td WIDTH="23%">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>from inception</b></font></td>
  </tr>
  <tr>
    <td WIDTH="23%">&nbsp;</td>
    <td WIDTH="66%" align="right" colspan="11">
    &nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>October 2, 1996</b></font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">STATEMENT OF</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">2000</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">2001</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">2002</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">2003</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font size="2">2004</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>to June 30, 2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">OPERATIONS DATA:</font></td>
    <td WIDTH="96%" align="right" colspan="12">
    &nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Total revenues</font></td>
    <td WIDTH="2%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">279</font></td>
    <td WIDTH="2%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">10,524</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">2,582</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">1,582</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">4,641</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">19,609</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Cost of sales</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">132</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">5,805</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">2,415</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">1,493</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">4,270</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2">14,115</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Research and</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">development</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">10,157</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">10,780</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">3,820</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">3,538</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">3,928</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2">38,275</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">General and</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">administrative</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">27,859</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">17,322</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">7,039</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">2,684</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">4,118</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2">78,995</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Depreciation and</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">amortization</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">471</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">660</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">670</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">515</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">123</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2">2,889</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Operating loss</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(38,340)</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(24,043)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(11,361)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(6,649)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(7,798)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2">(114,666)</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Other income (expense), net</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">20</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">142</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">50</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">150</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2">(1,104)</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Interest income (expense)</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">158</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">43</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(26)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(51)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">(111)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2">5</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Net loss</font></td>
    <td WIDTH="2%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(38,162)</font></td>
    <td WIDTH="2%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(24,000)</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(11,245)</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(6,650)</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(7,759)</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">(115,775)</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Basic and diluted net</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">loss per share</font></td>
    <td WIDTH="2%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(1.41)</font></td>
    <td WIDTH="2%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(.72)</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(.23)</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(.10)</font></td>
    <td WIDTH="3%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="10%" align="right"><font SIZE="2">(.10)</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Shares used in basic and</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">diluted</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">net loss per share</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">26,974,997</font></td>
    <td WIDTH="2%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">33,436,641</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">49,617,280</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">65,217,088</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2">77,677,120</font></td>
    <td WIDTH="3%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>* Does not include any common stock equivalents since their effect would be
anti-dilutive. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="32%">&nbsp;</td>
    <td WIDTH="75%" align="center" colspan="10"><font size="2">Year ended June
    30</font></td>
  </tr>
  <tr>
    <td WIDTH="32%">&nbsp;</td>
    <td WIDTH="75%" align="center" colspan="10"><font size="2">(in thousand)</font></td>
  </tr>
  <tr>
    <td WIDTH="32%">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="6%" align="right"><font SIZE="2"><b>2000</b></font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2"><b>2001</b></font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2"><b>2002</b></font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2"><b>2003</b></font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="32%"><font SIZE="2">BALANCE SHEET DATA:</font></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>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="32%"><font SIZE="2">Cash and cash equivalents</font></td>
    <td WIDTH="6%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="6%" align="right"><font SIZE="2">6,432</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">31</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">47</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="7%" 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="32%"><font 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="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2">(1,458)</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2">(94)</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" 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="32%"><font 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="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2">8,997</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2">6,942</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" 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="32%"><font 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="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2">90</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" align="right"><font SIZE="2">2,891</font></td>
    <td WIDTH="7%" align="right">&nbsp;</td>
    <td WIDTH="7%" 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="32%"><font 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="7%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">1,865</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">(42)</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">(3,229)</font></td>
    <td WIDTH="7%" align="right"><font SIZE="2">$</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="50%">&nbsp;</td>
      <td WIDTH="50%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="50%">&nbsp;</td>
      <td WIDTH="50%" align="right"><font SIZE="2">As of</font></td>
    </tr>
    <tr>
      <td WIDTH="50%">&nbsp;</td>
      <td WIDTH="50%" align="right"><font SIZE="2">March</font></td>
    </tr>
    <tr>
      <td WIDTH="50%">&nbsp;</td>
      <td WIDTH="50%" align="right"><font SIZE="2">31, 2005</font></td>
    </tr>
    <tr>
      <td WIDTH="50%">&nbsp;</td>
      <td WIDTH="50%" align="right"><font SIZE="2">(Unaudited)</font></td>
    </tr>
    <tr>
      <td WIDTH="50%">&nbsp;</td>
      <td WIDTH="50%" align="right"><font SIZE="2">(in thousands)</font></td>
    </tr>
    <tr>
      <td WIDTH="50%">&nbsp;</td>
      <td WIDTH="50%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="50%"><font SIZE="2"><b>BALANCE SHEET DATA:</b></font></td>
      <td WIDTH="50%" align="right">&nbsp;</td>
    </tr>
    <tr>
      <td WIDTH="50%"><font SIZE="2">Cash and cash equivalents</font></td>
      <td WIDTH="50%" align="right"><font SIZE="2">$238</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font SIZE="2">Working capital (deficit)</font></td>
      <td WIDTH="50%" align="right"><font SIZE="2">$(2,332)</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font SIZE="2">Total assets</font></td>
      <td WIDTH="50%" align="right"><font SIZE="2">$2,319</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font SIZE="2">Long-term obligations, net of current portion</font></td>
      <td WIDTH="50%" align="right"><font size="2">$561</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font SIZE="2">Total stockholders' equity (deficit)</font></td>
      <td WIDTH="50%" align="right"><font SIZE="2">$(2,537)</font></td>
    </tr>
  </table>
  </center>
</div>
<font SIZE="2">
<p ALIGN="JUSTIFY">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 March
31, 2005, 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. </p>
<p>The statement of operations data for the nine months ended March 31, 2005 and
March 31, 2004 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 nine month period ended March 31,
2005 are not necessarily indicative of the operating results to be expected in
the future. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse; font-size:10pt" bordercolor="#111111">
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="48%" align="right" colspan="2"><font size="2">Nine Months Ended</font></td>
    <td WIDTH="23%" align="right"><font size="2">Cumulative Totals</font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="48%" align="right" colspan="2"><font size="2">March 31,</font></td>
    <td WIDTH="23%" align="right"><font size="2">From Inception</font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right"><font size="2">(October 2, 1996)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="23%" align="right"><font size="2">2004</font></td>
    <td WIDTH="23%" align="right"><font size="2">2005</font></td>
    <td WIDTH="23%" align="right"><font size="2">to March 31, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="23%" align="right"><font SIZE="2">(Unaudited)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(Unaudited)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(Unaudited)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Total revenues</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">$4,335</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">$1,039</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">20,649</font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Expenses:</font></td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Cost of sales</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">3,878</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">823</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">14,736</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Research and development</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">2,859</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">3,820</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">42,237</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; General and administrative</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">2,196</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">5,416</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">84,471</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Depreciation and
    amortization</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">101</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">194</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">3,084</font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Operating loss</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(4,698)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(9,214)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(123,880)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Other income (expense), net</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(201)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(270)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(1,379)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Interest income (expense)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(72)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(132)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(137)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Net loss</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">$(4,900)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(9,484)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">(125,259)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Basic and diluted net loss per share*</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">$(0.07)</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">$(0.09)</font></td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Shares used in basic and diluted</font></td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">net loss per share*</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">75,312,435</font></td>
    <td WIDTH="23%" align="right"><font SIZE="2">101,062,839</font></td>
    <td WIDTH="23%" align="right">&nbsp;</td>
  </tr>
</table>
<font SIZE="2">
<p>*Does not include any common stock equivalents since their effect would be
anti-dilutive. </p>
<p align="center">RISK FACTORS </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. </p>
<p>Risks Related to Financial Aspects of Our Business </p>
<b>
<p>In fiscal year 2004, the Company entered into the new and emerging business
of developing products using the science of Nanotechnology which entails
significant exploratory development and commercial risk. </p>
</b>
<p>The Company has expended a total of $1.2 million pursuant to a contract with
Lucent Technologies, Inc. to initially develop longer life battery 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. 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 The Company does not expect
significant revenues from either product for at least 3 years. </p>
<b>
<p>mPhase's stock price has suffered significant declines during the past five
years and remains volatile</b>. </p>
<p>The market price of our common stock closed at $7.88 on July 26, 2000 and
closed at $.247 on July 26, 2005. During such period the number of shares
outstanding of the Company increased from approximately 30 million shares to 141
million shares (undiluted) and approximately 245 million shares (full diluted).
Such increase was the result of periodic private placements by the Company in
order to finance company operations. 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. </p>
<p>We have reported net losses for each of our fiscal years from our inception
in 1996 and for the nine months (unaudited) ended March 31, 2005 and March 31,
2004 respectively and may not be able to operate profitability in the future.
</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) $9,484,240 and
$4,889,771 for the nine month period ending March 31, 2005 and March 31, 2004
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 March 31, 2005 (unaudited) and we
have incurred (a) accumulated losses of $125,259,323 and a stockholder's deficit
of $2,537,180 and (b) cumulative negative cash flow of $54,120,374. As of March
31, 2005 (unaudited) we have a negative net worth of $2,537,180 and negative
working capital of $2,332,278. </p>
<b>
<p>Our independent auditor's report express doubt about our ability to continue
as a going concern</b>. </p>
<p>The reports of the Company's outside auditors' Rosenberg, Rich, Baker, Berman
&amp; Company with respect to its latest audited 10K for
</font><font FACE="Times New Roman" SIZE="2">
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.</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p></font><font FACE="Times New Roman" SIZE="2"><b>Our common stock is subject
to significant dilution upon issuance of shares we have reserved issuance. </p>
</b>
<p>As of July 26, 2005, we have warrants, options and convertible notes
outstanding convertible into approximately 100 million total shares of mPhase common stock which, upon conversion,
may adversely affect the future price of our common stock. As of July 26, 2005
we have warrants and options convertible into approximately 77 million 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 July 26, 2005, the Company has approximately 1,440,000 shares of common
stock reserved for the issuance upon the conversion of a 12% convertible notes
to a related party at an average exercise price $.25 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. </p>
</font><font FACE="Times New Roman" 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 any of our solutions for the
delivery of broadcast television, high-speed internet and voice by a major
telephone service provider. </p>
</b>
<p>We have had to date no material revenues derived from sales of either our
legacy Traverser Digital Video Data Delivery System (DVDDS) or our TV+ solution
or our new Broadband Loop Watch product. There have been to date only one sale
of our software and Set Top Boxes for 1000 customers of a
telecommunications service provider in Russia that is just commencing deployment
of a small group of customers as a trial and no major deployments of Release 2.0
of our TV+ Solution 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. </p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>We depend upon outsourcing of our research and product development of our
television platform and Nanotechnology products to Lucent Technologies Inc. </p>
</b>
<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 Loop Watch product and our Nanotechnology products and our business
would be materially adversely affected if Lucent Technologies Inc. were to
terminate our relationship. </p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>The loss of key personnel could adversely affect our business. </p>
</b>
<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 provide the intended incentives to such
persons if our stock price declines or experiences significant volatility. </p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>Economic support from affiliated companies has been significant. </p>
</b>
<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. </p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>Sales and margins from our component DSL products have varied dramatically
during the past four years and remains volatile. </p>
</b>
<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 March 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
throughout 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 affect the
cash available to the Company prior to commencement of sales of our TV+solution
thereby having a negative effect upon the overall financial condition of the
Company and the price of our common stock. </p>
<b>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>We rely on single sources for supply of a certain component for our POTS
splitter product that has been the source of all of our revenues to date. </p>
</b>
</font><font FACE="Times New Roman" SIZE="2">
<p>We purchase the core torroid that 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. </p>
<b>
<p>We may incur substantial expenditures in the future in order to protect our
intellectual property. </p>
</b>
<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+ solution. 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. </p>
<b>
<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 and a multiplicity
of risks. </p>
</b>
<p>We expect the majority of our future revenues from our TV+ solution 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 + solution 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 and may never develop for our TV +solution 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 aggressively
roll out IPTV, 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+ solution. 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. </p>
<b>
<p>Our televison platform may not achieve compliance with regulatory
requirements in foreign countries. </p>
</b>
<p ALIGN="JUSTIFY">Our mPhaseTV+ solution 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+ solution. </p>
<b>
<p>The telecommunications industry is subject to intense competition
characterized by swift changes in technology. </p>
</b>
<p>The telecommunications equipment industry is subject to swift and continuing
innovation and technological changes that could render our TV+ solution obsolete
and intense competition in the industry could prevent our ever becoming
profitable. Our competitors that sell IP TV solutions that compete with and
mPhase TV+ set top box and middleware include much larger and better known and
capitalized companies with significantly greater selling and marketing
experience and financial resources. Such competitors include for middleware a
joint venture between Microsoft and Alchaetel, as well as Minverva, Orca
Interactive, Siemens, VBrick Systems and Video Furnance. For set top boxes the
Company is in competition with Advanced Digital Broadcast, Amino Communications, Kreatel, Pace Micro Technology, Samsung Telsey Telecommunications and
VBrick Systems. End to end solutions competitors for IPTV include UTStarcom,
mxWare and Industria. 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. </p>
<b>
<p>Deployment of our television platform requires certain additional investments
by telecommunications service providers. </p>
</b>
<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+ solution. For
customers desiring feature rich solutions such as video on demand, the
installation of additional routers and servers may be required to upgrade the
internet backbone capabilities of such customer. Such additional capital costs
may cause a number of potential customers not to deploy our TV+ solution. </p>
<b>
<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>.
</p>
<p>The market for our broadcast digital television platforms over DSL is
characterized by: </p>
<blockquote>
  <p>Rapid technology change; </p>
  <p>New and improved product introductions; </p>
  <p>Changing customer demands; and </p>
</blockquote>
</font>
    <font FACE="Times New Roman" SIZE="2">
    <blockquote>
    <p>Evolving industry standards and product obsolescence. </p>
  </blockquote>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>Our future success will depend upon our ability to continually enhance our
TV+ solution to deliver feature rich, open standards, carrier class television
on the most scaleable cost efficient platform custom tailored to the rigorous
and varied 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. </p>
<b>
<p>Telecommunications service providers outside of the United States must be
able to access sources for broadcast television content in order to deploy
our TV+ Solution.</p>
</b>
<p>In order to have an incentive to deploy&nbsp; the TV+ solution, 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 provide such content and therefore a local
service provider must establish a working relationship with such a cable
provider to have an incentive to utilize our products. </p>
<p>USE OF PROCEEDS </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 $4,075,375 if all of the warrants and options  are converted to purchase shares of common stock registered under this
prospectus, which would be used for general working capital. </p>
<p align="center">PRICE RANGE OF COMMON STOCK </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. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="41%"><b><font size="2">Year/Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">High</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">Low</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fiscal year ended June 30, 1999</font></b></td>
    <td WIDTH="29%" align="right">&nbsp;</td>
    <td WIDTH="30%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">First Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$4.25</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$0.75</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Second Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">3.65625</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">1.5625</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Third Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">5.625</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">1.875</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fourth Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">8.75</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">2.90625</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fiscal year ended June 30, 2000</font></b></td>
    <td WIDTH="29%" align="right">&nbsp;</td>
    <td WIDTH="30%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">First Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$9.25</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$2.96875</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Second Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">6.1875</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">2.50</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Third Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">19.125</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">6.50</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fourth Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">14.125</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">6.00</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fiscal year ended June 30, 2001</font></b></td>
    <td WIDTH="29%" align="right">&nbsp;</td>
    <td WIDTH="30%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">First Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$9.25</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$3.00</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Second Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">5.9375</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">1.4688</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Third Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">3.38</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">1.22</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fourth Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">2.61</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">1.03</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fiscal year ended June 30, 2002</font></b></td>
    <td WIDTH="29%" align="right">&nbsp;</td>
    <td WIDTH="30%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">First Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$1.67</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.31</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Second Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">.86</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">.31</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Third Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">.62</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">.27</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fourth Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">.50</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">.23</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fiscal year ended June 30, 2003</font></b></td>
    <td WIDTH="29%" align="right">&nbsp;</td>
    <td WIDTH="30%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">First Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.32</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.15</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Second Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">.31</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">.15</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Third Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">.36</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">.19</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fourth Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">.42</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">.28</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fiscal Year ended June 30, 2004</font></b></td>
    <td WIDTH="29%" align="right">&nbsp;</td>
    <td WIDTH="30%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">First Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.42</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.29</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Second Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.61</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.26</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Third Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.69</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.41</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fourth Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.46</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.29</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fiscal Year ended June 30, 2005</font></b></td>
    <td WIDTH="29%" align="right">&nbsp;</td>
    <td WIDTH="30%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">First Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.31</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.21</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Second Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.35</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.23</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Third Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.59</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.30</font></b></td>
  </tr>
  <tr>
    <td WIDTH="41%"><b><font size="2">Fourth Quarter</font></b></td>
    <td WIDTH="29%" align="right"><b><font size="2">$.41</font></b></td>
    <td WIDTH="30%" align="right"><b><font size="2">$.24</font></b></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>As of July 26, 2005 (unaudited), we had 140,965,957 shares of common stock
outstanding and approximately 14,839 stockholders. The last reported sales price
of our <font FACE="Times New Roman">common stock on July 26, 2005 was $.247 per
share. </font></p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p align="center">DIVIDEND POLICY </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. </p>
<p align="center">SELECTED FINANCIAL DATA </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 March 31, 2005, 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 nine months ended March 31, 2005 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="19%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="35%" align="center" colspan="3"><font SIZE="2"><b>For The Year
    Ended</b></font></td>
    <td WIDTH="39%" COLSPAN="3" align="right"><font SIZE="2"><b>For the Nine
    Months </b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="35%" align="center" colspan="3"><font SIZE="2"><b>June 30,</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="25%" COLSPAN="2" align="right"><font SIZE="2"><b>&nbsp;Ended
    March 31, (Unaudited)</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="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="19%">&nbsp;</td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>2000</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>2001</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>2002</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>2003</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>2004</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>2004</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>2005</b></font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2"><b>STATEMENT OF</b></font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2"><b>OPERATIONS</b></font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2"><b>DATA:</b></font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Total revenues</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$279,476</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$10,524,134</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$2,582,446</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$1,581,639</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$4,641,346</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$4,335,476</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$1,039,003</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Costs and</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Expenses:</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Cost of sales</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">131,756</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">5,804,673</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">2,415,129</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">1,493,394</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">4,068,255</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">3,878,389</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">823,217</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Research and</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">development</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">10,156,936</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">10,779,570</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">3,819,583</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">3,538,305</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">4,069,721</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">2,858,715</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">3,820,128</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">General &amp;</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">administrative</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">27,859,330</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">17,321,614</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">7,038,923</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">2,683,534</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">4,177,961</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">2,196,052</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">5,416,357</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Depreciation &amp;</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">amortization</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">471,101</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">660,372</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">670,183</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">515,417</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">122,878</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">100,833</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">193,650</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Operating loss</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">(38,339,647)</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">(24,042,095)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(11,361,372)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(6,649,011)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(7,797,469)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(4,698,483)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(9,214,349)</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Other income</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">(expense), net</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">20,000</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">142,236</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">49,968</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">38,833</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(128,991)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(137,751)</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Interest income</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">(expense)</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">158,105</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">43,361</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(26,225)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(51,168)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(111,175)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(72,367)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(132,140)</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Net Loss</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$(38,161,542)</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$(23,998,734)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(11,245,361)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(6,650,211)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(7,758,586)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(4,899,771)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">(9,484,240)</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Basic and diluted</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">net loss per share</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$(1.41)</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">$(0.72)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(0.23)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(0.10)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(.10)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(.07)</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">$(.09)</font></td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">Shares used in</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">basic and diluted</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">net loss per</font></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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="19%"><font SIZE="2">share(1)</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">26,974,997</font></td>
    <td WIDTH="11%" align="right"><font SIZE="2">33,436,641</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">49,617,280</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">65,217,088</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">77,677,120</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">75,312,435</font></td>
    <td WIDTH="12%" align="right"><font SIZE="2">101,062,839</font></td>
  </tr>
</table>
<font FACE="Times New Roman">
<p><font size="2">(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. </font></p>
<p><font size="2">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 March 31, 2005, 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. </font></p>
<b>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p><font size="2">Balance Sheet Data as of: <br>
&nbsp;</font></p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="23%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font SIZE="2"><b>June 30,</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%">&nbsp;</td>
    <td WIDTH="15%" align="right"><font SIZE="2"><b>2000</b></font></td>
    <td WIDTH="15%" align="right"><font SIZE="2"><b>2001</b></font></td>
    <td WIDTH="15%" align="right"><font SIZE="2"><b>2002</b></font></td>
    <td WIDTH="16%" align="right"><font SIZE="2"><b>2003</b></font></td>
    <td WIDTH="16%" align="right"><font SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="23%">&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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Cash and cash</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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">equivalents</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$6,432,417</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$31,005</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$47,065</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">$396,860</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">$90,045</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Working capital</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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">(deficit)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">3,556,587</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(1,458,227)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(94)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(1,405,331)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">(2,111,452)</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Total assets</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">11,184,246</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">8,997,182</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">6,942,515</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">3,781,649</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">2,590,718</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Total Long-term</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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">obligations, net of</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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">current portion</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">0</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">90,000</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">2,890,535</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">2,607,552</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">1,038,050</font></td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">Total stockholders'</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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="23%"><font SIZE="2">equity (deficit)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$7,328,504</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$1,864,642</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$(42,849)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">$(3,228,886)</font></td>
    <td WIDTH="16%" align="right"><font SIZE="2">$(2,917,962)</font></td>
  </tr>
</table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296">&nbsp;</td>
    <td WIDTH="335" align="right">&nbsp;</td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296">&nbsp;</td>
    <td WIDTH="335" align="right"><font SIZE="2"><b>March 31, 2005</b></font></td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296">&nbsp;</td>
    <td WIDTH="335" align="right">&nbsp;</td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>Cash and cash</b></font></td>
    <td WIDTH="335" align="right">&nbsp;</td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>equivalents</b></font></td>
    <td WIDTH="335" align="right"><font SIZE="2"><b>$237,828</b></font></td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>Working capital</b></font></td>
    <td WIDTH="335" align="right">&nbsp;</td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>(deficit)</b></font></td>
    <td WIDTH="335" align="right"><font SIZE="2"><b>(2,332,278)</b></font></td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>Total assets</b></font></td>
    <td WIDTH="335" align="right"><font SIZE="2"><b>2,318,504</b></font></td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>Total Long-term</b></font></td>
    <td WIDTH="335" align="right">&nbsp;</td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>obligations, net of</b></font></td>
    <td WIDTH="335" align="right">&nbsp;</td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>current portion</b></font></td>
    <td WIDTH="335" align="right"><font size="2"><b>560,500</b></font></td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>Total stockholders'</b></font></td>
    <td WIDTH="335" align="right">&nbsp;</td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="223">&nbsp;</td>
    <td WIDTH="296"><font SIZE="2"><b>equity (deficit)</b></font></td>
    <td WIDTH="335" align="right"><font SIZE="2"><b>$(2,537,180)</b></font></td>
    <td WIDTH="335">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p align="center">SELECTED QUARTERLY FINANCIAL DATA </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 March 31, 2005, have been derived from unaudited financial
statements reviewed by Rosenberg, Rich, Baker, Berman &amp; Company. The foregoing
includes all adjustments (consisting of normal recurring items) that management
considers necessary for a fair presentation of the financial statements. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="50%" align="right"><font SIZE="2"><b>Three Months Ended </b>
    </font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="50%" align="right"><font SIZE="2"><b>March 31,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="50%" align="right"><font SIZE="2"><b>(in thousands, except share
    amounts) </b></font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2"><b>FISCAL 2005 QUARTERLY</b></font></td>
    <td WIDTH="50%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2"><b>STATEMENT OF OPERATIONS DATA:</b></font></td>
    <td WIDTH="50%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Total revenues</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">$564</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="50%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Cost of sales</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">448</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Research and development</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">1,664</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">&nbsp;&nbsp;&nbsp; General and administrative</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">2,636</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Depreciation and
    amortization</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">65</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Operating loss</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">(4,249)</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Interest expense, Net</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">(37)</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Gain (Loss) on Debt extinguishments</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">(59)</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Net Loss</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">$(4,346)</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Basic and diluted net loss per share</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">$(.04)</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Shares used in basic and diluted net loss per
    share(1)</font></td>
    <td WIDTH="50%" align="right"><font SIZE="2">120,015,504</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>&nbsp;</p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="46%">&nbsp;</td>
    <td WIDTH="55%" colspan="2" align="right">
    <p align="center">
    <font FACE="Times New Roman" SIZE="2"><b>Three Months Ended&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    </b></font></td>
  </tr>
  <tr>
    <td WIDTH="46%">&nbsp;</td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    September 30,</b></font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    December 31</b></font></td>
  </tr>
  <tr>
    <td WIDTH="46%">&nbsp;</td>
    <td WIDTH="55%" colspan="2" align="right">
    <font FACE="Times New Roman" SIZE="2"><b>(in thousands, except share
    amounts)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    </b></font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2"><b>FISCAL 2005
    QUARTERLY</b></font></td>
    <td WIDTH="27%" align="right">&nbsp;</td>
    <td WIDTH="27%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2"><b>STATEMENT OF
    OPERATIONS DATA:</b></font></td>
    <td WIDTH="27%" align="right">&nbsp;</td>
    <td WIDTH="27%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Total revenues</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">$179</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">$295</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="27%" align="right">&nbsp;</td>
    <td WIDTH="27%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Cost of sales</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">130</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">245</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">1,101</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">1,055</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="27%" align="right"><font face="Times New Roman" size="2">709</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">2,071</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">1</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">127</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Operating loss</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(1,762)</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(3,203)</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Interest expense, Net</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(29)</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(66)</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Gain (Loss) on Debt
    extinguishment</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(41)</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(37)</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Net Loss</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">$(1,832)</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(3,306)</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Basic and diluted net
    loss per share</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">$(.02)</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">(.04)</font></td>
  </tr>
  <tr>
    <td WIDTH="46%"><font FACE="Times New Roman" SIZE="2">Shares used in basic
    and diluted net loss per share(1)</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">
    89,719,962</font></td>
    <td WIDTH="27%" align="right"><font FACE="Times New Roman" SIZE="2">
    93,388,584</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="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4"><font SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>September 30</b></font></td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>December 31</b></font></td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>March 31</b></font></td>
    <td WIDTH="18%" align="right"><font SIZE="2"><b>June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4"><font SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>FISCAL 2004 QUARTERLY</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Total revenues</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$2,489</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$1,291</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$555</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">$294</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Cost of sales</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">2,099</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">1,191</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">484</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">294</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Research and development</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">611</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">843</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">1,404</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">1,212</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; General and administrative</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">605</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">914</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">803</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">1,856</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Depreciation and
    amortization</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">46</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">28</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">27</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">22</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Operating loss</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(872)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(1,685)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(2,162)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">(3,078)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Interest expense, Net</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(16)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(16)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(20)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">(59)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Gain (Loss) on debt extinguishment</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">23</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(152)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">278</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Net Loss</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(865)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(1,701)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(2,334)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">$(2,859)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Basic and diluted net loss per share</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(.01)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(.02)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(.03)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">$(.03)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Shares used in basic and dilute net loss</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">71,725,318</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">72,814,272</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">81,564,405</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">84,885,017</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">per share</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4"><font SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>September 30</b></font></td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>December 31</b></font></td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>March 31</b></font></td>
    <td WIDTH="18%" align="right"><font SIZE="2"><b>June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4"><font SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>FISCAL 2003 QUARTERLY</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Total revenues</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$210</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$562</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$210</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">$600</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Cost of sales</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">197</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">547</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">205</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">544</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Research and development</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">803</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">753</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">906</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">1,077</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; General and administrative</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">893</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">731</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">544</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">516</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Depreciation and
    amortization</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">131</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">129</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">129</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">127</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Operating loss</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(1,814)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(1,598)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(1,574)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">(1,664)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Interest expense, Net</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(18)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(15)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(11)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">(6)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Gain on debt extinguishments</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">41</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">9</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">11</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Gain (Loss) on investments</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(16)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(12)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">17</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Net Loss</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(1,791)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(1,629)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(1,588)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">$(1,642)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Basic and diluted net loss per share</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(.03)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(.07)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$(.02)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">$(.02)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Shares used in basic and diluted net</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">60,881,131</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">65,914,466</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">65,956,810</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">68,164,160</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">loss per share(1)</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4"><font SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>September 30</b></font></td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>December 31</b></font></td>
    <td WIDTH="17%" align="right"><font SIZE="2"><b>March 31</b></font></td>
    <td WIDTH="18%" align="right"><font SIZE="2"><b>June 30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4"><font SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>FISCAL 2002 QUARTERLY</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Total revenues</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$537</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$545</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">$866</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">$634</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Cost of Sales</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">457</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">530</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">724</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">704</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Research and development</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">1,111</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">1,257</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">539</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">912</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; General and administrative</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">2,862</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">1,641</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">1,355</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">1,182</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">&nbsp;&nbsp;&nbsp; Depreciation and
    amortization</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">193</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">209</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">136</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">132</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Operating loss</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(4,086)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(3,092)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(1,888)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">(2,296)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Interest expense, Net</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(10)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(1)</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">(5)</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">(10)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font SIZE="2">Gain (Loss) on debt extinguishments</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">33</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">5</font></td>
    <td WIDTH="17%" align="right"><font SIZE="2">85</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">19</font></td>
  </tr>
</table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Net Loss</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(4,063)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(3,088)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(1,808)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$(2,287)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Basic and diluted net
    loss per share</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.10)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.07)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.03)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$(.04)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Shares used in basic
    and diluted net</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    42,037,506</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    44,645,458</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    55,606,168</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">
    56,459,167</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">loss per share(1)</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" 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="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4">
    <font FACE="Times New Roman" SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    September 30</b></font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    December 31</b></font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>March
    31</b></font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2"><b>June
    30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4">
    <font FACE="Times New Roman" SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2"><b>FISCAL 2001
    QUARTERLY</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Total revenues</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$1,865</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$5,231</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$2,959</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$469</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Cost of Sales</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">872</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">2,779</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">1,689</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">465</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">3,162</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">3,318</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">2,220</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">2,080</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">3,485</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">3,314</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">3,105</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">7,406</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">123</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">136</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">200</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">201</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Operating loss</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">(5,779)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">(4,316)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">(4,255)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">(9,683)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Interest income$ Net</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">28</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">8</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">4</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">3</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Net loss</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(5,751)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(4,308)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(4,251)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$(9,680)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Basic and diluted net
    loss per share</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.18)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.13)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.12)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$(.27)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Shares used in basic
    and diluted net</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    31,562,727</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    32,324,964</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    34,205,000</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">
    35,702,797</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">loss per share(1)</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4">
    <font FACE="Times New Roman" SIZE="2"><b>
    <p align="center">Three Months Ended</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    September 30</b></font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    December 31</b></font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2"><b>March
    31</b></font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2"><b>June
    30</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%">&nbsp;</td>
    <td WIDTH="70%" align="right" colspan="4">
    <font FACE="Times New Roman" SIZE="2"><b>
    <p align="center">(in thousands, except share amounts)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2"><b>FISCAL 2000
    QUARTERLY</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2"><b>STATEMENT OF</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2"><b>OPERATIONS DATA:</b></font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Total revenues</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$-</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$-</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$40</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$240</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Costs and Expenses:</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Cost of sales</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">19</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">113</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Research and development</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">1,491</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">1,904</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">2,858</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">3,904</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    General and administrative</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">1,210</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">1,226</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">12,776</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">12,648</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">&nbsp;&nbsp;&nbsp;
    Depreciation and amortization</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">114</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">116</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">118</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">123</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Operating loss</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">(2,815)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">(3,246)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">(15,731)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">(16,548)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Other income, net</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">20</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Interest income, Net</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">18</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">41</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">57</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">42</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Net Loss</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(2,797)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(3,205)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(15,674)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">
    $(16,486)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Basic and diluted net
    loss per share</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.11)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.12)</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$(.56)</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">$(.55)</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">Shares used in basic
    and diluted net</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    24,942,965</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    25,907,602</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    27,743,996</font></td>
    <td WIDTH="18%" align="right"><font FACE="Times New Roman" SIZE="2">
    29,729,060</font></td>
  </tr>
  <tr>
    <td WIDTH="31%"><font FACE="Times New Roman" SIZE="2">loss per share(1)</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>(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>
<p>(1) <b>SELECTED BALANCE SHEET DATA </p>
</b>
<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. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="28%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="43%" align="center" colspan="3"><font SIZE="2"><b>Year</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="43%" align="center" colspan="3"><font SIZE="2"><b>Ended</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="43%" align="center" colspan="3"><font SIZE="2"><b>June 30,</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%">&nbsp;</td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>2000</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>2001</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>2002</b></font></td>
    <td WIDTH="15%" align="right"><font SIZE="2"><b>2003</b></font></td>
    <td WIDTH="15%" align="right"><font 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 SIZE="2">BALANCE SHEET DATA:</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 SIZE="2">Cash and cash equivalents</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">$6,432</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">$31</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">$47</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$397</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$90</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font SIZE="2">Working capital (deficit)</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">3,557</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">(1,458)</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">(94)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(1,405)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">(2,111)</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font SIZE="2">Total assets</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">11,184</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">8,997</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">6,943</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">3,781</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">2,591</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font SIZE="2">Long-term obligations, 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="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="28%"><font SIZE="2">of current portion</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">-</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">90</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">2,890</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">2,608</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">1,038</font></td>
  </tr>
  <tr>
    <td WIDTH="28%"><font SIZE="2">Total stockholders' equity</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 SIZE="2">(deficit)</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">$7,329</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">$1,865</font></td>
    <td WIDTH="14%" align="right"><font SIZE="2">$(43)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$(3,229)</font></td>
    <td WIDTH="15%" align="right"><font SIZE="2">$(2,918)</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p align="center">COMPANY OPERATIONS </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>
<b>
<p>CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995: </p>
</b>
<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>
<b>
<p align="center">OVERVIEW </p>
</b>
<p>mPhase Technologies, Inc. (mPhase, the Company, we or us), a New Jersey
corporation, founded in 1996 is a publicly-held company with approximately
14,830 shareholders and approximately 141 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, IP
TV plus a 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>
<b>
<p>Description of Operations </p>
</b>
<p>Since our inception in 1996 our primary activities through fiscal year 2003
consisted of designing, manufacturing and testing our flagship products designed
to enable telephone service providers to deliver digital broadcast television
over DSL. Fiscal years 2004 and 2005 marked a significant shift of the Company's
focus, in response to technology advancements with respect to the delivery of
video data using internet protocol. The Company has shifted it
telecommunications solution focus from technology for the delivery of broadcast
television high speed internet and voice over DSL to the development of
middleware/software for carrier class delivery of IP TV over copper, fiber, coax
or any infrastructure representing a combination of the foregoing that is used
by a telecommunications service provider. This shift has taken place over the
past two years and has culminated in our flagship product namely Release 3.0 of
our TV+ solution. This product is scheduled for final testing in September of
2005 as part of an initial deployment of 1000 ports with a major
telecommunications service provider in Russia. We have not, as yet, derived any
significant revenue from our TV+ solution, which is the culmination of several
earlier versions that have been changed to accommodate the latest in
technological innovation and market demand for IPTV. 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 and
magnetometer sensor devices with potentially wide applicability for both
military and commercial security applications. 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 of approximately 80 customers was tested. 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 </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>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 2.0 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 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. 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 (&quot;HFC&quot;)
infrastructure necessary for cable TV or fiber to the curb necessary for very
fast DSL (VDSL). </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, utilizes 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+ solution is a system management software/middleware
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, coax as well as down a single DSL line
over copper using ADSL2 supported DSLAM's and be capable of delivery of Video on
Demand. Our TV+ solution is an open standards-based, carrier class technology
with tremendous scalability and enables a telecommunications service provider to
custom tailor the deployment of feature rich IP television, high speed internet
and voice. Such solution enables a telecommunications service provider to
significantly enhance revenue, margins with a very high rate of return as
compared to the traditional economics for delivery of telephone voice services
only. In addition, Teleco's around the world are under increased pressure to
delivery multiple converged services in order to retain their traditional
telephone voice customers. The TV+ solution may be used in combination with any
vendors set top box designed for the delivery of IP TV and the DSLAM's of all
major vendors. The solution allows a service provider to start small and test
its take rate among customers with a maximum of flexibility of design, features
and cost allowing it to enter the market for converged services to its customers
on an optimal basis.</font><font FACE="Times New Roman" SIZE="1"> </p>
</font><font FACE="Times New Roman" SIZE="2">
<p>mPhase has transformed itself from a developer of closed end proprietary
technology for the delivery of TV over DSL to a Company that has developed a
carrier class middleware/software solution for the delivery of IP TV using a
standards-based platform designed to provide telecommunications with maximum
flexibility in system configuration with components from all major vendors.
mPhase is continuing in the development of a next generation set top box
designed to further enhance its IP TV+ solution and to be used as a stand alone
product. mPhase's current IPTV solution is designed to be used over fiber, coax
and copper or any combination thereof currently deployed by a telecommunications
service provider. In addition mPhase's IP TV solution may be used with any
DSLAM's of all major vendors. In addition our IPTV solution may be used with
other telecommunications transport technology such as Multicast Routers instead
of DSLAM's for the delivery of voice, data and IPTV.</font><font FACE="Times New Roman" SIZE="1">
</p>
</font><font FACE="Times New Roman" SIZE="2"><i>
<p>mPhase DSL Component Products</i>. mPhase continues to design and market 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" SIZE="2"><i>i</i>POTS3 (recently renamed the
&quot;Broadband Loop Watch&quot;) or Intelligent POTS Splitter product. The newly
developed version of the Broadband Loop 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. The Broadband
Loop Watch allows service providers to perform full loop testing for DSL
deployment and maintenance from a central office without having to deploy a more
costly deployment of personnel to the field. This is accomplished 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. 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. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p>Nanotechnology </p>
</b>
<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. In March of 2005
the Company extended such Agreement for another 12 months at the cost of
$100,000 per month 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 co develop using the science of nanotechnology 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 ultra sensitive 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 used in homeland
security products, as well as sensors used in diagnostic systems for detection
of metal fatigue for numerous industrial applications.</p>
<b>
<p>Nano Battery</b>: </p>
<p ALIGN="JUSTIFY">mPhase Technologies along with its partner Lucent/Bell Labs,
has been jointly conducting research since February 2004 that demonstrates
control and manipulation of fluids on superhydrophobic surfaces to create power
cells by controlling wetting behavior of electrolyte on nanostructured electrode
surfaces. The scientific research  conducted this year has set the
groundwork for continued exploration in the development of intelligent
nanotechnology power cells (nano-batteries), and forms a path to
commercialization of the technology for a broad range of market opportunities.
