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**UNITED STATES SECURITIES AND EXCHANGE  COMMISSION****Washington DC 20549**

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**FORM 10-Q**

**QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.  FOR THE QUARTER ENDED MARCH 31,  2003 COMMISSION FILE NO. 000-24969**

**mPhase Technologies, Inc.**(Exact name of registrant as specified in  its charter)

| NEW JERSEY                                                         |   |   | 22-2287503                                    |   |
|--------------------------------------------------------------------|--------|--------|-----------------------------------------------|--------|
| (State or other jurisdiction      ofincorporation or organization) |   |   | (I.R.S.        EmployerIdentification Number) |   |

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

ISSUER’S TELEPHONE NUMBER,  (203) 838-2741

INDICATE BY CHECK MARK WHETHER THE  REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D)  OF THE SECURITIES EXCHANGE ACT OF 1934, DURING THE PRECEDING 12 MONTHS (OR FOR  SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORT), AND (2)  HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES    NO 

THE NUMBER OF SHARES OUTSTANDING OF  EACH OF THE REGISTRANT’S CLASSES OF COMMON STOCK AS OF April 23, 2003  IS 68,065,510 SHARES, ALL OF ONE CLASS OF $.01 STATED VALUE COMMON STOCK.

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**mPHASE TECHNOLOGIES, INC.  INDEX**

| ** **                                                                                                |                                                                                                                                                                          | **PAGE** |    |
|-----------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|---------|
| **PART I FINANCIAL      INFORMATION**                                                                     |                                                                                                                                                                          |     |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **ITEM 1 FINANCIAL      STATEMENTS**                                                                      |                                                                                                                                                                          |     |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
|                                                                                                      | Consolidated Balance      Sheets-June 30, 2002 and March 31, 2003, (Unaudited)                                                                                                |     |  3 |   |
|                                                                                                      |                                                                                                                                                                               |     |         |
|                                                                                                      | Unaudited Consolidated      Statements of Operations-Three months ended March 31, 2002 and 2003 and      from October 2, 1996 (Date of Inception) to March 31, 2003           |     |  4 |   |
|                                                                                                      |                                                                                                                                                                               |     |         |
| ** **                                                                                                | Unaudited Consolidated      Statements of Operations-Nine months ended March 31, 2002 and 2003 and from      October 2, 1996 (Date of Inception) to March 31, 2003            |     | 5       |   |
|                                                                                                      |                                                                                                                                                                               |     |         |
|                                                                                                      | Unaudited Consolidated      Statement of Changes in Shareholders’ Deficit Nine months ended March      31, 2003                                                         |     | 6       |   |
|                                                                                                      |                                                                                                                                                                               |     |         |
|                                                                                                      | Unaudited Consolidated      Statements of Cash Flows-Nine Months Ended  March 31, 2002 and      2003 and from October 2, 1996 (Date of Inception) to March 31, 2003 |     | 7       |   |
|                                                                                                      |                                                                                                                                                                               |     |         |
|                                                                                                      | Notes to Unaudited      Consolidated Financial Statements                                                                                                                     |     | 8       |   |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **ITEM 2 Management’s Discussion and Analysis of Financial Conditions	  and Results of Operations** |                                                                                                                                                                          | 14       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **ITEM      3 Quantitative and Qualitative Disclosures about market risk**                                |                                                                                                                                                                          | 25       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **ITEM      4 CONTROLS AND PROCEDURES**                                                                   |                                                                                                                                                                          | 25       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **PART II OTHER      INFORMATION**                                                                        |                                                                                                                                                                          |     |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Item      1. Legal Proceedings**                                                                        |                                                                                                                                                                          | 25       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Item      2. Changes in Securities**                                                                    |                                                                                                                                                                          | 25       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Item      3. Defaults Upon Senior Securities**                                                          |                                                                                                                                                                          | 25       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Item      4. Submission of Matters to a Vote of Security Holders**                                      |                                                                                                                                                                          | 25       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Item      5. Other Information**                                                                        |                                                                                                                                                                          | 25       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Item      6. Exhibits on Reports on Form 8-K**                                                          |                                                                                                                                                                          | 26       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Signature      Page**                                                                                   |                                                                                                                                                                          | 27       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |
| **Certifications**                                                                                        |                                                                                                                                                                          | 28       |    |
|                                                                                                      |                                                                                                                                                                               |     |         |

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**mPHASE TECHNOLOGIES, INC.  (A Development Stage Company)  Consolidated Balance Sheets  (Unaudited)**

| ** **                                                                                             |   |   | **June        30,** |   |   | **March        31,** |   |
|--------------------------------------------------------------------------------------------------------|--------|--------|---------------------|--------|--------|----------------------|--------|
| ** **                                                                                             |   |   | **2002**            |   |   | **2003**             |   |
|                                                                                                   |   |        |                     |   |        |                      |   |
| ** **                                                                                             |   |   | ** **          |   |   | **(Unaudited)**      |   |
| **ASSETS**                                                                                             |   |   |                |   |   |                 |   |
|                                                                                                   |   |   |                |   |   |                 |   |
| **CURRENT ASSETS**                                                                                     |   |   |                |   |   |                 |   |
|    Cash and cash      equivalents                                                       |   | $      | 47,065              |   | $      | 1,235                |   |
|    Accounts receivable,      net of bad debt reserve of $2,906 and $11,217 respectively |   |   | 273,780             |   |   | 91,270               |   |
| Stock subscription receivable                                                                          |   |   | —              |   |   | 30,000               |   |
| Inventories, net                                                                                       |   |   | 3,342,716           |   |   | 2,592,587            |   |
|     Prepaid      expenses and other current assets                                      |   |   | 830,589             |   |   | 78,663               |   |
|                                                                                                   |   |        |                     |   |        |                      |   |
|       **Total Current Assets**                                           |   |   | 4,494,150           |   |   | 2,793,755            |   |
|                                                                                                   |   |        |                     |   |        |                      |   |
| Property and equipment, net                                                                            |   |   | 1,742,186           |   |   | 1,008,795            |   |
| Patents and licensing rights,      net                                                                 |   |   | 685,349             |   |   | 292,787              |   |
| Other Assets                                                                                           |   |   | 20,830              |   |   | 17,250               |   |
|                                                                                                   |   |        |                     |   |        |                      |   |
| **            TOTAL ASSETS**                                             |   | $      | 6,942,515           |   | $      | 4,112,587            |   |
|                                                                                                   |   |        |                     |   |        |                      |   |
| **LIABILITIES AND STOCKHOLDERS’      EQUITY**                                                    |   |   |                |   |   |                 |   |
|                                                                                                   |   |   |                |   |   |                 |   |
| **CURRENT LIABILITIES**                                                                                |   |   |                |   |   |                 |   |
|    Accounts payable                                                                     |   |   | 2,819,245           |   |   | 2,637,032            |   |
|    Accrued expenses                                                                     |   |   | 673,065             |   |   | 953,892              |   |
|    Due to related      parties                                                          |   |   | 35,000              |   |   | 343,590              |   |
|    Notes payable,      current                                                          |   |   | 353,339             |   |   | 887,268              |   |
|    Deferred revenue                                                                     |   |   | 214,180             |   |   | 214,180              |   |
|                                                                                                   |   |        |                     |   |        |                      |   |
| **      TOTAL      CURRENT LIABILITIES**                                 |   |   | 4,094,829           |   |   | 5,035,962            |   |
|                                                                                                   |   |        |                     |   |        |                      |   |
| Long-term debt, net of current      portion                                                            |   |   | 1,014,218           |   |   | 594,068              |   |
| Other Liabilities                                                                                      |   |   | 1,211,249           |   |   | 1,211,249            |   |
|                                                                                                   |   |   |                |   |   |                 |   |
| Other Liabilities, related parties                                                                     |   |   | 665,068             |   |   | —               |   |
|                                                                                                   |   |   |                |   |   |                 |   |

| **COMMITMENTS AND CONTINGENCIES      (Note 9)**                                                                                                                                         |   |   |         |   |   |         |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------------|--------|
|                                                                                                                                                                                    |   |   |         |   |   |         |   |
| **STOCKHOLDERS’ EQUITY**                                                                                                                                                          |   |   |         |   |   |         |   |
|                                                                                                                                                                                    |   |   |         |   |   |         |   |
| Common stock,        stated value $.01, 150,000,000 shares authorized; 60,807,508 and 68,065,510        shares issued and outstanding at June 30, 2002 and March 31, 2003, respectively |   |   | 608,075      |   |   | 680,655      |   |
| Additional paid in capital                                                                                                                                                              |   |   | 100,751,284  |   |   | 102,973,121  |   |
| Deferred compensation                                                                                                                                                                   |   |   | (23,923      | )      |   | —       |   |
| Deficit accumulated during development      stage                                                                                                                                       |   |   | (101,366,286 | )      |   | (106,374,495 | )      |
| Unrecognized capital losses                                                                                                                                                             |   |   | (4,026       | )      |   | —       |   |
| Less-Treasury stock, 13,750 shares      at cost                                                                                                                                         |   |   | (7,973       | )      |   | (7,973       | )      |
|                                                                                                                                                                                    |        |        |              |        |        |              |        |
| **      TOTAL      STOCKHOLDERS’ DEFICIT**                                                                                                          |   |   | (42,849      | )      |   | (2,728,692   | )      |
|                                                                                                                                                                                    |        |        |              |        |        |              |        |
| **      TOTAL      LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                           |   | $      | 6,942,515    |   | $      | 4,112,587    |   |
|                                                                                                                                                                                    |        |        |              |        |        |              |        |

