---

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
OF THE SECURITIES EXCHANGE ACT OF 1934. 
FOR THE QUARTER ENDED March 31, 2005

COMMISSION FILE NO. 000-24969

mPhase Technologies, Inc.

NEW JERSEY
      22-2287503(State or other jurisdiction of
      (I.R.S.
      Employerincorporation or organization)
      Identification Number)587 CONNECTICUT AVE., NORWALK, CT
      06854-1711(Address of principal executive offices)
      (Zip
      Code)


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

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED
ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, DURING THE PRECEDING 12 MONTHS (OR FOR SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORT), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES    
NO

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK AS OF May 3, 2005 IS 129,960,987 SHARES, ALL OF ONE CLASS OF $.01
STATED VALUE COMMON STOCK.

---



mPHASE TECHNOLOGIES, INC.

INDEX

|               |                                                                                                          | PAGE
|-------------- | -------------------------------------------------------------------------------------------------------- | ----
|PART I         | FINANCIAL INFORMATION                                                                                    |     
|ITEM 1         |                                                                                                          |     
|               | Unaudited Consolidated Balance Sheets-June
    30, 2004 and March 31, 2005                               | 3   
|               | Unaudited Consolidated Statements of
    Operations-Three months ended March 31, 2004 and 2005 and from  | 4   
|               | October 2, 1996 (Date of Inception) to March
    31, 2005                                                |     
|               | Unaudited Consolidated Statements of
    Operations-Nine Months ended March 31, 2004 and 2005 and from   | 5   
|               | October 2, 1996 (Date of Inception) to
    December 31, 2005                                             |     
|               | Unaudited Consolidated Statement of Changes
    in Shareholders Deficit Nine months ended March 31, 2005 | 6   
|               | Unaudtied Consolidated Statement of Cash
    Flow-Nine Months Ended March 31, 2004 and 2005 and from     | 7   
|               | October 2, 1997 (Date of Inception) to March
    31, 2005                                                |     
|               | Notes to Consolidated Financial Statments                                                                | 8   
|ITEM 2         | Management's Discussion and Analysis of
    Financial Condition and Condition and Results of Operations  | 15  
|ITEM 3         | Quantitative and Qualitative Disclosures
    about market risk                                           | 26  
|ITEM 4         | CONTROLS AND PROCEDURES                                                                                  | 26  
|PART II        | OTHER INFORMATION                                                                                        |     
|Item 1.        | Legal Proceedings                                                                                        | 27  
|Item 2.        | Changes in Securities                                                                                    | 27  
|Item 3.        | Defaults Upon Senior Securities                                                                          | 27  
|Item 4.        | Submission of Matters to a Vote of Security
    Holders                                                  | 27  
|Item 5.        | Other Information                                                                                        | 27  
|Item 6.        | Exhibits and Reports on Form 8-K                                                                         | 28  
|Signature Page |                                                                                                          | 29  
|               |                                                                                                          |     

2

---

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



|                                                                                   |   | June
    30,  |   | March
    31,
|---------------------------------------------------------------------------------- | - | ------------- | - | -------------
|                                                                                   |   | 2004          |   | 2005         
|ASSETS                                                                             |   |               |   |              
|CURRENT ASSETS                                                                     |   |               |   |              
|Cash and cash
    equivalents                                                      | $ | 90,045        | $ | 237,828      
|Accounts receivable,
    net of bad debt reserve of $0 for each period             |   | 64,100        |   | 354,903      
|Stock subscription
    receivable                                                  |   | 886,000       |   | -            
|Inventories, net                                                                   |   | 1,237,972     |   | 862,963      
|Production advances - Janifast                                                     |   | -             |   | 337,709      
|Prepaid expenses and
    other current assets                                      |   | 81,061        |   | 169,503      
|TOTAL CURRENT ASSETS                                                               |   | 2,359,178     |   | 1,962,906    
|                                                                                   |   |               |   |              
|Property and
    equipment, net                                                    |   | 52,685        |   | 178,626      
|Patents and licensing
    rights, net                                              |   | 161,605       |   | 176,972      
|Other Assets                                                                       |   | 17,250        |   | -            
|                                                                                   |   |               |   |              
|TOTAL ASSETS                                                                       |   | 2,590,718     |   | 2,318,504    
|                                                                                   |   |               |   |              
|LIABILITIES AND
    STOCKHOLDERS' EQUITY                                           |   |               |   |              
|CURRENT LIABILITIES                                                                |   |               |   |              
|Accounts payable                                                                   |   | 2,088,658     |   | 2,565,629    
|Accrued expenses                                                                   |   | 691,033       |   | 957,925      
|Due to related parties                                                             |   | 625,956       |   | 280,739      
|Notes payable, related
    parties                                                 |   | 300,000       |   | 242,000      
|Deferred revenue                                                                   |   | 214,180       |   | -            
|Current portion of
    long term debt                                              |   | 550,803       |   | 248,891      
|TOTAL CURRENT
    LIABILITIES                                                      |   | 4,470,630     |   | 4,295,184    
|                                                                                   |   |               |   |              
|Long-term debt, net of
    current portion                                         |   | 139,500       |   | 281,000      
|Other Liabilities                                                                  |   | 618,550       |   | 279,500      
|Notes payable, related
    parties                                                 |   | 280,000       |   | -            
|COMMITMENTS AND
    CONTINGENCIES (Note 9)                                         |   |               |   |              
|STOCKHOLDERS' DEFICIT                                                              |   |               |   |              
|Common stock, stated
    value $.01, 250,000,000 shares authorized; 88,899,962 and |   |               |   |              
|129,960,987 shares
    issued and outstanding at June 30, 2004 and March 31, 2005, |   |               |   |              
|respectively                                                                       |   | 888,999       |   | 1,299,610    
|Additional paid in
    capital                                                     |   | 111,976,095   |   | 121,430,506  
|Deficit accumulated
    during development stage                                   |   | (115,775,083) |   | (125,259,323)
|Less-Treasury stock,
    13,750 shares at cost                                     |   | (7,973)       |   | (7,973)      
|TOTAL STOCKHOLDERS'
    DEFICIT                                                    |   | (2,917,962)   |   | (2,537,180)  
|                                                                                   |   |               |   |              
|TOTAL LIABILITIES AND
    STOCKHOLDERS' DEFICIT                                    | $ | 2,590,718     | $ | 2,318,504    

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

3

---



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

|                                                            |   | Three Months Ended | October 2, 1996 (Date of
|----------------------------------------------------------- | - | ------------------ | ------------------------
|                                                            |   |                    |                         
|                                                            |   | March 31,          |                         
|                                                            |   | 2004               |                         
|                                                            |   |                    |                         
|REVENUES                                                    | $ | 555,339            | $                       
|COSTS AND EXPENSES                                          |   |                    |                         
|Cost of Sales                                               |   | 483,964            |                         
|Research and
    development                                |   | 1,403,817          |                         
|(including non-cash
    stock related charges of $0, $0 and |   |                    |                         
|$2,503,114
    respectively)                                |   |                    |                         
|General and
    Administrative                              |   | 803,411            |                         
|(including non-cash
    stock related charges of $36,900,   |   |                    |                         
|$1,636,028 and $50,097,003
    respectively)                |   |                    |                         
|Depreciation and
    amortization                           |   | 26,801             |                         
|TOTAL COSTS AND
    EXPENSES                                |   | 2,717,993          |                         
|                                                            |   |                    |                         
|LOSS FROM OPERATIONS                                        |   | (2,162,654)        |                         
|                                                            |   |                    |                         
|OTHER INCOME (EXPENSE)                                      |   |                    |                         
|Gain (Loss) on
    extinguishments                          |   | (152,078)          |                         
|Minority interest loss
    in consolidated subsidiary       |   | -                  |                         
|Capital losses                                              |   | -                  |                         
|Loss from
    unconsolidated subsidiary                     |   | -                  |                         
|Interest Income
    (expense), net                          |   | (19,664)           |                         
|                                                            |   |                    |                         
|TOTAL OTHER INCOME
    (EXPENSE)                            |   | (171,742)          |                         
|                                                            |   |                    |                         
|NET LOSS                                                    | $ | (2,334,396)        | $                       
|                                                            |   |                    |                         
|LOSS PER COMMON SHARE,
    basic and diluted                | $ | (.03)              | $                       
|                                                            |   |                    |                         
|WEIGHTED AVERAGE
    COMMON                                 |   | 81,564,405         |                         
|SHARES OUTSTANDING,
    basic and diluted                   |   |                    |                         

