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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

    [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE YEAR ENDED JUNE 30, 2002

                          COMMISSION FILE NO.000-24969

                            ------------------------

                           mPHASE TECHNOLOGIES, INC.

                        (Name of issuer in its charter)


           NEW JERSEY                                           22-2287503
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                          Identification Number)

587 CONNECTICUT AVE., NORWALK, CT                              06854-1711
 (Address of principal executive                               (Zip Code)
           offices)

       Registrant's telephone number, including area code: (203) 838-2741

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                           COMMON STOCK, NO PAR VALUE

                                (Title of Class)

                            ------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to the
Form 10-K.

As of August 26, 2002, there were 60,807,508 shares of common stock, no par
value, stated value $.01, outstanding and the aggregate market price of shares
held by non-affiliates was approximately $9,836,701 (Based upon a closing common
stock price of $.28 on August 26, 2002) (solely for the purpose of calculating
the preceding amount, all directors and officers of the registrant are deemed to
be affiliates.)

<PAGE>


                            mPHASE TECHNOLOGIES, INC.

                           ANNUAL REPORT ON FORM 10-K
                        FOR THE YEAR ENDED JUNE 30, 2002

                                TABLE OF CONTENTS

                                                                     PAGE

                                     PART I

ITEM 1. Business                                                       1
ITEM 2. Properties                                                    23
ITEM 3. Legal Proceedings                                             23
ITEM 4. Submission of Matters to a Vote of Security Holders           24

                                     PART II

ITEM 5. Market for Registrant's Common Equity and
          Related Stockholder Matters                                 24
ITEM 6. Selected Consolidated Financial Data                          25
ITEM 7. Management's Discussion and Analysis of Financial
         Condition and Results of Operations                          30
ITEM 8. Financial Statements and Supplementary Data                   37
ITEM 9. Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure                          37

                                    PART III

ITEM 10. Directors, Executive Officers and Key Employees
          of the Registrant                                           38
ITEM 11. Executive Compensation                                       40
ITEM 12. Security Ownership of Certain Beneficial Owners
          and Management                                              44
ITEM 13. Certain Relationships and Related Transactions               46

                                     PART IV

ITEM 14. Exhibits, Financial Statement Schedules and Reports on
          Form 8-K                                                    48
         Report of Independent Public Accountants                     F1
         Report of Certified Public Accountants                       F3
         Financial Statements                                       F4-F10
         Notes to Financial Statements                              F11-F32

ITEM 15. Certifications                                               53


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                                     PART I

FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements." In some cases, you can
identify forward-looking statements by terms such as "may," "intend," "might,"
"will," "should," "could," "would," "expect," "believe," "estimate," "predict,"
"potential," or the negative of these terms and similar expressions intended to
identify forward-looking statements. These statements reflect the Company's
current views with respect to future events and are based on assumptions and
subject to risks and uncertainties. The Company discusses many of these risks
and uncertainties in greater detail in Part I, Item 1 of this 10-K under the
heading "Risk Factors." These risks and uncertainties may cause the Company's
actual results, performance, or achievements to be materially different from any
future results, performance, or achievements expressed or implied by the
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Also, these forward-looking statements represent the
Company's estimates and assumptions as of the date of this report. The Company
is under no duty to update any of the forward-looking statements after the date
of this report to conform such statements to actual results or to changes in our
expectations.

The following discussion should be read in conjunction with mPhase Technologies'
financial statements and related notes included elsewhere in this report.

ITEM 1.  BUSINESS

                         GENERAL DESCRIPTION OF BUSINESS

mPhase Technologies, Inc. ("mPhase" or the "Company") is a development stage
technology company headquartered in Norwalk, Connecticut. The Company is a
developer of broadband communications equipment and provider of digital video
content. The Company's flagship product, the Traverser(TM), enables telephone
companies and other telecommunications service providers to offer up to 384
channels of digital television, high-speed Internet and voice simultaneously
over their existing copper wire infrastructure. The Traverser(TM) utilizes
Digital Subscriber Line (DSL) technology to cost-effectively deliver a full
suite of communication services, e.g., voice, television and data services.

We believe the Traverser(TM) provides telephone companies with a cost-effective,
high quality and reliable means of converging communications services. To our
knowledge, the Traverser(TM) is the only platform that does not utilize Internet
Protocol (IP) transmission for the delivery of television services over
telephone wires to the end user. By utilizing a non-IP transport (NIP), we
believe certain quality of service issues that are often associated with
IP-based television delivery systems are negated. The patented bus architecture
of our system is such that all television channels are available to all users
all of the time as opposed to channel availability being based on ratios. Hence,
we feel that our solution is uniquely reliable. Furthermore, because we do not
utilize IP transport for the delivery of television, we do not require the use
of potentially costly equipment associated with IP-based television delivery
such as, ATM switches, servers or routers, as well as other ancillary equipment.



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To facilitate sales of its flagship product, mPhase has established a subsidiary
company, mPhaseTelevision.net, Inc. ("mPhaseTV"). mPhaseTV has entered into
licensing agreements with content originators for upwards of 80 channels of
television content. mphaseTV can provide a single source of licensing agreements
for service providers interested in entering into the business of television
over telephone wires. By being able to offer this service to potential
customers, the Company believes it eliminates a potential barrier to purchase
and/or speeds the time to market for its customers.

Additionally, mPhase has developed a line of DSL component products. These
products include microfilters and splitters, and line extenders. Each of these
products can be used as components of the Traverser(TM) System, and can also be
sold as stand-alone products. The Company recently announced the release of its
"intelligent" line of central office POTS Splitters which the Company believes
significantly lowers the cost of deploying DSL services by reducing the
operational costs associated with loop qualification. The Company recently
entered into an exclusive worldwide distribution agreement with Corning
Cable Systems. Corning, through its global sales force, will be re-selling
mPhase's line of "intelligent" POTS splitter products to telecommunications
providers around the world.

Business Development, Organization, and Acquisition Activities

mPhase was incorporated in New Jersey in 1979 under the name Tecma Laboratory,
Inc. In 1987, the Company changed its name to Tecma Laboratories, Inc. As Tecma
Laboratories, Inc., the Company was primarily engaged in the research,
development and exploitation of products in the skin care field. On February 17,
1997, the Company acquired Lightpaths, Inc., a Delaware corporation, which was
engaged in the development of telecommunications products incorporating DSL
technology, and the Company changed its name to Lightpaths TP Technologies, Inc.

On January 29, 1997, the Company formed another wholly-owned subsidiary called
TLI Industries, Inc. The shares of TLI were spun off to its stockholders on
March 31,1997 after the Company 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,
the Company became the holding company of its wholly-owned subsidiary,
Lightpaths, Inc. on February 17, 1997.

On May 5, 1997, the Company completed a reverse merger with Lightpaths TP
Technologies, Inc. and thereafter changed its name to mPhase Technologies, Inc.
on June 2, 1997.

On June 25, 1998, mPhase acquired Microphase Telecommunications, Inc., a
Delaware corporation, by issuing 2,500,000 shares of its common stock.
Microphase Telecommunications' principal assets were patents and patent
applications utilized in the development of its proprietary Traverser(TM)
technology.

In March, 2000, mPhase entered into a joint venture with AlphaStar
International, Inc. to form an entity called mPhaseTelevision.Net, Inc. in which
the Company held a 50% interest. On May 1, 2000, the Company acquired an
additional 6.5% interest in mPhaseTelevision.Net, Inc. and made it one of its
consolidated subsidiaries.


                                       2
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On March 14, 2000, mPhase entered into an agreement with BMW Manufacturing
Corp., located in South Carolina. Under the agreement, the Company installed
version 1.0 of the Traverser(TM) for BMW's telephone transmission network. BMW
has agreed that, upon its notice and consent, mPhase 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 the 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(TM) platform. Hart currently has approximately 100 customers
receiving about 90 channels of television services.

mPhase has initiated development of Version 2.0 of the Traverser(TM) with a
major, experienced research and development organization. Version 2.0 will be a
cost-reduced version of Version 1.0, offering similar functionality to version
1.0. We expect Version 2.0 to be commercially available for deployment in
Hartwell, as well as other locations, in early 2003. We believe such cost
reduced product will increase the competiveness of the Traverser(TM) against
other competing technologies in the global marketplace.

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 year ended June 30, 2002, and through the third quarter
of our fiscal year 2002 ended March 31, 2002 we generated approximately $2.58
million and $1.95 million in revenue, respectively, from the commercial sale of
our component products. These component products, including filters and Central
Office POTS Splitter Shelves, are marketed to other DSL equipment vendors. We do
not believe that the sales of our Traverser(TM) will be materially impaired by
the sale of these component products to these potential competitors.

Products & Services

Traverser(TM) Digital Video and Data Delivery System

mPhase's principal and flagship product, the Traverser(TM) Digital Video and
Data Delivery System (DVDDS), is a patented end-to-end system enabling the
delivery of digital broadcast television, analog voice service and high-speed
data, as well as other ancillary services, over a single copper telephone wire.

Telcos using the mPhase Traverser(TM) System need to build a digital video
headend or programming and control center ("PCC") to receive television content.
This includes installing a satellite receiving dish, off-the-shelf video
equipment and mPhase's software to manage the video content at the PCC. Local
off-air channels are received, digitized and combined with the signals received
via satellite at the PCC. The PCC can be co-located with a single central office
or (CO) or remotely located and connected to each Central Office (CO) via dark
fiber, SONET ring or ATM networks.


                                       3
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The Traverser(TM) CO equipment, known as the mPhase Universal Access Shelf,
integrates video signals from the PCC with Internet and voice signals. The
output of the Universal Access Shelf consists of DSL "lines" capable of carrying
a single DVB-ASI, MPEG2 television channel, high-speed data and POTS (Plain Old
Telephone Service, to subscribers over existing telephone lines.

Upon reaching the home or business, the DSL line is fed into the mPhase INI(TM),
or digital set top box. The INI(TM) separates the three signals and routes them
to the television, PC and telephone.

Since its inception in June 1997, the Company's operating activities have
centered on developing, building and testing the Traverser(TM); establishing
relationships with third party developers, manufacturers and sales channel
partners; and commencing sales and marketing efforts. mPhase has not yet derived
any material revenue from the sale of the Traverser(TM).

The Company believes its product is unique and offers distinct competitive
advantages for a number of reasons. Foremost, the patented bus architecture
utilized by the Traverser(TM) allows a plurality of channels to be delivered to
a plurality of users all of the time ensuring unequivocal system reliability.
Additionally, because the Traverser(TM) does not utilize IP transport, it does
not require potentially costly equipment associated with IP-based television
delivery such as ATM switches, servers or routers, as well as other ancillary
equipment. Instead, the Traverser(TM) offers a cost-effective method to deliver
realtime broadcast television over copper phone wires. Additionally, the
Traverser(TM) does not require an upgrade of the existing infrastructure thereby
avoiding the capital expense required to support certain competing video over
DSL platforms.

The Traverser(TM) utilizes technology that mPhase licenses exclusively from
Georgia Tech Research Corporation ("GTRC") and DSL semiconductor chip technology
purchased from GlobeSpan Semiconductor, Inc. Georgia Tech Applied Research
Corporation ("GTARC") provides a significant portion of the engineering research
and design to develop the Traverser(TM). The Traverser(TM) also utilizes
component technology developed by Microphase Corporation, a privately-held
company with which mPhase shares common management.


                                       4
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Other Products

POTS Splitter Shelves

A Plain Old Telephone Service (POTS) Splitter Shelf is a low pass/high pass
filter that separates voice and data transmissions. POTS Splitter Shelves, are
necessary to permit simultaneous voice and data transmissions over the same
twisted copper wire pair. POTS Splitter Shelves and the individual cards that
populate the shelf, separate and re-combine traffic traveling along each copper
wire into the analog voice portion of a transmission and the digital data
portion, so that each signal can travel independent of the other. This product
allows for increased clarity of both voice and data information and decreased
"cross talk", or interference.

POTS Splitters are available in a domestic and an European Harmonized version to
service the international market as well as in a version that can support ADSL
over ISDN lines.

Intelligent POTS Splitter (iPOTS(TM)) and Universal Bypass

We believe the mPhase iPOTS(TM) offers a much needed solution for the DSL
industry; the iPOTS(TM) 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(TM), 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 the ITU, ANSI
and ETSI. The unique (patent pending) iPOTS(TM) circuit allows 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 iPOTS is a complete solution which includes a POTS Splitter as well as the
bypass or "intelligent" functionality and the UniversalBypass is a module
containing the intelligent functionality which can be used with any vendor's
POTS Splitter.

mPhase has recently entered into a distribution agreement with Corning Cable
Systems for its line of intelligent products. mPhase has granted Corning, one of
the world's leading suppliers of Central Office DSL components, the exclusive
worldwide distribution of its intelligent line. This agreement significantly
increases the potential exposure of this product line, as Corning has a global
salesforce and established relationships with the largest telephone companies in
the world.

mPhaseStretch

mPhase has recently introduced a new product known as the mPhaseStretch. This
product is a loop extender that enhances the performance of the Traverser(TM)
System by extending the transmission distance for the delivery of voice, video
and data up to 30,000 feet. The mPhaseStretch is a powered device that is placed
on the line at approximately 9,000 feet or before the signal begins to degrade.
We believe the addition of the Stretch gives mPhase the greatest serviceable
distance radius for the delivery of converged services. A universal version of
the Stretch(TM), or a version interoperable with other vendor's DSLAM equipment
is scheduled to be released later this year.


                                       5
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Microfilters

We have developed a complete line of microfilters, including a 2 and 4 pole
filter for use in single and multi-phone households, as well as a NID Splitter.
These products, similar to POTS Splitters, ensure clear and reliable service of
voice and high-speed data when these two services reside on the same line.

Target Market

Our primary business is to develop and market the Traverser(TM) to domestic and
international telephone companies and other communications service providers. We
position the Traverser(TM) to be the most cost-effective, reliable, scaleable
and easiest to operate TV-over-ADSL solution on the market.

mPhase markets its products in the U.S. to small, independent telephone
companies. We believe our product is ideal in markets where the population is
dispersed with relatively long loop lengths due to our advantage of having the
longest serviceable distance radius. Additionally, smaller telcos tend to be
more nimble and faster in their decision-making process. Also, many of these
telcos are located in areas where the competition for television services is
less intense than larger telcos located in urban markets.

mPhase also markets the Traverser(TM) System to international telephone
companies. Telephone companies around the world are experiencing negative
pressures on their calling revenues, encroaching competition from technologies
which were at one time complimentary (e.g., cable) and a need to increase their
per subscriber revenue. Outside of the United States, telcos are particularly
reliant on their copper infrastructure, as few countries have upgraded their
infrastructure to optics. Beyond that, the options for pay-tv services outside
the U.S. are, for the most part, limited. Consumers living abroad have less
access to digital television, leaving international telcos well-positioned to
capture a large percentage of the market. Hence, we believe the market
conditions that exist abroad are stronger for our product than those that exist
domestically.

While mPhase believes it will experience some success in the U.S., it
anticipates greater success in the international community. mPhase is focused
over the next several quarters on securing 1 to 2 large international telephone
companies as customers. To that end, it has several trials scheduled with major
international incumbent telcos, including one currently underway in Ankara,
Turkey.

mPhase is in the process of building reliable, reputable and productive
distributors and resellers and finalizing its certification process for
distributors and resellers. The Company then intends to aggressively pursue
relationships with distributors and resellers abroad that have
telecommunications experience and existing telephone company customers. We
believe that by capitalizing upon these kinds of relationships, mPhase will be
able to reach a greater international audience faster. An example of such a
relationship is mPhase's recently established agreement with Corning Cable
Systems for the worldwide distribution of its intelligent line of products.


                                       6
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mPhase Television.Net, Inc.

mPhaseTV provides contracts, licensing agreements, marketing and legal support
to service providers interested in deploying television over DSL. mPhaseTV has
established licensing agreements and partnerships with content originators thus
allowing service providers to offer its subscribers a full complement of
television programming. It is important to note that the role of mPhaseTV has
changed since its inception. Originally, mPhaseTV was to act as a content
aggregator, downlinking a complete lineup of channels, digitizing those channels
and uplinking them via satellite for further delivery to each telco site. The
benefit of mPhaseTV acting as a content aggregator was that service providers
would not have to build a full-scale headend that included encoders, and other
equipment. However, recent advances in technology have significantly reduced the
costs for a telephone company to build a full scale headend. Therefore the role
of mPhaseTV is now targeted to providing the licenses as opposed to offering an
aggregated content transport solution. Telephone companies purchasing content
through mPhaseTV are still required to build a full-scale digital headend.

We contributed the initial funding for the mPhaseTV, by lending it $1,000,000 at
8% per annum interest. The loan is repayable to us in common stock at the time
that mPhase Television qualifies for listing in the NASDAQ Small Cap Market. We
also contributed $20,000 in cash to the joint venture and granted options to
Alphastar to purchase 200,000 shares of our stock for $4.00 per share. The
agreement requires Alphastar to provide mPhaseTV the right to transmit
television broadcasts over Alphastar's digital satellite network. On May 1,
2000, we acquired an additional 6.5% interest in mPhaseTV for an additional
$1,500,000 in cash. We report mPhaseTV as a consolidated subsidiary.

As part of its cost reduction efforts, mPhase has renegotiated its joint venture
relationship with Alphastar International, Inc. that established mPhaseTV. Under
the original arrangement, mPhaseTV leased the rights to use Alphastar's earth
station satellite uplink and downlink facility in Oxford, CT. Pursuant to an
agreement dated as of June 18, 2002, mPhaseTV has terminated its lease of the
earth station and Alphstar and its affiliated entity have converted certain
accounts payable into shares of the Company's common stock.

mPhaseTV continues to serve as a strategic asset for selling the Traverser(TM)
by having secured the rights to transmit over DSL over 80 television channels
directly from the content providers eliminating the need for a U.S. telco
purchasing the Traverser(TM) from having to assemble such rights itself from
each of the content providers. mPhase currently owns a 56% controlling interest
in mPhaseTV.


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Competitive Business Conditions

The telecommunications sector overall has experienced a significant global
downturn in spending over the past year. A number of once seemingly powerhouses
of the industry have faltered resulting in devasting effects across the
industry. The dramatic pull back in spending among service providers, coupled
with the malaise of the capital markets has halted the growth of the sector.
While the Company remains optimistic about the future of broadband, we don't
anticipate an upturn of events until service providers in general are able to
emerge from their current financial challenges.

In addition to the shifting economic climate, the telecommunications equipment
market is also characterized by swift technological change. Currently,
communications service providers have the option to offer several broadband
solutions in the last mile, including the existing ISDN or T-1 technologies,
fiber optic or hybrid coaxial cable and wireless and satellite delivery
methods. Communications service providers may use these other technologies
instead of DSL to offer their subscribers broadband access. There is currently a
bill in Congress that, if passed, could have positive effects on the
telecommunications industry overall and mPhase in particular. The Tauzin-Dingell
bill basically reduces the regulatory pressures on the larger incumbent
telephone companies in the U.S. It is speculated that this reduced pressure on
the RBOCs could result in greater spending among these companies and potentially
more funding available for the Company's products.