During the first half of 2005 the battery team has been testing modifications
and enhancements to the internal design of the battery to optimize its power and
energy density characteristics, as well as making engineering improvements that
will assist in making the battery easier to manufacture when the project
research that level of maturity. </p>
<p ALIGN="JUSTIFY">In June of 2005 the battery project was expanded to include a
joint technical development effort through December 2005 between mPhase and Rutgers
University to potentially incorporate a Lithium based design. This work program
has initial started as a modest technology effort to help characterize and test
the nano battery design using Lithium chemistry and determine if the current design
is capable of supporting the lithium based chemistry.&nbsp; Based on the results of the testing with Rutgers
University, mPhase may decide to accelerate the work
effort. </p>
<b>
<p>Magnetomete</b>r: </p>
<p>In February 2005 mPhase and Lucent Technologies' Bell Laboratories entered
into a joint effort to develop an extremely sensitive magnetometer.
Magnetometers can be used in a wide range of applications that include military
surveillance, securing the retail environment, automotive sensors and actuators,
industrial processing, medical imaging, scientific measurements, detection of
mineral deposits and even air and space exploration. In sensor networks
ultra-sensitive magnetometers can be used, for example, to detect and accurately
pinpoint battlefield objects or they might also be used to study the workings of
the human brain. </p>
<p>Magnetometers work by sensing changes in magnetic fields due to the motion of
magnetic objects or changes in electrical currents generated by those objects.
The magnetometer detects these objects by measuring time-varying magnetic
signals that are superimposed on the combination of earth's background field
(used to orient compasses) and static magnetic fields due to nearby magnetic
objects. </p>
<b>
<p>Highly Sensitive Magnetometers</b> - The enhanced sensitivity of these
devices results from two scientific advances recently made researchers at Lucent
Bell Labs. Presently, the highest sensitivity magnetometers commercially
available require cooling to cryogenic temperatures. Called SQUIDs (for
Superconducting Quantum Interference Devices) these devices only work at the
temperature where liquid helium boils, -455 degrees below zero Fahrenheit,
making such magnetometers expensive and bulky and therefore ill-suited for
remote-sensing applications. Room temperature magnetometers, on the other hand,
are less sensitive, and use technology that was developed in World War II for
detecting submarines. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>The new technology being developed by Bell Labs and mPhase employs a number
of different designs based on Micro-Mechanical Systems (MEMS). These designs use
the very high &quot;Quality Factor (Q)&quot; of the mechanical resonance in single
crystals of silicon. A resonance is similar to the fundamental frequency of a
tuning fork. When tapped, a tuning fork will vibrate for a length of time
inversely proportional to the internal friction of vibration within the metal of
the tuning fork. A comparable tuning fork made from single crystal silicon,
which has less internal friction than the hardest metal, will vibrate almost a
thousand times longer. Based on this principal, a device employing a high Q
resonator will have enhanced amplitude of vibration at the resonance frequency,
and hence will display a greater sensitivity to external perturbations that
affect its resonance frequency. By coupling the mechanical motion of a bar or a
paddle constructed from silicon to the ambient magnetic field, this high
mechanical sensitivity can be converted to high magnetic field sensitivity. The
technical approach that the team is developing can be achieved either statically
with an integrated magnetic film, or dynamically through motion of the silicon
bar or paddle. </p>
<b>
<p>The Benefits of MEMS</b> - Commercial magnetometers using purely electronic
detection, such as Hall, magneto-resistance or flux-gate devices, have
sensitivities limited by their <i>electronic</i> Q-factor. This Q-factor depends
on the natural electrical resistance, or electronic friction, of the metal in
the circuit. For room-temperature operations it is therefore difficult to reduce
the electrical Q-factor. Mechanical resonators made from semiconductor-grade
silicon, on the other hand, exhibit mechanical Q-factors, approaching 100,000 at
room temperature. In all, these new, smaller and less costly magnetometers
should be 100-1000 times more sensitive than existing commercial devices, thus
enabling a new class of sensor systems that mPhase plans on commercializing. </p>
<p ALIGN="JUSTIFY">The mPhase and Lucent magnetometer team has successfully
reached an early milestone and have produced a number MEM based sensor samples
from the clean room facilities and are working on integrating them into the
surrounding electronic circuitry so that measurement, characterization and
sensitivity testing can be conducted. </p>
<i>
<p>Revenues</i>. 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 IPTV 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 its TV+ IPTV
solution 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. </p>
<i>
<p>Cost of revenues</i>. 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. </p>
<i>
<p ALIGN="JUSTIFY">Research and development</i>. Research and development
expenses consist principally of the payments made to Microphase and Lucent,
respectively, for development of the Broadband Loop Watch, the TV+ IPTV solution
and nanotechnology products respectively. The IPTV+ solution consists primarily
of middleware/software designed for the delivery of feature rich, carrier class,
broadcast TV, high speed internet and voice by telecommunications service
providers open using standards based equipment and transport configurations. All
research and development costs are expensed as incurred. </p>
<i>
<p>General and administrative</i>. Selling, general and administrative expenses
consist primarily of salaries and related expenses for personnel engaged in
direct marketing of the TV+ solution for IPTV, POTS Splitter Shelves, the
Broadband Loop Watch &quot;intelligent pots splitter&quot; diagnostic product 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. </p>
<i>
<p>Non-Cash compensation charges</i>. 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. <br>
&nbsp;</p>
<b>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>TWELVE MONTHS ENDED JUNE 30, 2004 VS. JUNE 30, 2003 </p>
</b></font><font FACE="Times New Roman" 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 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<i>. Such</i> discounts amounted to $71,425 for
the period ended June 30, 2004, and were offered to Covad Communication our
leading telecommunications service provider customer<i>.</i> 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>
<p ALIGN="JUSTIFY">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 $1,494,427. 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. </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. </p>
<p><b>Twelve Months Ended June 30, 2003 vs. June 30, 2002 </b> </p>
<i>
<p>Revenue </p>
</i>
<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>
<i>
<p>Cost of Revenues </p>
</i>
<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 have contracted, coupled with downward pressures
related to the supply and demand of telecommunications products. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><i>
<p>Research and Development </p>
</i>
<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<i>i</i>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 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 set top box 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
<i>i</i>POTS and the mPhase </p>
<p>Stretch. We believe the mPhase<i>i</i>POTS offers a much needed solution for
the DSL industry; the<i>i</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>i</i>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)<i>i</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. </p>
<i>
<p>General and Administrative Expenses </p>
</i>
<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 $3,835,402,
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>
<i>
<p>Depreciation and Amortization </p>
</i>
<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>
<i>
<p>Net Loss </p>
</i>
<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" SIZE="2">
<p><b>Twelve Months Ended June 30, 2002 vs. June 30, 2001 </b> </p>
<i>
<p>Revenue </p>
</i>
<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>
<i>
<p>Cost of Revenues </p>
</i>
<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>
<i>
<p>Research and Development </p>
</i>
<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>
<i>
<p>General And Administrative Expenses </p>
</i>
<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 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>
<i>
<p>Net Loss </p>
</i>
<p ALIGN="JUSTIFY">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>
<b>
<p>Nine Months Ended March 31, 2005 vs. March 31, 2004 </p>
</b><i>
<p>Revenue </p>
</i>
<p>Total revenues were $1,039,003 for the nine months ended March 31, 2005
compared to $4,335,476 for the nine months ended March 31, 2004 representing a
decrease of $3,296,473. 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><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><i>
<p>Cost of Revenues </p>
</i>
<p>Cost of sales were $823,217 for the nine months ended March 31, 2005 as
compared to $3,878,389 in the prior period, representing 79% of gross revenues
for the first nine months of fiscal 2005 which ended March 31, 2005 and 89% for
the nine months of fiscal 2004 which ended March 31, 2004, 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 nine months of fiscal 2005, which ended March 31, 2005,
increased by 10% over the margins for the same period ended March 31, 2004 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>
<i>
<p>Research and Development </p>
</i>
<p ALIGN="JUSTIFY">Research and development expenses were $3,820,128 for the
nine months ended March 31, 2005 as compared $2,858,375 during the comparable
period in 2004, or an increase of $961,413. This increase consisted of increased
spending in the Company's Nanotechnology battery products of approximately
$500,000, and approximately $200,000 incurred in connection with commencement of
research of the Company's new Magnetometer product 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 and into fiscal
year 2006. 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 second quarter of fiscal year 2006. The contracts call for
payments totaling $1,536,680 payable in project milestones of $158.6 thousand
each over the contract. As of March 31, 2005 the Company has made payments of
approximately $2,000,000 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 $1,200,000 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<i>ipots</i>and
the mPhase stretch. We believe the mPhase<i>ipots</i>offers a much-needed
solution for the DSL industry; the<i>ipots</i>enables telcos to remotely and
cost-effectively perform loop management and maintenance including line testing,
qualification and troubleshooting. Prior to the introduction of the<i>ipots</i>,
loop management could not be remotely performed without manual intervention. The
unique (patent pending)<i> ipotscircuit</i> 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 </p>
<i>
<p>General and Administrative Expenses </p>
</i>
<p>Selling, general and administrative expenses were $5,416,357 for the nine
months ended March 31, 2005 up from $2,196,052 or an increase of $3,220,305
from the comparable period in 2004. 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 and officers of the Company,
which totaled $2,582,148 for the nine months ended March 31, 2005 as compared to
$785,740 for the comparable period ended March 31, 2004 resulting in an
increase of $1,796,408. The increase in selling, general and administrative
expenses is also attributable to $181,721 of expenses associated with
adjustments of offering prices of certain of the private placements completed in
fiscal year 2005. Additionally sales and technical sales associates compensation
and fringe costs increased approximately $675,000, travel expenses increased by
approximately $52,000 and increased
spending in advertising, trade shows and marketing and resulting expenses
amounted to an aggregate of approximately $180,000. We expect sales and travel expenses to
grow as the Company's approaches the deployment of its TV+ products in the
future. <br>
&nbsp;</p>
<i>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>Depreciation and Amortization </p>
</i></font><font FACE="Times New Roman" SIZE="2">
<p>Depreciation and amortization expense was $193,650 for the nine months ended
March 31, 2005, up from $100,883, or an increase of $92,767 from the comparable
period in 2004. . We expect such upward 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>
<i>
<p>Net Loss </p>
</i>
<p>The Company recorded a net loss of $9,484,240 for the nine months ended March
31, 2005 as compared to a loss of $4,899,771 for the nine months ended March 31,
2004. This represents a loss per common share of $.09 for the nine month period
ended March 31, 2005 as compared to a loss per common share of $.07 for the nine
months ending March 31, 2004, based upon weighted average common shares
outstanding of 101,062,839 and 75,312,435 during the periods ended March 31,
2005 and 2004, 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>
<i>
<p>The Outlook for the Company's Flagship Product </p>
</i>
<p ALIGN="JUSTIFY">The Company believes significant deployments and resultant
revenues of its Flagship product the TV+ IPTV solution are not expected until
the second half of fiscal year 2006, 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. </p>
<i>
<p>Research and Development Activities </p>
</i>
<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 and 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. </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 year
ended June 30, 2003. </p>
<p>Research and development expensed were $3,820,128 for the nine months ended
March 31, 2005 as compared to $2,858,715 during the comparable period in 2004 or
an increase of $961,413.&nbsp; The increased expenditures represented and
expansion of contract R&amp;D activities, consisting of approximately $500,000 in
increased spending on Nanotechnology and approximately $200,000 in the start up
of Magnetometer Research and Development. The balance of the increase is
attributal to increased TV+ Version 3.0 spending.</p>
<i>
<p>Strategic Alliances Implemented </p>
</i>
<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><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2"><b>
<p>Critical Accounting Policies </p>
</b><i>
<p>Revenue Recognition </p>
</i>
<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 March 31, 2005 is made up of three customer deposits consisting of
$214,180 in the aggregate for the POTS product. </p>
<i>
<p>Research and Development </p>
</i>
<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>
<i>
<p>Income Taxes </p>
</i>
<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 March 31, 2005&nbsp; may be
limited due to &quot;changes in control&quot; of our common stock that occurred. </p>
<i>
<p>Stock-based Compensation </p>
</i>
<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>
<p ALIGN="JUSTIFY">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>
<i>
<p>Inventory Reserve and Valuation Allowance </p>
</i>
<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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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>
<i>
<p>Material Related Party Transactions </p>
</i>
<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 product
components and finished goods, primarily consisting of DSL splitter shelves and
filters, from Janifast Limited. Directors that are significant shareholders of
Janifast Limited include Messrs Ronald A. Durando, Gustave T. Dotoli, and Necdet
F. Ergul.</p>
<p>Mr. Abraham Biderman is a Managing Director or Eagle Advisers, an investment
banking firm, which has earned finder's fees and reimbursement expense of $514,000 in connection with
raising approximately $4,950,000 during the 9 months ended March 31, 2005 and
$253,500 in connection with raising approximately $2,600,000 in June and July
2005.</p>
<p>Mr. Biderman, 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. A
member of mPhase's Board of Directors, Mr. Michael McInerney who resigned on
April 29, 2005, 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 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, 2003 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>Mr. Durando's June 30, 2004 note payable balance of $300,00 was repaid by the
Company during the nine month period ending March 31, 2005. During the nine month
period, Mr. Durando made additional bridge loans to the Company evidenced by
various 12% demand notes in the aggregate of $525,000. Mr. Durando was repaid a total of
$450,000 of such loans in January of 2005. In addition, Mr. Durando converted
$13,954 of the principal amount of a $75,000 promissory note leaving unpaid
principal of $61,046 outstanding. Mr. Durando converted $13,000 of accrued and
unpaid interest on various promissory notes of the Company into 65,000 shares of
common stock and a 5 year warrant to purchase a like amount of common stock at
$.25 per share. </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>During the nine month period ended March 31, 2005 Mr. Dotoli and Mr. Smiley, the
COO and CFO and General Counsel of the Company respectively, each lent the
Company $75,000. Mr. Dotoli was repaid the principal amount of such loan, in
cash, in January of 2005 and Mr. Smiley converted his $75,000 loan into 375,000
shares of common stock of the Company plus a 5 year warrant to purchase a like
amount of shares at $.25 per share. In addition, Mr. Smiley converted $9,975 of
accrued interest into 49,875 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. Finally Mr. Smiley received
25,000 additional shares of common stock as a market adjustment to his equity
investment of $25,000 on August 30, 2004. Mr. Dotoli cancelled $3,750 of accrued
and unpaid interest from August 15, 2004 through January 15, 2005 into 375,000
shares of common stock pursuant to the terms of a portion of a warrant that was
exercised at $.01 per share previously given by the Company to Mr. Dotoli in
exchange for and cancellation of unpaid compensation. </p>
<p align="center">Significant charges from related parties are summarized for
the periods enumerated as follows: </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2"><b>Charges and
    Expenses with Related Parties</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="65%" align="center" colspan="4">
    <font FACE="Times New Roman" SIZE="2"><b>For the Years Ended June 30,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">2001</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">2002</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">2003</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">2004</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2"><b>Charges incurred
    with Janifast</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2"><b>included in:</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $8,932,378</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $1,759,308</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$178,959</font></td>
    <td WIDTH="17%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">
    $2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Total Janifast</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $8,932,378</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $1,759,308</font></td>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">$178,959</font></td>
    <td WIDTH="17%" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman" SIZE="2">
    $2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Microphase</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Corp.</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">included in:</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">(Including Royalties)</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$335,777</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$200,440</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$86,468</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$140,123</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    1,660,606</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">876,074</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">428,434</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">84,494</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">132,600</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">136,080</font></td>
    <td WIDTH="16%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">133,200</font></td>
    <td WIDTH="17%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font face="Times New Roman" size="2">161,496</font></td>
  </tr>
  <tr>
    <td WIDTH="35%">&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>
    <td WIDTH="16%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="17%" 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">Total Microphase Corp.</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    $2,128,983</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,212,594</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$648,102</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$386,113</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Lintel &amp;</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Affiliates</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">included in:</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$192,000</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">285,000</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Total Lintel &amp;
    Affiliates</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$477,000</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Joint Venture</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Partners &amp; Affiliates</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">included in:</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$949,420</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$64,039</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">60,000</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,009,420</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$64,039</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">included in:</font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    $9,268,155</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    $1,959,748</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$265,427</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    $2,912,048</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,802,026</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">940,113</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">428,434</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">84,494</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">477,600</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">136,080</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">133,200</font></td>
    <td WIDTH="17%" align="right"><font face="Times New Roman" size="2">161,494</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    $12,547,781</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    $3,035,941</font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">$827,061</font></td>
    <td WIDTH="17%" align="right"><font FACE="Times New Roman" SIZE="2">
    $3,158,038</font></td>
  </tr>
</table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="51%" align="center" colspan="2">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="51%" align="center" colspan="2">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="51%" align="center" colspan="2"><font SIZE="2"><b>
    <p align="right">Nine Months Ended March 31&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    </b></font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="25%" align="right"><font SIZE="2"><b>2004</b></font></td>
    <td WIDTH="25%" align="right"><font SIZE="2"><b>2005</b></font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2"><b>Charges incurred with Janifast</b></font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2"><b>included in:</b></font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Cost of sales and ending inventory</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">$1,816,019</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">$398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Total Janifast</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">$1,816,019</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font SIZE="2">$398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="50%">&nbsp;</td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Charges incurred with Microphase</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Corp.</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">included in:</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Cost of sales and ending inventory</font></td>
    <td WIDTH="25%" align="right"><font SIZE="2">$191,133</font></td>
    <td WIDTH="25%" align="right"><font SIZE="2">$11,784</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">(Including Royalties)</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font SIZE="2">Research and development</font></td>
    <td WIDTH="25%" align="right"><font SIZE="2">$54,000</font></td>
    <td WIDTH="25%" align="right"><font SIZE="2">$41,000</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%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$15,000</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$147,213</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Total Microphase Corp.</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$260,133</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$199,997</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Lintel &amp;</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Affiliates</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">included in:</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">$ 0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Total Lintel &amp;
    Affiliates</font></td>
    <td WIDTH="25%" 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">$0</font></td>
    <td WIDTH="25%" 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">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Joint Venture</font></td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Partners &amp; Affiliates</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">included in:</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$0</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="25%" 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">$0</font></td>
    <td WIDTH="25%" 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">$0</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
    <td WIDTH="25%" align="right" style="border-top-style: solid; border-top-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">included in:</font></td>
    <td WIDTH="25%" align="right">&nbsp;</td>
    <td WIDTH="25%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">
    $2,007,152</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">$410,499</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">$54,000</font></td>
    <td WIDTH="25%" align="right"><font FACE="Times New Roman" SIZE="2">$41,000</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$15,000</font></td>
    <td WIDTH="25%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">$147,213</font></td>
  </tr>
  <tr>
    <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties</font></td>
    <td WIDTH="25%" 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">
    $2,076,152</font></td>
    <td WIDTH="25%" 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">$598,712</font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2"><i>
<p>Liquidity and Capital Resources </p>
</i>
<p>From inception (October 2, 1996) through March 31, 2005 and June 30, 2004 the
Company has incurred cumulative (a) development stage losses and has an
accumulated deficit of $125,529,323 and $115,775,083 respectively and (b)
negative cash flow from operations of $54,120,374 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 March 31, 2005, June 30, 2004,and June 30, 2003, the Company had a negative
net worth of $2,537,180 , $2,917,962 and $3,228,886 respectively.. </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 March 31, 2005 mPhase had working capital deficit of $2,332,278
as compared to working capital deficit of $2,111,452 at June 30, 2004. At March
31, 2005, the Company had approximately $237,828 of cash, cash equivalents and
approximately $354,903 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, 2003. At March 31, 2005, the Company had cash and cash
equivalents of $237,828 compared to $90,045 at June 30, 2004, accounts
receivable of $354,903 and inventory of $862,963. 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 $6,277,632 during the nine months
ending March 31, 2005. 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 $935,203 offset by depreciation and amortization of
$193,650, and by non-cash charges of $2,763,861 for common stock options and
warrants issued for officer compensation and services and offset by cash outflow
from an increase in inventory of approximately $160,209. The Company expects
that it will not have a need to increase inventory significantly 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 March 31, 2005 and 2004, respectively, and $13,539,932 from
the period from inception through March 31, 2005. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font SIZE="2">
<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 ALIGN="JUSTIFY">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 ALIGN="JUSTIFY">During the nine months ended March 31, 2005, certain
strategic vendors and related parties converted approximately $960,000
of accounts payable and accrued expenses into 3,437,271 shares of the Company's
common stock and&nbsp; warrants to purchase 3,439,975 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, expect 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 to
a wide range of electronic devices for the defense department. </p>
<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: </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="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="26%" align="center" colspan="2"><font SIZE="2"><b>For the Nine Months</b></font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="26%" align="center" colspan="2"><font SIZE="2"><b>Ended March 31,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="38%">&nbsp;</td>
    <td WIDTH="39%" align="center" colspan="3">
    <p align="center"><font SIZE="2"><b>For the Years
    Ended June 30,</b></font></td>
    <td WIDTH="26%" align="center" colspan="2"><font SIZE="2"><b>(Unaudited)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Equity Conversions of Debt With Related</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>2002</b></font></td>
    <td WIDTH="12%" 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"><font SIZE="2"><b>2004</b></font></td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>2005</b></font></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Parties and Strategic Vendors</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" 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="38%"><font SIZE="2"><b>Related Party Conversions</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" 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="38%"><font SIZE="2"><b>Number of shares</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>6,546,550</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>5,533,333</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>--</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>--</b></font></td>
    <td WIDTH="13%" align="right"><b><font size="2">2,737,875</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Number of warrants</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>3,733,334</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>3,491,800</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>--</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>--</b></font></td>
    <td WIDTH="13%" align="right"><b><font size="2">2,739,995</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Amount converted to equity</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>$1,594,628</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>$1,760,967</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>$--</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>$--</b></font></td>
    <td WIDTH="13%" align="right"><b><font size="2">$568,933</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Strategic Vendor Conversions</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" 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="38%"><font SIZE="2"><b>Number of shares</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>999,662</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>390,000</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>110,467</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>--</b></font></td>
    <td WIDTH="13%" align="right"><b><font size="2">697,396</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Number of warrants</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>870,000</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>215,000</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>5,069,242</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>5,069,242</b></font></td>
    <td WIDTH="13%" align="right"><b><font size="2">700,000</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Amount converted to equity</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>$529,503</b></font></td>
    <td WIDTH="12%" align="right"><font SIZE="2"><b>$198,032</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>$1,963,202</b></font></td>
    <td WIDTH="13%" align="right"><font size="2"><b>$1,834,211</b></font></td>
    <td WIDTH="13%" align="right"><b><font size="2">$363,098</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font SIZE="2"><b>Total Related Party and Strategic</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" 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="38%"><font SIZE="2"><b>Party Conversions</b></font></td>
    <td WIDTH="12%" align="right">&nbsp;</td>
    <td WIDTH="12%" 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>
</table>

<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2"><b>Number of shares</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    7,546,212</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    5,923,333</b></font></td>
    <td WIDTH="13%" align="right"><b><font face="Times New Roman" size="2">
    110,467</font></b></td>
    <td WIDTH="13%" align="right"><b><font face="Times New Roman" size="2">--</font></b></td>
    <td WIDTH="12%" align="right"><b><font size="2" face="Times New Roman">3,437,271</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2"><b>Number of warrants</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    4,603,334</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    3,706,800</b></font></td>
    <td WIDTH="13%" align="right"><b><font face="Times New Roman" size="2">
    5,069,242</font></b></td>
    <td WIDTH="13%" align="right"><b><font face="Times New Roman" size="2">
    5,069,242</font></b></td>
    <td WIDTH="12%" align="right"><b><font size="2" face="Times New Roman">3,439,975</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2"><b>Amount converted to
    equity</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $2,124,131</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $1,958,999</b></font></td>
    <td WIDTH="13%" align="right"><b><font face="Times New Roman" size="2">
    $1,963,202</font></b></td>
    <td WIDTH="13%" align="right"><b><font face="Times New Roman" size="2">
    $1,834,211</font></b></td>
    <td WIDTH="12%" align="right"><b><font size="2" face="Times New Roman">$932,031</font></b></td>
  </tr>
  <tr>
    <td WIDTH="38%"><font FACE="Times New Roman" SIZE="2"><b>Gain (Loss) on
    Extinguishment of Debt</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $142,236</b></font></td>
    <td WIDTH="12%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $61,226</b></font></td>
    <td WIDTH="13%" align="right"><b><font size="2" face="Times New Roman">
    $(150,058)</font></b></td>
    <td WIDTH="13%" align="right"><b><font size="2" face="Times New Roman">
    $(128,991)</font></b></td>
    <td WIDTH="12%" align="right"><b><font size="2" face="Times New Roman">
    $(99,393)</font></b></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>Effective March 10, 2005, the Company entered into a Development Agreement
with Lucent Technologies, representing a total obligation of $1.2 million
payable in 12 monthly installments of $100,000 each through March of 2006 for
development of a ultra cool magnetometer sensor utilizing the science of
nanotechnolgy. </p>
<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 2, 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 This Agreement
was extended in February of 2005 for an additional 12 months for a total of $1.2
million to Lucent Technologies, Inc. payable in installments of $100,000 per
month. </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 LLC 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 ALIGN="JUSTIFY">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 ALIGN="JUSTIFY">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. </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 March 31, 2005, the Company has
raised in the current fiscal year approximately $ 7 million. In addition, as of
August 5, 2005, the Company has raised an
additional $3.2 million in a Private Placement of equity units at $.20 per share
consisting of one share of common stock plus a 5 year warrant for an additional
share of common stock at $.25 per share.</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 16.4 million shares of common stock at exercise prices
of $.25  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 may 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 2005 and for the last quarter 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>The December 31, 2004 outstanding 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 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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>On January 15, 2005, Martin Smiley converted a $ 100, 000 convertible note
payable from the Company 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>
<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>
<p>BUSINESS </p>
<p align="center">Overview </p>
<p>We develop, market and sell innovative IPTV and 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 its existing
infrastructure that may consist of copper, fiber, coax or some combination
thereof. 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. 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>
<b>
<p>Outsourcing </p>
</b>
<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 of both its
TV+ product and exploratory research of micro electro mechanical systems
development and its exploratory development of power source array fabrication
using nanotextured superhydrophobic materials to the Bell Labs division of
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 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 manufacture of quantities of POTS Splitters that are made by
Janifast Ltd. </p>
<p>With respect to manufacturing of its IPTV TV+ solution, 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. Janifast Ltd. has produced and delivered 1000
set top boxes to a major Russian telecommunication service provider in
connection with the initial deployment of the Company's TV+ solution. </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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+ solution added
significant value to the Stinger DSL product by enabling such product to deliver
broadcast television using internet protocol 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 some of which may
represent potential future deployments and upgrades for the IPTV TV+ solution.
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 intelligent line of POTS Splitter product known as the
Broadband Loop Watch. This 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. </p>
<b>
<p>Industry Background </p>
</b>
<p>The Company believes there is a significant market for its latest TV+
solution for the delivery of IPTV. 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
multichannel television services outside of North America in 2002 was only 36%.
The mPhaseTV+ solution 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 ALIGN="JUSTIFY">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 or any
other existing infrastructure 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
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 IPTV
solution 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>
<b>
<p>Our IP Television Solution </p>
</b>
<p>mPhase markets and sells its innovative IPTV delivery middleware/software as
part of its TV+ solutions and is developing a next generation set top box as an
additional component of such solution and as a stand alone product. The Company
has refocused its efforts on IPTV software/middleware based upon carrier class
open standards from its original development of delivery of TV as part of
broadband DSL proprietary hardware Our flagship product line is our TV+ solution
enabling the delivery of IP TV, voice and high-speed interned over any type of
infrastructure of a telecommunications service provider. mPhase has developed
its TV+ solution with a specific target in mind, namely, telephone companies in
parts of the world where access to multi-channel television is limited, as well
as domestic, rural telephone operators. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<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 ALIGN="JUSTIFY">The DVDDS was originally installed at Hart Telephone Company
in Hartwell, Georgia. as part of a beta trial of over 80 customers. 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>In September of 2005. the Company expects to release its IPTV solution. Over
the years, the Company has spent over $30 million on research and development
culminating in the IPTV product and believes it has significant experience and
market knowledge in the field as a result of over 7 years of development
efforts, changing market conditions and new technology developments in
connection with Internet Protocol delivery of video. </p>
<p ALIGN="JUSTIFY">Bell Labs and mPhase initially commenced research on the TV+
solution in December of 2002 as a compliment to and enhancement of the software
and set top boxes needed to delivery television over DSL using the Lucent
Stinger DSLAM. Bell Labs had previously 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 video. </p>
<p>Releases 1.0 and 2.0 of the TV+ solution were designed as ATM (asynchronous
transfer mode) solutions then targeted to the traditional reliability and use of
such protocol by the majority of telecommunications service providers. Release
3.0 of the TV+ solution marks the final evolution of the 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. </p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>NanoTechnology </p>
</b>
<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 Sensor for a new generations of sensors for military applications.
</p>
</font><font FACE="Times New Roman" SIZE="2"><b>
<p>Business Development, Organization, and Acquisition Activities </p>
</b>
<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 ALIGN="JUSTIFY">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>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<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 </p>
<p>Technologies, Inc. for the development</font><font FACE="Times New Roman" SIZE="1">
of mPhase's broadcast television switch (BTS) as an intergrated platform with
the Lucent Stinger DSL Access Concentrator. </p>
</font><font FACE="Times New Roman" 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
$1,039,003 in revenue for the nine months ended March 31, 2005, 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" SIZE="2"><b>
<p>Our Products &amp; Services </p>
</b>
<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. In November of
2005 we received our first order for 1000 ports of our TV+ solution and our
first order for $1 million of our IPOTS-3 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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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" SIZE="2"><i>
<p>Traverser DVDDS </p>
</i>
<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 copper telephone wires. It has been recently replaced by the mPhase TV+
solution. </p>
</font><font FACE="Times New Roman" SIZE="2"><i>
<p>History of the IPTV+ Solution </p>
</i>
<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+ solution.Releases 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 ALIGN="JUSTIFY">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 Release 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. Since most telecommunications
providers require an IP rather than ATM mode for deploying digital broadcast
television and video on demand, we believe that our Release 3.0 will supercede
our earlier releases of the TV+ solution. </p>
<p>The Company believes the initial major deployments and any revenues from
sales of its flagship IPTV solution, are not expected until the third quarter of
fiscal year 2006. 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" SIZE="2"><i>
<p>Component Parts Pots Splitter Shelves Intelligent Pots Splitter (iPots) </p>
</i>
<p ALIGN="JUSTIFY">Although the Company has repositioned itself mainly as a
software/middleware provider of IPTV solutions, 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 customer
premises equipment 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 Broadband Loop Watch (intelligent
POTS Splitter), product line marks 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. This product reduce the operational costs
of deploying and maintaining DSL services. The Broadband Loop Watch (originally
named the <i>i</i>POTS<i>3) </i>is a significant advancement from the Company's
original <i>i</i>POTS<i>1</i>, allowing service providers a 3-way view of the
network and is compatible with DSLAM's of most vendors. The<i>i</i>POTS<i>1 was
origianlly</i> designed for use only with the Lucent Stinger DSLAM. </p>
<i>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>Microfilters </p>
</i>
<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>
<i>
<p>Research and Development Activities </p>
</i>
<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 March 31, 2005 a total
of $784,000 for development of its TV+ solution which commenced in the second
quarter of fiscal year 2004. In September of 2004, mPhase announced a new
Project Development contract with the Bell Labs division of Lucent Technologies
Inc to develop Release 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 $900,400 primarily to Lucent
Technologies Inc and Magpie as of March 31, 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. 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>
<i>
<p>Market </p>
</i>
<p>Currently, mPhase's target market for its IPTV solution include telephone
companies and telecommunications service providers worldwide. By deploying
converged voice, video and data over their existing 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, the mPhaseTV+ solution for delivery of IP TV has now become a
compelling solution for many large international telecommunications service
providers to compete effectively in today's marketplace. </p>
<p>We estimate that on average, a typical telecommunications service provider
using mPhase's IP TV+ solution 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 IPTV+
solution 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 our IPTV solution 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 developed in conjunction with Lucent Technologies, for a number of
reasons: </p>
<ol>
  <li>The platform has been designed to achieve maximum cost efficiencies by
  maximizing scalability using IPTV . <br>
&nbsp;</li>
  <li>mPhase believes its business partnership with Lucent will help validate
  our products and result in greater sales. <br>
&nbsp;</li>
  <li>Version 3.0 of the TV+ solution is a market driven IP based solution and
  is a powerful software/middleware enabling tool providing complete standards-based flexibility for any combination of
  transport hardware including all major DSLAM'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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>mPhase is currently targeting international incumbent telephone companies and
rural independent domestic local exchange carriers for sale of its TV+ solution
.. The Company expects to derive the majority of its system sales abroad,
specifically from telephone service providers in Europe, Latin America, Asia and
Africa. </p>
<p ALIGN="JUSTIFY">mPhase believes that foreign markets will adopt its IPTV
solution more rapidly than domestic service providers since there is not
generally intense competition from cable television. Therefore, the Company has
placed much of its initial emphasis on targeting the international 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 IPTV 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>
<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. </p>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="29%">&nbsp;</td>
    <td WIDTH="35%" align="right"><font SIZE="2"><b>TV</b></font></td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>*Multichannel</b></font></td>
  </tr>
  <tr>
    <td WIDTH="29%">&nbsp;</td>
    <td WIDTH="35%" align="right"><font SIZE="2"><b>Households</b></font></td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>Subscribers</b></font></td>
  </tr>
  <tr>
    <td WIDTH="29%">&nbsp;</td>
    <td WIDTH="35%" align="right">&nbsp;</td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>(in millions)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="29%"><font SIZE="2"><b>Worldwide</b></font></td>
    <td WIDTH="35%" align="right"><font SIZE="2"><b>994</b></font></td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>430.55</b></font></td>
  </tr>
  <tr>
    <td WIDTH="29%"><font SIZE="2"><b>Asia</b></font></td>
    <td WIDTH="35%" align="right"><font SIZE="2"><b>519.3</b></font></td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>207.6</b></font></td>
  </tr>
  <tr>
    <td WIDTH="29%"><font SIZE="2"><b>Europe</b></font></td>
    <td WIDTH="35%" align="right"><font SIZE="2"><b>233.3</b></font></td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>94.8</b></font></td>
  </tr>
  <tr>
    <td WIDTH="29%"><font SIZE="2"><b>Latin America</b></font></td>
    <td WIDTH="35%" align="right"><font SIZE="2"><b>118.7</b></font></td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>24</b></font></td>
  </tr>
  <tr>
    <td WIDTH="29%"><font SIZE="2"><b>North America</b></font></td>
    <td WIDTH="35%" align="right"><font SIZE="2"><b>112.7</b></font></td>
    <td WIDTH="36%" align="right"><font SIZE="2"><b>104.15</b></font></td>
  </tr>
</table>
<font FACE="Times New Roman" 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 worldwide telecommunications 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>To date, there are several significant deployments of IPTV worldwide
including Fastweb in Italy, Imagenio, operated by Telefonica in Spain, Yahoo
BB/Softbank in Japan, SuperSun in China in Hong Kong and Media on Demand in the
Republic of China operated by Chunghwa Telecom. mPhase believes that the
deployment of IPTV worldwide is still in its very early stages with many initial
deployments such as by Microphase with Swiss Telecom experiencing significant
technical difficulties. The market has been slower to develop than many
commentators have predicted owing to the technical complexity of the systems
software and hardware to deliver feature rich television and video on demand
where many international telecommunications operators have varied topologies,
existing infrastructure, complex regulations to comply with in order to
successfully deploy such a system. Nevertheless, mPhase believes that telecommunications service providers around the world have the incentive to
deploy </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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 telecommunications service
providers are especially vulnerable to these competitive threats and have a need
to develop new product delivery capabilities to increase revenues 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. Nevertheless, 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 potentially benefit from the incremental revenue generated by
services offered through mPhase's TV+ solution. Since the flexibility or the
solution allows for favorable economic returns for both small and large customer
deployments, mPhase believes that there may be certain opportunities in the
United States for deployment of its IP TV+ solution. </p>
<p>mPhase is in the process of evaluating market opportunities in North America
and around the world to address commercial applications of the TV+ solution.
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>
<b>
<p>Sales Strategy </p>
</b><i>
<p>IPTV </p>
</i>
<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 should 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>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>
<i>
<p>Joint Venture Opportunities </p>
</i>
<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 IP TV solution, yet recognize the potential business
opportunity in deploying our product. </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 has established a JV in Turkey with Beyaz
Holdings a significant provider of Turkish Television content. 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 sales of its TV+ solution, but would benefit from
the recurring revenues from a JV engaged in being a broadcast television service
provider. </p>
<i>
<p>DSL Component Products </p>
</i>
<p>mPhase continues to sell a line of DSL component products including: POTS
Splitter Shelves, DSL Loop Diagnostic systems such as the Broadband Loop Watch
product, 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. Sales through March 31, 2005 have continued to be weak. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<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" SIZE="2"><i>
<p>Intellectual Property, Patents and Licenses </p>
</i>
<p>The Company has entered into software development and licensing agreements
with Magpie with respect to certain software used in connection with Release 3.0
of its TV+ product. Under such development and licensing Agreement the Company
has made aggregate payments of approximately $320,000 as of April 21, 2005. In
addition the Company will pay a licensing fee per set top box sold as part of
the TV+product. In the third quarter of fiscal year 2005, the Company entered into a second
development agreement with Magpie
calling for payments of approximately $430,000 in order to complete software
development necessary for Release 3.0 of its TV+ solution. Such payments are
payable monthly subject to completion of milestones. </p>
<p ALIGN="JUSTIFY">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 ALIGN="JUSTIFY">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. The Company is expected to maintain this patent in
the United States and certain foreign countries. </p>
<p>On July 12, 2005, mPhase announced that it had been awarded a U.S. Patent for
Signal Splitting Technology used in its new Broadband Loop Watch product. </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>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p>The Company has filed 7 patents that consist of a combination of (a) patents
granted to mPhase from the bell labs division of Lucent Technologies, Inc. and
(b) joint patents developed by mPhase and employees of bell labs with respect to the nanotechnology products currently under development.