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

4

---

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

|                                                           |   | Nine Months Ended | October 2, 1996 (Date of
|---------------------------------------------------------- | - | ----------------- | ------------------------
|                                                           |   | March 31,         | Inception) to March 31, 
|                                                           |   | 2004              |                         
|                                                           |   |                   |                         
|REVENUES                                                   | $ | 4,335,476         | $                       
|COSTS AND EXPENSES                                         |   |                   |                         
|Cost of Sales                                              |   | 3,878,389         |                         
|Research and
    development                               |   | 2,858,715         |                         
|including non-cash
    stock related charges of $0, $0 and |   |                   |                         
|$2,503,114,
    respectively)                              |   |                   |                         
|General and
    Administrative                             |   | 2,196,052         |                         
|(including non-cash
    stock related charges of $785,740, |   |                   |                         
|$2,763,861 and $50,097,003,
    respectively)              |   |                   |                         
|Depreciation and
    amortization                          |   | 100,883           |                         
|TOTAL COSTS AND
    EXPENSES                               |   | 9,033,889         |                         
|                                                           |   |                   |                         
|LOSS FROM OPERATIONS                                       |   | (4,698,483)       |                         
|                                                           |   |                   |                         
|OTHER INCOME (EXPENSE)                                     |   |                   |                         
|Gain (Loss) on
    extinguishments                         |   | (128,991)         |                         
|Minority interest loss
    in consolidated subsidiary      |   | -                 |                         
|Capital losses                                             |   | -                 |                         
|Loss from
    unconsolidated subsidiary                    |   | -                 |                         
|Interest Income
    (expense), net                         |   | (72,367)          |                         
|TOTAL OTHER INCOME
    (EXPENSE)                           |   | (201,358)         |                         
|                                                           |   |                   |                         
|NET LOSS                                                   | $ | (4,899,771)       | $                       
|                                                           |   |                   |                         
|LOSS PER COMMON SHARE,
    basic and diluted               | $ | (.07)             | $                       
|                                                           |   |                   |                         
|WEIGHTED AVERAGE
    COMMON                                |   |                   |                         
|SHARES OUTSTANDING,
    basic and diluted                  |   | 75,312,435        |                         

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

5

---

mPHASE TECHNOLOGIES, INC. 
(A Development Stage Company) Consolidated Statement of Changes in Shareholders' Deficit 
(Unaudited)
Total$.01 Stated
    
    
    Additional Paid
    
    Accumulated
    ShareholdersShares
    
    Value
    Treasury Stock
    
    in Capital
    
    Deficit
    
    EquityBalance, June 30, 2004
    
    88,899,962
    $
    888,999
    $
    (7,973)
    $
    111,976,095
    $
    (115,775,083)
    $
    (2,917,962)Issuance of Shares in PrivatePlacement
    
    26,286,716
    $
    262,867
    $
    -
    $
    5,225,576
    $
    -
    $
    5,488,443Issuance of Shares in connectionwith exercise of warrants
    
    3,300,954
    $
    33,009
    $
    -
    $
    530,581
    $
    -
    $
    563,590Conversion of Debt to CommonStock and warrants
    
    3,437,271
    $
    34,372
    $
    
    $
    997,052
    $
    -
    $
    1,031,424Options Awarded to Consultants
    
    -
    $
    -
    $
    
    $
    1,821,100
    $
    -
    $
    1,821,100Options Awarded to Officers
    
    -
    $
    -
    $
    
    $
    625,290
    $
    -
    $
    625,290Issuance of shares to officersfor services
    
    425,000
    $
    4,250
    $
    
    $
    127,500
    $
    -
    $
    131,750Exercise of cashless warrant
    
    4,949,684
    $
    49,499
    $
    -
    $
    (49,499)
    $
    -
    $
    -Exercise of warrants byOfficers
    
    1,770,400
    $
    17,704
    $
    -
    $
    -
    $
    -
    $
    17,704Reparation of Private PlacementOffering
    
    891,000
    $
    8,910
    $
    -
    $
    176,811
    $
    -
    $
    185,721Net Loss
    
    -
    $
    -
    $
    -
    $
    -
    $
    (9,484,240)
    $
    (9,484,240)March 31, 2005
    
    129,960,987
    $
    1,299,610
    $
    (7,973)
    $
    121,430,506
    $
    (125,259,323)
    $
    (2,537,180)The accompanying notes are an integral part of these
consolidated financial statements.
6mPHASE TECHNOLOGIES, INC. 
(A Development Stage Company) Consolidated Statements of Cash Flows 
(Unaudited)

|                                                          |   | Nine Months Ended | October 2, 1996 (Date of
|--------------------------------------------------------- | - | ----------------- | ------------------------
|                                                          |   |                   |                         
|                                                          |   |                   |                         
|                                                          |   | 2004              |                         
|Cash Flow From
    Operating Activities:                  |   |                   |                         
|Net Loss                                                  | $ | (4,889,771)       | $                       
|Adjustments to
    reconcile net loss to net cash used in |   |                   |                         
|operating                                                 |   |                   |                         
|activities:                                               |   |                   |                         
|Depreciation and
    amortization                         |   | 573,579           |                         
|Book Value of fixed
    assets disposed                   |   | -                 |                         
|Provision for doubtful
    accounts                       |   | -                 |                         
|(Gain) loss on debt extinguishments                       |   | 128,991           |                         
|Loss on unconsolidated
    subsidiary                     |   | -                 |                         
|Impairment of note
    receivable                         |   |                   |                         
|Loss on securities                                        |   | -                 |                         
|Non-cash charges
    relating to issuance of common       |   |                   |                         
|stock, common                                             |   |                   |                         
|stock options and
    Warrants                            |   | 344,143           |                         
|Changes in assets and
    liabilities:                    |   |                   |                         
|Accounts receivable                                       |   | 164,844           |                         
|Inventories                                               |   | 1,077,080         |                         
|Production advances - Related Party                       |   |                   |                         
|Prepaid expenses and
    other current assets             |   | 30,417            |                         
|Other non-current
    assets                              |   | -                 |                         
|Accounts payable                                          |   | 279,422           |                         
|Accrued expenses                                          |   | (133,670)         |                         
|Due to/from related
    parties                           |   |                   |                         
|Microphase                                                |   | 66,156            |                         
|Janifast                                                  |   | (205,998)         |                         
|Officers                                                  |   | (90,583)          |                         
|Lintel                                                    |   | -                 |                         
|Others                                                    |   | -                 |                         
|Receivables from
    Subsidiary                           |   | -                 |                         
|Deferred revenue                                          |   | -                 |                         
|Net cash used in
    operating activities                 |   | (2,665,390)       |                         
|                                                          |   |                   |                         
|Cash Flow from
    Investing Activities:                  |   |                   |                         
|Payments related to
    patents and licensing rights      |   | -                 |                         
|Purchase of fixed
    assets                              |   | (5,500)           |                         
|Net Cash used in
    investing activities                 |   | (5,500)           |                         
|                                                          |   |                   |                         
|Cash Flow from
    Financing Activities:                  |   |                   |                         
|Proceeds from issuance
    of common stock and            |   |                   |                         
|exercises of options and warrants                         |   | 3,834,092         |                         
|Payments of notes
    payable                             |   | (5,000)           |                         
|Advances from
    Microphase Corporation                  |   | (180,000)         |                         
|Proceeds from notes
    payable-officers                  |   | -                 |                         
|Repayments of notes
    payable-officers                  |   | -                 |                         
|Repurchase of treasury
    stock at cost                  |   | -                 |                         
|Net cash provided by
    financing activities             |   | 3,649,092         |                         
|                                                          |   |                   |                         
|Net increase
    (decrease) in cash                       |   | 978,202           |                         
|CASH AND CASH
    EQUIVALENTS, beginning of               |   |                   |                         
|period                                                    |   | 396,860           |                         
|CASH AND CASH
    EQUIVALENTS, end of period              | $ | 1,375,062         | $                       

7

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

---



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

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

mPhase Technologies, Inc. (the "Company") was organized on October 2, 1996.
On February 17, 1997, the Company acquired Tecma Laboratories, Inc. ("Tecma") in
a transaction accounted for as a reverse merger. On June 25, 1998, the Company
acquired Microphase Telecommunications, Inc. ("MicroTel"), through the issuance
of 2,500,000 shares of its common stock in exchange for all the issued and
outstanding shares of MicroTel. The assets acquired in this acquisition were
patents related to the mPhase line of DSL component products (e.g., POTS
Splitters) and patent applications utilized in the Company's proprietary
Traverser 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 Company has replaced the legacy Traverser product with its new
TV+ platform developed by Lucent Technologies. The present activities of the
Company are focused (a) upon deployment of its TV+ platform and (b) exploratory
research and development of a new generation of power cells for military and
commercial applications through the use of the science of Nanotechnology. The
TV+ platform enables telecommunications service providers to simultaneously
deliver broadcast digital television high-speed Internet and voice over copper
telephone wires utilizing DSL technology and over fiber. Additionally, the
Company sells DSL component products which includes microfilters, splitters, and
line extenders, as well as a new line of intelligent pots splitters designed to
reduce the cost of deploying DSL.

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 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, 2005 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, 2004.