Based upon current telecommunications industry standards and deployment
methodologies, mPhase believes that DSL can compete favorably with these other
technologies, especially outside of the United States. In particular, telephone
companies and other copper-wire based service providers, which are interested in
maximizing the installed copper wire infrastructure from the standpoint of cost
effectiveness and ease of development, will favor DSL or other copper-based
broadband technologies.

mPhase's competitors that sell DSL systems like the Traverser(TM) or other
technologies, which incorporate broadband solutions over copper wire include:
ADC, Alcatel S.A., Copper Mountain, Advanced Fiber Communications, Innovia,
Ericsson, Fujistsu, Lucent Technologies, Marconi, NEC, Next Level
Communications, Nortel, Huawei Technologies Corporation Limited, Nokia, DVTel,
Inc., Turnstone, Paradyne Networks, Samsung, 2Wire, Siemens, TUT Systems,
Motorola, and Westell. In addition, we also compete with ImagicTV, Minerva and
Myrio Corporation, which provide infrastructure software products to deliver
multi-channel digital television over telephone networks by using Internet
Protocol.

Relative to other platforms that converge voice, video and data, we believe that
mPhase has the only non-Internet-Protocol platform that we are aware of on the
market. However, there are other IP-based platforms, such as the system offered
by Alcatel and Lucent and Innovia that enable the same suite of services to be
delivered using IP.

Next Level Communications, among others, offers a VDSL platform enabling
the delivery of voice, video and data over copper telephone wires. However,
because its platform is based on VDSL, it requires telcos to have a
fiber-to-the-neighborhood infrastructure. For some telcos the cost of this type
of infrastructure upgrade is prohibitive. Other equipment manufacturers offer
fiber-to-the-home solutions. While fiber in the home is an extremely robust
transmission medium, it is time and capital intensive to deploy.




                                       8
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Hybrid Fiber Coaxial Cable

Cable television providers are also competing in the space for converged
services using analog and digital cable connections that have been upgraded for
digital two-way services. In the United States, the majority of cable
connections have already been upgraded and can support the delivery of
television and high-speed Internet, and in may cases, cable telephony. In fact,
the imposing threat that cable companies present has created a catalyst among
telephone companies to expand their service offering to include advanced
services such as digital television.

Importantly, telephone companies have certain infrastructure advantages compared
to cable companies. A coaxial cable network is based on a shared platform, with
individual users sharing a common pipe or link between a central node back to
the Internet point-of-presence. Therefore, despite the large bandwidth capacity
of a coaxial cable infrastructure, the ultimate bandwidth for individual users
is negatively affected as more users access the Internet simultaneously. In
contrast, DSL is a point-to-point exclusive connection. No matter how many users
are accessing the Internet at the same time, subscribers will not experience
slowed data rates in the last mile due to congestion in the pipe.

Satellite

Satellite providers are at a distinct disadvantage with regard to competing in
the converged services arena. While satellite delivered television services in
the U.S. have experienced significant growth over the past several years, the
ability for satellite providers to offer reliable, consistent and cost-effective
high speed data is still in its infancy and too expensive to commercially
deploy. Furthermore, satellite providers are not typically equipped to offer
telephony services, unless they were to partner with a wireless telephony
provider. Beyond that, particularly outside of the US, the direct-to-home
satellite options are limited due to either low channel counts or unreliable
quality. Satellite signals are often affected by weather events such as severe
snow or rain, unlike DSL-delivered services which remain largely stable
regardless of the weather pattern.

Manufacturing

In late 1999, mPhase contracted with Flextronics, a major third party contract
manufacturer, to manufacture a prototype of its central office equipment and
Intelligent Network Interfaces(TM). The Company terminated its relationship with
Flextronics in March 2002.

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 outsources digital engineering development for
the Traverser(TM) System to GTARC. It also outsources analog engineering
development and certain administrative functions to Microphase Corporation. With
regard to manufacturing, mPhase is targeting leading contract manufacturing
companies with strategically located facilities in North America, Mexico and
Asia 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. Additionally, mPhase has just recently entered
an outsourcing arrangement for the sales and marketing of its intelligent line
of component products with Corning Cable Systems. Corning will be exclusively
reselling mPhase's intelligent component products worldwide.

                                       9
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                              Patents and Licenses

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
as to the patentability 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 which 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 the Company falls into two
general categories, analog and digital intellectual property.

mPhase owns the analog intellectual property which can be characterized as
filter technology. This intellectual property includes:

-      Low pass filter shelves and POTS Splitters, which combine the
       Traverser(TM)DSL spectrum from the traditional voice service;

-      ADSL filters, which are filters that conform to the worldwide DSL
       standard and are utilized in the transmission of data and voice service;
       and

-      Bypass for telephone Splitter System, which enables an automated and
       remote bypass of the POTS Splitter so full metallic testing can be
       performed.

We have a pending patent application which was filed in June 1999 claiming
priority to three provisional patent applications for the analog portion of our
technology.

mPhase exclusively licenses our digital intellectual property from Georgia Tech
Research Corporation (GTRC). We also have an exclusive, worldwide license to
manufacture and market products using the technology developed by GTARC under
our contract with them. The exclusive license with GTRC is applicable for the
duration of their patent protecting the system design and other technology
related to the Traverser(TM). The digital intellectual property that we license
provides several unique aspects of the Traverser(TM). Among them is the
backplane design, which provides every subscriber the ability to view any
channel available. All subscribers in a given system could be watching the same
channel at the same time. The intellectual property licensed exclusively to
mPhase by GTRC includes the below mentioned patents.



                                       10
<PAGE>

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.

A patent was issued on March 27, 2001 to the Georgia Tech Research Corporation
for the System and Method for Maintaining Timing Synchronization in a Digital
Video Network. This patent covers the development of the Framer and the Framer
chip. The Framer is an Integrated Circuit which gives the Traverser(TM) the
capability of allocating both the downstream and upstream bandwidth into
virtually any application required. This feature allows the Traverser(TM) to
deliver both MPEG-2 digital video and Internet data simultaneously and also
allows for future applications of the Traverser(TM).

A patent was issued on November 27, 2001 to the Georgia Tech Research
Corporation for the Method and Apparatus for Combining a Plurality of 8B/10B
Encoded Data Streams addresses video data transport between digital headends and
the access network serving subscribers. A further patent is pending covering
other methods of video program transport.

Another patent was recently issued on August 13, 2002 covering what mPhase calls
the System Management Workstation (SMW). Specifically, this patent entitled,
"Computer System and Method for Providing Digital Video and Data Over a
Communication Channel" addresses the means by which the computer system and
method manages the already patented bus or broadcast backplane, for the delivery
of converged voice, video and data. The management system covered by this patent
performs functions such as monitoring the health of the Traverser(TM) system,
managing a database of user information, as well as linking multiple central
offices to a master system control station.

Georgia Tech also has patents pending that protect:

-        apparatus and methods of remote control of the Intelligent Network
         Interface(TM); and,

-        systems and methods to provide subscribers means to playback previously
         recorded video content.

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(TM) technology, our future
operations would likely be adversely affected.



                                       11
<PAGE>

Government Regulation

The Federal Communication Commission, or FCC, and various state public utility
and service commissions, regulate most of mPhase's 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 the Company's
potential penetration into certain markets. In addition, its business and
results of operations may also be adversely affected by the imposition of
certain tariffs, duties and other import restrictions on components, which
mPhase obtains from non-domestic component suppliers. Changes in current or
future laws or regulations, in the U.S. or elsewhere, could materially adversely
affect the Company's business.

Research and Development

mPhase has designed the Traverser(TM) and its ancillary component parts in
conjunction with multiple research and development partners. GTARC conducts the
majority of our digital research and development for the Traverser(TM).
Microphase Corporation contributed the analog technology incorporated in the
design of the Traverser(TM), as well as providing ongoing development of analog
DSL components. mPhase has initiated negotiations for the development of Version
2.0 with a well-established research and development organization to compliment
GTARC. Version 2.0 will be a cost-reduced version of Version 1.0, offering
similar functionality at a significantly reduced cost. We anticipate that GTARC
will be involved in a reduced role with the development efforts of Version 2.0.

As of June 30, 2002, we had been billed approximately $13,424,300 for research
and development conducted by GTARC.

On March 26, 1998, we entered into a license agreement with GTRC which has the
patent on the Digital Video and Data Delivery System technology. GTRC has
granted us the exclusive license to use and re-sell this technology in the
Traverser(TM). We are required to pay GTRC royalties of 5% on the sales of the
Traverser(TM). The agreement expires automatically when the patents covering the
invention expire.

Employees

mPhase presently has approximately 12 full-time employees, two of whom are also
employed by Microphase Corporation. See the description in the section entitled
"Certain Relationships and Related Transactions."

Risk Factors

An investment in mPhase's common stock involves a high degree of risk. You
should carefully consider the following risks before making an investment
decision. You should also refer to the other information set forth in this
document, including the Company's financial statements and the related notes.


                                       12
<PAGE>

Risks Related to Financial Aspects of the Company's Business

mPhase expects to incur substantial net losses for the foreseeable future and
expects to need to raise substantial additional capital.

mPhase expects to generate operating losses and negative cash flow into the
foreseeable future because it must fund its increasing sales, marketing and
promotional activities, its equipment production efforts and its continued
research and development activities to maintain its technology and develop new
technology. The Company expects to fund these activities through additional
public or private offerings of its stock. mPhase had net losses, including
non-cash charges for stock based employee compensation, of approximately $24.0
and $11.3 million for the twelve-month periods ended June 30, 2001 and June 30,
2002, respectively. The Company has sold Splitters and Microfilters of
approximately $2.58 million for the period between June 30, 2001 and June 30,
2002. mPhase cannot be certain when and if it will achieve sufficient revenues
in relation to its expenses to become profitable. The Company believes that
increasing its revenues will depend in large part on its ability to:

         -        raise additional capital;

         -        finalize the commercial design of the Traverser(TM)and its
                  management software;

         -        decrease the overall cost of our system significantly;

         -        generate significant revenue from sales of the Traverser(TM);

         -        gain market acceptance for its products and increase its
                  market share based upon the timing, strength and success of
                  its sales efforts and its strategic and commercial alliances;

         -        develop effective marketing and other promotional activities
                  to penetrate its target customer base;

         -        develop strategic and commercial relationships that balance
                  its current and long-term ability to capitalize on its
                  technology; and

         -        generate and sustain substantial revenue growth while
                  maintaining reasonable expense levels.

Slower revenue growth than mPhase anticipates or operating expenses that exceed
its expectations would materially harm its business. If the Company achieves
profitability, it cannot be certain that it will be able to sustain or increase
that profitability in the future.

mPhase's limited operating history makes it difficult for you to evaluate its
business and prospects.

As of June 30, 2002, mPhase received no purchase orders for the Traverser(TM) or
programming content offered by its subsidiary mPhaseTelevision.Net. The
Company's revenue of approximately $10,524,100 for the fiscal year ended June
30, 2001 and $2,582,446 for the fiscal year ended June 30, 2002 was derived
largely from sales of its DSL component products. mPhase generated $20,000,
$5,540 and $97,700 from sales of trial versions of the Traverser(TM) product for
the fiscal year ended June 30, 2000, 2001 and 2002 respectively.


                                       13
<PAGE>

As a result, the Company has only a limited operating history and no sales of
its principal product upon which you may evaluate its business and prospects.
You should consider mPhase's prospects in light of the heightened risks and
unexpected expenses and difficulties frequently encountered by companies in an
early stage of development. These risks, expenses and difficulties, which are
described further in this section entitled "Risk Factors", particularly apply to
mPhase because the market for equipment that delivers voice, data and video
services is new and rapidly evolving. Due to the Company's limited operating
history, it will be difficult for you to evaluate whether it will successfully
address these risks.

mPhase's sales cycle is lengthy and variable so the timing of its revenues is
difficult to predict, and it may incur sales and marketing expenses with no
guarantee of future sales.

mPhase's potential customers view the purchase of the Traverser(TM) as a
significant and strategic decision. As a result, its customers, the foreign and
domestic telecommunications service providers, will typically undertake
significant evaluation and testing of its products before deployment. This
evaluation process frequently results in a lengthy sales cycle, typically
ranging from six months to more than a year. Furthermore, mPhase is targeting
international communications service providers, which operate under a number of
different telecommunications equipment compliance standards. These international
service providers will require that mPhase receive local standards approval
before it is able to enter into field trials or definitive sales agreements.
Furthermore, because the Company is selling a new product with limited real
environment exposure, tests and trials may not necessarily result in purchases
of the Traverser(TM).

Before a customer places an order, mPhase may incur substantial sales and
marketing expenses and expend significant management efforts. In addition,
because its customers are both domestic and foreign telecommunications service
providers, product purchases may frequently be subject to unexpected government
regulatory, administrative, processing and other delays on the part of its
customers. Moreover, purchase orders for mPhase's products may have lengthy
payable periods because of payment delay from its customers. As a result, sales
forecasted attributable from a potential customer may not be realized and this
could result in lower than expected revenues.

mPhase may not be able to obtain sufficient financing to fund its business and,
as a result, it may not be able to grow and compete effectively.

Investors in mPhase should be able and prepared to sustain an entire loss of
their investment. If unable to sustain such losses investors are advised to
thoroughly and carefully consider their investment in this Company.

mPhase expects to incur substantial expenses to develop and market its products.
It expects to generate losses into the foreseeable future so it does not expect
that the income from its operations will be sufficient to satisfy its cash
requirements. The Company may need additional capital if it needs to respond to
unforeseen technological or marketing hurdles, or if it desires to take
advantage of unanticipated opportunities. Therefore, mPhase will need to seek
additional financing from public or private sources. The Company's success in
raising enough additional financing to satisfy its capital requirements will
depend on a number of factors, including:

-        market conditions;

-        the success of its product development efforts;

-        the volatility of the price of the Company's common stock;

-        its operating performance; and

-        investor sentiment.


                                       14
<PAGE>

The status of these factors may make the timing, amount, terms and conditions of
additional financing unattractive for mPhase. In addition, to the extent that
the Company is able to obtain additional financing through the issuance of
equity securities, its stockholders may experience dilution. If the Company
obtains financing through loans or any other type of debt financing, it may
become subject to restrictions on its spending or ability to pay dividends.
Funds may not be available at the time or times needed on terms acceptable to
the Company, if at all. If adequate funds are not available, or are not
available on acceptable terms, mPhase may not be able to take advantage of
market opportunities, to develop products or to otherwise respond to competitive
pressures effectively.

mPhase's Operations May Become Strained Due to its Growth.

Upon successful testing and introduction of the Traverser(TM), mPhase will need
to expand its marketing and sales efforts, operations and production, as well as
provide customer support. The Company's management, personnel, systems,
procedures, controls and customer service may be inadequate to support such
expansion. The Company expects significant strains on its order and fulfillment
process, its quality control systems and customer support once the sales of the
Traverser(TM) commences. To manage expansion effectively, mPhase must implement
and improve its operational systems, procedures, controls and customer service
on a timely basis and increase its staff or obtain these services through third
party contractors. The Company will also require capital to attain this growth
and management. If the Company is unable to properly manage operations, controls
and customer support, or secure financing to implement this growth, its
operating results, reputation and customer relationships could be harmed.

Risks Related to mPhase's Products and Target Markets

A significant market for the Company's products may not develop if telephone
companies do not successfully deploy broadband services such as high-speed data
and video.

Many telephone companies have recently begun offering high-speed data services.
Most telephone companies have not offered multi-channel video services at all.
Unless telephone companies make the strategic decision to enter the market for
providing television services, a significant market for mPhase's products may
not develop. Sales of its products largely depend on the increased use and
widespread adoption of broadband services and the ability of its customers to
market and sell broadband services, including video services, to their
customers. Certain critical issues concerning use of broadband services are
unresolved and will likely affect their use. These issues include security,
reliability, speed and volume, cost, government regulation and the ability to
operate with existing and new equipment. Even if telephone companies decide to
deploy broadband services, this deployment may not be successful. Telephone
companies may delay deployments of broadband services. Factors that could cause
telephone companies not to deploy, to delay deployment of, or to fail to deploy
successfully the services for which mPhase's products are designed include the
following:


                                       15
<PAGE>

         -        industry consolidation;

         -        regulatory uncertainties and delays affecting telephone
                  companies;

         -        varying quality of telephone companies' network infrastructure
                  and cost of infrastructure;

         -        upgrades and maintenance;

         -        inexperience of telephone companies in providing broadband
                  services and the lack of sufficient technical expertise and
                  personnel to install products and implement services
                  effectively;

         -        uncertain subscriber demand for broadband services; and

         -        inability of telephone companies to predict return on their
                  investment in broadband capable infrastructure and equipment;

         -        decreased capital expenditures by telephone companies.

Unless mPhase's products are successfully deployed and marketed by telephone
companies, it will not be able to achieve its business objectives and increase
its revenues.

Government regulation of mPhase's customers and related uncertainty could cause
its target customers to delay the purchase of its products.

mPhase's target market consists of domestic and international telecommunications
service providers. Domestic communications service providers are regulated by
the Federal Communications Commission, or FCC. They also require that equipment
located at their facilities comply with FCC, NEBS, UL and ANSI standards.
International telecommunications service providers operate under a number of
various equipment compliance standards and are regulated by their respective
governments and agencies. These international service providers will require
that mPhase receive local government and regulatory approval before it is able
to enter into field trials or definitive sales agreements.

In the U.S., The Telecommunications Act of 1996 requires regional Bell operating
companies, to offer their competitors cost-based access to some elements of
their networks. These telephone companies may not wish to make expenditures for
infrastructure and equipment required to provide broadband services if they will
be forced to allow competitors access to this infrastructure and equipment. The
FCC recently announced that, except in limited circumstances, it will not
require incumbent carriers to offer their competitors access to the facilities
and equipment used to provide high-speed data services. Nevertheless, other
regulatory and judicial proceedings relating to telephone companies' obligations
to provide elements of their network to competitors are pending.

The uncertainties caused by both foreign and domestic regulatory proceedings may
cause telephone companies to delay purchasing decisions. The outcomes of any
regulatory proceedings may cause these telephone companies not to deploy
services for which mPhase's products are designed or to further delay
deployment. Additionally, telephone companies' deployment of broadband services
may be slowed down or stopped because of the need for telephone companies to
obtain permits from city, state, federal or foreign national authorities to
implement infrastructure for products such as mPhase's. Any delay in deployment
of products by the Company's customers could harm its sales.


                                       16
<PAGE>

mPhase's potential customers will not purchase its products if they do not have
the infrastructure necessary to use its products. The Traverser(TM) is based on
the use of copper telephone wire. The copper wire infrastructures installed and
maintained by telephone companies vary in quality and reliability. A significant
portion of the existing networks have been installed and repaired over many
years and may be out of date. The copper wiring used by telephone companies is
also unshielded, making data transmission susceptible to interference. In
addition, copper wiring has a basic transmission property that causes the signal
quality to degrade rapidly as the frequency increases or the distance traveled
by the signal increases. As a result of these limitations, the Traverser(TM) may
not be a viable solution for customers requiring service at performance levels
beyond the current limits of copper telephone wire and this could harm mPhase's
sales.

Successful implementation of the Traverser(TM) is highly dependent on the
telephone companies' commitment and ability to continue to maintain their
infrastructure so that it will operate at a consistently high performance level.
Copper wire infrastructure upgrades may be costly, and telephone companies may
not have the necessary financial resources. This is particularly true for the
smaller independent telephone companies and international telephone companies
who are an important part of mPhase's target market. If its potential customers
lack the adequate infrastructure, the Company may not be able to sell the
Traverser(TM) to them and generate the revenues it anticipates.

