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UNITED STATES 

SECURITIES AND EXCHANGECOMMISSION**WASHINGTON, D.C. 20549

**FORM 10-Q****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)

**OF THE SECURITIES EXCHANGE ACT OF 1934.****FOR THE QUARTER ENDED MARCH 31,2004

**COMMISSION FILE NO. 000-24969**mPhase Technologies, Inc.(Exact name of registrant as      specified in its charter)
 
NEW JERSEY22-2287503      (State or other jurisdiction of(I.R.S.      Employer      incorporation or organization)      Identification Number)  587 CONNECTICUT AVE.,      NORWALK, CT06854-1711      (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 REPORTSREQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF1934, DURING THE PRECEDING 12 MONTHS (OR FOR SHORTER PERIOD THAT THE REGISTRANTWAS REQUIRED TO FILE SUCH REPORT), AND (2) HAS BEEN SUBJECT TO SUCH FILINGREQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / / THE NUMBER OF SHARESOUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS OF MAY 12,2004 IS 84,806,295 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, 2003 and  March 31, 2004      (Unaudited)3    Unaudited      Consolidated Statements of Operations-Three  months ended      March 31, 2003 and 2004 and from October 2, 1996  (Date of      Inception) to March 31, 20044    Unaudited      Consolidated Statements of Operations-Nine months  ended March 31,      2003 and 2004 and from October 2, 1996  (Date of      Inception) to March 31, 20045    Unaudited      Consolidated Statement of Changes in Shareholders'  Deficit Nine      months ended March 31, 20046    Unaudited      Consolidated Statements of Cash Flows-Nine Months  Ended March 31,      2003 and 2004 and from October 2, 1996  (Date of      Inception) to March 31, 20047    Notes to      Unaudited Consolidated Financial Statements8         ITEM 2 Management's Discussion and Analysis of Financial Condition   and Results of      Operations      14         ITEM 3 Quantitative and Qualitative Disclosures about market risk      24   ITEM 4CONTROLS AND      PROCEDURES      24   PART IIOTHER      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 and 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,  2003 2004    (Unaudited)ASSETS         CURRENT ASSETS      Cash and      cash equivalents$      396,860$1,375,062  Accounts      receivable, net of bad debt reserve              of $0 in each period       287,135 122,291  Stock      subscription receivable       110,000 -       Inventories, net 2,103,328 1,026,247  Prepaid      expenses and other current assets 100,329 275,910               Total Current Assets 2,997,652 2,799,510       Property      and equipment, net       581,890 95,379  Patents      and licensing rights, net       184,587 142,059  Other      Assets 17,250 17,250               TOTAL ASSETS$3,781,649$3,054,1983     LIABILITIES AND      STOCKHOLDERS' EQUITY         CURRENT      LIABILITIES      Accounts      payable       2,352,961 2,579,883  Accrued      expenses       885,735 694,627  Due to      related parties       187,372 162,944  Notes      payable, current       762,735 819,804  Deferred      revenue 214,180 214,180  Notes payable related parties - 280,000               TOTAL CURRENT LIABILITIES 4,402,983 4,751,438     Long-term debt,      net of current portion       586,303 -Other      Liabilities       1,561,249 350,000     Notes payable,      related parties       460,000 -     COMMITMENTS AND      CONTINGENCIES (Note 9)         STOCKHOLDERS'      EQUITY         Common stock,      stated value $.01, 150,000,000              shares authorized; 71,453,521 and 84,726,295              shares issued and outstanding at June 30, 2003              and March 31, 2004, respectively       714,535 847,262Additional paid      in capital       104,754,284 110,029,739Deficit      accumulated during development stage       (108,016,497) (112,916,268)Less-Treasury      stock, 13,750 shares at cost (7,973) (7,973)          TOTAL STOCKHOLDERS' DEFICIT (3,228,826) 2,047,240               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$3,781,649$3,054,198     The      accompanying notes are an integral part of these consolidated balance      sheets. 
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mPHASE TECHNOLOGIES, INC. (A Development Stage Company) Consolidated Statements of Operations (Unaudited) 

 
     October 2, 1996  Three Months Ended (Date of  March 31, Inception) to      March 31,  2003 2004 2004             REVENUES$209,754$555,339$19,303,171             COSTS AND EXPENSES            Cost of Sales 205,231 483,964 13,723,190      Research and development      (      including non-cash stock related            charges of $43,750  , $0, and $2,045,669            respectively) 905,554 1,403,817 37,533,969      General and Administrative            (including non-cash stock            related charges of $88,282, $36,900      and      $46,300,570            respectively) 543,627 803,411 77,073,190      Depreciation and amortization128,72526,8012,539,737                 TOTAL COSTS AND EXPENSES1,783,1372,717,993130,870,086             LOSS FROM OPERATIONS (1,573,383) (2,162,654) (111,566,915)             OTHER INCOME (EXPENSE)            Gain (Loss) on extinguishments 9,399 (152,078) 74,471      Minority interest loss in            consolidated subsidiary - - 20,000      Capital losses (12,251) - (11,258)      Loss from unconsolidated            subsidiary - - (1,466,467)      Interest income (expense), net (10,578) (19,664) 33,541                 TOTAL OTHER INCOME (EXPENSE) (13,430) (171,742) (1,349,713)       NET      LOSS$(1,586,813)$(2,334,396)$(112,916,268)             LOSS PER COMMON SHARE,            basic and diluted $(.02) $(.03)               WEIGHTED AVERAGE COMMON SHARES            OUTSTANDING, basic and diluted 65,956,810 81,564,405            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) 
            October 2, 1996  
Nine Months Ended       (Date of  March 31,       Inception) to            March 31,  2003 2004 2004       REVENUES
$981,591$4,335,476$19,303,171       COSTS AND      EXPENSES      Cost of Sales       949,261 3,878,239 13,723,190Research and      development      ( including      non-cash stock related      charges of $262 500, $0 and $2,045,669      respectively)       2,461,696 2,858,715 37,533,969General and      Administrative      (including      non-cash stock      related charges      of $572,640, $344,940 and      $46,300,570      respectively)       2,167,805 2,196,052 77,073,190Depreciation      and amortization       388,106 100,8832,539,737                 TOTAL COSTS AND EXPENSES       5,966,868 9,033,889130,870,086       LOSS FROM      OPERATIONS       (4,985,277) (4,698,483) (111,566,915)       OTHER INCOME      (EXPENSE)      Gain (Loss) on      extinguishments       50,123 (128,991) 74,741Minority      interest loss in      consolidated      subsidiary - - 20,000Capital losses (28,328) - (11,258)Loss from      unconsolidated      subsidiary - - (1,466,467)Interest income      (expense), net (44,727) (72,367) 33,541                 TOTAL OTHER INCOME (EXPENSE) (22,932) (201,358) (1,349,713)       NET LOSS
$(5,008,209)$(4,899,771)$(112,916,628)       LOSS PER COMMON      SHARE,      basic and      diluted
$(.08)$(.07)               WEIGHTED AVERAGE COMMON SHARES           OUTSTANDING, basic and diluted64,238,350 75,312,435   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** **$.01 Stated** **Treasury** **Additional** **Accumulated** **Total**   **Value** **Stock** **Paid-in Capital** **Deficit** **Shareholders**           **Equity**           **(Deficit)**            Balance June      30, 2003      71,453,521$      714,535 $      (7,973) $      104,081,049 $      (108,016,497)$      (3,228,886)Issuance of      common           stock with      warrants in           private      placement11,084,306$110,842$-$3,347,230$-$3,458,072            Issuance of      Common           stock for      services924,667$9,247$-$238,153$-$247,400            Issuance of      common           stock and      warrants in            settlement of debt110,467$1,105$-$1,962,097$-$1,963,202            Issuance of      common stock           pursuant to      exercise of           warrants1,153,334$11,533$-$304,467$-$316,000            Issuance of      options and warrants           to purchase      common stock           for services-$-$-$96,743$-$96,743            Net Loss-$-$-$-$(4,899,771)$(4,899,771)                                                      Balance, March      31, 200484,726,295$847,262$(7,973)$110,029,739$(112,916,268)$(2,047,240)                  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) 
          October 2,          1996  Nine Months Ended      (Date of  March 31,      Inception) to          March 31,  200320042004Cash Flow From      Operating Activities:    Net Loss       $(5,008,209)      $(4,899,771)      $(112,916,268)Adjustments to      reconcile net loss to net    cash used in      operating activities:    Depreciation      and amortization       1,100,974573,5796,167,719Book Value of      fixed assets disposed --74,272Provision for      doubtful accounts       8,311-32,124(Loss) on debt      extinguishments       (50,125)128,991(74,471)Loss on      unconsolidated subsidiary --1,466,467Impairment of      note receivable --232,750Loss on      securities 16,504-11,258Non-cash      charges relating to issuance of common stock,    common stock      options and    Warrants       878,890344,14348,488,240Changes in      assets and liabilities:    Accounts      receivable       174,199164,844(154,415)Inventories       750,1291,077,080(816,008)Prepaid      expenses and other current assets       28,96030,417(566,032)Other      non-current assets       3,580--Receivables      from Subsidiary --(150,000)Accounts      payable       (2,646)279,4224,436,817Accrued      expenses       410,826(133,670)1,678,901Due to/from      related parties:           Microphase       538,04666,1562,362,105  Janifast 136,057(205,998)2,074,002  Officers 190,335(90,583)468,756  Lintel --477,000  Others --211,972Deferred      revenue  -214,180Net cash (used      in) operating Activities (824,169)(2,665,390)(46,280,631)Cash Flow from      Investing Activities:    Payments      related to patents and licensing rights --(375,720)Purchase of      fixed assets (37,132)(5,500)(2,542,605)Net Cash      (used in) investing    activities (37,132)(5,500)(2,918,325)Cash Flow from      Financing Activities:    Proceeds from      issuance of common stock and    exercises of      options and warrants       338,0003,834,09250,342,010Payments of      notes payable       (50,369)(5,000)(207,859)Advances from      (Repayments to) related party 527,840(180,000)347,840Proceeds from      notes payable, related parties - 130,000Payment of      notes payable, related parties - (30,000)Repurchase of      treasury stock at cost - (7,973)Net cash      provided by financing activities 815,4713,649,09250,574,018Net increase      (decrease) in cash       (45,830)978,2021,375,062CASH AND CASH      EQUIVALENTS, beginning of period 47,065396,860-CASH AND CASH      EQUIVALENTS, end of period $1,235      $1,375,062      $1,375,062     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 ANDSUMMARY 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, 2004 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, 2003. 