</p>
<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" SIZE="2"><b>
<p>Regulation </p>
</b>
<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" SIZE="2"><b>
<p>Competition </p>
</b>
<p>mPhase competes with broadband equipment manufacturers including cable and
digital broadcast satellite equipment manufacturers, as well as other equipment
vendors manufacturing IP TV middleware solutions and set top boxes. 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 IPTV solution is 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" SIZE="2"><i>
<p>Direct Broadcast Satellite Services </p>
</i>
<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" SIZE="2"><i>
<p>Cable Television Network Operators </p>
</i>
<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 IPTV solutions either because of the threat of the cable companies, or
because of the lack of cable infrastructure. The Company believes that its
TV+solution is the most cost effective and robust video delivery technology
deployable by our primary target market of international telecommunications
service providers. Installing our IPTV+ solution 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" SIZE="2"><i>
<p>Other IP TV Vendors </p>
</i>
<p>mPhase competes with both vendors of middleware and set top boxes. Companies
that supply middleware for IPTV include a joint venture of Microsoft and
Alcatel, Minerva, Orca Interactive, Siemens, VBrick Systems, and Video Furnance.
Other set top box vendors for IP TV include Advanced Digital Broadcast, Amino
Communications, i3 micro, Kreatel, Pace Micro Technology, Samsung, Telsey
Telecommunication and VBrick Systems. IP end to end systems competitors include
UTStarcom,mxWare and Industria. Lucent has recently established a partnership
with Orca Interactive, a company located in Israel, that makes
software/middleware for the delivery of IPTV that is in direct competition with
mPhase's IPTV product. </p>
</font><font FACE="Times New Roman" SIZE="2"><i>
<p>Differentiating Factors </p>
</i>
<p>mPhase believes that its IPTV product offers the most reliable, scaleable and
cost effective solution for delivery of broadcast
</font><font FACE="Times New Roman">
<font size="2">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. </font> </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<i>
<p><font size="2">Headend Equipment Providers </font></p>
</i>
<p ALIGN="JUSTIFY"><font size="2">mPhase does not manufacturer digital head end
gear. All customers interested in deploying an mPhase IP TV+ solution 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. </font></p>
<b>
<p><font size="2">Nanotechnology </font></p>
</b>
<p><font size="2">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. mPhase believes that its power cell and magnetometer
products may be the earliest products commercialized using the science of
nanotechnology. Nevertheless, the Company does not expect any material revenues
from such product for 2-3 years. </font></p>
<b>
<p><font size="2">Employees </font></p>
</b>
<p><font size="2">We presently have approximately (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;
</font></p>
<p><b><font size="2">Properties.
</font></b></p>
<p ALIGN="JUSTIFY"><font size="2">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. </font>
</p>
<p><font size="2">LEGAL PROCEEDINGS </font></p>
<p><font size="2">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, Inc. 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. </font></p>
<p><font size="2">From time to time we may be involved in various legal
proceedings and other matters arising in the normal course of business. </font>
</p>
</font><font FACE="Times New Roman" size="2"><b>
<p align="center">OUR MANAGEMENT </p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Executive Officers
    and Directors</b></font></td>
    <td WIDTH="106">&nbsp;</td>
    <td WIDTH="353">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="473">&nbsp;</td>
    <td WIDTH="106">&nbsp;</td>
    <td WIDTH="353">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2">Our officers and
    directors, and their ages, as of August 1, 2005, are as follows:</font></td>
    <td WIDTH="106">&nbsp;</td>
    <td WIDTH="353">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Name</b></font></td>
    <td WIDTH="106"><font FACE="Times New Roman" SIZE="2"><b>Age</b></font></td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>Position(s)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Necdet F. Ergul</b></font></td>
    <td WIDTH="106"><font FACE="Times New Roman" SIZE="2"><b>81</b></font></td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>Chairman of the
    Board and Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Ronald A. Durando</b></font></td>
    <td WIDTH="106"><font FACE="Times New Roman" SIZE="2"><b>48</b></font></td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>President, Chief
    Executive Officer And Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Gustave T. Dotoli
    (2)</b></font></td>
    <td WIDTH="106"><font FACE="Times New Roman" SIZE="2"><b>70</b></font></td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>Chief Operating
    Officer and Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Martin S. Smiley</b></font></td>
    <td WIDTH="106"><font FACE="Times New Roman" SIZE="2"><b>58</b></font></td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>Executive Vice
    President, Chief Financial Officer</b></font></td>
  </tr>
  <tr>
    <td WIDTH="473">&nbsp;</td>
    <td WIDTH="106">&nbsp;</td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>and General Counsel</b></font></td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Outside Directors</b></font></td>
    <td WIDTH="106">&nbsp;</td>
    <td WIDTH="353">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="473">&nbsp;</td>
    <td WIDTH="106">&nbsp;</td>
    <td WIDTH="353">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Anthony H. Guerino,
    Esq. (1)(2)</b></font></td>
    <td WIDTH="106"><font FACE="Times New Roman" SIZE="2"><b>58</b></font></td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>Director</b></font></td>
  </tr>
  <tr>
    <td WIDTH="473"><font FACE="Times New Roman" SIZE="2"><b>Abraham Biderman
    (1)(2)</b></font></td>
    <td WIDTH="106"><font FACE="Times New Roman" SIZE="2"><b>57</b></font></td>
    <td WIDTH="353"><font FACE="Times New Roman" SIZE="2"><b>Director</b></font></td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="1">
<p></font><font FACE="Times New Roman" SIZE="2">(1) Member of Audit Committee.
(2) Member of Compensation Committee.</p>
<p>The following is biographical information about each of our Officers and
Directors. </p>
<i>
<p>Necdet F. Ergul </i>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. </p>
<i>
<p>Ronald A. Durando </i>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. </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<i>
<p>Gustave T. Dotoli </i>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. </p>
<p><i>Martin Smiley</i> 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>
<p><i>Anthony H. Guerino</i> 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. </p>
<p><i>Abraham Biderman</i> 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. </p>
<b>
<p>Board Committees </p>
</b>
<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>
<b>
<p>Director Compensation </p>
</b>
<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>
<b>
<p>Executive Compensation </p>
</b>
<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>
<hr color="#000000" size="5"><p Style='page-break-before:always'><b>
<p align="center">Summary Compensation Table </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    <b>
    Long-Term
</b></font>
    </td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    <b>
    Compensation</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" size="2"><b>
    Annual Compensation</b></font></td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    <b>
    Securities</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right">
    <font FACE="Times New Roman" SIZE="2">
    <b>
    Underlying</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right">
    <font FACE="Times New Roman" SIZE="2">
    <b>
    Options/Sars</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right">
    <font FACE="Times New Roman" SIZE="2">
    <b>
    (Shares)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right">
    <font FACE="Times New Roman" SIZE="2">
    <b>
    Restricted</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right">
    <font FACE="Times New Roman" SIZE="2">
    <b>
    Stock</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" size="2"><b>Name And</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="16%" align="right">
    &nbsp;</td>
    <td WIDTH="16%" align="right">
    &nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" size="2"><b>Principal Position</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" size="2"><b>Year</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" size="2"><b>
    Salary</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" size="2"><b>Bonus</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" size="2"><b>
    Award(s)</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2">
    <b>
    (Shares)</b></font></td>
  </tr>
</table>
</b>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Ronald A.
    Durando(1)(2)</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $285,000</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    1,500,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Chief Executive
    Officer</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $234,504</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    450,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>and President</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $388,504</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    1,850,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Gustave T.
    Dotoli(1)(2)</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $225,000</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    750,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Chief Operating
    Officer</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $193,254</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    350,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $313,504</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    1,225,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="15%" align="right">&nbsp;</td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>David L.
    Klimek(1)(4)</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $89,062</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    100,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Chief Technology
    Officer</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $90,958</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    75,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&nbsp;</td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    $106,606</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    162,500</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%">&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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Martin S. Smiley</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    103,958</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Executive VP, Chief</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2003</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    109,583</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    200,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>Financial Officer</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2002</b></font></td>
    <td WIDTH="15%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    l58,712</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>-</b></font></td>
    <td WIDTH="16%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    540,000</b></font></td>
  </tr>
  <tr>
    <td WIDTH="22%"><font FACE="Times New Roman" SIZE="2"><b>&amp; General Counsel</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>
    <td WIDTH="16%" align="right">&nbsp;</td>
  </tr>
</table>
<ol style="font-size: 10pt">
  <li><font FACE="Times New Roman"><font size="2">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;</font></li>
  <li>
  <p ALIGN="JUSTIFY"><font size="2">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;</font></li>
  <li style="font-size: 10pt" type="disc"><font size="2">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. <br>
&nbsp;</font></li>
  <li><font size="2">Mr. Klimek declined to stand for reelection as a Director
  and Chief Technical Officer of the Company as of July 20, 2005, the date of
  the Company's most recent annual meeting. </font></li>
</ol>
<p align="center"><font size="2">STOCK OPTIONS </font></p>
<p><font size="2">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></p>
</font><font FACE="Times New Roman" size="2"><b>
<p align="center">Option Grants in Last Fiscal Year (Individual Grants) </p>
</b></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="33%" COLSPAN="3" align="center"><font SIZE="2"><b>Potential
    Realizable</b></font></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="11%" align="right">&nbsp;</td>
    <td WIDTH="33%" align="center" colspan="3"><font SIZE="2"><b>Value of</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Number of</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>% of Total</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Weighted</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Weighted</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="33%" COLSPAN="3" align="center"><font SIZE="2"><b>Assumed Annual</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Securities</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Options/SARS</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Average</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Average</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="33%" COLSPAN="3" align="center"><font SIZE="2"><b>Rates of Stock
    Price</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Underlying</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Granted to</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Exercise</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Market</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="33%" COLSPAN="3" align="center"><font SIZE="2"><b>Appreciation
    for 5</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Options/SARS</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Employees</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>or Base</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Price</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="33%" COLSPAN="3" align="center"><font SIZE="2"><b>Year Option
    Term</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%">&nbsp;</td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Granted</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>in Fiscal</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Price</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>on Grant</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>Expiration</b></font></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 SIZE="2"><b>Name</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>(#)</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Year</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>($/Share)</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>Date</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>Date</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>0%</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>5%</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>10%</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font SIZE="2"><b>Ronald A.</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 SIZE="2"><b>Durando</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>1,500,000</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>44%</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>$.45</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>$.39</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>2009</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>$0</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>$0</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>$42,750</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font SIZE="2"><b>Gustave</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>750,000</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>22%</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>.45</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>.39</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>2009</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>0</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>$0</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>$21,375</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font SIZE="2"><b>T. Dotoli</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 SIZE="2"><b>David</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>100,000</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>3%</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>.45</b></font></td>
    <td WIDTH="10%" align="right"><font SIZE="2"><b>.39</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>2009</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>0</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>$0</b></font></td>
    <td WIDTH="11%" align="right"><font SIZE="2"><b>$2,850</b></font></td>
  </tr>
  <tr>
    <td WIDTH="16%"><font SIZE="2"><b>Klimek</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>
</table>
<font FACE="Times New Roman" SIZE="2">
<p>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. </p>
<b>
<p align="center">Fiscal Year-End Option Values </p>
</b></font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="17%">&nbsp;</td>
    <td WIDTH="13%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
    <td WIDTH="28%" COLSPAN="2" align="center"><font SIZE="2"><b>Number of
    Securities</b></font></td>
    <td WIDTH="29%" COLSPAN="2" align="right"><font SIZE="2"><b>Value of
    Unexercised</b></font></td>
  </tr>
  <tr>
    <td WIDTH="17%">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>Shares</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>Value</b></font></td>
    <td WIDTH="28%" COLSPAN="2" align="center"><font SIZE="2"><b>Underlying
    Unexercised</b></font></td>
    <td WIDTH="29%" COLSPAN="2" align="right"><font SIZE="2"><b>In-the-Money
    Options at</b></font></td>
  </tr>
  <tr>
    <td WIDTH="17%">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>Acquired</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>Realized</b></font></td>
    <td WIDTH="28%" COLSPAN="2" align="center"><font SIZE="2"><b>Options at year
    end (#)</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>Year-End ($)</b></font></td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%">&nbsp;</td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>on</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="14%" align="right">&nbsp;</td>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>Name</b></font></td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>Exercise</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>$</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>Exercisable</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>Unexercisable</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>Exercisable</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>Unexercisable</b></font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>Ronald A.</b></font></td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>4,730,000</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>$-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>$-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>Durando</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>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>Gustave</b></font></td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>3,000,000</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>T. Dotoli</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>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>David</b></font></td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>372,500</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>Klimek</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>
    <td WIDTH="14%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>Martin</b></font></td>
    <td WIDTH="13%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>1,070,000</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
    <td WIDTH="14%" align="right"><font SIZE="2"><b>-</b></font></td>
  </tr>
  <tr>
    <td WIDTH="17%"><font SIZE="2"><b>Smiley</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>
    <td WIDTH="14%" 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 style="border-bottom-style: none; border-bottom-width: medium">
    <font FACE="Times New Roman" SIZE="2"><b>Employment Agreements</b></font></td>
  </tr>
</table>
<font FACE="Times New Roman" 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>
<b>
<p>Long-Term Stock Incentive Plan </p>
</b>
<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 ALIGN="JUSTIFY">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 ALIGN="JUSTIFY">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 two (2) non-employee directors and approximately nineteen (19)
employees will be eligible to participate in the 2001 Plan. </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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 align="center">COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
</p>
<p>The members of the Compensation Committee during fiscal 2005 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 TV+
product and is expected to produce a material amount of DSL components for us in
the future. </p>
<p align="center">SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
</p>
<b>
<p>ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT </p>
</b>
<p>The following table sets forth as of May 6, 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>
</font>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2"><b>Name and Address of
    Beneficial</b></font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Number of</b></font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Percentage</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2"><b>Owner(1)</b></font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    &quot;Shares&quot;</b></font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Ownership</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2"><b>of
    Common Stock</b></font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2"><b>of
    Common</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Beneficially</b></font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2"><b>
    Stock(2)</b></font></td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2"><b>Owned</b></font></td>
    <td WIDTH="34%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%">&nbsp;</td>
    <td WIDTH="33%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Necdet F. Ergul(5)(6)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
    2,616,250</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">2.0%</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Ronald A.
    Durando(3)(5)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
    11,644,382</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">8.4%</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Gustave T.
    Dotoli(5)(7)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
    6,021,100</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">4.5%</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">David Klimek(5)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">424,500</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">*</font></td>
  </tr>
</table>

<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Abraham Biderman(4)(5)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">694,000</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">*</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Anthony Guerino(5)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">657,500</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">*</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Martin Smiley(8)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
    5,676,132</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">4.2%</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Microphase Corporation
    (9)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
    14,704,686</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">10.8%</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">Janifast(10)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
    10,935,000</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">8.7%</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">All executive Officers
    Directors, and (2)</font></td>
    <td WIDTH="33%" align="right"><font FACE="Times New Roman" SIZE="2">
    53,272,783</font></td>
    <td WIDTH="34%" align="right"><font FACE="Times New Roman" SIZE="2">59.4%</font></td>
  </tr>
  <tr>
    <td WIDTH="33%"><font FACE="Times New Roman" SIZE="2">beneficial owners</font></td>
    <td WIDTH="33%" align="right">&nbsp;</td>
    <td WIDTH="34%" align="right">&nbsp;</td>
  </tr>
</table>
<font FACE="Times New Roman" SIZE="2">
<p align="center">* Less than 1% </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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 on130,410,957 shares outstanding on May 6, 2005,
and, with respect to each person holding options or warrants to purchase shares
that are exercisable within 60 days after May 6, 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>
</font>
<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="50%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Necdet F. Ergul</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">1,766,250</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Ronald A. Durando</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">8,614,367</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Gustave Dotoli</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">4,278,067</font></td>
    </tr>
  </table>
  </center>
</div>

<div align="center">
  <center>
  <table CELLSPACING="0" BORDER="0" WIDTH="50%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Martin Smiley</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">3,554,543</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Abraham Biderman</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">1,017,500</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Anthony Guerino</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">552,000</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Microphase
      Corporation</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">5,650,000</font></td>
    </tr>
    <tr>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">Janifast Ltd.</font></td>
      <td WIDTH="50%"><font FACE="Times New Roman" SIZE="2">2,200,000</font></td>
    </tr>
  </table>
  </center>
</div>
<font FACE="Times New Roman" SIZE="2">
<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). 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>(5) Includes options for 25,000 shares of common stock received as
compensation for participation on the Board of Directors. </p>
<p>(6) 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. </p>
<p>(7) Includes 277,500 shares owned by Patricia and Gustave Dotoli Foundation;
and 195,000 shares owned by Dotoli. </p>
<p>(8) Includes 333,334 shares and warrants to purchase 333,334 shares that
reserved for conversion of a convertible note that are included in the
beneficially owned shares of Mr. Martin Smiley. </p>
<p>(9) Includes 8,244,667 shares and warrants to purchase 3,200,000 shares and a
convertible note that may be converted into 1,200,000 shares, the totals of
which are included in the beneficial ownership of Mr. Necedet F. Ergul. </p>
<p>(10) Includes 7,350,000 shares and warrant to purchase 1,200,000 shares, to
totals of which are included in the beneficially owned shares of Mr. Ronald A.
Durando. </p>
</font><hr color="#000000" size="5"><p Style='page-break-before:always'><font FACE="Times New Roman" SIZE="2">
<p align="center">CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS </p>
<p>Material Related Party Transactions </p>
<p ALIGN="JUSTIFY">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
component parts and finished goods, primarily consisting of DSL splitter shelves
and filters, from Janifast Limited. </p>
<p ALIGN="JUSTIFY">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>Transactions with Officers, Directors and their Affiliates </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. Durando, the President and CEO of mPhase, owns a controlling interest and
is a director of Janifast Ltd. 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
Corporation, and Janifast Ltd, are significant shareholders of mPhase.
Microphase and Janifast Ltd. have converted significant liabilities to equity in
fiscal years June 30, 2001, 2002 and 2003 and Janifast Ltd. and Microphase
Corporation converted $200,000 and $250,000 of accounts payable respectively
into common stock and warrants as of December 31, 2004. Management believes the
amounts charged to the Company by Microphase, and Janifast Ltd. are commensurate
to amounts that would be incurred if outside parties were used. The Company
believes Microphase, and Janifast Ltd have the ability to fulfill their
obligations to the Company without further support from the Company. </p>
<p>Mr. Durando's June 30, 2004 note payable balance of $300,00 was repaid by the
Company during the nine month period ended March 31, 2005. During the nine month
period, Mr. Durando made additional bridge loans to the Company evidenced by
various 12% demand notes in the Aggregate of $525,000. Mr. Durando was repaid a
total of $450,000 of such loans in January of 2005. In addition, Mr. Durando
converted $13,954 of the principal amount of a $75,000 promissory note leaving
unpaid principal of $61,046 outstanding. Mr. Durando converted $13,000 of
accrued and unpaid interest on various promissory notes of the Company into
65,000 shares of common stock and a 5 year warrant to purchase a like amount of
common stock at $.25 per share. </p>
<p>During the nine month period ended March 31, 2005 Mr. Dotoli and Mr. Smiley, the
COO and CFO and General Counsel of the Company respectively, each lent the
Company $75,000. Mr. Dotoli was repaid, the principal amount of such loan, in
cash in January of 2005 and Mr. Smiley converted his $75,000 loan into 375,000
shares of common stock of the Company plus a 5 year warrant to purchase a like
amount of shares at $.25 per share. In addition, Mr. Smiley converted $9,975 of
accrued interest into 49,875 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. Finally Mr. Smiley received
25,000 additional shares of common stock as a market adjustment to his equity
investment of $25,000 on August 30, 2004. Mr. Dotoli cancelled $3,750 of accrued
and unpaid interest from August 15, 2004 through January 15, 2004 into 375,000
shares of common stock pursuant to the terms of a portion of a warrant that was
exercised at $.01 per share previously given by the Company to Mr. Dotoli in
exchange for and cancellation of unpaid compensation. </p>
<p>During the, 9 month period ended March 31, 2005, Eagle Advisers, an investment
banking firm founded by Mr. Abraham Biderman, a member of the Board of Directors
of the Company, earned fees and reimbursement expenses of approximately $514,000 in connection with
services in connection with private
placements of common stock and warrants for the Company that raised a total of
approximately $4,950,000 proceeds to net of fees for the Company. </p>
<p>In January of 2005, Martin Smiley was awarded additional compensation of
400,000 shares of common stock. </p>
<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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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>
<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 ALIGN="JUSTIFY">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 </p>
<p>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 ALIGN="JUSTIFY">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 to Lipper &amp; Company. </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. These issuances included 1,000,000 shares to Mr. Lee Barton, a
director of the Company 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 ALIGN="JUSTIFY">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 and Mr. Anthony Guerino own a relatively small amount of
stock, warrants and options in mPhase Technologies, Inc. </p>
<p>Transactions with Microphase Corporation </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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>The Company is obligated to pay a 3% royalty to Microphase Corporaiton on
revenues from its legacy Traversr DVDDS product and DSL component products.
During the year ended June 30, 2004 such amount equaled $140,123. </p>
<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 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.&nbsp; As of June 30, 2002, the Company had $92,405
of payables to Microphase.</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 and 2004, $360,000 and $180,000 in notes payable-related parties,
respectively.
Additionally, at June 30, 2003, approximately $61,789 of payables and $142,000 of undelivered purchase
orders remain outstanding with Microphase. </p>
<p>Transactions with Janifast </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, $2,771,925 and $13,581,611 of 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 $400,000 of undelivered purchase orders remain
outstanding with Janifast Ltd. and outstanding payables to Janifast Ltd.
amounted to $422,905. </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>
<b>
<p>Transactions with Other Related Parties </p>
</b>
<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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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. </p>
<b>
<p>Transactions with Strategic Vendors </p>
</b>
<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  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<i>: </p>
</i>
<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. 2. A
payment of $50,000 on December 1, 2005 3. A payment of $75,000 due on December
1, 2006 As of June 1, 2004, the Company is current with respect to payments to Piper Rudnick LLP. </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>
<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 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 holds 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 <font size="2">GTRC.</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>

<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.&nbsp; 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:</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 322; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">For the Nine Months</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 322; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">Ended March 31,</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 325; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">For the Years Ended June 30,</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 322; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">(Unaudited)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><i><font style="COLOR: black"><font size="2">Equity
    Conversions of</font></font></i></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2002</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2003</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2004</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;200</font></font><font size="2">4</font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2005</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><i><font style="COLOR: black"><font size="2">Debt
    and Other</font></font></i></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><i><font style="COLOR: black">
    <font size="2">Financial Instruments</font></font></i></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><i><font style="COLOR: black"><font size="2">with
    Related Parties</font></font></i></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">Janifast</font></font></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    shares</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,450,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,500,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,000,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,200,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,000,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amount
    converted to</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$720,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$360,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$200,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">equity</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><font style="COLOR: black">
    <font size="2">Microphase</font></font></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><font style="COLOR: black">
    <font size="2">Corporation</font></font></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    shares</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,700,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;4,033,333</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,250,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,200,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,000,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,250,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amount
    converted to</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$740,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$920,000</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;250,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">equity</font></font></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 433; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">Lintel
    Corporation and</font></font></b></td>
    <td style="padding:0in; WIDTH: 164; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 433; ">
    <b><font style="COLOR: black">
    <font size="2">Affiliates</font></font></b></td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 164; ">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; ">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; ">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; ">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 433; border-top-style:none; border-top-width:medium">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 164; border-top-style:none; border-top-width:medium">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    &nbsp;</td>
    <td style="border-bottom:medium none #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="border-bottom:1px solid #7F0000; padding:0in; WIDTH: 433; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal">&nbsp;</td>
    <td style="border-bottom:1px solid #7F0000; padding:0in; WIDTH: 164; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #7F0000; padding:0in; WIDTH: 161; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    shares</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amount
    converted to</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">equity</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">Officers</font></font></b></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    shares</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;333,334</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;489,875</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    warrants (A)</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;333,334</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,491,800</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;489,875</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amount
    converted to</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$103,000</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$480,967</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font size="2">118,933</font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">equity</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">Joint
    Venture Partner</font></font></b></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">and
    Affiliates</font></font></b></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    shares</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;63,216</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amount
    converted to</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$31,628</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">equity</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">Total
    Related Party</font></font></b></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><b><font style="COLOR: black">
    <font size="2">Conversions</font></font></b></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    shares</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;6,546,550</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;5,533,333</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,739,875</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Number of
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,733,334</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,491,800</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,739,875</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amount
    converted to</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$1,594,628</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$1,760,967</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font size="2">$568,933</font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 440; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">equity</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 160; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 161; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="border-bottom:1px solid #7F0000; padding:0in; WIDTH: -26; " colSpan="6">
    <p class="MsoNormal"><font style="COLOR: black"><font 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></font></td>
  </tr>
</table>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
<font style="COLOR: black"><font size="2">SELLING STOCKHOLDERS</font></font></b></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify">
<font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 </font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="49%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right"><font size="2">Maximum</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="49%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right"><font size="2">Number of</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="49%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right"><font size="2">Shares Being</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">NAME</font></td>
    <td WIDTH="17%" align="right"><font size="2">Beneficial Shares</font></td>
    <td WIDTH="17%" align="right"><font size="2">Offered</font></td>
    <td WIDTH="17%" align="right"><font size="2">Note</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Abraham Grinberger</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">6,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">6,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-1</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Abraham Hoffert</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">7,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">7,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-2</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Abraham Zirsha Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">20,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">20,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-3</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Alexander Hasenfeld Inc.</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">100,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">100,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-4</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Alexander Hasenfeld Inc.</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">100,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">100,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-5</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Angela Bolletteri</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-6</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Barry Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">20,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">20,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-7</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Beth Mayer Associates</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-8</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Bnei David</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">5,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">5,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-9</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Boro Park Health Food Inc</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,700</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,700</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-10</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Chaim Stefansky</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-11</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Charles Hannen</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-12</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Chaya Etta Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">30,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">30,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-13</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Colel Chabad/Sholom Duchman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">3,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">3,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-14</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Congregational Acheinu Bnei Yisroel</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">150,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">150,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-15</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">David Farber</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-16</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">David Gluck</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">34,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">34,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-17</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Double U Master Fund L.P.</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">2,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">2,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-18</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Dr. Scott K. Hannen/Aneesa Hannen</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-19</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Emil &amp; Joan Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">30,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">30,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-20</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Emil &amp; Joan Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-21</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Emily Rausman and Joan Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-22</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Eshel LP Ltd./Solomon Lesin</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-23</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Eugene L. Kelly</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-24</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Gary Rieder</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-25</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">George Rider</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">3,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">3,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-26</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Germilas Chesed Ach TOV</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">442,900</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">442,900</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-27</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Hasenfeld-Stein</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">300,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">300,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-28</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Herbert Rausman and Rifka Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">200,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">200,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-29</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">HSI Partnership/Nachum Stein, Partner</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">50,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-30</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">HSI Partnership/Nachum Stein, Partner</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">200,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">200,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-31</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">IBER Int'l Ltd./Akra Building</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">5,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">5,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-32</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Irgun Shivrei</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,800,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,800,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-33</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">J&amp;E Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">20,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">20,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-34</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Jacob Joseph &amp; Basya Abikhzer</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">40,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-35</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Jacob Joseph Rausman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">30,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">30,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-36</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Joshua Teitelbaum &amp; Helena Teitelbaum</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">750,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">750,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-37</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Leon Goldenberg</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">500,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-38</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Leslie Rieder</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-39</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Mark Rieder</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-40</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Mary E. Coons</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,250,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,250,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-41</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Mary Park Properties/Mayer Rooz</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">1,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-42</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Matthew Fischer</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">8,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">8,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-43</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Mesamche Lev</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">8,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">8,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-44</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Michael F. Cusick</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">250,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">250,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-45</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Michael Spitzer</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">100,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">100,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-46</font></td>
  </tr>
  <tr>
    <td WIDTH="49%"><font size="2">
    <p style="line-height: 150%">Morris Friedman</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">2,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">2,000,000</font></td>
    <td WIDTH="17%" align="right"><font size="2">
    <p style="line-height: 150%">A-47</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="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Mosdos Ohr
    Hatorah</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">200,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">200,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-48</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Murray Sternfeld</font></td>
</font>

    <font FACE="Times New Roman PSMT" SIZE="2">
    <td WIDTH="17%" align="right" style="font-size: 10pt">
    <p style="line-height: 150%">591,000</td>
    </font>

    <font FACE="Times New Roman" SIZE="2">
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">
    591,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-49</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Nachum Stein</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">300,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">300,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-50</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Nachum Stein</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">100,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">100,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-51</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Pearl Rausman</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">30,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">30,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-52</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Peter J. Gidas
    and Cynthia Gidas</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">200,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">200,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-53</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">PJT Family Trust</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">83,400</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">83,400</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-54</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Platinum Partners
    Value Arbitrage Fund L.P./Mark Nordlicht</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">4,000,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">4,000,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-55</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Rausman Pearl Guy</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-56</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Rausman Somerset
    LLC</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">100,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">100,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-57</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Richard Klien</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-58</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Rivka Tyberg</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">2,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">2,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-59</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Rutgers Casualty
    Insurance Company/Nachum Stein, Chairman</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-60</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Rutgers Casualty
    Insurance Company/Nachum Stein, Chairman</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">100,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">100,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-61</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Rutgers Enhanced
    Insurance Company/Nachum Stein, Chairman</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-62</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Ruth Englard</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">14,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">14,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-63</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Salvatore Amato</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">350,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">350,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-64</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Seven
    Grandchildren</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-65</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Seven
    Grandchildren</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-66</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Seven
    Grandchildren</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-67</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Seven
    Grandchildren</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-68</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Seven
    Grandchildren</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">40,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-69</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">ShazamStocks
    Inc</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">250,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">250,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-70</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Teresa L.
    Peterkin</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-71</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">The E&amp;J Rausman</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-72</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">The Rausman
    Family Trust</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-73</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Tommy Cheng</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-74</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Tower 50 Partners
    LP/Aaron Elbogen</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">1,000,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">1,000,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-75</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Trane Rausman
    Trust</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-76</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Trust FBO Abraham
    Abikhzer</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">20,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-77</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Wesco Inc./
    Alfred West</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">500,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">500,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-78</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Wesley R.
    Calhoun/Brenda Calhoun</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">50,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">A-79</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">Yakov Stein</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">250,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">250,000</font></td>
    <td WIDTH="17%" align="right">
    <p style="line-height: 150%"><font size="2">A-80</font></td>
  </tr>
  <tr>
    <td WIDTH="49%">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    <td WIDTH="17%" align="right">&nbsp;</td>
    </font>

    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  <font FACE="Times New Roman" SIZE="2">
  <tr>
    <td WIDTH="49%"><font FACE="Times New Roman PSMT" SIZE="2">TOTAL</font></td>
    <td WIDTH="17%" align="right"><font FACE="Arial MT" SIZE="2">38,230,800</font></td>
    <td WIDTH="17%" align="right"><font FACE="Arial MT" SIZE="2">38,230,800</font></td>
    <td WIDTH="17%" align="right">&nbsp;</td>
  </tr>
  </table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-1) Includes Warrants to
    Purchase up to 6,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-2) Includes Warrants to
    Purchase up to 7,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-3) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-4) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-5) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-6) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-7) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-8) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-9) Includes Warrants to
    Purchase up to 5,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-10) Includes Warrants to
    Purchase up to 1,700</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-11) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-12) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-13) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-14) Includes Warrants to
    Purchase up to 1,500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-15) Includes Warrants to
    Purchase up to 100,000</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>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-16) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-17) Includes Warrants to
    Purchase up to 22,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-18) Includes Warrants to
    Purchase up to 1,000,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-19) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-20) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-21) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-22) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-23) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-24) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-25) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-26) Includes Warrants to
    Purchase up to 1,500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-27) Includes Warrants to
    Purchase up to 442,900</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-28) Includes Warrants to
    Purchase up to 150,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-29) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-30) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-31) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-32) Includes Warrants to
    Purchase up to 2,500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-33) Includes Warrants to
    Purchase up to 900,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-34) Includes Warrants to
    Purchase up to 20,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-35) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-36) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-37) Includes Warrants to
    Purchase up to 375,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-38) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-39) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-40) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-41) Includes Warrants to
    Purchase up to 625,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-42) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-43) Includes Warrants to
    Purchase up to 8,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-44) Includes Warrants to
    Purchase up to 8,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-45) Includes Warrants to
    Purchase up to 125,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-46) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-47) Includes Options to
    Purchase up to 1,000,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-48) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">
    (A-49) Includes Warrants to Purchase up to 6,500 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-50) Includes Warrants to
    Purchase up to 150,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-51) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-52) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-53) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-54) Includes Warrants to
    Purchase up to 53,400 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-55) Includes Warrants to
    Purchase up to 2,000,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-56) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-57) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-58) Includes
    Options to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-59) Includes
    Options to
    Purchase up to 2,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-60) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-61) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-62) Includes Warrants 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>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-63) Includes Warrants to
    Purchase up to 14,000</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-64) Includes Warrants to
    Purchase up to 175,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-65) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-66) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-67) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-68) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-69) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-70) Includes Warrants to
    Purchase up to 125,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-71) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-72) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-73) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-74) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-75) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-76) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-77) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-78) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-79) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock</font></td>
  </tr>
  <tr>
    <td>
    <p style="line-height: 150%"><font FACE="Times New Roman PSMT" SIZE="2">(A-80) Includes Warrants to
    Purchase up to 125,000 Shares of Common Stock</font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">PLAN OF DISTRIBUTION</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">The selling stockholders will
sell their shares of common stock subject to the following:</font></font></p>
<p class="MsoNormal" style="text-indent: -0.25in; margin-left: 0.5in">
<font size="2">
<font style="COLOR: black">1.</font></font><font style="font-style:normal; font-variant:normal; font-weight:normal; color:black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;
</font>
</font><font style="COLOR: black"><font size="2">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;</font></font></p>
<p class="MsoNormal" style="text-indent: -0.25in; margin-left: 35.95pt">
<font size="2">
<font style="COLOR: black">2.</font></font><font style="font-style:normal; font-variant:normal; font-weight:normal; color:black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></font><font style="COLOR: black"><font size="2">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;</font></font></p>
<p class="MsoNormal" style="text-indent: -0.25in; margin-left: 0.5in">
<font size="2">
<font style="COLOR: black">3.</font></font><font style="font-style:normal; font-variant:normal; font-weight:normal; color:black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></font><font style="COLOR: black"><font size="2">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</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="text-indent: -0.25in; margin-left: 0.5in">
<font size="2">
<font style="COLOR: black">4.</font></font><font style="font-style:normal; font-variant:normal; font-weight:normal; color:black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></font><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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</font></font></p>
<hr color="#7F0000" size="1">
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<hr color="#7F0000" size="1">
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><font size="2">DESCRIPTION OF SECURITIES</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Our authorized
capital stock consists of 500,000,000&nbsp; shares of common stock,$.01 par value as
of July 20, 2005 the date of our most recent annual meeting. As of&nbsp; July 22,
2005, approximately 141 million shares of our common stock are issued and
outstanding and held by approximately 12,000 stockholders of record. Of&nbsp; the
shares of our issued and outstanding common stock, shares are covered by this
prospectus. In addition shares of 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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Common Stock</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Common Stock
Warrants</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">This prospectus
also covers shares of common stock purchasable pursuant to outstanding warrants
and options. The exercise price of these warrants range from $.25&nbsp; to $.45.