Additionally, in order to utilize mPhase's products to offer digital video
services, its potential customers may need to build a digital headend to receive
video broadcasts and install fiber optic cable from the headend to each central
office. The capital expenditures required to install a headend may exceed the
financial resources of its potential customers. There can be no assurance that
its potential customers will make the investment necessary to upgrade their
facilities in order to use mPhase products.

Some telecommunications service providers, such as Bell Canada, are currently
offering Direct Broadcast Services, commonly referred to as "DBS", a technology,
which provides multiple channel digital television through satellite
distribution to individual satellite dish receptors located at the home. Since
there are telecommunications service providers that sell or re-sell DBS
services, these companies already provide their subscribers with access to a
digital television service and do not require the Company's technology to
provide digital video services.

Risk Related to the Industry

Intense competition in the telecommunications equipment market could limit or
prevent mPhase's profitability.

The telecommunications equipment market is characterized by swift technological
change. Several available technologies such as fiber optic cable, co-axial cable
and hybrid co-axial cable, wireless transmission and satellite transmission
compete with DSL for market share. Communications service providers may also use
other technologies such as ISDN (Integrated Services Digital Network), or
IP-based or fiber-based DSL solutions to deploy high-speed services comparable
to those provided by the Company's Traverser(TM) products.


                                       17
<PAGE>

mPhase's competitors who sell DSL systems like the Traverser(TM) or other
technologies, which incorporate broadband solutions over copper wire include:
ADC, Alcatel S.A., Copper Mountain, Advanced Fiber Communications, Innovia,
Ericsson, Fujistsu, Lucent Technologies, Marconi, NEC, Next Level, Nortel,
Huawei Technologies Corporation Limited, Nokia, DVTel, Inc., Turnstone, Paradyne
Networks, Samsung, 2Wire, Siemens, TUT Systems, Motorola, and Westell. In
addition, we also compete with ImagicTV and Myrio Corporation, which provide
infrastructure software products to deliver multi-channel digital television
over telephone networks by using Internet Protocol.

If mPhase is unable to compete effectively in the telecommunications market or,
in particular, the market for DSL telecommunications equipment, the Company's
revenue and future profitability may be materially adversely affected. Most of
mPhase's current and potential competitors have significantly greater selling
and marketing experience, technical capability and manufacturing and financial
resources. mPhase's competitors may be able to predict future market trends more
accurately than the Company can and, as a result, develop new technologies that
compete with its products or even render its products obsolete. Although mPhase
believes that its products have certain technological advantages over its
competitors, realizing and maintaining such advantages will require a continued
high level of investment in research and development, marketing and customer
service and support. Additionally, new competitors with greater market presence
and financial resources may enter the Company's market, thereby further
intensifying competition.

Technologies that compete with mPhase's products include telecommunications-
related wireline technologies, cable-based technologies, fixed wireless
technologies and satellite technologies. If the Company's potential customers
choose these alternative technologies to deploy high-speed services, its
business, financial condition and results of operations could be harmed.
mPhase's technology may not be able to compete effectively against these
technologies on price, performance or reliability. While the Company believes a
market exists for its products, there can be no assurance that its products will
gain wide market acceptance or that it will be able to maintain any market share
through innovation. The development of mPhase' DSL products is a complex and
uncertain process requiring accurate anticipation of technological and market
trends. The Company may not be successful in its development or introduction of
new products.

mPhase's equipment is subject to regulation and certification.

The Federal Communications Commission requires that telephone equipment used in
central offices be certified in accordance with Parts 15 and 68 of its rules and
regulations. Part 15 specifies a maximum allowable amount of electromagnetic
radiation from an electronic device in a commercial or residential environment
at specific frequencies. Part 68 tests the equipments resistance to lightning
strikes. The Underwriters Laboratories (UL) 1950 Standard applies to our
customer premise equipment called the Intelligent Network Interface(TM).

National Equipment Bureau of Standards (NEBS) testing is also recommended for
U.S. telco equipment. It assures a telco that the equipment does not require
extensive installation and is reliable. The testing covers a large range of
requirements including criteria for personnel safety, protection of property,
and operational continuity. NEBS also covers physical requirements including:
Space Planning, Temperature, Humidity, Fire, Earthquake, Vibration,
Transportation, Acoustical, Air Quality and Illumination; and electrical
criteria including: Electrostatic Discharge (ESD), Electromagnetic Interference
(EMI), Lightning and AC Power Fault, Steady State Power Induction, Corrosion, DC
Potential Difference, Electrical Safety and Bonding and Grounding. In addition,
Underwriters Laboratories also requires certain safety standards be tested and
certified.


                                       18
<PAGE>

The Central Office Traverser(TM) equipment is currently undergoing NEBS testing,
that will include FCC Part 68 and FCC Part 15 certification. The Customer
Premises Traverser(TM) equipment is FCC Part 68 and FCC Part 15 certified and is
also UL listed. The Traverser(TM) has not completed all certification testing
and there can be no assurance that it will be fully certified. In the event that
the Traverser(TM) fails any portion of the certification testing, the product
may need to be redesigned, mPhase may incur significant increases in its
development expenses and the production of the Traverser(TM) will be delayed.
The Company's ability to sell the Traverser(TM) if it is not able to obtain
certification will be hindered and will have difficulty conducting its plan of
operations as currently contemplated.

mPhase's products may become obsolete.

mPhase's position in existing markets or potential markets could be eroded
rapidly by product advances. The life cycles of its products are difficult to
estimate. The Company's growth and future financial performance will depend in
part upon its ability to enhance existing products and develop and introduce new
products that keep pace with:

         -        the increasing use of the Internet;

         -        the growth in remote access by telecommuters;

         -        the increasingly diverse distribution methods for high quality
                  digital video; and

         -        other industry and technological trends.

mPhase expects that its continued and future product development efforts will
continue to require substantial investments. The Company may not have sufficient
resources to make the necessary investments. If it fails to cost-effectively
develop new products that quickly respond to new competition and customer
requirements, the demand for its products may fall and the Company could lose
revenues.

Other Risks Associated with mPhase's Business

mPhase depends on a third party to develop its products. The Company relies upon
GTARC, an affiliate of the Georgia Institute of Technology, for research
concerning the Company's digital technology and products. mPhase has entered
into a Research Agreement with GTARC, which includes a series of delivery orders
providing guidelines for the research and development of portions or components
of the Traverser(TM). GTARC developed working prototypes and the version 1.0
Traverser(TM). mPhase's business will be materially adversely affected if GTARC
does not perform its responsibilities under the agreement on an acceptable basis
or terminates the relationship and mPhase is unable to replace their development
services on a prompt basis, if at all.


                                       19
<PAGE>


mPhase's success depends on its ability to protect its intellectual property.
Georgia Tech Research Corporation has been awarded (i) patent #6,154,772 dated
November 28, 2000 entitled System and Method for the Delivery of Digital Video
and Data over a communications channel, (ii) patent #6,208,666 dated March 27,
2001 entitled System and Method for Maintaining Timing Synchronization in a
Digital Video Network, (iii) patent #6,323,789 issued November 27, 2001 entitled
Method & Apparatus for Combining Plurality of 8B/10B Encoded Data Streams, and
(iv) patemt #6,434,562 issued August 13, 2002 entitled Computer System and
Method for Providing Digital Video and Data Over a Communication Channel. Even
if patents are obtained, they may not adequately protect the Company's
technologies from third party infringement. The Company may seek foreign patent
protection, but foreign patent protection may not be granted. mPhase's failure
to protect its intellectual property could materially adversely affect it.

The telecommunications industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to mPhase's business. Any claims asserting that the Traverser(TM) and
component parts infringe or may infringe proprietary rights of third parties, if
determined adversely to the Company, could have a material adverse effect on its
business, financial condition or results of operations. In the event of an
adverse result in any litigation with third parties that could arise in the
future, mPhase could be required:

         -        to pay substantial damages, including paying treble damages if
                  the Company is held to have willfully infringed;

         -        to halt the manufacture, use and sale of infringing products;

         -        to expend significant resources to develop non-infringing
                  technology; and/or

         -        to obtain licenses to the infringing technology.

Licenses may not be available from any third party that asserts intellectual
property claims against mPhase, on commercially reasonable terms, or at all. In
addition, litigation frequently involves substantial expenditures and can
require significant management attention, even if the Company ultimately
prevails. In addition, the Company indemnifies its customers for patent
infringement claims, and it may be required to obtain licenses on their behalf,
which could subject it to significant additional costs.



                                       20
<PAGE>

mPhase contracts for the manufacture of all of its products and have limited
in-house manufacturing capabilities. The Company relies primarily on other
companies to manufacture our products. The efficient operation of its business
will depend, in large part, on its ability to have these other companies
manufacture its products in a timely manner, cost-effectively and in sufficient
volumes while maintaining consistent quality. Any manufacturing disruption could
impair mPhase's ability to fulfill orders and could cause it to lose customers.

mPhase's products use components that may not be available due to excessive
market demand. Shortages of these components could increase significantly the
Company's costs and adversely impact its profitability. If the Company is not
able to obtain component parts for its equipment, then its sales will be
adversely impacted because it may not be able to deliver its equipment to
customers in a timely manner.

mPhase has common management with affiliates who supply it with components.

Necdet F. Ergul, the Chairman of the Board, Ronald A. Durando, the President and
Chief Executive Officer, and Gustave T. Dotoli, the Chief Operating Officer and
Vice President, respectively, are officers of Microphase Corporation. Necdet F.
Ergul, is a major shareholder of Microphase Corporation. Microphase provides
resources and technology related to the development of the Traverser(TM), and
other DSL products. Microphase may not be the most economical provider of this
technology and resources and conflicts of interest may arise due to the
relationship between mPhase and Microphase. In addition, the Company will pay to
Microphase a royalty comprised of 3% of any commercial product sales of any
DSL-related technologies.

Ronald A. Durando and Gustave T. Dotoli are also president and vice-president,
respectively, of PacketPort.com, Inc., a company that develops Internet Protocol
Telephony products and services. Packetport.com, Inc. is in the process of
launching a complete line of Packet Telephony products.

Janifast, Ltd., a Hong Kong company, is the manufacturer that produces
components for the prototype Traverser(TM) and may produce such components for
mPhase 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 of Janifast, Ltd. and Mr. Ergul is a Director of Janifast,
Ltd.

mPhase's success depends upon the services of its senior management and key
technical personnel, including its Chief Executive Officer, Ronald A. Durando,
its Chief Operating Officer, Gustave T. Dotoli, its Chief Technology Officer,
David Klimek and its Chief Financial Officer and General Counsel, Martin S.
Smiley. The loss of the services of any of these executive officers or any of
the Company's key management, sales or technical personnel could have a material
adverse effect on its business and prospects. In addition, the Company's success
is largely dependent upon its ability to hire highly qualified managerial, sales
and technical personnel. These individuals are in high demand and mPhase may not
be able to attract the caliber or quantity of staff that is needed.


                                       21
<PAGE>

The price of mPhase's common stock has been volatile and may fluctuate
substantially. The stock market has periodically experienced significant price
and volume fluctuations that have affected the market prices for the securities
of technology companies such as the Company. As a result, investors in its
common stock may experience a decrease in the value of their common stock
regardless of its operating performance or prospects.

Additionally, mPhase's stock price may be subject to substantial fluctuations in
response to a variety of factors, including:

         -        problems encountered when testing the Traverser(TM);

         -        fluctuations in quarterly operating results;

         -        changes in reports by financial analysts;

         -        announcements of strategic relationships, acquisitions or
                  capital commitments by the Company or its competitors;

         -        recent technological innovations;

         -        new products or services offered by the Company or its
                  competitors;

         -        changes in key personnel;

         -        changes in strategic relationships with third parties by the
                  Company or its competitors; and

         -        sales of common stock;

Many of these events or factors are beyond mPhase's control.

Anti-takeover provisions in mPhase's charter documents and New Jersey law could
prevent or delay a change in control of the Company that a stockholder may
consider favorable.

If a proposal by mPhase's directors is approved by its stockholders, certain
provisions of its certificate of incorporation and by-laws would make it more
difficult for a third party to acquire control of the Company, even if such
change in control would be beneficial to or favored by its shareholders. For
example, provisions of mPhase's certificate of incorporation include:

         -        prohibiting cumulative voting in the election of directors;

         -        restricting business combinations with interested
                  stockholders;

         -        issuance of preferred stock without stockholder approval;

         -        the existence of a rights plan, which would have the effect of
                  providing some holders of its common stock with a premium of
                  the market price of its stock;

         -        limiting the persons who may call special meetings of
                  stockholders; and

         -        establishing advance notice requirements for nominations for
                  election to the Board of Directors or for proposing matters
                  that can be acted on by stockholders at stockholder meetings.


                                       22
<PAGE>

As a New Jersey corporation, mPhase is also subject to the New Jersey
Shareholders Protection Act contained in Section 14A:10A-1. In general, Section
14A:10A-1 prohibits a publicly-held New Jersey corporation from engaging in a
"business combination" with an "interested shareholder" for a period of five
years following the date the person became an interested shareholder, unless,
among other things:

         -        the Board of Directors approved the transaction in which such
                  a shareholder became an interested shareholder prior to the
                  date the interested shareholder attained such status; and,

         -        the business combination is approved by the affirmative vote
                  of the holders of at least 66 2/3% of the corporation's voting
                  stock not beneficially owned by the interested shareholder at
                  a meeting called for such purpose.

A "business combination" generally includes a merger, sale of assets or stock,
or other transaction resulting in a financial benefit to the interested
shareholder. In general, an interested shareholder is a person who, together
with affiliates and associates, owns, or within five years prior to the
determination of interested shareholder status, did own, 10% or more of the
corporation's voting stock.

Future sales by holders of mPhase's common stock and warrants may cause the
market price of its stock to decline.

mPhase's stock price may decline as a result of sales of a large number of
shares in the market after the recent registration of 40,528,932 shares on an
amended S-1 registration statement. These factors could make it more difficult
for the Company to raise funds through future offerings of common stock.

A large volume of sales by these selling stockholders could have a significant
adverse impact on the market price of the Company's common stock.

ITEM 2.  PROPERTIES

The corporate headquarters is located at 587 Connecticut Avenue, Norwalk, CT
06854-1711. The Company leases this office space from Microphase Corporation
under a facilities agreement with Microphase that provides that mPhase lease
office space, lab facilities and administrative staff on a month-to-month basis
for $11,340/month. The Company also maintains an office at the Georgia Advanced
Telecommunications Technology Center in Atlanta, Georgia.

ITEM 3.  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.com, Inc.
(hereinafter "Packetport") and its Officers and Directors. Such recommendation
relates to alleged civil violations by Packetport and such Officers and
Directors of various sections of the Federal Securities Laws. The staff has
alleged civil violations of Sections 5 and 17(a)of the Securities Act of 1933
and Sections 10(b)and 13(d)of the Securities Exchanges Act of 1934. As noted in
other public filings of mPhase, the CEO and COO of mPhase also serve as
Directors and Officers of Packetport. Such persons have advised mPhase that they
deny any violation of law on their part and intend to vigorously contest such
recommendation.

From time to time we may be involved in various legal proceedings and other
matters arising in the normal course of business.


                                       23
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

As described in mPhase's Definitive Proxy Statement (DEF-14A), filed on April 8,
2002, the following proposals were submitted to shareholders for their approval
at an annual meeting held on May 15, 2002: (1) a proposal to elect seven (7)
Directors to hold office until the next Annual Meeting; and (2) a proposal to
ratify the appointment of Arthur Andersen LLP or such other qualified auditors
as the Board of Directors may determine is necessary, as the external auditors
for mPhase's fiscal 2002 year. The aforementioned proposals are explained in
greater detail in the Proxy Document; shareholders of record as of April 1, 2002
were entitled to vote before the deadline of May 15, 2002, and the proposals
were approved by the shareholders on that date, with the minor exception that
the auditors appointed by the Board and the shareholders at the meeting was in
fact, Rosenberg Rich Baker Berman & Company ("other qualified auditors").

The vote was as follows: (1) Election of Directors - 32,280,669 votes were cast
in favor of the election of each of the seven directors; and (2) Ratify
Independent Auditors - 31,785,416 votes were cast in favor of ratifying
Rosenberg Rich Baker Berman & Company as the Independent Auditors. Each of the
directors was elected by the same number of votes in favor and there were no
votes against their election.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   (A)  MARKET PRICES OF COMMON STOCK

The primary market for mPhase's common stock is the NASDAQ OTC Bulletin Board,
where it trades under the symbol "XDSL." The Company became publicly traded
through a merger with Lightpaths TP Technologies, formerly known as Tecma
Laboratories, Inc. pursuant to an agreement dated February 17, 1997. The
following table sets forth the high and low closing prices for the shares for
the periods indicated as provided by the NASDAQ's OTCBB System. The quotations
shown reflect inter-dealer prices, without retail mark-up, markdown, or
commission and may not represent actual transactions. These figures have been
adjusted to reflect a 1 for 10 reverse stock split on March 1, 1997.

YEAR/QUARTER                                            HIGH          LOW
                                                        ----          ---
Fiscal year ended June 30, 2000
  First Quarter                                       $ 9.25         $2.97
  Second Quarter                                        6.19          2.50
  Third Quarter                                        19.13          6.50
  Fourth Quarter                                       14.13          6.00

Fiscal year ended June 30, 2001
  First Quarter                                       $ 9.25         $3.00
  Second Quarter                                        5.94          1.47
  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


                                       24
<PAGE>

   (B)  HOLDERS

As of June 30, 2002, mPhase had 60,807,508 shares of common stock outstanding
and approximately 15,000 stockholders of record.

   (C)  DIVIDENDS

mPhase has never declared or paid any cash dividends on its common stock and
does not anticipate paying any cash dividends in the foreseeable future. The
Company currently intends to retain future earnings, if any, to finance
operations and the expansion of its business. Any future determination to pay
cash dividends will be at the discretion of the Board of Directors and will be
based upon mPhase's 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 relevant.

Issuance of Unregistered Securities

The information required by this item is set forth in note 10 on F-21 attached
hereto and in 10-Q's dated September 30, 2001, December 31, 2001, and March 31,
2002.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected 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 financial statements and notes included in this
annual report. The statement of operations data from October 2, 1996 (date of
inception) to June 30, 1997 and for the year ended June 30, 1998, and the
balance sheet data as of June 30, 1997 and 1998, are derived from financial
statements that have been audited by Schuhalter, Coughlin & Suozzo, LLC,
independent auditors, and are included in this document. The statement of
operations data for the years ended June 30, 1999, 2000, and 2001 and the
balance sheet data as of June 30, 1999, 2000, and 2001 are derived from
financial statements that have been audited by Arthur Andersen LLP., independent
auditors. The statement of operations data for the year ended June 30, 2002 and
the balance sheet data as of June 30, 2002 have been audited by Rosenberg Rich
Baker & Berman, independent auditors, and are included in this document.