Through March 31, 2004, the Company had incurred cumulative (a) development  stage losses totaling  $112,916,268 and (b) negative cash flow from  operations equal to $48,280,631. At March 31, 2004, the Company had approximately  $1,325,062 of cash, cash equivalents and approximately $122,291 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) 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 

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

financial statements and the reported amounts of revenues and expenses  during the reporting periods. Actual results could differ from those  estimates. 

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

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.  

STOCK-BASED COMPENSATION-The  Company accounts for its stock option plan under APB Opinion No. 25,  "Accounting for Stock Issued to Employees," under which no compensation  expense is recognized for options granted to employees. In fiscal 1997, the  Company adopted SFAS No. 123 "Accounting for Stock-Based Compensation" for  disclosure purposes; accordingly, no compensation expense has been recognized  in the results of operations for its stock option plan for options granted to  employees as required by APB Opinion No.25. During fiscal 2004, the Company  adopted the disclosure only provisions of FASB Statement No. 123 and SFAS 148,  Accounting for Stock-Based Compensation, for stock-based employee  compensation, effective as of the beginning of the fiscal year. Under the  method selected by the Company, stock-based employee compensation cost  recognized in 2004 and 2003 is still based upon the intrinsic method  prescribed in Accounting Principles Board Opinion No. 25, which is measured as  the excess, if any, of the quoted market price over the exercise price on the  date of the grant to all employee awards granted. The following table  illustrates the effect on net income and earnings per share as if the fair  value based method has been applied to all outstanding and unvested awards in  each period.**THREE MONTHS ENDED****NINE MONTHS ENDED**
**MARCH 31,****MARCH 31,         ****2004****2003****2004****2003**Net loss, as reported$(2,334,396)$(1,586,813)$(4,899,771)$(5,008,209)Add: Stock-based compensation      expense includedin reported net income, net of      related tax effectsק,403㬓,923Deduct: Total stock-based      compensation expensedetermined under fair value      based method for all awards,net of related tax effects—(12,016)—(204,885)Pro forma net loss$(2,334,396)$(1,597,426)$(4,899,771)$(5,189,171)Loss per share:Basic and diluted—as reported$(.03) $(.02) $(.07) $(.08)Basic and diluted—pro forma$(.03) $(.02) $(.07) $(.08)
RECENT ACCOUNTING PRONOUNCEMENTS-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." This statement rescinds SFAS No.  4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment  of that statement, SFAS No. 44, "Accounting for Intangible Assets of Motor  Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy  Sinking-Fund Requirements."  This statement amends SFAS No. 13,  "Accounting for Leases," to eliminate inconsistencies by the required  accounting for sale-leaseback transactions and the required accounting for  certain lease modifications that have economic effects that are similar to  sale-leaseback transactions.  Also, this statement amends other existing  authoritative pronouncements to make various technical corrections, clarify  meanings, or describe their applicability under changed conditions.   Provisions of SFAS No. 145 related to the rescission of SFAS No. 4 were  effective for the Company on November 1, 2002 and provisions affecting SFAS  No. 13 were effective for transactions occurring after May 15, 2002.  The  adoption of SFAS No. 145 did not have a material impact on our financial  statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs  Associated with Exit or Disposal Activities." This statement covers  restructuring type activities beginning with plans initiated after December  31, 2002. Activities covered by   this standard that areentered into after that date will be recorded in accordance with the  provisions of SFAS No. 146. The adoption of SFAS No. 146 did not have a  significant impact on our consolidated financial position or results of  operations.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based  Compensation-Transition and Disclosure," which provides alternative methods of  transition for a voluntary change to fair value based method of accounting for  stock-based employee compensation as prescribed in SFAS 123, "Accounting for  Stock-Based Compensation." Additionally, SFAS 148 required more prominent and  more frequent disclosures in financial statements about the effects of  stock-based compensation. The provisions   of thisStatement are effective for fiscal years ending after December 15, 2002,  with early application permitted in certain circumstances. The Company has  adopted the disclosure provisions in our consolidated financial statements as  disclosed above under Stock Based Compensation.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's  Accounting and Disclosure Requirements for Guarantees, Including Indirect  Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires a company, at  the time it issues a guarantee, to recognize an initial liability for the fair  value of obligations assumed under the guarantee and elaborates on existing  disclosure requirements related to guarantees and warranties. The initial  recognition requirements of FIN 45 are effective for guarantees issued or  modified after December 31, 2002 and adoption of the disclosure requirements  are effective for the Company during the first quarter ending January 31,  2003. The adoption of FIN 45 did not have a significant impact on our  consolidated financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),  "Consolidation of Variable Interest Entities, an Interpretation of ARB No.  51." FIN 46 requires certain variable interest entities to be consolidated by  the primary beneficiary of the entity if the equity investors in the entity do  not have the characteristics of a controlling financial interest or do not  have sufficient equity at risk for the entity to finance its activities  without additional subordinated financial support from other parties. FIN 46  is effective for all new variable interest entities created or acquired after  January 31. 2003. For variable interest entities created or acquired prior to  February 1, 2003, the provisions of FIN 46 must be applied for the first  interim or annual period beginning after June 15, 2003. The adoption of FIN 46  did  nothave a significant impact on our consolidated financial position or  results of operations.
In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for  Certain Financial Instruments with Characteristics of both Liabilities and  Equity". This Statement establishes standards for how an issuer classifies and  measures certain financial instruments with characteristics of both  liabilities and equity. It requires that an issuer classify a financial  instrument that is within its scope as a liability (or an asset in some  circumstances). This statement is effective for financial instruments entered  into or modified  after May 31, 2003,and otherwise is effective at the beginning of the first interim period  beginning after June 15, 2003, except for mandatorily redeemable financial  instruments of nonpublic entities, if applicable. It is to be implemented by  reporting the cumulative effect of a change in an accounting principle for  financial instruments created before the issuance date of the Statement and  still existing at the beginning   of the interim period of adoption.  The adoption of this statement is not  expected to have a significant impact on the Company's results of operations  or financial position.
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mPHASE TECHNOLOGIES,INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION 
 
NINE MONTHS ENDED                          
MARCH 31,                                         2003     2004    Interest Paid$10,410 $47,094    Taxes Paid$0 $250    Schedule of    Non-Cash Investing and Financing Activities:       Conversion of    accounts payable and accrued expenses to equity$775,392 $1,834,211    Investments in    Patents and Licenses paid with equity$0 $38,750    
2.         RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION
mPhase's President, Chief Operating Officer and Chairman of the Board of  the Company are also officers 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, and in July 2003 to 18,000 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 and in July 2003 it was further revised  to $5,000 per month. 

Microphase also charges fees for specific projects on a project-by-project  basis. During the nine months ended March 31, 2003 and 2004 and from inception  (October 2, 1996) to March 31, 2004, $336,679, $538,399 and $7,561,205,  respectively, have been charged to expense or inventory under these Agreements  and is included in operating expenses in the accompanying consolidated  statements of operations. 

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, 2003 and 2004, mPhase  recorded royalties to Microphase totaling $29,240 and $129,679,  respectively. During the fiscal year ended June 30, 2003 Microphase received  4,033,333 shares of common stock, 1,000,000 five year warrants to purchase  shares of common stock of mPhase at $.30 per share in exchange for the  cancellation of accounts payable totaling $920,000. 

In March of 2003, Messrs, Durando, Dotoli and Smiley participated in a  private placement of the company investing $20,000, $20,000 and $75,000  respectively, receiving common stock of mPhase at $0.30 per share plus 5 year  warrants of mPhase to purchase a like amount of common stock at $0.30 per  share.  In March of 2003, Messrs Durando and Smiley lent to mPhase  $30,000 and $100,000 respectively at 12% interest pursuant to two promissory  notes originally due in September of 2003.  In June 2003, Mr. Durando was  repaid and Mr. Smiley agreed to extend his note until July, 2004.  Also  in June, 2003, Microphase agreed to convert $360,000 of accounts payable to a  note payable, interest at 12%, due in July, 2004.  The notes have  provisions for prepayment by the Company and at the option of the holder,  provide for the conversion of unpaid principal and interest into units valued  at $0.30 each, each unit consisting of one share of the Company's common stock  and one warrant to purchase the Company's common stock at $0.30 per share for  a period of 5 years.  During the nine months ended March 31, 2004, the  Company repaid $180,000 of principal on this note to Micorphase and recorded  interest expense of $41,400 on both of these notes.

