UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q/A

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

COMMISSION FILE NO. 000-24969

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

|NEW JERSEY                               | 22-2287503            
|---------------------------------------- | ----------------------
|(State or other jurisdiction of          | (I.R.S. Employer      
|incorporation 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 FEBRUARY 9, 2006 IS 213,181,075
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, 2005 and December 31, 2005                                                | 3   
|               | Unaudited Consolidated
    Statements of Operations-Three months ended December 31, 2004 and 2005 and
    from October 2,    |     
|               |                                                                                                                              | 4   
|               | 1996                                                                                                                         |     
|               | (Date of Inception) to
    December 31, 2005                                                                                 |     
|               | Unaudited Consolidated
    Statements of Operations-Six Months ended December 31, 2004 and 2005 and
    from October 2, 1996 |     
|               |                                                                                                                              | 5   
|               | (Date                                                                                                                        |     
|               | of Inception) to
    December 31, 2005                                                                                       |     
|               | Unaudited Consolidated
    Statement of Changes in Shareholders Deficit Six months ended December 31,
    2005               | 6   
|               | Unaudited Consolidated
    Statement of Cash Flow-Six Months Ended December 31, 2004 and 2005 and from
    October 2, 1997   |     
|               |                                                                                                                              | 7   
|               | (Date                                                                                                                        |     
|               | of Inception) to
    December 31, 2005                                                                                       |     
|               | Notes to Consolidated
    Financial Statements                                                                               | 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,      |   | December 31, 
|------------------------------------------------------------------------------------- | - | ------------- | - | -------------
|                                                                                      |   | 2005          |   | 2005         
|ASSETS                                                                                |   |               |   |              
|CURRENT ASSETS                                                                        |   |               |   |              
|Cash and cash
    equivalents                                                         | $ | 351,185       | $ | 1,172,757    
|Accounts receivable, net
    of bad debt reserve of $0 for each period                |   | 533,841       |   | 158,594      
|Stock subscription
    receivable                                                     |   | 460,000       |   | -            
|Inventories, net                                                                      |   | 490,142       |   | 447,943      
|Prepaid expenses and
    other current assets                                         |   | 25,622        |   | 57,735       
|TOTAL CURRENT ASSETS                                                                  |   | 1,860,790     |   | 1,837,029    
|                                                                                      |   |               |   |              
|Property and equipment,
    net                                                       |   | 162,692       |   | 303,175      
|Patents and licensing
    rights, net                                                 |   | 141,451       |   | 108,803      
|Other Assets                                                                          |   | 67,250        |   | 50,000       
|TOTAL ASSETS                                                                          |   | 2,232,183     |   | 2,299,007    
|                                                                                      |   |               |   |              
|LIABILITIES AND
    STOCKHOLDERS' EQUITY                                              |   |               |   |              
|CURRENT LIABILITIES                                                                   |   |               |   |              
|Accounts payable                                                                      |   | 1,691,338     |   | 1,990,485    
|Accrued expenses                                                                      |   | 431,765       |   | 429,866      
|Due to related parties                                                                |   | 721,569       |   | 84,940       
|Notes payable, related
    parties                                                    |   | 277,000       |   | 417,000      
|Current portion of long
    term debt                                                 |   | 413,537       |   | 370,493      
|TOTAL CURRENT
    LIABILITIES                                                         |   | 3,535,208     |   | 3,292,784    
|                                                                                      |   |               |   |              
|Long-term debt, net of
    current portion                                            |   | 100,000       |   | -            
|Other Liabilities                                                                     |   | 214,709       |   | 360,408      
|                                                                                      |   |               |   |              
|COMMITMENTS AND
    CONTINGENCIES (Note 10)                                           |   | -             |   | -            
|STOCKHOLDERS' DEFICIT                                                                 |   |               |   |              
|Common stock, stated
    value $.01, 500,000,000 shares authorized; 145,048,832 and   |   |               |   |              
|212,374,047 shares
    issued and outstanding at June 30, 2005 and December 31, 2005, |   |               |   |              
|respectively                                                                          |   | 1,450,489     |   | 2,123,741    
|Additional paid in
    capital                                                        |   | 123,949,156   |   | 134,933,508  
|Deficit accumulated
    during development stage                                      |   | (127,009,407) |   | (138,403,461)
|Less-Treasury stock,
    13,750 shares at cost                                        |   | (7,973)       |   | (7,973)      
|TOTAL STOCKHOLDERS'
    DEFICIT                                                       |   | (1,617,735)   |   | (1,354,185)  
|TOTAL LIABILITIES AND
    STOCKHOLDERS' DEFICIT                                       | $ | 2,232,183     | $ | 2,299,007    

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

3








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

|                                                                 |   |                    |              |             |   | October 2, 1996    
|---------------------------------------------------------------- | - | ------------------ | ------------ | ----------- | - | -------------------
|                                                                 |   | Three Months Ended |              |             |  
|                                                                 |   |                    |              |             |   | (Date of Inception)
|                                                                 |   |                    | December 31, |             |   | to December 31,    
|                                                                 |   | 2004               |              | 2005        |   | 2005               
|REVENUES                                                         | $ | 295,524            | $            | 168,208     | $ | 21,868,927         
|COSTS AND EXPENSES                                               |   |                    |              |             |   |                    
|Cost of Sales (including
    $213,258 and $135,098               |   |                    |              |             |   |                    
|incurred with related
    parties in 2004 and 2005 respectively) |   | 245,124            |              | 135,098     |   | 15,832,429         
|Research and development                                         |   |                    |              |             |   |                    
|(including non-cash
    stock related charges of $385,495,       |   |                    |              |             |   |                    
|$135,550 and $2,250,219,
    respectively)                       |   | 1,173,046          |              | 1,960,650   |   | 47,366,308         
|General and
    Administrative                                   |   |                    |              |             |   |                    
|(including non-cash
    stock related charges of $1,127,833,     |   |                    |              |             |   |                    
|$1,175,075 and
    $51,555,300, respectively)                    |   | 1,885,675          |              | 2,090,185   |   | 86,823,532         
|Depreciation and
    amortization                                |   | 9,200              |              | 20,495      |   | 2,993,350          
|TOTAL COSTS AND EXPENSES                                         |   | 3,313,045          |              | 4,206,432   |   | (153,015,619)      
|LOSS FROM OPERATIONS                                             |   | (3,017,521)        |              | (4,038,224) |   | (131,146,692)      
|OTHER INCOME (EXPENSE)                                           |   |                    |              |             |   |                    
|Gain (Loss) on
    extinguishments and settlements               |   | (185,721)          |              | (4,270,511) |   | (5,625,777)        
|Minority interest loss
    in consolidated subsidiary            |   | -                  |              | -           |   | 20,000             
|Capital losses                                                   |   | (36,911)           |              | -           |   | (48,669)           
|Loss from unconsolidated
    subsidiary                          |   | -                  |              | -           |   | (1,466,467)        
|Interest Income
    (expense), net                               |   | (65,777)           |              | (6,083)     |   | (135,856)          
|TOTAL OTHER INCOME
    (EXPENSE)                                 |   | (288,409)          |              | 4,276,594   |   | (7,256,769)        
|NET LOSS                                                         | $ | (3,305,930)        | $            | (8,314,818) | $ | (138,403,461)      
|                                                                 |   |                    |              |             |   |                    
|LOSS PER COMMON SHARE,
    basic and diluted                     | $ | (.04)              | $            | (.05)       |   |                    
|WEIGHTED AVERAGE COMMON                                          |   |                    |              |             |   |                    
|SHARES OUTSTANDING,
    basic and diluted                        |   | 93,388,584         |              | 174,998,048 |   |                    