                                       25
<PAGE>


<TABLE>
<CAPTION>

                                  From Inception                          Year Ended June 30,
                                 (October 2, 1996) --------------------------------------------------------------
                                  to June 30 1997      1998             1999            2000           2001             2002
                                    ------------    ------------    ------------    ------------   ------------    ------------
                                                                   (in thousands, except share data)
<S>                                 <C>             <C>             <C>             <C>            <C>             <C>
STATEMENT OF OPERATIONS DATA:

Total revenues                      $         --    $         --    $         --    $        279   $     10,524    $      2,582
                                    ------------    ------------    ------------    ------------   ------------    ------------
Costs and Expenses:
    Cost of sales                             --              --              --             132          5,805           2,415
    Research and development                 192           2,297           3,563          10,157         10,780           3,820
    Licensing Fees                            37             450              --              --             --              --
    General and administrative               541           1,710           4,683          17,516         16,151           6,490
    Depreciation and amortization             11              29             410             471            660             670
    Non-cash compensation charge              --              --          13,003          10,343          1,171             548
                                                    ------------    ------------    ------------   ------------    ------------
Operating loss                              (781)         (4,036)        (21,659)        (38,340)       (24,043)        (11,361)
Other income (expense), net                   --            (305)         (1,162)             20             --              31
Interest income (expense)                     --              --             (18)            158             43             (26)
                                    ------------    ------------    ------------    ------------   ------------    ------------

Net loss                            $       (781)   $     (4,341)   $    (22,839)  $     (38,162)  $    (24,000)   $   (11,356)
                                    ============    ============    ============   =============   ============    ============
Basic and diluted net
loss per share                      $       (.10)   $       (.46)   $      (1.42)  $      (1.41)   $       (.72)   $       (.23)
                                    ============    ============    ============   =============   ============    ============
Shares used in basic and diluted
net loss per share                     7,806,487       9,336,340      16,038,009      26,974,997     33,436,641      49,617,280
                                    ============    ============    ============   =============   ============    ============
</TABLE>

<TABLE>
<CAPTION>

                                                        Year ended June 30
                                ------------------------------------------------------------
                                  1997      1998       1999       2000      2001       2002
                                -------    -------    -------   -------   -------    -------
BALANCE SHEET DATA:                      (in thousands)

<S>                             <C>        <C>        <C>       <C>       <C>        <C>
Cash and cash equivalents       $   162    $    --    $ 7,978   $ 6,432   $    31    $    47
Working capital (deficit)          (212)    (3,073)     4,936     3,557    (1,458)       (94)
Total assets                        369      2,175     10,624    11,184     8,997      6,942
Long-term obligations, net of
current portion                      --         --         --        --        90      1,625
Total stockholders' equity
 (deficit)                      $   (23)   $  (915)   $ 6,974   $ 7,329   $ 1,865    $   728
</TABLE>


                                       26
<PAGE>

The statement of operations data as of the periods indicated below are derived
from unaudited financial statements and include all adjustments (consisting of
normal recurring items) that management considers necessary for a fair
presentation of the financial statements.

<TABLE>
<CAPTION>
                                                             Three months ended
                                       ------------------------------------------------------------
                                       September 30    December 31       March 31        June 30
                                       ------------    ------------    ------------    ------------
                                                    (in thousands, except share amounts)
                                                                 (unaudited)

FISCAL 2002 QUARTERLY
STATEMENT OF OPERATIONS DATA:
<S>                                    <C>             <C>             <C>             <C>
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                   2,644           1,471           1,262           1,114
 Depreciation and amortization                  193             209             136             132
 Non-cash compensation charge                   217             170              93              68
                                       ------------    ------------    ------------    ------------
Operating loss                               (4,085)         (3,092)         (1,888)         (2,296)
Interest expense                                (10)             (1)             (5)            (10)
                                       ------------    ------------    ------------    ------------

Loss before other income (expense)            4,095           3,093           1,893           2,306
Other income (expense), net                      32               5              86              19
                                       ------------    ------------    ------------    ------------

Net loss                               $     (4,063)   $     (3,088)   $     (1,807)   $     (2,287)
                                       ============    ============    ============    ============

Basic and diluted net loss per share   $       (.10)   $       (.07)   $       (.03)   $       (.04)
                                       ============    ============    ============    ============

Shares used in basic and diluted net
 loss per share                          42,037,506      44,645,458      55,606,168      56,459,167
                                       ============    ============    ============    ============

</TABLE>



                                       27
<PAGE>


<TABLE>
<CAPTION>

                                                            Three months ended
                                       September 30    December 31        March 31       June 30
                                       ------------    ------------    ------------    ------------
                                                     (in thousands, except share amounts)
                                                                (unaudited)
<S>                                    <C>             <C>             <C>             <C>
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                   3,125           2,968           2,873           7,185
 Depreciation and amortization                  123             136             200             201
 Non-cash compensation charge                   362             356             232             221
                                       ------------    ------------    ------------    ------------
Operating loss                               (5,779)         (4,326)         (4,255)         (9,683)
Interest income                                  28               8               4               3
                                       ------------    ------------    ------------    ------------

Net loss                               $     (5,751)   $     (4,318)   $     (4,251)   $     (9,680)
                                       ============    ============    ============    ============

Basic and diluted net loss per share   $       (.18)   $       (.13)   $       (.12)   $       (.27)
                                       ============    ============    ============    ============

Shares used in basic and diluted net
 loss per share                          31,562,727      32,324,964      34,205,000      35,702,797
                                       ============    ============    ============    ============
</TABLE>


                                       28
<PAGE>

<TABLE>
<CAPTION>

                                                            Three months ended
                                       ------------------------------------------------------------
                                       September 30    December 31       March 31       June 30
                                       ------------    ------------    ------------    ------------
                                                   (in thousands, except share amounts)
                                                               (unaudited)
<S>                                    <C>             <C>             <C>             <C>
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                   1,164           1,184           7,542           7,626
 Depreciation and amortization                  114             116             118             123
 Non-cash compensation charge                    46              42           5,234           5,022
                                       ------------    ------------    ------------    ------------
Operating loss                               (2,815)         (3,246)        (15,731)        (16,548)
Other income, net                                --              --              --              20
Interest income                                  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
 loss per share                          24,942,965      25,907,602      27,743,996      29,729,060
                                       ============    ============    ============    ============
</TABLE>



                                       29
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS AND PLAN OF OPERATIONS

The following is management's discussion and analysis of certain significant
factors, which have affected mPhase's financial position and should be read in
conjunction with the accompanying financial statements, financial data and the
related notes.

RESULTS OF OPERATIONS

OVERVIEW

mPhase is a development-stage company that has designed, patented and is
currently engaged in commercialization of the Company's primary product, the
Traverser(TM). The Company believes that the Traverser(TM) provides a unique
"turnkey" broadband equipment solution that enables telephone companies to
deliver real-time digital television programming, high-speed Internet and voice
service over existing copper telephone lines. The Company believes that the
Traverser(TM) will, in many instances, provide the most cost effective, reliable
and scaleable solution for many telephone companies to provide a comprehensive
suite of bundled or unbundled services, utilizing Asymmetric Digital Subscriber
Line, or ADSL technology. mPhase also manufactures and sells conventional and
intelligent POTS Splitter Shelves and other DSL component products, which are
currently being deployed by telephone companies both in the United States and
abroad.

mPhase was organized on October 2, 1996. On February 17, 1997, the Company
acquired Tecma Laboratories, Inc., a public corporation in a reverse merger
transaction. This resulted in the Company's stock becoming publicly traded on
the NASDAQ Over-the-Counter Bulletin Board. On June 25, 1998, the Company
acquired Microphase Telecommunications, Inc. in a stock for stock exchange,
whose principal assets included patents and patent applications utilized in the
Company's Traverser(TM) product. On August 21, 1998, mPhaseTV.net, Inc. was
organized as a wholly-owned subsidiary to market interactive television and
e-commerce revenue opportunities. This subsidiary is dissolved. On March 2,
2000, mPhase acquired an interest in mPhaseTelevision.Net, Inc., a joint venture
organized to provide digital television programming content to service providers
deploying TV over DSL.

From mPhase's inception, the operating activities related primarily to research
and development, establishing third-party manufacturing and distribution
relationships and developing product brand recognition among telecommunications
service providers. These activities included establishing trials and field tests
of the Traverser(TM) product with Hart Telephone Company in Georgia and
establishing a core administrative and sales organization.

Revenues. To date, all material revenues have been generated from sales of 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 Traverser(TM) to various telecommunications service providers. Since the
Company believes that there may be a significant international market for the
Traverser(TM), involving many different countries with different regulations,
certifications and commercial practices than the United States, future revenues
are highly subject to changing variables and uncertainties. Additionally, the
recent instability of the telecommunications market evidenced by reduction in
capital spending across the whole telecom sector contributes to our difficulty
in accurately predicting future revenues.




                                       30
<PAGE>



Cost of revenues. The costs necessary to generate revenues from the sale of POTS
Splitter Shelves and other 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.
Costs for future production of the Traverser(TM) product will consist primarily
of payments to manufacturers to acquire the necessary components and assemble
the products and future patent royalties payable to GTRC.

Research and development. Research and development expenses consist principally
of payments made to GTRC and Microphase Corporation for development of the
Traverser(TM) product. All research and development costs are expensed as
incurred.

General and administrative. Selling, general and administrative expenses consist
primarily of salaries and related expenses for personnel engaged in direct
marketing of the Traverser(TM), the POTS Splitter Shelves 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 Corporation. Finally, mPhase leases the
principal office from Microphase Corporation.

Litigation.  mPhase has not incurred any material expenses due to litigation
since its inception.

Non-cash compensation charge. mPhase incurred non-cash compensation charges of
$1,170,903 and $548,550, for the fiscal years ended 2001 and 2002, respectively.
The Company makes extensive use of stock options and warrants as a form of
compensation to employees, directors and outside consultants.

TWELVE MONTHS ENDED JUNE 30, 2002 VS. JUNE 30, 2001

Revenues. 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 worldwide. 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. Operating margins for
the period ended June 30, 2002 were 6%. The margins have varied dramatically as
spending among telecommunication providers has contracted, coupled with
downward pressures related to the supply and demand of telecommunications
products. Additionally, the Company has offered discounts to certain customers
in the period ended June 30, 2002 causing the margin to decrease.


                                       31
<PAGE>



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 expenditures incurred with GTRC is due to the Company's
nearing completion of the design and manufacture of proptypes of the set top box
and the central office equipment associated with its Traverser(TM) product in
2002.

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(TM) and mPhase Stretch. We believe the mPhase iPOTS(TM) offers a much
needed solution for the DSL industry; the iPOTS(TM) 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(TM), 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 the ITU, ANSI and ETSI. The unique (patent pending)
iPOTS(TM) 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 significant
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(TM) and can be used in conjunction with other DSL services. The
Company anticipates significant demand for the Stretch loop extender product as
it addresses a primary issue in DSL services.

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.

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.


                                       32
<PAGE>

TWELVE MONTHS ENDED JUNE 30, 2001 VS. JUNE 30, 2000

Revenues. Total revenues for the year ended June 30, 2001 increased to
$10,524,134 from $279,476 for the year ended June 30, 2000. The increase was
primarily attributable to sales of POTS Splitter Shelves and other DSL component
products.

Cost of revenues. Total cost of revenues increased to $5,804,673 for the year
ended June 30, 2001 from $131,756 for the year ended June 30, 2000 due to the
commencement of sales of POTS Splitter Shelves and other DSL component products.
Operating margins for the period ended June 30, 2001 were 45% based on the
limited number of sales achieved. During the year ended June 30, 2001 there was
a general shortage of POTS Splitter Shelves and other DSL component products as
telecommunication companies worldwide began aggressively deploying DSL
technology. Such margins may be materially smaller in the future as a result of
a greater market balance of supply and demand for such products.

Research and development. Research and development expenses increased from
$10,156,936 in the year ended June 30, 2000 to $10,779,570 for the year ending
June 30, 2001. Such amount includes $4,564,000 incurred with GTRC for such
twelve-month period ended in 2000 as compared to $3,814,000 during the
comparable period in 2001. Research and development expenses incurred primarily
with respect to Microphase Corporation and Flextronics increased from $3,328,443
to $3,405,975 for the twelve-month period ended June 30, 2000 as compared to the
twelve-month period ended June 30, 2001.

Research expenditures incurred with Flextronics were due to our increased
efforts in the deployment of the Traverser(TM), including the design and
manufacture of prototypes of the set-top box. Increased research and development
expenditures incurred with Microphase Corporation and Janifast Corporation were
primarily related to development work associated with the POTS Splitter, and
other DSL components.

General and administrative expenses. General and administrative expenses were
$16,150,711 for the twelve-month period ended on June 30, 2001 as compared to
$17,516,216 for the same period ended June 30, 2000. The decrease in
administrative costs included the decrease of non-cash charges for the issuance
of options to consultants which totaled $6,227,552 for the year ended June 30,
2001 as compared to $9,078,311 during the comparable period in 2000, offset by
an increase in salaries and marketing expenses.

Net loss. mPhase recorded a net loss of $23,998,734 for the year ended June 30,
2001 as compared to a loss of $38,161,542 for the same period ended June 30,
2000. This represents a loss per common share of $(.72) in 2001 as compared to
$(1.41) in 2000, based upon weighted average common shares outstanding of
$41,344,367 and 31,404,540 during the periods ending June 30, 2001 and June 30,
2000, respectively.



                                       33
<PAGE>

                               PLAN OF OPERATIONS

RESEARCH AND DEVELOPMENT ACTIVITIES

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 Traverser(TM).

For the years ended June 30, 2001 and 2002 and for the period since inception
(October 2, 1996) to June 30, 2002, approximately $3,814,000, $450,000 and
$13,424,300 respectively, has been billed to mPhase for research and development
conducted by GTARC. Subsequent to June 30, 2002, the Company and GTRC and GTARC
entered into a Memorandum of Intention to convert all amounts outstanding and
exchange mutual releases in consideration for two term Notes totaling $624,235
with varied payments through 2007 and warrants to purchase shares of the
Company's common stock through 2007, at a price and formula to be agreed upon.
mPhase is the sole, worldwide licensee of the technology developed by GTARC in
conjunction with the Traverser(TM) product line. Upon completion of the
commercial 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, 2002 was $30,808,774.
During the year ended June 30, 2002, the Company incurred research and
development expenses of $3,819,583 related to the continued development of its
current DSL products and services.

STRATEGIC ALLIANCES IMPLEMENTED

mPhase Technologies, Inc. has signed a worldwide distribution agreement with
Corning Cable Systems, an industry-leading manufacturer of fiber optic and
copper communications network solutions and pioneer of DSL POTS splitter
applications. This agreement enables Corning Cable Systems to resell mPhase's
line of "intelligent" DSL component products including the recently released
Intelligent POTS Splitter (iPOTS(TM)) and UniversalBypass(TM), as well as future
"intelligent" products. This relationship expands mPhase's distribution network
extensively via Corning Cable Systems' worldwide sales force.

Based on this agreement, mPhase will act as the original equipment manufacturer
for Corning Cable Systems, jointly manufacturing the iPOTS product set, as well
as providing sales support and continuing product design and development work.
mPhase is already engaged with Corning Cable Systems in the development of a
next generation iPOTS for a major RBOC.


                                       34
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2002 mPhase had working capital of $399,321 as compared to working
capital deficit of $1,458,227 at June 30, 2001. The primary reason for the
improvement in the Company's working capital position at June 30, 2002, were the
conversions of approximately $2.7 million of accounts payable and accrued
expenses due to related parties and strategic vendors to equity, $1.5 million of
accounts payable and accrued expenses due to strategic vendors into Notes
payable and $1.8 million of accounts payable and accrued expenses due to related
parties and strategic vendors expected to be converted to equity in fiscal 2003.
Through June 30, 2002, the Company had incurred development stage losses
totaling approximately $101,366,000. At June 30, 2002, the Company had cash and
cash equivalents of $47,065 compared to $31,005 at June 30, 2001. Historically,
mPhase had 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 cashflow 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, 2002, the Company had accounts receivable of approximately $273,780 and
inventory of $3.3 million. This compared to approximately $300,000 of accounts
receivable and $4.3 million of inventory at June 30, 2001.

Cash used in operating activities was $2.7 million during the twelve months
ending June 30, 2002. The cash used by operating activities principally consists
of the net loss, the net decrease in inventory, the net decrease in accounts
receivable offset by the increase in depreciation and amortization, and by
non-cash charges for common stock options and warrants issued for services and
increased accrued expenses. In the year ended June 30, 2002, net cash of
approximately $106,000 was used in investing activities.

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 $4,563,560, $3,813,683,
and $450,000 for the years ended 2000, 2001 and 2002, respectively, and
$13,424,300 from the period from inception through June 30, 2002. Subsequent to
June 30, 2002, the Company and GTRC and GTARC entered into a Memorandum of
Intent to convert all amounts outstanding and exchange mutual Releases in
consideration for two term Notes totaling $624,235 with varied payments through
2007 and warrants to purchase shares of the Company's common stock through 2007,
at a price and formula to be agreed upon. mPhase is the sole, worldwide licensee
of the technology developed by GTARC in conjunction with the Traverser(TM)
product line. Upon completion of the commercial product, GTRC may receive a
royalty of up to 5% of product sales.

During the quarter ended, December 31, 2001, certain officers, directors and
related parties were issued 2,000,000 restricted shares of the Company's common
stock for the investment of $1,000,000 in cash.



                                       35
<PAGE>


During the twelve-month period ended June 30, 2002, the Company raised capital
through private placements with accredited investors, whereby the Company
issued 6,404,174 shares of the Company's common stock and 6,329,174 warrants
each to purchase one share of the Company's common stock at an exercise price of
$.30 per share and 75,000 warrants to purchase one share of the Company's at an
exercise price of $3.00 per share, generating gross proceeds of $1,973,750. The
Company incurred no cash expenses and issued 576,469 shares of its common stock
and 576,469 warrants each to purchase one share of its common stock at $.30 per
share to finders, consultants and investment banking firms in connection with
these private placements.

In addition, 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.

As of June 30, 2002, mPhase had no material commitments for capital
expenditures.

LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS

Through June 30, 2002, the Company had incurred development stage losses
totaling approximately $101,366,000, and at June 30, 2002 had working capital of
$399,321. The primary reason for the improvement in the Company's working
capital position at June 30, 2002, were the conversions of approximately $2.7
million of accounts payable and accrued expenses due to related parties and
strategic vendors to equity, $1.5 million of accounts payable and accrued
expenses due to strategic vendors into Notes payable and $1.9 million of
accounts payable and accrued expenses due to related parties and strategic
vendors expected to be converted to equity in fiscal 2003. At June 30, 2002, the
Company had approximately $47,065 of cash, cash equivalents and approximately
$273,780 of trade receivables to fund short-term working capital requirements.
The Company's ability to continue as a going concern and its future success is
dependent upon its ability to raise capital in the near term to: (1) satisfy its
current obligations, (2) continue its research and development efforts, and (3)
the successful wide scale development, deployment and marketing of its products.

The Company believes that it will be able to complete the necessary steps in
order to meet its cash flow requirements throughout fiscal 2003 and continue its
development and commercialization efforts. Management's plans in this regard
include, but are not limited to, the following:

We intend to continue to invest in technology and telecommunications hardware
and software in connection with the full commercial production of the
cost-reduced version of the Traverser(TM). Since we have strategically
determined that the cost to a prospective telco to build a master headend is
substantially reduced owing to new developments in technology, we have decided
that mPhaseTV no longer requires access to a satellite uplink facility. Thus the
amount of capital necessary to fund mPhaseTV and mPhase has been substantially
reduced.