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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, 2004, the Company  had $127,944 payable to Microphase, which is included in amounts due to related  parties and $180,000 notes payable to related parties in the accompanying  consolidated balance sheet. 

JANIFAST LTD.

The Company purchases products and incurs certain research and development  expenses with Janifast Ltd., which is owned by  Janifast Holdings, Ltd., a  Hong Kong company in which three directors of mPhase are significant shareholders and  one is an officer, in  connection with the manufacturing of POTS Splitter shelves and component  products including cards and filters sold by the Company. During the year  ended June 30, 2003, Janifast Ltd. received 1,500,000 shares of mPhase common  stock in connection with the cancellation of $360,000 of outstanding  liabilities of mPhase, the value of which was based upon the price of the  Company's stock on the effective date of the settlement.  No gain or loss  was recognized by Janifast Ltd. for the fiscal year ended June 30, 2003.

During the nine months ended March 31, 2003 and 2004 and the period from  inception (October 2, 1996) to March 31, 2004, $2,652,760, $184,082 and  $13,344,446, respectively have been charged by Janifast to inventory, prepaid  expenses 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, 2004, the Company  had $205,998 due from Janifast Ltd. representing components that the  Company purchased on behalf of Janifast Ltd. less amounts charged to the  Company by Janifast Ltd. for completed component products, which is included in  prepaid expenses and other current assets parties in the accompanying balance  sheet. 

OTHER RELATED PARTIES

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, 2002 and 2003, the Company charged $20,250 and $0,  respectively, to administrative expense as a result of impairment of the Note.  At March 31, 2004, 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 default with respect to payments due during the  term and at maturity 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-outbasis, or market. Inventory consists mainly of the Company's POTS Splittershelves and cards. At March 31, 2004 inventory is comprised of the following:
Raw      materials$               93,439      Work in progress518,203      Finished goods903,955      Total1,512,597      Less: Reserve for Obsolescence(486,350)Net      Inventory$     1,026,247
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 been recorded in the accompanying consolidated financial statements. 

Utilization of net operating losses generated through March 31, 2004 may be  limited due to changes in ownership that have occurred. 

5.        ACCRUED EXPENSES 
Accrued expenses representing accrued general and  administrative expenditures were $694,627 at March 31, 2004. At March 31,  2004 unpaid invoices for expenses for research and development expenses  incurred with  Lucent Technologies, Inc. totalling $170,000, included in accrued expenses and  $480,603 were included in accounts payable.

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, 2003 and ended March 31, 2004,  mPhaseTelevision.Net, Inc., was charged $0 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, 2004, the Company granted 924,667  shares of its common stock to consultants for services performed.  Additionally, effective for the nine months ended March 31, 2004, the Company  issued 110,467 shares of the Company's common stock and 5,069,242  warrants in connection with the extinguishments of debt. The Company issued  10,955,480 shares of its common stock together with a like amount of  warrants in a private placement generating net proceeds of $3,458,073, net of $313,200 cash outlays for offering expenses.  Additionally the  Company issued shares of its common stock to financial advisors that assisted  the Company in these private placements.  The Company also received  $316,000 of net proceeds from the exercise of warrants to purchase 1,053,334  shares of its common stock and the Company issued 100,000 shares of its common  stock to financial advisors in connection with the exercise of such  warrants.

8.DEBT EXTINGUISHMENTS AND CONVERSIONS
Effective for the nine months ending March 31, 2004, pursuant to debt  conversion agreements, the Company converted the $1,834,211 of liabilities  due to certain strategic vendors and related parties into 110,467 shares  of the Company's common stock, and 5,069,242 warrants which resulted in a  loss of $128,991. Additionally, during the nine months ending March 31, 2004,  a note payable in the amount of $360,000 to Microphase Corporation was  executed in exchange for the cancellation of a like amount of accounts payable  to Microphase on September 25, 2003 which matures on July 25, 2004.  Additionally, a note payable to Martin Smiley, CFO and General Counsel of  mPhase, in the amount of $100,000 was extended from September 25, 2003 to July  24, 2004. Both liabilities carry an interest rate of 12% payable quarterly in  arrears. Each note is convertible into Common Stock of mPhase at the rate of  $.30 cents per share through July 25, 2004. Upon conversion, each note holder  will be granted warrants to purchase an equivalent amount of mPhase Common  Stock at $.30 cents per share for a period of five years from the date of  conversion. On April 16, 2004, Microphase cancelled its right to convert its  note into a like amount of warrants at $.30 cents per share. 

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

9.        COMMITMENTS AND CONTINGENCIES 
On February 18, 2004, the Company finalized an agreement with GTRC to  settle approximately $1.8 million payable pursuant to the issuance of a  warrant convertible into approximately 5,069,200 shares of the Company's  common stock on a cash-less basis plus a note. At March 31, 2004 the Company  owes  $100,000 to GTRC and  has included  this amount in the accompanying balance sheet as a  current obligation under the caption "current  portion of notes payable".

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  TraverserDVDDS. 
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, 2004 consists of customer billing in  excess of costs  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. 

ITEM 2.     MANAGEMENT'S DISCUSSION OF FINANCIALCONDITIONS AND RESULTS OF OPERATIONS 

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

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATELITIGATION REFORM ACT OF 1995: 

Some of the statements contained in or incorporated by reference in this Form10-Q discuss the Company's plans and strategies for its business or state otherforward-looking statements, as this term is defined in the Private SecuritiesLitigation Reform Act of 1995. The words "anticipate," "believe," "estimate,""expect," "plan," "intend," "should," "seek," "will," and similar expressionsare intended to identify these forward-looking statements, but are not theexclusive means of identifying them. These forward-looking statements include,among others, statements concerning the Company's expectations regarding itsworking 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 similarexpressions concerning matters that are not historical facts. Anyforward-looking statements contained in this Quarterly Report on Form 10-Q aresubject to risks and uncertainties that could cause actual results to differmaterially from those results expressed in or implied by the statementscontained herein. 

RESULTS OF OPERATIONS 

OVERVIEW 

mPhase, a New Jersey corporation, founded in 1996 is a publicly-held companywith over 11,000 shareholders and approximately 85 million shares of commonstock outstanding. The Company's common stock is traded on the Over the CounterBulletin Board under the ticker symbol XDSL. We are headquartered in Norwalk,Connecticut with offices in Little Falls, NJ and New York, N.Y. mPhase sharescommon office space 

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with Microphase Corporation, a privately held company.Microphase is a leader in the field of RF and filtering technologies within thedefense industry. It has been in operation for almost 50 years and supports mPhasewith both engineering, administrative and financial resources as needed. 

mPhase develops, markets and sells a line of innovative DSL ("digitalsubscriber line")-based broadband telecommunications equipment. Our flagshipproduct line includes two systems enabling the delivery of television over DSLby telephone service providers. Both of these products facilitate telephonecompanies becoming full service communications providers by enabling thesimultaneous delivery of digital broadcast television, high speed data and voiceservices over the existing telephone line infrastructure. mPhase has developedits flagship line of products with a specific target in mind-telephone companiesin parts of the world where access to multichannel television is limited. Tothat end, mPhase's primary goal is to develop cost-effective TV over DSLsolutions that support proven, revenue-generating services (i.e., broadcasttelevision) rather than developing robust, feature-intensive and expensiveplatforms intended to compete with cable companies such as those that exist inthe US. 

mPhase introduced its first TV over DSL product, the TraverserDigital Video and Data Delivery Systemin 1999. The TraverserDVDDS, is a patented end-to-end system basedupon proprietary technology developed in conjunction with Georgia Tech ResearchCorporation. Because it is an end-to-end video-over- aynchronousDSL (ADSL) system, the Traverserdoes not interoperate with othermanufacturer's DSL Central Office equipment or Customer Premise modems. This system is the onlynon-Internet Protocol system on the market today. The Company continues tomarket this product, and believes is best suited for customers specificallyinterested in supporting television services with a minimal need to supporthigh-speed data customers. 
The Traverseris installed at Hart Telephone Company inHartwell, Georgia, where a 30-user system is currently operational. HartTelephone competed the construction of its digital head end toward the end of2001, marking the Traverser'stransition to commercial deployment. ATraversersystem is also installed at the BMWmanufacturing plant in Spartanburg, South Carolina for use as a telebroadcastsystem in a commercial setting. 