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)

|                                                                 |   |                  |              |              |      | October 2,   
|---------------------------------------------------------------- | - | ---------------- | ------------ | ------------ | ---- | -------------
|                                                                 |   | Six Months Ended |              |              | 1996
|                                                                 |   |                  |              |              |      | (Date of     
|                                                                 |   |                  |              |              |      | Inception) to
|                                                                 |   |                  | December 31, |              |      | December 31, 
|                                                                 |   | 2004             |              | 2005         |      | 2005         
|REVENUES                                                         | $ | 474,687          | $            | 548,802      | $    | 21,868,927   
|COSTS AND EXPENSES                                               |   |                  |              |              |      |              
|Cost of Sales (including
    $326,167 and $443,327               |   |                  |              |              |      |              
|incurred with related
    parties in 2004 and 2005 respectively) |   | 374,905          |              | 473,071      |      | 15,832,429   
|Research and development                                         |   |                  |              |              |      |              
|(including non-cash
    stock related charges of $385,495,       |   |                  |              |              |      |              
|$135,550 and $2,250,219,
    respectively)                       |   | 2,266,385        |              | 3,822,070    |      | 47,366,308   
|General and
    Administrative                                   |   |                  |              |              |      |              
|(including non-cash
    stock related charges of $1,127,833,     |   |                  |              |              |      |              
|$1,175,075 and
    $51,555,300, respectively)                    |   | 2,594,570        |              | 3,182,481    |      | 86,823,532   
|Depreciation and
    amortization                                |   | 18,282           |              | 40,764       |      | 2,993,350    
|TOTAL COSTS AND EXPENSES                                         |   | 5,254,142        |              | 7,518,386    |      | (153,015,619)
|LOSS FROM OPERATIONS                                             |   | (4,779,455)      |              | (6,969,584)  |      | (131,146,692)
|OTHER INCOME (EXPENSE)                                           |   |                  |              |              |      |              
|Gain (Loss) on
    extinguishments and settlements               |   | (226,221)        |              | (4,404,186)  |      | (5,625,777)  
|Minority interest loss
    in consolidated subsidiary            |   | -                |              | -            |      | 20,000       
|Capital losses                                                   |   | (36,911)         |              | -            |      | (48,669)     
|Loss from unconsolidated
    subsidiary                          |   | -                |              | -            |      | (1,466,467)  
|Interest Income
    (expense), net                               |   | (95,205)         |              | (20,284)     |      | (135,856)    
|TOTAL OTHER INCOME
    (EXPENSE)                                 |   | (358,337)        |              | (4,424,470)  |      | (7,256,769)  
|NET LOSS                                                         | $ | (5,137,792)      | $            | (11,394,054) | $    | (138,403,461)
|                                                                 |   |                  |              |              |      |              
|LOSS PER COMMON SHARE,
    basic and diluted                     | $ | (.06)            | $            | (.07)        |      |              
|WEIGHTED AVERAGE COMMON                                          |   |                  |              |              |      |              
|SHARES OUTSTANDING,
    basic and diluted                        |   | 91,474,828       |              | 163,613,560  |      |              
|                                                                 |   |                  |              |              |      |              

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)

|                                                    |             |   |             |   |          |   | Additional  |   |               |   | Total           
|--------------------------------------------------- | ----------- | - | ----------- | - | -------- | - | ----------- | - | ------------- | - | ----------------
|                                                    |             |   | $.01 Stated |   | Treasury |   | Paid-in     |   | Accumulated   |   | Shareholders    
|                                                    | Shares      |   | Value       |   | Stock    |   | Capital     |   | Deficit       |   | (Deficit) Equity
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Balance June 30, 2005                               | 145,048,832 | $ | 1,450,489   | $ | (7,973)  | $ | 123,949,156 | $ | (127,009,407) | $ | (1,617,735)     
|Issuance of
    common stock pursuant               |             |   |             |   |          |   |             |   |               |   |                 
|to the
    exercise of warrants                     | 1,914,286   |   | 19,143      |   | -        |   | 320,714     |   | -             |   | 339,857         
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Issuance of
    common stock with                   |             |   |             |   |          |   |             |   |               |   |                 
|warrants in
    private placements,                 |             |   |             |   |          |   |             |   |               |   |                 
|net of cash
    expenses of $325,923                | 37,045,407  |   | 370,454     |   | -        |   | 4,571,874   |   | -             |   | 4,942,328       
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Issuance of
    common stock for services           | 450,000     |   | 4,500       |   | -        |   | 94,500      |   | -             |   | 99,000          
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Conversion of
    related party and strategic       |             |   |             |   |          |   |             |   |               |   |                 
|vendor debts
    to common stock and warrants       | 3,277,778   |   | 32,778      |   | -        |   | 557,222     |   | -             |   | 590,000         
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Stock options
    awarded to                        |             |   |             |   |          |   |             |   |               |   |                 
|consultants,
    employees and officers             | -           |   | -           |   | -        |   | 1,252,125   |   | -             |   | 1,252,125       
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Issuance of
    additional shares and               |             |   |             |   |          |   |             |   |               |   |                 
|warrants to
    effect revised pricing              |             |   |             |   |          |   |             |   |               |   |                 
|on previous
    private offering charged to expense | 24,637,744  |   | 246,377     |   | -        |   | 4,187,917   |   | -             |   | 4,434,294       
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Net loss                                            | -           |   | -           |   | -        |   | -           |   | (11,394,054)  |   | (11,394,054)    
|                                                    |             |   |             |   |          |   |             |   |               |   |                 
|Balance,
    December 31, 2005                      | 212,374,047 | $ | 2,123,741   | $ | (7,973)  | $ | 134,933,508 | $ | (138,403,461) | $ | (1,354,185)     
|                                                    |             |   |             |   |          |   |             |   |               |   |                 

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

6




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

|                                                                    |   | Six Months Ended |              | October 2, 1996 (Date
|------------------------------------------------------------------- | - | ---------------- | ------------ | ---------------------
|                                                                    |   |                  | December 31, |                      
|                                                                    |   |                  |              |                      
|                                                                    |   | 2004             |              | 2005                 
|Cash Flow From Operating
    Activities:                            |   |                  |              |                      
|Net Loss                                                            | $ | (5,137,792)      | $            | (11,394,054)         
|Adjustments to reconcile
    net loss to net cash used in operating |   |                  |              |                      
|activities:                                                         |   |                  |              |                      
|Depreciation and
    amortization                                   |   | 128,506          |              | 84,669               
|Book Value of fixed
    assets disposed                             |   | -                |              | -                    
|Provision for doubtful
    accounts                                 |   | -                |              | -                    
|Gain on debt
    extinguishments                                    |   | 40,500           |              | -                    
|Loss on unconsolidated
    subsidiary                               |   | -                |              | -                    
|Impairment of note
    receivable                                   |   | -                |              | 17,250               
|Loss on securities                                                  |   | -                |              | -                    
|Non-cash charges
    relating to issuance of common stock, common   |   | 1,122,054        |              | 5,785,419            
|stock options and
    Warrants                                      |   | -                |              | -                    
|Changes in assets and
    liabilities:                              |   |                  |              |                      
|Accounts receivable                                                 |   | (141,969)        |              | 375,247              
|Inventories                                                         |   | 237,251          |              | 42,199               
|Prepaid expenses and
    other current assets                       |   | (165,447)        |              | (32,113)             
|Other non-current assets                                            |   | (20,000)         |              | 17,250               
|Accounts payable                                                    |   | 564,705          |              | 299,147              
|Accrued expenses                                                    |   | 467,221          |              | (1,899)              
|Due to/from related
    parties                                     |   |                  |              |                      
|Microphase                                                          |   | (96,437)         |              | (134,899)            
|Janifast                                                            |   | (64,636)         |              | (223,350)            
|Officers                                                            |   | 181,970          |              | -                    
|Lintel                                                              |   | -                |              | -                    
|Others                                                              |   | (50,000)         |              | -                    
|Receivables from
    Subsidiary                                     |   | -                |              | -                    
|Deferred revenue                                                    |   | (113,885)        |              | -                    
|Net cash used in
    operating activities                           |   | (3,037,959)      |              | (5,365,403)          
|Cash Flow from Investing
    Activities:                            |   |                  |              | -                    
|Payments related to
    patents and licensing rights                |   | (64,902)         |              | -                    
|Purchase of fixed assets                                            |   | (105,973)        |              | (192,504)            
|Net Cash used in
    investing activities                           |   | (170,875)        |              | (192,504)            
|Cash Flow from Financing
    Activities:                            |   |                  |              |                      
|Proceeds from issuance
    of common stock and exercises of options |   |                  |              |                      
|and warrants                                                        |   | 3,945,190        |              | 6,291,723            
|Payments of notes
    payable                                       |   | (105,498)        |              | (143,044)            
|Advances from Microphase
    Corporation                            |   | -                |              | -                    
|Proceeds from notes
    payable-officers                            |   | 600,000          |              | 230,800              
|Repayments of notes
    payable-officers                            |   | (300,000)        |              | -                    
|Repurchase of treasury
    stock at cost                            |   | -                |              | -                    
|Net cash provided by
    financing activities                       |   | 4,138,692        |              | 6,379,479            
|Net increase (decrease)
    in cash                                 |   | 920,858          |              | 821,572              
|CASH AND CASH
    EQUIVALENTS, beginning of period                  |   | 90,045           |              | 351,185              
|CASH AND CASH
    EQUIVALENTS, end of period                        | $ | 1,010,903        | $            | 1,172,757            
|                                                                    |   |                  |              |                      