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

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**mPHASE TECHNOLOGIES, INC.  (A Development Stage Company)  Consolidated Statements of Operations   (Unaudited)**

|                                                                                                                                |   |   | **Three Months      Ended      March 31,** |   |   | **October 2, 1996      (Date of Inception) to March 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------|--------|--------|-----------------------------------------------------------|--------|
|                                                                                                                                |   |   | **2002**                                   |   |   | **2003**                                                  |   |   | **2003** |   |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |  |  |  |
| **REVENUES**                                                                                                                        |   | $      | 865,797                                    |   | $      | 209,754                                                   |   | $ | 14,267,647 |   |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |  |  |  |
| **COSTS AND EXPENSES**                                                                                                              |   |   |                                       |   |   |                                                      |   |   |   |   |
| Cost of Sales                                                                                                                       |   |   | 724,699                                    |   |   | 205,231                                                   |   |   | 9,300,819 |   |
| Research        and development (including non-cash stock related charges of $17,080,        $0 and $1,966,424, respectively)       |   |   | 538,826                                    |   |   | 905,554                                                   |   |   | 23,270,470 |   |
| General          and Administrative (including non-cash stock related charges of $737,407    $88,282, and $20,795,054 respectively) |   |   | 1,261,713                                  |   |   | 543,627                                                   |   |   | 49,272,312 |   |
| Depreciation and amortization                                                                                                       |   |   | 135,799                                    |   |   | 128,725                                                   |   |   | 2,639,718 |   |
| Non-cash charges for stock based      compensation                                                                                  |   |   | 92,976                                     |   |   | —                                                    |   |   | 25,089,095 |   |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |  |  |  |
| **TOTAL COSTS AND EXPENSES**                                                                                                        |   |   | 2,754,013                                  |   |   | 1,783,137                                                 |   |   | 119,572,414 |   |
| **LOSS FROM OPERATIONS**                                                                                                            |   |   | (1,888,216                                 | )      |   | (1,573,383                                                | )      |   | (105,204,767 | ) |
| **OTHER INCOME (EXPENSE)**                                                                                                          |   |   |                                       |   |   |                                                      |   |   |   |   |
| Gain on extinguishments                                                                                                             |   |   | 86,009                                     |   |   | 9,399                                                     |   |   | 192,359 |   |
| Minority interest loss in consolidated      subsidiary                                                                              |   |   | —                                     |   |   | —                                                    |   |   | 20,000 |   |
| Loss on investments                                                                                                                 |   |   | —                                     |   |   | (12,251                                                   | )      |   | (28,328 | ) |
| Loss from unconsolidated subsidiary                                                                                                 |   |   | —                                     |   |   | —                                                    |   |   | (1,466,467 | ) |
| Interest Income (expense), net                                                                                                      |   |   | (5,340                                     | )      |   | (10,578                                                   | )      |   | 112,708 |   |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |  |  |  |
| **TOTAL OTHER INCOME (EXPENSE)**                                                                                                    |   |   | 80,669                                     |   |   | (13,430                                                   | )      |   | (1,169,728 | ) |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |  |  |  |
| **NET LOSS**                                                                                                                        |   | $      | (1,807,547                                 | )      | $      | (1,586,813                                                | )      | $ | (106,374,495 | ) |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |  |  |  |
| **LOSS PER COMMON SHARE,**      basic and diluted                                                                                   |   | $      | (.03                                       | )      | $      | (.02                                                      | )      |   |   |   |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |   |   |  |
| **WEIGHTED    AVERAGE COMMON SHARES OUTSTANDING,** basic and diluted                                                                |   |   | 55,606,168                                 |   |   | 65,956,810                                                |   |   |   |   |
|                                                                                                                                |        |        |                                            |        |        |                                                           |        |   |   |  |

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

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**mPHASE TECHNOLOGIES, INC.  (A Development Stage Company)  Consolidated Statements of Operations  (Unaudited)**

|                                                                                                                                      |   |   | **Nine        Months Ended        March 31,** |   |   | **October        2, 1996 (Date of Inception) to March 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------|--------|--------|-------------------------------------------------------------|--------|
|                                                                                                                                      |   |   | **2002**                                      |   |   | **2003**                                                    |   |   | **2003** |   |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |  |  |  |
| **REVENUES**                                                                                                                              |   | $      | 1,948,351                                     |   | $      | 981,591                                                     |   | $ | 14,367,647 |   |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |  |  |  |
| **COSTS AND EXPENSES**                                                                                                                    |   |   |                                          |   |   |                                                        |   |   |   |   |
| Cost of Sales                                                                                                                             |   |   | 1,711,811                                     |   |   | 949,261                                                     |   |   | 9,300,819 |   |
| Research        and development (including non-cash stock related charges of $202,175,        $306,250 and $1,966,424 respectively)       |   |   | 2,907,256                                     |   |   | 2,461,696                                                   |   |   | 33,270,470 |   |
| General        and Administrative (including non-cash stock related charges of $2,441,659,        $548,717, and $20,795,054 respectively) |   |   | 5,376,709                                     |   |   | 2,143,882                                                   |   |   | 49,272,312 |   |
| Depreciation and amortization                                                                                                             |   |   | 538,255                                       |   |   | 388,106                                                     |   |   | 2,639,718 |   |
| Non-cash charges for stock based      compensation                                                                                        |   |   | 480,727                                       |   |   | 23,923                                                      |   |   | 25,089,095 |   |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |  |  |  |
| **TOTAL COSTS AND EXPENSES**                                                                                                              |   |   | 11,014,758                                    |   |   | 5,966,868                                                   |   |   | 119,572,414 |   |
| **LOSS FROM OPERATIONS**                                                                                                                  |   |   | (9,066,407                                    | )      |   | (4,985,277                                                  | )      |   | (105,204,767 | ) |
| **OTHER INCOME (EXPENSE)**                                                                                                                |   |   |                                          |   |   |                                                        |   |   |   |   |
| Gain on extinguishments                                                                                                                   |   |   | 123,858                                       |   |   | 50,125                                                      |   |   | 192,359 |   |
| Minority interest loss in consolidated      subsidiary                                                                                    |   |   | —                                        |   |   | —                                                      |   |   | 20,000 |   |
| Loss on investments                                                                                                                       |   |   | —                                        |   |   | (28,328                                                     | )      |   | (28,328 | ) |
| Loss from unconsolidated subsidiary                                                                                                       |   |   | —                                        |   |   | —                                                      |   |   | (1,466,467 | ) |
| Interest Income (expense), net                                                                                                            |   |   | (16,898                                       | )      |   | (44,729                                                     | )      |   | 112,708 |   |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |  |  |  |
| **TOTAL OTHER INCOME (EXPENSE)**                                                                                                          |   |   | 106,960                                       |   |   | (22,932                                                     | )      |   | (1,169,728 | ) |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |  |  |  |
| **NET LOSS**                                                                                                                              |   | $      | (8,959,447                                    | )      |   | (5,008,209                                                  | )      | $ | (106,374,495 | ) |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |  |  |  |
| **LOSS PER COMMON SHARE,**      basic and diluted                                                                                         |   | $      | (.19                                          | )      | $      | (.08                                                        | )      |   |   |   |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |   |   |  |
| **WEIGHTED        AVERAGE COMMON SHARES OUTSTANDING,** basic and diluted                                                                  |   |   | 47,346,671                                    |   |   | 64,238,350                                                  |   |   |   |   |
|                                                                                                                                      |        |        |                                               |        |        |                                                             |        |   |   |  |

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

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**mPHASE TECHNOLOGIES, INC.  (A Development Stage Company)  Consolidated Statement of Changes in****Shareholders’ Deficit (Unaudited)**

| ** **                                                               | **Shares** |   | ** ** | **$.01        Stated Value** |   | ** ** | **Treasury        Stock** | ** ** | ** ** | **Additional        Paid-in Stock** |   |   | **Deferred        Compen-sation** |   |   | **Accumulated        Deficit** | ** ** |   | **Compre-hensiveLoss** |   | ** ** | **Total Shareholders (Deficit)Equity** |   |
|--------------------------------------------------------------------------|------------|--------|------------|------------------------------|--------|------------|---------------------------|------------|------------|-------------------------------------|--------|--------|-----------------------------------|--------|--------|--------------------------------|------------|--------|------------------------|--------|------------|----------------------------------------|--------|
|                                                                     |       |   |       |                         |   |       |                      |       |       |                                |   |   |                              |   |   |                           |       |   |                   |   |       |                                   |   |
| Balance        June 30, 2002                                             | 60,807,508 |   | $          | 608,075                      |   | $          | (7,973                    | )          | $          | 100,751,284                         |   | $      | (23,923                           | )      | $      | (101,366,286                   | )          | $      | (4,026                 | )      | $          | (42,849                                | )      |
|                                                                     |       |   |       |                         |   |       |                      |       |       |                                |   |   |                              |   |   |                           |       |   |                   |   |       |                                   |   |
| Issuance        of common stock with warrants in private placement       | 1,126,669  |   |       | 11,267                       |   |       | —                    |       |       | 326,733                             |   |   | —                            |   |   | —                         |       |   | —                 |   |       | 338,000                                |   |
| Issuance        of common stock for services                             | 258,000    |   |       | 2,580                        |   |       | —                    |       |       | 60,595                              |   |   | —                            |   |   | —                         |       |   | —                 |   |       | 63,175                                 |   |
| Issuance        of warrants for services                                 | —     |   |       | —                       |   |       | —                    |       |       | 67,725                              |   |   | —                            |   |   | —                         |       |   | —                 |   |       | 67,725                                 |   |
| Amortization        of deferred employee stock option compensation       | —     |   |       | —                       |   |       | —                    |       |       | —                              |   |   | 23,923                            |   |   | —                         |       |   | —                 |   |       | 23,923                                 |   |
| Issuance        of common stock in  settlement of debt              | 340,000    |   |       | 3,400                        |   |       | —                    |       |       | 61,200                              |   |   | —                            |   |   | —                         |       |   | —                 |   |       | 64,600                                 |   |
| Issuance        of warrants to certain officers in settlement of debt    | —     |   |       | —                       |   |       | —                    |       |       | 480,917                             |   |   | —                            |   |   | —                         |       |   | —                 |   |       | 480,917                                |   |
| Issuance        of common stock in settlement of debt to related parties | 5,533,333  |   |       | 55,333                       |   |       | —                    |       |       | 1,224,667                           |   |   | —                            |   |   | —                         |       |   | —                 |   |       | 1,280,000                              |   |
| Net        loss                                                          | —     |   |       | —                       |   |       | —                    |       |       | —                              |   |   | —                            |   |   | (5,008,209                     | )          |   | —                 |   |       | (5,008,209                             | )      |
| Other        comprehensive loss                                          | —     |   |       | —                       |   |       | —                    |       |       | —                              |   |   | —                            |   |   | —                         |       |   | 4,026                  |   |       | 4,026                                  |   |
|                                                                     |            |   |            |                              |   |            |                           |       |            |                                     |   |        |                                   |   |        |                                |       |        |                        |   |            |                                        |   |
|                                                                     |       |   |       |                         |   |       |                      |       |       |                                |   |   |                              |   |   |                           |       |   |                   |   |       |                                   |   |
| **Balance,        March 31, 2003**                                       | 68,065,510 |   | $          | 680,655                      |   | $          | (7,973                    | )          | $          | 102,973,121                         |   | $      | —                            |   | $      | (106,374,495                   | )          | $      | —                 |   | $          | (2,728,692                             | )      |
|                                                                     |            |   |            |                              |   |            |                           |       |            |                                     |   |        |                                   |   |        |                                |       |        |                        |   |            |                                        |   |