The mPhase TV+ platform, recentlydeveloped in conjunction with the Bell Labs division of Lucent Technologies,Inc. (Lucent), is a new product also designed to allow for the simultaneousdelivery of voice, high speed data, and broadcast TV over copper telephone linesbetween a telephone service provider's CO and the customer premises. The TV+  is a modular solution for the delivery of severalhundred broadcast television channels over ADSL that utilizes anindustry-leading, standards-based Lucent StingerTM DSL Access Concentrator fortransport of digital television plus high speed internet and voice. The mPhaseTV+ platform consists of a cost-reduced Traverser INITM set top box located in acustomer's premises plus the Lucent Stinger (digital subscriber line access mutiplexer commonly known as a DSLAM) located at the telephone company'scentral office. A newly developed mPhase Broadcast Television Switch ("BTS") interfaces withthe Stinger and a video headend built by a telephone service provider todownlink broadcast television programming from satellites. The BTS formats thevideo data prior to distribution to a customer by the Stinger and supportsadministrative tasks associated with subscriber management. Using the LucentStinger for transport in the TV+ platform results in a highly scalable architecture forthe delivery of video. This scalability is accomplished by internallymulticasting each television channel for delivery from the CO to a larger numberof end users than would be otherwise possible over  ADSL. We believe that theTV+ platform is the most cost-effective, standards-based solution for delivery ofbroadcast television using ADSL. The Stinger is one of a few DSLAM's currentlyon the market with robust internal multicasting capabilities. For mPhase, thealliance with Lucent marks a change in strategy from selling a completeproprietary platform to providing an industry-standard modular solution.

Both the TV+ platform and the legacyDVDDS products are aimed for use in markets primarily outside of the UnitedStates that do not have a hybrid fiber coaxial cable ("HFC") infrastructurenecessary for cable TV or fiber to the curb necessary for very fast DSL (VDSL).We believe there is a significant cost advantage when our mPhase TV+ solution iscompared against other platforms utilizing existing telephone lines containingthe same features. The mPhase TV+ platform does not contain the features such asthe delivery of two or more TV channels to a single set top box over coppertelephone lines or video on demand and interactive TV features. As ADSLtechnology migrates forward to ADSL2 or ADSL2+, mPhase will include additionalfeatures to its TV+ platform in a modular scaleable cost-effective mannerdepending upon actual market demand for such features in markets that mPhase istargeting.

We believe the legacy DVDDSdeveloped by GTRC, when combined with a version of the cost-reduced TraverserINITM set top box redesigned by Lucent, can be sold in international markets where primary demand isfor multi-channel digital broadcast television plus voice only and where thereis little demand for high speed internet. We believe the mPhase TV+ platform isthe optimal solution for both a telecommunications service provider where theultimate customer requires all three services, i.e. high-speed internet, voiceand digital broadcast television over ADSL.

For those television markets in theUnited States that are not served by HFC, we believe the availability ofprogramming content is essential to facilitate potential sales of our TVplatforms over ADSL. In March of 2000, we established mPhase Television net.,Inc. (mPhase TV), a joint venture between mPhase and Alphastar International,Inc. mPhase TV can provide contracts, licensing agreements, marketing and legalsupport to service providers interested in deploying television over ADSL forU.S. markets. mPhase TV has secured licenses to resell programming forapproximately 80 channels of U.S. broadcast television. mPhase TV enablestelecommunications service providers in the U.S. to provide customers a fullcomplement of television programming. This enables a U.S. telecommunicationsservice provider to avoid the necessity of securing such contracting rightsindividually with many different providers of broadcast television content. Itis important to note that the role of mPhase TV has changed since its inception.Originally, mPhase TV was to utilize a satellite uplink/downlink facility andserve as an aggregator of television content. This would eliminate the need fora telecommunications service provider, purchasing a TV delivery platform frommPhase, from having to build a full scale television reception facility(head-end) to downlink broadcast television channels from satellites orbitingthe earth. However, recent advances in technology have significantly reduced thecosts for a telephone company to build a full scale headend. Therefore, the roleof mPhaseTV is now limited to providing the appropriate licenses andrelationships as opposed to offering a content aggregation solution. As part ofits cost reduction efforts, mPhase terminated its lease of Alphastar's earthstation satellite uplink and downlink facility in Oxford, CT. mPhase ownsapproximately 57% of mPhase TV.

To effectively market this jointsolution, mPhase has been established as a Lucent Business Partner. As abusiness partner, mPhase is able to sell the complete TV+ platform,including reselling the Lucent Stinger®. The agreement enables mPhase to sellthe TV+ platform anywhere in the world where the customer is interested insupporting digital video services. Additionally, mPhase and Lucent are jointlymarketing this product solution to existing Lucent customers, as well as toLucent's extensive network of business partners around the world. Together thetwo companies are in the process of identifying strong opportunities and targetmarkets. Once identified, collectively mPhase and Lucent will approach Lucent'sestablished business partner in that region for further marketing to theappropriate end customer. This co-marketing relationship is of significant valueto mPhase. By gaining access to Lucent's business partners, mPhase will have theopportunity to significantly increase exposure for its TV+ solution withouthaving to increase the size of its direct sales force.

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mPhase DSL Component Products - mPhase also has designed and markets a lineof DSL component products ranging from items such as Plain Old Telephone ServicePOTS splitters to innovative loop management products. From our inception in1996 to date virtually all of mPhase's revenue has been derived from sales ofour component DSL products such as POTS splitters and low pass filters. Ournewest innovation in our suite of DSL component products is our iPOTS orIntelligent POTS splitter product. This product enables telephone serviceproviders comprehensive remote and automated test access to all elements of aDSL network. The iPOTS product allows a telephone service provider to bypassPOTS splitters on a DSL network and avoid having to manually intervene anddisrupt line usage so a test signal can pass through a DSL network. This productmarks an advancement in automating DSL loop management. As DSL deploymentsincrease, it is becoming more important for telecommunications service providersto streamline the process for rolling-out and troubleshooting DSL services.Additionally, as competition for high wpeed internet expands, the market iswitnessing a reduction in the price for such service. Therefore it has becomeimperative that telecommunications service providers lower the operational costsinvolved with supporting DSL services. Currently our iPOTS1 is designed for use with the Lucent Stinger, whereas, theiPOTS3 is compatible with DSLAM's manufactured by other vendors. mPhasecurrently has a non-exclusive worldwide distribution agreement with CorningCable Systems for the sale of the iPOTS products. Such arrangement potentiallyexpands exposure for this product, as Corning is one of the largest vendors ofcentral office DSL filtering equipment. The Company is also aggressivelypursuing direct efforts with respect to sales of the iPOTS product. 

mPhase has established a worldwide distribution agreement with Corning CableSystems for the sale of this product. 

NANOTECHNOLOGY: During the quarter ended March 31, 2004, the Company enteredinto the new field of Nanotechnology for the development of micro power sourcearrays for battery applications.  Such technology is currently the subjectof $1.2 million development agreement with Lucent Technolgies Inc.  Thefirst product line to be developed is targeted for military applications and isnot expected to be available for sale for a period of approximately 18 months.

mPhase was organized on October 2, 1996. On February 17, 1997, the Companyacquired Tecma Laboratories, Inc., a public corporation in a reverse mergertransaction. This resulted in the Company's stock becoming publicly traded onthe NASDAQ Over-the-Counter Bulletin Board. On June 25, 1998, the Companyacquired Microphase Telecommunications, Inc. in a stock for stock exchange,whose principal assets included patents and patent applications utilized in theCompany's TraverserTM product. On March 2, 2000, mPhase acquired an interest inmPhaseTelevision.Net, Inc., a joint venture organized to provide digitaltelevision programming content to service providers deploying television overDSL. 

From mPhase's inception, the operating activities related primarily toresearch and development, establishing third-party manufacturing anddistribution relationships and developing product brand recognition amongtelecommunications service providers. These activities included establishingtrials and field tests of the 

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TraverserTM product with Hart Telephone Company in Georgia,and establishing a core administrative and sales organization. The company is currently focused on achieving developments on its TV + Product worldwide: 

Revenues. To date, all material revenues have been generated from sales ofthe POTS Splitter Shelves and other DSL component products to a small number oftelecommunications companies. mPhase believes that future revenues are difficultto predict because of the length and variability of the commercial roll-out of its broadcast television platform to various telecommunications serviceproviders. Since the Company believes that there may be a significantinternational market for its broadcast television platforms  involving many different countries, with different regulations,certifications and commercial practices than the United States, future revenuesare highly subject to the changing variables and uncertainties. Additionally,the recent instability of the telecommunications market evidenced by reductionin capital spending across the whole telecom sector contributes to ourdifficulty in accurately predicting future revenues. 

Cost of revenues. The costs necessary to generate revenues from the sale ofPOTS Splitter Shelves and other related DSL component products include directmaterial, labor and manufacturing. mPhase paid these costs to Janifast Ltd.,which has facilities in the People's Republic of China and is owned by andmanaged by certain senior executives of the Company. The cost of revenues alsoincludes certain royalties paid to Microphase Corporation, a privately heldcorporation organized in 1955, which shares certain common management with theCompany. Costs for future production of the TraverserTM product will consistprimarily of payments to manufacturers to acquire the necessary components andassemble the products and future patent royalties payable to Georgia TechResearch Corporation, ("GTRC"). 

Research and development. Research and development expenses consistprincipally of payments made to GTRC, Microphase Corporation and LucentTechnologies, Inc. for development of the TraverserTM and the integrationmPhase's Broadcast Television Switch with the Lucent Stingervoice and data delivery system product.All research and development costs are expensed as incurred. In addition thecompany has recently incurred research and development expenses with LucentTechnologies Inc. for work performed in the area of Nanotechnology.
General and administrative. Selling, general and administrative expensesconsist primarily of salaries and related expenses for personnel engaged indirect marketing of the TraverserTM, the POTS Splitter Shelves and other DSLcomponent products, as well as support functions including executive, legal andaccounting personnel. Certain administrative activities are outsourced on amonthly fee basis to Microphase Corporation. Finally, mPhase leases theprincipal office from Microphase Corporation.