We continue our efforts to raise additional funds through private placements of
our common stock and strategic alliances, the proceeds of which are required to
fund continuing development stage expenditures and the commercial roll-out of
our Traverser(TM) Digital Video and Data Delivery System. However, there can be
no assurances that we will generate sufficient revenues to provide positive cash
flows from operations or that sufficient capital will be available when needed
or at terms that we deem to be reasonable.



                                       36
<PAGE>


We have evaluated our cash requirements for fiscal year 2003 based upon certain
assumptions, including our ability to raise additional financing and increased
sales of our POTS splitter. The Company anticipates that it will need to raise
additional monies primarily in private placements of its common stock with
accredited investors, and/or a Rights Offering to all of the Company's current
shareholders during the fiscal year which will end June 30, 2003, or
alternatively we will need to curtail certain expenses as incurred at the
present levels including marketing and research and development expenses.
Additional investment in technology design to reduce the cost of the
Traverser(TM) will be necessary over the next 12 months. In the long term, the
Company may continue to invest additional funds annually on research and
development of the Traverser(TM) product line based upon sales levels, changes
to technology and the overall success of the Company attaining sufficient
financing until such time as it achieves profitable operations.

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 available at June 30, 2002, plus financing to be
secured during fiscal year 2003, and expected POTS splitter revenues, will be
sufficient to meet our obligations until the end of fiscal year 2003. 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is set forth on pages F1-F33 attached
hereto.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

                  None.



                                       37
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Executive officers are selected by the Board of Directors. No family
relationships exist between any of the executive officers or directors. The
following table sets forth certain information with respect to each person, who
is an executive officer or director. mPhase's executive officers and directors
as of June 30, 2002 are as follows:

<TABLE>
<CAPTION>

NAME                               AGE                       POSITION (S)
-------------------------------------------------------------------------
<S>                                <C>       <C>
Necdet F. Ergul                    78        Chairman of the Board and Director
Ronald A. Durando                  45        Chief Executive Officer and Director
Gustave T. Dotoli (2)              66        Chief Operating Officer and Director
David Klimek                       49        Chief Technology Officer and Director
Martin Smiley                      54        Executive Vice President, General Counsel and Chief Financial Officer

<CAPTION>
OUTSIDE DIRECTORS
<S>                                <C>       <C>
Michael McInerney                  46        Director
Anthony H. Guerino (1)(2)          56        Director
Abraham Biderman (1)(2)            54        Director
</TABLE>

--------------------------------------------------------------------------------
   (1)  Member of the Audit Committee
   (2)  Member of the Compensation Committee

All of the directors were elected by the shareholders on May 15, 2002. The
current executive officers and directors, along with their backgrounds, are set
forth below:

NECDET F. ERGUL has served as mPhase's Chairman of the Board since October 1996
with the exception of a three-month period when he temporarily resigned due to
the press of personal business. Mr. Ergul also currently serves as the Chairman
of the Board of Directors, President and Chief Executive Officer of Microphase
Corporation, a leading developer of military electronic defense and
telecommunications technology, which he founded in 1955. 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 and has served as the Company's
President, Chief Executive Officer and Director since its inception in October
1996. Since 1994, Mr. Durando has been an Officer of Microphase Corporation. Mr.
Durando is not a Director of Microphase Corporation. From 1986-1994, Mr. Durando
was President and Chief Executive Officer of Nutley Securities, Inc., a
registered broker-dealer. In addition, Mr. Durando is also Chairman of the Board
of Janifast, Ltd., a Hong Kong company, for operational and manufacturing
companies in China. Mr. Durando is also President and a Director of
PacketPort.Com Inc.



                                       38
<PAGE>



GUSTAVE T. DOTOLI has served as mPhase's Chief Operating Officer since October
1996 and has been a Director since October 1996. Prior to joining the Company,
Mr. Dotoli was President and CEO of State Industrial Safety, Inc. from
1986-1996. In addition, Mr. Dotoli currently serves as the Vice President of
Corporate Development of Microphase Corporation. Mr. Dotoli is also a Director
and Vice President of Packetport.com., Inc. He is formerly 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 Dickenson University in 1959.

DAVID KLIMEK is a co-founder of mPhase and has served as the Company's Chief
Technology Officer since June 1997 and as Director of Engineering since its
inception in October 1996. Mr. Klimek joined the Board of Directors in October
1996. From 1990-1996, Mr. Klimek owned and operated Mashiyach Design, Inc., an
engineering consulting firm. He has more than 18 years of technical engineering
and design expertise and presently holds 14 individual or co-authored U.S.
patents. From 1982 to 1990, Mr. Klimek was the R&D manager of Digital Controls,
Inc. Mr. Klimek holds a B.S. in Electrical Engineering from Milwaukee School of
Engineering, Milwaukee, Wisconsin.

MICHAEL P. MCINERNEY is President of Lintel, Inc. subsidiaries; Hart Telephone
Company, a 10,000-line local exchange carrier in Northeast Georgia, Hart
Communications, a telecommunications company, Hart Cable, a cable television
company and Diversified Golf. Mr. McInerney was Executive Vice President of
Lintel, Inc. from 1994 until he became President in 2001. From 1991 to 1994, Mr.
McInerney was Executive Director of Standard Telephone Company. In the period
from 1980-1991, Mr. McInerney was a regional manager, state manager and an
account executive with AT&T. Mr. McInerney earned a Masters of Business
Administration degree at Winthrop College and a B.S. degree at the University of
Vermont.

ANTHONY H. GUERINO has been a member of the Board since February 23, 2000. Since
December 1997, Mr. Guerino has been an attorney in private practice in New
Jersey. Prior thereto, Mr. Guerino served as a judge of the Newark Municipal
Courts for over twenty (20) years, periodically sitting in the Essex County
Central Judicial Processing Court at the Essex County Courthouse. Mr. Guerino
has been a chairperson for and member of several judicial committees and
associations in New Jersey, and has been an instructor for the Seton Hall School
of Law's Trial Moot Court Program.

ABRAHAM BIDERMAN has been a member of the Board since August 3, 2000. Since
1990, Mr. Biderman has been employed by Lipper & Co. as Executive Vice
President; Executive Vice President, Secretary and Treasurer of the Lipper
Funds; and Co-Manager of Lipper Convertibles, L.P. Prior to joining Lipper & Co.
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.



                                       39
<PAGE>


MARTIN SMILEY joined mPhase as Executive Vice President, Chief Financial Officer
and General Counsel in August 2000. Mr. Smiley has over twenty years experience
as a corporate finance and securities attorney and as an investment banker.
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.

At each annual meeting of stockholders, the newly elected directors' terms begin
on the date of election and qualification, and continue through the next annual
meeting following election. Terms may differ in the case where a director
resigns, is removed from office, or until the time when a successor director is
elected and qualified.

SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Directors, executive officers, and individual owning more than 10 percent of
mPhase common stock are required to file initial reports of ownership and
changes in ownership with the SEC under Section 16(a) of the Securities Exchange
Act of 1934, as amended. The SEC regulations also require those persons to
provide copies of all filed Section 16(a) reports to the Company. mPhase has
reviewed the report copies filed in 2001, and based also on written
representations from those persons, the Company believes that there was
compliance with Section 16(a) filing requirements for 2002. All the officers and
directors filed all of the required forms, but in certain instances the
directors were late with respect to the filing of Form 4s.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal year ended June 30, 2002 and the
two previous fiscal years, the compensation earned by mPhase's chief executive
officer and the four other executive officers, whose compensation was greater
than $100,000 for services rendered in all capacities to the Company for the
year ended June 30, 2002.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                                                        LONG-TERM COMPENSATION
                                                                      -------------------------
                                          ANNUAL COMPENSATION         RESTRICTED    SECURITIES
                                      --------------------------       STOCK        UNDERLYING
                             YEAR       SALARY        BONUS           AWARD(S)     OPTIONS/SARS
                             ----       ------        -----           --------     ------------
<S>                          <C>      <C>            <C>             <C>           <C>
Ronald A. Durando (1)        2002     $  388,504             --                     1,850,000
Chief Executive Officer      2001     $  395,004             --             --      1,225,000
and President                2000        312,920     $2,398,032        157,500        250,000



Gustave Dotoli (1)           2002        313,504             --             --      1,225,000
Chief Operating Officer      2001        342,917             --             --        860,000
                             2000        231,670        362,000        232,500        175,000



David Klimek(1)              2002        106,606             --             --        162,500
Chief Technology Officer     2001        175,577             --             --        110,000
                             2000        106,500         30,000             --         50,000


Martin Smiley                2002        158,712                                      540,000
Executive Vice President     2001        163,435             --             --        670,000
Chief Financial Officer      2000             --             --             --             --
General Counsel
</TABLE>

----------------------------------
(1)  Includes $7,500 annual stipend as a director.


                                       40
<PAGE>


No individual named above received prerequisites or non-cash compensation during
the years indicated which exceeded the lesser of $50,000 or an amount equal to
10% of such person's salary. No other executive officer received compensation
and bonuses that exceeded $100,000 during any year.

                                  STOCK OPTIONS

The following table contains information regarding options granted in the fiscal
year ended June 30, 2002 to the executive officers named in the summary
compensation table above. For the fiscal year ended June 30, 2002, mPhase
granted options to acquire up to an aggregate of shares to employees and
directors.

<TABLE>
<CAPTION>

                                  OPTION GRANTS IN LAST FISCAL YEAR
                                         (INDIVIDUAL GRANTS)
------------------------------------------------------------------------------------------------------------------------------------
                                                  Weighted Average  Weighted Average                     Potential Realizable Value
        Name         Number of     % of Total     Exercise or Base    Market Price    Expiration Date       of Assumed Annual
                    Securities    Options/SARS     Price ($/Share)  on Grant Dates                         Rates of Stock Price
                    Underlying     Granted to                                                               Appreciation for 5
                    Option/SARS   Employees in                                                               Year Option Term
                    Granted (#)    Fiscal Year                                                             0%       5%        10%
------------------------------------------------------------------------------------------------------------------------------------
<S>                <C>             <C>             <C>              <C>                 <C>
Ronald A. Durando    1,850,000       28.1%           $ .40               $.39             2007             0     $180,850   $421,975
------------------------------------------------------------------------------------------------------------------------------------
Gustave T. Dotoli    1,225,000       18.6%           $ .41               $.40             2007             0     $123,137   $286,895
------------------------------------------------------------------------------------------------------------------------------------
David Klimek           162,500        2.5%           $ .64               $.63             2007             0     $ 26,661   $ 60,875
------------------------------------------------------------------------------------------------------------------------------------
Martin Smiley          540,000        8.2%           $ .37               $.36             2007             0     $ 48,313   $113,281
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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, 2002. During the fiscal year ended June 30,
2002, 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, 2002, and the exercise
price of the options.

<TABLE>
<CAPTION>
                                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                              FISCAL YEAR-END OPTION VALUES

                        Shares      Value         NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                       Acquired    Realized      UNDERLYING UNEXERCISED       IN-THE-MONEY OPTIONS AT
                      on Exercise     $          OPTIONS AT YEAR END (#)            YEAR END ($)
                      ----------  -----------  --------------------------   ---------------------------
                                               EXERCISABLE  UNEXERCISABLE    EXERCISABLE  UNEXERCISABLE
                                               -----------  -------------   ------------  -------------
<S>                   <C>         <C>          <C>          <C>             <C>           <C>
Ronald A. Durando         --          --        4,775,000       --             $ --          $ --
Gustave T. Dotoli         --          --        3,035,000       --             $ --          $ --
David Klimek              --          --          947,500       --             $ --          $ --
Martin Smiley             --          --        1,210,000       --             $ --          $ --
</TABLE>

Compensation of Directors

mPhase pays each of the directors $7,500 annually for their services as a
director and for their attendance of Board and committee meetings. Additionally,
some of the directors have been granted options under the Company's Stock
Incentive Plan and the Company has included those grants in the table entitled
"Security Ownership of Certain Beneficial Owners and Management" and the notes
thereto.


                                       41
<PAGE>

Employment Agreements

mPhase had an employment agreement with Ronald A. Durando, the President, Chief
Executive Officer and Director, which agreement expired on June 30, 2002. Under
the terms of the agreement, Mr. Durando received a base annual salary of
$275,000, a bonus and a salary increase based upon performance review every six
months, beginning six months from the effective date of the agreement, as well
as health benefits, vacation and such other fringe benefits as would be paid to
our similarly situated senior management. In consideration of devoting such time
as would be required of the Chief Executive Officer to mPhase's business and
specifically to his duties under the agreement to provide investor relations,
Mr. Durando is entitled to a bonus at the end of each year equal to five percent
(5%) of the increase in the market value of the issued and outstanding shares,
of which bonus twenty-five percent (25%) shall be payable in cash and the
remaining balance in shares.

Such agreement is terminable upon Mr. Durando's death, permanent disability, or
for "just cause" (defined below) and is renewable within two months of the
expiration date of the agreement upon the mutual terms agreed to by Mr. Durando
and mPhase. Mr. Durando shall be deemed "permanently disabled" under the
agreement if he shall fail to render and perform the executive services required
under the agreement for a continuous period of three consecutive months. "Just
cause" is defined under the agreement as the commission of acts constituting
theft, embezzlement, the receipt of funds or property under false pretenses or
similar acts of gross misconduct with respect to our property, or the conviction
of a felony involving matters not directly related to the Company business if,
in the Board's discretion, it adversely affects his ability to perform his
executive duties.

The agreement also contains work-for-hire, confidentiality and non-disclosure
provisions. In the event that Mr. Durando breaches such provisions, mPhase is
entitled to injunctive relief restraining him from any further breach, in
addition to any other remedies that the Company may have arising out of such
breach.

mPhase also had an employment agreement with Gustave T. Dotoli, the Chief
Operating Officer and Director, which agreement expired on June 30, 2002. Mr.
Dotoli received a base annual salary of $200,000, a bonus and a salary increase
based upon performance review every six months, beginning six months from the
effective date of the agreement, as well as health benefits, vacation and such
other fringe benefits as would be paid to mPhase's similarly situated senior
management. The employment agreement is terminable upon Mr. Dotoli's death,
permanent disability, or for "just cause" (defined below), and is renewable
within two months of the expiration date of the agreement upon the mutual terms
agreed to by Mr. Dotoli and mPhase. Mr. Dotoli shall be deemed "permanently
disabled" under the agreement if he shall fail to render and perform the
executive services required under the agreement for a continuous period of three
consecutive months. "Just cause" is defined under the agreement as the
commission of acts constituting theft, embezzlement, the receipt of funds or
property under false pretenses or similar acts of gross misconduct with respect
to the Company's property, or the conviction of a felony involving matters not
directly related to the Company's business if, in the Board's discretion, it
adversely affects his ability to perform his executive duties. The agreement
also contains work-for-hire, confidentiality and non-disclosure provisions.


                                       42
<PAGE>


mPhase had an employment agreement with Martin Smiley, the Executive Vice
President, Chief Financial Officer and General Counsel, which expired on August
20, 2002. Mr. Smiley received a base annual salary of $175,000, a bonus and a
salary increase based upon performance review every twelve months, beginning
twelve months from the effective date of the agreement, as well as health
benefits, vacation and such other fringe benefits as would be paid to the
Company's similarly situated senior management.

mPhase had an employment agreement with David Klimek, the Chief Technical
Officer and a Director, which agreement expired on April 1, 2002. Mr. Klimek
received an annual salary of $170,000 per annum and a bonus based upon
performance as well as health benefits, vacation and such other fringe benefits
as would be paid to the Company's similarly situated senior management. In
addition, in the event of a change of control that is not approved by Mr. Klimek
as one or the Company's directors or shareholders, he is entitled to exercise an
option to purchase 150,000 shares at $1.00 per share.

Both Mr. Smiley's and Mr. Klimek's agreements are terminable upon death,
significant disability, or for good cause, and are renewable within one month of
the expiration date of such agreements upon the mutual terms agreed to by such
employees and mPhase. Such employees shall be deemed "significantly disabled"
under their respective agreements for a continuous period of six months. "Good
cause" is defined under each of the agreements as the commission of acts
constituting a felony or crime; fraud or misappropriation of funds; personal
dishonesty, incompetence or, gross negligence; willful misconduct; repeated use
of drugs, alcohol or similar substance; or breach by such employee of his
agreement. Such agreements also contain confidentiality and non-disclosure
provisions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during fiscal 2002 were Messrs.
Dotoli, Biderman and Guerino. Mr. Dotoli is the Chief Operating Officer. Neither
Messrs. Biderman nor Guerino has been one of mPhase's officers or employees. Mr.
Vickers resigned from the Board of Directors after fiscal year 2001 and has been
replaced by Mr. Biderman on the compensation committee effective March 2002.
None of the Company's 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 2002 that has a director or executive officer serving on
mPhase's 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. Dotoli, together with Mr. Durando, is a
controlling shareholder of Janifast. Janifast has produced components for the
Traverser(TM), and may produce such components for mPhase in the future.



                                       43
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of August 26, 2002 certain information
regarding the beneficial ownership of shares of our common stock:

     - by each of mPhase's directors;

     - by each person who is known by the Company to beneficially own 5% or more
       of the outstanding shares of common stock;

    - by each of the Company's executive officers named in the summary
      compensation table; and,

    - by all of the Company's executive officers and directors as a group.

<TABLE>
<CAPTION>

                                             OPTIONS AMOUNT
                                                 AND NATURE
                                                    OF
                                           BENEFICIAL OWNERSHIP   PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                          COMMON STOCK(2)
---------------------------------------    --------------------  ---------------
<S>                                        <C>                   <C>
Necdet F. Ergul (7)(10)..................         9,319,118          14.5%
Ronald A. Durando(3)(7)(8)...............        13,884,148          20.7%
Gustave Dotoli (7)(8)(12)................         4,051,366          6.3%
J. Lee Barton (4)(6)(7)(9)...............         7,703,219         12.6%
David Klimek (7)(8)......................         1,340,000          2.1%
Craig Vickers (9)........................           159,000            *
Lintel, Inc. (6) ........................         4,114,219          6.7%
Abraham Biderman (5)(7)..................           277,733            *
J. Allen Layman (7)(9) ..................           140,000            *
Anthony Guerino (7) .....................           267,500            *
Martin Smiley ...........................         2,417,048          3.9%
Michael McInerney (7) ...................           124,500            *
All executive officers and directors
as a group (11) (eleven people) .........        39,683,632           60%
</TABLE>

*   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 on 60,807,508 shares outstanding on August 26, 2002,
and, with respect to each such person holding options or warrants to purchase
shares that are exercisable within 60 days after August 26, 2002, 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.

                                       44
<PAGE>

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                             1,216,250
                  Ronald A. Durando                           4,775,000
                  Gustave Dotoli                              3,035,000
                  J. Lee Barton                                 295,000
                  David Klimek                                  947,500
                  Martin Smiley                               1,085,000
                  J. Allen Layman                               140,000
                  Craig Vickers                                 159,000
                  Abraham Biderman                              272,500
                  Anthony Guerino                               267,500
                  Michael McInerney                             120,500

3) Includes 1,396,148 shares held by Durando Investment LLC, which Mr. Durando
controls and 5,850,000 shares and 1,200,000 warrants held by Janifast and
230,000 shares owned by Karen and Ronald Durando Foundation; and 95,000 shares
owned by Durando Charitable Remainder Trust.