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

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**mPHASE TECHNOLOGIES, INC.(A Development Stage Company)  Consolidated Statements of Cash Flows  (Unaudited)**

|                                                                                                         |   | **Nine        Months Ended****March 31,**    |   |   | **October        2, 1996        (Date of Inception) to        March 31,** |   |
|--------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------|--------|
|                                                                                                         |   | **2002**                                                    |   |   | **2003**                                                                  |   |   | **2003** |   |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| Cash          Flow From Operating Activities:                                                                |   |                                                        |   |   |                                                                      |   |   |   |   |
| Net          loss                                                                                            | $      | (8,959,447                                                  | )      | $      | (5,008,209                                                                | )      | $ | (106,374,495 | ) |
| Adjustments          to reconcile net loss to net cash used in operating activities:               |   |                                                        |   |   |                                                                      |   |   |   |   |
| Depreciation and amortization                                                                                |   | 1,224,362                                                   |   |   | 1,100,974                                                                 |   |   | 5,269,162 |   |
| Realized and unrealized losses                                                                               |   | —                                                      |   |   | 16,504                                                                    |   |   | 16,504 |   |
| Book value of fixed assets disposed                                                                          |   | —                                                      |   |   | —                                                                    |   |   | 74,272 |   |
| Provision for doubtful accounts                                                                              |   | —                                                      |   |   | 8,311                                                                     |   |   | 40,435 |   |
| Gain on debt extinguishments                                                                                 |   | (123,858                                                    | )      |   | (50,125                                                                   | )      |   | (192,361 | ) |
| Loss on unconsolidated subsidiary                                                                            |   | —                                                      |   |   | —                                                                    |   |   | 1,466,467 |   |
| Impairment of note receivable                                                                                |   | —                                                      |   |   | —                                                                    |   |   | 232,750 |   |
| Non-cash charges relating to issuance of common stock, common stock options and warrants |   | 3,124,561                                                   |   |   | 878,890                                                                   |   |   | 47,888,652 |   |
| Changes          in assets and liabilities:                                                                  |   |                                                        |   |   |                                                                      |   |   |   |   |
| Accounts receivable                                                                                          |   | (224,550                                                    | )      |   | 174,199                                                                   |   |   | (131,705 | ) |
| Inventories                                                                                                  |   | 266,491                                                     |   |   | 750,129                                                                   |   |   | (2,592,587 | ) |
| Prepaid expenses and other current assets                                                                    |   | (65,276                                                     | )      |   | 28,960                                                                    |   |   | (537,837 | ) |
| Other non-current assets                                                                                     |   | 64,455                                                      |   |   | 3,580                                                                     |   |   | — |   |
| Accrued expenses                                                                                             |   | 915,540                                                     |   |   | 280,826                                                                   |   |   | 2,296,411 |   |
| Due to/from related parties                                                                                  |   | 1,677,366                                                   |   |   | 864,438                                                                   |   |   | 5,143,478 |   |
| Due from officer                                                                                             |   | 100,000                                                     |   |   | —                                                                    |   |   | — |   |
| Receivables from subsidiary                                                                                  |   | —                                                      |   |   | —                                                                    |   |   | (150,000 | ) |
| Deferred revenue                                                                                             |   | 214,180                                                     |   |   | —                                                                    |   |   | 214,180 |   |
| Accounts payable                                                                                             |   | (779,341                                                    | )      |   | (2,646                                                                    | )      |   | 3,979,810 |   |
| Other current liabilities                                                                                    |   | —                                                      |   |   | 130,000                                                                   |   |   | 130,000 |   |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| Net          cash used in operating activities                                                               |   | (2,565,517                                                  | )      |   | (824,169                                                                  | )      |   | (43,226,864 | ) |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| Cash          Flow from Investing Activities:                                                                |   |                                                        |   |   |                                                                      |   |   |   |   |
| Payments related to patents and licensing rights                                                             |   | (71,150                                                     | )      |   | —                                                                    |   |   | (375,720 | ) |
| Purchase of marketable securities                                                                            |   | —                                                      |   |   | (36,594                                                                   | )      |   | (36,594 | ) |
| Proceeds from the sale of marketable securities                                                              |   | —                                                      |   |   | 36,765                                                                    |   |   | 36,765 |   |
| Purchase of fixed assets                                                                                     |   | (31,445                                                     | )      |   | (37,303                                                                   | )      |   | (2,501,103 | ) |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| Net          cash used in investing activities                                                               |   | (102,595                                                    | )      |   | (37,132                                                                   | )      |   | (2,876,652 | ) |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| Cash          Flow from Financing Activities:                                                                |   |                                                        |   |   |                                                                      |   |   |   |   |
| Proceeds from issuance of common stock and exercises of options and warrants                  |   | 2,947,750                                                   |   |   | 338,000                                                                   |   |   | 45,755,444 |   |
| Payments of notes payable                                                                                    |   | —                                                      |   |   | (50,369                                                                   | )      |   | (170,560 | ) |
| Advances from related party                                                                                  |   | —                                                      |   |   | 527,840                                                                   |   |   | 527,840 |   |
| Repurchase of treasury stock at cost                                                                         |   | —                                                      |   |   | —                                                                    |   |   |  (7,973 | )  |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| Net          cash provided by financing activities                                                           |   | 2,947,750                                                   |   |   | 815,471                                                                   |   |   | 46,104,751 |   |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| Net          increase (decrease) in cash                                                                     |   | 279,638                                                     |   |   | (45,830                                                                   | )      |   | 1,235 |   |
| **CASH          AND CASH EQUIVALENTS,** beginning of period                                                  |   | 31,005                                                      |   |   | 47,065                                                                    |   |   | — |   |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |
| **CASH          AND CASH EQUIVALENTS,** end of period                                                        | $      | 310,643                                                     |   | $      | 1,235                                                                     |   | $ | 1,235 |   |
|                                                                                                         |        |                                                             |   |        |                                                                           |   |  |  |   |

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

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**mPHASE TECHNOLOGIES, INC.  (A DEVELOPMENT STAGE COMPANY)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)**

**1.      BASIS  OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF  OPERATIONS**

mPhase Technologies, Inc. (the “Company”)  was organized on October 2, 1996. On February 17, 1997, the Company 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”), through the issuance of 2,500,000 shares of its  common stock in exchange for all the issued and outstanding shares of MicroTel.  The assets acquired in this acquisition were patents related to the mPhase line  of DSL component products (e.g., POTS Splitters) and patent applications utilized  in the Company’s proprietary TraverserTM Digital Video Data Delivery  System (“Traverser”). The primary business of the company is  to design, develop, manufacture and market high band-width telecommunication  products incorporating digital subscriber line (“DSL”) technology.  The present activities of the Company are focused (a) upon cost reduction and  enhancement of its proprietary TraverserTM product under an Agreement with  Lucent Technologies, Inc. and (b) deployment of the TraverserTM product.  The TraverserTM enables telecommunications service providers to simultaneously  deliver MPEG2 digital quality television (utilizing non-internet protocol),  high-speed Internet and voice over copper telephone wire utilizing DSL technology.  Additionally, the Company sells DSL component products which includes microfilters,  splitters, and line extenders.

The Company is in the development  stage, as defined by Statement of Financial Accounting Standards (“SFAS”)  No. 7, “Accounting and Reporting by Development Stage Enterprises”  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.

BASIS OF PRESENTATION-The accompanying  unaudited consolidated financial statements have been prepared in accordance  with generally accepted accounting principles for interim financial information  and pursuant to the regulations of the Securities Exchange Commission. Accordingly,  they do not include all of the information and footnotes required by generally  accepted accounting principles for complete financial statements. In the opinion  of management, all adjustments (consisting of normal recurring accruals) considered  necessary for a fair presentation have been included. Operating results for  the nine months ending March 31, 2003 are not necessarily indicative of the  results that may be expected for a full fiscal year. For further information,  refer to the consolidated financial statements and footnotes thereto included  in the Company’s Annual Report on Form 10-K for the year ended June 30,  2002.