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

7




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 legacy
Traverser(TM) Digital Video Data Delivery System ("Traverser"). The primary
business of the company is to design, develop, manufacture and market its
software/middleware solution that enables telephone service providers to deliver
feature rich broadcast television, high-speed internet and voice over any
infrastructure that utilizes internet protocol (the IPTV solution.).
Additionally, the Company sells digital subscriber line (DSL) component products
that include its new Broadband Loop Watch product that enables telephone service
providers to perform loop diagnostic testing of its system for deployment and
maintenance of DSL data as well as microfilters and pots splitters. Since
February of 2004, the Company has also engaged Lucent Technologies Inc. to
develop a new generation of power cells with an extremely long shelf life using
the science of nanotechnology . In March of 2005 the Company engaged Lucent
Technologies to develop a magnetometer or electronic sensor using the science of
nanotechnology. The Company believes that both products being developed using
the science of nanotechnology will initially have military applications.

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 IPTV or
TV+ solution and DSL component products. The Company is also engaged in
exploratory research though the Bell Labs division of Lucent technologies Inc.
of electronic sensors and power cells. 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 six months ending December 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, 2005.

Through December 31, 2005, the Company had
incurred cumulative (a) development stage losses totaling approximately
$138,403,461, (b) an accumulated deficit of $1,354,185, and (c) negative cash
flow from operations equal to $61,004,109. At December 31, 2005, the Company had
$1,172,757 of cash, cash equivalents and $158,594 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.

8




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

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.



RECLASSIFICATIONS - Certain
reclassifications have been made in the prior period consolidated financial
statements to conform to the current period presentation.The most substantial reclassification in these financial statements
is for charges for reparation expenses for equity issued to investors for market
value adjustments previously included in general and administrative expenses
which is now included in the other income and expense category entitled "Gains
(Losses) on extinguishments and settlements."



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: On July 1, 2005, the
Company adopted the provisions of Financial Accounting Standards Board Statement
No. 123R,"Share-Based Payment" (SFAS 123R). SFAS 123R revised SFAS 123,
"Accounting for Stock Based Compensation" and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." SFAS 123R requires companies to
measure and recognize compensation expense for all employee stock-based payments
at fair value over the service period underlying the arrangement. Therefore, the
Company is now required to record the grant-date fair value of its stock-based
payments (i.e., stock options and other equity-based compensation) in the
statement of operations. The Company adopted FAS 123R using the "modified
prospective" method, whereby fair value of all previously-granted employee
stock-based arrangements that remained unvested at July 1, 2005 and all grants
made on or after July 1, 2005 have been included in the Company's determination
of stock-based compensation expense for the three and six months ended December
31, 2005. The Company has not restated its operating results for the three and
six months ended December 31, 2004 to reflect charges for the fair value of
employee stock-based arrangements.

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 mandatory 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. The Company elected early adoption of Standard No. 123(R).

10




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

STATEMENT OF CASH FLOW SUPPLEMENTAL
INFORMATION

|                                                                         |   | Six Months Ended December 31, |  
|------------------------------------------------------------------------ | - | ----------------------------- | -
|                                                                         |   | 2004                          |  
|                                                                         |   |                               |  
|Interest Paid                                                            | $ | -                             | $
|Taxes Paid                                                               | $ | -                             | $
|                                                                         |   |                               |  
|                                                                         |   |                               |  
|Schedule of Non-Cash
    Activities:                                     |   |                               |  
|Conversion of accounts
    payable and accrued expenses to equity        | $ | 470,000                       | $
|Conversion of interest
    accrued to equity                             |   | 26,725                        |  
|Conversion of notes
    payable to equity                                |   | 88,954                        |  
|Total liability to
    equity conversions                                | $ | 585,679                       | $
|                                                                         |   |                               |  
|Private placement
    reparation expense - additional issuance of shares | $ | 185,721                       | $
|                                                                         |   |                               |  
|Non-cash compensation of
    consultants                                 | $ | 936,333                       | $
|                                                                         |   |                               |  
|Non-cash compensation to
    consultants, employees and officers         | $ | -                             | $
|                                                                         |   |                               |  

2. RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

mPhase's President, Chief Operating Officer
and Chairman of the Board of the Company are also officers of Microphase 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
for technical and research development, $5,000 per month for administrative
services and $5,000 per month under the office space agreement.

Microphase also charges fees for specific
projects on a project-by-project basis. During the six months ended December 31,
2004 and 2005 and from inception (October 2, 1996) to December 31, 2005 $0,
$90,000 and $7,314,526, 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 six months ended December
31, 2004 and 2005, mPhase recorded royalties to Microphase totaling $11,784 and
$16,409, respectively.

On December 31, 2005, Microphase agreed to
convert all amounts charged to the Company under the terms of these agreements
into 2,050,000 shares of common stock and a 5 year warrant to purchase a like
amount of shares at $.18.

As a result of the foregoing transactions as
of December 31, 2005, the Company had a $0 payable to Microphase. Additionally,
at December 31, 2005, there are no undelivered purchase orders that remain
outstanding to Microphase.

JANIFAST LTD.

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 six months ended December 31, 2004
and 2005 and the period from inception (October 2, 1996) to December 31, 2005,
$398,715, $544,449 and $15,514,374, respectively have been charged by Janifast
to inventory or expense and is included in operating expenses in the
accompanying statements of operations.

On December 31, 2005, Janifast agreed to
convert amounts charged to the Company under the terms of these agreements into
950,000 shares of common stock and a 5 year warrant to purchase a like amount of
shares at $.18.

As a result of the foregoing transactions as
of December 31, 2005, the Company had $23,648 payable to Janifast, which is
included in amounts due to related parties in the accompanying balance sheet.
Additionally, at December 31, 2005, approximately $343,962 of undelivered
purchase orders remain outstanding to Janifast Ltd.

OTHER RELATED PARTIES

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:

a. $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.

b. The Company also delivered a 5 year cashless
warrant to purchase $150,000 worth of common stock at $.25 per share.