(4) Includes 100,000 shares owned by Kim Barton, his wife and 100,000 shares
owned by Betty Barton, his mother. Mr. Barton resigned in March 2002.

(5) Includes 5,233 shares of common stock, options and warrants for 195,000
shares of common stock. Does not include 1,103,225 shares held by Lipper & Co,
where Mr. Biderman is a director.

(6) The address for Lintel, Inc. and J. Lee Barton, who is the Chief Executive
Officer of Lintel, Inc. is 196 North Forest Avenue, P.O. Box 388, Hartwell, GA
30643.

(7) Includes options for 25,000 shares of common stock received as compensation
for participation on the Board of Directors.

(8) Does not include contingent options exercisable only upon a change in
control of our Company, not voted for by such person as a stockholder or
director, Ronald Durando--3,000,000; Gustave Dotoli--1,500,000; David
Klimek--150,000.

(9) Craig Vickers resigned as a Director in September 2001. J. Allen Layman and
J. Lee Barton also resigned as Directors in 2002. Mr. Michael P. McInerney,
President of Lintel, Inc. subsidiaries, was appointed to the Board at the Annual
Shareholders Meeting.

(10) Includes 200,000 shares owned by Berrin Snyder, his daughter and 150,000
owned by Eda Peterson, his daughter. Also includes 4,469,534 shares and
2,200,000 warrants owned by Microphase Corporation, a company in which Mr. Ergul
is the President and Chief Executive Officer.

(11) Includes Mr. Vickers and Mr. Layman, who resigned in September 2001 and
March 2002, respectively.

(12) Includes 190,000 shares owned by Patricia and Gustave Dotoli Foundation;
and 30,000 shares owned by Dotoli Charitable Remainder Trust.


                                       45
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

mPhase's President and Chairman of the Board of the Company are also employees
of Microphase. 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. 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. Microphase also charges fees for
specific projects on a project-by-project basis. During the years ended June 30,
2000, 2001, 2002 and for the period from inception (October 2, 1996) to June 30,
2001, $2,547,847, $2,128,983, 1,212,594 and $6,576,424, 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.

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 proprietary Traverser(TM) Digital Video and Data Delivery
System and DSL component products. During the year ended June 30, 2001 and 2002,
mPhase recorded royalties to Microphase totaling $297,793 and $78,762,
respectively. Pursuant to a debt conversion agreement between the Company and
Microphase for the year ended June 30, 2001, Microphase received 1,278,000
shares of mPhase common stock. For the year ended June 30, 2002, in
consideration for a direct investment of $100,000 and pursuant to debt
conversion agreements, Microphase received 2,900,000 shares of mPhase common
stock and 2,200,000 warrants to purchase mPhase common stock. As of June 30,
2001, the Company had $70,799 payable to Microphase, which is included in
amounts due to related parties in the accompanying consolidated balance sheet.
As of June 30, 2002, the Company had $92,405 included in other
liabilities-related parties in the accompanying consolidated balance sheet as
discussed in Note 14.

During the year ended June 30, 2000, mPhase advanced money to Janifast Limited,
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, for
the year ended June 30, 2001, Janifast received 1,200,000 shares of the
Company's common stock. For the year ended June 30, 2002 pursuant to debt
conversion agreements, Janifast received 3,450,000 shares of mPhase common stock
and 1,200,000 warrants to purchase mPhase common stock. During the years ended
June 30, 2000, 2001 and 2002 and the period from inception (October 2, 1996 to
June 30, 2002) $0, $8,932,378, $1,759,308 and $10,691,686, respectively have
been charged to inventory or expense and is included in operating expenses in
the accompanying statements of operations. As of June 30, 2002, the Company had
$260,159 included in other liabilities-related parties in the accompanying
consolidated balance sheet as discussed in Note 14.

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.

                                       46
<PAGE>

Due to related parties as of June 30, 2000 included $36,120 due to Nutley
Securities, a company owned by mPhase's president and $49,180 due to affiliates
of the Company's joint venture partner, Alphastar International, Inc. both
amounts are for various services performed.

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. A member of mPhase's Board of Directors is employed by Lintel, Inc, the
parent corporation of Hart Telephone. The Company has installed its prototype
product and commenced beta testing at Hart Telephone. In addition, the Company
has entered into a supply agreement with Hart Telephone upon the commencement of
commercial production of the Traverser(TM). 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 as of June 30, 2000.

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 year ended June 30, 2002, certain officers, directors and related
parties were issued 8,150,000 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.

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.

Our management is affiliated by employment at and/or ownership of a related
group of companies, including Microphase Corporation, Complete
Telecommunications, Inc. (which was dissolved subject to a settlement dated
August 16, 1999), PacketPort, Inc. and PacketPort.com and Janifast Ltd., which
may record material transactions with us. As a result of such affiliations, our
management in the future may have conflicting interests with these affiliated
companies.

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.

We reimburse Microphase $51,340 per month for research and development services
and administrative expenses incurred for the use of Microphase's office space,
lab facilities and administrative staff.

Ronald A. Durando is the owner/sole shareholder of Nutley Securities, Inc., a
former registered broker-dealer, which is not a private investment company under
the Investment Advisors Act of 1940.


                                       47
<PAGE>


One of our former directors, J. Lee Barton, Chairman of the Board of Lintel,
Inc. Lintel is the parent corporation of Hart Telephone Company, our beta
customer located in Hartwell, Georgia, where we installed our prototype product
and commenced beta testing. In December 1998, we issued 3,115,000 shares in a
private placement to J. Lee Barton, several members of his family, Lintel,
several employees of Lintel and two employees of Microphase for a purchase price
of approximately $1.03 per share, or an aggregate purchase price of $3,197,416.
Mr. Barton has received a $285,000 bonus, a stock award of 140,000 shares and
options to purchase 295,000 shares, which includes options to Hart Telephone.
Michael McInerney, one of our directors, is the president of Lintel, Inc. Mr.
McInerney has been awarded 5,000 shares and options to purchase 120,500 shares.

Janifast Ltd., a Hong Kong corporation manufacturer, which has produced
components for our prototype Traverser(TM) 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.

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.

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.



ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) The following is a list of the financial statements, financial statement
schedules and exhibits, which are included in this Annual Report on Form 10-K.
Where so indicated by footnote, exhibits, which were previously filed, are
incorporated by reference.


                                       48
<PAGE>


FINANCIAL STATEMENTS

                                                                         PAGE

Report of Rosenberg Rich Baker & Berman                                   F-1

Report of Arthur Andersen LLP                                             F-2

Report of Schuhalter, Coughlin & Suozzo, LLC                              F-3

Consolidated Balance Sheets as of June 30, 2001 and 2002                  F-4

Consolidated Statements of Operations for the years ended
  June 30, 2000, 2001 and 2002 and for the period from
  inception (October 2, 1996) through June 30, 2002                       F-5

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 four years in the
  period ended June 30, 2002                                             F6-9

Consolidated Statements of Cash Flows for the years ended
  June 30, 2000, 2001 and 2002 and for the period from
  inception (October 2, 1996) through June 30, 2002                      F-10

Notes to Consolidated Financial Statements                               F-11


FINANCIAL STATEMENT SCHEDULES:

EXHIBITS

EXHIBITS NUMBER REFERENCE     DESCRIPTION

          2.1*                Exchange of Stock Agreement and Plan of
                              Reorganization (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)).



                                       49
<PAGE>

          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)).

          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)).

          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)).

                                       50
<PAGE>


          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)).

          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)).



                                       51
<PAGE>


          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*              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)).

          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 Mauriello, Franklin &
                              LoBrace, P.C. dated August 31, 1998 (incorporated
                              by 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 Arthur Andersen LLP (incorporated by
                              reference to our registration statement, Amendment
                              No. 2 filed on Aug. 15, 2001.

          23.5*               Consent of Schuhalter, Coughlin & Suozzo, LLC
                              (incorporated by reference to our registration
                              statement, Amendment No. 2 filed on Aug. 15, 2001.

          23.6*               Consent of Piper Marbury Rudnick & Wolfe LLP
                              (included in Exhibit 6.1) (incorporated by
                              reference to our registration statement, Amendment
                              No. 2 filed on Aug. 15, 2001.

* Incorporated by reference.


                                       52
<PAGE>


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, 2002, 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, 2002. 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, 1999, 2000, 2001. Such amounts are included in the cumulative from
inception to June 30, 2002 totals of the statements of operations, changes in
stockholders' equity and cash flows and reflect total net loss of 89 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 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, 2002 and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 2002 and for the period from
inception to June 30, 2002, 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 26, 2002, except for note 14 as to which the date is October 14, 2002.


                                       F-1

<PAGE>



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. WITH RESPECT TO THIS INSTANT 10K,
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

<PAGE>

               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' 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, LLC

Raritan, New Jersey
January 28, 1999



                                       F-3

<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                                  JUNE 30, 2002

                                                          JUNE 30,
                                                    2001            2002
                                               -------------    -------------

                                     ASSETS

Current assets:
Cash and cash equivalents                      $      31,005    $      47,065
Accounts receivable, net of bad debt reserve
of $29,218 and $2,906 respectively                   292,434          273,780
Due from officer                                     100,000               --
Inventory                                          4,303,895        3,342,716
Prepaid expenses and other current assets            856,979          830,589
                                               -------------    -------------

  Total current assets                             5,584,313        4,494,150
                                               -------------    -------------

Property and equipment, net                        2,198,845        1,742,186
Patents and licenses, net                          1,026,524          685,349

Other assets                                         187,500           20,830
                                               -------------    -------------

  Total assets                                 $   8,997,182    $   6,942,515
                                               =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable                                   5,116,029        2,819,245
Accrued expenses                                   1,742,138          673,065
Due to related parties                               184,373           35,000
Note payable, current                                     --          353,339
Deferred revenue                                          --          214,180
                                               -------------    -------------

  Total current liabilities                        7,042,540        4,094,829
                                               -------------    -------------

Other liabilities                                     90,000        1,211,249
Other liabilities, related parties                        --          665,068
Long-term debt, net of current portion                    --        1,014,218

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS' EQUITY:
Common Stock, stated value $.01, 150,000,00
  shares authorized; 41,344,467, in 2001, and
  60,807,508 in 2002, shares issued and
  outstanding, respectively                          413,445          608,075
Additional paid-in capital                        92,293,370      100,751,284
Deferred compensation                               (713,275)         (23,923)
Deficit accumulated during development stage     (90,120,925)    (101,366,286)
Unrecognized capital losses                               --           (4,026)
Less-treasury stock, 13.750 shares, at cost           (7,973)          (7,973)
                                               -------------    -------------

  Total stockholders' equity (deficit)             1,864,642          (42,849)
                                               -------------    -------------

  Total liabilities and stockholders' equity   $   8,997,182    $   6,942,515
                                               =============    =============

              The accompanying notes are an integral part of these
                          consolidated balance sheets.

                                       F-4
<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                             From Inception
                                                                                              (October 2,
                                                      For the Years Ended                      1996) to
                                                            June 30,                           June 30,
                                               2000             2001             2002               2002
                                          -------------    -------------    -------------    -------------
<S>                                       <C>              <C>              <C>              <C>
TOTAL NET REVENUES                        $     279,476    $  10,524,134    $   2,582,446    $  13,386,056
                                          -------------    -------------    -------------    -------------

COSTS AND EXPENSES:
Cost of Sales                                   131,756        5,804,673        2,415,129        8,351,558
Research and development                     10,156,936       10,779,570        3,819,583       30,808,774
 (including non-cash stock
 related charges of
 $1,010,375, $0, $267,338 and
 $1,660,174, respectively)
General and administrative                   17,516,216       16,150,711        6,490,373       47,128,430
 (including non-cash stock
 related charges of
 $9,078,311, $6,227,552, $2,445,561 and
 $20,246,337 respectively)
Depreciation and amortization                   471,101          660,372          670,183        2,251,612
Non-cash charges for stock-
  based employee compensation                10,343,114        1,170,903          548,550       25,065,172
                                          -------------    -------------    -------------    -------------

  Total costs and expenses                   38,619,123       34,566,229       13,943,818      113,605,546
                                          -------------    -------------    -------------    -------------

Loss from operations                        (38,339,647)     (24,042,095)     (11,361,372)    (100,219,490)
                                          -------------    -------------    -------------    -------------

OTHER (EXPENSE) INCOME:
Gain On Extinguishments                              --               --          142,236          142,236
Minority interest loss in
 consolidated subsidiary                         20,000               --               --           20,000
Loss from unconsolidated
 subsidiary                                          --               --               --       (1,466,467)
Interest income (expense), net                  158,105           43,361          (26,225)         157,435
                                          -------------    -------------    -------------    -------------
  Total other income (expense)                  178,105           43,361          116,011       (1,146,796)
                                          -------------    -------------    -------------    -------------
NET LOSS                                  $ (38,161,542)   $ (23,998,734)   $ (11,245,361)   $(101,366,286)
                                          =============    =============    =============    =============

Unrealized holding loss on
 securities                                          --               --           (4,026)          (4,026)
                                          -------------    -------------    -------------    -------------
COMPREHENSIVE LOSS                        $ (38,161,542)   $ (23,998,734)   $ (11,249,387)   $(101,370,312)
                                          =============    =============    =============    =============

LOSS PER COMMON SHARE, basic
  and diluted                             $       (1.41)   $       (0.72)   $        (.23)
                                          =============    =============    =============

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING, basic
  and diluted                                26,974,997       33,436,641       49,617,280
                                          =============    =============    =============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-5
<PAGE>



                            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 FOUR YEARS
                        IN THE PERIOD ENDED JUNE 30, 2002

<TABLE>
<CAPTION>

                                            Common Stock                                                                  TOTAL
                                      ------------------------                 Additional                              STOCKHOLDERS'
                                                       $ .01       Treasury     Paid-In       Deferred    Accumulated    EQUITY
                                         Shares    Stated Value     Stock       Capital     Compensation    Deficit    (DEFICIT)
                                      -----------  -----------   -----------   -----------   -----------  -----------   -----------
<S>                                     <C>        <C>           <C>           <C>           <C>          <C>           <C>
BALANCE, OCTOBER 2, 1996
  (date of inception)                   1,140,427  $    11,404   $        --   $   459,753   $        --  $  (537,707)  $   (66,550)
Issuance of common stock of
  Tecma Laboratories, Inc.,
 for 100% of the Company                6,600,000       66,000            --      (537,157)           --      537,707        66,550
Issuance of common stock, in
  private placement, net of
  offering costs of $138,931              594,270        5,943            --       752,531            --           --       758,474
Net loss                                       --           --            --            --            --     (781,246)     (781,246)
                                      -----------  -----------   -----------   -----------   -----------  -----------   -----------

BALANCE, JUNE 30, 1997                  8,334,697       83,347            --       675,127            --     (781,246)      (22,772)
Issuance of common stock with
  warrants, in private placement,
  net of offering costs of $84,065        999,502        9,995            --       791,874            --           --       801,869
Issuance of common stock for services     300,000        3,000            --       147,000            --           --       150,000
Issuance of common stock in
  connection with investment
  in unconsolidated subsidiary            250,000        2,500            --       122,500            --           --       125,000
Repurchase of 13,750 shares of
  common stock                                 --           --        (7,973)           --            --           --        (7,973)
Issuance of common stock with
  warrants in private placement,
  net of offering costs of $121,138     1,095,512       10,955            --       659,191            --           --       670,146
Issuance of common stock for
  financing services                      100,000        1,000            --        (1,000)           --           --            --
Issuance of common stock in
  consideration for 100% of the
  common stock of Microphase
  Telecommunications, Inc.              2,500,000       25,000            --     1,685,000            --           --     1,710,000
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)
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       F-6

<PAGE>

                            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 FOUR YEARS
                        IN THE PERIOD ENDED JUNE 30, 2002
<TABLE>
<CAPTION>

                                            Common Stock                                                                  TOTAL
                                      ------------------------                  Additional                             STOCKHOLDERS'
                                                       $ .01       Treasury     Paid-In       Deferred    Accumulated    EQUITY
                                         Shares    Stated Value     Stock       Capital     Compensation    Deficit    (DEFICIT)
                                      -----------  -----------   -----------   -----------   -----------  -----------   -----------
<S>                                     <C>        <C>           <C>           <C>           <C>          <C>           <C>

BALANCE, JUNE 30, 1998                   13,579,711  $ 135,797  $ (7,973)  $  4,079,692    $        --  $ (5,122,305)  $   (914,789)
Issuance of common stock with
  warrants in private placements,
  net of offering costs of $107,000       3,120,000     31,200        --      2,981,800             --            --      3,013,000
Issuance of common stock for services     1,599,332     15,993        --      8,744,873             --            --      8,760,866
Issuance of common stock with warrants
  in private placement, net of offering
  costs of $45,353                          642,000      6,420        --      1,553,227             --            --      1,559,647
Issuance of common stock in private
  placement, net of offering costs
  of $679,311                             4,426,698     44,267        --     10,343,167             --            --     10,387,434
Issuance of stock options for services           --         --        --      7,129,890             --            --      7,129,890
Issuance of warrants for services                --         --        --         16,302             --            --         16,302
Deferred employee stock option
  compensation                                   --         --        --             --       (140,000)           --       (140,000)
Net loss                                         --         --        --             --             --   (22,838,344)   (22,838,344)
                                        -----------  ---------  --------   ------------    -----------  ------------   ------------

BALANCE, JUNE 30, 1999                   23,367,741    233,677  $ (7,973)  $ 34,848,951    $  (140,000) $(27,960,649)  $  6,974,006
Issuance of common stock and options
  in settlement                              75,000        750        --        971,711             --            --        972,461
Issuance of common stock upon exercise
  of warrants and options                 4,632,084     46,321        --      5,406,938             --            --      5,453,259
Issuance of common stock in private
  placement, net of cash offering
  costs of $200,000                       1,000,000     10,000        --      3,790,000             --            --      3,800,000
Issuance of common stock in private
  placement, net of cash offering
  costs of $466,480                       1,165,500     11,655        --      9,654,951             --            --      9,666,606
Issuance of common stock for services     1,164,215     11,642        --      8,612,265             --            --      8,623,907
Issuance of options for services                 --         --        --      9,448,100             --            --      9,448,100
Deferred employee stock option
  compensation                                   --         --        --      1,637,375     (1,637,375)           --             --
Amortization of deferred employee
 stock option compensation                       --         --        --             --        551,707            --        551,707
Net loss                                         --         --        --             --             --   (38,161,542)
                                        -----------  ---------  --------   ------------    -----------  ------------   ------------
BALANCE, JUNE 30, 2000                   31,404,540  $ 314,045  $ (7,973)  $ 74,370,291    $(1,225,668) $(66,122,191)  $  7,328,504

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-7
<PAGE>


                            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 FOUR YEARS
                        IN THE PERIOD ENDED JUNE 30, 2002