Through March 31, 2005, the Company had incurred cumulative (a) development
stage losses totaling approximately $125,259,323 and (b) negative cash flow from
operations equal to $54,120,374. At March 31, 2005, the Company had approximately
$237,828 of cash, cash equivalents and approximately $ 206,069 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 financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

8

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)
RECLASSIFICATIONS - Certain reclassifications have been made in the prior
period consolidated financial statements to conform to the current period
presentation.
LOSS PER COMMON SHARE, BASIC AND DILUTED - The Company accounts for net loss
per common share in accordance with the provisions of SFAS No. 128, "EARNINGS
PER SHARE" ("EPS"). SFAS No. 128 requires the disclosure of the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Common equivalent
shares have been excluded from the computation of diluted EPS for all periods
presented since their affect is antidilutive.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to
operations as incurred.
REVENUE RECOGNITION - All revenue included in the accompanying consolidated
statements of operations for all periods presented relates to sales of mPhase's
line of POTS Splitter products and other related DSL component products. As
required, the Company adopted the Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, which provides guidance on applying generally accepted accounting
principles to revenue recognition based on the interpretations and practices of
the SEC. The Company recognizes revenue for its line of POTS Splitter products
and other DSL component products at the time of shipment, at which time, no
other significant obligations of the Company exist, other than normal warranty
support. In addition, the Company includes costs of shipping and handling billed
to customers in revenue and the related expenses of shipping and handling costs
is included in cost of sales.
STOCK-BASED COMPENSATION - During the second quarter of fiscal 2004, the
Company adopted the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, for stock-based employee
compensation, effective as of the beginning of the fiscal year. Under the
modified prospective method of adoption selected by the Company, stock-based
employee compensation cost recognized in 2003 is the same as that which would
have been recognized had the fair value recognition provisions of Statement 123
been applied to all awards granted after October 1, 1995. The following table
illustrates the effect on net income and earnings per share as if the fair value
based method has been applied to all outstanding and unvested awards in each
period.

|                                                    |   | Three Months
    Ended |   | Nine Months
    Ended
|--------------------------------------------------- | - | ---------------------- | - | ---------------------
|                                                    |   | March 31,              |   | March 31,            
|                                                    |   | 2004                   |   | 2005                 
|Net loss, as reported                               | $ | (2,334,396)            | $ | (4,346,269 )         
|Add: Stock-based employee compensation              |   | -                      |   | -                    
|expense                                             |   |                        |   |                      
|included in reported net income, net of
    related |   |                        |   |                      
|tax                                                 |   |                        |   |                      
|effects                                             | $ | -                      | $ | 131,750              
|Deduct: Total stock-based employee                  |   | -                      |   | -                    
|compensation                                        |   |                        |   |                      
|expense determined under fair value based           |   |                        |   |                      
|method                                              |   |                        |   |                      
|for all awards, net of related tax effects          | $ | -                      | $ | (131,750)            
|Pro forma net loss                                  | $ | (2,334,396)            | $ | (4,346,268)          
|Loss per share:                                     |   |                        |   |                      
|Basic and diluted-as
    reported                   | $ | (.03)                  | $ | (.04)                
|Basic and diluted-pro
    forma                     | $ | (.03)                  | $ | (.04 )               

9

---



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

RECENT ACCOUNTING PRONOUNCEMENTS -

FASB 150 - Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity

In May 2003, the FASB issues 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 beginning with the quarter commencing August 1, 2003 did not have a
significant impact of the Company's results of operations or financial position.

FASB 151 - Inventory Costs

In November 2004, the FASB issued FASB Statement No. 151,
which revised ARB No. 43, relating to inventory costs.  This revision is to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage).  This Statement requires
that these items be recognized as a current period charge regardless of whether
they meet the criterion specified in ARB 43.  In addition, this Statement
requires the allocation of fixed production overheads to the costs of conversion
be based on normal capacity of the production facilities.  This Statement
is effective for financial statements for fiscal years beginning after June 15,
2005.  Earlier application is permitted for inventory costs incurred during
fiscal years beginning after the date of this Statement is issued. 
Management believes this Statement will have no impact on the financial
statements of the Company once adopted.

FASB 152 - Accounting for Real Estate Time-Sharing
Transactions

In December 2004, the FASB issued FASB Statement No. 152,
which amends FASB Statement No. 66, Accounting for Sales of Real Estate, to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, Accounting for Real Estate Time-Sharing Transactions.  This Statement
also amends FASB Statement No. 67, Accounting for Costs and Initial Rental
Operations of Real Estate Projects, to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real-estate time sharing transactions .  The accounting for
those operations and costs is subject to the guidance in SOP 04-2.  This
Statement is effective for financial statements for fiscal years beginning after
June 15, 2005.  Management believes this Statement will have no impact on
the fiscal statements of the Company once adopted.

FASB 153 - Exchange of Nonmonetary Assets

In December 2004, the FASB issued FASB Statement No. 153. 
This Statement addresses the measurement of exchanges of nonmonetary assets. 
The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged.  The guidance in that
Opinion, however, included certain exceptions to that principle.  This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance.  A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. 
This Statement is effective for financial statements for fiscal years beginning
after June 15, 2005.  Earlier application is permitted for nonmonetary
asset exchanges incurred during fiscal years beginning after the date of this
Statement is issued.  Management believes this Statement will have no
impact on the financial statements of the Company once adopted.

FASB 123 (revised 2004) - Share-Based Payments

In December, 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), "Share-Based Payment".  Among other things, SFAS No. 123
(R) requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statements based on their fair
values.  The Company is required to adopt the provisions of Statement No.
123(R) in its interim period beginning February 1, 2006.  Adoption of
Standard No. 123(R) is not expected to have a material impact on the Company's
financial statements.

FASB Interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities"

In January 2003, the FASB issued FASB
Interpretation No. 46 (" FIN 46"), "Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51." FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 is effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period beginning after June 15, 2003.
The adoption of FIN 46 did not have a significant impact on our consolidated
financial position or results of operations.

10

---



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

STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION

|                                                                         |   | 2004      |   | 2005   
|------------------------------------------------------------------------ | - | --------- | - | -------
|Interest Paid                                                            | $ | 47,094    | $ | 11,587 
|Taxes Paid                                                               | $ | 250       | $ | 0      
|Schedule of Non-Cash
    Activities:                                     |   |           |   |        
|Conversion of accounts
    payable and accrued expenses to equity        | $ | 1,834,211 | $ | 743,950
|Conversion of interest
    accrued to equity                             | $ | -         | $ | 26,225 
|Conversion of Notes
    Payable to equity                                | $ | -         | $ | 261,249
|Private Placement
    Reparation Expense - additional issuance of shares |   |           | $ | 185,721
|Investments in patents
    paid with equity                              | $ | 38,750    |   | -      

2. RELATED PARTY TRANSACTIONS

mPhase's President, Chief Operating Officer and Chairman of the Board of the
Company are also officers of Microphase and mPhase's president and chairman of
the board are shareholders 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 per month, in July
2002 to $12,200 per month, in January 2003 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. In January 2003 the technical
research and development agreement 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, 2004 and 2005 and from inception
(October 2, 1996) to March 31, 2005 $538,399, $135,000 and $7,696,205,
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 Traverser Digital Video and Data Delivery System and DSL
component products. For the nine months ended March 31, 2004 and 2005, mPhase
recorded royalties to Microphase totaling $13,646 and $129,679, respectively.

As a result of the foregoing transactions as of March 31, 2005, the Company
had a $180,000 note payable to Microphase, which is included in notes payable to
related parties and $280,739 of unpaid invoices are included in amounts due to
related parties in the accompanying consolidated balance sheet. Additionally, at
March 31, 2005, there are no undelivered purchase orders that remain outstanding
to Microphase.

The Company purchases products and incurs certain research and development
expenses with Janifast Ltd., which is owned by U.S. Janifast Holdings, Ltd., a
company in which three directors of mPhase are significant shareholders 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.

11

---



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

During the nine months ended March 31, 2004 and 2005 and the period from
inception (October 2, 1996) to March 31, 2005, $184,082, $448,208 and
$7,672,734, respectively have been charged by Janifast to inventory or expense
and is included in operating expenses in the accompanying statements of
operations.

As a result of the foregoing transactions as of March 31, 2005, the Company
had $ 337,709 receivable from Janifast Ltd., which is included in production advances
- Janifast in the accompanying balance sheet. Additionally, at March 31, 2005,
approximately $623,403 of undelivered purchase orders remain outstanding to Janifast Ltd.

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.  The Company has reserved the full
amount due under this note.

On August 30, 2004, the Company paid $100,000 in cash to Piper Rudnick LLP,
outside legal counsel to the Company as part of a renegotiated settlement
agreement that was originally effective as of March 31, 2002. The Company was in
arrears with respect to payments due under the original settlement agreement and
as part of the renegotiated agreement agreed to make the following payments:

1. $25,000 on each of December 1, 2004, March 1, 2005, June 1,2005, September
  1, 2005 and a $50,000 payment on December 1, 2005. Thereafter the Company is
  obligated to pay $25,000 on each of March 1, 2006, June 1, 2006, September 1,
  2006 with a final payment of $75,000 on December 1, 2006.
2. The Company also delivered a 5 year cashless warrant to purchase $150,000
  worth of common stock at $.25 per share.