The warrant was valued pursuant to EITF 96-18,
the ascribed value of the warrant minus the debt cancelled resulting loss of
$40,500.

As of December 31, 2005, the Company made each
payment owed to Piper Rudnick LLP.

Mr. Abraham Biderman was employed until
September 30, 2003 by our former investment-banking firm Lipper & Company.
During the three months and six months ended December 31, 2005, Mr. Biderman's
current firm Eagle Advisers, Inc. has acted as a finder of money in connection
with finder's fees of $211,067 and $312,067 respectively.

During the six month period ended December 31,
2005, Mr. Durando, Mr. Dotoli and Mr. Smiley made bridge loans to the Company in
the aggregate amounts of $50,000, $100,000 and $150,000. The loans due Mr.
Ditoli and Mr. Smiley are outstanding at December 31, 2005. All of the loans
have since been repaid.

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 December 31, 2005 inventory
is comprised of the following:

|Raw materials                      | $ | 67,848   
|---------------------------------- | - | ---------
|Work in progress                   |   | 21,250   
|Finished goods                     |   | 564,487  
|Total                              |   | 653,585  
|Less: Reserve for
    Obsolescence |   | (205,642)
|Net Inventory                      | $ | 447,943  
|                                   |   |          

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 December 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 $292,868 at December 31, 2005. At December
31, 2005 unpaid invoices for expenses for research and development expenses
incurred with Lucent Technologies, Inc. totaling $827,700 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 December 31,
2004 and ended December 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



During the quarter ended December 31,
2005, the Company issued 13,180,685 shares of its common stock together with a
like amount of 5 year warrants to purchase one share each of the Company's
common stock, with an exercise price of $.18 per share and $.18 per share
respectively in private placements generating net proceeds of $2,238,973 which
was collected during the three month period ended on December 31, 2005. The
Company also issued 35,196,777 shares of its common stock together with a like
amount of warrants to affect revised pricing on previous private offerings.



Also during the quarter ended December
31, 2005, the Company issued 772,128 shares of its common stock pursuant to the
exercise of warrants, generating net proceeds of $192,000 to the Company. On
December 31, 2005, the Company issued stock options to employees and officers
for the right to purchase 9,562,500 shares. Pursuant to the adoption of FAS
123(R), the Company recognized an expense in the amount of $1,166,625, of which
$33,550 is included in research and development expense and $1,133,075 in
general and administrative expense. The fair value of options granted in 2005
were estimated as of the date of grant using the Black-Scholes stock option
pricing model, based on the following weighted average assumptions: annual
expected return of 0%, annual volatility of 108.5%, based on a risk-free
interest rate ranging from 4.4% and expected option life of 3 years.



During the quarter ended December 31,
2005, the Company converted accounts payable in the amount of $189,061and a note
payable in the amount of $180,000 to Microphase, a related party, for 2,050,000
shares of common stock and a 5 year warrant to purchase a like amount of shares
at $.18. The Company also converted to $171,000 of accounts payable to Janifast,
a related party, in exchange for 950,000 shares of common stock and a 5 year
warrant to purchase a like amount of shares at $.18 per share.



Subsequent to December 31, 2005, the
Company issued 17,012,222 shares of its common stock together with a like amount
of 5 year warrants to purchase one share each of the Company's common stock,
with an exercise price of $.18 per share and $.18 per share respectively in
private placements generating net proceeds of $3,062,200 which was collected
during the three month period ended on December 31, 2005.



Also subsequent to December 31, 2005,
the Company issued 5,268,706 shares of its common stock pursuant to the exercise
of warrants, generating net proceeds of $948,367 to the Company.

13




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

8. SHARE BASED COMPENSATION

Prior to July 1, 2005, the Company accounted
for employee stock-based grants under the recognition and measurement principles
of APB Opinion No. 25,"Accounting for Stock Issued to Employees" and
related Interpretations. The following table illustrates the effect on net loss
and net loss per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,"Accounting for Stock-Based Compensation" for the quarter and six months
ended December 31, 2004:

|                                                                |   |                    |   |                  
|--------------------------------------------------------------- | - | ------------------ | - | -----------------
|                                                                |   | Three Months Ended |   | Six Months Ended 
|                                                                |   | December 31, 2004  |   | December 31, 2004
|                                                                |   |                    |   |                  
|Net loss, as reported                                           | $ | (3,305,930)        | $ | (5,137,992)      
|Add:
    Stock-based employee compensation expense              |   |                    |   |                  
|included in
    reported net income, net of related tax effects |   | -                  |   | -                
|Deduct: Total
    stock-based employee compensation             |   |                    |   |                  
|expense
    determined under fair value based method            |   |                    |   |                  
|for all awards,
    net of related tax effects                  |   | -                  |   | -                
|Pro forma net
    loss                                          | $ | (3,305,930)        | $ | (5,137,992)      
|                                                                |   |                    |   |                  
|Loss per share:                                                 |   |                    |   |                  
|Basic and
    diluted-as reported                               | $ | (0.04)             | $ | (0.06)           
|Basic and
    diluted-pro forma                                 | $ | (0.04)             | $ | (0.06)           
|                                                                |   |                    |   |                  

9. DEBT CONVERSIONS AND EXTENSIONS

During the six months ending December 31,
2005, accounts payable in the amount of $189,061 and a note payable in the
amount of $180,000 owed by mPhase to Microphase Corporation were cancelled in
exchange for the 2,050,000 shares of common stock and a 5 year warrant to
purchase a like amount of shares at $.18. In addition for such period, Janifast
Ltd. cancelled $171,000 of accounts payable owed by mPhase in exchange for
950,000 shares of common stock and a 5 year warrant to purchase a like amount of
shares at $.18 per share.  Additionally, a strategic vendor converted
$50,000 of accounts payable into 277,778 shares with a like amount of warrants

10. 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 six months ending December 31, 2004 and 2005 and for the
period from inception through December 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.

As of March of 2005, the Company extended for
an additional 12 months a Development Agreement with Lucent Technologies, Inc.
relating to Micro-Power Source Arrays Fabricated Using Nanotextured,
Superhydrophobic Materials. The first product expected to be completed through
this exploratory research effort is a battery with a very long shelf life for
military field applications. Under such contract the Company is obligated to pay
Lucent a total of $1.2 million payable in installments of $100,000 per month
through February of 2006. In addition in March of 2005 the Company entered into
a second 12 month Development Agreement with Lucent for the development of a
magnetometer using the science of nanotechnology at a total cost of $1.2 million
payable through February of 2006.

In July of 2005, the Company entered into a 4
month extension of a Development Agreement with Lucent Technologies, Inc. dated
September 15, 2003 to complete development of Version 3.0 of its IPTV or TV+
product requiring 4 payments each of $156,000 per month for work to be completed
in the months of September through December of 2005. Such payments are payable
60 days in arrears of completion of each of the 4 milestones set forth for such
period.

11. SUBSEQUENT EVENT

Subsequent to December 31, 2005, the Company
issued 17,012,222 shares of its common stock together with a like amount of 5
year warrants to purchase one share each of the Company's common stock, with an
exercise price of $.18 per share and $.18 per share respectively in private
placements generating net proceeds of $3,062,200 which was collected during the
three month period ended on December 31, 2005.

Also subsequent to December 31, 2005, the
Company issued 5,268,706 shares of its common stock pursuant to the exercise of
warrants, generating net proceeds of $948,367 to the Company.

12. REISSUANCE OF
FINANCIAL STATEMENTS

Management has reevaluated the
adequacy and completeness of presentation and certain disclosures in the
accompanying consolidated financial statements. As a result of this reevaluation,
management has reissued the December 31, 2005 consolidated financial statements
in an effort to clarify and more completely disclose the Company's presentation
of the consolidated financial statements at December 31, 2005.