<TABLE>
<CAPTION>

                                            Common Stock                                                                   TOTAL
                                    ------------------------               Additional                                  STOCKHOLDERS'
                                                     $ .01    Treasury      Paid-In       Deferred      Accumulated       EQUITY
                                       Shares    Stated Value  Stock        Capital     Compensation      Deficit        (DEFICIT)
                                    ------------  ---------   --------    ------------   ----------    ------------    ------------
<S>                                   <C>         <C>         <C>         <C>            <C>           <C>             <C>
BALANCE, JUNE 30, 2000                31,404,540  $ 314,045   $ (7,973)   $ 74,370,291   $1,225,668)   $(66,122,191)   $  7,328,504

Issuance of common stock upon
  exercise of options                    320,000      3,200         --         324,300           --              --         327,500
Issuance of common stock with
  warrants in private placements,
  net of cash offering costs
  of $512,195                          4,329,850     43,298         --       7,766,547           --              --       7,809,845
Issuance of common stock for
  services                               450,000      4,500         --       1,003,125           --              --       1,007,625
Issuance of options and warrants
  for services                                --         --         --       5,849,585           --              --       5,849,585
Deferred employee stock option
  compensation                                --         --         --         607,885     (607,885)             --              --
Amortization of deferred employee
  stock option compensation                   --         --         --              --    1,120,278              --       1,120,278
Issuance of common stock in
  settlement of debt to directors
  and related parties                  4,840,077     48,402         --       2,371,637           --              --       2,420,039
Net Loss                                      --         --         --              --           --     (23,998,734)    (23,998,734)
                                    ------------  ---------   --------    ------------   ----------    ------------    ------------

BALANCE, JUNE 30, 2001                41,344,467  $ 413,445   $ (7,973)   $ 92,293,370   $ (713,275)   $(90,120,925)   $  1,864,642
                                    ============  =========   ========    ============   ==========    ============    ============

</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       F-8

<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENT OF CHANGES IN
                         SHAREHOLDERS' EQUITY (DEFICIT)
                 FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
                 TO JUNE 30, 1997 AND FOR EACH OF THE FOUR YEARS
                        IN THE PERIOD ENDED JUNE 30, 2002

<TABLE>
<CAPTION>

                                          $.01 Stated
                              Shares         Value           Treasury         Additional        Deferred
                                                               Stock        Paid-in Stock      Compensation
                          ------------   -------------    -------------     -------------     -------------
<S>                         <C>          <C>              <C>               <C>               <C>
Balance June 30, 2001       41,344,467   $     413,445    $      (7,973)    $  92,293,370     $    (713,275)
Sale of Common
   stock with warrants
   in private placement      6,980,643          69,807               --         1,903,943                --
Issuance of Common
   stock for
   services                  2,976,068          29,760               --         1,169,241                --
Issuance of
   options and
   warrants for
   services                         --              --               --         1,877,937                --
Cancellation of
   unearned
   options to
   former employees                 --              --               --          (140,802)          140,802
Amortization of
 deferred employee
 stock option
 compensation                       --              --               --                --           548,550
Issuance of common
   stock and
   warrants in
   settlement of
   debt to related
   parties and
   strategic vendors         7,492,996          74,930               --         2,663,728                --
Sale of Common
   stock to
   certain
   Officers and                     --
   Directors in
   private
   placement                 2,000,000          20,000               --           980,000                --
Issuance of Common
   stock upon
   exercise of
   options                      13,334             133               --             3,867                --
Net Loss                            --              --               --                --                --
Other
comprehensive
loss                                --              --               --                --                --
                          ------------   -------------    -------------     -------------     -------------
     Balance, June
      30, 2002              60,807,508   $     608,075    $      (7,973)    $ 100,751,284     $     (23,923)
                          ============   =============    =============     =============     =============


<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENT OF CHANGES IN
                         SHAREHOLDERS' EQUITY (DEFICIT)
                 FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
                 TO JUNE 30, 1997 AND FOR EACH OF THE FOUR YEARS
                        IN THE PERIOD ENDED JUNE 30, 2002

<CAPTION>

                                                                 TOTAL
                            Accumulated      Comprehensive     STOCKHOLDERS
                              Deficit             Loss       EQUITY (Deficit)
                           -------------     -------------   -----------------
<S>                        <C>                                <C>
Balance June 30, 2001      $ (90,120,925)               --    $   1,864,642
Sale of Common
   stock with warrants
   in private placement               --                --        1,973,750
Issuance of Common
   stock for
   services                           --                --        1,199,001
Issuance of
   options and
   warrants for
   services                           --                --        1,877,937
Cancellation of
   unearned
   options to
   former employees                   --                --               --
Amortization of
 deferred employee
 stock option
 compensation                         --                --          548,550
Issuance of common
   stock and
   warrants in
   settlement of
   debt to related
   parties and
   strategic vendors                  --                --        2,738,658
Sale of Common
   stock to
   certain
   Officers and
   Directors in
   private
   placement                          --                --        1,000,000
Issuance of Common
   stock upon
   exercise of
   options                            --                --            4,000
Net Loss                     (11,245,361)               --      (11,245,361)
Other
comprehensive
loss                                  --            (4,026)          (4,026)
                           -------------     -------------     -------------
     Balance, June
      30, 2002             $(101,366,286)    $      (4,026)    $     (42,849)
                           =============     =============     =============

</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-9

<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 Inception
                                                                                                 (October 2,
                                                      For the Years Ended                         1996) to
                                                          June 30,                              June 30,
                                                    2000             2001           2002            2002
                                                -------------   -------------   -------------   -------------
<S>                                             <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING  ACTIVITIES:
Net loss                                        $ (38,161,542)  $ (23,998,734)  $ (11,245,361)  $(101,366,286)

Adjustments to reconcile net loss to
  net cash used in operating activities:
  Depreciation and amortization                       756,055       1,235,213       1,653,346       4,168,188
  Book value of fixed assets disposed                   5,796          61,414              --          74,272
  Loss on unconsolidated subsidiary                        --              --              --       1,466,467
  Provision for doubtful accounts                          --          29,218           2,906          32,124
  Impariment of note receivable                            --         212,500          20,250         232,750
  Gain on Extinguishments                                  --              --        (142,236)       (142,236)
  Non-cash common stock, common stock
  option and warrant expense                       20,431,800       7,398,455       3,261,449      47,009,762

  Changes in operating assets and liabilities:
  Accounts receivable                                (151,186)       (170,466)         15,748        (305,904)
  Inventory                                                --      (4,303,895)        961,179      (3,342,716)
  Prepaid expenses and other
   current assets                                    (730,626)         88,280         173,649        (566,797)
  Production advances-related parties              (1,109,641)      1,109,641              --              --
  Other assets                                             --        (150,000)        146,420          (3,580)
  Receivables from subsidiary                              --              --              --        (150,000)
  Due from officer                                         --        (100,000)        100,000              --
  Accounts payable                                  1,086,736       2,802,008        (340,057)      3,982,456
  Accrued expenses                                   (391,997)         (5,394)        332,819       2,015,585
  Deferred revenue                                         --              --         214,180         214,180
  Due to related parties                              483,365       2,106,707       2,110,303       4,279,040
                                                -------------   -------------   -------------   -------------
    Net cash used in operating activities         (17,781,240)    (13,685,053)     (2,735,405)    (42,402,695)
                                                -------------   -------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment in patents and licensing rights          (38,272)       (148,127)        (74,649)       (375,720)
  Purchase of property and equipment               (1,348,210)       (705,577)        (31,445)     (2,463,800)
                                                -------------   -------------   -------------   -------------

    Net cash used in investing activities          (1,386,482)       (853,704)       (106,094)     (2,839,520)
                                                -------------   -------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from private placement
   of common stock and exercise of
   options and warrants                            17,622,279       8,137,345       2,977,750      45,417,444
  Repurchase of treasury stock at cost                     --              --              --          (7,973)
  Repayment of note payable                                --              --        (120,191)       (120,191)
                                                -------------   -------------   -------------   -------------

    Net cash provided by financing activities      17,622,279       8,137,345       2,857,559      45,289,280
                                                -------------   -------------   -------------   -------------
Net increase (decrease) in cash                    (1,545,443)     (6,401,412)         16,060          47,065
CASH AND CASH EQUIVALENTS
  beginning of period                               7,977,860       6,432,417          31,005              --
                                                -------------   -------------   -------------   -------------
CASH AND CASH EQUIVALENTS, end of period        $   6,432,417   $      31,005   $      47,065   $      47,065
                                                =============   =============   =============   =============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-10
<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

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 proprietary Traverser(TM) System, which
delivers MPEG2, non-Internet Protocol-based television, high-speed Internet and
voice over copper wire. Additionally, the Company sells a line of DSL component
products.

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(TM) Digital
Video and Data Deliver System ("Traverser(TM)").

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).
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 proprietary Traverser(TM) and associated DSL
component products. 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, 2002, the Company had incurred development stage losses
totaling approximately $101,366,000, and at June 30, 2002 had a stockholders'
deficit of $42,849. At June 30, 2002, the Company had approximately $47,065 of
cash, cash equivalents and approximately $273,780 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.

                                      F-11


<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

2. LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS (Continued)

The Company believes that it will be able to complete the necessary steps in
order to meet its cash flow requirements throughout fiscal 2003 and continue its
development and commercialization efforts. Management's plans in this regard
include, but are not limited to, the following:

During the quarter ended December 31, 2001, certain officers, directors and
related parties were issued 2,000,000 restricted shares of the Company's common
stock for the investment of $1,000,000 in cash. The Company also completed
private placements of its common stock during the fiscal year ended June 30,
2002, generating proceeds of approximately $2.7 million, and converted certain
payables and accrued expenses with related parties and strategic vendors to
equity, approximately $3.6 million, and to long-term notes, approximately $1.5
million. In addition, subsequent to June 30, 2002, related parties agreed in
principle and strategic vendors executed a Memorandum of Intention to convert a
total of approximately $1.9 million to equity.

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 including the possibility of a Rights
Offering with the Company's existing shareholders.

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 commercial sales of its Traverser(TM) products, including
deployment at existing test sites. The Company has had discussions with certain
companies for increasing sales of its POTS splitter and other component
products.

Management believes that actions presently being taken to complete the Company's
development stage through the commercial roll-out of its Traverser(TM) Digital
Video and Data Delivery System will be successful. However, there can be no
assurance that mPhase will generate sufficient revenues to provide positive cash
flows from operations or that sufficient capital will be available, when
required, to permit the Company to realize its plans. The accompanying financial
statements does not include any adjustments that might result from the outcome
of this uncertainty.


                                      F-12

<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002


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.

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.

                                      F-13


<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 64% and 19% of total revenues during the year ended June
30, 2001. The Company had revenues from two customers representing 39% and 21%
of total revenues during the year ended June 30, 2002.

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 Costs."

ADVERTISING COSTS

Advertising costs are expensed as incurred.

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 recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. 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 carry forwards, have been fully
reserved for. Accordingly, no income tax benefit for the net operating loss has
been recorded in the accompanying consolidated financial statements.

Utilization of net operating losses generated through June 30, 2002 may be
limited due to changes in ownership that occurred.


                                      F-14

<PAGE>
                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 each of the years ended June 30, 2001 and 2000, there was no difference
between the Company's net income and comprehensive income.

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 $442,444, $460,121 and $471,629 for the years ended
June 30, 2000, 2001, and 2002, respectively.

INVENTORIES

Inventory is stated 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. Inventory is comprised of the following:

                                        June 30
                                -------------------------
                                   2001           2002
                                -----------   -----------
Raw materials                   $   639,524   $   266,748
Work in Progress                         --     1,045,679
Finished goods                    3,978,923     3,273,644
                                -----------   -----------
Total                           $ 4,618,447   $ 4,586,071

Less: Reserve for obsolescence     (314,552)   (1,243,355)
                                -----------   -----------

                                $ 4,303,895   $ 3,342,716
                                ===========   ===========
LONG-LIVED ASSETS

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the Company reviews its
long-lived assets for impairment when changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Such changes in
circumstances may include, among other factors, a significant change in
technology that may render an asset or an asset group obsolete or
noncompetitive, a significant change in the extent or manner in which an asset
is used, evidence of a physical defect in an asset or asset group or an
operating loss.

                                      F-15
<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

If changes in circumstances indicate that the carrying amount of an asset may
not be recoverable, then the Company estimates the fair value based on the
undiscounted future cash flows expected to result from the use of the asset and
its eventual disposition, and would record an impairment loss (equal to the
amount by which the carrying amount of the asset exceeds the fair value of the
asset) if such estimated cash flows are less than the carrying amount of the
asset. Fair value would be determined, if necessary, based on an outside
appraisal.

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.

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 antidilutive.

STOCK-BASED COMPENSATION

The Company follows the disclosure-only provisions of SFAS No. 123 "Accounting
for Stock-based Compensation". SFAS No. 123 encourages, but does not require
companies to record compensation expense for stock-based employee compensation
plans at fair value. As permitted, the Company has elected to continue to
account for stock-based compensation to employees using the intrinsic value
method presented in Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees" and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants as if
the fair value-based method, as defined, had been applied. Compensation expense
is generally measured on the date of grant only if the current market price of
the underlying stock exceeded the exercise price.

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.

                                      F-16
<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS 141")
and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141
required all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Under SFAS 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of SFAS 142 apply to goodwill and intangible assets acquired after
June 30, 2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, the Company is required to adopt SFAS 142 effective January 1,
2002. The Company is currently evaluating the effect that the adoption of the
provisions of SFAS 142 will have on its results of operations and financial
position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of", and provides guidance on
classification and accounting for such assets when held for sale or abandonment.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
Management does not expect that adoption of SFAS No. 144 will have a material
effect on the Company's results of operations or financial position.

In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections",
which recinds SFAS No. 4 and No. SFAS 44 and SFAS No. 64 which relates to
circumstances whereby the Company would determine when the settlement of debt or
other liabilities would be considered extraordinary or recurring. Management
does not expect that adoption of SFAS No. 145 will have a material effect on the
Company's results of operations or financial position.

STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION

                                           JUNE 30              JUNE 30
                                             2001                2002
                                         ----------          ----------

Interest paid                            $    1,201          $   21,760

                                         ==========          ==========

Taxes paid                               $       --          $       --
                                         ==========          ==========

Schedule of Non-Cash
  Investing and Financing Activities:

Conversion of accounts
payable and accrued
expenses to equity                       $2,420,039          $2,738,658
                                         ==========          ==========

Conversion of accounts
payable and accrued
expenses to notes payable                $       --          $1,487,747
                                         ==========          ==========

Investments in Patents
and Licenses paid with
equity                                   $       --          $   43,750
                                         ==========          ==========

                                      F-17
<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002



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. The Company has included the $17,250 in long-term assets in the
accompanying consolidated balance sheet for the year ended June 30, 2002.

6. PROPERTY AND EQUIPMENT

Property and equipment, at cost, consist of the following:

                                                     June 30
                                            2001                   2002
                                        -----------           -----------

Equipment                               $ 2,879,738           $ 3,593,418
Office and marketing equipment              471,086               482,464
                                        -----------           -----------

                                          3,350,824             4,075,882

Less-Accumulated depreciation            (1,151,979)           (2,333,696)
                                        -----------           -----------

                                        $ 2,198,845           $ 1,742,186
                                        ===========           ===========

Depreciation expense for the years ended June 30, 2000, 2001, and 2002, was
$313,611, $775,092, and $1,181,717, respectively of which $284,954, $501,676,
and $983,163, respectively is included in research and development expense.


                                      F-18

<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

7. ACCRUED EXPENSES

Accrued expenses consist of the following:


                                                    June 30
                                           2001                2002
                                        ----------          ----------

GTRC (Notes 13, 14)                        400,000                  --
Other                                    1,342,138          $  673,065
                                        ----------          ----------

                                        $1,742,138          $  673,065
                                        ==========          ==========

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.

During the fiscal year ended June 30, 2001 and ended June 30, 2002, the joint
venture was charged $1,009,420 and $64,039, respectively for fees and costs by
its joint venture partner and its affiliates.

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.


                                      F-19

<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002


9. LONG TERM DEBT

Long-term debt is comprised of the following:

                                                                       June 30,
                                                                         2002
                                                                       --------

Settlement Agreements:

Accounts payable expected to be converted to Note payable
to GTRC bearing 7% interest, amortized in equal monthly
payments of $4,167 and a lump sum payment of $75,000
due twelve months from Sept. 15, 2002                                   $150,000

Accounts payable expected to be converted to Note payable
to GTRC bearing 7% interest, amortized in average monthly
payments of $0 in 2003, $39,568 in 2004, $56,085 in
2005 $60,140 in 2006, $64,487 in 2007, and a lump sum
payment of $253,955 due at maturity in September 2007                   $474,235

Note payable to law firm bearing 8% interest, 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 due at maturity on December
31, 2002.                                                               $415,887

Note payable to vendor bearing 8% interest due in weekly
payments of $5,000 including  accrued interest.
These payments commenced in January 2002 and continue until
June 2003.                                                              $237,169

Note payable to vendor non interest bearing average monthly
payments of $4,167 in 2003 and $3,660 in 2004. These payments
commenced in April 2002 and continue until May 2004.                     $90,266

                                                                    -----------
Total                                                                 1,367,557

Less: Current portion                                                  (353,339)

                                                                    -----------
Long-term Debt, non-current portion                                 $ 1,014,218
                                                                    ===========


At June 30, 2002 total maturities of long-term debt are as follows:

       2003                        $ 353,339
       2004                          575,052
       2005                           55,760
       2006                           59,791
       2007                           64,113
       2008 and thereafter           259,502
                                  ----------
       TOTAL                      $1,367,557
                                  ==========


                                      F-20

<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002


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 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.


                                      F-21

<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

10. STOCKHOLDERS' EQUITY (Continued)

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-22

<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

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 sold 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 sold 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.

Effective June 30, 2001 the Company issued 4,840,077 shares of the Company's
common stock in settlement of debt totalling $2,420,039 to directors and related
parties.

In July 2001, the Company sold 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.


                                      F-23


<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

10. STOCKHOLDERS' EQUITY (Continued)

In January 2002, the Company issued 2,754,503 shares of its common stock and a
like amount of warrants to purchase one share each at an exercise price of $.30
generating gross proceeds of $826,351 and June 2002, the Company issued 100,000
shares of its common stock and a like amount of warrants to purchase one share
each at an exercise price of $.30, generating gross proceeds of $30,000 in a
private placements pursuant to Rule 506 of Regulation D of the Securities Act of
1933, as amended, with accredited investors.

In connection with the December 2001, January 2002, and June 2002, private
placements, the Company issued 576,469 shares of its common stock and a like
amount of warrants to purchase one share each at an exercise price of $.30 to
finders and consultants whom assisted in the transaction.

During the year ended June 30, 2002 the Company issued 7,492,996 shares of its
common stock, and 5,953,490 warrants to related parties and strategic vendors,
in connection with the conversion of $2,738,658 of accounts payable and accrued
expenses, of which $1,460,000 of accounts payable to related parties is
discussed below.

During the year ended June 30, 2002, certain officers, directors and related
parties  were issued 8,150,000 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).

The Company granted 1,505,000 options, and 48,068 warrants of its common stock
and 48,068 to employees and 5,065,000 options to consultants for services
performed during the fiscal year ended June 30, 2002. Compensation expense for
the options granted to consultants was recorded based on the fair value of the
options at the date of grant. 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.