Non-Cash Compensation Charge

The Company makes extensive use of stock options and warrants as a form ofcompensation to employees, directors and outside consultants. From inception(October 2, 1996) through March 31, 2004 the Company has incurred cumulative (a)development stage losses and has an accumulated deficit of $112,916,268 and (b)negative cash flow from operations of $46,280,631. The auditors report for thefiscal year ended June 30, 2003 includes the statement that "there issubstantial doubt of the Company's ability to continue as a going concern". The Company raised approximately  $3.8 million during the nine month periodended March 31, 2004 and management estimates that the Company needs to raise anadditional $4 million during the next 12 months to continue operations. As ofMarch 31, 2004, the Company had a negative net worth of $2,047,240 down from anegative net worth of $3,228,826 as a result of the raising of proceeds fromprivate placements plus conversions of debt to equity offset by continuing netlosses incurred after June 30, 2003. 

In fiscal 2001, the Company had anticipated that the sales of its componentproducts would be able to supplement the underwriting of the completion of ourflagship product, the TraverserTM. In fiscal 2002 and 2003 these sales declined with theoverall decline of DSL deployments and spending in the telephone industry.During the first half of the fiscal year 2004, POTS Splitter revenues increasedbut have declined during the third quarter ended March 30, 2004. TheCompany believes its new IPOTS product will capture some of the existing DSLdeployments, providing increases in revenue in the second half of fiscal 2005. Until such time such revenues are realized,the Company intends on maintaining its reduced cost structure to minimize itslosses, which management believes will permit the Company to sustain itsdevelopment process and ultimately achieve profitability. 

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The Company believes that significant deployments and resulting revenues fromthese deployments of its flagship product, the TV+, are not expecteduntil the second quarter of fiscal year 2005. The Company further believes that anincrease in capital expenditures in the telecommunications industry will alsoincrease sales and improve the Company's margins as well as increase theprobability that the Company will attain profitability. 

THREE MONTHS ENDED MARCH 31, 2004 VS. MARCH 31, 2003 

REVENUE 

Total revenues were $555,339 for the three months ended March 31, 2004compared to $209,754 for the three months ended March 31, 2003. The increase wasprimarily attributable to continued slow sales of the Company's POTS Splitterproduct line, caused by the continuing downturn in the telecommunicationsmarket, including among customers that order component products from theCompany. The Company continues to believe that its line of POTS Splitterproducts is positioned to be competitively priced with high reliability andconnectivity, and as such has the potential to be a significant part of DSLdeployment worldwide. The Company still cannot say when the demand fortelecommunication equipment will resume. 

COST OF REVENUES 

Cost of sales were $483,964 for the three months ended March 31, 2004 ascompared to $205,231 in the prior period, representing 87.2% of gross revenuesfor the quarter ended March 31, 2004 and 98% for the quarter ended March 31,2003, respectively. Our margins have contracted dramatically over the past twoyears as spending among the telecommunications providers has contracted, coupledwith downward pressures related to the supply and demand of telecommunicationsproducts, and the current quarters improvement represents a slight improvementof our purchase price for materials used in our products.

RESEARCH AND DEVELOPMENT 

Research and development expenses were $1,403,817 for the three months endedMarch 31, 2004 as compared to $905,554 during the comparable period in 2003 or anincrease of $498,263 from the comparable period in 2003. Such expendituresinclude $0 incurred with GTRC for the three months ended March 31, 2004 ascompared to $0 during the comparable quarter in 2003, which was more than offsetby $596,675 incurred in the current quarter ended March 31, 2004, with LucentTechnologies, Inc., which consisted of $396,675 incurred on the development ofthe Broadcast Television Plus product for use with Lucent's Stinger® DSLproduct, $200,000 incurred on the cost with respect to the development of micropower source array batteries using Nanotechnology. In addition, thebalance of $807,142 of additional expenses was incurred with Microphase and otherstrategic vendors for the three months ended March 31, 2004 when compared to$405,554 during the comparable quarter in 2003, and thus resulted in a decreaseof $401,588 of such research costs to other than GTRC and Lucent. Theelimination in research expenditures incurred with GTRC is due to the Company'stransition from its legacy TraverserTM product to its TV+ platform in 2004. 

Research expenditures incurred with Microphase were related to the continuingdevelopment of the Company's DSL component products, including the Company'sline 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 neededsolution for the DSL industry; the iPOTSTM enables telcos to remotely andcost-effectively perform loop management and maintenance including line testing,qualification and troubleshooting. Prior to the introduction of the iPOTSTM, loopmanagement could not be remotely performed through a conventional POTS Splitterwithout the deployment of personnel to the field. The unique (patent pending) iPOTSTM circuit allows mosttest heads to perform both narrow and wideband testing of the local loop throughthe central office POTS Splitter without having to physically disconnect thePOTS Splitter, thereby 

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eliminating the need to dispatch personnel . The Companybelieves future demand for this product, as it significantly reduces the costof deploying and maintaining DSL services. Also recently developed is the DSLloop extender product called mPhaseStretch. This product extends the servicedistance for the mPhase TraverserTM and can be used in conjunction with other DSLservices. The Company anticipates future demand for the Stretch loop extenderproduct outside of the United States as it addresses a primary issue in DSLservices on a cost-efficient basis.

GENERAL AND ADMINISTRATIVE EXPENSES 

Selling, general and administrative expenses were $803,411 for the threemonths ending March 31, 2004 up from $543,627 or an increase of $259,784 forthe comparable period in 2003. The increase in the selling, general andadministrative costs included a decrease of non-cash charges relating to theissuance of common stock and options to consultants, which totaled $36,900 forthe three months ended March 31, 2004 as compared to $88,282 for the three monthsended March 31, 2003 or an increase of $51,382 of such charges. The increase of$311,166 in selling, general and administrative costs were theaggregate of additions of several new employees in connection with developmentof the Company's mPhase TV+ solution and entry into the area of Nanotechnology.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $26,801 for the three months endingMarch 31, 2004, down from $128,725, or a decrease of $101,924 from thecomparable period in 2003. The decrease is a result of the Company's reducedoutlay for capital expenditures in its two most recent fiscal years. We do notexpect such downward trends to continue but such depreciation and amortizationexpense should remain at the current levels until the Company commencesdeployment of its Television over DSL platforms. We expect to increase capitalexpenditures in connecting with the deployment of equipment at test sites withvarious telecommunications service providers globally as development of our TV+product progresses.

NET LOSS 

The Company recorded a net loss of $2,334,396 for the three months endedMarch 31, 2004 as compared to a loss of $1,586,813 for the three months endedMarch 31, 2003. This represents a loss per common share of $.03 for the threemonth period ended March 31, 2004 as compared to a loss per common share of $.02for the three months ending March 31, 2003; based upon weighted average commonshares outstanding of 81,564,405 and 65,596,810 during the periods end March 31,2004 and 2003, respectively. 

The Company believes the initial major deployments and theresultant revenues of its Flagship product, the TV+ platform, are not expecteduntil the second quarter of fiscal year 2005, which along with any upturn ofspending in the telephone industry will also increase sales and improve theCompany's margins and provide the Company with the opportunities to attainprofitability. 

NINE MONTHS ENDED MARCH 31, 2004 VS. MARCH 31, 2003 

REVENUE 

Total revenues were $4,335,476 for the nine months ended March 31, 2004compared to $981,591 for the nine months ended March 31, 2003. The increase wasattributable primarily to significantly increasing salesof the Company's POTS Splitter product line in the first quarter of fiscal year2004, followed by more modest increases in sales during the second and thirdquarter of fiscal year 2004, as compared to such quarters in fiscal year2003.  There remains continued volatilityin capital spending in the telecommunications market, including customers thatorder component products from the Company. The Company continues to believe thatits line of POTS Splitter products is positioned to be competitively priced withhigh reliability and connectivity, and as such has the potential to be asignificant part of DSL deployment worldwide. The Company cannot predict futuredemand for such product line. 

COST OF REVENUES 

Cost of sales was $3,878,239 for the nine months ended March 31, 2004 ascompared to $949,261 in the prior period, represented as a result of asubstantial increase in POTS Splitter sales and constituted 89.5% of grossrevenues, for the nine months ended March 31, 2004 and 2003, respectively. Themargins have increased slightly during the current period but not dramatically asspending among the telecommunications providers contracted during the fiscalyears ended June 30, 2003 and 

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June 30, 2002 respectively remain volatile coupled with downward pressuresrelated to the supply and demand of telecommunications products. 

RESEARCH AND DEVELOPMENT 

Research and development expenses were $2,858,715 for thenine months ended March 31, 2004 as compared to $2,461,696 during the comparableperiod in 2003; or an increase of $397,019 from the comparable period in 2003.Such expenditures include $0 incurred with GTRC for the nine months ended March31, 2004 as compared to $100,000 during the comparable period in 2003. TheCompany incurred all of its research and development expenses with vendorsincluding Lucent, Microphase and other strategic vendors for the nine monthsended March 31, 2004 which totaled $2,858,715 as compared to $2,361,696incurredwith vendors other than GTRC during the comparable period in 2003.