3. INVENTORIES

Inventory is stated at the lower of cost, determined on a first-in, first-out
basis, or market. Inventory consists mainly of the Company's POTS Splitter
shelves and cards. At March 31, 2005 inventory is comprised of the following:

Raw materials
      75,833Finished goods
      1,099532Total
      1,251,198Less: Reserve for
      Obsolescence
      (388,235)Net Inventory
      862,963


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.

12

---



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

Utilization of net operating losses generated through March 31, 2005 may be
limited due to changes in ownership that have occurred.

5. ACCRUED EXPENSES

Accrued expenses representing accrued general and administrative expenditures
were $538,891 at March 31, 2005. At March 31, 2005 unpaid invoices for expenses
for research and development expenses incurred with Lucent Technologies, Inc.
totaling $781,827 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.

During the three months ended March 31, 2004 and ended March 31, 2005,
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

In July of 2004, the Company issued 622,000 shares of its common stock
together with a like amount of callable warrants at $.35 and $.50 respectively
in a private placement. In August and September of 2004, the Company issued
1,050,000 shares of its common stock together with a like amount of callable
warrants at $.25 and $.50 per share in private placements, which after cash
outlays of approximately $15,900, generated net proceeds of $247,500. The
aggregate net proceeds of such private placements of $402,100 were collected
during the three month period ended September 30, 2004. On December 7, 2004, the
Company issued an additional 891,000 shares to the investors in the foregoing
private placements due to a market value adjustment. These shares were valued at
$185,721 which is included in general and administrative expenses in the
accompanying statement of operations for the period ended December 31, 2004.

During the three months ending December 31, 2004, the Company granted 134,500
shares of its common stock to consultants for services performed valued at
$26,900. Additionally, the Company issued 2,817,914 shares of its common stock
pursuant to the exercise of previously outstanding warrants, generating net
proceeds intended to be used for general corporate purpose of $563,590. During
the quarter ended December 31 of 2004, the Company issued equity units
consisting of 10,717,700 shares of its common stock together with a like amount
of warrants, with an exercise price of $.25, in a private placement generating
net proceeds intended to be used for working capital and general corporate
purposes, of $2,116,600 of which $2,066,600 was collected through December 31,
2004 and $50,000 was collected in January of 2005. A consultant who assisted the
Company with this transaction also received 100,000 shares of the Company's
common stock.Additionally, the December 2004 private placement was closed out in
January of 2005 with the placement of 3,600,000 equity units at $.20 per unit
consisting of one share of common stock plus5 year warrants for a like amount of
shares with a strike price of $.25 per share generating net proceeds of $720,000
to the Company.

A January Private Placement realized net proceeds of $357,250 upon issuance
of 1,793,750 shares of Common Stock at $.20 per share plus 5 year warrants to
purchase 1,793,750 shares of Common Stock at $.25 per share. A later Private
Placement realized net proceeds of $1,351,000 upon issuance of 4,920,000 shares
of Common Stock plus 5 year warrants to purchase 4,920,000 shares of Common
Stock at $.25 per share.

In January of 2005 there were stock option awards issued to two consultants
for services performed. The company granted 250,000 options to a consultant for
professional services, these options provide for the right of stock purchase at
an exercise price of $.25, these options have a five year life and expire in
January of 2010. A second award issued a like number of options to another
service provider under similar terms, except that the options associated with
this second award offer a call feature, available to the company, for redemption
of such options at a call price of $.45 at any time during their five year life.
In aggregate, 400,000 options were issued in connection with these awards and
will result in a charge to General and Administrative non-cash expense in the
amount of $ 133,990 in the third quarter of fiscal 2005. The valuation of this
charge was made on the basis of the fair market value of the Company's common
stock on the date of grant using the Black-Scholes option premium model.

13

---

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

In February of 2005, GTARC tendered 5,069,242 of cashless warrants which they
held in connection with a previous debt settlement in exchange for 4,949,684 if
the company's shares of common stock, the balance of the 119,558 warrants were
effectively cancelled as a result of certain warrant exercise exchange
provisions adjusting the exchange rate based on specified stock pricing
experience as per the original debt settlement agreement.
A March Private Placement resulted in the realizationof net proceeds of $1,217,000 upon issuance of 4,396,667 shares of Common Stock
at $.30 per share plus 5 year warrants to purchase 4,396,667 shares of Common
Stock at $.30 per share.

On February 17 of 2005, the Company granted 2,600,000 warrants and 400,000
options to consultants for services performed valued at $ 1,328,600 and $
204,400, respectively. The warrants and options provide the right to purchase a
share of mPhase common stock at an exercise price $.45 and $.30 per share,
respectively, over their 5 year life expiring in February of 2010. These warrant
and option awards were valued on the basis of the fair market value of the
Company's common stock on the date of grant using the Black-Scholes option
premium model and the value of the award will be expensed to General and
Administrative non-cash expenses in the third quarter of fiscal 2005.

Also in January of 2005, Martin Smiley was awarded additional compensation of
425,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.31 on the date of that award.

8. DEBT CONVERSIONS AND EXTENSIONS

During the six months ending December 31, 2004, accounts payable in the
amount of $250,000 owed by mPhase to Microphase Corporation was cancelled in
exchange for the 1,250,000 shares of common stock and a 5 year warrant to
purchase a like amount of shares at $.25.In addition for such period, Janifast
Ltd. cancelled $200,000 of accounts payable owed by mPhase in exchange for
1,000,000 shares of common stock and a 5 year warrant to purchase a like amount
of shares at $.25 per share.

In late February and early March of 2005, the various vendors converted
approximately $173,898 in accounts payable due from the Company into 535,296
shares of Common stock aggregating $183,310 in full settlement of those
obligations.

Mr. Ronald A. Durando converted $13,000 of accrued and unpaid interest on
various demand notes issued by the Company for loans by Mr. Durando during the
six month period ended December 31, 2004 into 65,000 shares of common stock plus
a 5 year warrant to purchase a like amount of shares at $.25 per share. In
addition Mr. Durando converted $13,954 of principal of a $75,000 promissory note
into the exercise, in full , of a warrant to purchase 1,395,400 shares of common
stock at $.01 previously granted to Mr. Durando in exchange for cancellation of
unpaid compensation.

Mr. Gustave Dotoli, Chief Operating Officer of the Company converted $ 3,750
of accrued and unpaid interest on a $75,000 promissory note into 375,000 shares
of common stock at $.01 pursuant to a portion of a warrant previously granted to
Mr. Dotoli for unpaid compensation. A consultant of the Company converted
$20,000 of accounts payable owed by the Company to 100,000 shares of common
stock plus a 5 year warrant to purchase 100,000 shares of common stock at $.25
per share.

In addition a demand note payable to Martin Smiley, CFO and General
Counsel of mPhase, in the amount of $75,000 was converted into 375,000 shares of
common stock plus a 5 year warrant to purchase a like amount of shares at $.25
per share and Mr. Smiley extended from July 25, 2004 to July 25, 2005 a $100,000
promissory note carrying 12% interest. In addition Mr. Smiley converted accrued
and unpaid interest on his various promissory notes of $ 9,975  into 49,875 shares of common stock plus a 5 year warrant to purchase a
like amount of common stock at $.25 per share. Mr. Smiley's remaining $100,000
note is convertible into Common Stock of mPhase at the rate of $.25 cents per
share through July 25, 2009. Upon conversion, the note holder will be granted
warrants to purchase an equivalent amount of mPhase Common Stock at $.25 cents
per share for a period of five years from the date of conversion plus a 5 year
warrant for a like amount of shares at $.25 per share.

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)9. COMMITMENTS AND CONTINGENCIES
The Company has entered into various agreements with Georgia Tech Research
Corporation ("GTRC"), pursuant to which the Company receives technical
assistance in developing the commercialization of its Digital Video and Data
Delivery System (DVDDS). The amounts incurred by the Company for GTRC technical
assistance with respect to its research and development activities and included
in the accompanying consolidated statement of operations for the nine months
ending March 31, 2004 and 2005 and for the period from inception through March
31, 2005 totaled approximately $0, $0 and $13,539,952 respectively.
If and when sales commence utilizing this particular technology, the Company
will be obligated to pay to GTRC a royalty of up to 5% of sales of the Traverser
DVDDS.