These warrants and options have expiration terms ranging from years 2005-2010.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Filling
Vacancies on the Board</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<hr color="#7F0000" size="1">
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">New Jersey Shareholders Protection Act</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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,</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<hr color="#7F0000" size="1">
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">LEGAL MATTERS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 of the Company.</font></font></p>
<hr color="#7F0000" size="1">
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">EXPERTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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
June 1, 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.</font></font></p>
<hr color="#7F0000" size="1">
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">WHERE YOU CAN FIND ADDITIONAL INFORMATION</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">You may request
a copy of these filings, at no cost by writing or telephoning us at the
following address:</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><font size="2">mPhase Technologies, Inc.<br>
587 Connecticut Avenue<br>
Norwalk, Connecticut 06854-0566<br>
Attention: General Counsel<br>
(203) 831-2242</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center"><font style="COLOR: black"><font size="2">mPHASE TECHNOLOGIES, INC.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><font size="2">INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
</font> </font>
</p>
<div align="center">
  <table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black"><font size="2">Report of
      Rosenberg Rich Baker Berman &amp; Company</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-1</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black"><font size="2">Report of
      Arthur Andersen LLP</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-2</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black"><font size="2">Report of
      Schuhalter, Coughlin &amp; Suozzo, PC</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-3</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black">
      <font size="2">Consolidated Balance Sheets as of June 30, 2003, June 30, 2004 and March 31,
      2005 (Unaudited)</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-4</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black">
      <font size="2">Consolidated Statements of Operations for the years ended June 30, 2002, 2003,
      2004, and for the&nbsp; period
      from inception (October 2, 1996) through June 30, 2004</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-5</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black"><font size="2">Unaudited
      Consolidated Statements of Operations for the Nine months ended March 31,
      2005 and for the
      period from inception (October 2, 1996) through March 31, 2005</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-6</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black">
      <font size="2">Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
      the period
      from inception (October
      2, 1996) to June 30, 1998 and for each of the six years in the period ended June
      30, 2004</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-7-12</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black"><font size="2">Unaudited
      Consolidated Statement of Changes in Shareholders' Deficit for the Nine
      months ended March 31,
      2005</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-13</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black">
      <font size="2">Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2003 and
      2004, and for the period
      from inception (October 2, 1996) through June 30, 2004</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-14</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black"><font size="2">Unaudited
      Consolidated Statements of Cash Flows for the Nine months ended March&nbsp; 31,
      2005 and 2004,
      and for the period from inception (October 2, 1996) through March&nbsp; 31,
      2005</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-15</font></font></td>
    </tr>
    <tr>
      <td style="padding:0in; WIDTH: 1053; ">
      <p class="MsoNormal"><font style="COLOR: black"><font size="2">Notes to
      Consolidated Financial Statements</font></font></td>
      <td style="padding:0in; WIDTH: 185; " valign="top">
      <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
      <font style="COLOR: black"><font size="2">F-16</font></font></td>
    </tr>
  </table>
</div>
<p class="MsoNormal" align="right">&nbsp;</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><font size="2">REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">To the Board of
Directors and Stockholders of mPhase Technologies, Inc.:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Rosenberg Rich
Baker Berman &amp; Company<br>
Bridgewater, NJ</font></font></p>
<p class="MsoNormal"><font size="2">&nbsp;</font><font style="COLOR: black"><font size="2">August 27, 2004</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-1</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">To the Board of
Directors and Stockholders of mPhase Technologies, Inc.:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Arthur Andersen
LLP<br>
Stamford, Connecticut</font></font></p>
<p class="MsoNormal"><font size="2">&nbsp;</font><font style="COLOR: black"><font size="2">October 12, 2001</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-2</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">To the Board of
Directors and Stockholders of mPhase Technologies, Inc.:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Schuhalter,
Coughlin &amp; Suozzo, PC<br>
Raritan, New Jersey</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">January 28, 1999</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-3</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><font size="2">mPHASE TECHNOLOGIES, INC.<br>
(A DEVELOPMENT STAGE COMPANY)<br>
CONSOLIDATED BALANCE SHEETS</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -2; " colspan="2">
    <p class="MsoNormal" align="right">
    <font style="COLOR: black"><font size="2">June 30,</font></font><font FACE="Times New Roman" SIZE="2"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">March 31,</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2003</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2004</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2005</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(unaudited)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">ASSETS</font></font></b></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Current
    assets:</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Cash and
    cash equivalents</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$396,860</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$90,045</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$237,828</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accounts
    receivable, net of bad debt reserve of $0</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">287,135</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">64,100</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">354,903</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">and $0 for
    each period</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Stock
    subscription receivable</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">110,000</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">886,000</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">---</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Inventory</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,103,328</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,237,972</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">862,963</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Production
    Advances-Janifast Ltd.</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font size="2">----</font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font size="2">----</font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">337,709</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Prepaid
    expenses and other current assets</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">100,329</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">81,061</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">169,503</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total
    current assets</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,997,652</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,359,178</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,962,906</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Property and
    equipment, net</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">581,890</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">52,685</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">178,626</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Patents and
    licenses, net</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">184,857</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">161,605</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">176,972</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; border-bottom-style:none; border-bottom-width:medium">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Other assets</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,250</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,250</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">---</font></font></td>
  </tr>
  <tr>
    <td style="border-style:none; border-width:medium; padding:0in; WIDTH: 459">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-bottom-style:none; border-bottom-width:medium">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-bottom-style:none; border-bottom-width:medium">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-bottom-style:none; border-bottom-width:medium">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total
    assets</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-top-style:none; border-top-width:medium; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$3,781,649</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-top-style:none; border-top-width:medium; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$2,590,718</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-top-style:none; border-top-width:medium; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$2,318,504</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><b><font style="COLOR: black">
    <font size="2">LIABILITIES AND STOCKHOLDERS' EQUITY</font></font></b></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">(DEFICIT)</font></font></b></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Current
    liabilities:</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accounts
    payable</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$2,352,961</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,088,658</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,565,629</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accrued
    expenses</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">885,735</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">691,033</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">957,925</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Due to
    related parties</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">187,372</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">625,956</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">280,739</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Notes
    payable, related party</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">300,000</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">242,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Current
    Portion of Long-Term Debt</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">762,735</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">550,803</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">----</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deferred
    revenue</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">214,180</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;214,180</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">248,891</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; border-top-style:solid; border-top-width:1">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; border-top-style:solid; border-top-width:1">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; border-top-style:solid; border-top-width:1">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total
    current liabilities</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;4,402,983</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;4,470,630</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;4,295,184</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Long Term
    Debt, net of current portion</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">586,303</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">139,500</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">281,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Other
    liabilities</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,561,249</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">618,550</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">279,500</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Notes
    payable, related parties</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">460,000</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">280,000</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">---</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><b><font style="COLOR: black">
    <font size="2">COMMITMENTS AND CONTINGENCIES (Note 13)</font></font></b></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><b><font style="COLOR: black">
    <font size="2">STOCKHOLDERS' EQUITY (DEFICIT):</font></font></b></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Common
    Stock, stated value $.01, 250,000,000 shares</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">authorized;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">71,453,521,
    88,899,962 and 109,743,391 (unaudited),</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">shares
    issued and </font></font>
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">outstanding,
    respectively</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">714,535</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">888,999</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,299,610</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Additional
    paid-in capital</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;104,081,049</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;111,976,095</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;121,430,506</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deficit
    accumulated during development stage</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(108,016,497)</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(115,775,083)</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(125,259,323)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">Less-treasury stock, 13,750 shares, at cost</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7.973)</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp; Total
    stockholders' equity (deficit)</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(3,228,886)</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(2,917,962)</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(2,537,180)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 459; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Total
    liabilities and stockholders' equity</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$3,781,649</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,590,718</font></font></td>
    <td style="padding:0in; WIDTH: 171; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,318,504</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -2; " colSpan="3">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 171; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -2; " colSpan="3">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">The
    accompanying notes are an integral part of these consolidated balance
    sheets.</font></font></td>
    <td style="padding:0in; WIDTH: 171; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-4</font></font><font size="2">&nbsp;</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">mPHASE TECHNOLOGIES, INC.<br>
(A DEVELOPMENT STAGE COMPANY)<br>
</font></font><b>
<font style="COLOR: black"><font size="2">CONSOLIDATED STATEMENTS OF &nbsp;OPERATIONS</font></font></b></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" height="646">
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="60">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -8; " vAlign="top" colSpan="8" height="60">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">For the Years Ended June 30,</font></font></b></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="60">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="60">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">From Inception<br>
    (October 2, 1996)<br>
    to June 30,<br>
    2004</font></font></b></p>
    </td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="15">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="15">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="15" align="right">
    <p class="MsoNormal"><b>
    <font style="COLOR: black"><font size="2">2002</font></font></b></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="15" align="right">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="15" align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="15" align="right">
    <p class="MsoNormal"><b>
    <font style="COLOR: black"><font size="2">2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="15" align="right">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="15" align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="15" align="right">
    <p class="MsoNormal"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="15">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="15">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">TOTAL NET
    REVENUES</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,582,446</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,581,639</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,641,346</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">19,609,041</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">COSTS AND
    EXPENSES:</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Cost of
    Sales (see also note 11 Related Party Transactions)</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,415,129</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,493,394</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,068,255</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">13,913,207</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="69">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Research and
    development (including non-cash stock related charges of $267,338, $385,495,
    $72,000 and $2,503,114 respectively, see also note 11 Related Party
    Transactions)</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,819,583</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="69">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,538,305</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="69">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,069,721</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">38,416,800</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="69">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><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></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">7,038,923</font></font></td>
    <td style="padding:0in; WIDTH: 22; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="69">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,683,534</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="69">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,177,961</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="69">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">79,055,097</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Depreciation
    and Amortization</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">670,183</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">515,417</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">122,878</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,889,907</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Total costs
    and expenses</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">13,943,818</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">8,230,650</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">12,438,815</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">134,275,011</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Loss from
    operations</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(11,361,372</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(6,649,011</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,797,469)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(114,665,970)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">OTHER INCOME
    (EXPENSE):</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 22; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Gain On
    Extinguishments</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">142,236</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">61,226</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">150,058</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">353,520</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Minority
    interest loss in consolidated subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">----</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">20,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Loss from
    unconsolidated subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">----</font></font></td>
    <td style="padding:0in; WIDTH: 23; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,466,467)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Loss on sale
    of securities</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 22; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(11,258</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">----</font></font></td>
    <td style="padding:0in; WIDTH: 23; border-bottom-style:none; border-bottom-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 146; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(11,258)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Interest
    income (expense), net</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(26,225</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(51,168</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(111,175)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(4,908)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Total other
    income (expense)</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">116,011</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,200</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">38,883</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,109,113)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">NET LOSS</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <div style="border-bottom-style: double; border-bottom-width: 2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(11,245,361</font></font></div>
    </td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <div style="border-bottom-style: double; border-bottom-width: 2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(6,650,211</font></font></div>
    </td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <div style="border-bottom-style: double; border-bottom-width: 2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,758,586)</font></font></div>
    </td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium" vAlign="top" height="23">
    <div style="border-bottom-style: double; border-bottom-width: 2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(115,775,083)</font></font></div>
    </td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">Unrealized
    holding (loss) gain on securities</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(4,026</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,026</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">----</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-----</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black">
    <font size="2">COMPREHENSIVE LOSS</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(11,249,387</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(6,646,185</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,758,586)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(115,775,083)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%"><font style="COLOR: black"><font size="2">LOSS PER
    COMMON SHARE, basic and diluted</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(.23</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(.10</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(.10)</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="19">
    <font style="COLOR: black"><font size="2" FACE="Times New Roman">WEIGHTED
    AVERAGE COMMON SHARES </font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="19">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 529; " vAlign="top" height="23">
    <p class="MsoNormal" style="line-height: 150%">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black">OUTSTANDING,</font></font><font style="COLOR: black"><font size="2">
    basic and diluted</font></font></td>
    <td style="padding:0in; WIDTH: 22; " vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">49,617,280</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 22; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">65,217,088</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">77,677,120</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 23; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 146; border-left-style:none; border-left-width:medium; border-right-style:none; border-right-width:medium; border-top-style:none; border-top-width:medium" vAlign="top" height="23">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">The accompanying
notes are an integral part of these consolidated financial statements.</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-5</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center"><font style="COLOR: black"><font size="2">mPHASE TECHNOLOGIES, INC.<br>
(A Development Stage Company)<br>
</font></font><b>
<font style="COLOR: black"><font size="2">Consolidated Statements of Operations<br>
</font></font></b>
<font style="COLOR: black"><font size="2">(Unaudited)</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">October 2, 1996</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 280; " colspan="3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Nine Months Ended</font></font><font FACE="Times New Roman" SIZE="2"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(Date of</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 280; " colspan="3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">March 31,</font></font><font FACE="Times New Roman" SIZE="2"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;Inception) to</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">March 31,</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2004</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2005</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2005</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 127; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 128; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">REVENUES</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,335,476</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,039,003</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;20,648,944</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">COSTS AND
    EXPENSES</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal" style="TEXT-ALIGN: justify">
    <font style="COLOR: black"><font size="2">&nbsp;&nbsp; Cost of Sales (See Also Note
    11 Related Party&nbsp;Transactions)</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,878,389</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">823,217</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;14,736,424</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Research
    and development</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    including non-cash stock related</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    charges of $0, $0</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; and
    $2,503,114, respectively </font></font>
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">(See Also Note 11 Related Party Transactions)</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,858,715</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,820,128</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;42,236,928</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; General
    and Administrative</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (including non-cash stock</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    related charges of $785,740</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    $2,763,861 and $50,097,003</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    respectively) (see also Note 11 Related Party Transactions)</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,196,052</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;5,416,357</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;84,471,454</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;
    Depreciation and amortization</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">100,883</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">193,650</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,083,557</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; TOTAL
    COSTS AND EXPENSES</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">9,033,889</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;10,253,352</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;144,528,363</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">LOSS FROM
    OPERATIONS</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(4,698,483)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(9,214,349)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; border-top-style:none; border-top-width:medium">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(123,880,319)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">OTHER INCOME</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Gain
    (Loss) on extinguishments</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(128,991)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(99,393)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">254,127</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Minority
    interest loss in</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    consolidated subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">20,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Capital
    Losses</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(38,358)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(49,616)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Loss from
    unconsolidated</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(1,466,467)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Interest
    Income (expense), net</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 126">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(72,367)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 127">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(132,140)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 128">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(137,048)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; TOTAL
    OTHER INCOME (EXPENSE)</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 126">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(201,358)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 127">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(269,891)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 128">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(1,379,004)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 127; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">NET LOSS</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:3px double #000000; padding:0in; WIDTH: 126">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(4,899,771)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:3px double #000000; padding:0in; WIDTH: 127">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(9,484,240)</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:3px double #000000; padding:0in; WIDTH: 128">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(125,259,323)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">LOSS PER
    COMMON SHARE,</font></font></td>
    <td style="padding:0in; WIDTH: 40; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 127">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 128">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">basic and
    diluted</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    <font size="2" FACE="Times New Roman">$</font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 126" align="right">
    <font size="2" FACE="Times New Roman">(0.07)</font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    <font size="2">$</font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 127" align="right">
    <font size="2" FACE="Times New Roman">(0.09)</font></td>
    <td style="padding:0in; WIDTH: 27; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 128">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">WEIGHTED
    AVERAGE COMMON</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126" align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 127" align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 128">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">SHARES</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126" align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 127" align="right">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 27; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 128">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 511; ">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">OUTSTANDING,
    basic and diluted</font></font></td>
    <td style="padding:0in; WIDTH: 40; " align="right">
    &nbsp;</td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 126" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">75,312,435</font></font></td>
    <td style="padding:0in; WIDTH: 27; " align="right">
    &nbsp;</td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 127" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">101,062,839</font></font></td>
    <td style="padding:0in; WIDTH: 27; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 128">
    &nbsp;</td>
  </tr>
  </table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">The accompanying
notes are an integral part of these consolidated financial statements.</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-6</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -5; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><u>
    <font style="COLOR: black"><font size="2">Common Stock</font></font></u></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">TOTAL</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$.01</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Additional</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">STOCKHOLDERS</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stated</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Treasury</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Paid-In</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deferred</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Accumulated</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">EQUITY</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shares</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Value</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stock</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Capital</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Compensation</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deficit</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(DEFICIT)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">BALANCE,</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,140,427</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$11,404</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$459,753</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(537,707)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(66,550)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">OCTOBER 2, </font></font>
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">1996</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">(date of</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">inception)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">6,600,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">66,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(537,157)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">537,707</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">66,550</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock of
    Tecma</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">Laboratories, Inc.,</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">for 100% of
    the</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Company</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">594,270</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,943</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">752,531</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">758,474</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock, in
    private</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">placement,
    net of</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">offering
    costs of</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">$138,931</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(781,246)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(781,246)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,
    JUNE </font></font></b>
  <font FACE="Times New Roman" SIZE="2">
    <b><font style="COLOR: black"><font size="2">30, 1997</font></font></b></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;8,334,697</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$83,347</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$675,127</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">$-</font></font></b></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(781,246)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(22,772)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">999,502</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">9,995</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">791,874</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">801,869</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock with
    warrants,</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">in private
    placement,</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">net of
    offering costs</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">of $84,065</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">300,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">147,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">150,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock for
    services</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">250,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,500</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">122,500</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">125,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock in
    connection</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">with
    investment in</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">unconsolidated</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Repurchase
    of</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">13,750
    shares of</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,095,512</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">10,955</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">659,191</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">670,146</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock with
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">in private
    placement,</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">net of
    offering costs</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">of $121,138</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">100,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,000)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock for
    financing</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,500,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">25,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,685,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,710,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock in</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">consideration for</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">100% of the
    common</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock of
    Microphase</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">Telecommunications,</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Inc.</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(4,341,059)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(4,341,059)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 363; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,
    JUNE 30, 1998</font></font></b></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">13,579,711</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$135,797</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$4,079,692</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(5,122,305)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(914,789)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -6; " colSpan="5">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -6; " colSpan="5">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">The
    accompanying notes are an integral part of these consolidated financial
    statements.</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-7</font></font><font size="2">&nbsp;</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><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></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -8; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><u>
    <font style="COLOR: black"><font size="2">Common Stock</font></font></u></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">TOTAL</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$.01</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Additional</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">STOCKHOLDERS</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stated</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Treasury</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Paid-In</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deferred</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Accumulated</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">EQUITY</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shares</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Value</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stock</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Capital</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Compensation</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deficit</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(DEFICIT)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;13,579,711</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$135,797</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$4,079,692</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(5,122,305)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(914,789)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">JUNE 30,
    1998</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,120,000</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">31,200</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,981,800</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,013,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    with</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">warrants in
    private</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">placements,
    net of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">offering
    costs of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">$107,000</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,599,332</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">15,993</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;8,744,873</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;8,760,866</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    for</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">642,000</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">6,420</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,553,227</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,559,647</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    with</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">warrants in
    private</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">placement,
    net of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">offering
    costs of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">$45,353</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;4,426,698</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">44,267</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;10,343,167</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;10,387,434</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    in</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">private
    placement,</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">net of
    offering</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">costs of
    $679,311</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    stock</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;7,129,890</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;7,129,890</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">options for
    services</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">16,302</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">16,302</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">warrants for</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deferred
    employee</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(140,000)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(140,000)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock option</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">compensation</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(22,838,344)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(22,838,344)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;23,367,741</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$233,677</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$34,848,951</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(140,000)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(27,960,649)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$6,974,006</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">JUNE 30,
    1999</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -7; " colSpan="5">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -7; " colSpan="5">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">The
    accompanying notes are an integral part of these consolidated financial
    statements.</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-8</font></font><font size="2">&nbsp;</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><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></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -1; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><u>
    <font style="COLOR: black"><font size="2">Common Stock</font></font></u></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">TOTAL</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$.01</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Additional</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;STOCKHOLDERS</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stated</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Treasury</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Paid-In</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deferred</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Accumulated</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">EQUITY</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shares</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Value</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stock</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Capital</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Compensation</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deficit</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(DEFICIT)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">23,367,741</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$233,677</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$34,848,951</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(140,000)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(27,960,649)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$6,974,006</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">JUNE 30,
    1999</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">75,000</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">750</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">971,711</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">972,461</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    and</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">options in</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">settlement</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,632,084</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">46,321</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,406,938</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,453,259</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">upon
    exercise of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">warrants and</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">options</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,000,000</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">10,000</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,790,000</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,800,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    in</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">private
    placement,</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">net of cash
    offering</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">costs of
    $200,000</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,165,500</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">11,655</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">9,654,951</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">9,666,606</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    in</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">private
    placement,</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">net of cash
    offering</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">costs of
    $466,480</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,164,215</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">11,642</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">8,612,265</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">8,623,907</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    for</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    options</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">9,448,100</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">9,448,100</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">for services</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deferred
    employee</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,637,375</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,637,375)</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock option</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">compensation</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amortization
    of</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">551,707</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">551,707</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">deferred
    employee</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock option</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">compensation</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(38,161,542)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(38,161,542)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,
    JUNE</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">31,404,540</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$314,045</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$74,370,291</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(1,225,668)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(66,122,191)</font></font></td>
    <td style="padding:0in; WIDTH: 126; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$7,328,504</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 362; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">30, 2000</font></font></b></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 0; " colSpan="5">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 126; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 0; " colSpan="5">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">The
    accompanying notes are an integral part of these consolidated financial
    statements.</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 126; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-9</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -1; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><u>
    <font style="COLOR: black"><font size="2">Common Stock</font></font></u></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">TOTAL</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$.01</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Additional</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">STOCKHOLDERS</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stated</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Treasury</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Paid-In</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deferred</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Accumulated</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">EQUITY</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shares</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Value</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stock</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Capital</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Compensation</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deficit</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(DEFICIT)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 123; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">BALANCE,</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">31,404,540</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$314,045</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$74,370,291</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(1,225,668)</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(66,122,191)</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$7,328,504</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">JUNE 30,</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">2000</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">320,000</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,200</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">324,300</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">327,500</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">upon</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">exercise of</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">options</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,329,850</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">43,298</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">7,766,547</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">7,809,845</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">with</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">warrants in</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">private</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">placements,
    net of</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">cash
    offering costs</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">of $512,195</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">450,000</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,500</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,003,125</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,007,625</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    for</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    options</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,849,585</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,849,585</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">and warrants
    for</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deferred
    employee</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">607,885</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(607,885)</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock option</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">compensation</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amortization
    of</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,120,278</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,120,278</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">deferred
    employee</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock option</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">compensation</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,840,077</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">48,402</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,371,637</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,420,039</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    in</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">settlement
    of debt</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">to directors
    and</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">related
    parties</font></font></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net Loss</font></font></td>
    <td style="padding:0in; WIDTH: 123; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(23,998,734)</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(23,998,734)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,</font></font></b></td>
    <td style="padding:0in; WIDTH: 123; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">41,344,467</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$413,445</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$92,293,370</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(713,275)</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(90,120,925)</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$1,864,642</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 374; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">JUNE 30,
    2001</font></font></b></td>
    <td style="padding:0in; WIDTH: 123; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -2; " colSpan="5">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -2; " colSpan="5">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">The
    accompanying notes are an integral part of these consolidated financial
    statements.</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-10</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><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></font></p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="233">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    TOTAL</font></td>
  </tr>
  <tr>
    <td WIDTH="233">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $.01</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Additional</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    STOCKHOLDERS</font></td>
  </tr>
  <tr>
    <td WIDTH="233">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Stated</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Treasury</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Paid-In</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Deferred</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Accumulated</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Comprehensive</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    EQUITY</font></td>
  </tr>
  <tr>
    <td WIDTH="233">&nbsp;</td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Shares</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Value</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Stock</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Capital</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Compensation</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Deficit</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    Loss</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    (DEFICIT)</font></td>
  </tr>
  <tr>
    <td WIDTH="233">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PS" SIZE="2"><b>BALANCE</b></font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    41,344,467</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $413,445</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $(7,973)</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $92,293,370</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $(713,275)</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $(90,120,925)</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">$-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    $1,864,642</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PS" SIZE="2"><b>JUNE 30, 2001</b></font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Sale of Common</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    6,980,643</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    69,807</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,903,943</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,973,750</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">stock with</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">warrants in</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">private</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">placement</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Issuance of</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,976,068</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    29,760</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,169,241</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,199,001</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Common stock</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">for services</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Issuance of</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,877,937</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,877,937</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">options and</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">warrants for</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">services</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Cancellation of</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    (140,802)</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    140,802</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">unearned options</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">to former</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">employees</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Amortization of</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    548,550</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    548,550</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">deferred</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">employee stock</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">option</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">compensation</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Issuance of</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    7,492,996</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    74,930</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,663,728</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,738,658</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">common stock</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">and warrants in</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">settlement of</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">debt to related</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">parties and</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">strategic vendors</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Sale of Common</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    2,000,000</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    20,000</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    980,000</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right">
    <p align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">stock to certain</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Officers and</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Directors in</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">private</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">placement</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Issuance of</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    13,334</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">133</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    3,867</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right">
    <p align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    4,000</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Common stock</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">upon exercise of</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">options</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Net Loss</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    (11,245,361)</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    (11,245,361)</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">Other</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right">
    <p align="right"><font FACE="Times New Roman PSMT" SIZE="2">-</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    (4,026)</font></td>
    <td WIDTH="126" align="right"><font FACE="Times New Roman PSMT" SIZE="2">
    (4,026)</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">comprehensive</font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PSMT" SIZE="2">loss</font></td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
    <td WIDTH="126" align="right" style="border-bottom-style: solid; border-bottom-width: 1">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PS" SIZE="2"><b>BALANCE,</b></font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    60,807,508</font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    $608,075</font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    $(7,973)</font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    $100,751,284</font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    $(23,923)</font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    $(101,366,286)</font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    $(4,026)</font></td>
    <td WIDTH="126" align="right" style="border-top-style: solid; border-top-width: 1"><font FACE="Times New Roman PSMT" SIZE="2">
    $(42,849)</font></td>
  </tr>
  <tr>
    <td WIDTH="233"><font FACE="Times New Roman PS" SIZE="2"><b>JUNE 30, 2002</b></font></td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="233">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
    <td WIDTH="126" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="1241" COLSPAN="9"><font FACE="Times New Roman PSMT" SIZE="2">The
    accompanying notes are an integral part of these consolidated financial
    statements.</font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-11</font></font><font size="2">&nbsp;</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><font size="2">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</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">TOTAL</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$.01</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Additional</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">STOCKHOLDERS</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stated</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Treasury</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Paid-In</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deferred</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Accumulated</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Comprehensive</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">EQUITY</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shares</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Value</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stock</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Capital</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Compensation</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deficit</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Loss</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(DEFICIT)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 116; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 116; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 116; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 116; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 116; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 116; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 116; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 117; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE
    JUNE</font></font></b></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;60,807,508</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$608,075</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$100,751,284</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(23,923)</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(101,366,286)</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(4,026)</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(42,849)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">30, 2002</font></font></b></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;4,296,680</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">42,967</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,121,351</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,164,318</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock with
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">in private
    placement</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">426,000</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,260</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">107,985</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">112,245</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock for
    services</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    options</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">274,100</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">274,100</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">and warrants
    for</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Amortization
    of</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">23,923</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">23,923</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">deferred
    employee</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock option</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">compensation</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;5,923,333</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">59,233</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,826,329</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,885,562</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock and
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">in
    settlement of debt</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">to related
    parties and</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">strategic
    vendors</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(6,650,211)</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(6,650,211)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Other</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,026</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,026</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">comprehensive</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">income</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,
    JUNE</font></font></b></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;71,453,521</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$714,535</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$104,081,049</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$-</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(108,016,497)</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$-</font></font></td>
    <td style="padding:0in; WIDTH: 117; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(3,228,886)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 312; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">30, 2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -7; " colSpan="5">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 117; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-12</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center"><b>
<font style="COLOR: black"><font size="2">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</font></font></b></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">TOTAL</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$.01</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Additional</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">STOCKHOLDERS</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stated</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Treasury</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Paid-In</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deferred</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Accumulated</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Comprehensive</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">EQUITY</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shares</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Value</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Stock</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Capital</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Compensation</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deficit</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Loss</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(DEFICIT)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 118; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE
    JUNE</font></font></b></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;71,453,521</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$714,535</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$104,081,049</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(108,016,497)</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(3,228,886)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">30, 2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;15,177,973</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">151,779</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;4,322,934</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,474,713</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock with
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">in private
    placement</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">924,667</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">9,247</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">238,153</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">247,400</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock for
    services</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    options</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,067,393</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,067,393</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">and warrants
    for</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">services</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,233,334</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">12,333</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">304,467</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">316,800</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock
    pursuant to</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">exercise of
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    common</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">110,467</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,105</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,962,099</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,963,204</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock and
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">in
    settlement of debt</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">to related
    parties and</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">strategic
    vendors</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(7,758,586)</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,758,586)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">BALANCE,
    JUNE</font></font></b></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 311; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">30, 2004</font></font></b></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;88,899,962</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$888,999</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$111,976,095</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$0</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(115,775,083)</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$0</font></font></td>
    <td style="padding:0in; WIDTH: 118; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(2,917,962)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -6; " colSpan="5">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">The
    accompanying notes are an integral part of these consolidated financial
    statements.</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 118; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-1</font></font>3</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
<font style="COLOR: black"><font size="2">mPHASE TECHNOLOGIES, INC.<br>
(A Development Stage Company)<br>
&nbsp;Consolidated Statement of Changes in Shareholders'
Deficit<br>
(Unaudited)</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Total</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$.01 Stated</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -6; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Additional Paid</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Accumulated</font></font></td>
    <td style="padding:0in; WIDTH: -5; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shareholders</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Shares</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Value</font></font></td>
    <td style="padding:0in; WIDTH: -6; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Treasury Stock</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">in Capital</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Deficit</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Equity</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 35; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 35; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 35; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 35; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 35; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 124; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 36; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 125; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Balance,
    June 30, 2004</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">88,899,962</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">888,999</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">111,976,095</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(115,775,083)</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(2,917,962)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    Shares in Private</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Placement</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">26,286,716</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">262,867</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,225,576</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,488,443</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    Shares in connection</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">with
    exercise of warrants</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,300,954</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">33,009</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">530,581</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">563,590</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversion
    of Debt to Common</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Stock and
    warrants</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,437,271</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">34,372</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">997,052</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,031,424</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Options
    Awarded to Consultants</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,821,100</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,821,100</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Options
    Awarded to Officers</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">625,290</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">625,290</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Issuance of
    shares to officers</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">for services</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">425,000</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,250</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">127,500</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">131,750</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Exercise of
    cashless warrant</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,949,684</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">49,499</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(49,499)</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Exercise of
    warrants by</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Officers</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,770,400</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,704</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,704</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Reparation
    of Private Placement</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Offering</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">891,000</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">8,910</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">176,811</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">185,721</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net Loss</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(9,484,240)</font></font></td>
    <td style="padding:0in; WIDTH: 36; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(9,484,240)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 36; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 285; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">March 31,
    2005</font></font></td>
    <td style="padding:0in; WIDTH: 35; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">129,960,987</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,299,610</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">121,430,506</font></font></td>
    <td style="padding:0in; WIDTH: 35; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 124; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(125,259,323)</font></font></td>
    <td style="padding:0in; WIDTH: 36; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 125; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(2,537,180)</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font size="2">The
accompanying notes are an integral part of these consolidated financial
statements.</font></p>
<p class="MsoNormal">F-14</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">mPHASE TECHNOLOGIES, INC.<br>
&nbsp;(A DEVELOPMENT STAGE COMPANY)<br>
CONSOLIDATED STATEMENTS OF CASH FLOWS</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 0; " colSpan="3" align="center">
    <p class="MsoNormal">
    <font style="COLOR: black"><font size="2">For the Years Ended&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">Inception</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 0; " align="center" colspan="3">
    <p class="MsoNormal">
    <font style="COLOR: black"><font size="2">&nbsp;June 30,</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(October 2,</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1996) to</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">June 30,</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2002</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2003</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2004</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2004</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH FLOWS
    FROM OPERATING</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">ACTIVITIES:</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(11,245,361)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    $<font style="COLOR: black"><font size="2">(6,650,211)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    $<font style="COLOR: black"><font size="2">(7,758,586)</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ (115,775,083)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Adjustments
    to reconcile net loss to net</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">cash used in
    operating activities:</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Depreciation
    and amortization</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,653,346</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,425,952</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">736,099</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">6,330,239</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Book value
    of fixed assets disposed</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">74,272</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Loss on
    unconsolidated subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,466,467</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Provision
    for doubtful accounts</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,906</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">32,124</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Impairment
    of note receivable</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">20,250</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">232,750</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Loss on
    securities</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">11,258</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">11,258</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Gain on
    Extinguishments</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(142,236 )</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(61,226 )</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(150,058)</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(353,520)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Common stock
    and options and warrants for</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,261,449</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,134,335</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,314,793</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">49,458,890</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">purchase of
    common stock granted</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Changes in
    operating assets and</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">liabilities:</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accounts
    receivable</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">15,748</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(13,355)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">223,035</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(96,224)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Inventory</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">961,179</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,449,628</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">865,355</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,027,733)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Prepaid
    expenses and other</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">current
    assets</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">173,649</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(29,652)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">19,267</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(577,182)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Production
    advances-related parties</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Other assets</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">146,420</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,580</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Receivables
    from subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(150,000)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Due from
    officer</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">100,000</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accounts
    payable</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(340,057)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">174,939</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">171,712</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,329,107</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accrued
    expenses</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">332,819</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">273,986</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(32,702)</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,779,869</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deferred
    revenue</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">214,180</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">214,180</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Due to
    related parties:</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;
    Microphase</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">864,555</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">721,544</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">83,762</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,379,711</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Janifast</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">907,450</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">99,841</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">422,905</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,702,905</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Officers</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">312,504</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">246,835</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(90,583)</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">468,756</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Lintel</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">477,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp; Due to
    Others</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">25,794</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(32,500)</font></font></td>
    <td style="padding:0in; WIDTH: 182; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">179,472</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net cash
    used in operating activities</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(2,735,405)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,212,546)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(4,227,501)</font></font></td>
    <td style="padding:0in; WIDTH: 182; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(47,842,742)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH FLOWS
    FROM INVESTING</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">ACTIVITIES:</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Investment
    in patents and licensing rights</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(74,649)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(40,893)</font></font></td>
    <td style="padding:0in; WIDTH: 182; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(416,613)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Purchase of
    property and equipment</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(31,445)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(73,305)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(104,001)</font></font></td>
    <td style="padding:0in; WIDTH: 182; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(2,641,106)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 516; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net cash
    used in investing activities</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(106,094)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(73,305)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(144,894)</font></font></td>
    <td style="padding:0in; WIDTH: 182; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(3,057,719)</font></font></td>
  </tr>
</table>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH FLOWS
    FROM FINANCING</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">ACTIVITIES:</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net proceeds
    from private placement of</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,977,750</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,090,474</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,964,558</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">50,472,476</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">common stock
    and exercise of options</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">and warrants</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Repurchase
    of treasury stock at cost</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Advances
    from/repayment to Microphase</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">527,840</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(180,000)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">347,840</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Proceeds
    from notes payable officers</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">130,000</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">300,000</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">430,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Repayment of
    notes payable - officers</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(30,000 )</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(30,000)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Repayment of
    notes payable</font></font></td>
    <td style="padding:0in; WIDTH: 180; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(120,191)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(82,668)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(18,978)</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(221,837)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net cash
    (use in)/provided by financing</font></font></td>
    <td style="padding:0in; WIDTH: 180; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,857,559</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,635,646</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,065,580</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">50,990,506</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">activities</font></font></td>
    <td style="padding:0in; WIDTH: 180; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net increase
    (decrease) in cash</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">16,060</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">349,623</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(306,815)</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">90,045</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH AND
    CASH EQUIVALENTS,</font></font></td>
    <td style="padding:0in; WIDTH: 180; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">31,005</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">47,065</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">396,860</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">--&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">beginning of
    period</font></font></td>
    <td style="padding:0in; WIDTH: 180; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH AND
    CASH EQUIVALENTS,</font></font></td>
    <td style="padding:0in; WIDTH: 180; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 47,065</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 396,860</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 90,045</font></font></td>
    <td style="padding:0in; WIDTH: 181; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 90,045</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 518; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">end of
    period</font></font></td>
    <td style="padding:0in; WIDTH: 180; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 181; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">The accompanying
notes are an integral part of these consolidated financial statements.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-15</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><font size="2">mPHASE TECHNOLOGIES, INC.<br>
(A Development Stage Company)<br>
Consolidated Statements of Cash Flows<br>
(Unaudited)</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 331; " colSpan="3">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 221; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">October 2, 1996 (Date of</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 331; " colspan="3">
  <font FACE="Times New Roman" SIZE="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">Nine Months Ended</font></font></b></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">&nbsp;Inception)</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 331; " colspan="3">
  <font FACE="Times New Roman" SIZE="2">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="right">
    <b>
    <font style="COLOR: black"><font size="2">March 31,</font></font></b></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">to March 31,</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2005</font></font></b></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2005</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Cash Flow
    From Operating Activities:</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net Loss</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(4,889,771)</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(9,484,240)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(125,259,323)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Adjustments
    to reconcile net loss to net cash used in</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">operating</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">activities:</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Depreciation
    and amortization</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">573,579</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">193,650</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">6,523,889</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Book Value
    of fixed assets disposed</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">74,272</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Provision
    for doubtful accounts</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">32,124</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">(Gain) loss
    on debt extinguishments</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">128,991</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">99,393</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(254,127)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Loss on
    unconsolidated subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,466,467</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Impairment
    of note receivable</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,250</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">250,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Loss on
    securities</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">38,358</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">49,616</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Non-cash
    charges relating to issuance of common</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock,
    common</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">stock
    options and Warrants</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">344,143</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,763,861</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;52,222,751</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Changes in
    assets and liabilities:</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accounts
    receivable</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">164,844</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(290,803)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(387,027)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Inventories</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,077,080</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">160,209</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(867,524)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Production
    advances - Related Party</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(337,709)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(337,709)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Prepaid
    expenses and other current assets</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">30,417</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(88,442)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(88,442)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Other
    non-current assets</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(577,182)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accounts
    payable</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">279,422</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">539,314</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,868,421</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Accrued
    expenses</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(133,670)</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">395,892</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,175,761</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Due to/from
    related parties</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Microphase</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">66,156</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">92,083</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,488,794</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Janifast</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(205,998)</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">103,543</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;2,806,448</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Officers</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(90,583)</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(86,139)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">382,617</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Lintel</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">477,000</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Others</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(179,482)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Receivables
    from Subsidiary</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(150,000)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deferred
    revenue</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(214,180)</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net cash
    used in operating activities</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(2,665,390)</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(6,277,632)</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(54,120,374)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Cash Flow
    from Investing Activities:</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Payments
    related to patents and licensing rights</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(50,836)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(467,449)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Purchase of
    fixed assets</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(5,500)</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(107,481)</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(2,748,587)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net Cash
    used in investing activities</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(5,500)</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(158,317)</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(3,216,036)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Cash Flow
    from Financing Activities:</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Proceeds
    from issuance of common stock and</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">exercises of
    options and warrants</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,834,092</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">6,938,033</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;57,410,509</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Payments of
    notes payable</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(5,000)</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(129,301)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(351,138)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Advances
    from Microphase Corporation</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(180,000)</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">--</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">347,840</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Proceeds
    from notes payable-officers</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">600,000</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1,030,000)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Repayments
    of notes payable-officers</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(825,000)</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(855,000)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Repurchase
    of treasury stock at cost</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;-</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">--</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(7,973)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net cash
    provided by financing activities</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;3,649,092</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">6,583,732</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-top-style:solid; border-top-width:1; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">57,574,238</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net increase
    (decrease) in cash</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">978,202</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">147,783</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">237,828</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH AND
    CASH EQUIVALENTS, beginning of</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 100; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 101; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">period</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">396,860</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">90,045</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 408; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH AND
    CASH EQUIVALENTS, end of period</font></font></td>
    <td style="padding:0in; WIDTH: 12; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 115; border-top-style:solid; border-top-width:1; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,375,062</font></font></td>
    <td style="padding:0in; WIDTH: 100; border-top-style:solid; border-top-width:1; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 116; border-top-style:solid; border-top-width:1; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">237,828</font></font></td>
    <td style="padding:0in; WIDTH: 101; border-top-style:solid; border-top-width:1; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 120; border-top-style:solid; border-top-width:1; border-bottom-style:double; border-bottom-width:3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">237,828</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font size="2">The
accompanying notes are an integral part of these consolidated financial
statements.</font></p>
<p class="MsoNormal">F-16</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">1. ORGANIZATION AND NATURE OF
BUSINESS </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">On February 17, 1997, mPhase
acquired Tecma Laboratories, Inc., (&quot;Tecma&quot;) in a transaction accounted for as a
reverse merger.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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;).</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">2. LOSSES DURING THE DEVELOPMENT
STAGE AND MANAGEMENT'S PLANS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Through June 30,
2004 and March 31, 2005 (unaudited) the
Company had incurred development stage losses totaling $115,775,083 and
$125,259,323, and at June
30, 2004 and at March 31, 2005 (unaudited) had a stockholders' deficit of $2,917,962
and $2,537,180, respectively. At June 30, 2004, the
Company had $90,045 of cash and cash equivalents and $64,100 of trade
receivables and at March 31, 2005 (unaudited), the Company had $237,828 of cash
and cash equivalents and $354,903 of trade receivables available to fund its short-term working capital requirements.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 .</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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. During the nine
month period ended March 31, 2005 the Company experienced a downtrend in sales
and sales to our main customer accounted for $719,000 of revenue.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 do not include any adjustments that might
result from the outcome of this uncertainty.&nbsp; During the nine month period
ended March 31, 2005 the customers were
approximately $719,000.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-17</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">3. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">PRINCIPLES OF
CONSOLIDATION</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><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></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">USE OF ESTIMATES</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><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></font></p>
<p class="MsoNormal"><font style="COLOR: black">
<font size="2">RECLASSIFICATIONS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Certain
reclassifications have been made in the prior period consolidated financial
statements to conform to the current period presentation.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">CASH AND CASH
EQUIVALENTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">mPhase considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">STOCK BASED
COMPENSATION</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><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></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">PROPERTY AND EQUIPMENT</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">SHORT-TERM INVESTMENTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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).</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">REVENUE RECOGNITION</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">As required, mPhase has adopted
the Securities and Exchange Commission (&quot;SEC&quot;) Staff Accounting Bulletin (&quot;SAB&quot;)
No. 101, </font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">&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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">SHIPPING AND HANDLING CHARGES</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">BUSINESS CONCENTRATIONS AND
CREDIT RISK</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">To date the Company's products
have been sold to a limited number of customers, primarily in the
telecommunications industry.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">The Company had revenue from two
customers of 76% and 14% during the fiscal year ended June 30, 2004.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-18</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - (Continued)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">ADVERTISING
COSTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Advertising
costs are expensed as incurred.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">COMPREHENSIVE
INCOME (LOSS)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">PATENTS AND LICENSES</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Amortization expense was
$471,629, $468,495 and $86,395 for the years ended June 30, 2002, 2003, and
2004, respectively.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">INVENTORIES</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Inventory consists mainly of the
Company's POTS Splitter Shelf and Filters. Inventory is comprised of the
following:</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 585; " colspan="3">
    <p class="MsoNormal" align="center"><b>
    <font style="COLOR: black"><font size="2">June 30</font></font></b><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Raw
    materials</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">131,797</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">75,834</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Work in
    Progress</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">728,537</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">525,647</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Finished
    goods</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 194">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,729,344</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 196">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,024,726</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Total</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,589,678</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,626,207</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Less:
    Reserve for obsolescence</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 194">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(486,350)</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 196">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(388,235)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 194; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 196; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 480; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 176; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 194">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2,103,328</font></font></td>
    <td style="padding:0in; WIDTH: 195; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 196">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,237,972</font></font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%">
  <tr>
    <td width="82%">&nbsp;</td>
    <td width="18%" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">March 31, 2005</font></font></td>
  </tr>
  <tr>
    <td width="82%">&nbsp;</td>
    <td width="18%" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">(unaudited)</font></font></td>
  </tr>
  <tr>
    <td width="82%">&nbsp;</td>
    <td width="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td width="82%">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">Raw
    materials</font></font></td>
    <td width="18%" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">$&nbsp;&nbsp; 75,833</font></font></td>
  </tr>
  <tr>
    <td width="82%">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">Work in
    Progress</font></font></td>
    <td width="18%" align="right"><font size="2">-</font></td>
  </tr>
  <tr>
    <td width="82%">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">Finished
    goods</font></font></td>
    <td width="18%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">1,175,365</font></font></td>
  </tr>
  <tr>
    <td width="82%">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">Total</font></font></td>
    <td width="18%" 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">
    <font style="COLOR: black"><font size="2">1,251,198</font></font></td>
  </tr>
  <tr>
    <td width="82%">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">Less:
    Reserve for obsolescence</font></font></td>
    <td width="18%" 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">
    <font style="COLOR: black"><font size="2">(388,235)</font></font></td>
  </tr>
  <tr>
    <td width="82%"><font size="2" FACE="Times New Roman">Net Inventory</font></td>
    <td width="18%" 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">
    <font style="COLOR: black"><font size="2">$ 862,963</font></font></div>
    </td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">LONG-LIVED ASSETS</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 consisted,
among other factors, significant changes 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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-19</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - (Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">FAIR VALUE OF FINANCIAL
INSTRUMENTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">LOSS PER COMMON SHARE, BASIC AND
DILUTED</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">WARRANTY RESERVE</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">RECENT ACCOUNTING PRONOUNCEMENTS</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 </font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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</font><b><font size="2"> .</font></b></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-20</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - (Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><b><font style="COLOR: black"><font size="2">STATEMENT OF
CASH FLOW SUPPLEMENTAL INFORMATION</font></font></b></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 236; " colSpan="2" align="center">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">JUNE 30</font></font></b></td>
    <td style="padding:0in; WIDTH: 308; " colSpan="2" align="center">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">JUNE 30</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Interest
    paid</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">14,512</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">11,175</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Taxes paid</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">250</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">550</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Schedule of
    Non-Cash</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Investing
    and Financing Activities:</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversion
    of accounts payable and accrued expenses</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">to equity</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,931,788</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;1,963,202</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversion
    of accounts payable and accrued expenses</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">to notes
    payable</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">360,000</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Research and
    development fixed assets transferred to</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Work in
    process inventory</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">210,239</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 697; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Investments
    in Patents and Licenses paid with equity</font></font></td>
    <td style="padding:0in; WIDTH: 82; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 154; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">38,750</font></font></td>
  </tr>
  </table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 225; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">March 31</font></font></b></td>
    <td style="padding:0in; WIDTH: 318; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">March 31</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="right">
    <font style="COLOR: black"><font size="2">(unaudited)&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2005</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Interest
    paid</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">47,904</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">11,587</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Taxes paid</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">250</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">0</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Schedule of
    Non-Cash</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Investing
    and Financing Activities:</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversion
    of accounts payable and accrued expenses</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">to equity</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1,834,211</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">743,950</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversion
    of Interest Accrued to Equity</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
  <font FACE="Times New Roman" SIZE="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">---</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">26,225</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversion
    of notes payable to equity</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">---</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">261,249</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Private
    Placement Reparation Expense-additional issuance of shares</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">---</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">185,721</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 698; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;Investments in Patents paid
    with equity</font></font></td>
    <td style="padding:0in; WIDTH: 67; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">38,750</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">---</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><b><font style="COLOR: black"><font size="2">4.