The aforementioned changes to
the consolidated financial statements have no effect on the financial position
and results of operations for the year ended December 31, 2005.



14




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.

ABOUT THIS
AMENDMENT



Management has reevaluated the
clarity and completeness of the Form 10Q/A and certain disclosures in the
accompanying unaudited consolidated financial statements. As a result of this
reevaluation, management has reissued the Form 10Q/A and the December 31, 2005
consolidated financial statements.

The amendment includes expanded disclosure in
the Consolidated Financial Statements, including Note 7. "EQUITY
TRANSACTIONS"regarding reclassifications of reparations expense, previously
reported in the Company's original filing for this period as a component of the
General and Administrative Expenses category which have now been reclassified
and are included Other Income and Expenses category as a component of the "Gain
(Loss) on Extinguishments & Settlements" line item of the Consolidated
Statements of Operations for the Three and Six Months Ended December 31, 2005
and from inception through December 31, 2005 on pages 4 and 5. Additionally, the
amendment includes technical and clerical edits, expanded and clarified
disclosure including a discussion regarding "OTHER INCOME AND EXPENSES"
in "Management's Discussion and Analysis", which begins on this page; 15.

The aforementioned changes in the consolidated
financial statements have no effect on the financial position and results of
operations or loss per share for the Three and Six Months Ended December 31,
2004 and 2005.

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.



15

---

RESULTS OF OPERATIONS

OVERVIEW

mPhase, a New Jersey corporation, founded in
1996 is a publicly-held company with over 14,000 shareholders and approximately
214 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 over 50 years and supports mPhase with both
engineering and administrative and financial resources as needed.

mPhase is a developer of broadband
communications products, specifically, IP TV plus a digital subscriber line
(DSL) products for telecommunications service providers around the world. In
February of 2004 mPhase has entered into the new and emerging area of
NanoTechnology. Since our inception in 1996 we have been a development-stage
company and operating activities have related primarily to research and
development, establishing third-party manufacturing relationships and developing
product brand recognition among telecommunications service providers. We are
headquartered in Norwalk, Connecticut with offices in Little Falls, New Jersey
and New York, New York. mPhase shares common office space and common management
with Microphase Corporation, a privately-held company. Microphase is a seller of
radio frequency and filtering technologies to the defense industry. Microphase
has been in operation for almost 50 years and supports mPhase with engineering,
administrative and financial resources, as needed.

Description of Operations

Since our inception in 1996 our primary
activities through fiscal year 2003 consisted of designing, manufacturing and
testing our flagship products designed to enable telephone service providers to
deliver digital broadcast television over DSL. Fiscal years 2004 and 2005 marked
a significant shift of the Company's focus, in response to technology
advancements with respect to the delivery of video data using internet protocol.
The Company has shifted it telecommunications solution focus from technology for
the delivery of broadcast television high speed internet and voice over DSL to
the development of middleware/software for carrier class delivery of IP TV over
copper, fiber, coax or any infrastructure representing a combination of the
foregoing that is used by a telecommunications service provider. This shift has
taken place over the past two years and has culminated in our flagship product
namely Release 3.0 of our TV+ solution. This product is scheduled for final
testing in the third quarter of fiscal year 2006 as part of an initial
deployment of 1000 ports with a major telecommunications service provider in
Russia. We have not, as yet, derived any significant revenue from our TV+
solution, which is the culmination of several earlier versions that have been
changed to accommodate the latest in technological innovation and market demand
for IPTV. The Company's recent entry into the field of nanotechnology is focused
upon exploratory development of batteries with significantly longer shelf lives
and enhanced capabilities and magnetometer sensor devices with potentially wide
applicability for both military and commercial security applications. The
Company believes that such development is consistent with its strategy of being
a pioneer of high growth technology products and potentially diversifies its
product mix. mPhase introduced its first TV over DSL platform, the Traverser
Digital Video and Data Delivery System ("DVDDS"), in 1998. The DVDDS is a
patented end to end system that enables a telecommunications service provider to
deliver up to several hundred channels of motion picture experts group two
("MPEG-2") standard broadcast digital television, high speed internet and voice
over copper telephone lines between a central office facility of the provider
and a customer's premise.

16.




mPhase has not, as yet, derived any material
revenues from sales of the DVDDS. The DVDDS is a proprietary technology
developed in conjunction with Georgia Tech Research Corporation (GTRC) and is
one of the first systems of its kind developed. The system is the only system on
the market that utilizes non- Internet Protocol ("IP") transmission over ADSL.
The DVDDS is installed at Hart Telephone Company in Hartwell, Georgia, where a
limited user system of approximately 80 customers was tested. A DVDDS system is
also installed at the BMW manufacturing plant in Spartanburg, South Carolina for
use as a television broadcast system in a commercial setting. 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 and
has replaced the legacy DVDDS platform.

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).

In December of 2004, the Company announced
that a major telecommunications service provider in Russia had chosen to deploy
to 1,000 of its customers mPhase's TV+ platform. The Russian service provider
has over 1 million customers and is part of a holding company with 15 million
customers.

Release 3.0 of the TV+ solution, utilizes a
communications framework based upon Internet Protocol (IP) instead of
Asynchornous Transfer Mode (ATM) that is utilized by Releases 1.0 and 2.1. 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
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+ solution is a system
management software/middleware product that 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 over both fiber, coax as
well as down a single DSL line over copper using ADSL2 supported DSLAM's and be
capable of delivery of Video on Demand. Our TV+ solution is an open
standards-based, carrier class technology with tremendous scalability and
enables a telecommunications service provider to custom tailor the deployment of
feature rich IP television, high speed internet and voice. Such solution enables
a telecommunications service provider to significantly enhance revenue, margins
with a very high rate of return as compared to the traditional economics for
delivery of telephone voice services only. In addition, Teleco's around the
world are under increased pressure to delivery multiple converged services in
order to retain their traditional telephone voice customers. The TV+ solution
may be used in combination with any vendors set top box designed for the
delivery of IP TV and the DSLAM's of all major vendors. The solution allows a
service provider to start small and test its take rate among customers with a
maximum of flexibility of design, features and cost allowing it to enter the
market for converged services to its customers on an optimal basis.

mPhase has transformed itself from a developer
of closed end proprietary technology for the delivery of TV over DSL to a
Company that has developed a carrier class middleware/software solution for the
delivery of IP TV using a standards-based platform designed to provide
telecommunications with maximum flexibility in system configuration with
components from all major vendors. mPhase is continuing in the development of a
next generation set top box designed to further enhance its IP TV+ solution and
to be used as a stand alone product. mPhase's current IPTV solution is designed
to be used over fiber, coax and copper or any combination thereof currently
deployed by a telecommunications service provider. In addition our IPTV solution
may be used with other telecommunications transport technology such as Multicast
Routers instead of DSLAM's for the delivery of voice, data and IPTV.

mPhase DSL Component Products.
mPhase continues to design and market a line of DSL component products ranging
from commodity items such as POTS splitters to innovative loop management
products. Most notable in the suite of DSL component products is the recently
introducediPOTS3 (recently renamed the "Broadband Loop Watch") or
Intelligent POTS Splitter product. The newly developed version of the Broadband
Loop Watch product is compatible with the Lucent Stinger as well as DSLAM's
manufactured by other vendors. This product marks a significant advancement in
automating loop management. The Broadband Loop Watch allows service providers to
perform full loop testing for DSL deployment and maintenance from a central
office without having to deploy a more costly deployment of personnel to the
field. This is accomplished by allowing service providers to temporarily bypass
the POTS Splitter and have a comprehensive view of their DSL networks. Prior to
the introduction of this product in order to perform full testing, service
providers would have to manually intervene so that so that test signals could be
passed through the network. As DSL deployments scale, it is becoming
increasingly more important for telecommunications service providers to
streamline the process for provisioning and troubleshooting DSL services.
Additionally, as competition for high speed Internet expands, the market is
witnessing a reduction in price. Therefore, it has become imperative that
telecommunications service providers lower the operational costs involved with
supporting DSL services.