15

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
The following is management's discussion and analysis of certain significant
factors, which have affected mPhase's financial position and should be read in
conjunction with the accompanying financial statements, financial data, and the
related notes.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995:
Some of the statements contained in or incorporated by reference in this Form
10-Q discuss the Company's plans and strategies for its business or state other
forward-looking statements, as this term is defined in the Private Securities
Litigation Reform Act of 1995. The words "anticipate," "believe," "estimate,"
"expect," "plan," "intend," "should," "seek," "will," and similar expressions
are intended to identify these forward-looking statements, but are not the
exclusive means of identifying them. These forward-looking statements include,
among others, statements concerning the Company's expectations regarding its
working capital requirements, gross margin, results of operations, business,
growth prospects, competition and other statements of expectations, beliefs,
future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. Any
forward-looking statements contained in this Quarterly Report on Form 10-Q are
subject to risks and uncertainties that could cause actual results to differ
materially from those results expressed in or implied by the statements
contained herein.
RESULTS OF OPERATIONS
OVERVIEW
mPhase, a New Jersey corporation, founded in 1996 is a publicly-held company
with over 13,000 shareholders and approximately 130 million shares of common
stock outstanding. The Company's common stock is traded on the Over the Counter
Bulletin Board under the ticker symbol XDSL. We are headquartered in Norwalk,
Connecticut with offices in Little Falls, NJ and New York, N.Y. mPhase shares
common office space with Microphase Corporation, a privately held company.
Microphase is a leader in the field of radio frequency and filtering
technologies within the defense and telecommunications industry. It has been in
operation for almost 50 years and supports mPhase with both engineering,
administrative and financial resources as needed.
16

mPhase develops, markets and sells a line of innovative DSL ("digital
subscriber line")-based broadband telecommunications equipment. Our flagship
product is our TV+ solution enabling the delivery of television over DSL by
telephone service providers. This product facilitates telephone companies
becoming full service communications providers by enabling the simultaneous
delivery of digital broadcast television, high speed data and voice services
over the existing telephone line infrastructure. mPhase has developed its
flagship product with a specific target in mind-telephone companies in parts of
the world where access to multi-channel television is limited. To that end,
mPhase's primary goal is to develop cost-effective TV over DSL solutions that
support proven, revenue-generating services (i.e., broadcast television) rather
than developing robust, feature-intensive and expensive platforms intended to
compete with cable companies such as those that exist in the US.
mPhase introduced its first TV over DSL product, the Traverser Digital Video
and Data Delivery System in 1999. The Traverser DVDDS, is a patented end-to-end
system based upon proprietary technology developed in conjunction with Georgia
Tech Research Corporation. Because it is an end-to-end video-over-ADSL system,
the Traverser does not interoperate with other manufacturer's DSL CO equipment
or CPE modems. This system is the only non-Internet Protocol system on the
market today.
The Traverser is installed at Hart Telephone Company in Hartwell. Hart Telephone competed the
construction of its digital head end toward the end of 2001, marking the Traverser's transition to commercial deployment. A Traverser system is also
installed at the BMW manufacturing plant in Spartanburg, South Carolina for use
as a telebroadcast system in a commercial setting.
The mPhase TV+ platform, developed in conjunction with the Bell Labs division
of Lucent Technologies, Inc. Lucent has replaced the Company's legacy Traverser
DVDDS system. The TV+ system enables telephone service providers to deliver high
speed data, and broadcast TV over copper telephone lines between a telephone
service provider's central office and the customer premises. The new mPhase TV+
system, developed in conjunction with Bell Laboratories division of Lucent
Technologies, Inc., is also designed to allow for the simultaneous delivery of
voice, high speed data, and broadcast TV over copper telephone lines between a
telephone service provider's central office (CO) and the customer premises. The
TV+ system was developed as an outgrowth of mPhase's engagement of Bell Labs in
fiscal year 2003 to cost reduce mPhase's set top box that operates with the
legacy DVDDS sytem developed by GTRC. The TV+ system replaces the DVDDS system
with an open industry standards-based platform. Release 2 of the mPhaseTV+
system is complete and ready for commercial deployment. The TV+ system delivers
255 broadcast television channels over ADSL and utilizes an industry-leading,
standards-based Lucent Technologies, Inc.'s Stinger TMDSL Access
Concentrator for transport of digital television plus high speed internet and
voice. The mPhase TV+ system consists of a powerful software platform and a cost
reduced set top box located in a telephone customer's premises plus the Lucent
Stinger located at the central office of the service provider or in the loop servicing the customer.
The mPhase TV+ system provides comprehensive end to end management of
delivery of digital broadcast television by interfacing with the Stinger and a
video headend built by a telephone service provider to downlink broadcast
television programming from satellites. mPhase software manages the broadcast
television compressed data prior to the distribution to a customer by the
Stinger and supports administrative tasks associated with subscriber management.
The use of the Lucent Stinger (digital subscriber line access mutiplexer
commonly known as a DSLAM) for transport in the TV+ system results in a highly
scalable architecture for the delivery of broadcast television. This is
accomplished by internally multicasting each television channel for delivery
from the CO to a larger number of end users. Release 1.0 of the TV+ system is
capable of distributing 255 channels of broadcast television simultaneously to
455 customers by one Lucent Stinger DSLAM concentrator. We believe that the TV+
platform is the most cost-effective standards-based solution for delivery of
broadcast television using ADSL. For mPhase the alliance with Lucent marks a
change in strategy from selling a complete proprietary platform to providing an
industry-standards solution.
The Company believes that the demand for the TV+ system will be greatest in
markets primarily outside of the United States that do not have a hybrid fiber
coaxial cable ("HFC") infrastructure necessary for cable TV or fiber to the curb
necessary for very fast DSL (VDSL). We believe there is a significant cost
advantage when our mPhase TV+ solution is compared against other platforms
utilizing existing telephone lines containing the
same
features. Release 1.0 of the mPhase
TV+ system completed in July of 2004 does not contain features such as the
delivery of two or more TV channels over a single DSL copper telephone line,
video on demand, or interactive TV. Release 2.0 of the TV+ completed in
September of 2004 contains the same basic characteristics of Release 1.0 plus an
enhanced electronic program guide. Releases 1.0 and 2.0 of the TV+ system are
designed to operate only with the Lucent Stinger DSLAM.

Release 3.0 of the TV+ solution, expected to be completed in the second
quarter of fiscal year 2006, will utilize a communications framework based upon
Internet Protocol (IP) instead of Asynchronous Transfer Mode (ATM) that is
utilized by Releases 1.0 and 2.0. ATM is an industry standard for transportation
of data based upon a packaging of information into a fixed-size cell format for
transportation across networks. Many telecommunications service providers
currently deploy equipment that handles this protocol because it can support
voice, video, data and multimedia applications simultaneously with a high degree
of reliability. IP is another

17

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transport protocol that maintains network information and routes packets
across networks. IP packets are larger and can hold more data than ATM cells.
Historically, there have been concerns that service providers would be unable to
provide the same quality of service with IP because it is not optimized for
time-sensitive signals such as broadcast television and voice. Nevertheless,
there is a greater demand by telecommunication service providers for IP systems
for delivery of television, voice and high-speed data because such systems are
significantly more cost effective to deploy based upon greater scalability.

Release 3.0 of the TV+ system will operate with both the Lucent Stinger as
well as the DSLAM's of other major vendors. Release 3.0 of the TV system will
also be able to send multiple TV channels down a single DSL line using ADSL2
supported DSLAM's and be capable of delivery of Video on Demand. As ADSL
technology migrates forward to ADSL2 or ADSL2+, mPhase plans to include
additional features in future versions of the TV+ system in a scalable, cost -
effective manner depending upon actualmarket demand for such features in markets that mPhase is
targeting. In addition, mPhase will be continuously updating its set top box to
be used as part of the TV+ system and as a stand - alone product.

For those television markets in the United States that are not served by HFC,
we believe the availability of programming content is essential to facilitate
potential sales of our TV platforms 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 legal support to service providers interested in
deploying television over ADSL for U.S. markets. mPhase TV has secured licenses
to resell programming for approximately 80 channels of U.S. broadcast
television. mPhase TV enables telecommunications service providers in the U.S.
to provide customers a full complement of television programming. This enables a
U.S. telecommunications service provider to avoid the necessity of securing such
contracting rights individually with many different providers of broadcast
television content. It is 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 and serve as an aggregator of television content. This
would eliminate the need for a telecommunications service provider, purchasing a
TV delivery platform from mPhase, from having to build a full scale television
reception facility (head-end) to downlink broadcast television channels from
satellites orbiting the earth. However, recent advances in technology have
significantly reduced the costs for a telephone company to build a full scale
headend. Therefore, the role of mPhaseTV is now limited to providing the
appropriate licenses and relationships as opposed to offering a content
aggregation solution. As part of its cost reduction efforts, mPhase terminated
its lease of Alphastar's earth station satellite uplink and downlink facility in
Oxford, CT. mPhase owns approximately 57% of mPhase TV.