STOCK INCENTIVE PLANS

On August 15, 1997, mPhase established its Long Term Stock Incentive Plan.
Included as part of the Long Term Stock Incentive Plan, is the Stock Option Plan
(the "Plan"), in which incentive stock options and nonqualified stock options
may be granted to officers, employees and consultants of the Company. On
February 23, 2000 the Board of Directors proposed and on May 22, 2000 the
stockholders approved an increase in the total shares eligible under this plan
to 15,000,000 shares. Vesting terms of the options range from immediately to two
years and generally expire in five years.

On May 30, 2001, mPhase established the 2001 Stock Incentive Plan (the "2001
Plan"), in which incentive stock options and non-qualified stock options may be
granted to officers, employees and consultants of the Company. The total shares
eligible under the 2001 Plan is 20,000,000 shares, in addition to the shares
previously authorized for issuance under the prior plan. Vesting terms of the
options range from immediately to two years and options generally expire in five
years. The maximum number of shares that may be granted during any one fiscal
year to any one individual under the 2001 Plan is limited to 2,500,000 shares.


                                      F-24

<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

10. STOCKHOLDERS' EQUITY (Continued)

A summary of the stock option activity for the years ended June 30, 2000, 2001,
2002 pursuant to the terms of both plans, which include incentive stock options
and non-qualified stock options, is set forth on the below:


                                                                WEIGHTED
                                         NUMBER OF              AVERAGE
                                          OPTIONS            EXERCISE PRICE
                                        ----------           --------------

Outstanding at June 30, 2000            7,462,500                 $2.09

Granted                                 5,618,000                  1.56

Exercised                                (320,000)                 1.02

Canceled                                 (180,000)                 2.39
                                       ----------                  ----

Outstanding at June 30, 2001           12,580,500                 $1.94

Granted                                 6,570,000                   .43

Exercised                                      --                    --

Canceled                                  (43,500)                (4.26)
                                       ----------                  ----

Outstanding at June 30, 2002           19,107,000                 $1.27
                                       ==========                  ====

Exercisable at June 30, 2002           19,096,385                 $1.27
                                       ==========                  ====

The fair value of options granted in 2000, 2001 and 2002 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 115% in 2000, 113% in 2001, and 125.4% in 2002 risk-free interest
rate ranging from 3.2% to 6.18% and expected option life of three years.

The per share weighted average fair value of stock options granted during 2000,
2001, and 2002 was $6.99, $1.16, and $.26, respectively. The per share weighted
average remaining life of the options outstanding at June 30, 2000, 2001, and
2002 is 3.86, 3.66 and 3.29 years, respectively.



                                      F-25

<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

10. STOCKHOLDERS' EQUITY (Continued)

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 granted to employees at fair market value. Had compensation
expense for stock options granted under the Plan been determined based on fair
value at the grant dates, mPhase's net loss for 2000, 2001 and 2002 would have
been increased to the pro forma amounts shown below.


                                               JUNE 30
                       ------------------------------------------------------
                            2000                2001                2002
                       --------------      --------------      --------------

Net Loss:
  As reported          $   38,161,542      $   23,998,734      $   11,245,361
  Proforma             $   40,097,570      $   25,243,270      $   11,673,091

Net Loss Per Share
  As reported          $        (1.41)     $         (.72)     $         (.23)
                       ==============      ==============      ==============

  Pro forma            $        (1.49)     $         (.75)     $         (.24)
                       ==============      ==============      ==============


For the year ended June 30, 2000, mPhase recorded non-cash charges and deferred
compensation totaling $9,448,100 and $1,637,375, respectively, in connection
with the grant of 2,710,000 options to employees and options to consultants for
services rendered or to be rendered.

For the year ended June 30, 2001, the Company recorded non-cash charges and
deferred compensation totaling $2,955,964 and $607,885, respectively, in
connection with the grant of 5,618,000 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.

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 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-26


<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002


10. STOCKHOLDERS' EQUITY (Continued)

WARRANTS

In January and April 1998, mPhase issued 25,000 and 50,000 warrants,
respectively, each to purchase one share of common stock at an exercise price of
$1.06 and $2.44, respectively, for consulting services. The warrants expire five
years from the date of issuance. At any time after the date of issuance, the
Company may, at its option, elect to redeem all of these warrants at $0.01,
subject to adjustment, as defined, per warrant, provided that the average
closing price of the common stock for 20 business days within any period of 30
consecutive business days exceeds $5.00 per share. As of June 30, 2001, none of
these warrants remain outstanding.

In July 1998, in connection with the private placements, mPhase issued 400,000
warrants, each to purchase one share of common stock at an exercise price of
$1.00 per share. The Company allocated the net proceeds from the sale of the
common stock to the common stock and the warrants. On July 26, 1999, pursuant to
the warrant agreement these 400,000 warrants were converted into 352,239 shares
of common stock. In accordance with the warrant agreement, the warrant holder
had the right to initiate a cashless exercise to convert the warrants into
shares of common stock in lieu of exchanging cash. The number of shares received
was determined by dividing the aggregate fair market value of the shares minus
the aggregate exercise price of the warrants by the fair market value of one
share.

In September 1998, mPhase issued 6,666 warrants for services, each to purchase
one share of common stock at an exercise price of $0.75 per share. The warrants
expire five years from the date of grant. The Company determined the fair market
value of the warrants issued under the Black-Scholes Option Pricing Model to be
$16,302. This amount is included in the Company's general and administrative
expenses in the accompanying consolidated statement of operations as of June 30,
1999. These warrants were exercised during the year ended June 30, 2000
generating proceeds to the Company of $5,000.

In June 1999, in connection with the private placements, mPhase also issued
400,000 warrants each to purchase one share of common stock at an exercise price
of $1.00 per share. The warrants 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 expire five years from the date of
issuance. These warrants were exercised in February 2000.


                                      F-27

<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

10. STOCKHOLDERS' EQUITY (Continued)

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 remained 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 remain outstanding with a weighted
average exercise price of $1.05.

11. RELATED PARTY TRANSACTIONS

mPhase's President, Executive Vice President and Chairman of the Board of the
Company are also employees 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. 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. Microphase also charges
fees for specific projects on a project-by-project basis. During the years ended
June 30, 2000, 2001, and 2002 and for the period from inception (October 2,
1996) to June 30, 2002, $2,547,847, $2,128,983, $1,212,594 and $6,576,424,
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.


                                      F-28


<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

11. RELATED PARTY TRANSACTIONS (Continued)

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 proprietary Traverser(TM) Digital Video and Data Delivery
System and DSL component products. During the year ended June 30, 2002, mPhase
recorded royalties to Microphase totaling $78,762. 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 as discussed in Note
10. For the year ended June 30, 2002, in consideration for a direct investment
of $100,000 and pursuant to debt conversion agreements, Microphase received
2,900,000 shares of mPhase common stock and 2,200,000 warrants to purchase
mPhase common stock. As of June 30, 2001, the Company had $70,799 payable to
Microphase, which is included in amounts due to related parties in the
accompanying consolidated balance sheet. As of June 30, 2002, the Company had
$92,405 included in other liabilites-related parties in the accompanying
consolidated balance sheet as discussed in Note 14. Additionally, at June 30,
2002, approximately $142,000 of undelivered purchase orders remain outstanding
to Microphase.

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.

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 as of June 30, 2002.

Pursuant to a debt conversion agreement between the Company and Janifast, for
the year ended June 30, 2001, Janifast received 1,200,000 shares of mPhase
common stock as discussed in Note 10. For the year ended June 30, 2002, pursuant
to debt conversion agreements, Janifast received 3,450,000 shares of mPhase
common stock and 1,200,000 warrants to purchase mPhase common stock. During the
years ended June 30, 2000, 2001 and 2002 and the period from inception (October
2, 1996 to June 30, 2002) $0, $8,932,378, $1,759,308 and $10,691,686,
respectively have been charged to inventory or expense and is included in
operating expenses in the accompanying statements of operations. As of June 30,
2002, the Company had $260,159 included in other liabilites-related parties in
the accompanying consolidated balance sheet as discussed in Note 14.
Additionally, at June 30, 2002, approximately $1,614,000 of undelivered purchase
orders remain outstanding to Janifast.


                                      F-29
<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

11. RELATED PARTY TRANSACTIONS (Continued)

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.

Due to related parties as of June 30, 2000 includes $36,120 due to Nutley
Securities, a company owned by mPhase's president and $49,180 due to affiliates
of the Company's joint venture partner, Alpha Star International, Inc. both
amounts are for various services performed.

On November 26, 1999, PacketPort, Inc., a company owned by Mr. Durando, the
President and CEO of mPhase, acquired a controlling interest in Linkon Corp.,
which subsequently changed its name to PacketPort.com, Inc. In connection with
this transaction, Mr. Durando transferred 350,000 of his own shares of mPhase's
common stock to Packet Port, Inc.

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. A member of mPhase's Board of Directors is employed by Lintel, Inc, the
parent corporation of Hart Telephone. The Company has installed its prototype
product and commenced beta testing at Hart Telephone. 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(TM). 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 as of June 30, 2000.

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.

                                      F-30
<PAGE>


                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

12. INCOME TAXES

No provision has been made for corporate income taxes due to cumulative losses
incurred. At June 30, 2002, mPhase has operating loss carryforwards of
approximately $56.8 million and $56.5 million to offset future federal and state
income taxes respectively, which expire at various times from 2016 through 2022.
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, 2002 the Company has net deferred income tax assets of approximately
$21.9 million comprised principally of the future tax benefit of net operating
loss carryforwards, which represents an increase of $1.0 million for the fiscal
year ended June 30, 2002. 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 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 June 30, 2000, 2001, and 2002 totaled $4,563,560,
$3,814,300, and $450,000 respectively, and $13,424,300 from the period from
inception through June 30, 2002. Subsequent to June 30, 2002, the Company and
GTRC and its affiliate, GTARC, entered into a Memorandum of Intention to
exchange warrants and promissory notes for all amounts outstanding and to
exchange mutual Releases.

If and when sales commence utilizing this particular technology, the Company
will be obligated to pay to GTRC a royalty up to  5% of product sales, as
defined.

mPhase was a party to employee agreements with certain key executives providing
for cash commitments of $675,000 through June 30, 2002. In addition, one of the
executives is entitled to an annual bonus equal to 5% of the appreciation in
market value of mPhase's stock from year-to-year based on the change in the
Company's issued and outstanding common stock at each fiscal year end through
June 30, 2002, 25% of which is to be paid in cash and the remainder in common
stock of the Company. All of these employment agreement have expired by their
term.

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.


                                      F-31
<PAGE>

                            mPHASE TECHNOLOGIES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002


14. SUBSEQUENT EVENTS

On October 11, 2002, the Company, subject to the Company's and the counter
parties respective board of director's approval, entered 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 the unpaid
compensation and accounts payable through September 30,2002. In the accompanying
balance sheet for June 30, 2002 the Company has reclassified $312,504 due to
officer's and $352,564 due to related parties to other liabilities-related
parties for amounts due through June that are expected to be converted to
equity.

On October 14, 2002, the Company entered into a memorandum of intention with
Georgia Tech Research Corporation, (GTRC), and its affiliate, Georgia Tech
Applied Research Corporation, (GTRAC), subject to the approval of the respective
board of director's, together with the exchange of mutual releases, to convert
all amounts outstanding as of June 30, 2002, in consideration for two term notes
totaling $624,235 with interest at 7% and varied payments through 2007 and
warrants to purchase shares of the Company's common stock through 2007, at a
price and formula to be agreed upon. In the accompanying balance sheet for June
30, 2002 the Company has reclassified $624,235 and $1,211,249 of accounts
payable and accrued expenses due to GTRC and GTRAC to long term debt and other
liabilities for the amounts expected to be converted to notes payable and
equity, respectively.



                                      F-32


<PAGE>


                                   SIGNATURES


Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



                                         mPHASE TECHNOLOGIES, INC.

Dated: October 15, 2002                  By: /s/ RONALD A. DURANDO
                                             ---------------------------
                                             Ronald A. Durando
                                             President,  CEO


Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

Necdet F. Ergul, Chairman of the Board                        October 15, 2002

Ronald A. Durando, Chief Executive Officer, Director          October 15, 2002

Gustave T. Dotoli, Chief Operating Officer, Director          October 15, 2002

Martin S. Smiley, Chief Financial Officer                     October 15, 2002

Anthony Guerino, Director                                     October 15, 2002

Abraham Biderman, Director                                    October 15, 2002

Michael McInerney, Director                                   October 15, 2002



                                       53
<PAGE>

                              MPHASE TECHNOLOGIES, INC.

   Certification of Procedures Followed in Connection with Sarbanes-Oxley Act
                                  Certification

         The undersigned, the Chief Executive Officer of mPhase Technologies
Inc., a New Jersey Corporation (the "Company") hereby certifies, for purposes of
documenting the steps followed by the officer in connection with the execution
and delivery to the Securities and Exchange Commission of the attached
certification, as follows:

         (1) I reviewed in detail the Annual Report on Form 10K for the year
ended June 30, 2002,(the "Report") shortly before the certification was
provided.

         (2) I discussed the substance of the Report with each of the Company's
outside auditors and the Chief Financial Officer. These discussions took place
at various times and covered principally the financial statement portions of the
reports (including the notes which are an integral part of the financial
statements) and related financial disclosures. These discussions included my
verifying that the financial statements included in the report are accurate and
complete, and are properly prepared and consolidated. I confirmed that each of
the outside auditors and Chief Financial Officer were satisfied that the notes
to the financial statements read clearly and that the notes fairly explain the
company's significant accounting principles and significant estimates, as well
as disclose all material contingencies and "off balance sheet" transactions and
commitments known to them. In addition, my discussions with outside auditors
included a discussion of any material issues that came up in their review of the
financial statements and the resolution of those issues. I also verified with
the outside auditors and Chief Financial Officer that internal controls are in
place and operating to warrant reliance upon the financial and business
information provided to me by management.

          (3) I confirmed that the consolidated financial statements included in
the Report are accurate and complete in all material respects, reflect all
transactions of the Company during and for the statement period following
accounting principles consistent with those applied in prior periods, and that
all period end adjustments have been made in a manner consistent with the
accounting principles in prior periods (other than usual and customary year end
adjustments in the case of interim statements).

         (4) I informed the heads of the Company's primary business units and
divisions, as well as any officers of those business units or divisions who have
the primary financial reporting responsibility that I would be providing a
certification regarding the accuracy of the Report and confirmed orally and in
writing with each such head and financial officer that insofar as they knew, the
Report did not include any untrue statement of a material fact or omit to state
a material fact.

          (5) As a result of the foregoing procedures, I concluded that, to the
best of my knowledge, I was able to provide the certification without exception.

       I have executed this certification as of the 15th day of October 2002.

/s/ Ronald A. Durando
----------------------------
Name: Ronald A. Durando
Chief Executive Officer


                                       54
<PAGE>

                               mPhase Technologies Inc.

   Certification of Procedures Followed in Connection with Sarbanes-Oxley Act
                                  Certification

         The undersigned, Chief Operating Officer of mPhase Technologies Inc., a
New Jersey Corporation (the "Company") hereby certifies, for purposes of
documenting the steps followed by the officer in connection with the execution
and delivery to the Securities and Exchange Commission of the attached
certification, as follows:

         (1) I reviewed in detail the Annual Report on Form 10-K for the year
ended June 30, 2002,(the "Report") shortly before the certification was
provided.

         (2) I discussed the substance of the Report with each of the Company's
outside auditors and chief financial officer. These discussions took place at
various times and covered principally the financial statement portions of the
reports (including the notes which are an integral part of the financial
statements) and related financial disclosures. These discussions included my
verifying that the financial statements included in the report are accurate and
complete, and are properly prepared and consolidated. I confirmed that each of
the outside auditors and the Chief Financial Officer were satisfied that the
notes to the financial statements read clearly and that the notes fairly explain
the company's significant accounting principles and significant estimates, as
well as disclose all material contingencies and "off balance sheet" transactions
and commitments known to them. In addition, my discussions with outside auditors
included a discussion of any material issues that came up in their review of the
financial statements and the resolution of those issues. I also verified with
the outside auditors and acting controller that internal controls are in place
and operating to warrant reliance upon the financial and business information
provided to me by management.

          (3) I confirmed that the consolidated financial statements included in
the Report are accurate and complete in all material respects, reflect all
transactions of the Company during and for the statement period following
accounting principles consistent with those applied in prior periods, and that
all period end adjustments have been made in a manner consistent with the
accounting principles in prior periods (other than usual and customary year end
adjustments in the case of interim statements).

         (4) I informed the heads of the Company's primary business units and
divisions, as well as any officers of those business units or divisions who have
the primary financial reporting responsibility, that I would be providing a
certification regarding the accuracy of the Report and confirmed orally and in
writing with each such head and financial officer that insofar as they knew, the
Report did not include any untrue statement of a material fact or omit to state
a material fact.

          (5) As a result of the foregoing procedures, I concluded that, to the
best of my knowledge, I was able to provide the certification without exception.

      I have executed this certification as of the 15th day of October 2002.

/s/ Gustave T. Dotoli
----------------------------
Name:  Gustave T. Dotoli
Chief Operating Officer


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<PAGE>



                            mPhase Technologies Inc.

   Certification of Procedures Followed in Connection with Sarbanes-Oxley Act
                                  Certification

         The undersigned, Chief Financial Officer of mPhase Technologies Inc., a
New Jersey Corporation (the "Company") hereby certifies, for purposes of
documenting the steps followed by the officer in connection with the execution
and delivery to the Securities and Exchange Commission of the attached
certification, as follows:

         (1) I reviewed in detail the Annual Report on Form 10-K for the year
ended June 30, 2002,(the "Report") shortly before the certification was
provided.

         (2) I discussed the substance of the Report with each of the Company's
outside auditors and assistant controller. These discussions took place at
various times and covered principally the financial statement portions of the
reports (including the notes which are an integral part of the financial
statements) and related financial disclosures. These discussions included my
verifying that the financial statements included in the report are accurate and
complete, and are properly prepared and consolidated. I confirmed that each of
the outside auditors and acting controller were satisfied that the notes to the
financial statements read clearly and that the notes fairly explain the
company's significant accounting principles and significant estimates, as well
as disclose all material contingencies and "off balance sheet" transactions and
commitments known to them. In addition, my discussions with outside auditors
included a discussion of any material issues that came up in their review of the
financial statements and the resolution of those issues. I also verified with
the outside auditors and assistant controller that internal controls are in
place and operating to warrant reliance upon the financial and business
information provided to me by management.

          (3) I confirmed that the consolidated financial statements included in
the Report are accurate and complete in all material respects, reflect all
transactions of the Company during and for the statement period following
accounting principles consistent with those applied in prior periods, and that
all period end adjustments have been made in a manner consistent with the
accounting principles in prior periods (other than usual and customary year end
adjustments in the case of interim statements).

         (4) I informed the heads of the Company's primary business units and
divisions, as well as any officers of those business units or divisions who have
the primary financial reporting responsibility, that I would be providing a
certification regarding the accuracy of the Report and confirmed orally and in
writing with each such head and financial officer that insofar as they knew, the
Report did not include any untrue statement of a material fact or omit to state
a material fact.

          (5) As a result of the foregoing procedures, I concluded that, to the
best of my knowledge, I was able to provide the certification without exception.

      I have executed this certification as of the 15th day of October 2002.


/s/ Martin S. Smiley
----------------------------
Name:  Martin S. Smiley
Chief Financial Officer



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