Through March 31, 2003, the Company  had incurred cumulative (a) development stage losses totaling $106,374,495 and  (b) negative cash flow from operations equal to $43,226,864. At March 31, 2003,  the Company had $1,235 of cash and cash equivalents and $91,270 of net 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) allow the successful  wide scale development, deployment and marketing of its products.

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 periods. Actual results could differ from  those estimates.

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**mPHASE TECHNOLOGIES, INC.  (A DEVELOPMENT STAGE COMPANY)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)**

RECLASSIFICATIONS-Certain reclassifications  have been made in the prior period consolidated financial statements to conform  to the current period presentation.

LOSS PER COMMON SHARE, BASIC AND DILUTED  – The Company 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 for all periods presented since their affect  is antidilutive.

RESEARCH AND DEVELOPMENT-Research  and development costs are charged to operations as incurred.

REVENUE RECOGNITION-All revenue included  in the accompanying consolidated statements of operations for all periods presented  relates to sales of mPhase’s line of POTS Splitter products and other  related DSL component products. As required, the Company adopted the Securities  and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”)  No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which provides guidance  on applying generally accepted accounting principles to revenue recognition  based on the interpretations and practices of the SEC. The Company recognizes  revenue for its line of POTS Splitter products 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. In addition, the Company  includes costs of shipping and handling billed to customers in revenue and the  related expenses of shipping and handling costs is included in cost of sales.

RECENT ACCOUNTING PRONOUNCEMENTS-In  July 2001, the Financial Accounting Standards Board, (“FASB”) issued  SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill  and Other Intangible Assets”. SFAS No. 141 requires all business combinations  initiated after June 30, 2001 to be accounted for using the purchase method.  Under SFAS No. 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  No. 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 was required to adopt SFAS No. 142 effective July 1, 2002 and has  done so. The adoption of SFAS No. 141 has had no effect on the Company’s  results of operations or 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, and as such became applicable to the Company  effective July 1, 2002. The adoption of SFAS No. 144 has not resulted in any  adjustments to the carrying values of the Company’s Long Lived Assets.

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**mPHASE TECHNOLOGIES, INC.  (A DEVELOPMENT STAGE COMPANY)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)**

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 rescinds SFAS No. 4 and No. SFAS 44 and SFAS No. 64, which relates to circumstances whereby the Company would determine when settlement of debt or other liabilities would be considered extraordinary or recurring. The Company has adopted the relevant provisions of SFAS 145 and that adoption of SFAS No. 145 has not had a material effect on the Company’s results of operations of financial position.

**STATEMENT OF CASH FLOW SUPPLEMENTAL  INFORMATION**

|          |   |   | **2002** |   |   | **2003** |   |
|---------------|--------|--------|----------|--------|--------|----------|--------|
|          |        |        |          |        |        |          |        |
| Interest Paid |   | $      | 17,891   |   | $      | 10,410   |   |
|          |        |        |          |        |        |          |        |
| Taxes Paid    |   | $      | —   |   | $      | —   |   |
|          |        |        |          |        |        |          |        |

|   |                           |
|--------|--------------------------------|
| **2.** | **RELATED PARTY TRANSACTIONS** |

      mPhase’s President, Chief Operating Officer 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, in January 2000 to $11,050 per month, in July 2001 to $11,340, and in July 2002 to $12,200 per month. Effective January 1, 2003 the office space agreement was revised to $10,000 per month.  Additionally, in July 1998, mPhase entered into an agreement with Microphase, whereby mPhase reimburses Microphase $40,000 per month for technical research and development assistance, which, effective January 1, 2003, was revised to $20,000 per month.

      Microphase  also charges fees for specific projects on a project-by-project basis. During  the nine months ended March 31, 2002 and 2003 and from inception (October 2,  1996) to March 31, 2003, $1,010,909, $538,399, and $7,114,823, respectively,  have been charged to expense or inventory under these Agreements and is included  in operating expenses in the accompanying consolidated statements of operations.  In addition, Microphase advanced $623,290, of which $95,450 was repaid during  the nine months ended March 31, 2003.

      The Company is obligated to pay a 3% royalty to Microphase on revenues from its proprietary TraverserTM Digital Video and Data Delivery System and DSL component products. For the nine months ended March 31, 2002 and 2003, mPhase recorded royalties to Microphase totaling $59,613 and $29,240, respectively. 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. Effective for September 30, 2002, the Company issued ­3,033,333 shares of its common stock in settlement of $620,000, and effective for March 31, 2003, the company issued 1,000,000 shares of its common stock and a like amount of warrants in settlement of $300,000 of amounts outstanding and due to Microphase through September 30, 2002 and March 31, 2003, respectively.  

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**mPHASE TECHNOLOGIES, INC.  (A DEVELOPMENT STAGE COMPANY)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)**

      As a result of the foregoing transactions as of  March  31, 2003, the Company had $238,291 payable to Microphase, which is included in amounts due to related parties in the accompanying consolidated balance sheet. Additionally, at March 31, 2003, approximately $142,000 of undelivered purchase orders remain outstanding to Microphase.

      The    Company purchases products and incurs certain research and development expenses    with Janifast Ltd., which is owned by U.S. Janifast Holdings, Ltd., a company    in which three directors of mPhase are significant shareholders, in connection    with the manufacturing of POTS Splitter shelves and component products including    cards and filters sold by the Company. For the year ended June 30, 2002,    pursuant to debt conversion agreements, Janifast Ltd. received 3,450,000    shares of mPhase common stock and 1,200,000 warrants to purchase the Company’s    common stock. Effective for September 30, 2002, the Company issued 1,500,000    shares of its common stock in settlement of $360,000 of amounts outstanding    and due to Janifast Ltd. through September 30, 2002. 

      During the nine months ended March 31, 2002 and 2003 and the period from inception (October 2, 1996) to March 31, 2003, $1,560,221, $184,082 and $10,882,562, respectively have been charged by Janifast to inventory or expense and is included in operating expenses in the accompanying statements of operations.

      As a result of the foregoing transactions as of  March 31, 2003, the Company had $36,216 payable to Janifast, which is included in amounts due to related parties in the accompanying balance sheet. Additionally, at March 31, 2003, approximately $1,424,350 of undelivered purchase orders remain outstanding to Janifast Ltd.

      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    (“Note”), secured by 75,000 shares of the former consultants    common stock of mPhase. The Note was due April 7, 2001. Accordingly, during    the year ended June 30, 2001 and 2002, the Company charged $212,500 and $20,250, respectively,    to administrative expense as a result of impairment of the Note. At March    31, 2003, the Company has included the residual balance of $17,250, representing    the estimated fair value of the underlying stock, in long-term assets in    the accompanying consolidated balance sheet.

      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.    The Company is currently, in arrears, with respect to $55,000 of payments    due under the Promissory note.

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**mPHASE TECHNOLOGIES, INC.  (A DEVELOPMENT STAGE COMPANY)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)**

**3.   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 shelves and cards. At March 31, 2003 inventory is comprised of the following:

| Raw materials                  |   | $      | 266,748    |   |
|--------------------------------|--------|--------|------------|--------|
| Work in progress               |   |   | 963,956    |   |
| Finished goods                 |   |   | 2,719,913  |   |
|                           |        |        |            |        |
| Total                          |   |   | 3,950,617  |   |
| Less: Reserve for Obsolescence |   |   | (1,358,030 | )      |
|                           |        |        |            |        |
| Net Inventory                  |   | $      | 2,592,587  |   |
|                           |        |        |            |        |

**4.   INCOME TAXES**

      The Company 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. 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 beenrecorded in the accompanying consolidated financial statements.

      Utilization of net operating losses generated through March 31, 2003 may be limited due to changes in ownership that have occurred.

**5.   ACCRUED EXPENSES**

      Accrued expenses representing accrued general and administrative expenditures were $673,065 at June 30, 2002.  At March 31, 2003 accrued expenses consisting of administrative expenses were $701,846 and accrued expenses for research and development expenses incurred with Lucent Technologies, Inc. were $252,045, totaling $953,891.

**6.   JOINT VENTURE**

      In    March 2000, mPhase acquired a 50% interest in mPhaseTelevision.Net pursuant    to a Joint Venture Agreement (the “Agreement”) for $20,000. The    agreement stipulates for mPhase’s joint venture partner, AlphaStar    International, Inc., (“Alphastar”), to provide mPhaseTelevision.Net    right of first transmission for its transmissions including 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    and presently the Company owns 56.5% of this venture.

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**mPHASE TECHNOLOGIES, INC.  (A DEVELOPMENT STAGE COMPANY)  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)**

      During  the nine months ended March 31, 2002 and ended March 31, 2003, mPhaseTelevision.Net,  Inc., was charged $64,039 and $0, 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.

**7.    EQUITY  TRANSACTIONS**

      During  the nine months ending March 31, 2003, the Company granted 258,000 shares of  its common stock to consultants for services performed. Additionally, effective  for the nine months ended March 31, 2003, the Company issued 5,873,333 shares  of the Company’s common stock and 3,491,800 warrants in connection with  the extinguishments of debt. The Company issued 1,126,669 shares of its common  stock together with a like amount of warrants in a private placement generating  net proceeds of $338,000, $30,000 of which was collected on April 3, 2003.