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

mPhase DSL Component Products - mPhase also has designed and markets a line
of DSL component products ranging from items such as Plain Old Telephone Service
(POTS) splitters to innovative loop management products. From our inception in
1996 to date virtually all of mPhase's revenue has been derived from sales of
our component DSL products such as POTS splitters and low pass filters. Our
newest innovation in our suite of DSL component products is our iPOTS or
Intelligent POTS splitter product. This product enables telephone service
providers comprehensive remote and automated test access to all elements of a
DSL network. The iPOTS1, and iPOTS3 allow a telephone service provider to bypass
POTS splitters on a DSL network and avoid having to manually intervene and
disrupt line usage so a test signal can pass through a DSL network. This product
marks an advancement in automating DSL loop management. As DSL deployments
increase, it is becoming more important for telecommunications service providers
to streamline the process for rolling-out and troubleshooting DSL services.
Additionally, as competition for high speed Internet expands, the market is
witnessing a reduction in the price for such service. Therefore, it has become
imperative that telecommunications service providers lower the operational costs
involved with supporting DSL services. Currently our iPOTS1 is designed for use
with the Lucent Stinger, whereas, the iPOTS3 (recently renamed the "Broadband
Watch") product is compatible with DSLAM's manufactured by other vendors. mPhase
currently has a non-exclusive worldwide distribution agreement with Corning
Cable Systems for the sale of the iPOTS products.

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

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

In on March 10, 2005, the Company expanded its development of Nanotechnology
products by entering into an agreement with the Bell Labs division of Lucent
Technologies Inc. to develop a Micro Electro Mechanical System directional
sensor. In February of 2005 the Company extended its contract entered into in
February of 2004 for an additional 12 months for exploratory development of a
new power cell with an extended shelf life utilizing the science of
Nanotechnology.

Revenues. To date, all material revenues have been generated from sales of
the POTS Splitter Shelves and other DSL component products to a small number of
telecommunications companies. In December of 2004, the Company received an order
for 1000 ports at a price of 280 per port of its TV+ product from Lucent Russia
for deployment by a major telephone service provider in Russia. Future revenues
because of the length and variability of the commercial roll-out of the TV+ to
various telecommunications service providers. Since the Company believes that
there may be a significant international market for the TV+ involving many
different countries, with different regulations, certifications and commercial
practices than the United States, future revenues are highly subject to the
changing variables and uncertainties. Additionally, the recent instability of
the telecommunications market evidenced by reduction in capital spending across
the whole telecom sector contributes to our difficulty in accurately predicting
future revenues.

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

Research and development. Research and development expenses consist
principally of payments made to Lucent Technologies, Inc. for development of its
TV+ and exploratory research of Nanotechnology battery. In addition, the Company
has incurred certain research and development expenses with Mircrophase
Corporation in connection with its Broadband Watch product. All research and
development costs are expensed as incurred.

General and administrative. Selling, general and administrative expenses
consist primarily of salaries and related expenses for personnel engaged in
direct marketing of the TV+, the POTS Splitter Shelves and other DSL component
products and Nanotechnology battery product, as well as support functions
including executive, legal and accounting personnel. Certain administrative
activities are outsourced on a monthly fee basis to Microphase Corporation.
Finally, mPhase leases the principal office from Microphase Corporation.
Non-cash compensation charge. The Company makes extensive use of stock options
and warrants as a form of compensation to employees, directors and outside
consultants. From inception (October 2, 1996) through March 31, 2005 the Company
has incurred cumulative (a) development stage losses and has an accumulated
deficit of $125,259,323 and (b) negative cash flow from operations of $54,120,374.
The auditors report for the fiscal year ended June 30, 2004 includes the
statement that "there is substantial doubt of the Company's ability to continue
as a going concern". Management estimates that the Company needs to raise
approximately $5,000,000-$10,000,000 during the next 12 months to continue its
present level of operations. As of March 31, 2005, the Company had a negative
net worth of $2,537,180 compared to a negative net worth of $2,917,962 as a
result of continuing net losses incurred after June 30, 2004.

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In fiscal 2001, the Company had anticipated that the sales of its component
products would be able to supplement the underwriting of the completion of our
flagship product television over DSL product line. In fiscal 2002 these sales
declined with the overall decline of DSL deployments and spending in the
telephone industry. For the second three months of fiscal year 2005, sales of
POTS splitters were $171,864. The Company believes its new IPOTS product will
capture some of the existing DSL deployments, providing increases in revenue in
the fourth quarter of fiscal 2005. Until such time such revenues are realized,
the Company intends on maintaining its reduced cost structure to minimize its
losses, which management believes will permit the Company to sustain its
development process and ultimately achieve profitability.

The Company believes that significant deployments and resulting revenues from
the deployment of the TV+ are not expected until the second quarter of fiscal
year 2006.. The Company further believes that an increase in capital
expenditures in the telecommunications industry will also increase sales and
improve the Company's margins as well as increase the probability that the
Company will attain profitability. The Company does not expect to derive any
material revenue from its Nanotechnology product development until fiscal year
2006

THREE MONTHS ENDED MARCH 31, 2005 VS. MARCH 31, 2004

REVENUE

Total revenues were $564,316 for the three months ended March 31, 2005
compared to $555,339 for the three months ended March 31, 2004. The revenue for
the three months ended March 31, 2005 included of $68,860 of revenues from
deployment of its TV+ product in Russia and revenues from POTS Splitter sales
that decreased slightly.. The Company continues to believe that its line of POTS
Splitter products is positioned to be competitively priced with high reliability
and connectivity, and as such has the potential to be a part of continuing DSL
deployment worldwide. The Company cannot predict when a new upturn in sales of
its POTS Splitter product might begin. The revenue was primarily from one
customer, Covad Communications.

COST OF REVENUES

Cost of sales were $448,312 for the three months ended March 31, 2005 as
compared to $483,964 in the comparable prior period in 2004, representing 79.4%
of gross revenues for the quarter ended March 31, 2005 and 81.1% for the
quarter ended March 31, 2004, respectively. Our margins have contracted
dramatically over the past three years as spending among the telecommunications
providers has contracted, coupled with downward pressures related to the supply
and demand of telecommunications products. Margins for the quarter ended March
31, 2005, increased by 1.7% over the margins for the same period ended March 31,
2004 due primarily due to enhanced margins associated with deployment of the
Company's TV+ product.

RESEARCH AND DEVELOPMENT

Research and development expenses were $1,663,967 for the three months ended
March 31, 2005 as compared to $1,403,817 during the comparable period in 2004
or an increase of $260,150. This consists of increased spending in TV+ product
development activity and Nanotechnology battery and the new Magnetometer
product. Both areas represent activities contracted though Lucent Technologies
and other vendors and managed by mPhase. Reduced spending with Microphase
Corporation partially offsets these spending increases.

20

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The Company expects continued increases in research and development costs
throughout fiscal year 2005 as the Company continues and expands its development
through Lucent Technologies, Inc of the TV+ and Nanotechnology product lines..
In order to broaden and diversify its current line of business into additional
high growth technology areas, the Company plans to continue its development
efforts commenced in fiscal year 2004, with the Bell labs division of Lucent
Technologies, Inc. to commercialize the use of nano power cell technology and
Magnetometer sensors. Lucent/ Bell Labs is developing for mPhase micro-power
source arrays fabricated using nanotextured, superhydrophobic materials as well
as directional sensors. The business arrangement with Lucent Bell Labs will give
mPhase the opportunity to develop and offer breakthrough battery technology
applications, initially to government market segments including defense and
homeland security, and ultimately to the commercial market. The initial
applications for the nano power cell technology will address the need to supply
emergency and reserved power to a wide range of electronic devices for the
defense department and sensors with military applications.

Research expenditures incurred with Microphase were related to the continuing
development of the company's DSL component products, including the company's
line of pots splitters and microfilters and the company's newest products, the
ipots(tm) and the mphase
stretch. We believe the mphase ipots(tm) offers a much-needed solution for the DSL industry; the
ipots(tm) or Broadband
Watch product that enables telcos to remotely and cost-effectively perform loop
management and maintenance including line testing, qualification and
troubleshooting. Prior to the introduction of such product , loop management
could not be remotely performed through a conventional pots splitter without
manual intervention.. The unique (patent pending)
ipots(tm) or Broadband
Watch circuit allows most test heads to perform both narrow and wideband testing
of the local loop through the central office pots splitter without having to
physically disconnect the pots splitter, thereby eliminating the need to
dispatch personnel and a truckroll.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $2,636,066 for the three
months ending March 31, 2005 up from $1,403,817 or an increase of $1,232,249
from the comparable period in 2004. The increase in the selling, general and
administrative costs is comprised primarily of non-cash charges relating to the
issuance of common stock and options to consultants, which totaled $1,688,500
for the three months ended March 31, 2005 as compared to $36,900 for the
comparable period ended March 31, 2004. The increase in selling, general and
administrative expenses is also attributable to $185,724 of expenses associated
with adjustments of offering prices of certain of the private placements
completed in fiscal year 2005.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $65,144 for the three months ending
March 31, 2005, up from $26,801, or an increase of $38,343 from the comparable
period in 2004. The increase is a result of the company's increased outlays for
capital expenditures. We expect such depreciation and amortization expense
should remain at the current reduced levels until the company commences
deployment of its television over DSL platforms. We expect to increase capital
expenditures in connecting with the deployment of equipment at test sites with
various telecommunications service providers globally as deployment of our TV+
product progresses.