Such decreases are the resultprimarily of elimination of further development of the TRAVERSER DVDDS productby GTRC as the Company focuses its efforts on research and development andexpenditures associated therewith on the TV+ product with Lucent, which has beencomparatively, to date, less expense to develop.

The Company does, however, expect anincrease in research and development costs beginning in March, 2004. In order tobroaden and diversify its current line of business into additional high growthtechnology areas, the Company has entered into a Development Agreement,effective February 3, 2004, with the Bell labs division of Lucent Technologies,Inc. to commercialize the use of nano power cell technology. Under the terms ofthe $1.2 million contract, Lucent/ Bell Labs will develop for mPhase micro-powersource arrays fabricated using nanotextured, superhydrophobic materials. Thisnew business arrangement with Lucent Bell Labs will give mPhase the opportunityto develop and offer breakthrough battery technology applications, initially togovernment market segments including defense and homeland security, andultimately to the commercial market. The initial applications for the nano powercell technology will address the need to supply emergency and reserved power toa wide range of electronic devices for the defense department.

Research expenditures incurredwith Microphase were related to the continuing development of the company's DSLcomponent products, including the company's line of pots splitters andmicrofilters and the company's newest products, the *ipots(tm*) and themphase stretch. We believe the mphase *ipots(tm*) offers a much-neededsolution for the DSL industry; the *ipots(tm*) enables telcos to remotelyand cost-effectively perform loop management and maintenance including linetesting, qualification and troubleshooting. Prior to the introduction of the*ipots(tm)*, loop management could not be remotely performed through aconventional pots splitter without dispatching personnel to the field. The unique (patent pending) *ipots(tm*) circuit allows most test heads to perform both narrow and widebandtesting of the local loop through the central office pots splitter withouthaving to physically disconnect the pots splitter, thereby eliminating the needto dispatch personnel and a truckroll. The Company anticipates future demand forthis product, as it significantly reduces the cost of deploying and maintainingDSL services. 

The changes in Research and Development expenses for the ninemonth period ended March 31, 2004 as compared to the nine month period endedMarch 31, 2003 included the following significant items:
-  A reduction of expenses with GTRC of $100,000. 
-  An increase of charges from Lucent Technologies of $839,852 
-  A decrease of depreciation related to research anddevelopment of $187,091 from $659,767 to $472,676. 
-  A decrease of expenses with Microphase and other strategicvendors of $255,742 

Charges from Lucent Technologies Inc. totaled $1,508,602 forthe nine months ended March 31, 2004 as compared to $688,750 for the same periodended March 31, 2003.  Such charges consisted of $1,308,602 for developmentof the TV+ product and $200,000 incurred with respect to the Company's newNanotechnology product line.

The elements attributing to the decrease in other researchand development expenses included a decrease in the operations of the Company'sjoint venture, mPhase Television.net. The major costs incurred by the jointventure were payroll expenses attributable to research and development of theCompany's transmission capabilities and acquisition of television content. Costsincurred by the joint venture during the nine months ending March 31, 2003 were$31,000 as compared to $0 for the nine months ending March 31, 2004.

The elimination of research expenditures incurred with GTRCis due to the Company's new focus in the development of its TV+ platform andreduced emphasis on its legacy TraverserTM product. The Company's project withLucent provides for increased features at a reduced cost for its TV+ platformproduct. To date expenses incurred with respect to such project are $1,508,602for the nine months ended March 31, 2004. The Company does, however, expectResearch and Development Expenses to increase during fiscal year commencing July1, 2004 (fiscal year 2005) since its efforts will include both increasedexpenditures with Lucent Technologies, Inc for development of its *i*POTS3 product, its TV+ platform and its entry into the field of Nanotechnology. Theinitial applications for the nano pwer cell technology will address the need tosupply emergency and reserved power to a wide range of electronic devices forthe United States Department of Defense. 
Research expenditures incurred with Microphase were relatedto the continuing development of the Company's DSL component products, includingthe Company's line of POTS Splitters and Microfilters and the Company's newestproducts, the iPOTSTM and the mPhase Stretch. We believe the mPhase iPOTSTM offersa much needed solution for the DSL industry; the iPOTSTM enables telcos toremotely and cost-effectively perform loop management and maintenance includingline testing, qualification and troubleshooting. Prior to the introduction ofthe iPOTSTM, loop management could not be remotely performed through aconventional POTS Splitter cost effectively. The unique (patent pending) iPOTSTMcircuit allows both narrow and wideband testing of the local loop through thecentral office POTS Splitter by a telephone service provider without having todeploy personnel to the field. The Company anticipates future demand for thisproduct, as it significantly 

20

reduces the cost of deploying and maintaining DSL services. The Company hasalso developed a DSL loop extender product called mPhaseStretch. This productextends the service distance for the mPhase TraverserTM and can be used inconjunction with other DSL services. The Company believes that future demand forthe Stretch loop extender product may be found in the international (non U.S.)markets where where the cost of labor to install such product is inexpensivesince as it extends the reach from a telephone service providers central officeof DSL services. 

GENERAL AND ADMINISTRATIVE EXPENSES 

Selling, general and administrative expenses were $2,196,052 for the ninemonths ending March 31, 2004, up from $2,167,805 or an increase of $28,247 fromthe comparable period in 2003. The increase in the selling, general andadministrative costs included an increase of non-cash charges relating to theissuance of common stock and options to consultants, which totalled $344,940 forthe nine months ended March 31, 2004 as compared to $572,640 during thecomparable period in 2003, or decrease of $227,700 of such charges.  Afteradjusting for the change in non-cash charges, all other selling, general andadministrative expenses rose $255,947, which primarily consist of an increase of$275,000 in administrative and technical sales payroll and payroll charges toapproximately $605,000 for the nine months ended March 31, 2004 as compared tothe nine months ended March 31, 2003.  We expect sales and travel expensesto continue to grow as the company approaches deployment of its TV + Product. 

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $100,883 for the nine months endingMarch 31, 2004, down from $388,106, or a decrease of $287,223 from thecomparable period in 2003.  The decrease is a result of the Company'sreduced outlays for capital expenditures in its two most recent fiscal years. We do not expect such downward trend to continue but such depreciation andamortization expense should remain at the current reduced levels until theCompany commences deployment of its Television over DSL platforms.  Weexpect to increase capital expenditures in connecting with the deployment ofequipment at test sites with various telecommunications  service providersglobally as development of our TV+ product progresses.

NET LOSS 

The Company recorded a net loss of $4,899,771 for the nine months ended March31, 2004 as compared to a loss of $5,008,209 for the nine months ended March 31,2003. This represents a loss per common share of $.07 for the nine month periodended March 31, 2004 as compared to a loss per common share of $.08 for thenine months ending March 31, 2003 based upon weighted average common sharesoutstanding of 75,312,485 and 64,238,350 during the periods ending March 31, 2004and 2003, respectively. 

Although it is difficult to predictthe exact timing of our fist sales, the company believes the initial majordeployments and the resultant revenues of its flagship products, the TV+**platform respectively, are not expected until the second quarter of fiscalyear 2005, which along with any upturn of spending in the telephone industry,will also increase sales and improve the Company's operating margins and providethe company with the opportunities to attain profitability. 

CRITICAL ACCOUNTING POLICIES 

REVENUE RECOGNITION 

All revenue included in the accompanying consolidated statements ofoperations for all periods presented relates to sales of mPhase's POTS SplitterShelves and DSL component products. 

As required, mPhase has adopted the Securities and Exchange Commission ("SEC")StaffAccounting Bulletin ("SAB") No. 101, "Revenue Recognition in FinancialStatements", which provides guidelines on applying generally accepted accountingprincipals to revenue recognition based upon the interpretations and practicesof the SEC. The Company recognizes revenue for its POTS Splitter Shelf and OtherDSL component products at the time of shipment, at which time, no othersignificant obligations of the Company exist, other than normal warrantysupport. 

RESEARCH AND DEVELOPMENT 

Research and development costs are charged to operations as incurred inaccordance 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 andliability method in accordance with SFAS No.109 "Accounting for Income Taxes."Under this method, deferred tax assets and liabilities are measured usingcurrently enacted tax rates. The effect on deferred tax assets and liabilitiesof a change in tax rates is recognized 

21

in results of operations in the period that includes the enactment date.Because of the uncertainty as to their future realizability, net deferred taxassets, consisting primarily of net operating loss carryforwards, have beenfully reserved for. Accordingly, no income tax benefit for the net operatingloss has been recorded in the accompanying financial statements. 

Utilization of net operating losses generated through June 30, 2003 may belimited 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 notrequire companies to record compensation expense for stock-based employeecompensation at fair value. As permitted, the Company has elected to continue toaccount for stock-based compensation to employees using the intrinsic valuemethod presented in Accounting Principles Board ("APB") Opinion No.25"Accounting for Stock Issued to Employees" and provide pro forma net income andpro forma earnings per share disclosures for employee stock option grants as ifthe fair valued-based method, as defined, had been applied. Compensation expenseis generally measured on the date of grant only if the current market price ofthe underlying stock exceeded the exercise price. 

The Company accounts for non-employee stock based awards in which goods orservices are the consideration received for the equity instruments issued basedon the fair value of the consideration received or the fair value of the equityinstrument issued, whichever is more readily determinable. 