**8.    DEBT  EXTINGUISHMENTS**

      Effective  for the nine months ending March 31, 2003, pursuant to debt conversion agreements,  the Company converted the $1,875,640 of liabilities due to certain strategic  vendors and related parties into 5,873,333 shares of the Company’s common  stock, and 3,491,800 warrants which resulted in a gain of $50,123.

**9.    COMMITMENTS  AND CONTINGENCIES**

      The  Company has entered into various agreements with Georgia Tech Research Corporation  (“GTRC”), pursuant to which the Company receives technical assistance  in developing the commercialization of its Digital Video and Data Delivery System  (“DVDDS”). The amounts incurred by the Company for GTRC technical assistance with  respect to its research and development activities and included in the accompanying  consolidated statement of operations for the nine months ending March 31, 2002  and 2003 and for the period from inception through March 31, 2003 totaled approximately  $400,000, $100,000 and $13,524,300, respectively.

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

      From  time to time, the Company 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.

**10.   DEFERRED REVENUE**

      Deferred  revenue as of March 31, 2003 consists of three customer’s invoices totaling  $156,180 on the POTS product line whereby completion of customer acceptance  will be attained when original splitters are upgraded to the next generation  splitters and deposits of $58,000 from Beta customers on the TraverserTM  product line orders to be delivered when it reaches commercial production.

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**ITEM 2. MANAGEMENT’S DISCUSSION  OF FINANCIAL CONDITIONS AND RESULTS 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.

**CAUTIONARY STATEMENT PURSUANT TO  SAFE HARBOR PROVISIONS OF THE PRIVATE LITIGATION REFORM ACT OF 1995**:

      Some  of the statements contained in or incorporated by reference in this Form 10-Q  discuss the Company’s plans and strategies for its business or state other  forward-looking statements, as this term is defined in the Private Securities  Litigation Reform Act of 1995. The words “anticipate,” “believe,”  “estimate,” “expect,” “plan,” “intend,”  “should,” “seek,” “will,” and similar expressions  are intended to identify these forward-looking statements, but are not the exclusive  means of identifying them. These forward-looking statements include, among others,  statements concerning the Company’s expectations regarding its working  capital requirements, gross margin, results of operations, business, growth  prospects, competition and other statements of expectations, beliefs, future  plans and strategies, anticipated events or trends, and similar expressions  concerning matters that are not historical facts. Any forward-looking statements  contained in this Quarterly Report on Form 10-Q are subject to risks and uncertainties  that could cause actual results to differ materially from those results expressed  in or implied by the statements contained herein.

**RESULTS OF OPERATIONS**

**OVERVIEW**

      mPhase,  a New Jersey corporation, founded in 1996 is a publicly-held company with over  12,000 shareholders and approximately 68 million shares of common stock outstanding.  The Company’s common stock is traded on the Over the Counter Bulletin  Board under the ticker symbol XDSL. We are headquartered in Norwalk, Connecticut  with offices in Little Falls, NJ and Atlanta, GA. mPhase shares common office  space with Microphase Corporation, a privately held company. Microphase is a  leader in the field of RF and filtering technologies within the defense industry.  It has been in operation for over 50 years and supports mPhase with engineering,  administrative and financial resources as needed.

      mPhase  develops, markets and sells a line of innovative DSL (“digital subscriber  line”)-based broadband telecommunications equipment. Our flagship product  line includes two systems enabling the delivery of television over DSL by telephone  service providers. Both of these products facilitate telephone companies becoming  full service communications providers by enabling the simultaneous delivery  of digital broadcast television, high speed data and voice services over the  existing telephone line infrastructure. mPhase has developed its flagship line  of products with a specific target in mind-telephone companies in parts of the  world where access to multichannel television is limited. To that end, mPhase’s  primary goal is to develop cost-effective TV over DSL solutions that support  proven, revenue-generating services (i.e., broadcast television) rather than  developing robust, feature-intensive and expensive platforms intended to compete  with cable companies such as those that exist in the US.

        mPhase introduced its first TV over DSL product, the TraverserTM Digital  Video and Data Delivery System in 1999. The TraverserTM DVDDS, is a patented  end-to-end system based upon proprietary technology developed in conjunction  with Georgia Tech Research Corporation. Because it is an end-to-end video-over-ADSL  system, the TraverserTM does not interoperate with other manufacturer’s  DSL CO equipment or CPE modems. This system is the only non-Internet Protocol  system on the market today. The company continues to market this product, and  believes it to be ideal for customers specifically interested in supporting  television services with a minimal need to support high-speed data customers.

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      The  TraverserTM is installed at Hart Telephone Company in Hartwell, Georgia,  where a 100-user system is currently operational. Hart Telephone completed the  construction of its digital head end toward the end of 2001, marking the Traverser’sTM  transition to commercial deployment. A TraverserTM system is also installed  at the BMW automotive manufacturing plant in Spartanburg, South Carolina for  use as a telebroadcast system in a commercial setting.

      mPhase  has also just recently introduced its second product in its flagship line, called  the SimpleTV platform. SimpleTV is a modular solution that is based upon the  same video networking intelligence as the TraverserTM, but utilizes the  industry-leading, standards-based Lucent Stinger® Digital Access Concentrator  for transport.

      Specifically,  mPhase Technologies and Lucent Technologies’ Bell Labs have teamed to  deliver a three-tiered architecture that encompasses:

|   | - | The mPhase Traverser BTS (Broadcast Television      Switch) layer interfacing the video headend and the DSLAM |
|--------|---|---------------------------------------------------------------------------------------------------------------|

|   | - | Lucent’s Stinger® Digital Access      Concentrator, a field-tested central office (“CO”) piece of      equipment that provides DSL connections to individual customers |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | mPhase Intelligent Network Interface (“INI”) Set Top Box, a highly integrated      piece of customer premises equipment (“CPE”) to deliver video      in the home environment from the DSL link. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Bell Labs approached mPhase about  creating a hybrid, SimpleTV solution that would capitalize upon the strengths  of each company’s DSL platform in December of 2002. Prior to this, Bell  Labs had been working in a contract engineering capacity helping mPhase to cost-reduce  mPhase’s digital set top box, the INI Set Top Box.

      An  element common to both the TraverserTM and Simple TV Platform systems is  mPhase’s digital set top box, the INI Set Top Box. The INI Set Top Box  is a low-cost set-top box developed specifically for delivering MPEG video bitstreams  over DSL links. The integrated DSL modem makes the connection between the set  top box and the Digital Subscriber Line Access Multiplexer (“DSLAM”).  The INI Set Top Box’s video output sends television signals directly to  the end-user’s TV. The integrated set-top-box also provides video content  security. TV-over-DSL can follow several routes, including an Ethernet-based  set-top connected to a local area network (“LAN”) where the video  is streamed in the clear on the LAN and video content theft is emphatically  trivial because the MPEG bitstream is effectively monitored on the LAN. While  no system is completely impenetrable to video theft, the INI Set Top Box solution  thwarts and discourages such activity. Importantly, because the INI Set Top  Box utilizes standard Asynchronous Transfer Mode over Asymetric DSL transport,  it can be sold as a standalone product that supports a variety of DSLAM’s  in the market.

      To  effectively market this joint solution, mPhase has been established as a Lucent  Business Partner. As a business partner, mPhase is able to sell the complete  SimpleTV platform, including reselling the Lucent Stinger®. The agreement  enables mPhase to sell the SimpleTV platform anywhere in the world where the  customer is interested in supporting digital video services. Additionally, mPhase  and Lucent are jointly marketing this product solution to existing Lucent customers,  as well as to Lucent’s extensive network of business partners around the  world. Together the two companies are in the process of identifying strong opportunities  and target markets. Once identified, collectively mPhase and Lucent will approach  Lucent’s established business partner in that region for further marketing  to the appropriate end customer. This co-marketing relationship adds tremendous  value to mPhase. By gaining access to Lucent’s business partners, mPhase  will have the opportunity to significantly increase exposure for its SimpleTV  solution without having to increase the size of its direct sales force.

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      mPhase  DSL Component Products – mPhase also has designed and markets a line of  DSL component products ranging from commodity items such as Plain Old Telephone  Service (“POTS”) splitters to innovative loop management products. Most notable  in the suite of DSL component products is the recently introduced *i*POTS3  or Intelligent POTS Splitter product. This product marks a significant advancement  in automating loop management. As DSL deployments scale, it is becoming increasingly  important for telcos to streamline the process for provisioning and troubleshooting  DSL services. Additionally, as competition for high speed Internet expands,  the market is witnessing a reduction in price. Therefore, it has become imperative  that telcos lower the operational costs involved with supporting DSL services.  To that end, mPhase had developed a device that allows service providers to  perform full loop testing without having to deploy manual assets. The *i*POTS3  allows service providers to temporarily bypass the POTS Splitter and have a  comprehensive view of their DSL networks. Prior to the introduction of this  product, service providers would have to manually disconnect the splitter so  that test signals could be passed through the network.

      mPhase has established a worldwide distribution agreement with Corning Cable Systems for the sale of this product.  Utilizing Corning as a distribution channel expands exposure for this product, as Corning is one of the largest vendors of central office DSL filtering equipment.

      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 TraverserTM product. 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 television    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 TraverserTM product with Hart Telephone Company in Georgia,    and establishing a core administrative and sales organization. In addition,    we have recently entered an Agreement with Lucent Technologies, Inc. to cost-reduce    and enhance features of mPhase’s Digital Set Top Box that is part of    its TraverserTM product.