NET LOSS

The Company recorded a net loss of $4,326,448 for the three months ended
March 31, 2005 as compared to a loss of $2,334,396 for the three months ended
March 31, 2004. This represents a loss per common share of $.04 for the three
month period ended March 31, 2005 as compared to a loss per common share of $.03
for the three months ending March 31, 2004; based upon weighted average common
shares outstanding of 120,015,504 and 81,564,405 during the periods ending March
31, 2005 and 2004, respectively.

Although it is difficult to predict the exact timing of additional material
deployments of its TV+ product, the Company believes that significant revenue is
not expected until the second quarter of fiscal year 2006, which along with any
upturn of spending in the telephone industry, will also increase sales and
improve the Company's operating margins and provide the Company with the
opportunity to attain profitability sometime in fiscal year 2006.

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NINE MONTHS ENDED MARCH 31, 2005 VS. MARCH 31, 2004
REVENUE

Total revenues were $1,039,003 for the nine months ended March 31, 2005
compared to $4,335,476 for the nine months ended March 31, 2004. The decrease
was attributable primarily to significantly decreasing sales of the Company's
POTS Splitter product. There remains continued volatility in capital spending in
the telecommunications market, including customers that order component products
from the Company. The Company continues to believe that its line of POTS
Splitter products is positioned to be competitively priced with high reliability
and connectivity, and as such has the potential to be a significant part of DSL
deployment worldwide. The Company cannot predict future demand for such product
line.

COST OF REVENUES

Cost of sales was $823,217 for the nine months ended March 31,
2005 as compared to $3,878,389 in the prior period, corresponding with the
substantial decrease in sales.  Cost of revenues were 79.2% and 98.5% respectively of gross revenues, for
the nine months ended March 31, 2005 and 2004.

RESEARCH AND DEVELOPMENT

Research and development expenses were $3,820,128 for the nine months ended
March 31, 2005 as compared to $2,858,715 during the comparable period in 2004 or
an increase of $961,413. The increased
expenditures represented an expansion of contract R&D activities, consisting of
approximately $ 500,000 in increased spending on Nanotechnology and
approximately $ 200,000 in the start up of Magnetometer Research and
Development. The balance of the increase is attributed to increased TV+ Version

3.0 spending.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $5,416,357 for the nine
months ending March 31, 2005, up from $2,196,052 or an increase of $3,220,305
from the comparable period in 2004. The increase in the selling, general and
administrative costs included an increase of non-cash charges relating to the
issuance of common stock, warrants and options to outside consultants and Company Officers
of $ 8,577,940 and $ 757,040, respectively. Non-cash expense associated with
reparation of the offering processes of certain private placements completed in
this fiscal year also accounted for $ 181,721 of the increase in spending.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $193,650 for the nine months ending
March 31, 2005, up from $100,883, or an increase of $92,767 from the comparable
period in 2004. The increase is a result of the Company's increased outlays for
capital expenditures. We do expect such upward trend to continue but such
depreciation and amortization expense should remain at the current reduced
levels until the Company commences full deployment of its Version 3.0 of its TV+
platform. We expect to increase capital expenditures in connecting with the
deployment of equipment at test sites with various telecommunications service
providers globally as development of Version 3.0 of our TV+ product progresses.

NET LOSS

The Company recorded a net loss of $9,484,240 for the nine months ended March
31, 2005 as compared to a loss of $4,899,771 for the nine months ended March 31,
2004. This represents a loss per common share of $.09 for the nine month period
ended March 31, 2005 as compared to a loss per common share of $.07 for the nine
months ending March 31, 2004 based upon weighted average common shares
outstanding of 101,062,839 and 75,312,435 during the periods ending March 31,
2005 and 2004, respectively. Although it is difficult to predict the exact
timing of our fist sales, the company believes the initial major deployments and
the resultant revenues of its flagship products, the TV+ platform respectively,
are not expected until the second quarter of fiscal year 2005, which along with
any upturn of spending in the telephone industry, will also increase sales and
improve the Company's operating margins and provide the company with the
opportunities to attain profitability.

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CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION

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

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

RESEARCH AND DEVELOPMENT

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

INCOME TAXES

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

Utilization of net operating losses generated through March 31, 2005 may be
limited due to "changes in control" of our common stock that occurred.

STOCK-BASED COMPENSATION

Financial Accounting Statement No. 123, Accounting for Stock Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation for grants to
employees using the intrinsic method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock. The
Company has adopted the "disclosure only" alternative described in SFAS 123 and
SFAS 148, which require pro forma disclosures of net income and earnings per
share as if the fair value method of accounting had been applied. The Company
accounts for non-employee stock based awards in which goods or services are the
consideration received for the equity instruments issued based on the fair value
of the consideration received or the fair value of the equity instrument issued,
whichever is more readily determinable.

INVENTORY RESERVE AND VALUATION ALLOWANCE

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

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MATERIAL RELATED PARTY TRANSACTIONS

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

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

Mr. Durando, the President and CEO of mPhase, owns a controlling interest and
is a director of Janifast Limited. Mr. Durando and Mr. Dotoli are officers of
Microphase Corporation. Mr. Ergul, the chairman of the board of mPhase, owns a
controlling interest and is a director of Microphase Corporation. Microphase,
and Janifast, are significant shareholders of mPhase. Microphase and Janifast
Ltd. and Hart Telephone have converted significant liabilities to equity in
fiscal years June 30, 2001, 2002 and 2003 and Janifast Ltd. and Microphase
Corporation converted $200,000 and $250,000 of accounts payable respectively
into common stock and warrants as of December 31, 2004. Management believes the
amounts charged to the Company by Microphase, Janifast, mPhase Television.net
and Hart Telephone are commensurate to amounts that would be incurred if outside
parties were used. The Company believes Microphase, Janifast and Hart Telephone
have the ability to fulfill their obligations to the Company without further
support from the Company.

Mr. Durando's June 30, 2004 note payable balance of $300,00 was repaid by the
Company during the nine month period ending March 31, 2005. During the 9 month
period, Mr. Durando made additional bridge loans to the Company evidenced by
various 12% demand notes in the Aggregate of $525,000. Mr. Durando was repaid a
total of $450,000 of such loans in January of 2005. In addition, Mr. Durando
converted $13,954 of the principal amount of a $75,000 promissory note leaving
unpaid principal of $61,046 outstanding. Mr. Durando converted $13,000 of
accrued and unpaid interest on various promissory notes of the Company into
65,000 shares of common stock and a 5 year warrant to purchase a like amount of
common stock at $.25 per share.

During the 9 month period ended March 31, 2005 Mr. Dotoli and Mr. Smiley, the
COO and CFO and General Counsel of the Company respectively, each lent the
Company $75,000. Mr. Dotoli was repaid, the principal amount of such loan, in
cash in January of 2005 and Mr. Smiley converted his $75,000 loan into 375,000
shares of common stock of the Company plus a 5 year warrant to purchase a like
amount of shares at $.25 per share.  In addition, Mr. Smiley converted
$9,975 of accrued interest into 49,875 shares of common stock plus a 5 year
warrant to purchase a like amount of shares at $.25 per share.  Finally Mr.
Smiley received 25,000 additional shares of common stock as a market adjustment
to his equity investment of $25,000 on August 30, 2004.  Mr. Dotoli cancelled $3,750 of accrued and
unpaid interest from August 15, 2004 through January 15, 2004 into 375,000
shares of common stock pursuant to the terms of a portion of a warrant that was
exercised at $.01 per share previously given by the Company to Mr. Dotoli in
exchange for and cancellation of unpaid compensation.

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LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2005 mPhase had working capital deficit of $2,740,777 as
compared to working capital deficit of $1,951,928 at March 31, 2004. Through
March 31, 2005, the Company had incurred development stage losses totaling
approximately $125,259,255. At March 31, 2005, the Company had approximately
$237,828 of cash, cash equivalents and approximately $354,903 of trade
receivables to fund short-term working capital requirements. The Company's
ability to continue as a going concern and its future success is dependent upon
its ability to raise capital in the near term to: (1) satisfy its current
obligations, (2) continue its research and development efforts, and (3) the
successful wide scale development, deployment and marketing of its products.

Historically, mPhase has funded its operations and capital expenditures
primarily through private placements of common stock. Management expects that
its ongoing financial needs will be provided by financing activities and
believes that the sales of its line of POTS Splitter products and other related
DSL component products will provide some offset to cash flow used in operations,
although there can be no assurance as to the level and growth rate of such sales
in future periods as seen with quarter to quarter fluctuations in component
sales. At March 31, 2005, the Company had cash and cash equivalents of $237,828
compared to $90,045 at June 30, 2004, accounts receivable of $354,903 and
inventory of $862,963. This compared to $64,100 of accounts receivable and
$1,237,972 of inventory at June 30, 2004.

