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Is mPhase Smokin' Nanograss?

One of the unique features that we have begun to offer in our Rule Breakers service is that the RB analysts will be "in the office" to interact live with our members. In other words, you can communicate and receive an immediate response from the analyst "in the office" that day.

On our nano day at the office last Wednesday, we were engaged by RB member Jsergeant, who had seen a recent news article on mPhaseTechnologies (Nasdaq: XDSL  ) and its signing of a marketing agreement for a nano-battery developed with its longstanding partner, Lucent Technologies (NYSE: LU  ) .

mPhase's share price had shot up 27% on the news, reaching the heady heights of $0.51. We do not normally take opinions on penny stocks, but it was the volume that piqued our interest -- over 10 times normal volume.

So is there any fire behind all that smoke? After all, Lucent is no fly-by-night partner; the company is home to Bell Labs, which is still world renowned for its technical innovation, despite not covering itself in glory in more recent years.

What about the grass?
The nano-battery is built around a framework that mPhase calls nanograss. But a closer inspection of the technology shows it is micro, not nano. The dimensions are a whopping 270 nanometers, far in excess of what is fast becoming the de facto standard for nano-scale, i.e., below 100nm.

However, that has not stopped the CEO of mPhase from trotting out the "nano" tag with alarming regularity. Nor has it stopped two separate video presentations on the product made by video news services from being sent around the TV news media.

mPhase issued a press release touting the video news releases and saying they "will be aired on ABC TV affiliates nationwide." These kinds of releases are in fact the video equivalent of press releases -- they are fed to TV stations, but it is entirely up to the stations to decide whether or not to run them. Most never see the light of day. That's how penny stocks suddenly get 10 times normal trading volume -- and why we will not consider companies with stocks trading below $5 as a normal investment, much less as a potential Rule Breaker.

The nano-battery may have a commercial life -- time will tell -- but until mPhase reaches a degree of market respectability, it is not a Foolish commercial investment. Indeed, Lucent may be the better play of the two. It needs to get some future tech winners in its portfolio of products and it would be fairly easy and "cheap" for it to absorb the nano-battery into its range if it finds commercial traction. mPhase forecasts commercial launch in 12 to 15 months.

Founded in 1996, mPhase calls itself a development-stage company with a primary business of developing products to deliver digital broadcasts over DSL. Last year, the company posted an $8 million loss on $4 million revenues. That's why even with a 30% daily pop in its price, it is still a penny stock.

Share your views with Carl (TMFBreakerCarl) and John (TMFBreakerJohn) on the Nanotechnology discussion board.

Carl Wherrett and John Yelovich own none of the stocks mentioned. You can reach Carl and John via email.The Fool has a disclosure policy.

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