INVENTORY RESERVE AND VALUATION ALLOWANCE 

The Company carries its inventory at the lower of cost, determined on afirst-in, first-out basis, or market. Inventory consists mainly of the Company'sPOTS Splitter Shelf and Filters. In determining the lower of cost or market, theCompany periodically reviews and estimates a valuation allowance to reserve fortechnical obsolescence and marketability. The allowance represents management'sassessment and reserve for the technical obsolescence based upon theinter-operability of its component products, primarily filters and splitters,with presently deployed and next generation DSL infrastructures as well as areserve for marketability based upon current prices and the overall demand forthe individual inventory items. Material changes in either the technicalstandards of future DSL deployments or further erosion in the demand fordeployments of DSL infrastructures could affect the estimates and assumptionsresulting in the amounts reported. The allowance is estimated as the differencebetween inventory at historical costs, on a first in first out basis, and marketbased upon assumptions about future demand, current prices and productliability, and charged to the provision for inventory, which is a component ofcost of sales. At the point the historical cost is adjusted, a lower cost-basisfor that inventory is established, and subsequent changes in facts andcircumstances do not result in the restoration or increase in that newlyestablished cost basis. 

During the fiscal years ended June 30, 2003, 2002 and 2001, the Companyreserved approximately $302,000, approximately $928,000, and approximately$315,000, respectively, for technical obsolescence and marketability based uponcurrent prices and overall demand and charged a like amount to expense,representing 8.4% of average inventory, at cost, of approximately $3,588,000 onhand during the period in fiscal 2003; 20.2% of average inventory, at cost, ofapproximately $4,602,000 on hand during the period in fiscal 2002; and 13.6% ofaverage inventory, at cost, of approximately $2,309,000 on hand during fiscal2001. The reserve and corresponding charges in fiscal 2002 were increased as theCompany experienced a dramatic decrease, along with the entire telephonicindustry, in demand for our component products in addition to the decision totable the production of certain product line items built on certain Europeanstandards and which the Company does not expect to pursue in the near future. Asof June 30, 2003, the Company recorded a cost adjustment of approximately$1,059,000, recognizing permanent cost reductions due to price adjustmentsapproximating 

22

$318,000 and reductions due to obsolescence resulting from a lack ofinter-operability of certain components in inventory with the Company's present product line approximating$741,000. As a result on June 30, 2003 the Company had a total inventoryvaluation reserve of $486,500 against its inventory with a total balance, atcost, of $2,589,678, or 18.8%. If there was to be a sudden and significantdecrease in demand for our products, or if there were a higher incidence ofinventory obsolescence because of rapidly changing technology and customerrequirements, we could be required to increase our inventory allowances and ourgross margins could be adversely affected. 
MATERIAL RELATED PARTY TRANSACTIONS 

The Company records material related party transactions. The Company incurscosts for engineering, design and production of prototypes and certainadministrative functions from Microphase Corporation and the purchase offinished goods, primarily consisting of DSL splitter shelves and filters, fromJanifast Limited. The Company has incurred costs for obtaining transmissionrights. This enabled the Company to obtain retransmission accreditation toproprietary television content that the Company plans to provide with itsflagship product, the TraverserTM within its incorporated joint venture mPhaseTelevision.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 isscheduled to commence upon the commercial production of the TraverserTM. A memberof mPhase's board of directors is employed by Lintel, Inc., the parentcorporation of Hart Telephone. 

Mr. Durando, the President and CEO of mPhase, owns a controlling interest andis a director of Janifast Limited. Mr. Durando and Mr. Dotoli are officers ofMicrophase Corporation. Mr. Ergul, the chairman of the board of mPhase, owns acontrolling interest and is a director of Microphase Corporation. Microphase,Janifast, Hart Telephone and Lintel Corporation are significant shareholders ofmPhase. Microphase, Janifast and Hart Telephone have converted significantliabilities to equity in fiscal years June 30, 2001, 2002 and 2003. Management believes the amounts charged to the Company by Microphase, Janifast, mPhase Television.net and Hart Telephone are commensurateto amounts that would be incurred if outside parties were used. The Companybelieves Microphase, Janifast and Hart Telephone have the ability to fulfilltheir obligations to the Company without further support from the Company. 

LIQUIDITY AND CAPITAL RESOURCES 

At March 31, 2004 mPhase had working capital deficit of $1,951,928 as comparedto a working capital deficit of $1,405,331 at June 30, 2003. Through March 31,2004, the Company had incurred development stage losses totaling approximately$112,916,268. At March 31, 2004, the Company had  $1,375,063 of cash,cash equivalents and  $122,291 of trade receivables to fundshort-term working capital requirements. The Company's ability to continue as agoing concern and its future success is dependent upon its ability to raisecapital in the near term to: (1) satisfy its current obligations, (2) continueits research and development efforts, and (3) the successful wide scaledevelopment, deployment and marketing of its products. 

Historically, mPhase has funded its operations and capital expendituresprimarily through private placements of common stock. Management expects thatits ongoing financial needs will be provided by financing activities andbelieves that the sales of its line of POTS Splitter products and other relatedDSL 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 salesin future periods as seen with quarter to quarter fluctuations in componentsales. At March 31, 2004, the Company had cash and cash equivalents of$1,375,063 compared to $396,860 at June 30, 

23

2003, accounts receivable of $122,291 and net inventory of $1,026,247. Thiscompared to $287,135 of accounts receivable and $2,103,328 of inventory at June30, 2003. 

Cash used in operating activities was $2,665,390 during the nine months endingMarch 31, 2004. The cash used by operating activities principally consists ofthe net loss, the net decrease in inventory, the net decrease in accountsreceivable offset by the increase in depreciation and amortization, and bynon-cash charges for common stock options and warrants issued for services andincreased accrued expenses. 

The Company has entered into various agreements with GTARC, pursuant to whichthe Company receives technical assistance in developing the Digital Video andData Delivery System. The Company has incurred expenses in connection withtechnical assistance from GTARC totaling approximately $0, $100,000, forthe nine month periods ended March 31, 2004 and 2003, respectively, and$13,524,300 from the period from inception through March 31, 2004. On February18, 2004 GTARC converted payables owed by the Company of approximately $1.8million into a cashless warrant to purchase 5,069,200 shares of common stockbased upon a stock valuation of $.35 per share and one promissory note for$100,000 payable in quarterly equal installments of $16,667 commencing March 31,2004. mPhase is the sole, worldwidelicensee of the technology developed by GTARC in conjunction with the TraverserTMproduct line. Upon completion of the commercial product, GTRC may receive aroyalty of up to 5% of product sales. 

During the nine months ending March 31, 2004, strategic vendors (includingGTARC) and related parties converted approximately $1,875,640 of accountspayable and accrued expenses into 110,467 shares of the Company's common stockand 5,069,242 warrants. 

As of March 31, 2004, mPhase is obligated to pay Lucent Technologies, Inc.,the sum of $140,000 per month through May of 2004 for further development of themPhase TV+ product plus $100,000 per month through December 31, 2004 fordevelopment of its new line of Nanotechnology products. MPhase has no othermaterial commitments for capital expenditures. 

LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS 

From inception (October 2, 1996) through March 31, 2004 the Company hadincurred development stage losses and has an accumulated deficit ofapproximately $112,916,268 million and a stockholder's deficit of $2,047,240. Cumulatively and for the nine months ended March 31, 2004, the Companyhad negative cash flow from operations of $46,280,631 million and $2,665,390,respectively. The report of the Company's outside auditor's, Rosenberg, Rich, Baker,Berman and Company with respect to its latest audited 10K for the fiscalyear ended June 30, 2003 stated that "there is substantial doubt of the Company'sability to continue as a going concern". Management estimates that the Companywill need to raise approximately $4,000,000 during the next 12 months to fundfurther research and development and continue operations. 

We continue our efforts to raise additional funds through private placementsof our common stock and strategic alliances, the proceeds of which are requiredto fund continuing expenditures and the controlled development stage rollout ofour TV+ product and our *i*POTS3product. However, there can be no assurance that mPhase will generate sufficientrevenues to provide positive cash flows from operations or that sufficientcapital will be available, when needed or at terms that we deem to bereasonable. 
We have evaluated our cash requirements for fiscal year 2004 based uponcertain assumptions, including our ability to raise additional financing andincreased sales of our POTS splitter. The Company has approximately $1,375,000of cash and cash equivalents as of the end of the third quarter of fiscal year 2004. Additional investment intechnology design to reduce the cost of the TV+ and provide enhanced featureswill be necessary over the next 12 months. In the long-term, the Company mayinvest additional funds annually on research and development of the TV+, iPOTS3and Nanotechnology product lines based upon sales levels, changes to technologyand the overall success of the Company attaining sufficient financing until suchtime as it achieves profitable operations. 

24

Management believes that the recent its current cash position will besufficient to cover current operating expenses and permit the Company tomaintain its present operational levels. Current cash may be supplemeted withadditional funds that could be received by investors currently holding warrantsto buy approximately 19.8 million shares of mPhase common stock at $.30 pershare which are currently in the money. 