Cash used in operating activities was $6,227,289 during the nine months ending
March 31, 2005. The cash used by operating activities principally consists of
the net loss, and significant changes in assets and liabilities, including
additional cash provided by increasing accounts payable and accrued expenses by
approximately $1,152,002 offset by depreciation and amortization of $277,077,
and by non-cash charges of $2,733,640 for common stock options and warrants
issued for services and cash flow provided from a decrease in inventory of
approximately $375,009. The Company does not expect decreases of inventory to be
as significant in upcoming quarters, yet we will not need to increase inventory
until the roll out of our TV+ platform.

The Company has entered into various agreements with GTARC, pursuant to which
the Company receives technical assistance in developing the Digital Video and
Data Delivery System. The Company has incurred expenses in connection with
technical assistance from GTARC totaling approximately $0, $0, for the three
month periods ended March 31, 2005 and 2004, respectively, and $13,539,932 from
the period from inception through March 31, 2005. In February of 2005 GTARC exercised
a previously outstanding cashless warrant for 4,949,684 shares of the Company's common stock valued at
$.1,963,202 under the terms of an Agreement with GTARC entered into in February
of 2004 to convert approximately $1.8 million in outstanding payables into a 5
year cashless warrant to purchase up to 5.069,200 shares of the Company's common
stock through 2009. GTRC may receive a royalty of up to 5% from any future sales
by the Company of its legacy Traverser DVDDS product.

As of March 31, 2005, mPhase is obligated to pay Lucent Technologies, Inc.,
the sum of $784,000 in 5 payments of $156,800 each against project milestones
under its current Development Agreement for development of Version 3.0 of its
TV+ product. In addition, the Company is obligated to make payments of $100,000
per month through February of 2006 under a renewal of a Development Agreement
originally entered into in February of 2004 with Lucent covering development of
its new battery developed through the science of NanoTechnology as well as
$100,000 per month under a separate Development Agreement with Lucent through
March of 2006 in connection with the development of its Ultra Sensitive
Manoetometer also being developed through the use of Nanotechnology.

24

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LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS

From inception (October 2, 1996) through March 31, 2005 the Company had
incurred development stage losses and has an accumulated deficit of
approximately $125,259,323 and a stockholder's deficit of $2,537,180. For the
nine months ended March 31, 2005, and from inception through March 31, 2005
respectively, the Company had negative cash flow from operations of $6,277,032 and
$54,120,374 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 fiscal year ended June 30,2004 stated that "there is substantial
doubt of the Company's ability to continue as a going concern". Management
estimates that the Company will need to raise approximately $5-10 million during
the next 12 months to continue its present level of operations.

We continue our efforts to raise additional funds through
private placements of our common stock and strategic alliances, the proceeds of
which are required to fund continuing expenditures and the controlled
development stage rollout of our TV+. However, there can be no assurance that
mPhase will generate sufficient revenues to provide positive cash flows from
operations or that sufficient capital will be available, when needed or at terms
that we deem to be reasonable.

We have evaluated our cash requirements for the remainder of fiscal year 2005
based upon certain assumptions, including our ability to raise additional
financing and increased sales of our POTS Splitter, Broadband Watch and TV+
products . The Company anticipates that it will need to raise, at a minimum,
approximately $5-10 primarily in private placement of its common stock with
accredited investors, during the next 12 months, or alternatively we will need
to curtail certain expenses as incurred at the present levels including
marketing and research and development expenses. Additional investments in
development of the TV+ and Nanotechnology battery products will be required in
the next 12 months.

Management believes that the up to $10 million to be raised, in new Private
Placements in the capital markets, will be sufficient to cover its current
operating expenses and permit the company to maintain its present operational
levels. This amount may be supplemented with additional funds that could be
received from investors, currently holding warrants to purchase up to a total of
approximately 19.8 million shares of common stock at exercise prices of
approximately $.30 per share which are presently "in the money" and can be
exercised during the next 12 months.

Should these cash flows not be available to us, we believe we would have the
ability to revise our operating plan and make certain further reductions in
expenses, so that our resources which were available at March 31, 2005, plus
financing to be secured during the balance of fiscal year 2005, and expected
POTS splitter revenues, will be sufficient to meet our obligations through the
end of fiscal year 2005 . We have continued to experience operating losses and
negative cash flows. To date, we have funded our operations with a combination
of component sales debt conversions with related parties and strategic vendors,
and private equity offerings. Management believes that we will be able to secure
the necessary financing in the short-term to fund our operations into our next
fiscal year. However, failure to raise additional funds, or generate significant
cash flows through revenues, could have a material adverse effect on our ability
to achieve our intended business objectives.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not exposed to changes in interest rates as the Company has no
debt arrangements and no investments in certain held-to-maturity securities.
Under our current policies, we do not use interest rate derivative instruments
to manage exposure to interest rate changes. A hypothetical 100 basis point
adverse move in interest rates along the entire interest rate yield curve would
not materially affect the fair value of any financial instruments at March 31,
2005.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of management including the
Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14c and of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedures are effective. There were no changes in our internal control over
financial reporting during the quarter ended March 31, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

ITEM 2. CHANGES IN SECURITIES

Effective for the three-month period ended March 31, 2005 the Company issued
the following unregistered securities:

The December 31, 2004 and outstanding subscriptions receivable balance of $
50,000 was fully collected in January of 2005. Additionally, the December 2004
private placement was closed out in January of 2005 with the placement of
3,600,000 equity units at $.20 per unit consisting of one share of common stock
plus5 year warrants for a like amount of shares with a strike price of $.25 per
share generating net proceeds of $720,000 to the Company.

A January Private Placement realized net proceeds of $357,250 upon issuance
of 1,793,750 shares of Common Stock at $.20 per share plus 5 year warrants to
purchase 1,793,750 shares of Common Stock at $.25 per share.

A later Private Placement realized net proceeds of $1,351,000 upon issuance
of 4,920,000 shares of Common Stock plus 5 year warrants to purchase 4,920,000
shares of Common Stock at $.25 per share.

In January of 2005 there were stock option awards issued to two consultants
for services performed. The company granted 250,000 options to a consultant for
professional services, these options provide for the right of stock purchase at
an exercise price of $.25, these options have a five year life and expire in
January of 2010. A second award issued a like number of options to another
service provider under similar terms, except that the options associated with
this second award offer a call feature, available to the company, for redemption
of such options at a call price of $.45 at any time during their five year life.
In aggregate, 400,000 options were issued in connection with these awards and
will result in a charge to General and Administrative non-cash expense in the
amount of $ 133,990 in the third quarter of fiscal 2005. The valuation of this
charge was made on the basis of the fair market value of the Company's common
stock on the date of grant using the Black-Scholes option premium model.

In February of 2005, GTARC tendered 5,069,242 of cashless warrants which they
held in connection with a previous debt settlement in exchange for 4,949,684 of
the company's shares of common stock, the balance of the 119,558 warrants were
effectively cancelled as a result of certain warrant exercise exchange
provisions adjusting the exchange rate based on specified stock pricing
experience as per the original debt settlement agreement.

A March Private Placement resulted in the realization of net proceeds of
$1,217,000 upon issuance of 4,396,667 shares of Common Stock at $.30 per share
plus 5 year warrants to purchase 4,396,667 shares of Common Stock at $.30 per
share.

On February 17 of 2005, the Company granted 2,600,000 warrants and 400,000
options to consultants for services performed valued at $ 1,328,600 and $
204,400, respectively. The warrants and options provide the right to purchase a
share of mPhase common stock at an exercise price $.45 and $.30 per share,
respectively, over their 5 year life expiring in February of 2010. These warrant
and option awards were valued on the basis of the fair market value of the
Company's common stock on the date of grant using the Black-Scholes option
premium model and the value of the award will be expensed to General and
Administrative non-cash expenses in the third quarter of fiscal 2005.

On January 15, 2005, the company converted a $ 100, 000 convertible note
payable to Martin Smiley in exchange for 400,000 shares and a like number of
warrants that were price at $25 per unit or $100,000 in aggregate.

Also in January of 2005, Martin Smiley was awarded additional compensation of
425,000 shares of common stock. . This award will result in a charge to General
and Administrative non-cash expense in the amount of $ 131,750 in the third
quarter of fiscal 2005, representing an expense recognition consistent with the
market price of that stock of $.31 on the date of that award.

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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

(1) On January 21, 2005 the Company reported on Form 8-K the sale of a
    private placement of 14,467,500 equity units at $.20 per unit of
    unregistered securities.
    (2) On February 28, 2005 the Company reported on Form 8-K the
    collaboration with Rutgers University on expanding applications and
    chemistry for a nanotechnology battery.
    (3) On March 11, 2005 the Company reported on Form 8-K that it had
    reached an agreement with the Bell Labs division of Lucent Technologies Inc
    for co development and commercialization of uncooled magnetic ultra sensors
    through the science of Nanotechnology.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.
28

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SIGNATURES

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

|                        | mPHASE
    TECHNOLOGIES, INC.  
|----------------------- | -------------------------------
|Dated: May 19,
    2005 | By: /s/ Martin S.
    Smiley   
|                        | Martin S. Smiley               
|                        | Executive Vice
    President   
|                        | Chief Financial
    Officer and
|                        | General Counsel                



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