ACQUISITION OF MICROTEL</font></font></b><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">5. NOTE
RECEIVABLE</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 and as of March 31, 2005.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-21</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">6. PROPERTY AND EQUIPMENT
</font> </font>
</p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Property and equipment, at cost,
consist of the following:</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%" bordercolor="#000000">
  <tr>
    <td style="padding:0in; WIDTH: 672; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 569; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">March 31, 2005 (unaudited)</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 672; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 155; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 414; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 672; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Equipment</font></font></td>
    <td style="padding:0in; WIDTH: 155; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 414; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$ 2,991,597</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 672; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Office and
    marketing equipment</font></font></td>
    <td style="padding:0in; WIDTH: 155; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 414; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font size="2">457,435</font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 672; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 155; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 414; border-top-style:solid; border-top-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">3,449,052&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 672; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">Less-Accumulated depreciation</font></font></td>
    <td style="padding:0in; WIDTH: 155; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 414; border-bottom-style:solid; border-bottom-width:1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;(3,270,406)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 672; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 155; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 414; border-top-style:solid; border-top-width:1">
    <div style="border-bottom-style: double; border-bottom-width: 3">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 178,626</font></font></div>
    </td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Depreciation
expense for the nine months ended March&nbsp; 31, 2005 and March 31, 2004 was
$166,340 and $500,716 respectively, of which $0 and $472,676&nbsp;
respectively, relates to research laboratory and testing equipment is included
in research and development expense.</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 104; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 104; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -1; " colSpan="3" align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="right"><b>
    <font style="COLOR: black"><font size="2">June 30</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 104; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <b>
    <font style="COLOR: black"><font size="2">2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 104; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Equipment</font></font></td>
    <td style="padding:0in; WIDTH: 60; " align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 104" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">2,572,031</font></font></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:medium none #000000; padding:0in; WIDTH: 104" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">2,676,030</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Office and
    marketing equipment</font></font></td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    &nbsp;</td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 104; border-top-style:none; border-top-width:medium" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">482,464</font></font></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
    &nbsp;</td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 104; border-top-style:none; border-top-width:medium" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">482,464</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    &nbsp;</td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 104" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">3,054,495</font></font></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
    &nbsp;</td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 104" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">3,158,494</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font><font FACE="Times New Roman" SIZE="2"><font style="COLOR: black"><font size="2">Less-Accumulated depreciation</font></font></td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 104" align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">(2,472,605)</font></font></font><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 104" align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">(3,105,809)</font></font></font><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    <p class="MsoNormal">&nbsp;</td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 104; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 104; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 510; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 60; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 104" align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">581,890</font></font></td>
    <td style="padding:0in; WIDTH: 208; " align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 104" align="right">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">52,685</font></font></td>
  </tr>
</table>
<p class="MsoNormal" style="TEXT-ALIGN: justify">
<font style="COLOR: black"><font size="2">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.</font></font><font size="2">&nbsp;</font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal"><b><font style="COLOR: black"><font size="2">7. ACCRUED
EXPENSES</font></font></b></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Accrued expenses
consist of the following:</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 801; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 801; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">&nbsp;March</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 801; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">31, 2005</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 801; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: -2; " colSpan="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">(unaudited)</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 801; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Lucent
    Projects (Note 13)</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" align="right"><font size="2">218,180</font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 801; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Other
    General Expenses</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <div style="border-bottom-style: solid; border-bottom-width: 1">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font size="2">739,745</font></div>
    </td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 801; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 220; ">
    <div style="border-bottom-style: double; border-bottom-width: 2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font size="2">957,925</font></div>
    </td>
  </tr>
</table>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 657; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 30; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 0; " colSpan="3">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 657; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 30; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 0; " colSpan="3">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="right"><b>
    <font style="COLOR: black"><font size="2">June 30</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 657; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 30; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 184; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 185; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 185; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 657; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Lucent
    Projects (Note 13)</font></font></td>
    <td style="padding:0in; WIDTH: 30; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 184; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">370,795</font></font></td>
    <td style="padding:0in; WIDTH: 185; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="padding:0in; WIDTH: 185; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">257,800</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 657; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Other
    General Expenses</font></font></td>
    <td style="padding:0in; WIDTH: 30; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 184">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">514,940</font></font></td>
    <td style="padding:0in; WIDTH: 185; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 185">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">433,233</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 657; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 30; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 184">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">885,735</font></font></td>
    <td style="padding:0in; WIDTH: 185; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 185">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">691,033</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">8. JOINT VENTURE</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">During the fiscal years ended
June 30, 2002, June 30, 2003 and  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.</font></font></p>
<p class="MsoNormal">F-22</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<font FACE="Times New Roman PS" 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 March 31, 2004 and 2005) </p>
</font><b><font FACE="Times New Roman PS" SIZE="1">
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="76%"><font SIZE="2">9. LONG TERM DEBT (Continued)</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right"><font SIZE="2">March 31, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="76%">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right"><font SIZE="2">(unaudited)</font></td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">Long-term debt is comprised of the following:</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">Settlement Agreements</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">Accounts payable originally expected to be
    converted to a $150,000 Note payable to</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">GTRC bearing 7% interest, amended in March
    2004, and reduced to $100,000, to be</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">amortized in equal quarterly installments
    $16,667 plus interest at 7% through March 2005</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">(see also-Note 13-Commitments and
    Contingencies)</font></td>
    <td WIDTH="6%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">83,333</font></td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">Note payable to law firm bearing 8% interest,
    originally monthly installments</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">of $5,000 per month commencing in June 2002 and
    continuing through December 1, 2003 with a final</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">payment of principal plus accrued interest
    originally due at maturity on December 31, 2003, this note was</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">in arrears as of June 30, 2004 and the company
    negotiated a new settlement arrangement as of August 31,</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">2004.Under such settlement agreement, which the
    Company made a $100,000 cash payment and</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">gave a cashless warrant to purchase $150,000
    worth of common stock valued at $.25</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">per share. In addition the Company agreed to
    pay $25,000 on each of December 1,</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">2004, March 1, 2005, June 1, 2005, September 1,
    2005 and $50,000 shall be payable on December 1, 2005.</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">Thereafter the Company is obligated to pay
    $25,000 on each of March 1, 2006, June 1, 2006,</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">September 1, 2006 with a final payment of
    $75,000 on December 1, 2006.</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">Note payable to vendor bearing 8% interest due
    in weekly payments</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">of $5,000 including accrued interest. These
    payments commenced in</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">January 2002 and originally were scheduled to
    continue until June 2004.</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">This note is presently in arrears and under
    renegotiation; the expected repayment arrangements are included in current</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">
    <p style="line-height: 150%">and long term portions of long term debt.</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right"><font SIZE="2">205,058</font></td>
  </tr>
  <tr>
    <td WIDTH="76%">&nbsp;</td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">Total</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right"><font SIZE="2">538,891</font></td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">Less: Current portion</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right"><font SIZE="2">248,891</font></td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">Long-term Debt, non-current portion</font></td>
    <td WIDTH="6%" align="right"><font SIZE="2">$</font></td>
    <td WIDTH="18%" align="right"><font SIZE="2">281,000</font></td>
  </tr>
  <tr>
    <td WIDTH="76%"><font SIZE="2">At December 31, 2004 total maturities of
    long-term debt are as follows:</font></td>
    <td WIDTH="6%" align="right">&nbsp;</td>
    <td WIDTH="18%" align="right">&nbsp;</td>
  </tr>
</table>
</font></b>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="943">&nbsp;</td>
    <td WIDTH="74" align="right">&nbsp;</td>
    <td WIDTH="224" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="943"><font FACE="Times New Roman PS" SIZE="2">2005</font></td>
    <td WIDTH="74" align="right"><font FACE="Times New Roman PS" SIZE="2">$</font></td>
    <td WIDTH="224" align="right"><font FACE="Times New Roman PS" SIZE="2">
    248,891</font></td>
  </tr>
  <tr>
    <td WIDTH="943"><font FACE="Times New Roman PS" SIZE="2">2006</font></td>
    <td WIDTH="74" align="right">&nbsp;</td>
    <td WIDTH="224" align="right"><font FACE="Times New Roman PS" SIZE="2">
    206,000</font></td>
  </tr>
  <tr>
    <td WIDTH="943"><font FACE="Times New Roman PS" SIZE="2">2007</font></td>
    <td WIDTH="74" align="right">&nbsp;</td>
    <td WIDTH="224" align="right"><font FACE="Times New Roman PS" SIZE="2">
    75,000</font></td>
  </tr>
  <tr>
    <td WIDTH="943"><font FACE="Times New Roman PS" SIZE="2">TOTAL</font></td>
    <td WIDTH="74" align="right"><font FACE="Times New Roman PS" SIZE="2">$</font></td>
    <td WIDTH="224" align="right"><font FACE="Times New Roman PS" SIZE="2">
    538,891</font></td>
  </tr>
</table>
<p>F-24</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY
</font> </font>
</p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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).</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">In October 1997, mPhase issued
250,000 shares of its common stock in connection with its investment in Complete
Telecommunications Inc.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<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></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-25</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY -
(Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify">F-26</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY -
(Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversions Concurrent with
Private Placements</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Included in the 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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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;</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversions, Settlements and
Gain on Extinguishments</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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 annual 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 settlements
of $27,860 resulted in an aggregate gain on extinguishments of $142,236.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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).</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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).</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal">F-27</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversions Concurrent with
Private Placements</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Included in the total for the
year ended June 30, 2003, related parties and strategic vendors converted debt
aggregating approximately $300,000 and $15,000 respectively into:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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;</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversions, Settlements and
Gain on Extinguishments</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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
Janifast 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,</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversions Concurrent with
Private Placements</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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;</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">(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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal">F-28</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY -
(Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">In July of 2004,
the Company issued 622,000 shares of its common stock together with a like
amount of callable warrants at $.35 and $.50 respectively in a private
placement. In August and September of 2004, the Company issued 1,050,000 shares
of its common stock together with a like amount of callable warrants at $.25 and
$.50 per share in private placements, which after cash outlays of approximately
$15,900, generated net proceeds of $247,500. The aggregate net proceeds of such
private placements of $402,100 were collected during the three month period
ended September 30, 2004. On December 7, 2004, the Company issued an additional
891,000 shares to the investors in the foregoing private placements due to a
market value adjustment. These shares were valued at $185,721 which is included
in general and administrative expenses in the accompanying statement of
operations for the period ended December 31, 2004.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">During the three
months ending December 31, 2004, the Company granted 134,500 shares of its
common stock to consultants for services performed valued at $26,900. </font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Additionally, the
Company issued 2,817,914 shares of its common stock pursuant to the exercise of
previously outstanding warrants, generating net proceeds intended to be used for
general corporate purpose of $563,590. </font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">During the
quarter ended December 31 of 2004, the Company issued equity units consisting of
10,717,700 shares of its common stock together with a like amount of warrants,
with an exercise price of $.25, in a private placement generating net proceeds
intended to be used for working capital and general corporate purposes, of
$2,116,600 of which $2,066,600 was collected through December 31, 2004 and
$50,000 was collected in January of 2005. A consultant who assisted the Company
with this transaction also received 100,000 shares of the Company's common stock.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Additionally, a
separate 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. The December 31, 2004
and outstanding subscriptions receivable balance of $ 50,000 was fully collected
in January of 2005.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">During January
2005, 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.</font></font></p>
<p class="MsoNormal">F-29</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY -
(Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">During the nine
months ending March 31, 2005, 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 5 year warrant to purchase a like amount of shares
at $.25.In addition for such period, Janifast Ltd. cancelled $200,000 of
accounts payable owed by mPhase in exchange for 1,000,000 shares of common stock
and a 5 year warrant to purchase a like amount of shares at $.25 per share.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">In late February
and early March of 2005, the various vendors converted approximately $173,898 in
accounts payable due from the Company into 535,296 shares of Common stock
aggregating $183,310 in full settlement of those obligations.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Mr. Ronald A.
Durando converted $13,000 of accrued and unpaid interest on various demand notes
issued by the Company for loans by Mr. Durando during the nine month period
ended March 31, 2005 into 65,000 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. In addition Mr. Durando
converted $13,954 of principal of a $75,000 promissory note into the exercise,
in full , of a warrant to purchase 1,395,400 shares of common stock at $.01
previously granted to Mr. Durando in exchange for cancellation of unpaid
compensation.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Mr. Gustave
Dotoli, Chief Operating Officer of the Company converted $ 3,750 of accrued and
unpaid interest on a $75,000 promissory note into 375,000 shares of common stock
at $.01 pursuant to a portion of a warrant previously granted to Mr. Dotoli for
unpaid compensation. A consultant of the Company converted $20,000 of accounts
payable owed by the Company to 100,000 shares of common stock plus a 5 year
warrant to purchase 100,000 shares of common stock at $.25 per share.</font></font></p>
<p class="MsoNormal">F-30</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY -
(Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">In addition a
demand note payable to Martin Smiley, CFO and General Counsel of mPhase, in the
amount of $75,000 was converted into 375,000 shares of common stock plus a 5
year warrant to purchase a like amount of shares at $.25 per share and Mr.
Smiley extended from July 25, 2004 to July 25, 2005 a $100,000 promissory note
carrying 12% interest. In addition Mr. Smiley converted accrued and unpaid
interest on his various promissory notes of $ 9,975 into 49,875 shares of common
stock plus a 5 year warrant to purchase a like amount of common stock at $.25
per share. Mr. Smiley's remaining $100,000 note is convertible into Common Stock
of mPhase at the rate of $.25 cents per share through July 25, 2009. Upon
conversion, the note holder will be granted warrants to purchase an equivalent
amount of mPhase Common Stock at $.25 cents per share for a period of five years
from the date of conversion plus a 5 year warrant for a like amount of shares at
$.25 per share</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Conversions, Settlements and
Gain on Extinguishments</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">For the
    Years Ended June 30</font></font></b></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2002</font></font></b></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2003</font></font></b></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Equity
    Conversions of Debt with Strategic Vendors:</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 158; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 159; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 159; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Number of
    Shares</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">999,662</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">390,000</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">110,467</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Number of
    Warrants</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">870,000</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">215,000</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;5,069,200</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Amount
    Converted to Equity</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 529,503</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 198,032</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$1,963,202</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Gain on
    Extinguishment of Debt</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 142,236</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 61,226</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 150,058</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: -40; " colSpan="2">
    <p class="MsoNormal"><b><font style="COLOR: black"><font size="2">For the
    Nine Months Ended March 31 (Unaudited)</font></font></b></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2004</font></font></b></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">2005</font></font></b></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Equity
    Conversions of Debt with Strategic Vendors</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 158; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 159; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 159; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Number of
    Shares</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">110,467&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;697,396</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Number of
    Warrants</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">5,069,242&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;700,000</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Amount
    Converted to Equity</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$1,834,211</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$363,098</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 779; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;&nbsp;&nbsp; Gain (Loss) on
    Extinguishment of Debt</font></font></td>
    <td style="padding:0in; WIDTH: 158; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(128,991</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(99,393)</font></font></td>
    <td style="padding:0in; WIDTH: 159; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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)</font></font></p>
<p class="MsoNormal">F-31</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY -
(Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">STOCK INCENTIVE
PLANS</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify">
<font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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:</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">NUMBER OF</font></font></b></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">WEIGHTED</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font size="2">&nbsp;</font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">OPTIONS</font></font></b></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">AVERAGE</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right"><b>
    <font style="COLOR: black"><font size="2">EXERCISE PRICE</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Outstanding
    at June 30, 2002</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">19,107,000</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$ 1.27</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Granted</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">625,000</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">.30</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Exercised</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Canceled
    /Expired</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(2,565,000 )</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1.00 )</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Outstanding
    at June 30, 2003</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,167,000</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">1.24</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Granted</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">4,730,000</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">.42.</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Exercised</font></font></td>
    <td style="padding:0in; WIDTH: 172; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
    <td style="padding:0in; WIDTH: 173; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">-</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black">
    <font size="2">Canceled/Expired</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 172">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(4,172,000)</font></font></td>
    <td style="padding:0in; WIDTH: 173">
    &nbsp;</td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 173">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(1.43)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Outstanding
    at June 30, 2004</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 172">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,725,00</font></font></td>
    <td style="padding:0in; WIDTH: 173; border-bottom-width:2px">
    &nbsp;</td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 173">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$&nbsp; .87</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 172; border-bottom-width:2px">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; border-bottom-width:2px">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 173; border-bottom-width:2px">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 589; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Exercisable
    at June 30, 2004</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 172">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">17,725,000</font></font></td>
    <td style="padding:0in; WIDTH: 173; border-bottom-width:2px">
    &nbsp;</td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 173">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$&nbsp; .87</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">During the
second quarter of fiscal 2004, the Company adopted the fair value recognition
provisions of FASB Statement No. 123,</font></font></p>
<p class="MsoNormal"><i><font style="COLOR: black"><font size="2">Accounting
for Stock-Based Compensation</font></font></i><font style="COLOR: black"><font size="2">
, 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.</font></font></p>
<p>&nbsp;</p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 400; " colspan="3">
    <p align="center">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">Twelve months ended June 30,</font></font></td>
    <td style="padding:0in; WIDTH: 272; " colspan="2">
    <p align="center">
  <font FACE="Times New Roman" SIZE="2">
    <font style="COLOR: black"><font size="2">Nine Months ended March
    31(unaudited),</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2002</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2003</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2004</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2004</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">2005</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Net loss, as
    reported</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(11,245,361)</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(6,650,211)</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(7,758,586)</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(4,899,771)</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(9,484,240)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Add:
    Stock-based employee</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 136; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 136; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">compensation
    expense net</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">included in
    report of net income,</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">net of
    related tax effects</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 128">
  <font FACE="Times New Roman" SIZE="2">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$548,550</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$23,923</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$72,000</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$-</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$131,750&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Deduct:
    Total stock-based</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 136; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 136; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 136; ">
    &nbsp;</td>
    <td style="padding:0in; WIDTH: 136; ">
    &nbsp;</td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">employee
    compensation expense</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">determined
    under fair</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">value based
    method for all</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">awards, net
    of related tax effects</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 128">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(976,280)</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(239,983)</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(810,080)</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;-</font></font></td>
    <td style="border-bottom:1px solid #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">(444,396)&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Pro forma
    net loss</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 128">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(11,673,491)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(6,866,231)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(8,486,666)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(4,899,771)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;$(9,786,886)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Loss per
    share:</font></font></td>
    <td style="padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Basic and
    diluted-as reported</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.23)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.10)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.10)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.07)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.09)</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 314; ">
    <p class="MsoNormal"><font style="COLOR: black"><font size="2">Basic and
    diluted-pro forma</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 128; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.24)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.11)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136; ">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.11)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.07)</font></font></td>
    <td style="border-bottom:2px double #000000; padding:0in; WIDTH: 136">
    <p class="MsoNormal" style="TEXT-ALIGN: right" align="right">
    <font style="COLOR: black"><font size="2">$(.09)</font></font></td>
  </tr>
</table>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">F-32</font></font></p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10. STOCKHOLDERS' EQUITY -
(Continued) </font> </font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">The following
summarizes information about stock options outstanding at June 30, 2004.</font></font></p>
<table class="MsoNormalTable" style="border-collapse: collapse" cellSpacing="0" cellPadding="0" border="0" width="100%">
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;RANGE OF</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;NUMBER</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;WEIGHTED</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;WEIGHTED</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;NUMBER</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;WEIGHTED</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;EXERCISE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;OUTSTANDING</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;AVERAGE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;AVERAGE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;EXERCISABLE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;AVERAGE</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;PRICE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;REMAINING</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;EXERCISE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;EXERCISE</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;CONTRACTUAL</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;PRICE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">&nbsp;PRICE</font></font></b></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">LIFE</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center"><b>
    <font style="COLOR: black"><font size="2">June 30,2004</font></font></b></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">$0 - $.50</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;11,705,000</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">3.53</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">$.39</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;11,705,000</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">$.39</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;$.51-$1.50</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;4,603,500</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">1.83</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">$.83</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;4,603,500</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">$.83</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;$1.50-$16.38</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;1,416,500</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">.91</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">$4.93</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;1,416,500</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">$ 4.93</font></font></td>
  </tr>
  <tr>
    <td style="padding:0in; WIDTH: 206; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
    <td style="padding:0in; WIDTH: 207; ">
    <p class="MsoNormal" style="TEXT-ALIGN: center" align="center">
    <font style="COLOR: black"><font size="2">&nbsp;</font></font></td>
  </tr>
  </table>
<p class="MsoNormal"><b><font style="COLOR: black"><font size="2">WARRANTS</font></font></b><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal">F-33</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">10.
STOCKHOLDERS' EQUITY - (Continued)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><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></font><font size="2">&nbsp;</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">As of June 30,
2001, 6,816,725 warrants were outstanding with a weighted average exercise price
of $2.93.</font></font></p>
<font size="2">
<p>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. </p>
<p>As of June 30, 2002, 21,965,260 warrants were outstanding with a weighted
average exercise price of $1.05. </p>
<p>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. </p>
<p>As of June 30, 2003, 31,777,735 warrants remain outstanding with a weighted
average exercise price of $.84 </p>
<p>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.</p>
<p>As of June 30, 2004, 55,017,953 warrants remain outstanding with a weighted
average exercise price of $.55.</p>
</font>
<p><font size="2">During the nine months ended March 31, 2005, in connection
with the private placements discussed above the Company issued 27,200,117 of
warrants to investors and finders and when combined with warrants previously
outstanding and exercised, expired or canceled, during the period result in the
Company now having 75,428,473 with a weighted average price of $.48.</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">11. RELATED PARTY TRANSACTIONS
</font>
</font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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).</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal">F-35</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">Mr. Durando's June 30, 2004 note
payable balance of $300,00 was repaid by the Company during the nine month
period ending March 31, 2005. During the first and second quarter of&nbsp; fiscal
year 2005, Mr. Durando made additional bridge loans to the Company evidenced by
various 12% demand notes in the Aggregate of $525,000. Mr. Durando was repaid a
total of $450,000 of such loans in January of 2005. In addition, Mr. Durando
converted $13,954 of the principal amount of a $75,000 promissory note leaving
unpaid principal of $61,046 outstanding. Mr. Durando converted $13,000 of
accrued and unpaid interest on various promissory notes of the Company into
65,000 shares of common stock and a 5 year warrant to purchase a like amount of
common stock at $.25 per share.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">During the 9 month period ended
March 31, 2005 Mr. Dotoli and Mr. Smiley, the COO and CFO and General Counsel of
the Company respectively, each lent the Company $75,000. Mr. Dotoli was repaid,
the principal amount of such loan, in cash in January of 2005 and Mr. Smiley
converted his $75,000 loan into 375,000 shares of common stock of the Company
plus a 5 year warrant to purchase a like amount of shares at $.25 per share.&nbsp; In
addition, Mr. Smiley converted $9,975 of accrued interest into 49,875 shares of
common stock plus a 5 year warrant to purchase a like amount of shares at $.25
per share.&nbsp; Finally Mr. Smiley received 25,000 additional shares of common stock
as a market adjustment to his equity investment of $25,000 on August 30, 2004.&nbsp;
Mr. Dotoli cancelled $3,750 of accrued and unpaid interest from August 15, 2004
through January 15, 2004 into 375,000 shares of common stock pursuant to the
terms of a portion of a warrant that was exercised at $.01 per share previously
given by the Company to Mr. Dotoli in exchange for and cancellation of unpaid
compensation.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">JANIFAST </font> </font></p>
<p class="MsoBodyText"><font size="2">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.</font></p>
<p class="MsoNormal"><font style="color: black"><font size="2">The Company purchases products
and incurs certain research and development expenses with Janifast Ltd., which
is owned by U.S. Janifast Holdings, Ltd., a company in which three directors of
mPhase are significant shareholders and one is an officer, in connection with
the manufacturing of POTS Splitter shelves and component products including
cards and filters sold by the Company.</font></font></p>
<p class="MsoNormal">F-36</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">11. RELATED PARTY TRANSACTIONS -
(continued)</font></font></p>
<p class="MsoNormal"><font style="color: black"><font size="2">During the nine months ended
March 31, 2004 and 2005 and the period from inception (October 2, 1996) to March
31, 2005, $184,082, $448,208 and $7,672,734, respectively have been charged by
Janifast to inventory or expense and is included in operating expenses in the
accompanying statements of operations.</font></font></p>
<p class="MsoNormal"><font style="color: black"><font size="2">As a result of the foregoing
transactions as of March 31, 2005, the Company had $ 337,709 receivable from
Janifast Ltd., which is included in production advances - Janifast in the
accompanying balance sheet. Additionally, at March 31, 2005, approximately
$623,403 of undelivered purchase orders remain outstanding to Janifast Ltd.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">OTHER RELATED PARTIES</font></font></p>
<p class="MsoNormal" style="TEXT-ALIGN: justify"><font style="COLOR: black">
<font size="2">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.</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">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 </font></font></p>
<p>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 class="MsoNormal">F-37</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2"><b>Charges and
    Expenses with Related Parties</b></font></td>
    <td WIDTH="59%" align="center" colspan="7">
    <font FACE="Times New Roman" SIZE="2"><b>For the Years Ended June 30,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" 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">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Janifast included in:</font></td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">1,759,308</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">178,959</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Janifast</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">1,759,308</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">178,959</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">2,771,925</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Microphase Corp. included in:</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory (Including</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</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">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">86,468</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">140,123</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Royalties)</font></td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="4%" 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">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">84494</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">136,080</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">133,200</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">161,496</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Microphase Corp.</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">1,212,594</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">648,102</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">386,113</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Lintel &amp; Affiliates included</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">in:</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</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">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Lintel &amp;
    Affiliates</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><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">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Joint Venture Partners &amp;</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Affiliates included
    in:</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</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">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="4%" 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">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties included in:</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</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">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">265,427</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">2,912,048</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="4%" 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">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">84,494</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">136,080</font></td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">133,200</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1"><font FACE="Times New Roman" SIZE="2">161,496</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties:</font></td>
    <td WIDTH="4%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">3,035,941</font></td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">827,061</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2"><font FACE="Times New Roman" SIZE="2">3,158,038</font></td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2"><b>Charges and
    Expenses with Related Parties</b></font></td>
    <td WIDTH="59%" align="center" colspan="7">
    <font FACE="Times New Roman" SIZE="2"><b>For the Nine Months Ended March 31,</b></font></td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="56%" align="center" colspan="7">
    <font FACE="Times New Roman" SIZE="2"><b>(Unaudited),</b></font></td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2004</b></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="9%" align="right"><font FACE="Times New Roman" SIZE="2"><b>2005</b></font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Janifast included in:</font></td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">1,816,029</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">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Janifast</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">1,816,029</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">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">398,715</font></td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Microphase Corp. included in:</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory (Including Royalties)</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font size="2">191,133</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">$</font></td>
    <td WIDTH="9%" align="right"><font size="2">11,784</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font size="2">54,000</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font size="2">41,000</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">15,000</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font size="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">147,213</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Microphase Corp.</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
  <font FACE="Times New Roman" SIZE="2">
    260,133</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
  <font FACE="Times New Roman" SIZE="2">
    199,997</td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Charges incurred with
    Lintel &amp; Affiliates included in:</font></td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font size="2">Research and Development</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font size="2">$</font></td>
    <td WIDTH="8%" align="right"><font size="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font size="2">$</font></td>
    <td WIDTH="9%" align="right"><font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font size="2">General and administrative</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font size="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font size="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font size="2">Total Lintel &amp; Affiliates</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font size="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font size="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font size="2">Charges incurred with with Joint Venture
    Partner</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font size="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font size="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%">&nbsp;</td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Affiliates included
    in:</font></td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Research and
    Development</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Joint Venture
    Partner &amp; Affiliates</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">0</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties included in:</font></td>
    <td WIDTH="4%" 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>
    <td WIDTH="9%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Cost of sales and
    ending inventory</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right"><font size="2">2,007,152</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right"><font size="2">410,499</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Research and
    development</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font size="2">54,000</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="9%" align="right"><font size="2">41,000</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">General and
    administrative</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">15,000</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="9%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">142,213</font></td>
  </tr>
  <tr>
    <td WIDTH="44%"><font FACE="Times New Roman" SIZE="2">Total Charges with
    Related Parties:</font></td>
    <td WIDTH="4%" align="right">&nbsp;</td>
    <td WIDTH="8%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="8%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">2,076,152</font></td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right">&nbsp;</td>
    <td WIDTH="9%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="9%" align="right" style="border-bottom-style: double; border-bottom-width: 2">
    <font size="2">598,712</font></td>
  </tr>
</table>
<p>A former member of mPhase's Board of Directors (through fiscal 2004) is employed by Lintel, Inc,
the parent corporation of Hart Telephone. Prior to becoming a director, this
individual </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p class="MsoNormal"><font style="COLOR: black"><font size="2">11. RELATED PARTY TRANSACTIONS -
(continued)</font></font></p>
<p>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>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 ALIGN="JUSTIFY">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>Mr. Durando's June 30, 2004 note payable balance of $300,00 was repaid by the
Company during the nine month period ended March 31, 2005. During the first and
second quarters of fiscal year 2005, Mr. Durando made additional bridge loans to
the Company evidenced by various 12% demand notes in the aggregate of $525,000.
Mr. Durando was repaid a total of $450,000 of such loans in January of 2005. In
addition, Mr. Durando converted $13,954 of the principal amount of a $75,000
promissory note leaving unpaid principal of $61,046 outstanding. Mr. Durando
converted $13,000 of accrued and unpaid interest on various promissory notes of
the Company into 65,000 shares of common stock and a 5 year warrant to purchase
a like amount of common stock at $.25 per share. </p>
<p>During the nine month period ended March 31, 2005 Mr. Dotoli and Mr. Smiley, the
COO, and CFO and General Counsel of the Company respectively, each lent the
Company $75,000. Mr. Dotoli was repaid, the principal amount of such loan, in
cash in January, 2005 and Mr. Smiley converted his $75,000 loan into 375,000
shares of common stock of the Company plus a 5 year warrant to purchase a like
amount of shares at $.25 per share. In addition, Mr. Smiley converted $9,975 of
accrued interest into 49,875 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. Finally Mr. Smiley received
25,000 additional shares of common stock as a market adjustment to his equity
investment of $25,000 on August 30, 2004. Mr. Dotoli cancelled $3,750 of accrued
and unpaid interest from August 15, 2004 through January 15, 2004 into 375,000
shares of common stock pursuant to the terms of a portion of a warrant that was
exercised at $.01 per share previously given by the Company to Mr. Dotoli in
exchange for and cancellation of unpaid compensation. On January 15, 2004, Mr.