      Revenues.    To date, all material revenues have been generated from sales of the POTS    Splitter Shelves and other DSL component products to a small number of telecommunications    companies. mPhase believes that future revenues are difficult to predict    because of the length and variability of the commercial roll-out of the TraverserTM to    various telecommunications service providers. Since the Company believes    that there may be a significant international market for the TraverserTM involving    many different countries, with different regulations, certifications and commercial    practices than the United States, future revenues are highly subject to the    changing variables and uncertainties. Additionally, the recent instability    of the telecommunications market evidenced by reduction in capital spending    across the whole telecom sector contributes to our difficulty in accurately    predicting future revenues.

      Cost  of revenues. The costs necessary to generate revenues from the sale of POTS  Splitter Shelves and other related DSL component products include direct material,  labor and manufacturing. mPhase paid these costs to Janifast Ltd., which has  facilities in the People’s Republic of China and is owned by and managed  by certain senior executives of the Company. The cost of revenues also includes  certain royalties paid to Microphase Corporation, a privately held corporation  organized in 1955, which shares certain common management with the Company.  Costs for future production of the TraverserTM and Simple TV Platform products  will consist primarily of payments to manufacturers to acquire the necessary  components and assemble the products and in the case of the TraverserTM, future  patent royalties payable to Georgia Tech Research Corporation, (“GTRC”).

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      Research    and development. Research and development expenses consist principally of    payments made to GTRC, Microphase Corporation and Lucent Technologies, Inc.    for development of the TraverserTM and the integration mPhase’s    Broadcast Television Switch with the Lucent Stinger® voice and data delivery    system product. All research and development costs are expensed as incurred.

      General  and administrative. Selling, general and administrative expenses consist primarily  of salaries and related expenses for personnel engaged in direct marketing of  the TraverserTM the Simple TV Platform, the new INI Set Top Box, 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. The  Company makes extensive use of stock options and warrants as a form of compensation  to employees, directors and outside consultants. From inception (October 2,  1996) through March 31, 2003 the Company has incurred cumulative (a) development  stage losses and has an accumulated deficit of $106,374,495 and (b) negative  cash flow from operations of $43,226,864. The auditors report for the fiscal  year ended June 30, 2002 includes the statement that “there is substantial  doubt of the Company’s ability to continue as a going concern”.  Management estimates that the Company needs to raise approximately $2,000,000  during the next 12 months to continue operations. As of March 31, 2003, the  Company had a negative net worth of $2,728,691 up from a negative net worth  of $42,849 as a result of continuing net losses incurred after June 30, 2002.

      In  fiscal 2001, the Company had anticipated that the sales of its component products  would be able to supplement the underwriting of the completion of our flagship  product, the TraverserTM. In fiscal 2002 these sales declined with the overall  decline of DSL deployments and spending in the telephone industry. The Company  believes sales from its component products including the new IPOTS product will  capture some of the existing DSL deployments, providing increases in revenue  in the fourth quarter of fiscal 2003 and the first half of fiscal 2004. Until  such time such revenues are realized, the Company intends on maintaining its  reduced cost structure to minimize its losses, which management believes will  permit the Company to sustain its development process and ultimately achieve  profitability. 

The Company believes that significant  deployments and resulting revenues from these deployments of its flagship products,  the TraverserTM, Simple TV Platform and new INI Set Top Box, are not expected  until the first half of fiscal year 2004. The Company further believes that  an increase in capital expenditures in the telecommunications industry will  also increase sales and improve the Company’s margins as well as increase  the probability that the Company will attain profitability.

**THREE MONTHS ENDED MARCH 31, 2003  VS. MARCH 31, 2002**

**REVENUE**

      Total  revenues were $209,754 for the three months ended March 31, 2003 compared to  $865,797 for the three months ended March 31, 2002. The decrease was primarily  attributable to continued slow sales of the Company’s POTS Splitter product  line, caused by the continuing 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 a significant part of DSL deployment worldwide. The  Company still cannot say when the demand for telecommunication equipment will  resume.

**COST OF REVENUES**

      Cost    of sales were $205,231 for the three months ended March 31, 2003 as compared    to $724,699 in the prior period, representing 98% of gross revenues for the    quarter ended March 31, 2003 and 84% for the quarter ended March 31, 2002,    respectively. Our margins have contracted dramatically over the past two    years as spending among the telecommunications providers has contracted,    coupled with downward pressures related to the supply and demand of telecommunications    products. 

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**RESEARCH AND DEVELOPMENT**

      Research  and development expenses were $905,554 for the three months ended March 31,  2003 as compared to $538,826 during the comparable period in 2002 or an increase  of $366,728. Such expenditures include $0 incurred with GTRC for the three months  ended March 31, 2003 as compared to $50,000 during the comparable quarter in  2002. This decrease was more than offset by $500,000 incurred in the current  quarter ended March 31, 2003, with Lucent Technologies, Inc., which consisted  of $300,000 incurred for the development of the Broadcast Television Switch  for use with Lucent’s Stinger® DSL product, $175,000 incurred on the  cost reduction effort for mPhase’s INI set top box, and $25,000 incurred  for software development associated with mPhase’s*i*POTS3 product.  In addition, the balance of $405,554 of additional research and development  expenses includes depreciation of test equipment and research and development  costs incurred with Microphase and other strategic vendors for the three months  ended March 31, 2003 when compared to $488,826 during the comparable quarter  in 2002, and thus resulted in a decrease of $83,272 of such research costs to  other than GTRC and Lucent. Depreciation of test equipment, used in deployments,  resulted in research and development expenses of $201,116 and $217,097 for the  three months ended March 31, 2003 and 2002, respectively.

      The elimination in  research expenditures incurred with GTRC is due to the Company’s completion  of the design and manufacture of prototypes of the Company’s original  set top box and the central office equipment associated with its TraverserTM  product in 2003. Costs incurred with Lucent Technologies, Inc. related to the  cost-reduction and enhancement of the mPhase Digital Set Top Box and the development  of a Broadcast Television Switch for use with the Lucent Stinger® Product.

      Research    expenditures incurred with Microphase were related to the continuing development    of the Company’s DSL component products, including the Company’s    line of POTS Splitters and Microfilters and the Company’s newest products,    the iPOTSTM and the mPhase Stretch. We believe the mPhase iPOTSTM offers    a much needed solution for the DSL industry; the iPOTSTM enables telcos    to remotely and cost-effectively perform loop management and maintenance    including line testing, qualification and troubleshooting. Prior to the introduction    of the iPOTSTM, loop management could not be remotely performed through    a conventional POTS Splitter without the use of expensive cross connects    or relay banks because of the mandatory DC blocking capacitors in traditional    POTS splitters, as required by various telephone protocol and regulatory standards. The unique (patent    pending) iPOTSTM circuit allows most test heads to perform both narrow    and wideband testing of the local loop through the central office POTS Splitter    without having to physically disconnect the POTS Splitter, thereby eliminating    the need to dispatch personnel and a truckroll. The Company anticipates future    demand for this product, as it significantly reduces the cost of deploying    and maintaining DSL services. Also recently developed is the DSL loop extender    product called mPhaseStretch. This product extends the service distance for    the mPhase TraverserTM and can be used in conjunction with other DSL    services. The Company anticipates future 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 $543,627 for the three months ending    March 31, 2003 down from $1,261,713 or a decrease of $718,086 for the comparable    period in 2002. 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 $88,282 for the three months    ended March 31, 2003 as compared to $737,407 or a decrease of $649,125 of    such charges. The remaining decrease of $70,961 in selling, general and administrative    costs were the aggregate of various administrative expenses which the Company    has made a concerted effort to contain.

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**NET LOSS**

      The  Company recorded a net loss of $1,586,813 for the three months ended March 31,  2003 as compared to a loss of $1,807,547 for the three months ended March 31,  2002. This represents a loss per common share of $.02 for the three month period  ended March 31, 2003 as compared to a loss per common share of $.03 for the  three months ending March 31, 2002; based upon weighted average common shares  outstanding of 65,956,810 and 55,606,168 during the periods ending March 31,  2003 and 2002, respectively.

      The  Company believes the initial major deployments and the resultant revenues of  its Flagship products, the TraverserTM, the INI Set Top Box and Simple TV  Platform are not expected until the first half of fiscal year 2004, which along  with any upturn of spending in the telephone industry will also increase sales  and improve the Company’s margins and provide the Company with the opportunities  to attain profitability.

**NINE MONTHS ENDED MARCH 31, 2003  VS. MARCH 31, 2002**

**REVENUE**

      Total    revenues were $981,591 for the nine months ended March 31, 2003 compared to    $1,948,351 for the nine months ended March 31, 2002. The decrease was attributable    to slowing sales in the first quarter of fiscal year 2003, which has continued    through the third quarter, of the Company’s POTS Splitter product line,    caused by the general downturn in the telecommunications market, including    customers that order component products from the Company. The Company continues    to believe that its line of POTS Splitter products is positioned to be competitively    priced with high reliability and connectivity, and as such has the potential    to be a significant part of DSL deployment worldwide. The Company cannot    say when the demand for telecommunication equipment will resume.

**COST OF REVENUES**

      Cost  of sales was $949,261 for the nine months ended March 31, 2003 as compared to  $1,711,811 in the prior period, representing 96.7% and 87.9% of gross revenues,  for the nine months ended March 31, 2003 and 2002, respectively. The margins  have contracted dramatically as spending among the telecommunications providers  has contracted, coupled with downward pressures related to the supply and demand  of telecommunications products. 

**RESEARCH AND DEVELOPMENT**

      Research  and development expenses were $2,461,696 for the nine months ended March 31,  2003 as compared to $2,907,256 during the comparable period in 2002; or a decrease  of $445,560. Such expenditures include $100,000 incurred with GTRC for the nine  months ended March 31, 2003 as compared to $400,000 during the comparable period  in 2002. In addition, the Company incurred additional research and development  expenses for depreciation of test equipment and research and development costs  incurred with Microphase and other strategic vendors for the nine months ended  March 31, 2003 of $2,361,696 as compared to $2,507,256 during the comparable  period in 2002. Depreciation expenses for research and development were $659,767  and $586,427 for the nine months ended March 31, 2003 and 2002, respectively.