17.




Nanotechnology

Effective February 3, 2004, mPhase has entered
into a Development Agreement with Lucent Technologies, Inc. to commercialize the
use of nano power cell technology. The initial agreement was for a 12 month
period of exploratory development at the cost of $100,000 per month of a new
form of power cell having a shelf life far in excess of conventional battery
technology. In March of 2005 the Company extended such Agreement for another 12
months at the cost of $100,000 per month to continue development of the nano
power cell product. We believe that this arrangement with the Bell Labs division
of Lucent will give mPhase the opportunity to develop and offer breakthrough
battery technology and other potential applications, initially to the government
market for defense and homeland security and ultimately to the commercial
market. It is anticipated that the initial applications for nano power cells
will address the need to supply emergency and reserve power to a broad range of
products for the defense department.

The Company believes that its entry into this
new field of high technology growth will provide product diversification without
negatively affecting its focus upon its traditional products aimed at delivery
of Television over DSL. The Company developed a lab prototype of its first nano
power cell product that was completed in the second quarter of fiscal year 2005.
The Company is unable, at this time, to predict when significant
commercialization and material revenues will be derived from its entry into the
NanoTechnology business.

On March 10, 2005 the Company announced and
agreement with the Bell Labs research and development arm of Lucent
Technologies, Inc. to co develop using the science of nanotechnology and
commercialize uncooled magnetic ultra-sensitive sensors for a host of defense
and civilian applications. The sensors, technically referred to as
magnetometers, are based upon Micro Electro Mechanical Systems (MEMS) using
designs based upon fundamental breakthroughs made in the past few years at Bell
Labs as part of the New Jersey Nanotechnology Consortium. Initial tests of
theses MEMS magnetometers indicate sensitivities 1000 times those achieved in
presently available uncooled magnetometers. Such devices are designed to create
a new generation of ultra sensitive magnetic field sensors that will enable
military combatants to detect with greater accuracy and range hostile military
forces. Commercial applications may include inexpensive navigational components
for mobile phones to sensing devices for identification used in homeland
security products, as well as sensors used in diagnostic systems for detection
of metal fatigue for numerous industrial applications.

Nano Battery:

mPhase Technologies along with its partner
Lucent/Bell Labs, has been jointly conducting research since February 2004 that
demonstrates control and manipulation of fluids on superhydrophobic surfaces to
create power cells by controlling wetting behavior of electrolyte on
nanostructured electrode surfaces. The scientific research conducted this year
has set the groundwork for continued exploration in the development of
intelligent nanotechnology power cells (nano-batteries), and forms a path to
commercialization of the technology for a broad range of market opportunities.
During the first half of 2005 the battery team has been testing modifications
and enhancements to the internal design of the battery to optimize its power and
energy density characteristics, as well as making engineering improvements that
will assist in making the battery easier to manufacture when the project
research that level of maturity.

In June of 2005 the battery project was
expanded to include a joint technical development effort through December 2005
between mPhase and Rutgers University to potentially incorporate a Lithium based
design. This work program has initial started as a modest technology effort to
help characterize and test the nano battery design using Lithium chemistry and
determine if the current design is capable of supporting the lithium based
chemistry. Based on the results of the testing with Rutgers University, mPhase
may decide to accelerate the work effort.

18.




Magnetometer:

In February 2005 mPhase and Lucent
Technologies' Bell Laboratories entered into a joint effort to develop an
extremely sensitive magnetometer. Magnetometers can be used in a wide range of
applications that include military surveillance, securing the retail
environment, automotive sensors and actuators, industrial processing, medical
imaging, scientific measurements, detection of mineral deposits and even air and
space exploration. In sensor networks ultra-sensitive magnetometers can be used,
for example, to detect and accurately pinpoint battlefield objects or they might
also be used to study the workings of the human brain.

Magnetometers work by sensing changes in
magnetic fields due to the motion of magnetic objects or changes in electrical
currents generated by those objects. The magnetometer detects these objects by
measuring time-varying magnetic signals that are superimposed on the combination
of earth's background field (used to orient compasses) and static magnetic
fields due to nearby magnetic objects.

Highly Sensitive Magnetometers
- The enhanced sensitivity of these devices results from two scientific advances
recently made researchers at Lucent Bell Labs. Presently, the highest
sensitivity magnetometers commercially available require cooling to cryogenic
temperatures. Called SQUIDs (for Superconducting Quantum Interference Devices)
these devices only work at the temperature where liquid helium boils, -455
degrees below zero Fahrenheit, making such magnetometers expensive and bulky and
therefore ill-suited for remote-sensing applications. Room temperature
magnetometers, on the other hand, are less sensitive, and use technology that
was developed in World War II for detecting submarines.

The new technology being developed by Bell
Labs and mPhase employs a number of different designs based on Micro-Mechanical
Systems (MEMS). These designs use the very high "Quality Factor (Q)" of the
mechanical resonance in single crystals of silicon. A resonance is similar to
the fundamental frequency of a tuning fork. When tapped, a tuning fork will
vibrate for a length of time inversely proportional to the internal friction of
vibration within the metal of the tuning fork. A comparable tuning fork made
from single crystal silicon, which has less internal friction than the hardest
metal, will vibrate almost a thousand times longer. Based on this principal, a
device employing a high Q resonator will have enhanced amplitude of vibration at
the resonance frequency, and hence will display a greater sensitivity to
external perturbations that affect its resonance frequency. By coupling the
mechanical motion of a bar or a paddle constructed from silicon to the ambient
magnetic field, this high mechanical sensitivity can be converted to high
magnetic field sensitivity. The technical approach that the team is developing
can be achieved either statically with an integrated magnetic film, or
dynamically through motion of the silicon bar or paddle.

The Benefits of MEMS- Commercial magnetometers using purely electronic detection, such as Hall,
magneto-resistance or flux-gate devices, have sensitivities limited by theirelectronic Q-factor. This Q-factor depends on the natural electrical
resistance, or electronic friction, of the metal in the circuit. For
room-temperature operations it is therefore difficult to reduce the electrical
Q-factor. Mechanical resonators made from semiconductor-grade silicon, on the
other hand, exhibit mechanical Q-factors, approaching 100,000 at room
temperature. In all, these new, smaller and less costly magnetometers should be
100-1000 times more sensitive than existing commercial devices, thus enabling a
new class of sensor systems that mPhase plans on commercializing.

The mPhase and Lucent magnetometer team has
successfully reached an early milestone and have produced a number MEM based
sensor samples from the clean room facilities and are working on integrating
them into the surrounding electronic circuitry so that measurement,
characterization and sensitivity testing can be conducted.

19.




Revenues. To date, all material revenues have been generated from sales of the
POTS Splitter Shelves and other DSL component products to a small number of
telecommunications companies. mPhase believes that future revenues are difficult
to predict because of "the length and variability of the commercial roll-out of
the IPTV to various telecommunications service providers and (ii) the Company's
recent entry into the NanoTechnology business. Since the Company believes that
there may be a significant international market for its TV+ IPTV solution
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 in the 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 and is majority-owned by
a director of mPhase. Costs for future production of the TV + Platform will
consist primarily of payments to manufacturers to acquire the necessary
components and assemble the product including Lucent Technologies Inc., Espiral
Group and Magpie Telecom Insiders, Inc.