Smiley was awarded 425,000 shares of common stock as additional 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-38</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<p align="left">11. RELATED PARTY TRANSACTIONS -<i>
(continued) </p>
<b>
<p align="center">Equity Conversions of Debt and Other Financial Instruments
with Related Parties </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="33%" align="right" colspan="3">
  <font FACE="Times New Roman" SIZE="2">
<b>
    <p align="center"><font size="2">June 30,</font></b></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2"><b>June
    30, 2004</b></font></td>
  </tr>
  <tr>
    <td WIDTH="35%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2"><b>2002</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2"><b>2003</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2"><b>Janifast:</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"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    3,450,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    1,500,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    12,000,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</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">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">720,000</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">360,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2"><b>Microphase
    Corporation:</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"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    2,700,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    4,033,333</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    2,200,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    1,000,000</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">740,000</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">920,000</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2"><b>Strategic Vendor
    Conversions:</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">110,467</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    5,069,242</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    1,963,202</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2"><b>Officers</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"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">333,334</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of warrants (A)</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">334.334</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    2,491,800</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">103,000</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">480,967</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2"><b>Joint Venture
    Partners and Affiliates</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">63,216</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">31,628</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2"><b>Total Related Party
    Conversions</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"><font FACE="Times New Roman" size="2">110,0467</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    6,546,550</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    5,533,333</font></td>
    <td WIDTH="11%" 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="35%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    3,733,334</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    3,491,800</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    1,963,202</font></td>
  </tr>
  <tr>
    <td WIDTH="35%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="11%" align="right"><font FACE="Times New Roman" size="2">
    1,594,628</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">
    1,760,967</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
</table>
</b></i>
<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>
<p align="center"><i><b>Equity Conversions of Debt and Other Financial Instruments
with Related Parties </b></i> </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="56%">&nbsp;</td>
    <td WIDTH="44%" align="right" colspan="4"><font size="2">Nine Months Ended
    March 31,</font></td>
  </tr>
  <tr>
    <td WIDTH="56%">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">2004</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">2005</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2"><b>Janifast:</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>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">1,000,000</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">200,000</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2"><b>Microphase
    Corporation:</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">1,250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">1,250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="56%" style="border-bottom-style: none; border-bottom-width: medium"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <font size="2">$</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <font size="2">0</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <font size="2">$</font></td>
    <td WIDTH="11%" align="right" style="border-bottom-style: none; border-bottom-width: medium">
    <font size="2">250,000</font></td>
  </tr>
  <tr>
    <td WIDTH="56%" style="border-top-style: none; border-top-width: medium"><font FACE="Times New Roman" size="2"><b>Strategic Vendor
    Conversions:</b></font></td>
    <td WIDTH="11%" align="right" style="border-top-style: none; border-top-width: medium">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: none; border-top-width: medium">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: none; border-top-width: medium">&nbsp;</td>
    <td WIDTH="11%" align="right" style="border-top-style: none; border-top-width: medium">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">697,396</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">5,069,242</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">700,000</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">1,834,211</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">363,098</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2"><b>Officers</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">489,875</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of warrants (A)</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">489,875</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">118,933</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2"><b>Joint Venture
    Partners and Affiliates</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2"><b>Total Related Party
    Conversions</b></font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of shares</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">0</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">3,437,371</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Number of warrants</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">5,069,242</font></td>
    <td WIDTH="11%" align="right">&nbsp;</td>
    <td WIDTH="11%" align="right"><font size="2">3,439,875</font></td>
  </tr>
  <tr>
    <td WIDTH="56%"><font FACE="Times New Roman" size="2">Amount converted to
    equity</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">1,834,211</font></td>
    <td WIDTH="11%" align="right"><font size="2">$</font></td>
    <td WIDTH="11%" align="right"><font size="2">932,031</font></td>
  </tr>
</table>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td style="border-bottom-style: none; border-bottom-width: medium">
    <font size="2">F-39</font></td>
  </tr>
</table>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p class="MsoNormal" align="center">
<font style="COLOR: black"><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 March 31, 2004 and
March 31, 2005)</font></font></p>
<b>
<p>12. INCOME TAXES </p>
</b>
<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 ALIGN="JUSTIFY">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. </p>
<p>13. COMMITMENTS AND CONTINGENCIES </p>
<p>COMMITMENTS </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.&nbsp;
At March 31, 2005, the Company was obligated to pay bell labs a total of
$200,000 per month for research and development of its Nanotechnology products
through March of 2005 and $156.8 per month through May of 2005 for its TV+
solution research and development.</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>
<p>14. Subsequent Events (Unaudited) </p>
<p>F-40</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>During May 2005 the Company adjusted the exercise price of $.45 per share of
an investor's 5 year warrant to purchase 714,296 shares of common stock.&nbsp;
The warrant was originally issued in January 2005, to $.225 in July of 2005.&nbsp;
In July of 2005 such investor exercised a portion of such warrant, as adjusted,
to purchase 200,000 shares of the Company's common stock generating $45,000 of
net proceeds to the Company.</p>
<p>On July 20, 2005, at the Company's annual meeting of Shareholders, the
Shareholders' ratified an amendment to its Certificate of Incorporation to
increase the number of authorized shares of common stock from 250,000,000 to
500,000,000 shares.</p>
<p>During June and July 2005 the Company completed a private placement of equity
units pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as
amended. Each unit consists of one share of the Company's common stock at $0.20
per share plus a five (5) year warrant to purchase one share of the Company's
common stock at $.25 per share. Such placement generated an aggregate of
$3,488,000 of proceeds to the Company, to be used primarily to pay for research
and development expenses and for general corporate purposes. A total of
14,140,000 shares of the Company's common stock together with five (5) year
warrants to purchase 14,140,000 shares of the Company's common stock at $.25 per
share were issued in such private placement. In connection with such private
placement, consultants and advisors received $253,500 of fees paid in cash and
476,500 shares of the Company's common stock and five (5) year warrants to
purchase 476,500 shares of the Company's commons stock at $.25 per share.</p>
<p align="center">PART I </p>
<p>Item 14. Controls and Procedures </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 </p>
<b>
<p>ITEM 14B. VALUATION AND QUALIFYING ACCOUNTS </p>
</b>
<p ALIGN="CENTER">mPHASE TECHNOLOGIES, INC. <br>
VALUATION AND QUALIFYING ACCOUNTS <br>
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="30%">&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"><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="30%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2"><b>
    Balance at</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>
    Charged to</b></font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2"><b>
    Deductions</b></font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2"><b>
    Balance at</b></font></td>
  </tr>
  <tr>
    <td WIDTH="30%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2"><b>
    beginning</b></font></td>
    <td WIDTH="10%" 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="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2"><b>end
    of year</b></font></td>
  </tr>
  <tr>
    <td WIDTH="30%">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2"><b>of
    year</b></font></td>
    <td WIDTH="10%" 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="30%"><font FACE="Times New Roman" size="2">Description</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="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Year ended June 30,
    2004</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="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Allowance for doubtful
    accounts</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>
    <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">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">(deducted from
    accounts receivable)</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Allowance for
    obsolescence</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">486</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">(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="30%"><font FACE="Times New Roman" size="2">(deducted from
    inventory, at cost)</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="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Year ended June 30,
    2003</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="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Allowance for doubtful
    accounts</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="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">(deducted from
    accounts</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="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">receivable)</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">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">0</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">(3)</font></td>
    <td WIDTH="10%" align="right"><font size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Allowance for
    obsolescence</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">1,243</font></td>
    <td WIDTH="10%" 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"><font size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">486</font></td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">(deducted from
    inventory, at cost)</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Year ended June 30,
    2002</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Allowance for doubtful
    accounts</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">29</font></td>
    <td WIDTH="10%" 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"><font size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">3</font></td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">(deducted from
    accounts receivable)</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">Allowance for
    obsolescence</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">315</font></td>
    <td WIDTH="10%" 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"><font size="2">$</font></td>
    <td WIDTH="10%" align="right"><font FACE="Times New Roman" size="2">1,243</font></td>
  </tr>
  <tr>
    <td WIDTH="30%"><font FACE="Times New Roman" size="2">(deducted from
    inventory, at cost)</font></td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
    <td WIDTH="10%" align="right">&nbsp;</td>
  </tr>
</table>
<p align="center">PART II </p>
<p align="center">INFORMATION NOT REQUIRED IN PROSPECTUS </p>
<b>
<p>Item 13. Other Expenses of Issuance and Distribution </p>
</b>
<p>The following sets forth the estimated expenses payable in connection with
the preparation and filing of this Registration Statement: </p>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Securities and
    Exchange Commission Registration Fee</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="21%" align="right"><font size="2">1,180</font></td>
  </tr>
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">NASD Filing Fee</font></td>
    <td WIDTH="21%" align="right"><font size="2">$</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman" SIZE="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Nasdaq Listing Fee</font></td>
    <td WIDTH="21%" align="right">&nbsp;</td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman" SIZE="2">-</font></td>
  </tr>
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Printing Expenses</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="21%" align="right"><font size="2">1,000</font></td>
  </tr>
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Accounting Fees and
    Expenses</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="21%" align="right"><font size="2">20,000</font></td>
  </tr>
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Legal Fees and
    Expenses</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman" SIZE="2">$</font></td>
    <td WIDTH="21%" align="right"><font size="2">10,000</font></td>
  </tr>
</table>

<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Transfer Agent's and
    Registrar's Fees and Expenses</font></td>
    <td WIDTH="21%" align="right"><font size="2">$</font></td>
    <td WIDTH="21%" align="right"><font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Miscellaneous Expenses</font></td>
    <td WIDTH="21%" align="right"><font size="2">$</font></td>
    <td WIDTH="21%" align="right" style="border-bottom-style: solid; border-bottom-width: 1">
    <font size="2">0</font></td>
  </tr>
  <tr>
    <td WIDTH="58%"><font FACE="Times New Roman" SIZE="2">Total</font></td>
    <td WIDTH="21%" align="right"><font FACE="Times New Roman" SIZE="2">
    <p align="right">$</font></td>
    <td WIDTH="21%" align="right" style="border-top-style: solid; border-top-width: 1">
    <div style="border-bottom-style: double; border-bottom-width: 2">
      <font size="2">32,180</font></div>
    </td>
  </tr>
</table>
<b>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>Item 14. Indemnification of Directors and Officers </p>
</b>
<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 is 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>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>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>3. by our stockholders if directed by a resolution of the Board of Directors
or of the stockholders. </p>
<p ALIGN="JUSTIFY">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>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.
</p>
<p><b>Item 15. Recent Sales of Unregistered Securities </b> </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 preformed. </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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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>
<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 ALIGN="JUSTIFY">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. </li>
</ol>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<ol start="2">
  <li>
  <p ALIGN="JUSTIFY">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 extinguishments of $142,236. <br>
&nbsp;</li>
  <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&nbsp; 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>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<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 was 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 ALIGN="JUSTIFY">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>
<p>During May 2005 the Company adjusted the exercise price of $.45 per share of
an investor's 5 year warrant to purchase 714,296 shares of common stock.&nbsp;
The warrant was originally issued in January 2005, to $.225 in July of 2005.&nbsp;
In July of 2005 such investor exercised a portion of such warrant, as adjusted,
to purchase 200,000 shares of the Company's common stock generating $45,000 of
net proceeds to the Company.</p>
<p>On July 20, 2005, at the Company's annual meeting of Shareholders, the
Shareholders ratified an amendment to its Certificate of Incorporation to
increase the number of authorized shares of common stock from 250,000,000 to
500,000,000 shares.</p>
<p>During June and July 2005 the Company completed a private placement of equity
units pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as
amended. Each unit consists of one share of the Company's common stock at $0.20
per share plus a five (5) year warrant to purchase one share of the Company's
common stock at $.25 per share. Such placement generated an aggregate of
$3,488,000 of proceeds to the Company, to be used primarily to pay for research
and development expenses and for general corporate purposes. A total of
14,140,000 shares of the Company's common stock together with five (5) year
warrants to purchase 14,140,000 shares of the Company's common stock at $.25 per
share were issued in such private placement. In connection with such private
placement, consultants and advisors received $253,500 of fees paid in cash and
476,500 shares of the Company's common stock and five (5) year warrants to
purchase 476,500 shares of the Company's commons tock at $.25 per share.</p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>Item 16. Exhibits and Financial Statements </p>

<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center"><font SIZE="2">Exhibit</font></td>
    <td WIDTH="79%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center"><font SIZE="2">Number</font></td>
    <td WIDTH="79%"><font SIZE="2">Description</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">2.1*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Exchange of Stock Agreement and Plan of
    Reorganization dated January 15, 1997</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">(incorporated by reference to Exhibit 2(a) to
    our registration statement on Form</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">10SB-12G filed on October 16, 1998 (file no.
    000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">2.2*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Exchange of Stock Agreement and Plan of
    Reorganization dated June 25, 1998</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">(incorporated by reference to Exhibit 2(b) to
    our registration statement on Form</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">10SB-12G filed on May 6, 1999 (file no.
    000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">3.1*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Certificate of Incorporation of Tecma
    Laboratory, Inc. filed December 20, 1979</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">(incorporated by reference to Exhibit 3(a) to
    our registration statement on Form</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">10SB-12G filed on October 16, 1998 (file no.
    000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">3.2*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Certificate of Correction to Certificate of
    Incorporation of Tecma Laboratory, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">dated June 19, 1987 (incorporated by
    reference to Exhibit 3(b) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">statement on Form 10SB-12G filed on October
    16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center"><font SIZE="2">Exhibit</font></td>
    <td WIDTH="79%">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center"><font SIZE="2">Number</font></td>
    <td WIDTH="79%"><font SIZE="2">Description</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">3.3*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Certificate of Amendment of Certificate of
    Incorporation of Tecma Laboratory, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">filed August 28, 1987 (incorporated by
    reference to Exhibit 3(c) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">statement on Form 10SB-12G filed on October
    16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">3.4*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Certificate of Amendment of Certificate of
    Incorporation of Tecma Laboratories, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">filed April 7, 1997 (incorporated by
    reference to Exhibit 3(d) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">statement on Form 10SB-12G filed on October
    16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">3.5*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Certificate of Amendment of Certificate of
    Incorporation of Lightpaths TP</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Technologies, Inc. filed June 2, 1997
    (incorporated by reference to Exhibit 3(e) to</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">our registration statement on Form 10SB-12G
    filed on October 16, 1998 (file no.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">3.6*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Certificate of Amendment of Certificate of
    Incorporation of mPhase Technologies,</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Inc. filed September 15, 2000 (incorporated
    by reference to Exhibit 3i to our</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">quarterly report on Form 10Q filed on
    November 13, 2000 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">3.7*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Bylaws of the Company (incorporated by
    reference to Exhibit 3(g) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">statement on Form 10SB-12G filed on October
    16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">4.1*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Form of Registration Rights Agreement, dated
    January 26, 2001, by and among the</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Company and the purchasers listed on Schedule
    A attached thereto (incorporated by</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font 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="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">4.2*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Form of Registration Rights Agreement, dated
    February 9, 2001, by and among the</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Company and the purchasers listed on Schedule
    A attached thereto (incorporated by</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font 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="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">4.3**</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Form of Warrant.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">4.4**</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Warrant issued to Piper Rudnick LLP.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">4.5**</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Warrant issued to Piper Rudnick LLP.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">4.6**</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Form of Subscription Agreement, dated
    December 15, 2001.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">5.1</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Opinion of Martin S. Smiley, General Counsel
    to the Company.</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">10.1*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">License Agreement, dated March 26, 1998,
    between the Company and Georgia Tech</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Research Corporation (incorporated by
    reference to Exhibit 10(e) to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">statement on Form 10SB-12G filed on October
    16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">10.2*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">First Amendment to the License Agreement,
    dated January 8, 2001, between the</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Company and Georgia Tech Research Corporation
    (incorporated by reference to</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font 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="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">10.3*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Employment Agreement between Ronald A.
    Durando and the Company</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">(incorporated by reference to Exhibit 10.8 to
    our registration statement on Form SB-2</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">filed on August 13, 1999 (file no.
    333-85147)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">10.4*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Employment Agreement between Gustave T.
    Dotoli and the Company (incorporated</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">by reference to Exhibit 10.9 to our
    registration statement on Form SB-2 filed on</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">August 13, 1999 (file no. 333-85147)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">10.5*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Employment Agreement between Martin S. Smiley
    and the Company, dated as of</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">August 15, 2000 (incorporated by reference to
    Exhibit 10.5 to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="10%">&nbsp;</td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">statement on Form S-1 filed on June 18, 2001
    (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="10%"><font SIZE="2">10.6*</font></td>
    <td WIDTH="11%" align="center">&nbsp;</td>
    <td WIDTH="79%"><font SIZE="2">Employment Agreement between David C. Klimek
    and the Company, dated as of</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="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">April 1, 2001 (incorporated by reference to
    Exhibit 10.6 to our registration statement</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">on Form S-1 filed on June 18, 2001 (file no.
    33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.7*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Manufacturing Services Agreement, dated March
    14, 2001, by and between the</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Company and Flextronics International USA,
    Inc (incorporated by reference to</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font 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="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.8*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Supply Agreement by and between the Company
    and Hart Telephone Company, Inc.,</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">date of August 19, 1998 (incorporated by
    reference to Exhibit 10.8 to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">statement on Form S-1 filed on June 18, 2001
    (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center"><font SIZE="2">Exhibit</font></td>
    <td WIDTH="781">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center"><font SIZE="2">Number</font></td>
    <td WIDTH="781"><font SIZE="2">Description</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.9*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Facilities/Services Agreement between the
    Company and Microphase Corporation,</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">dated as of July 1, 1998. (incorporated by
    reference to Exhibit 10.9 to our</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">registration statement on Form S-1 filed on
    June 18, 2001 (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.10*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Company's 2001 Stock Incentive (incorporated
    by reference to Exhibit C to our</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">preliminary proxy statement on Form Pre 14A
    filed on March 21, 2001 (file no.000-</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">30202)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.11*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">License Agreement, dated July 31, 1996, by
    and between AT&amp;T Paradyne</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Corporation and Microphase Corporation.
    (incorporated by reference to Exhibit 10.11</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font 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="94"><font SIZE="2">10.12(a)*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Assignment Agreement, dated February 17,
    1997, by and between the Company and</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Microphase Corporation. (incorporated by
    reference to Exhibit 10.12 to our</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">registration statement on Form S-1 filed on
    June 18, 2001 (file no. 33- 63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.12(b)*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Distribution Agreement effective May 15, 2002
    by and between Corning Cable</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">System and the Company.</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.13*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Development Agreement between Lucent
    Technologies, Inc. and mPhase</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Technologies, Inc., effective as of December
    1, 2002, relating to Video Services</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Switch and Statement of Work, dated December
    9, 2002.***</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.14*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Purchase Order between the Company and Lucent
    Technologies, Inc., dated</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">December 15, 2002, for cost reduction of the
    mPhase Traverser INI set box.***</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.15*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Co-Branding Agreement, dated as of January
    21, 2003, between the Company and</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Lucent Technologies, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.16*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Systems Integrator Agreement, dated as of
    April 4, 2003, between the Company and</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Lucent Technologies, Inc.***</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.17*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Development Agreement between Lucent
    Technologies, Inc. and mPhase</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Technologies, Inc., relating to Broadcast
    Television Switch (BTS) effective as of</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">September 15, 2003.***</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.18*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Development Agreement effective February 3,
    2004 between Lucent Technologies,</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Inc. and mPhase Technologies, Inc. for
    development of micro fuel cell</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">NanoTechnology.***</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.19***</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Software License Agreement between Espial
    Group, Inc, a Canadian Corporation and</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">mPhase Technologies entered into November 28,
    2004</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.20***</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Software Development Agreement between Magpie
    Telecom Insiders, Inc, and</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">mPhase Technologies, dated September 2, 2004
    and Work Order dated January 3,</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">2005</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.21***</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Development Agreement effective March 11,
    2005 between Lucent Technologies Inc</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">and mPhase Technologies relating to
    development of Magnetometers</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.22*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Amendment No. 2 to Development Agreement
    dated as of March 9, 2005 relating to</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Micro Power Source Cells between mPhase
    Technologies, Inc and Lucent</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Technologies Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">10.23***</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Amendment No. 2 to Development Agreement
    between Lucent Technologies, Inc.</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">and mPhase Technologies, Inc. dated as
    September 15, 2003</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">21*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">List of Subsidiaries (incorporated by
    reference to Exhibit 21 to our registration</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">statement on Form S-1 filed on June 18, 2001
    (file no. 33-63262)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">23.1*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Consents of Schuhalter, Coughlin &amp; Suozzo,
    LLC dated August 31, 1998 and</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">reference to Exhibit 23 to our registration
    statement on Form 10SB-12G filed on</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">October 16, 1998 (file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">23.2*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Consents of Schuhalter, Coughlin &amp; Suozzo,
    LLC dated April 23, 1999 and</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Mauriello, Franklin &amp; LoBrace, P.C. dated
    April 23, 1999 (incorporated by reference</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">to Exhibit 23 to our registration statement
    on Form 10SB-12G filed on May 6, 1999</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">(file no. 000-24969)).</font></td>
  </tr>
  <tr>
    <td WIDTH="94"><font SIZE="2">23.3*</font></td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Consent of Schuhalter, Coughlin &amp; Suozzo, LLC
    dated August 13, 1999</font></td>
  </tr>
  <tr>
    <td WIDTH="94">&nbsp;</td>
    <td WIDTH="111" align="center">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">(incorporated by reference to Exhibit 23.1 to
    our registration statement on Form SB-2</font></td>
  </tr>
</table>

<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="93">&nbsp;</td>
    <td WIDTH="112">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">filed on August 13, 1999 (file no.
    333-85147)).</font></td>
  </tr>
  <tr>
    <td WIDTH="93"><font SIZE="2">23.4</font></td>
    <td WIDTH="112">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Consent of Schuhalter, Coughlin &amp; Suozzo,
    LLC.</font></td>
  </tr>
  <tr>
    <td WIDTH="93"><font SIZE="2">23.5</font></td>
    <td WIDTH="112">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Consent of Rosenberg Rich Baker Berman and
    Company.</font></td>
  </tr>
  <tr>
    <td WIDTH="93"><font SIZE="2">24.1**</font></td>
    <td WIDTH="112">&nbsp;</td>
    <td WIDTH="781"><font 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="93">&nbsp;</td>
    <td WIDTH="112">&nbsp;</td>
    <td WIDTH="781"><font SIZE="2">Registration Statement).</font></td>
  </tr>
</table>
<p>--- </p>
<p>* Incorporated by reference. ** Previously filed. </p>
<p>*** Portions of such documents have been omitted pursuant to Rule 406 of the
Securities Act of 1933, or Rule 24(b-2) of the Securities Exchange Act of 1934.
Omitted portions of documents have been separately filed with the Securities and
Exchange Commission. </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>Item 17. Undertakings. </p>
<p>1. The undersigned registrant hereby undertakes: </p>
<blockquote>
  <p>1. To file, during any period in which offers or sales are being made, a
  post-effective amendment to this registration statement: </p>
  <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>
</blockquote>
<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>
  <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>
<p align="center">SIGNATURES </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 the 8th day of August, 2005. </p>
<p>mPHASE TECHNOLOGIES, INC. <br>
&nbsp;/s/ Ronald A. Durando<br>
By: Ronald A. Durando <br>
President and Chief Executive Officer </p>
<hr color="#000000" size="5"><p Style='page-break-before:always'>
<p>&nbsp;</p>
<p>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>
<table CELLSPACING="0" BORDER="0" WIDTH="100%" cellpadding="0" style="border-collapse: collapse" bordercolor="#111111">
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    Signature</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">Title</font></td>
    <td WIDTH="34%" align="center"><font FACE="Times New Roman" SIZE="2">Date</font></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">&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" SIZE="2">Necdet
    F. Ergul</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    Chairman of the Board of Directors</font></td>
    <td WIDTH="34%" align="center"><font FACE="Times New Roman" SIZE="2">August
    8, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">*</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" SIZE="2">Ronald
    A. Durando</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    President, Chief Executive Officer</font></td>
    <td WIDTH="34%" align="center">
  <font FACE="Times New Roman" SIZE="2">
    August
    8, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">*</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" 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" SIZE="2">/s/
    Martin S. Smiley</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    Executive Vice President</font></td>
    <td WIDTH="34%" align="center"><font FACE="Times New Roman" SIZE="2">August
    8, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center">&nbsp;</td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">Chief
    Financial Officer, and General Counsel</font></td>
    <td WIDTH="34%" align="center">&nbsp;</td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center">&nbsp;</td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    (Principal Financial and Accounting</font></font>



<font FACE="Times New Roman" SIZE="2">
    Officer)</font></td>
  <font FACE="Times New Roman" SIZE="2">
    <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" SIZE="2">Anthony
    H. Guerino</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    Director</font></td>
    <td WIDTH="34%" align="center">
  <font FACE="Times New Roman" SIZE="2">
    August
    8, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">*</font></td>
    <td WIDTH="33%" align="center">&nbsp;</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" SIZE="2">Gustave
    T. Dotoli</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    Director and Chief Operating Officer</font></td>
    <td WIDTH="34%" align="center">
  <font FACE="Times New Roman" SIZE="2">
    August
    8, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">*</font></td>
    <td WIDTH="33%" align="center">&nbsp;</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" SIZE="2">Abraham
    Biderman</font></td>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">
    Director</font></td>
    <td WIDTH="34%" align="center"><font FACE="Times New Roman" SIZE="2">August
    8, 2005</font></td>
  </tr>
  <tr>
    <td WIDTH="33%" align="center"><font FACE="Times New Roman" SIZE="2">*</font></td>
    <td WIDTH="33%" align="center">&nbsp;</td>
    <td WIDTH="34%" align="center">&nbsp;</td>
  </tr>
</table>
<p>By: /s/ Martin S. Smiley <br>
Martin S. Smiley <br>
Attorney-in-fact </p>
<p align="center">End of Filing</p>
<hr color="#000000" size="5"></font>

</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 August
8, 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,
$.01 par value
38,230,800
$.25
$9,557,700
$1,180
(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 August 4, 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.
August 8, 2005
PROSPECTUS
mPHASE TECHNOLOGIES, INC.
38,230,800 Shares of Common Stock
This prospectus relates to the resale of up to 38,230,800 shares of common
stock, of which 22,029,300 shares are issued and outstanding and up to
16,201,500
shares may be issued upon the exercise of warrants and options held by the selling stockholders. The selling stockholders listed on pages
55 - 58 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
August 4,
2005 was $.25 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 August 8, 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 March 31, 2004 the Company had
incurred (unaudited) development stage losses and has an accumulated deficit of
approximately $125,259,323 million and a stockholders' deficit of approximately
$2,537,180 respectively. Cumulatively, through June 30, 2004 and March 31, 2005,
(unaudited) the Company had negative cash flows from operations of approximately
$47.8 million and $54.1 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
14,830 shareholders and approximately 141 million shares of common stock
outstanding as of July 26, 2005. 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.
mPhase is a developer of broadband communications products, specifically,
middleware, set top boxes and systems integration solutions for the delivery of
broadcast quality television, video on demand, high speed internet and voice
utilizing internet protocol. (IPTV) mPhase's believes that Release 3.0 of its
TV+ solution, scheduled for September of 2005 is the most cost-effective,
standards based, scalable solution with carrier class quality and security
available for telecommunications service providers around the world. mPhase
believes that telecommunication service providers in countries outside of the
United States that generally lack extensive fiber to the home infrastructure
will find the Company's TV+ solution as an attractive way to retain traditional
telephone customers by offering a full package of services. The TV+ solution is
designed to enable telecommunication service providers to solve the "last mile"
from a central office location to a customer over any existing infrastructure
including copper, fiber or coax. Version 3.0 of the TV+ solution is a
culmination of years of development of a world class television delivery
solution for telecommunication service providers. The Company also develops and
sells DSL products including "intelligent" POTS Splitter DSL loop diagnostic
systems and Plain Old Telephone Service (POTS) Splitters necessary to split a
telephone signal into a high frequency digital and low digital data component
and low frequency analog voice component necessary for a telephone service
provider to provide high-speed internet services over copper from its central
office to its customer's premises. Since our inception in 1996 we have been a
development-stage company.
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
having significantly longer shelf life prior to activation, instant on
capabilities due to their extremely small internal size, and power management
capabilities to significantly extend their duty cycle periods 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 extremely sensitive uncooled magnetic  sensors, commonly known as
a magnetometer,  as a new product line.
IPTV Solution
Our primary activities currently consist of designing, manufacturing and
testing Release 3.0 of our TV+ middleware solution and next generation set top
box designed as the key ingredients for the deliver of IP (Internet Protocol)
based broadcast television over a telephone service providers existing
infrastructure including copper, fiber and coaxial networks or combinations
thereof. We have not, as yet, derived significant sales revenue from our TV+
solution. Our solutions facilitate telephone companies becoming full service
communications providers by enabling the simultaneous delivery of digital
broadcast television, stored video from network based servers, high -speed data and voice services over the existing
infrastructure and topology. mPhase has developed Release 3.0 of its TV+
solution primarily for telephone companies in parts of the world where access to
multi-channel television is limited. We have engaged the Bell Labs division of
Lucent Technologies Inc. to develop portions of our TV+ solution as well as to
perform exploratory research with respect to our nanotechnology product
development.
mPhase is a pioneer in the field of development of solutions for the delivery
of television, high speed internet and voice by telecommunications service
providers from such provider's central offices to its customers. This has been
commonly referred to as the "last mile to the home solution" for delivery of a
full menu of services to a customer that the Company believes is compelling
where the existing infrastructure of a service provider is composed of copper
wires rather than fiber in the "last mile to the house. Such infrastructure is
found primarily outside of the United States, since (except for rural areas)
most areas of significant population in the United States contains significant
fiber to the home infrastructure. 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 the newer TV+ solution. 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 was installed for serving
over 80 customers at Hart Telephone Company in Hartwell, Georgia, as a limited
user beta system was operational. 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+solution replaced the legacy Traverser DVDDS system and is
developed in conjunction with Bell Laboratories division of Lucent Technologies,
Inc. The TV+ solution marks a change in the Company's product emphasis from a
proprietary end to end solution designed to deliver television over DSL as a
solution for telephone companies that had copper from their central officers to
their customer premises. The TV+ system was developed 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.
Releases 1 and 2 (containing an enhanced programming guide) of the mPhaseTV+
system are complete and ready for commercial deployment and Release 3.0 is due
to be released during September of 2005. Releases 1.0 and 2.0 of the TV+ system
each deliver 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.
Release 1.0 and 2.0 of the TV+ solution 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 for transport in the TV+ system
results in a highly reliable architecture for the delivery of broadcast
television. This is accomplished by internally multicasting each television
channel for delivery from the central office of a telecommunications service
provider to a larger number of end users. Release 2.0 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 a reliable 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.
As noted above, 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).
In December of 2004, the Company announced that Lucent Russia selected the
mPhase TV+ solution 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. Installation of the broadcast television
switch (the "BTS") software as well as mPhase's set top box is expected to begin
in September of 2005 and be completed by the end of December of 2005. In
December of 2004, 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 marks the culmination of mPhase's 7 year
effort to develop a world class solution for telecommunication service providers
seeking to provide carrier class, highly scaleable and cost effective delivery
of feature rich broadcast television over its existing infrastructure. Release
3.0 of the TV+ solution consist of a state of the art middleware system that
enables a telecommunication service provider seeking to delivery feature risk
broadcast television over ANY infrastructure including fiber, copper, coaxial
solution or any combination of the foregoing to its customers. The Company is
also developing a next generation set top box designed to further enhance its
overall product solution. It is important to note, however that the middleware
that is the key solutions ingredient is designed to work with the DSLAM or other
transportation technologies plus any set top box as a completely OPEN STANDARDS
BASED solution. Our middleware is transport agnostic and operates with any IP
based network including any DSL, ethernet or fiber infrastructure or combination
thereof and may be deployed IP Multicast Router or DSLAM transportation method
used for the delivery of digital television and high-speed data.
Furthermore Release 3.0 of the TV+ solution utilizes 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/middleware designed to deliver IP television, video on
demand, high speed internet and voice over both fiber and copper infrastructures
of a telephone service provider. As noted above it will operate with both the
Lucent Stinger as well as the DSLAM's of other major vendors. Release 3.0 of the
TV+ solution will also be able to send multiple TV channels down a single DSL
line using ADSL2. The Company believes that the current TV+ solution offers the
premiere solution in IPTV that telecommunications service providers are seeking
for the delivery of converged services to preserve and enhance their traditional
telephone voice delivery capabilities and compete against cable and satellite
technologies for delivery of converged services to their traditional customers.
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 in which mPhase owns approximately 57% of. Through such joint venture mPhase
TV has compiled significant experienced in negotiation contracts with broadcast
television programming providers for U.S. markets. Such experience should prove
useful in assisting a U.S. telecommunications service provider to arrange
contact packages with various content providers of broadcast television.
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. In March of 2005, the Company has
extended the contract with Lucent for another 12 months at approximately the
same cost to continue development of such product, with additional agreements to
extend our relationship with Lucent Bell Labs on an ongoing basis past this
period.  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 first generation laboratory 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 (MEMS), and are being
designed to create a new generation of uncooled ultra sensitive magnetic field
sensors.
mPhase DSL Component Products
Although the Company has changed significantly with respect to its
telecommunications solutions from a hardware to a software provider, mPhase
continues to design 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 or DSLAM's) manufactured by
other vendors.
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. The first delivery of such product is
expected during the beginning of the second quarter of fiscal year 2006.
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 nine months ending March 31, 2005 (unaudited), sales from POTS
Splitter Shelves and our TV + platform totaled $1,039,003 with a Net Loss of
$9,484,240 compared to sales (exclusively of POTS SPLITTERS) of $4,335,476 and a
Net Loss of $4,889,771 for the same period ending March 31, 2004. (See Financial
Statements which commence on page F-1.)
THE OFFERING
Common stock offered: Up to 38,230,800 shares of common stock,
of which 22,029,300 shares are issued and outstanding and up to 16,201,500
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
178 million shares of common stock. This does not include an aggregate of 
approximately 110 million 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 $4,075,375 upon 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,
(in thousands except per share data)
Cumulative
from inception
October 2, 1996
STATEMENT OF
2000
2001
2002
2003
2004
to June 30, 2004
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 thousand)
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
March
31, 2005
(Unaudited)
(in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents
$238
Working capital (deficit)
$(2,332)
Total assets
$2,319
Long-term obligations, net of current portion
$561
Total stockholders' equity (deficit)
$(2,537)
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 March
31, 2005, 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 nine months ended March 31, 2005 and
March 31, 2004 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 nine month period ended March 31,
2005 are not necessarily indicative of the operating results to be expected in
the future.
Nine Months Ended
Cumulative Totals
March 31,
From Inception
(October 2, 1996)
2004
2005
to March 31, 2005
(Unaudited)
(Unaudited)
(Unaudited)
Total revenues
$4,335
$1,039
20,649
Expenses:
Cost of sales
3,878
823
14,736
Research and development
2,859
3,820
42,237
General and administrative
2,196
5,416
84,471
Depreciation and
    amortization
101
194
3,084
Operating loss
(4,698)
(9,214)
(123,880)
Other income (expense), net
(201)
(270)
(1,379)
Interest income (expense)
(72)
(132)
(137)
Net loss
$(4,900)
(9,484)
(125,259)
Basic and diluted net loss per share*
$(0.07)
$(0.09)
Shares used in basic and diluted
net loss per share*
75,312,435
101,062,839
*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 developing products using the science of Nanotechnology which entails
significant exploratory 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 battery 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. 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 The Company does not expect
significant revenues from either product for at least 3 years.
mPhase's stock price has suffered significant declines during the past five
years and remains volatile
.
The market price of our common stock closed at $7.88 on July 26, 2000 and
closed at $.247 on July 26, 2005. During such period the number of shares
outstanding of the Company increased from approximately 30 million shares to 141
million shares (undiluted) and approximately 245 million shares (full diluted).
Such increase was the result of periodic private placements by the Company in
order to finance company operations. 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 nine months (unaudited) ended March 31, 2005 and March 31,
2004 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) $9,484,240 and
$4,889,771 for the nine month period ending March 31, 2005 and March 31, 2004
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 March 31, 2005 (unaudited) and we
have incurred (a) accumulated losses of $125,259,323 and a stockholder's deficit
of $2,537,180 and (b) cumulative negative cash flow of $54,120,374. As of March
31, 2005 (unaudited) we have a negative net worth of $2,537,180 and negative
working capital of $2,332,278.
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 issuance.
As of July 26, 2005, we have warrants, options and convertible notes
outstanding convertible into approximately 100 million total shares of mPhase common stock which, upon conversion,
may adversely affect the future price of our common stock. As of July 26, 2005
we have warrants and options convertible into approximately 77 million 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 July 26, 2005, the Company has approximately 1,440,000 shares of common
stock reserved for the issuance upon the conversion of a 12% convertible notes
to a related party at an average exercise price $.25 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 any of our solutions for the
delivery of broadcast television, high-speed internet and voice by a major
telephone service provider.
We have had to date no material revenues derived from sales of either our
legacy Traverser Digital Video Data Delivery System (DVDDS) or our TV+ solution
or our new Broadband Loop Watch product. There have been to date only one sale
of our software and Set Top Boxes for 1000 customers of a
telecommunications service provider in Russia that is just commencing deployment
of a small group of customers as a trial and no major deployments of Release 2.0
of our TV+ Solution 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 products 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 Loop Watch product and our 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 affect 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 provide 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 have 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 March 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
throughout 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 affect the
cash available to the Company prior to commencement of sales of our TV+solution
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 our POTS
splitter product that has been the source of all of our revenues to date.
We purchase the core torroid that 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+ solution. 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+ solution 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 + solution 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 and may never develop for our TV +solution 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 aggressively
roll out IPTV, 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+ solution. 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+ solution 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+ solution.
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+ solution obsolete
and intense competition in the industry could prevent our ever becoming
profitable. Our competitors that sell IP TV solutions that compete with and
mPhase TV+ set top box and middleware include much larger and better known and
capitalized companies with significantly greater selling and marketing
experience and financial resources. Such competitors include for middleware a
joint venture between Microsoft and Alchaetel, as well as Minverva, Orca
Interactive, Siemens, VBrick Systems and Video Furnance. For set top boxes the
Company is in competition with Advanced Digital Broadcast, Amino Communications, Kreatel, Pace Micro Technology, Samsung Telsey Telecommunications and
VBrick Systems. End to end solutions competitors for IPTV include UTStarcom,
mxWare and Industria. 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+ solution. For
customers desiring feature rich solutions such as video on demand, the
installation of additional routers and servers may be required to upgrade the
internet backbone capabilities of such customer. Such additional capital costs
may cause a number of potential customers not to deploy our TV+ solution.
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
TV+ solution to deliver feature rich, open standards, carrier class television
on the most scaleable cost efficient platform custom tailored to the rigorous
and varied 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 TV+ Solution.
In order to have an incentive to deploy  the TV+ solution, 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 provide such content and therefore a local
service provider must 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 $4,075,375 if all of the warrants and options  are converted to purchase shares of common stock registered under this
prospectus, 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
Third Quarter
$.59
$.30
Fourth Quarter
$.41
$.24
As of July 26, 2005 (unaudited), we had 140,965,957 shares of common stock
outstanding and approximately 14,839 stockholders. The last reported sales price
of our
common stock on July 26, 2005 was $.247 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 March 31, 2005, 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 nine months ended March 31, 2005 are
not necessarily indicative of the operating results to be expected in the
future.
For The Year
    Ended
For the Nine
    Months
June 30,
Ended
    March 31, (Unaudited)
2000
2001
2002
2003
2004
2004
2005
STATEMENT OF
OPERATIONS
DATA:
Total revenues
$279,476
$10,524,134
$2,582,446
$1,581,639
$4,641,346
$4,335,476
$1,039,003
Costs and
Expenses:
Cost of sales
131,756
5,804,673
2,415,129
1,493,394
4,068,255
3,878,389
823,217
Research and
development
10,156,936
10,779,570
3,819,583
3,538,305
4,069,721
2,858,715
3,820,128
General &
administrative
27,859,330
17,321,614
7,038,923
2,683,534
4,177,961
2,196,052
5,416,357
Depreciation &
amortization
471,101
660,372
670,183
515,417
122,878
100,833
193,650
Operating loss
(38,339,647)
(24,042,095)
(11,361,372)
(6,649,011)
(7,797,469)
(4,698,483)
(9,214,349)
Other income
(expense), net
20,000
-
142,236
49,968
38,833
(128,991)
(137,751)
Interest income
(expense)
158,105
43,361
(26,225)
(51,168)
(111,175)
(72,367)
(132,140)
Net Loss
$(38,161,542)
$(23,998,734)
$(11,245,361)
$(6,650,211)
$(7,758,586)
(4,899,771)
(9,484,240)
Basic and diluted
net loss per share
$(1.41)
$(0.72)
$(0.23)
$(0.10)
$(.10)
$(.07)
$(.09)
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
75,312,435
101,062,839
(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 March 31, 2005, 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)
March 31, 2005
Cash and cash
equivalents
$237,828
Working capital
(deficit)
(2,332,278)
Total assets
2,318,504
Total Long-term
obligations, net of
current portion
560,500
Total stockholders'
equity (deficit)
$(2,537,180)
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 March 31, 2005, have been derived from unaudited financial
statements reviewed by Rosenberg, Rich, Baker, Berman & Company. The foregoing
includes all adjustments (consisting of normal recurring items) that management
considers necessary for a fair presentation of the financial statements.