      The  remaining expenses other than research and development with GTRC (which decreased  for the nine months ended March 31, 2003 by $145,560) consisted of an increase  of $668,750, an increase of $73,000 of depreciation and a decrease of $718,560  in other strategic vendors including Microphase and the Company’s joint  venture partner, mPhase Television.net.

      The  new charges incurred, $668,750 with Lucent Technologies, Inc., consisted of  $300,000 incurred on development of the Broadcast Television Switch for use  with Lucent’s Stinger® DSL product, $343,750 incurred for the cost  reduction effort for mPhase’s set top box. In addition, $25,000 was incurred  for software development associated with mPhase’s*i*POTS3 product.

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      The  elements attributing to the decrease in other research and development expenses  included a decrease in the operations of the Company’s joint venture,  mPhase Television.net. The major costs incurred by the joint venture were payroll  expenses attributable to research and development of the Company’s transmission  capabilities and acquisition of television content. Costs incurred by the joint  venture during the nine months ending March 31, 2002 were $227,000 as compared  to $31,000 for the nine months ending March 31, 2003. Additionally, this decrease  can be attributed to the Company abandoning certain research projects on DSL  components the Company believed were no longer commercially viable at this time,  this approximated $425,000. 

      The  decrease in research expenditures incurred with GTRC is due to the Company’s  nearing completion of the design and manufacture of prototypes of the original  set top box and the central office equipment associated with its TraverserTM  product in 2002. The Company’s project with Lucent provides for cost reduction  of the set top box and other product enhancements as well as development of  a Broadcast Television Switch for use with Lucent’s Stinger® product.  To date expenses incurred with respect to such project are $300,000 for the  nine months ended March 31, 2003.

      Research  expenditures incurred with Microphase were related to the continuing development  of the Company’s DSL component products, including the Company’s  line of POTS Splitters and Microfilters and the Company’s newest products,  the iPOTSTM and the mPhase Stretch. We believe the mPhase iPOTSTM offers  a much needed solution for the DSL industry; the iPOTSTM enables telcos  to remotely and cost-effectively perform loop management and maintenance including  line testing, qualification and troubleshooting. Prior to the introduction of  the iPOTSTM, loop management could not be remotely performed through a conventional  POTS Splitter without the use of expensive cross connects or relay banks because  of the mandatory DC blocking capacitors in traditional POTS splitters, as required  by various telephone protocol and regulatory standards. The unique (patent pending)  iPOTSTM circuit allows most test heads to perform both narrow and wideband  testing of the local loop through the central office POTS Splitter without having  to physically disconnect the POTS Splitter, thereby eliminating the need to  dispatch personnel and a truckroll. The Company anticipates future demand for  this product, as it significantly reduces the cost of deploying and maintaining  DSL services. Also recently developed is the DSL loop extender product called  mPhaseStretch. This product extends the service distance for the mPhase TraverserTM  and can be used in conjunction with other DSL services. The Company anticipates  future 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 $2,143,882 for the nine months ending March 31, 2002, down    from $5,376,709 or a decrease of $3,232,827 from the comparable period in    2002. 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 $548,717 for the nine months ended    March 31, 2003 as compared to $2,441,659 during the comparable period in    2002, or decrease of $1,892,942 of such charges. Other elements contributing    to the decrease in selling, general and administrative expenses included;    a decrease in payroll from approximately $600,000 to $280,000; reduced usage    of outside consultants from approximately $716,000 to $295,000, reduced marketing    expense such as trade shows from $296,000 to $141,000, a decrease in the    Company’s joint venture operations from $78,000 to $1,000, a decrease    in insurance from $134,000 to $19,000, all of which combined to an approximated    decrease of $1,088,000.

**NET LOSS**

      The    Company recorded a net loss of $5,008,209 for the nine months ended March    31, 2002 as compared to a loss of $8,959,447 for the nine months ended March    31, 2003. This represents a loss per common share of $.08 for the nine month    period ended March 31, 2003 as compared to a loss per common share of $.19    for the nine months ending March 31, 2002 based upon weighted average common    shares outstanding of 64,238,350 and 47,346,621during the periods ending    March 31, 2003 and 2002, respectively. 

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**CRITICAL ACCOUNTING POLICIES**

**REVENUE RECOGNITION**

      All revenue included in the accompanying consolidated statements of operations for all periods presented relates to sales of mPhase’s POTS Splitter Shelves and DSL component products.

      As  required, mPhase has adopted the Securities and Exchange Commission (“SEC”)Staff  Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition  in Financial Statements”, which provides guidelines on applying generally  accepted accounting principals to revenue recognition based upon the interpretations  and practices of the SEC. The Company recognizes revenue for its POTS Splitter  Shelf and other DSL component products at the time of shipment, at which time,  no other significant obligations of the Company exist, other than normal warranty  support.

**RESEARCH AND DEVELOPMENT**

      Research    and development costs are charged to operations as incurred in accordance    with Statement of Financial Accounting Standards (“SFAS”), No.2, “Accounting    for Research and Development Cost.”

**INCOME TAXES**

      mPhase    accounts for income taxes using the asset and liability method in accordance    with SFAS No.109 “Accounting for Income Taxes.” Under this method,    deferred tax assets and liabilities are measured using currently enacted    tax rates. The effect on deferred tax assets and liabilities of a change    in tax rates is recognized in results of operations in the period that includes    the enactment date. Because of the uncertainty as to their future realizability,    net deferred tax assets, consisting primarily of net operating loss carryforwards,    have been fully reserved for. Accordingly, no income tax benefit for the    net operating loss has been recorded in the accompanying financial statements.

     Utilization of net operating losses generated through June 30, 2002 may be limited due to “changes in control” of our common stock that occurred.

**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 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 valued-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. 

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**INVENTORY RESERVE AND VALUATION  ALLOWANCE**

     The     Company carries its inventory at the lower of cost, determined on a first-in,  first-out basis, or market. Inventory consists mainly of the Company’s   POTS Splitter Shelf and Filters. In determining the lower of cost or market,  the Company periodically reviews and estimates a valuation allowance to reserve   for technical obsolescence and marketability. The allowance represents management’s    assessment and reserve for the technical obsolescence based upon the inter-operability  of its component products, primarily filters and splitters, with presently   deployed  and next generation DSL infrastructures as well as a reserve for   marketability  based upon current prices and the overall demand for the individual inventory    items. Material changes in either the technical standards of future DSL deployments  or further erosion in the demand for deployments of DSL infrastructures could    affect the estimates and assumptions resulting in the amounts reported. Actual  results could differ from these estimates.

**MATERIAL RELATED PARTY TRANSACTIONS**

     The  Company records material related party transactions. The Company incurs costs  for engineering, design and production of prototypes and certain administrative  functions from Microphase Corporation and the purchase of finished goods, primarily  consisting of DSL splitter shelves and filters, from Janifast Limited. The Company  has incurred costs for obtaining transmission rights. This enabled the Company  to obtain re-transmission accreditation to proprietary television content that  the Company plans to provide with its flagship product, the TraverserTM  within its incorporated joint venture mPhase Television.net, in which the Company  owns a 56.5% interest. 

     The  Company has also incurred charges for beta testing and on-site marketing, including  the display of a live working model at Hart Telephone. In addition, the Company  has entered into a supply agreement with Hart Telephone, which is scheduled  to commence upon the commercial production of the TraverserTM. A member  of mPhase’s board of directors is employed by Lintel, Inc., the parent  corporation of Hart Telephone. 

     Mr.  Durando, the President and CEO of mPhase, owns a controlling interest and is  a director of Janifast Limited. Mr. Durando and Mr. Dotoli are officers of Microphase  Corporation. Mr. Ergul, the chairman of the board of mPhase, owns a controlling  interest and is a director of Microphase Corporation. Microphase, Janifast,  Hart Telephone and Lintel Corporation are significant shareholders of mPhase.  Microphase, Janifast and Hart Telephone have converted significant liabilities  to equity in fiscal years June 30, 2001, 2002 and in the current fiscal year.  Management believes the amounts charged to the Company by Microphase, Janifast,  mPhase Television.net and Hart Telephone are commensurate to amounts that would  be incurred if outside parties were used. The Company believes Microphase, Janifast  and Hart Telephone have the ability to fulfill their obligations to the Company  without further support from the Company.

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**LIQUIDITY AND CAPITAL RESOURCES**

     At March  31, 2003 mPhase had working capital deficit of $2,242,206 as compared to working  capital of $399,321 at June 30, 2002. Through March 31, 2003, the Company had  incurred development stage losses totaling approximately $106,374,495. At March  31, 2003, the Company had approximately $1,235 of cash, cash equivalents and  approximately $91,270 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) continue the wide scale development, deployment  and marketing of its products.

     Historically,  mPhase has funded its operations and capital expenditures primarily through  private placements of common stock. Management expects that its ongoing financial  needs will be provided by financing activities and believes that the sales of  its line of POTS Splitter products and other related DSL component products  will provide some offset to 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 March 31,  2003, the Company had cash and cash equivalents of $1,235 compared to $47,065  at June 30, 2002, net accounts receivable of $91,270 and net inventory of $2,592,587.  This compared to $273,780 of net accounts receivable and $3,342,716 of net inventory  at June 30, 2002.

     Cash  used in operating activities was $824,169 during the nine months ending March  31, 2003. 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.