Should these cash flows not be available to us, we believe we would have theability to revise our operating plan and make certain further reductions inexpenses, so that our resources which were available at March 30, 2004, plusfinancing to be secured during fiscal year 2005, and expected POTS splitterrevenues, will be sufficient to meet our obligations until the end of fiscalyear 2005. We have continued to experience operating losses and negative cashflows. To date, we have funded our operations with a combination of componentsales debt conversions with related parties and strategic vendors, and privateequity offerings. Management believes that we will be able to secure thenecessary financing in the short-term to fund our operations into our nextfiscal year. However, failure to raise additional funds, or generate significantcash flows through revenues, could have a material adverse effect on our abilityto achieve our intended business objectives. 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

The Company is not exposed to changes in interest rates as the Company has nodebt arrangements and no investments in certain held-to-maturity securities.Under our current policies, we do not use interest rate derivative instrumentsto manage exposure to interest rate changes. A hypothetical 100 basis pointadverse move in interest rates along the entire interest rate yield curve wouldnot materially affect the fair value of any financial instruments at March 31,2004. 

ITEM 4. CONTROLS AND PROCEDURES 

Under the supervision and with the participation of management including theChief Executive Officer and Chief Financial Officer, we have evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Exchange Act Rule 13a-14c and of the end of the periodcovered by this report. Based on that evaluation, the Chief Executive Officerand Chief Financial Officer have concluded that these disclosure controls andprocedures are effective. There were no changes in our internal control overfinancial reporting during the quarter ended March 31, 2003 that havematerially affected, or are reasonably likely to materially affect, our internalcontrols over financial reporting. 

25

PART II OTHER INFORMATION 

ITEM 1. LEGAL PROCEEDINGS 

mPhase was advised in April 2002 that following an investigation by the staffof the Securities and Exchange Commission, the staff intended to recommend thatthe Commission file a civil injunctive action against Packetport.com, Inc. ("Packetport")and its Officer's and Directors. Such recommendation related to alleged civilviolations by Packetport and such Officers and Directors of various sections ofthe Federal Securities Laws. The staff has alleged civil violations of Sections5 and 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(d) of theSecurities Exchanges Act of 1034. As noted in other public filings of mPhase,the CEO and COO of mPhase also serve as Directors and Officers of Packetport. Atthat time these persons advised mPhase that they deny any violation of law ontheir part and intend to vigorously contest such recommendation or action, ifany. To date no action has been filed against Packetport, its Officers orDirectors. mPhase is not named as a party in connection with this matter. 

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

ITEM 2. CHANGES IN SECURITIES 

Effective for the nine-month period ended March 31, 2004 the Company issuedthe following unregistered securities: 

During the nine months ending March 31, 2004, the Company granted 924,667shares of its common stock to consultants for services performed and 228,826shares were issued to finders as finders fees. Additionally,effective for the nine months ended March 31, 2004, the Company issued 110,467shares of the Company's common stock and 5,069,242 warrants in connection with theextinguishments of debt.  In addition 10,955,480 shares of its common stocktogether with a like amount of warrants were issued in private placements generating $3,458,073 ofnet proceeds to the Company.  Finally, 1,053,334 shares were issued pursuant to theexercise of previous outstanding warrants, generating $316,000 of net proceedsto the Company.

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. 

31.1       Certification of Chief Executive  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2          Certification of Chief Financial Officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.

32.1          Certification of Chief Executive Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.

32.2          Certification of Chief Financial Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.

(b)         Reports on Form 8-K. 

Reported on February 17, 2004-mPhase enters into a $1.2 million contract    with the Bell Labs division of Lucent Technologies, Inc. to develop micro    power source arrays for battery applications utilizing Nanotechnology. Also    reported in such filing was the Agreement of GTARC to convert approximately    $1.8 million in accounts payable into a cashless Warrant to purchase    5,069,242 shares of mPhase common stock. 

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SIGNATURES 

Pursuant to the requirements of the Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant, has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized. 
 mPHASE    TECHNOLOGIES, INC.      Dated: May 21,    2004By: /s/ Martin S.    Smiley   Martin S. Smiley Executive Vice    President Chief Financial    Officer and General Counsel
28

Exhibit 31.1 

CERTIFICATIONS 

I, Ronald A. Durando, certify that: 
- I have reviewed this quarterly report on Form 10-Q of mPhase Technologies,  Inc.    
-  Based on my knowledge, this report does not contain any  untrue statement of a material fact or omit to state a material fact necessary  to make the statements made, in light of the circumstances under which such  statements were made, not misleading with respect to the period covered by  this report;  Based on my knowledge, the financial statements, and other financial  information included in this report, fairly present in all material respects  the financial condition, results of operations and cash flows of the  registrant as of, and for, the period presented in this report; 
 
The registrant's other certifying officer and I are responsible for  establishing and maintaining disclosure controls and procedures (as defined in  Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant's and have: 
 
Designed such disclosure controls and procedures, or caused    such disclosure controls and procedures to be designed under our    supervision, 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 report    is being prepared;  Evaluated the effectiveness of the registrant's disclosure    controls and procedures and presented in this report our conclusions about    the effectiveness of the disclosure controls and procedures, as of the end    of the period covered by this report based on such evaluation; and  Disclosed in this report any change in the registrant's    internal control over financial reporting that occurred during the    registrant's most recent fiscal quarter (the registrant's fourth fiscal    quarter in the case of an annual report) that has materially affected, or is    reasonably likely to materially affect, the registrant's internal control    over financial reporting; and  The registrant's other certifying officer and I have  disclosed, based on our most recent evaluation of internal control over  financial reporting, to the registrant's auditors and the audit committee of  registrant's board of directors (or persons performing the equivalent  functions);  -  All significant deficiencies and material weaknesses in    the design or operation of internal control over financial reporting which    are reasonably likely to adversely affect the registrants' ability to    record, process, summarize and report financial information; and  Any fraud, whether or not material, that involves    management or other employees who have a significant role in the    registrant's internal control over financial reporting. /s/ Ronald A. DurandoRonald A. DurandoChief Executive    Officer May 21, 2004
29

Exhibit 32.1 

mPHASE TECHNOLOGIES, INC. 

CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002 (18 U.S.C. SECTION 1350) 

In connection with the Quarterly Report of mPhase Technologies, Inc., a NewJersey corporation (the "Company"), on Form 10Q for the quarter ended March 31,2004, as filed with the Securities and Exchange Commission (the "Report"), I,Ronald A. Durando, Chief Executive Officer of the Company, certify pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that tohis knowledge: 
- The Report fully complies with the requirements of Section 13(a) or 15(d)  of the Securities Exchange Act of 1934; and    
- The information contained in the Report fairly presents, in all material  respects, the financial condition and results of operations of the Company.  
/s/Ronald A.      Durando Name: Ronald A.      DurandoChief Executive      Officer       Date: May 21, 2004
30

Exhibit 31.2 

CERTIFICATIONS 

I, Martin S. Smiley, certify that: 
I have reviewed this quarterly report on Form 10-Q of mPhase Technologies,  Inc. 
 
Based on my knowledge, this report does not contain any  untrue statement of a material fact or omit to state a material fact necessary  to make the statements made, in light of the circumstances under which such  statements were made, not misleading with respect to the period covered by  this report;  Based on my knowledge, the financial statements, and other financial  information included in this report, fairly present in all material respects  the financial condition, results of operations and cash flows of the  registrant as of, and for, the period presented in this report; 
 
The registrant's other certifying officer and I are responsible for  establishing and maintaining disclosure controls and procedures (as defined in  Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant's and have: 
 
Designed such disclosure controls and procedures, or caused    such disclosure controls and procedures to be designed under our    supervision, 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 report    is being prepared;  Evaluated the effectiveness of the registrant's disclosure    controls and procedures and presented in this report our conclusions about    the effectiveness of the disclosure controls and procedures, as of the end    of the period covered by this report based on such evaluation; and  Disclosed in this report any change in the registrant's    internal control over financial reporting that occurred during the    registrant's most recent fiscal quarter (the registrant's fourth fiscal    quarter in the case of an annual report) that has materially affected, or is    reasonably likely to materially affect, the registrant's internal control    over financial reporting; and  The registrant's other certifying officer and I have  disclosed, based on our most recent evaluation of internal control over  financial reporting, to the registrant's auditors and the audit committee of  registrant's board of directors (or persons performing the equivalent  functions);  -  All significant deficiencies and material weaknesses in    the design or operation of internal control over financial reporting which    are reasonably likely to adversely affect the registrants' ability to    record, process, summarize and report financial information; and  Any fraud, whether or not material, that involves    management or other employees who have a significant role in the    registrant's internal control over financial reporting. /s/ Martin S. SmileyMartin S. SmileyChief Financial    Officer May 21, 2004
31

Exhibit 32.2 

mPHASE TECHNOLOGIES, INC. 

CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEYACT OF 2002 (18 U.S.C. SECTION 1350) 

In connection with the Quarterly Report of mPhase Technologies, Inc., a NewJersey corporation (the "Company"), on Form 10Q for the quarter ended March 31,2004, as filed with the Securities and Exchange Commission (the "Report"), I,Martin S. Smiley, Chief Financial Officer of the Company, certify pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that tohis knowledge: 
- The Report fully complies with the requirements of Section 13(a) or 15(d)  of the Securities Exchange Act of 1934; and    
- The information contained in the Report fairly presents, in all material  respects, the financial condition and results of operations of the Company.  

 
/s/ Martin S. Smiley Name: Martin S. SmileyChief FinancialOfficer Date: May 21, 2004
32******