Three Months Ended
March 31,
(in thousands, except share
    amounts)
FISCAL 2005 QUARTERLY
STATEMENT OF OPERATIONS DATA:
Total revenues
$564
Costs and Expenses:
Cost of sales
448
Research and development
1,664
General and administrative
2,636
Depreciation and
    amortization
65
Operating loss
(4,249)
Interest expense, Net
(37)
Gain (Loss) on Debt extinguishments
(59)
Net Loss
$(4,346)
Basic and diluted net loss per share
$(.04)
Shares used in basic and diluted net loss per
    share(1)
120,015,504
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
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 extinguishments
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 extinguishments
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
2004
BALANCE SHEET DATA:
Cash and cash equivalents
$6,432
$31
$47
$397
$90
Working capital (deficit)
3,557
(1,458)
(94)
(1,405)
(2,111)
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
14,830 shareholders and approximately 141 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, IP
TV plus a 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 through fiscal year 2003
consisted of designing, manufacturing and testing our flagship products designed
to enable telephone service providers to deliver digital broadcast television
over DSL. Fiscal years 2004 and 2005 marked a significant shift of the Company's
focus, in response to technology advancements with respect to the delivery of
video data using internet protocol. The Company has shifted it
telecommunications solution focus from technology for the delivery of broadcast
television high speed internet and voice over DSL to the development of
middleware/software for carrier class delivery of IP TV over copper, fiber, coax
or any infrastructure representing a combination of the foregoing that is used
by a telecommunications service provider. This shift has taken place over the
past two years and has culminated in our flagship product namely Release 3.0 of
our TV+ solution. This product is scheduled for final testing in September of
2005 as part of an initial deployment of 1000 ports with a major
telecommunications service provider in Russia. We have not, as yet, derived any
significant revenue from our TV+ solution, which is the culmination of several
earlier versions that have been changed to accommodate the latest in
technological innovation and market demand for IPTV. 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 and
magnetometer sensor devices with potentially wide applicability for both
military and commercial security applications. 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 of approximately 80 customers was tested. 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 2.0 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. 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).
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, utilizes 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+ solution is a system management software/middleware
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, coax as well as down a single DSL line
over copper using ADSL2 supported DSLAM's and be capable of delivery of Video on
Demand. Our TV+ solution is an open standards-based, carrier class technology
with tremendous scalability and enables a telecommunications service provider to
custom tailor the deployment of feature rich IP television, high speed internet
and voice. Such solution enables a telecommunications service provider to
significantly enhance revenue, margins with a very high rate of return as
compared to the traditional economics for delivery of telephone voice services
only. In addition, Teleco's around the world are under increased pressure to
delivery multiple converged services in order to retain their traditional
telephone voice customers. The TV+ solution may be used in combination with any
vendors set top box designed for the delivery of IP TV and the DSLAM's of all
major vendors. The solution allows a service provider to start small and test
its take rate among customers with a maximum of flexibility of design, features
and cost allowing it to enter the market for converged services to its customers
on an optimal basis.
mPhase has transformed itself from a developer of closed end proprietary
technology for the delivery of TV over DSL to a Company that has developed a
carrier class middleware/software solution for the delivery of IP TV using a
standards-based platform designed to provide telecommunications with maximum
flexibility in system configuration with components from all major vendors.
mPhase is continuing in the development of a next generation set top box
designed to further enhance its IP TV+ solution and to be used as a stand alone
product. mPhase's current IPTV solution is designed to be used over fiber, coax
and copper or any combination thereof currently deployed by a telecommunications
service provider. In addition mPhase's IP TV solution may be used with any
DSLAM's of all major vendors. In addition our IPTV solution may be used with
other telecommunications transport technology such as Multicast Routers instead
of DSLAM's for the delivery of voice, data and IPTV.
mPhase DSL Component Products
. mPhase continues to design and market 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
POTS3 (recently renamed the
"Broadband Loop Watch") or Intelligent POTS Splitter product. The newly
developed version of the Broadband Loop 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. The Broadband
Loop Watch allows service providers to perform full loop testing for DSL
deployment and maintenance from a central office without having to deploy a more
costly deployment of personnel to the field. This is accomplished 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. 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.
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. In March of 2005
the Company extended such Agreement for another 12 months at the cost of
$100,000 per month 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 co develop using the science of nanotechnology 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 ultra sensitive 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 used in homeland
security products, as well as sensors used in diagnostic systems for detection
of metal fatigue for numerous industrial applications.
Nano Battery
:
mPhase Technologies along with its partner Lucent/Bell Labs,
has been jointly conducting research since February 2004 that demonstrates
control and manipulation of fluids on superhydrophobic surfaces to create power
cells by controlling wetting behavior of electrolyte on nanostructured electrode
surfaces. The scientific research  conducted this year has set the
groundwork for continued exploration in the development of intelligent
nanotechnology power cells (nano-batteries), and forms a path to
commercialization of the technology for a broad range of market opportunities.
During the first half of 2005 the battery team has been testing modifications
and enhancements to the internal design of the battery to optimize its power and
energy density characteristics, as well as making engineering improvements that
will assist in making the battery easier to manufacture when the project
research that level of maturity.
In June of 2005 the battery project was expanded to include a
joint technical development effort through December 2005 between mPhase and Rutgers
University to potentially incorporate a Lithium based design. This work program
has initial started as a modest technology effort to help characterize and test
the nano battery design using Lithium chemistry and determine if the current design
is capable of supporting the lithium based chemistry.  Based on the results of the testing with Rutgers
University, mPhase may decide to accelerate the work
effort.
Magnetomete
r:
In February 2005 mPhase and Lucent Technologies' Bell Laboratories entered
into a joint effort to develop an extremely sensitive magnetometer.
Magnetometers can be used in a wide range of applications that include military
surveillance, securing the retail environment, automotive sensors and actuators,
industrial processing, medical imaging, scientific measurements, detection of
mineral deposits and even air and space exploration. In sensor networks
ultra-sensitive magnetometers can be used, for example, to detect and accurately
pinpoint battlefield objects or they might also be used to study the workings of
the human brain.
Magnetometers work by sensing changes in magnetic fields due to the motion of
magnetic objects or changes in electrical currents generated by those objects.
The magnetometer detects these objects by measuring time-varying magnetic
signals that are superimposed on the combination of earth's background field
(used to orient compasses) and static magnetic fields due to nearby magnetic
objects.
Highly Sensitive Magnetometers
- The enhanced sensitivity of these
devices results from two scientific advances recently made researchers at Lucent
Bell Labs. Presently, the highest sensitivity magnetometers commercially
available require cooling to cryogenic temperatures. Called SQUIDs (for
Superconducting Quantum Interference Devices) these devices only work at the
temperature where liquid helium boils, -455 degrees below zero Fahrenheit,
making such magnetometers expensive and bulky and therefore ill-suited for
remote-sensing applications. Room temperature magnetometers, on the other hand,
are less sensitive, and use technology that was developed in World War II for
detecting submarines.
The new technology being developed by Bell Labs and mPhase employs a number
of different designs based on Micro-Mechanical Systems (MEMS). These designs use
the very high "Quality Factor (Q)" of the mechanical resonance in single
crystals of silicon. A resonance is similar to the fundamental frequency of a
tuning fork. When tapped, a tuning fork will vibrate for a length of time
inversely proportional to the internal friction of vibration within the metal of
the tuning fork. A comparable tuning fork made from single crystal silicon,
which has less internal friction than the hardest metal, will vibrate almost a
thousand times longer. Based on this principal, a device employing a high Q
resonator will have enhanced amplitude of vibration at the resonance frequency,
and hence will display a greater sensitivity to external perturbations that
affect its resonance frequency. By coupling the mechanical motion of a bar or a
paddle constructed from silicon to the ambient magnetic field, this high
mechanical sensitivity can be converted to high magnetic field sensitivity. The
technical approach that the team is developing can be achieved either statically
with an integrated magnetic film, or dynamically through motion of the silicon
bar or paddle.
The Benefits of MEMS
- Commercial magnetometers using purely electronic
detection, such as Hall, magneto-resistance or flux-gate devices, have
sensitivities limited by their
electronic
Q-factor. This Q-factor depends
on the natural electrical resistance, or electronic friction, of the metal in
the circuit. For room-temperature operations it is therefore difficult to reduce
the electrical Q-factor. Mechanical resonators made from semiconductor-grade
silicon, on the other hand, exhibit mechanical Q-factors, approaching 100,000 at
room temperature. In all, these new, smaller and less costly magnetometers
should be 100-1000 times more sensitive than existing commercial devices, thus
enabling a new class of sensor systems that mPhase plans on commercializing.
The mPhase and Lucent magnetometer team has successfully
reached an early milestone and have produced a number MEM based sensor samples
from the clean room facilities and are working on integrating them into the
surrounding electronic circuitry so that measurement, characterization and
sensitivity testing can be conducted.
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 IPTV 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 its TV+ IPTV
solution 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 Broadband Loop Watch, the TV+ IPTV solution
and nanotechnology products respectively. The IPTV+ solution consists primarily
of middleware/software designed for the delivery of feature rich, carrier class,
broadcast TV, high speed internet and voice by telecommunications service
providers open using standards based equipment and transport configurations. 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+ solution for IPTV, POTS Splitter Shelves, the
Broadband Loop Watch "intelligent pots splitter" diagnostic product 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 $1,494,427. 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.
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 have 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 set top box 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 $3,835,402,
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.
Nine Months Ended March 31, 2005 vs. March 31, 2004
Revenue
Total revenues were $1,039,003 for the nine months ended March 31, 2005
compared to $4,335,476 for the nine months ended March 31, 2004 representing a
decrease of $3,296,473. 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 $823,217 for the nine months ended March 31, 2005 as
compared to $3,878,389 in the prior period, representing 79% of gross revenues
for the first nine months of fiscal 2005 which ended March 31, 2005 and 89% for
the nine months of fiscal 2004 which ended March 31, 2004, 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 nine months of fiscal 2005, which ended March 31, 2005,
increased by 10% over the margins for the same period ended March 31, 2004 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 $3,820,128 for the
nine months ended March 31, 2005 as compared $2,858,375 during the comparable
period in 2004, or an increase of $961,413. This increase consisted of increased
spending in the Company's Nanotechnology battery products of approximately
$500,000, and approximately $200,000 incurred in connection with commencement of
research of the Company's new Magnetometer product 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 and into fiscal
year 2006. 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 second quarter of fiscal year 2006. The contracts call for
payments totaling $1,536,680 payable in project milestones of $158.6 thousand
each over the contract. As of March 31, 2005 the Company has made payments of
approximately $2,000,000 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 $1,200,000 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)
ipotscircuit
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 $5,416,357 for the nine
months ended March 31, 2005 up from $2,196,052 or an increase of $3,220,305
from the comparable period in 2004. 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 and officers of the Company,
which totaled $2,582,148 for the nine months ended March 31, 2005 as compared to
$785,740 for the comparable period ended March 31, 2004 resulting in an
increase of $1,796,408. The increase in selling, general and administrative
expenses is also attributable to $181,721 of expenses associated with
adjustments of offering prices of certain of the private placements completed in
fiscal year 2005. Additionally sales and technical sales associates compensation
and fringe costs increased approximately $675,000, travel expenses increased by
approximately $52,000 and increased
spending in advertising, trade shows and marketing and resulting expenses
amounted to an aggregate of approximately $180,000. 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 $193,650 for the nine months ended
March 31, 2005, up from $100,883, or an increase of $92,767 from the comparable
period in 2004. . We expect such upward 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 $9,484,240 for the nine months ended March
31, 2005 as compared to a loss of $4,899,771 for the nine months ended March 31,
2004. This represents a loss per common share of $.09 for the nine month period
ended March 31, 2005 as compared to a loss per common share of $.07 for the nine
months ending March 31, 2004, based upon weighted average common shares
outstanding of 101,062,839 and 75,312,435 during the periods ended March 31,
2005 and 2004, 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 significant deployments and resultant
revenues of its Flagship product the TV+ IPTV solution are not expected until
the second half of fiscal year 2006, 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 and 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 year
ended June 30, 2003.
Research and development expensed were $3,820,128 for the nine months ended
March 31, 2005 as compared to $2,858,715 during the comparable period in 2004 or
an increase of $961,413.  The increased expenditures represented and
expansion of contract R&D activities, consisting of approximately $500,000 in
increased spending on Nanotechnology and approximately $200,000 in the start up
of Magnetometer Research and Development. The balance of the increase is
attributal to increased TV+ Version 3.0 spending.
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 March 31, 2005 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 March 31, 2005  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 product
components and finished goods, primarily consisting of DSL splitter shelves and
filters, from Janifast Limited. Directors that are significant shareholders of
Janifast Limited include Messrs Ronald A. Durando, Gustave T. Dotoli, and Necdet
F. Ergul.
Mr. Abraham Biderman is a Managing Director or Eagle Advisers, an investment
banking firm, which has earned finder's fees and reimbursement expense of $514,000 in connection with
raising approximately $4,950,000 during the 9 months ended March 31, 2005 and
$253,500 in connection with raising approximately $2,600,000 in June and July
2005.
Mr. Biderman, 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. A
member of mPhase's Board of Directors, Mr. Michael McInerney who resigned on
April 29, 2005, 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, 2003 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.
Mr. Durando's June 30, 2004 note payable balance of $300,00 was repaid by the
Company during the nine month period ending March 31, 2005. During the nine month
period, Mr. Durando made additional bridge loans to the Company evidenced by
various 12% demand notes in the aggregate of $525,000. Mr. Durando was repaid a total of
$450,000 of such loans in January of 2005. In addition, Mr. Durando converted
$13,954 of the principal amount of a $75,000 promissory note leaving unpaid
principal of $61,046 outstanding. Mr. Durando converted $13,000 of accrued and
unpaid interest on various promissory notes of the Company into 65,000 shares of
common stock and a 5 year warrant to purchase a like amount of common stock at
$.25 per share.
During the nine month period ended March 31, 2005 Mr. Dotoli and Mr. Smiley, the
COO and CFO and General Counsel of the Company respectively, each lent the
Company $75,000. Mr. Dotoli was repaid the principal amount of such loan, in
cash, in January of 2005 and Mr. Smiley converted his $75,000 loan into 375,000
shares of common stock of the Company plus a 5 year warrant to purchase a like
amount of shares at $.25 per share. In addition, Mr. Smiley converted $9,975 of
accrued interest into 49,875 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. Finally Mr. Smiley received
25,000 additional shares of common stock as a market adjustment to his equity
investment of $25,000 on August 30, 2004. Mr. Dotoli cancelled $3,750 of accrued
and unpaid interest from August 15, 2004 through January 15, 2005 into 375,000
shares of common stock pursuant to the terms of a portion of a warrant that was
exercised at $.01 per share previously given by the Company to Mr. Dotoli in
exchange for and cancellation of unpaid compensation.
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
428,434
84,494
General and
    administrative
132,600
136,080
133,200
161,496
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
161,494
Total Charges with
    Related Parties
$12,547,781
$3,035,941
$827,061
$3,158,038
Nine Months Ended March 31
2004
2005
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 March 31, 2005 and June 30, 2004 the
Company has incurred cumulative (a) development stage losses and has an
accumulated deficit of $125,529,323 and $115,775,083 respectively and (b)
negative cash flow from operations of $54,120,374 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 March 31, 2005, June 30, 2004,and June 30, 2003, the Company had a negative
net worth of $2,537,180 , $2,917,962 and $3,228,886 respectively..
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 March 31, 2005 mPhase had working capital deficit of $2,332,278
as compared to working capital deficit of $2,111,452 at June 30, 2004. At March
31, 2005, the Company had approximately $237,828 of cash, cash equivalents and
approximately $354,903 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 March 31, 2005, the Company had cash and cash
equivalents of $237,828 compared to $90,045 at June 30, 2004, accounts
receivable of $354,903 and inventory of $862,963. This compared to $64,100 of
accounts receivable and $1,237,972 of inventory at June 30, 2004.
Cash used in operating activities was $6,277,632 during the nine months
ending March 31, 2005. 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 $935,203 offset by depreciation and amortization of
$193,650, and by non-cash charges of $2,763,861 for common stock options and
warrants issued for officer compensation and services and offset by cash outflow
from an increase in inventory of approximately $160,209. The Company expects
that it will not have a need to increase inventory significantly 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 March 31, 2005 and 2004, respectively, and $13,539,932 from
the period from inception through March 31, 2005.
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 nine months ended March 31, 2005, certain
strategic vendors and related parties converted approximately $960,000
of accounts payable and accrued expenses into 3,437,271 shares of the Company's
common stock and  warrants to purchase 3,439,975 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, expect 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 to
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 Nine Months
Ended March 31,
For the Years
    Ended June 30,
(Unaudited)
Equity Conversions of Debt With Related
2002
2003
2004
2004
2005
Parties and Strategic Vendors
Related Party Conversions
Number of shares
6,546,550
5,533,333
--
--
2,737,875
Number of warrants
3,733,334
3,491,800
--
--
2,739,995
Amount converted to equity
$1,594,628
$1,760,967
$--
$--
$568,933
Strategic Vendor Conversions
Number of shares
999,662
390,000
110,467
--
697,396
Number of warrants
870,000
215,000
5,069,242
5,069,242
700,000
Amount converted to equity
$529,503
$198,032
$1,963,202
$1,834,211
$363,098
Total Related Party and Strategic
Party Conversions
Number of shares
7,546,212
5,923,333
110,467
--
3,437,271
Number of warrants
4,603,334
3,706,800
5,069,242
5,069,242
3,439,975
Amount converted to
    equity
$2,124,131
$1,958,999
$1,963,202
$1,834,211
$932,031
Gain (Loss) on
    Extinguishment of Debt
$142,236
$61,226
$(150,058)
$(128,991)
$(99,393)
Effective March 10, 2005, the Company entered into a Development Agreement
with Lucent Technologies, representing a total obligation of $1.2 million
payable in 12 monthly installments of $100,000 each through March of 2006 for
development of a ultra cool magnetometer sensor utilizing the science of
nanotechnolgy.
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 2, 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 This Agreement
was extended in February of 2005 for an additional 12 months for a total of $1.2
million to Lucent Technologies, Inc. payable in installments of $100,000 per
month.
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 LLC 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 March 31, 2005, the Company has
raised in the current fiscal year approximately $ 7 million. In addition, as of
August 5, 2005, the Company has raised an
additional $3.2 million in a Private Placement of equity units at $.20 per share
consisting of one share of common stock plus a 5 year warrant for an additional
share of common stock at $.25 per share.
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 16.4 million shares of common stock at exercise prices
of $.25  per share which may trade "in the money"
and can be exercised during the next 12 months; the likelihood and potential for
which may 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 2005 and for the last quarter 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.
The December 31, 2004 outstanding 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 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, Martin Smiley converted a $ 100, 000 convertible note
payable from the Company 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.
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 IPTV and 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 its existing
infrastructure that may consist of copper, fiber, coax or some combination
thereof. 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. 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 of both its
TV+ product and exploratory research of micro electro mechanical systems
development and its exploratory development of power source array fabrication
using nanotextured superhydrophobic materials to the Bell Labs division of
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 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 manufacture of quantities of POTS Splitters that are made by
Janifast Ltd.
With respect to manufacturing of its IPTV TV+ solution, 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. Janifast Ltd. has produced and delivered 1000
set top boxes to a major Russian telecommunication service provider in
connection with the initial deployment of the Company's TV+ solution.
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+ solution added
significant value to the Stinger DSL product by enabling such product to deliver
broadcast television using internet protocol 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 some of which may
represent potential future deployments and upgrades for the IPTV TV+ solution.
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 product known as the
Broadband Loop Watch. This 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.
Industry Background
The Company believes there is a significant market for its latest TV+
solution for the delivery of IPTV. 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
multichannel television services outside of North America in 2002 was only 36%.
The mPhaseTV+ solution 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 or any
other existing infrastructure 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
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 IPTV
solution 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 IP Television Solution
mPhase markets and sells its innovative IPTV delivery middleware/software as
part of its TV+ solutions and is developing a next generation set top box as an
additional component of such solution and as a stand alone product. The Company
has refocused its efforts on IPTV software/middleware based upon carrier class
open standards from its original development of delivery of TV as part of
broadband DSL proprietary hardware Our flagship product line is our TV+ solution
enabling the delivery of IP TV, voice and high-speed interned over any type of
infrastructure of a telecommunications service provider. mPhase has developed
its TV+ solution with a specific target in mind, namely, 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 was originally installed at Hart Telephone Company
in Hartwell, Georgia. as part of a beta trial of over 80 customers. 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.
In September of 2005. the Company expects to release its IPTV solution. Over
the years, the Company has spent over $30 million on research and development
culminating in the IPTV product and believes it has significant experience and
market knowledge in the field as a result of over 7 years of development
efforts, changing market conditions and new technology developments in
connection with Internet Protocol delivery of video.
Bell Labs and mPhase initially commenced research on the TV+
solution in December of 2002 as a compliment to and enhancement of the software
and set top boxes needed to delivery television over DSL using the Lucent
Stinger DSLAM. Bell Labs had previously 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.
Releases 1.0 and 2.0 of the TV+ solution were designed as ATM (asynchronous
transfer mode) solutions then targeted to the traditional reliability and use of
such protocol by the majority of telecommunications service providers. Release
3.0 of the TV+ solution marks the final evolution of the 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.
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 Sensor 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
$1,039,003 in revenue for the nine months ended March 31, 2005, 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. In November of
2005 we received our first order for 1000 ports of our TV+ solution and our
first order for $1 million of our IPOTS-3 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+
solution.
History of the IPTV+ Solution
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+ solution.Releases 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 Release 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. Since most telecommunications
providers require an IP rather than ATM mode for deploying digital broadcast
television and video on demand, we believe that our Release 3.0 will supercede
our earlier releases of the TV+ solution.
The Company believes the initial major deployments and any revenues from
sales of its flagship IPTV solution, are not expected until the third quarter of
fiscal year 2006. 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)
Although the Company has repositioned itself mainly as a
software/middleware provider of IPTV solutions, 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 customer
premises equipment 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 Broadband Loop Watch (intelligent
POTS Splitter), product line marks 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. This product reduce the operational costs
of deploying and maintaining DSL services. The Broadband Loop Watch (originally
named the
i
POTS
3)
is a significant advancement from the Company's
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 was
origianlly
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.
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 March 31, 2005 a total
of $784,000 for development of its TV+ solution which commenced in the second
quarter of fiscal year 2004. In September of 2004, mPhase announced a new
Project Development contract with the Bell Labs division of Lucent Technologies
Inc to develop Release 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 $900,400 primarily to Lucent
Technologies Inc and Magpie as of March 31, 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. 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 IPTV solution include telephone
companies and telecommunications service providers worldwide. By deploying
converged voice, video and data over their existing 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, the mPhaseTV+ solution for delivery of IP TV has now become a
compelling solution for many large international telecommunications service
providers to compete effectively in today's marketplace.
We estimate that on average, a typical telecommunications service provider
using mPhase's IP TV+ solution 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 IPTV+
solution 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 our IPTV solution 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 developed in conjunction with Lucent Technologies, for a number of
reasons:
The platform has been designed to achieve maximum cost efficiencies by
  maximizing scalability using IPTV .
mPhase believes its business partnership with Lucent will help validate
  our products and result in greater sales.
Version 3.0 of the TV+ solution is a market driven IP based solution and
  is a powerful software/middleware enabling tool providing complete standards-based flexibility for any combination of
  transport hardware including all major DSLAM'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+ solution
.. The Company expects to derive the majority of its system sales abroad,
specifically from telephone service providers in Europe, Latin America, Asia and
Africa.
mPhase believes that foreign markets will adopt its IPTV
solution more rapidly than domestic service providers since there is not
generally intense competition from cable television. Therefore, the Company has
placed much of its initial emphasis on targeting the international 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 IPTV 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 worldwide telecommunications 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.
To date, there are several significant deployments of IPTV worldwide
including Fastweb in Italy, Imagenio, operated by Telefonica in Spain, Yahoo
BB/Softbank in Japan, SuperSun in China in Hong Kong and Media on Demand in the
Republic of China operated by Chunghwa Telecom. mPhase believes that the
deployment of IPTV worldwide is still in its very early stages with many initial
deployments such as by Microphase with Swiss Telecom experiencing significant
technical difficulties. The market has been slower to develop than many
commentators have predicted owing to the technical complexity of the systems
software and hardware to deliver feature rich television and video on demand
where many international telecommunications operators have varied topologies,
existing infrastructure, complex regulations to comply with in order to
successfully deploy such a system. Nevertheless, mPhase believes that telecommunications service providers around the world have the incentive to
deploy
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 telecommunications service
providers are especially vulnerable to these competitive threats and have a need
to develop new product delivery capabilities to increase revenues 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. Nevertheless, 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 potentially benefit from the incremental revenue generated by
services offered through mPhase's TV+ solution. Since the flexibility or the
solution allows for favorable economic returns for both small and large customer
deployments, mPhase believes that there may be certain opportunities in the
United States for deployment of its IP TV+ solution.
mPhase is in the process of evaluating market opportunities in North America
and around the world to address commercial applications of the TV+ solution.
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
IPTV
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 should 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.
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 IP TV solution, yet recognize the potential business
opportunity in deploying our product.
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 has established a JV in Turkey with Beyaz
Holdings a significant provider of Turkish Television content. 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 sales of its TV+ solution, but would benefit from
the recurring revenues from a JV engaged in being a broadcast television service
provider.
DSL Component Products
mPhase continues to sell a line of DSL component products including: POTS
Splitter Shelves, DSL Loop Diagnostic systems such as the Broadband Loop Watch
product, 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. Sales through March 31, 2005 have continued to be weak.
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 entered into software development and licensing agreements
with Magpie with respect to certain software used in connection with Release 3.0
of its TV+ product. Under such development and licensing Agreement the Company
has made aggregate payments of approximately $320,000 as of April 21, 2005. In
addition the Company will pay a licensing fee per set top box sold as part of
the TV+product. In the third quarter of fiscal year 2005, the Company entered into a second
development agreement with Magpie
calling for payments of approximately $430,000 in order to complete software
development necessary for Release 3.0 of its TV+ solution. Such payments are
payable monthly subject to completion of milestones.
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 Company is expected to maintain this patent in
the United States and certain foreign countries.
On July 12, 2005, mPhase announced that it had been awarded a U.S. Patent for
Signal Splitting Technology used in its new Broadband Loop Watch product.
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 has filed 7 patents that consist of a combination of (a) patents
granted to mPhase from the bell labs division of Lucent Technologies, Inc. and
(b) joint patents developed by mPhase and employees of bell labs 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 IP TV middleware solutions and set top boxes. 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 IPTV solution is 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 IPTV solutions either because of the threat of the cable companies, or
because of the lack of cable infrastructure. The Company believes that its
TV+solution is the most cost effective and robust video delivery technology
deployable by our primary target market of international telecommunications
service providers. Installing our IPTV+ solution 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 IP TV Vendors
mPhase competes with both vendors of middleware and set top boxes. Companies
that supply middleware for IPTV include a joint venture of Microsoft and
Alcatel, Minerva, Orca Interactive, Siemens, VBrick Systems, and Video Furnance.
Other set top box vendors for IP TV include Advanced Digital Broadcast, Amino
Communications, i3 micro, Kreatel, Pace Micro Technology, Samsung, Telsey
Telecommunication and VBrick Systems. IP end to end systems competitors include
UTStarcom,mxWare and Industria. Lucent has recently established a partnership
with Orca Interactive, a company located in Israel, that makes
software/middleware for the delivery of IPTV that is in direct competition with
mPhase's IPTV product.
Differentiating Factors
mPhase believes that its IPTV product offers the most reliable, scaleable and
cost effective solution 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.
Headend Equipment Providers
mPhase does not manufacturer digital head end
gear. All customers interested in deploying an mPhase IP TV+ solution 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. mPhase believes that its power cell and magnetometer
products may be the earliest products commercialized using the science of
nanotechnology. Nevertheless, the Company does not expect any material revenues
from such product for 2-3 years.
Employees
We presently have approximately (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, Inc. 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 August 1, 2005, are as follows:
Name
Age
Position(s)
Necdet F. Ergul
81
Chairman of the
    Board and Director
Ronald A. Durando
48
President, Chief
    Executive Officer And Director
Gustave T. Dotoli
    (2)
70
Chief Operating
    Officer and Director
Martin S. Smiley
58
Executive Vice
    President, Chief Financial Officer
and General Counsel
Outside Directors
Anthony H. Guerino,
    Esq. (1)(2)
58
Director
Abraham Biderman
    (1)(2)
57
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.
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.
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.
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
Long-Term
Compensation
Annual Compensation
Securities
Underlying
Options/Sars
(Shares)
Restricted
Stock
Name And
Principal Position
Year
Salary
Bonus
Award(s)
(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)(4)
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 $100,000 during any year.
Mr. Klimek declined to stand for reelection as a Director
  and Chief Technical Officer of the Company as of July 20, 2005, the date of
  the Company's most recent annual meeting.
STOCK OPTIONS
The following table contains information regarding options
granted in the fiscal year ended June 30, 2004 to the executive officers named
in the summary compensation table above. For the fiscal year ended June 30,
2004, mPhase granted options to acquire up to an aggregate of 1,615,000 shares
to employees and directors.
Option Grants in Last Fiscal Year (Individual Grants)
Potential
    Realizable
Value of
Number of
% of Total
Weighted
Weighted
Assumed Annual
Securities
Options/SARS
Average
Average
Rates of Stock
    Price
Underlying
Granted to
Exercise
Market
Appreciation
    for 5
Options/SARS
Employees
or Base
Price
Year Option
    Term
Granted
in Fiscal
Price
on Grant
Expiration
Name
(#)
Year
($/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 two (2) non-employee directors and approximately nineteen (19)
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 2005 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 TV+
product 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 May 6, 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(5)(6)
2,616,250
2.0%
Ronald A.
    Durando(3)(5)
11,644,382
8.4%
Gustave T.
    Dotoli(5)(7)
6,021,100
4.5%
David Klimek(5)
424,500
*
Abraham Biderman(4)(5)
694,000
*
Anthony Guerino(5)
657,500
*
Martin Smiley(8)
5,676,132
4.2%
Microphase Corporation
    (9)
14,704,686
10.8%
Janifast(10)
10,935,000
8.7%
All executive Officers
    Directors, and (2)
53,272,783
59.4%
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 on130,410,957 shares outstanding on May 6, 2005,
and, with respect to each person holding options or warrants to purchase shares
that are exercisable within 60 days after May 6, 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
4,278,067
Martin Smiley
3,554,543
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). 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.
(5) Includes options for 25,000 shares of common stock received as
compensation for participation on the Board of Directors.
(6) 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.
(7) Includes 277,500 shares owned by Patricia and Gustave Dotoli Foundation;
and 195,000 shares owned by Dotoli.
(8) Includes 333,334 shares and warrants to purchase 333,334 shares that
reserved for conversion of a convertible note that are included in the
beneficially owned shares of Mr. Martin Smiley.
(9) Includes 8,244,667 shares and warrants to purchase 3,200,000 shares and a
convertible note that may be converted into 1,200,000 shares, the totals of
which are included in the beneficial ownership of Mr. Necedet F. Ergul.
(10) Includes 7,350,000 shares and warrant to purchase 1,200,000 shares, to
totals of which are included in the beneficially owned shares of Mr. 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
component parts and finished goods, primarily consisting of DSL splitter shelves
and filters, from Janifast Limited.
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.
Mr. Durando, the President and CEO of mPhase, owns a controlling interest and
is a director of Janifast Ltd. 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
Corporation, and Janifast Ltd, are significant shareholders of mPhase.
Microphase and Janifast Ltd. have converted significant liabilities to equity in
fiscal years June 30, 2001, 2002 and 2003 and Janifast Ltd. and Microphase
Corporation converted $200,000 and $250,000 of accounts payable respectively
into common stock and warrants as of December 31, 2004. Management believes the
amounts charged to the Company by Microphase, and Janifast Ltd. are commensurate
to amounts that would be incurred if outside parties were used. The Company
believes Microphase, and Janifast Ltd have the ability to fulfill their
obligations to the Company without further support from the Company.
Mr. Durando's June 30, 2004 note payable balance of $300,00 was repaid by the
Company during the nine month period ended March 31, 2005. During the nine month
period, Mr. Durando made additional bridge loans to the Company evidenced by
various 12% demand notes in the Aggregate of $525,000. Mr. Durando was repaid a
total of $450,000 of such loans in January of 2005. In addition, Mr. Durando
converted $13,954 of the principal amount of a $75,000 promissory note leaving
unpaid principal of $61,046 outstanding. Mr. Durando converted $13,000 of
accrued and unpaid interest on various promissory notes of the Company into
65,000 shares of common stock and a 5 year warrant to purchase a like amount of
common stock at $.25 per share.
During the nine month period ended March 31, 2005 Mr. Dotoli and Mr. Smiley, the
COO and CFO and General Counsel of the Company respectively, each lent the
Company $75,000. Mr. Dotoli was repaid, the principal amount of such loan, in
cash in January of 2005 and Mr. Smiley converted his $75,000 loan into 375,000
shares of common stock of the Company plus a 5 year warrant to purchase a like
amount of shares at $.25 per share. In addition, Mr. Smiley converted $9,975 of
accrued interest into 49,875 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. Finally Mr. Smiley received
25,000 additional shares of common stock as a market adjustment to his equity
investment of $25,000 on August 30, 2004. Mr. Dotoli cancelled $3,750 of accrued
and unpaid interest from August 15, 2004 through January 15, 2004 into 375,000
shares of common stock pursuant to the terms of a portion of a warrant that was
exercised at $.01 per share previously given by the Company to Mr. Dotoli in
exchange for and cancellation of unpaid compensation.
During the, 9 month period ended March 31, 2005, Eagle Advisers, an investment
banking firm founded by Mr. Abraham Biderman, a member of the Board of Directors
of the Company, earned fees and reimbursement expenses of approximately $514,000 in connection with
services in connection with private
placements of common stock and warrants for the Company that raised a total of
approximately $4,950,000 proceeds to net of fees for the Company.
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.
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 to Lipper & Company.
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. These issuances included 1,000,000 shares to Mr. Lee Barton, a
director of the Company 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 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 and DSL 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 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.  As of June 30, 2002, the Company had $92,405
of payables to Microphase.
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 and 2004, $360,000 and $180,000 in notes payable-related parties,
respectively.
Additionally, at June 30, 2003, approximately $61,789 of payables and $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, $2,771,925 and $13,581,611 of 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 $400,000 of undelivered purchase orders remain
outstanding with Janifast Ltd. and outstanding payables to Janifast Ltd.
amounted to $422,905.
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 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 As of June 1, 2004, the Company is current with respect to payments to Piper Rudnick LLP.
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 holds 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 Nine Months
Ended March 31,
For the Years Ended June 30,
(Unaudited)
Equity
    Conversions of
2002
2003
2004
200
4
2005
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
0
Number of
    warrants
0
0
0
0
0
Amount
    converted to
$0
$0
$0
$0
$0
equity
Officers
Number of
    shares
333,334
0
0
0
489,875
Number of
    warrants (A)
333,334
2,491,800
0
0
489,875
Amount
    converted to
$103,000
$480,967
$0
$0
118,933
equity
Joint
    Venture Partner
and
    Affiliates
Number of
    shares
63,216
0
0
0
0
Number of
    warrants
0
0
0
0
0
Amount
    converted to
$31,628
$0
$0
$0
$0
equity
Total
    Related Party
Conversions
Number of
    shares
6,546,550
5,533,333
0
0
2,739,875
Number of
    warrants
3,733,334
3,491,800
0
0
2,739,875
Amount
    converted to
$1,594,628
$1,760,967
$0
$0
$568,933
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
Shares Being
NAME
Beneficial Shares
Offered
Note
Abraham Grinberger
6,000
6,000
A-1
Abraham Hoffert
7,000
7,000
A-2
Abraham Zirsha Rausman
20,000
20,000
A-3
Alexander Hasenfeld Inc.
100,000
100,000
A-4
Alexander Hasenfeld Inc.
100,000
100,000
A-5
Angela Bolletteri
40,000
40,000
A-6
Barry Rausman
20,000
20,000
A-7
Beth Mayer Associates
500,000
500,000
A-8
Bnei David
5,000
5,000
A-9
Boro Park Health Food Inc
1,700
1,700
A-10
Chaim Stefansky
50,000
50,000
A-11
Charles Hannen
50,000
50,000
A-12
Chaya Etta Rausman
30,000
30,000
A-13
Colel Chabad/Sholom Duchman
3,000,000
3,000,000
A-14
Congregational Acheinu Bnei Yisroel
150,000
150,000
A-15
David Farber
500,000
500,000
A-16
David Gluck
34,000
34,000
A-17
Double U Master Fund L.P.