Research and development.
Research and development expenses consist principally of the payments made to
Microphase and Lucent, respectively, for development of the Broadband Loop
Watch, the TV+ IPTV solution and nanotechnology products respectively. The IPTV+
solution consists primarily of middleware/software designed for the delivery of
feature rich, carrier class, broadcast TV, high speed internet and voice by
telecommunications service providers open using standards based equipment and
transport configurations. 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+ solution
for IPTV, POTS Splitter Shelves, the Broadband Loop Watch "intelligent pots
splitter" diagnostic product and other DSL component products, as well as
support functions including executive, legal and accounting personnel. Certain
administrative activities are outsourced on a monthly fee basis to Microphase
and mPhase leases its principal office in Norwalk, Connecticut from Microphase.

Non-Cash compensation charges.
The Company makes extensive use of stock options and warrants as a form of
compensation to employees, directors and outside consultants. We incurred
non-cash compensation charges totaling $53,763,519 from inception (October 2,
1996) through December 31, 2005, of which $3,250,744 was included in research
and development expenses and $50,512,775 was included in general and
administrative expenses.

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 December 31, 2005
the Company has incurred cumulative (a) development stage losses of
$138,403,461, (b) an accumulated deficit of $138,403,461, and (c) negative cash
flow from operations of $61,004,109. The auditors report for the fiscal year
ended June 30, 2005 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 December 31, 2005,
the Company had a negative net worth of $1,354,185 compared to a negative net
worth of $1,617,735 as of June 30, 2005 as a result of continuing net losses
incurred after June 30, 2005.

The Company believes that significant
deployments and resulting revenues from the deployment of the TV+ are not
expected until fiscal year 2007.. 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
2008

20.




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

REVENUE

Total revenues were $168,208 for the three
months ended December 31, 2005 compared to $295,524 for the three months ended
December 31, 2004. The decrease was primarily attributable to an decreased
demand of the Company's POTS Splitter product line. 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 $135,098 for the three
months ended December 31, 2005 as compared to $245,125 in the comparable prior
period in 2004, representing 80% of gross revenues for the quarter ended
December 31, 2005 and 83% for the quarter ended December 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 December 31, 2005, increased by 3% over the
margins for the same period ended December 31, 2004 due primarily due to
continued weak demand for POTS Splitters and global commodity price pressure on
telecommunications equipment products in general.

RESEARCH AND DEVELOPMENT

Research and development expenses were
$1,960650 for the three months ended December 31, 2005 as compared to $1,173,046
during the comparable period in 2004 or an increase of $878,604. This consists
of increased spending in development and testing of Release 3.0 of the TV+
product testing and deployment for a Russia telecommunications provider and
development activity of the new magnetometer as well as the power cell product
using the science of Nanotechnology. Both areas represent activities contracted
though Lucent Technologies and other vendors such as Magpie, Latens, Velonkani,
and Espial and managed by mPhase. Also spending for continued development of the
Company's Broadband Loop Watch product account for expenditures of $79,898 with
Microphase Corporation and $2,618,549 with Lucent Technologies, Inc.

The Company expects continued increases in
research and development costs throughout fiscal year 2006 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 with the Bell labs division of
Lucent Technologies, Inc. to commercialize the use of nano power cell
technology. Lucent/ Bell Labs is developing for mPhase micro-power source arrays
fabricated using nanotextured, superhydrophobic materials. This new 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. In addition the Company plans to
continue its research and development efforts with respect to the magnetometer
product line using the science of Nanotechnology.

21.

---

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, theipots(tm) and the mPhase stretch. We
believe the Broadband Watch product that enables telcos to remotely and
cost-effectively perform loop management and maintenance including line testing,
qualification and troubleshooting provides a much needed solution to achieve
greater cost efficiencies for the deployment of telecommunications products..
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) 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.

GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $2,090,185 for the three
months ending December 31, 2005 up from $1,885,676 or an increase of $204,509
from the comparable period in 2004. The increase in the selling, general and
administrative costs includes non-cash charges relating to the issues of common
stock and options to employeesand consultants, which
totaled $1,175,075 for the three months ended December 31, 2005 as compared to
$1,127,833 for the comparable period ended December 31, 2004 resulting in an
increase of $47,242. Additionally travel expenses increased by $68,305 and
increased spending in advertising, trade shows and marketing and resulting
expenses amounted to an aggregate of approximately $8,500. The balance of
increased spending in selling salaries and payroll fringes of approximately
$38,000 in the three months ended December 2005 account for the major components
of the increases in the general and administrative expenses. We expect sales and
travel expenses to grow as the Company approaches the deployment of its TV+
products in the future.

Other Income and Expenses

Included in other income and expenses for the three months ended December 31,
2005 were losses on extinguishments and settlements of $4,270,511 as compared to
$185,721 for the same period in the prior year. Of this amount, $4,434, 294
represented a charge for the issuance of approximately 35 million shares of
Common Stock to certain investors for a corrective market value adjustment and
$42,783 represented an offset for gains on the extinguishment of liabilities
compared to a charge of $185,721 for a price adjustment of an equity placement
in the three months ended December 31, 2004.



In the
three months ended December 31, 2005 atotal of 24,637,744 additional shares were issued in order to cause the average
price of prior private placement units to be "marked down" to $.18 per share
have been accounted for as "reparation" shares and 11,642,344 of the additional
shares were recorded as "Additional Paid in Capital" in proportion with a
reasonable allocation for incentive costs of new investment dollar amounts in
connection with private placements of the Companies common stock and warrants to
purchase common stock.

DEPRECIATION AND AMORTIZATION

Total Depreciation for the three months ended December 31, 2005 was
$85,939 of which $65,443 was charged against research and development. In 2004,
total depreciation for the three months ended December 31, 2004 was $95,474 of
which $86,274 was charged against research and development. As a result,
depreciation and amortization expense was $20,496 for the three month ended
December 31, 2005, up from $9,200, or a increase of $11,296 from the comparable
period in 2004. The increase is a result of the expansion of the Company's
marketing efforts and signals the end of reduced outlays for capital
expenditures previously shown in its two most recent fiscal years. We expect to
increase capital expenditures in connection 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 $8,436,518
for the three months ended December 31, 2005 as compared to a loss of $3,305,930
for the three months ended December 31, 2004. This represents a loss per common
share of $.05 for the three month period ended December 31, 2005 as compared to
a loss per common share of $.04 for the three months ending December 31, 2004;
based upon weighted average common shares outstanding of 93,388,584 and
174,998,408 during the periods ending December 31, 2005 and 2004, respectively.
Approximately $4.7 million of the increase in the Company's net loss was the
result of a one time reparation payment in connection with the reduction in the
strike price of certain warrants and issuance of additional shares in connection
with private placements during the months of November and December of 2005 that
raised a total of $2,238,973 for the Company.

The Company believes the initial major
deployments and the resultant revenues of its Flagship product, the TV+
platform, are not expected until the third 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 margins and provide the Company with the
opportunity to attain profitability.

22.

---

SIX MONTHS
ENDED DECEMBER 31, 2005 VS. DECEMBER 31, 2004



REVENUE



Total revenues were $548,802 for the six months ended December 31,
2005 compared to $474,687 for the six months ended December 31, 2004. The
increase was attributable primarily to significantly increasing sales of the
Company's POTS Splitter product line in the first quarter of fiscal year 2005,
followed by more modest decrease in sales during the second quarter of fiscal
year 2005, as compared to such quarters in fiscal year 2004. There remains
continued volatility in capital spending in the telecommunications market,
including customers that order component products from the Company. The Company
is in the process of reevaluating its line of POTS Splitter products to ensure
that such products will continue 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 $473,071 for the six months ended December 31,
2005 as compared to $374,905 in the prior period, as a result of an increase in
POTS Splitter sales and constituted 86% and 79% of gross revenues, for the six
months ended December 31, 2004 and 2003, respectively. The margins have
decreased slightly during the current period as spending among the
telecommunications service providers continues to be volatile together with an
increase in competition from global providers of such products resulting in
commodity pricing.