     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 $400,000, $100,000, for the nine  month periods ended March 31, 2003 and 2002, respectively, and $13,524,300 from  the period from inception through March 31, 2003. The Company and GTRC entered  into a Memorandum of Intent, on October 14, 2002 and revised on November 12,  2002, which would result in the settlement of all amounts outstanding and the  exchange of mutual releases in consideration for two term Notes totaling approximately  $624,000 with varied payments through 2007 and warrants to purchase shares of  the Company’s common stock through 2007. The Company and GTARC are continuing  negotiation of final documentation based upon such Memorandum of Intent. mPhase  is the sole, worldwide licensee of the technology developed by GTARC in conjunction  with the TraverserTM product line. Upon completion of the commercial product,  GTRC may receive a royalty of up to 5% of product sales.

     During  the nine months ending March 31, 2003, certain strategic vendors and related  parties converted approximately $1,875,640 of accounts payable and accrued expenses  into 5,873,333 shares of the Company’s common stock and 3,491,800 warrants.

     As of  March 31, 2003, mPhase is obligated to pay Lucent Technologies, Inc., the sum  of $100,000 per month through November of 2003 for development of mPhase’s  new Broadcast Television Switch that will enable the Lucent Stinger® Digitial  Subscriber Line Technology to deliver television as well as data and voice over  copper telephone lines. MPhase has no other material commitments for capital  expenditures.

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**LOSSES DURING THE DEVELOPMENT STAGE  AND MANAGEMENT’S PLANS**

     From  inception (October 2, 1996) through March 31, 2003 the Company had incurred  development stage losses and has an accumulated deficit of $106,374,495 and  a stockholder’s deficit of $2,728,692. Cumulatively and for the nine months  ended March 31, 2003, the Company had negative cash flow from operations of  $43,226,864 and $824,169, respectively. The report of the Company’s outside  auditors’, Rosenberg, Rich, Baker, Berman and Company with respect to  its latest audited 10k for the fiscal year ended June 30, 2002 stated that “there  is substantial doubt of the Company’s ability to continue as a going concern”.  Management estimates that the Company will need to raise approximately $2,000,000  during the next 12 months to continue operations.

     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  expenditures and the controlled development stage rollout of our TraverserTM  Digital Video and Data Delivery System. 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 needed or at terms  that we deem to be reasonable.

     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 approximately  $2,000,000 primarily in private placements of its common stock with accredited  investors, during the next 12 months, 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 TraverserTM will be necessary over the next 12 months. In  the long-term, the Company may invest additional funds annually on research  and development of the TraverserTM 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 which were 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.

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**ITEM 3.   QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

     The  Company is not exposed to changes in interest rates as the Company has no debt  arrangements and no investments in certain held-to-maturity securities. Under  our current policies, we do not use interest rate derivative instruments to  manage exposure to interest rate changes. A hypothetical 100 basis point adverse  move in interest rates along the entire interest rate yield curve would not  materially affect the fair value of any financial instruments at December 31,  2002.

**ITEM 4.   CONTROLS AND  PROCEDURES**

     The  Company’s chief executive officer and chief financial officer have evaluated  the controls and procedures within 90 days of the filing date of this quarterly  report and concluded that the Company’s disclosure controls and procedures  were effective. There were no significant changes in the Company’s internal  controls subsequent to the date of the evaluation by such officers.

**PART II OTHER INFORMATION**

**ITEM 1.   LEGAL PROCEEDINGS**

     mPhase  was advised in April 2002 that following an investigation by the staff of the  Securities and Exchange Commission, the staff intended to recommend that the  Commission file a civil injunctive action against Packetport.com, Inc. (“Packetport”)  and its Officer’s and Directors. Such recommendation related 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.  At that time these persons advised mPhase that they deny any violation of law  on their part and intend to vigorously contest such recommendation or action,  if any. To date no action has been filed against Packetport, its Officers or  Directors. mPhase is not named as a party in connection with this matter.

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

**ITEM 2.   CHANGES IN  SECURITIES**

     Effective for the nine-month period ended March 31, 2003 the Company issued the following unregistered securities:

     During  the nine months ending March 31, 2003, the Company granted 258,000 shares of  its common stock to consultants for services performed. Additionally, effective  for the nine months ended March 31, 2003, the Company issued 5,873,333 shares  of the Company’s common stock and 3,491,800 warrants in connection with  the extinguishments of debt and 1,126,669 shares of its common stock together  with a like amount of warrants in a private placement.

**ITEM 3.   DEFAULTS UPON  SENIOR SECURITIES**

     None.

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

     None.

**ITEM 5.   OTHER INFORMATION**

     None.

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**ITEM 6.   EXHIBITS AND  REPORTS ON FORM 8-K**

|   |   | (a)    | EXHIBITS.                                                                                                                                                                                                                   |
|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|   |   | None.  |
|   |   |   |                                                                                                                                                                                                                        |
|   |   | (b)    | Reports on Form 8-K.                                                                                                                                                                                                        |
|   |   |   |                                                                                                                                                                                                                        |
|   |   |   | Reported on February 27, 2003-mPhase      and Lucent Technologies, Inc. team to create a hybrid, Best-In-Class Television      over DSL Solution Business/High Tech Editors.                                                |
|   |   |   |                                                                                                                                                                                                                        |
|   |   |   | Reported on May 8, 2003-Agreement      with Lucent Technologies, Inc. allowing mPhase to bundle Lucent’s      Stinger® DSL Access Concentrator into mPhase’s leading-edge television-over      DSL package. |

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**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: May 12, 2003 |   | By: /s/ Martin S. Smiley                                                           |
|                |   |                                                                               |
|                |   | Martin S. SmileyExecutive Vice PresidentChief Financial Officer andGeneral Counsel |

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**mPHASE TECHNOLOGIES, INC.  Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350  (Section 906 of the Sarbanes-Oxley Act of 2002)**

 

      I,  Ronald A. Durando, President and Chief Executive Officer (“principal executive  officer”) of mPhase Technologies, Inc. (the “Registrant”),  certify that to the best of my knowledge, based upon a review of the Quarterly  Report on Form 10-Q for the period ended March 31, 2003 of the Registrant (the  “Report”):

      (1) The Report fully complies with the requirements of Section 13(a)[15(d)] of the Securities Exchange Act of 1934, as amended; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

|   | /s/  Ronald    A. Durando |
|--------|-------------------------------------|
|   | Name:                               | Ronald A. DurandoPresident and Chief Executive Officer |
|   |                                |   |
|   | Date:                               |  May 12, 2003 |

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**mPHASE TECHNOLOGIES, INC.  Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350  (Section 906 of the Sarbanes-Oxley Act of 2002)**

      I,  Martin S. Smiley, Executive Vice President, Chief Financial Officer and General  Counsel (“principal executive officer”) of mPhase Technologies,  Inc. (the “Registrant”), certify that to the best of my knowledge,  based upon a review of the Quarterly Report on Form 10-Q for the period ended  March 31, 2003 of the Registrant (the “Report”):

        (1) The Report fully complies with the requirements of Section 13(a)[15(d)] of the Securities Exchange Act of 1934, as amended; and

        (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

|   | /s/  Martin    S. Smiley |
|--------|------------------------------------|
|   | Name:                         | Martin S. SmileyExecutive Vice President       Chief Financial Officer and       General Counsel |
|   |                               |   |
|   | Date:                              |  May 12, 2003 |

 

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**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 Quarterly Report on Form 10-Q for the quarter ended    March 31, 2003 (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)    The registrant’s other certifying officers and I are responsible for    establishing and maintaining disclosure controls and procedures (as defined    in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: 

     a)    designed such disclosure controls and procedures to ensure that material information    relating to the registrant, including its consolidated subsidiaries, is made    known to us by others within those entities, particularly during the period    in which this quarterly report is being prepared;

     b)    evaluated the effectiveness of the registrant’s disclosure controls    and procedures as of a date within 90 days prior to the filing date of this    quarterly report (the “Evaluation Date”); and

     c)    presented in this quarterly report our conclusions about the effectiveness    of the disclosure controls and procedures based on our evaluation as of the    Evaluation Date;

     (6)     The registrant’s other certifying officers and I have disclosed, based      on our most recent evaluation, to the registrant’s auditors and the      audit  committee of registrant’s board of directors (or persons performing      the  equivalent function):

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     a)    all significant deficiencies in the design or operation of internal controls    which could adversely affect the registrant’s ability to record, process,    summarize and report financial data and have identified for the registrant’s    auditors any material weaknesses in internal controls; and

     b)    any fraud, whether or not material, that involves management or other employees    who have a significant role in the registrant’s internal controls;    and

     (7)    The registrant’s other certifying officers and I have indicated in this    quarterly report whether or not there were significant changes in internal    controls or in other factors that could significantly affect internal controls    subsequent to the date of our most recent evaluation, including any correction    actions with regard to significant deficiencies and material weaknesses.

     (8)    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 12th day of May 2003.

|   | /s/  Ronald A.    Durando                 |
|--------|-----------------------------------------------------|
|   | Name: Ronald A. DurandoChief Executive Officer |

 

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**mPhase Technologies Inc.****Certification of Procedures Followed  in Connection  with Sarbanes-Oxley Act Certification**

     The    undersigned, Executive Vice President, Chief Financial Officer and General    Counsel 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 Quarterly Report on Form 10-Q for the quarter ended    March 31, 2003, (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 12th day of May 2003.

|   | /s/  Martin S.    Smiley                                                                 |
|--------|----------------------------------------------------------------------------------------------------|
|   | Name: Martin S. SmileyExecutive Vice PresidentChief      Financial Officer andGeneral Counsel |

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