2,000,000
2,000,000
A-18
Dr. Scott K. Hannen/Aneesa Hannen
50,000
50,000
A-19
Emil & Joan Rausman
30,000
30,000
A-20
Emil & Joan Rausman
40,000
40,000
A-21
Emily Rausman and Joan Rausman
40,000
40,000
A-22
Eshel LP Ltd./Solomon Lesin
500,000
500,000
A-23
Eugene L. Kelly
50,000
50,000
A-24
Gary Rieder
1,000,000
1,000,000
A-25
George Rider
3,000,000
3,000,000
A-26
Germilas Chesed Ach TOV
442,900
442,900
A-27
Hasenfeld-Stein
300,000
300,000
A-28
Herbert Rausman and Rifka Rausman
200,000
200,000
A-29
HSI Partnership/Nachum Stein, Partner
50,000
50,000
A-30
HSI Partnership/Nachum Stein, Partner
200,000
200,000
A-31
IBER Int'l Ltd./Akra Building
5,000,000
5,000,000
A-32
Irgun Shivrei
1,800,000
1,800,000
A-33
J&E Rausman
20,000
20,000
A-34
Jacob Joseph & Basya Abikhzer
40,000
40,000
A-35
Jacob Joseph Rausman
30,000
30,000
A-36
Joshua Teitelbaum & Helena Teitelbaum
750,000
750,000
A-37
Leon Goldenberg
500,000
500,000
A-38
Leslie Rieder
1,000,000
1,000,000
A-39
Mark Rieder
1,000,000
1,000,000
A-40
Mary E. Coons
1,250,000
1,250,000
A-41
Mary Park Properties/Mayer Rooz
1,000,000
1,000,000
A-42
Matthew Fischer
8,000
8,000
A-43
Mesamche Lev
8,000
8,000
A-44
Michael F. Cusick
250,000
250,000
A-45
Michael Spitzer
100,000
100,000
A-46
Morris Friedman
2,000,000
2,000,000
A-47
Mosdos Ohr
    Hatorah
200,000
200,000
A-48
Murray Sternfeld
591,000
591,000
A-49
Nachum Stein
300,000
300,000
A-50
Nachum Stein
100,000
100,000
A-51
Pearl Rausman
30,000
30,000
A-52
Peter J. Gidas
    and Cynthia Gidas
200,000
200,000
A-53
PJT Family Trust
83,400
83,400
A-54
Platinum Partners
    Value Arbitrage Fund L.P./Mark Nordlicht
4,000,000
4,000,000
A-55
Rausman Pearl Guy
20,000
20,000
A-56
Rausman Somerset
    LLC
100,000
100,000
A-57
Richard Klien
50,000
50,000
A-58
Rivka Tyberg
2,000
2,000
A-59
Rutgers Casualty
    Insurance Company/Nachum Stein, Chairman
50,000
50,000
A-60
Rutgers Casualty
    Insurance Company/Nachum Stein, Chairman
100,000
100,000
A-61
Rutgers Enhanced
    Insurance Company/Nachum Stein, Chairman
50,000
50,000
A-62
Ruth Englard
14,000
14,000
A-63
Salvatore Amato
350,000
350,000
A-64
Seven
    Grandchildren
40,000
40,000
A-65
Seven
    Grandchildren
40,000
40,000
A-66
Seven
    Grandchildren
40,000
40,000
A-67
Seven
    Grandchildren
40,000
40,000
A-68
Seven
    Grandchildren
40,000
40,000
A-69
ShazamStocks
    Inc
250,000
250,000
A-70
Teresa L.
    Peterkin
20,000
20,000
A-71
The E&J Rausman
20,000
20,000
A-72
The Rausman
    Family Trust
20,000
20,000
A-73
Tommy Cheng
50,000
50,000
A-74
Tower 50 Partners
    LP/Aaron Elbogen
1,000,000
1,000,000
A-75
Trane Rausman
    Trust
20,000
20,000
A-76
Trust FBO Abraham
    Abikhzer
20,000
20,000
A-77
Wesco Inc./
    Alfred West
500,000
500,000
A-78
Wesley R.
    Calhoun/Brenda Calhoun
50,000
50,000
A-79
Yakov Stein
250,000
250,000
A-80
TOTAL
38,230,800
38,230,800
(A-1) Includes Warrants to
    Purchase up to 6,000
(A-2) Includes Warrants to
    Purchase up to 7,000
(A-3) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock
(A-4) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock
(A-5) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock
(A-6) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-7) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock
(A-8) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock
(A-9) Includes Warrants to
    Purchase up to 5,000
(A-10) Includes Warrants to
    Purchase up to 1,700
(A-11) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-12) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-13) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock
(A-14) Includes Warrants to
    Purchase up to 1,500,000 Shares of Common Stock
(A-15) Includes Warrants to
    Purchase up to 100,000
(A-16) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock
(A-17) Includes Warrants to
    Purchase up to 22,000
(A-18) Includes Warrants to
    Purchase up to 1,000,000 Shares of Common Stock
(A-19) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-20) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock
(A-21) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-22) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-23) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock
(A-24) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-25) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock
(A-26) Includes Warrants to
    Purchase up to 1,500,000 Shares of Common Stock
(A-27) Includes Warrants to
    Purchase up to 442,900
(A-28) Includes Warrants to
    Purchase up to 150,000 Shares of Common Stock
(A-29) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock
(A-30) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-31) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock
(A-32) Includes Warrants to
    Purchase up to 2,500,000 Shares of Common Stock
(A-33) Includes Warrants to
    Purchase up to 900,000 Shares of Common Stock
(A-34) Includes Warrants to
    Purchase up to 20,000
(A-35) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-36) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock
(A-37) Includes Warrants to
    Purchase up to 375,000 Shares of Common Stock
(A-38) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock
(A-39) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock
(A-40) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock
(A-41) Includes Warrants to
    Purchase up to 625,000 Shares of Common Stock
(A-42) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock
(A-43) Includes Warrants to
    Purchase up to 8,000
(A-44) Includes Warrants to
    Purchase up to 8,000
(A-45) Includes Warrants to
    Purchase up to 125,000 Shares of Common Stock
(A-46) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock
(A-47) Includes Options to
    Purchase up to 1,000,000 Shares of Common Stock
(A-48) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock
(A-49) Includes Warrants to Purchase up to 6,500 Shares of Common Stock
(A-50) Includes Warrants to
    Purchase up to 150,000 Shares of Common Stock
(A-51) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock
(A-52) Includes Warrants to
    Purchase up to 15,000 Shares of Common Stock
(A-53) Includes Warrants to
    Purchase up to 100,000 Shares of Common Stock
(A-54) Includes Warrants to
    Purchase up to 53,400 Shares of Common Stock
(A-55) Includes Warrants to
    Purchase up to 2,000,000 Shares of Common Stock
(A-56) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock
(A-57) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock
(A-58) Includes
    Options to
    Purchase up to 25,000 Shares of Common Stock
(A-59) Includes
    Options to
    Purchase up to 2,000 Shares of Common Stock
(A-60) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-61) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock
(A-62) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-63) Includes Warrants to
    Purchase up to 14,000
(A-64) Includes Warrants to
    Purchase up to 175,000 Shares of Common Stock
(A-65) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-66) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-67) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-68) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-69) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-70) Includes Warrants to
    Purchase up to 125,000 Shares of Common Stock
(A-71) Includes Warrants to
    Purchase up to 20,000 Shares of Common Stock
(A-72) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock
(A-73) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock
(A-74) Includes Warrants to
    Purchase up to 50,000 Shares of Common Stock
(A-75) Includes Warrants to
    Purchase up to 500,000 Shares of Common Stock
(A-76) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock
(A-77) Includes Warrants to
    Purchase up to 10,000 Shares of Common Stock
(A-78) Includes Warrants to
    Purchase up to 250,000 Shares of Common Stock
(A-79) Includes Warrants to
    Purchase up to 25,000 Shares of Common Stock
(A-80) Includes Warrants to
    Purchase up to 125,000 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:
1.
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;
2.
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;
3.
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
4.
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 500,000,000  shares of common stock,$.01 par value as
of July 20, 2005 the date of our most recent annual meeting. As of  July 22,
2005, approximately 141 million shares of our common stock are issued and
outstanding and held by approximately 12,000 stockholders of record. Of  the
shares of our issued and outstanding common stock, shares are covered by this
prospectus. In addition shares of 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 $.25  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 of the Company.
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
June 1, 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 March 31,
      2005 (Unaudited)
F-4
Consolidated Statements of Operations for the years ended June 30, 2002, 2003,
      2004, and for the  period
      from inception (October 2, 1996) through June 30, 2004
F-5
Unaudited
      Consolidated Statements of Operations for the Nine months ended March 31,
      2005 and for the
      period from inception (October 2, 1996) through March 31, 2005
F-6
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
      the period
      from inception (October
      2, 1996) to June 30, 1998 and for each of the six years in the period ended June
      30, 2004
F-7-12
Unaudited
      Consolidated Statement of Changes in Shareholders' Deficit for the Nine
      months ended March 31,
      2005
F-13
Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2003 and
      2004, and for the period
      from inception (October 2, 1996) through June 30, 2004
F-14
Unaudited
      Consolidated Statements of Cash Flows for the Nine months ended March  31,
      2005 and 2004,
      and for the period from inception (October 2, 1996) through March  31,
      2005
F-15
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,
March 31,
2003
2004
2005
(unaudited)
ASSETS
Current
    assets:
Cash and
    cash equivalents
$396,860
$90,045
$237,828
Accounts
    receivable, net of bad debt reserve of $0
287,135
64,100
354,903
and $0 for
    each period
Stock
    subscription receivable
110,000
886,000
---
Inventory
2,103,328
1,237,972
862,963
Production
    Advances-Janifast Ltd.
----
----
337,709
Prepaid
    expenses and other current assets
100,329
81,061
169,503
Total
    current assets
2,997,652
2,359,178
1,962,906
Property and
    equipment, net
581,890
52,685
178,626
Patents and
    licenses, net
184,857
161,605
176,972
Other assets
17,250
17,250
---
Total
    assets
$3,781,649
$2,590,718
$2,318,504
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current
    liabilities:
Accounts
    payable
$2,352,961
2,088,658
2,565,629
Accrued
    expenses
885,735
691,033
957,925
Due to
    related parties
187,372
625,956
280,739
Notes
    payable, related party
-
300,000
242,000
Current
    Portion of Long-Term Debt
762,735
550,803
----
Deferred
    revenue
214,180
214,180
248,891
Total
    current liabilities
4,402,983
4,470,630
4,295,184
Long Term
    Debt, net of current portion
586,303
139,500
281,000
Other
    liabilities
1,561,249
618,550
279,500
Notes
    payable, related parties
460,000
280,000
---
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY (DEFICIT):
Common
    Stock, stated value $.01, 250,000,000 shares
authorized;
71,453,521,
    88,899,962 and 109,743,391 (unaudited),
shares
    issued and
outstanding,
    respectively
714,535
888,999
1,299,610
Additional
    paid-in capital
104,081,049
111,976,095
121,430,506
Deficit
    accumulated during development stage
(108,016,497)
(115,775,083)
(125,259,323)
Less-treasury stock, 13,750 shares, at cost
(7,973)
(7.973)
(7,973)
Total
    stockholders' equity (deficit)
(3,228,886)
(2,917,962)
(2,537,180)
Total
    liabilities and stockholders' equity
$3,781,649
2,590,718
2,318,504
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 $2,503,114 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 statements.
F-5
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
October 2, 1996
Nine Months Ended
(Date of
March 31,
Inception) to
March 31,
2004
2005
2005
REVENUES
$
4,335,476
$
1,039,003
$
20,648,944
COSTS AND
    EXPENSES
Cost of Sales (See Also Note
    11 Related Party Transactions)
3,878,389
823,217
14,736,424
Research
    and development
including non-cash stock related
charges of $0, $0
and
    $2,503,114, respectively
(See Also Note 11 Related Party Transactions)
2,858,715
3,820,128
42,236,928
General
    and Administrative
(including non-cash stock
related charges of $785,740
$2,763,861 and $50,097,003
respectively) (see also Note 11 Related Party Transactions)
2,196,052
5,416,357
84,471,454
Depreciation and amortization
100,883
193,650
3,083,557
TOTAL
    COSTS AND EXPENSES
9,033,889
10,253,352
144,528,363
LOSS FROM
    OPERATIONS
(4,698,483)
(9,214,349)
(123,880,319)
OTHER INCOME
Gain
    (Loss) on extinguishments
(128,991)
(99,393)
254,127
Minority
    interest loss in
consolidated subsidiary
-
-
20,000
Capital
    Losses
-
(38,358)
(49,616)
Loss from
    unconsolidated
subsidiary
-
-
(1,466,467)
Interest
    Income (expense), net
(72,367)
(132,140)
(137,048)
TOTAL
    OTHER INCOME (EXPENSE)
(201,358)
(269,891)
(1,379,004)
NET LOSS
$
(4,899,771)
$
(9,484,240)
$
(125,259,323)
LOSS PER
    COMMON SHARE,
basic and
    diluted
$
(0.07)
$
(0.09)
WEIGHTED
    AVERAGE COMMON
SHARES
OUTSTANDING,
    basic and diluted
75,312,435
101,062,839
The accompanying
notes are an integral part of these consolidated financial statements.
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
30, 1997
8,334,697
$83,347
$-
$675,127
$-
$(781,246)
$(22,772)
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
$(108,016,497)
$0
$(3,228,886)
30, 2003
Issuance of
    common
15,177,973
151,779
4,322,934
-
-
-
4,474,713
stock with
    warrants
in private
    placement
Issuance of
    common
924,667
9,247
238,153
-
-
-
247,400
stock for
    services
Issuance of
    options
-
-
1,067,393
-
-
1,067,393
and warrants
    for
services
Issuance of
    common
1,233,334
12,333
-
304,467
-
-
-
316,800
stock
    pursuant to
exercise of
    warrants
Issuance of
    common
110,467
1,105
1,962,099
-
-
-
1,963,204
stock and
    warrants
in
    settlement of debt
to related
    parties and
strategic
    vendors
Net loss
-
-
-
-
(7,758,586)
-
(7,758,586)
BALANCE,
    JUNE
30, 2004
88,899,962
$888,999
$(7,973)
$111,976,095
$0
$(115,775,083)
$0
$(2,917,962)
The
    accompanying notes are an integral part of these consolidated financial
    statements.
F-1
3
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statement of Changes in Shareholders'
Deficit
(Unaudited)
Total
$.01 Stated
Additional Paid
Accumulated
Shareholders
Shares
Value
Treasury Stock
in Capital
Deficit
Equity
Balance,
    June 30, 2004
88,899,962
$
888,999
$
(7,973)
$
111,976,095
$
(115,775,083)
$
(2,917,962)
Issuance of
    Shares in Private
Placement
26,286,716
$
262,867
$
-
$
5,225,576
$
-
$
5,488,443
Issuance of
    Shares in connection
with
    exercise of warrants
3,300,954
$
33,009
$
-
$
530,581
$
-
$
563,590
Conversion
    of Debt to Common
Stock and
    warrants
3,437,271
$
34,372
$
$
997,052
$
-
$
1,031,424
Options
    Awarded to Consultants
-
$
-
$
$
1,821,100
$
-
$
1,821,100
Options
    Awarded to Officers
-
$
-
$
$
625,290
$
-
$
625,290
Issuance of
    shares to officers
for services
425,000
$
4,250
$
$
127,500
$
-
$
131,750
Exercise of
    cashless warrant
4,949,684
$
49,499
$
-
$
(49,499)
$
-
$
-
Exercise of
    warrants by
Officers
1,770,400
$
17,704
$
-
$
-
$
-
$
17,704
Reparation
    of Private Placement
Offering
891,000
$
8,910
$
-
$
176,811
$
-
$
185,721
Net Loss
-
$
-
$
-
$
-
$
(9,484,240)
$
(9,484,240)
March 31,
    2005
129,960,987
$
1,299,610
$
(7,973)
$
121,430,506
$
(125,259,323)
$
(2,537,180)
The
accompanying notes are an integral part of these consolidated financial
statements.
F-14
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
(74,649)
-
(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)
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)
90,045
CASH AND
    CASH EQUIVALENTS,
31,005
47,065
396,860
--
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-15
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
October 2, 1996 (Date of
Nine Months Ended
Inception)
March 31,
to March 31,
2004
2005
2005
Cash Flow
    From Operating Activities:
Net Loss
$
(4,889,771)
$
(9,484,240)
$
(125,259,323)
Adjustments
    to reconcile net loss to net cash used in
operating
activities:
Depreciation
    and amortization
573,579
193,650
6,523,889
Book Value
    of fixed assets disposed
-
-
74,272
Provision
    for doubtful accounts
-
-
32,124
(Gain) loss
    on debt extinguishments
128,991
99,393
(254,127)
Loss on
    unconsolidated subsidiary
-
-
1,466,467
Impairment
    of note receivable
17,250
250,000
Loss on
    securities
-
38,358
49,616
Non-cash
    charges relating to issuance of common
stock,
    common
stock
    options and Warrants
344,143
2,763,861
52,222,751
Changes in
    assets and liabilities:
Accounts
    receivable
164,844
(290,803)
(387,027)
Inventories
1,077,080
160,209
(867,524)
Production
    advances - Related Party
(337,709)
(337,709)
Prepaid
    expenses and other current assets
30,417
(88,442)
(88,442)
Other
    non-current assets
-
-
(577,182)
Accounts
    payable
279,422
539,314
4,868,421
Accrued
    expenses
(133,670)
395,892
2,175,761
Due to/from
    related parties
Microphase
66,156
92,083
2,488,794
Janifast
(205,998)
103,543
2,806,448
Officers
(90,583)
(86,139)
382,617
Lintel
-
-
477,000
Others
-
(179,482)
-
Receivables
    from Subsidiary
-
-
(150,000)
Deferred
    revenue
-
(214,180)
-
Net cash
    used in operating activities
(2,665,390)
(6,277,632)
(54,120,374)
Cash Flow
    from Investing Activities:
Payments
    related to patents and licensing rights
-
(50,836)
(467,449)
Purchase of
    fixed assets
(5,500)
(107,481)
(2,748,587)
Net Cash
    used in investing activities
(5,500)
(158,317)
(3,216,036)
Cash Flow
    from Financing Activities:
Proceeds
    from issuance of common stock and
exercises of
    options and warrants
3,834,092
6,938,033
57,410,509
Payments of
    notes payable
(5,000)
(129,301)
(351,138)
Advances
    from Microphase Corporation
(180,000)
--
347,840
Proceeds
    from notes payable-officers
-
600,000
(1,030,000)
Repayments
    of notes payable-officers
-
(825,000)
(855,000)
Repurchase
    of treasury stock at cost
-
--
(7,973)
Net cash
    provided by financing activities
3,649,092
6,583,732
57,574,238
Net increase
    (decrease) in cash
978,202
147,783
237,828
CASH AND
    CASH EQUIVALENTS, beginning of
period
396,860
90,045
-
CASH AND
    CASH EQUIVALENTS, end of period
$
1,375,062
$
237,828
$
237,828
The
accompanying notes are an integral part of these consolidated financial
statements.
F-16
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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 and March 31, 2005 (unaudited) the
Company had incurred development stage losses totaling $115,775,083 and
$125,259,323, and at June
30, 2004 and at March 31, 2005 (unaudited) had a stockholders' deficit of $2,917,962
and $2,537,180, respectively. At June 30, 2004, the
Company had $90,045 of cash and cash equivalents and $64,100 of trade
receivables and at March 31, 2005 (unaudited), the Company had $237,828 of cash
and cash equivalents and $354,903 of trade receivables available to fund its 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. During the nine
month period ended March 31, 2005 the Company experienced a downtrend in sales
and sales to our main customer accounted for $719,000 of revenue.
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 do not include any adjustments that might
result from the outcome of this uncertainty.  During the nine month period
ended March 31, 2005 the customers were
approximately $719,000.
F-17
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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-18
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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
March 31, 2005
(unaudited)
Raw
    materials
$   75,833
Work in
    Progress
-
Finished
    goods
1,175,365
Total
1,251,198
Less:
    Reserve for obsolescence
(388,235)
Net Inventory
$ 862,963
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 consisted,
among other factors, significant changes 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-19
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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-20
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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.
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.
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
$
Investments
    in Patents and Licenses paid with equity
$
-
$
38,750
March 31
March 31
2004
(unaudited)
2005
Interest
    paid
$
47,904
$
11,587
Taxes paid
$
250
$
0
Schedule of
    Non-Cash
Investing
    and Financing Activities:
Conversion
    of accounts payable and accrued expenses
to equity
$
1,834,211
$
743,950
Conversion
    of Interest Accrued to Equity
---
26,225
Conversion
    of notes payable to equity
$
---
$
261,249
Private
    Placement Reparation Expense-additional issuance of shares
---
185,721
Investments in Patents paid
    with equity
$
38,750
$
---
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 and as of March 31, 2005.
F-21
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
6. PROPERTY AND EQUIPMENT
Property and equipment, at cost,
consist of the following:
March 31, 2005 (unaudited)
Equipment
$ 2,991,597
Office and
    marketing equipment
457,435
3,449,052
Less-Accumulated depreciation
(3,270,406)
$ 178,626
Depreciation
expense for the nine months ended March  31, 2005 and March 31, 2004 was
$166,340 and $500,716 respectively, of which $0 and $472,676 
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:
March
31, 2005
(unaudited)
Lucent
    Projects (Note 13)
$
218,180
Other
    General Expenses
739,745
$
957,925
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  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-22
mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and 2005)
9. LONG TERM DEBT (Continued)
March 31, 2005
(unaudited)
Long-term debt is comprised of the following:
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
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.
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 under
    renegotiation; the expected repayment arrangements are included in current
and long term portions of long term debt.
205,058
Total
538,891
Less: Current portion
248,891
Long-term Debt, non-current portion
$
281,000
At December 31, 2004 total maturities of
    long-term debt are as follows:
2005
$
248,891
2006
206,000
2007
75,000
TOTAL
$
538,891
F-24
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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-25
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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.
F-26
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
10. STOCKHOLDERS' EQUITY -
(Continued)
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 the 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 annual 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 settlements
of $27,860 resulted in an aggregate gain on extinguishments of $142,236.
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.
F-27
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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 the 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
Janifast 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.
F-28
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
10. STOCKHOLDERS' EQUITY -
(Continued)
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.
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.
In July of 2004,
the Company issued 622,000 shares of its common stock together with a like
amount of callable warrants at $.35 and $.50 respectively in a private
placement. In August and September of 2004, the Company issued 1,050,000 shares
of its common stock together with a like amount of callable warrants at $.25 and
$.50 per share in private placements, which after cash outlays of approximately
$15,900, generated net proceeds of $247,500. The aggregate net proceeds of such
private placements of $402,100 were collected during the three month period
ended September 30, 2004. On December 7, 2004, the Company issued an additional
891,000 shares to the investors in the foregoing private placements due to a
market value adjustment. These shares were valued at $185,721 which is included
in general and administrative expenses in the accompanying statement of
operations for the period ended December 31, 2004.
During the three
months ending December 31, 2004, the Company granted 134,500 shares of its
common stock to consultants for services performed valued at $26,900.
Additionally, the
Company issued 2,817,914 shares of its common stock pursuant to the exercise of
previously outstanding warrants, generating net proceeds intended to be used for
general corporate purpose of $563,590.
During the
quarter ended December 31 of 2004, the Company issued equity units consisting of
10,717,700 shares of its common stock together with a like amount of warrants,
with an exercise price of $.25, in a private placement generating net proceeds
intended to be used for working capital and general corporate purposes, of
$2,116,600 of which $2,066,600 was collected through December 31, 2004 and
$50,000 was collected in January of 2005. A consultant who assisted the Company
with this transaction also received 100,000 shares of the Company's common stock.
Additionally, a
separate 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. The December 31, 2004
and outstanding subscriptions receivable balance of $ 50,000 was fully collected
in January of 2005.
During January
2005, 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.
F-29
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
10. STOCKHOLDERS' EQUITY -
(Continued)
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.
During the nine
months ending March 31, 2005, 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 5 year warrant to purchase a like amount of shares
at $.25.In addition for such period, Janifast Ltd. cancelled $200,000 of
accounts payable owed by mPhase in exchange for 1,000,000 shares of common stock
and a 5 year warrant to purchase a like amount of shares at $.25 per share.
In late February
and early March of 2005, the various vendors converted approximately $173,898 in
accounts payable due from the Company into 535,296 shares of Common stock
aggregating $183,310 in full settlement of those obligations.
Mr. Ronald A.
Durando converted $13,000 of accrued and unpaid interest on various demand notes
issued by the Company for loans by Mr. Durando during the nine month period
ended March 31, 2005 into 65,000 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. In addition Mr. Durando
converted $13,954 of principal of a $75,000 promissory note into the exercise,
in full , of a warrant to purchase 1,395,400 shares of common stock at $.01
previously granted to Mr. Durando in exchange for cancellation of unpaid
compensation.
Mr. Gustave
Dotoli, Chief Operating Officer of the Company converted $ 3,750 of accrued and
unpaid interest on a $75,000 promissory note into 375,000 shares of common stock
at $.01 pursuant to a portion of a warrant previously granted to Mr. Dotoli for
unpaid compensation. A consultant of the Company converted $20,000 of accounts
payable owed by the Company to 100,000 shares of common stock plus a 5 year
warrant to purchase 100,000 shares of common stock at $.25 per share.
F-30
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
10. STOCKHOLDERS' EQUITY -
(Continued)
In addition a
demand note payable to Martin Smiley, CFO and General Counsel of mPhase, in the
amount of $75,000 was converted into 375,000 shares of common stock plus a 5
year warrant to purchase a like amount of shares at $.25 per share and Mr.
Smiley extended from July 25, 2004 to July 25, 2005 a $100,000 promissory note
carrying 12% interest. In addition Mr. Smiley converted accrued and unpaid
interest on his various promissory notes of $ 9,975 into 49,875 shares of common
stock plus a 5 year warrant to purchase a like amount of common stock at $.25
per share. Mr. Smiley's remaining $100,000 note is convertible into Common Stock
of mPhase at the rate of $.25 cents per share through July 25, 2009. Upon
conversion, the note holder will be granted warrants to purchase an equivalent
amount of mPhase Common Stock at $.25 cents per share for a period of five years
from the date of conversion plus a 5 year warrant for a like amount of shares at
$.25 per share
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
    Nine Months Ended March 31 (Unaudited)
2004
2005
Equity
    Conversions of Debt with Strategic Vendors
Number of
    Shares
110,467
697,396
Number of
    Warrants
5,069,242
700,000
Amount
    Converted to Equity
$1,834,211
$363,098
Gain (Loss) on
    Extinguishment of Debt
$(128,991
$(99,393)
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)
F-31
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
10. STOCKHOLDERS' EQUITY -
(Continued)
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.
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
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.
Twelve months ended June 30,
Nine Months ended March
    31(unaudited),
2002
2003
2004
2004
2005
Net loss, as
    reported
$(11,245,361)
$(6,650,211)
$(7,758,586)
$(4,899,771)
$(9,484,240)
Add:
    Stock-based employee
compensation
    expense net
included in
    report of net income,
net of
    related tax effects
$548,550
$23,923
$72,000
$-
$131,750
Deduct:
    Total stock-based
employee
    compensation expense
determined
    under fair
value based
    method for all
awards, net
    of related tax effects
$(976,280)
$(239,983)
$(810,080)
-
(444,396)
Pro forma
    net loss
$(11,673,491)
$(6,866,231)
$(8,486,666)
$(4,899,771)
$(9,786,886)
Loss per
    share:
Basic and
    diluted-as reported
$(.23)
$(.10)
$(.10)
$(.07)
$(.09)
Basic and
    diluted-pro forma
$(.24)
$(.11)
$(.11)
$(.07)
$(.09)
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-32
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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.
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
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.
F-33
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
10.
STOCKHOLDERS' EQUITY - (Continued)
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.
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.
During the nine months ended March 31, 2005, in connection
with the private placements discussed above the Company issued 27,200,117 of
warrants to investors and finders and when combined with warrants previously
outstanding and exercised, expired or canceled, during the period result in the
Company now having 75,428,473 with a weighted average price of $.48.
11. RELATED PARTY TRANSACTIONS
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-35
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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.
Mr. Durando's June 30, 2004 note
payable balance of $300,00 was repaid by the Company during the nine month
period ending March 31, 2005. During the first and second quarter of  fiscal
year 2005, Mr. Durando made additional bridge loans to the Company evidenced by
various 12% demand notes in the Aggregate of $525,000. Mr. Durando was repaid a
total of $450,000 of such loans in January of 2005. In addition, Mr. Durando
converted $13,954 of the principal amount of a $75,000 promissory note leaving
unpaid principal of $61,046 outstanding. Mr. Durando converted $13,000 of
accrued and unpaid interest on various promissory notes of the Company into
65,000 shares of common stock and a 5 year warrant to purchase a like amount of
common stock at $.25 per share.
During the 9 month period ended
March 31, 2005 Mr. Dotoli and Mr. Smiley, the COO and CFO and General Counsel of
the Company respectively, each lent the Company $75,000. Mr. Dotoli was repaid,
the principal amount of such loan, in cash in January of 2005 and Mr. Smiley
converted his $75,000 loan into 375,000 shares of common stock of the Company
plus a 5 year warrant to purchase a like amount of shares at $.25 per share.  In
addition, Mr. Smiley converted $9,975 of accrued interest into 49,875 shares of
common stock plus a 5 year warrant to purchase a like amount of shares at $.25
per share.  Finally Mr. Smiley received 25,000 additional shares of common stock
as a market adjustment to his equity investment of $25,000 on August 30, 2004. 
Mr. Dotoli cancelled $3,750 of accrued and unpaid interest from August 15, 2004
through January 15, 2004 into 375,000 shares of common stock pursuant to the
terms of a portion of a warrant that was exercised at $.01 per share previously
given by the Company to Mr. Dotoli in exchange for and cancellation of unpaid
compensation.
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.
The Company purchases products
and incurs certain research and development expenses with Janifast Ltd., which
is owned by U.S. Janifast Holdings, Ltd., a company in which three directors of
mPhase are significant shareholders and one is an officer, in connection with
the manufacturing of POTS Splitter shelves and component products including
cards and filters sold by the Company.
F-36
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
11. RELATED PARTY TRANSACTIONS -
(continued)
During the nine months ended
March 31, 2004 and 2005 and the period from inception (October 2, 1996) to March
31, 2005, $184,082, $448,208 and $7,672,734, respectively have been charged by
Janifast to inventory or expense and is included in operating expenses in the
accompanying statements of operations.
As a result of the foregoing
transactions as of March 31, 2005, the Company had $ 337,709 receivable from
Janifast Ltd., which is included in production advances - Janifast in the
accompanying balance sheet. Additionally, at March 31, 2005, approximately
$623,403 of undelivered purchase orders remain outstanding to Janifast Ltd.
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-37
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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 Nine Months Ended March 31,
(Unaudited),
2004
2005
Charges incurred with
    Janifast included in:
Cost of sales and
    ending inventory
$
1,816,029
$
398,715
Total Janifast
$
1,816,029
$
398,715
Charges incurred with
    Microphase Corp. included in:
Cost of sales and
    ending inventory (Including Royalties)
$
191,133
$
11,784
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 with Joint Venture
    Partner
$
0
$
0
Affiliates included
    in:
Research and
    Development
$
0
$
0
General and
    administrative
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
142,213
Total Charges with
    Related Parties:
$
2,076,152
$
598,712
A former member of mPhase's Board of Directors (through fiscal 2004) is employed by Lintel, Inc,
the parent corporation of Hart Telephone. Prior to becoming a director, this
individual
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
11. RELATED PARTY TRANSACTIONS -
(continued)
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.
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.
Mr. Durando's June 30, 2004 note payable balance of $300,00 was repaid by the
Company during the nine month period ended March 31, 2005. During the first and
second quarters of fiscal year 2005, Mr. Durando made additional bridge loans to
the Company evidenced by various 12% demand notes in the aggregate of $525,000.
Mr. Durando was repaid a total of $450,000 of such loans in January of 2005. In
addition, Mr. Durando converted $13,954 of the principal amount of a $75,000
promissory note leaving unpaid principal of $61,046 outstanding. Mr. Durando
converted $13,000 of accrued and unpaid interest on various promissory notes of
the Company into 65,000 shares of common stock and a 5 year warrant to purchase
a like amount of common stock at $.25 per share.
During the nine month period ended March 31, 2005 Mr. Dotoli and Mr. Smiley, the
COO, and CFO and General Counsel of the Company respectively, each lent the
Company $75,000. Mr. Dotoli was repaid, the principal amount of such loan, in
cash in January, 2005 and Mr. Smiley converted his $75,000 loan into 375,000
shares of common stock of the Company plus a 5 year warrant to purchase a like
amount of shares at $.25 per share. In addition, Mr. Smiley converted $9,975 of
accrued interest into 49,875 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. Finally Mr. Smiley received
25,000 additional shares of common stock as a market adjustment to his equity
investment of $25,000 on August 30, 2004. Mr. Dotoli cancelled $3,750 of accrued
and unpaid interest from August 15, 2004 through January 15, 2004 into 375,000
shares of common stock pursuant to the terms of a portion of a warrant that was
exercised at $.01 per share previously given by the Company to Mr. Dotoli in
exchange for and cancellation of unpaid compensation. On January 15, 2004, Mr.
Smiley was awarded 425,000 shares of common stock as additional 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-38
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
11. RELATED PARTY TRANSACTIONS -
(continued)
Equity Conversions of Debt and Other Financial Instruments
with Related Parties
June 30,
June
    30, 2004
2002
2003
Janifast:
0
Number of shares
3,450,000
1,500,000
0
Number of warrants
12,000,000
0
$
0
Amount converted to
    equity
$
720,000
$
360,000
Microphase
    Corporation:
0
Number of shares
2,700,000
4,033,333
0
Number of warrants
2,200,000
1,000,000
$
0
Amount converted to
    equity
$
740,000
$
920,000
Strategic Vendor
    Conversions:
110,467
Number of shares
0
0
5,069,242
Number of warrants
0
0
$
1,963,202
Amount converted to
    equity
$
0
$
0
Officers
0
Number of shares
333,334
0
0
Number of warrants (A)
334.334
2,491,800
$
0
Amount converted to
    equity
$
103,000
$
480,967
Joint Venture
    Partners and Affiliates
0
Number of shares
63,216
0
0
Number of warrants
0
0
$
Amount converted to
    equity
$
31,628
$
0
Total Related Party
    Conversions
110,0467
Number of shares
6,546,550
5,533,333
5,069,242
Number of warrants
3,733,334
3,491,800
$
1,963,202
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 Instruments
with Related Parties
Nine Months Ended
    March 31,
2004
2005
Janifast:
Number of shares
0
1,000,000
Number of warrants
0
1,000,000
Amount converted to
    equity
$
0
$
200,000
Microphase
    Corporation:
Number of shares
0
1,250,000
Number of warrants
0
1,250,000
Amount converted to
    equity
$
0
$
250,000
Strategic Vendor
    Conversions:
Number of shares
0
697,396
Number of warrants
5,069,242
700,000
Amount converted to
    equity
$
1,834,211
$
363,098
Officers
Number of shares
0
489,875
Number of warrants (A)
0
489,875
Amount converted to
    equity
$
0
$
118,933
Joint Venture
    Partners and Affiliates
Number of shares
0
0
Number of warrants
0
0
Amount converted to
    equity
$
0
$
0
Total Related Party
    Conversions
Number of shares
0
3,437,371
Number of warrants
5,069,242
3,439,875
Amount converted to
    equity
$
1,834,211
$
932,031
F-39
mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 2004
(Unaudited for the Periods Ended March 31, 2004 and
March 31, 2005)
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. 
At March 31, 2005, the Company was obligated to pay bell labs a total of
$200,000 per month for research and development of its Nanotechnology products
through March of 2005 and $156.8 per month through May of 2005 for its TV+
solution research and development.
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)
F-40
During May 2005 the Company adjusted the exercise price of $.45 per share of
an investor's 5 year warrant to purchase 714,296 shares of common stock. 
The warrant was originally issued in January 2005, to $.225 in July of 2005. 
In July of 2005 such investor exercised a portion of such warrant, as adjusted,
to purchase 200,000 shares of the Company's common stock generating $45,000 of
net proceeds to the Company.
On July 20, 2005, at the Company's annual meeting of Shareholders, the
Shareholders' ratified an amendment to its Certificate of Incorporation to
increase the number of authorized shares of common stock from 250,000,000 to
500,000,000 shares.
During June and July 2005 the Company completed a private placement of equity
units pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as
amended. Each unit consists of one share of the Company's common stock at $0.20
per share plus a five (5) year warrant to purchase one share of the Company's
common stock at $.25 per share. Such placement generated an aggregate of
$3,488,000 of proceeds to the Company, to be used primarily to pay for research
and development expenses and for general corporate purposes. A total of
14,140,000 shares of the Company's common stock together with five (5) year
warrants to purchase 14,140,000 shares of the Company's common stock at $.25 per
share were issued in such private placement. In connection with such private
placement, consultants and advisors received $253,500 of fees paid in cash and
476,500 shares of the Company's common stock and five (5) year warrants to
purchase 476,500 shares of the Company's commons stock at $.25 per share.
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
$
1,180
NASD Filing Fee
$
0
Nasdaq Listing Fee
-
Printing Expenses
$
1,000
Accounting Fees and
    Expenses
$
20,000
Legal Fees and
    Expenses
$
10,000
Transfer Agent's and
    Registrar's Fees and Expenses
$
0
Miscellaneous Expenses
$
0
Total
$
32,180
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 is 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 preformed.
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 was 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.
During May 2005 the Company adjusted the exercise price of $.45 per share of
an investor's 5 year warrant to purchase 714,296 shares of common stock. 
The warrant was originally issued in January 2005, to $.225 in July of 2005. 
In July of 2005 such investor exercised a portion of such warrant, as adjusted,
to purchase 200,000 shares of the Company's common stock generating $45,000 of
net proceeds to the Company.
On July 20, 2005, at the Company's annual meeting of Shareholders, the
Shareholders ratified an amendment to its Certificate of Incorporation to
increase the number of authorized shares of common stock from 250,000,000 to
500,000,000 shares.
During June and July 2005 the Company completed a private placement of equity
units pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as
amended. Each unit consists of one share of the Company's common stock at $0.20
per share plus a five (5) year warrant to purchase one share of the Company's
common stock at $.25 per share. Such placement generated an aggregate of
$3,488,000 of proceeds to the Company, to be used primarily to pay for research
and development expenses and for general corporate purposes. A total of
14,140,000 shares of the Company's common stock together with five (5) year
warrants to purchase 14,140,000 shares of the Company's common stock at $.25 per
share were issued in such private placement. In connection with such private
placement, consultants and advisors received $253,500 of fees paid in cash and
476,500 shares of the Company's common stock and five (5) year warrants to
purchase 476,500 shares of the Company's commons tock at $.25 per share.
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.
10.23***
Amendment No. 2 to Development Agreement
    between Lucent Technologies, Inc.
and mPhase Technologies, Inc. dated as
    September 15, 2003
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 24(b-2) of the Securities Exchange Act of 1934.
Omitted portions of documents have been separately filed with the Securities and
Exchange Commission.
Item 17. Undertakings.
1. The undersigned registrant hereby undertakes:
1. 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 the 8th day of August, 2005.
mPHASE TECHNOLOGIES, INC.
/s/ Ronald A. Durando
By: 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
Necdet
    F. Ergul
Chairman of the Board of Directors
August
    8, 2005
*
Ronald
    A. Durando
President, Chief Executive Officer
August
    8, 2005
*
and
    Director (Principal Executive
    Officer)
/s/
    Martin S. Smiley
Executive Vice President
August
    8, 2005
Chief
    Financial Officer, and General Counsel
(Principal Financial and Accounting
Officer)
Anthony
    H. Guerino
Director
August
    8, 2005
*
Gustave
    T. Dotoli
Director and Chief Operating Officer
August
    8, 2005
*
Abraham
    Biderman
Director
August
    8, 2005
*
By: /s/ Martin S. Smiley
Martin S. Smiley
Attorney-in-fact
End of Filing