RESEARCH AND
DEVELOPMENT



Research and development expenses were $3,822,070 for the six
months ended December 31, 2005 as compared to $2,266,385 during the comparable
period in 2004; or an increase of $1,555,685 from the comparable period in 2004.
The Company incurred all of its research and development expenses with vendors
including Lucent, Microphase, Magpie Insiders, Inc., Espial, Velankani and other
strategic vendors for the six months ended December 31, 2005 which totaled
$3,607,947 as compared to $1,678,635 incurred with vendors other than GTRC
during the comparable period in 2004. The increase in the research and
development expenses includes non-cash charges relating to the issuance of
common stock and options to employees and consultants, which totaled $135,550
for the six months ended December 31, 2005 as compared to $385,495 for the
comparable period ended December 31, 2004 resulting in a decrease of $249,945.



Such decreases
are the result primarily of elimination of further development of the TRAVERSER
DVDDS product by GTRC as the Company focuses its efforts on research and
development and expenditures associated therewith on the TV+ product with
Lucent, which has been comparatively, to date, less expense to develop.



The Company does,
however, expects an increase in research and development costs beginning in the
third quarter of fiscal year 2006 due to continuing development of new features
for its IPTV solution as well as continued development with Bell Labs of our
nanotechnology line of products..



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
product, the Broadband Loop Watch. We believe the mPhase Broadband Loop Watch
offers a much-needed solution for the DSL industry; the product enables
telecommunications service providers to remotely and cost-effectively perform
loop management and maintenance including line testing, qualification and
troubleshooting. Prior to the introduction of the Broadband Loop Watch, loop
management could not be remotely performed through a conventional pots splitter
without dispatching personnel to the field. The unique Broadband Loop 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 truck roll. The Company anticipates future demand for
this product, as it significantly reduces the cost of deploying and maintaining
DSL services.



The changes in
Research and Development expenses for the six-month period ended December 31,
2005 as compared to the six month period ended December 31, 2004 included the
following significant items:



1. An increase of charges from Lucent Technologies of $1,018,949



2. A decrease of depreciation related to research and development
of $61,719 from $128,506 to $66,787.



3. An increase of expenses with Microphase and other strategic
vendors of $710,668



Charges from Lucent Technologies Inc. totaled $2,618,549 for the
six months ended December 31, 2005 as compared to $1,599,600 for the same period
ended December 31, 2004. Such charges consisted of $1,097,600 for development of
the TV+ product and $1,400,000 incurred with respect to the Company's new
Nanotechnology product line.



The elements attributing to the decrease in other research and
development expenses included a decrease in the operations of the Company's
joint venture, mPhase Television.net. The major costs incurred by the joint
venture were payroll expenses attributable to research and development of the
Company's transmission capabilities and acquisition of television content. Costs
incurred by the joint venture during the six months ending December 31, 2005
were $31,000 as compared to $0 for the six months ending December 31,
2004.                                                  23



GENERAL AND
ADMINISTRATIVE EXPENSES



Selling, general and administrative expenses were $3,182,481 for
the six months ended December 31, 2005 up from $2,780,291, an increase of
$402,190 from the comparable period in 2004. The increase in the selling,
general and administrative costs includes non-cash charges relating to the
issues of common stock and options to employees and consultants, which totaled
$1,175,075 for the six months ended December 31, 2005 as compared to $1,127,833
for the comparable period ended December 31, 2004 resulting in an increase of
$47,242. Additionally travel expenses increased by $143,383 and increased
spending in advertising, trade shows and marketing and resulting expenses
amounted to an aggregate of $20,666. The balance of increased spending in
selling salaries and payroll fringes of approximately $200,000 in the six months
ended December 2005 account for the major components of the increases in the
general and administrative expenses. We expect sales and travel expenses to grow
as the Company approaches the deployment of its TV+ products in the future.



DEPRECIATION
AND AMORTIZATION



Total Depreciation for the six months ended December 31, 2005 was
$124,091 of which $83,325 was charged against research and development. In 2004,
total depreciation for the six months ended December 31, 2004 was $135,524 of
which $125,404 was charged against research and development. As a result,
depreciation and amortization expense was $40,766 for the six months ended
December 31, 2005, up from $10,120, or a increase of $30,646 from the comparable
period in 2004. The increase is a result of the expansion of the Company's
marketing efforts and signals the end of reduced outlays for capital
expenditures previously shown in its two most recent fiscal years. We expect to
increase capital expenditures in connection with the deployment of equipment at
test sites with various telecommunications service providers globally as
deployment of our TV+ product progresses.



OTHER INCOME AND EXPENSES



Included in other income and expenses for the six months ended
December 31, 2005 were losses on extinguishments and settlements of $4,404,186
as compared to $226,221 for the same period in the prior year. For the period
ending December 31, 2005 included in this amount is approximately $4.4 million
for a charge for the issuance of approximately 35 million shares of Common Stock
to certain investors for a corrective market value adjustment.



A total of
24,637,744 additional shares were issued in order to cause the average price of
prior private placement units to be "market down" to $.18 per share have been
accounted for as "reparation" shares and 11,642,344 of the additional shares
were recorded as "Additional Paid in Capital" in proportion with a reasonable
allocation for incentive costs of new investment dollar amounts.



NET LOSS



The Company recorded a net loss of $11,394,054 for the six months
ended December 31, 2005 as compared to a loss of $5,137,192 for the six months
ended December 31, 2004. This represents a loss per common share of $.07 for the
six month period ended December 31, 2005 as compared to a loss per common share
of $.06 for the six months ending December 31, 2004; based upon weighted average
common shares outstanding of 163,613,560 and 91,474,828 during the periods
ending December 31, 2005 and 2004, respectively.





24.




CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

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

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

RESEARCH AND DEVELOPMENT

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

INCOME TAXES

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

Utilization of net operating losses generated
through June 30, 2005 may be limited due to "changes in control" of our common
stock that occurred.

STOCK-BASED COMPENSATION

On July 1, 2005, the Company adopted the
provisions of Financial Accounting Standards Board Statement No. 123R,"Share-Based Payment" (SFAS 123R). SFAS 123R revised SFAS 123, "Accounting
for Stock Based Compensation" and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS 123R requires companies to measure and
recognize compensation expense for all employee stock-based payments at fair
value over the service period underlying the arrangement. Therefore, the Company
is now required to record the grant-date fair value of its stock-based payments
(i.e., stock options and other equity-based compensation) in the statement of
operations. The Company adopted FAS 123R using the "modified prospective"
method, whereby fair value of all previously-granted employee stock-based
arrangements that remained unvested at July 1, 2005 and all grants made on or
after July 1, 2005 have been included in the Company's determination of
stock-based compensation expense for the three and six months ended December 31,
2005. The Company has not restated its operating results for the three and six
months ended December 31, 2004 to reflect charges for the fair value of employee
stock-based arrangements.

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.

22




MATERIAL RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

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, in July 2003 it was further revised to $5,000 per month for
technical research and development, $5,000 per month for administrative services
and $5000 per month under the office space agreement.

Microphase also charges fees for specific
projects on a project-by-project basis. During the three months ended December
30, 2004 and 2005 and from inception (October 2, 1996) to December 31, 2005, $0,
$90,000, and $7,314,526 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(TM) Digital Video and
Data Delivery System and DSL component products. For the three months ended
December 31, 2004 and 2005, mPhase recorded royalties to Microphase totaling
$11,784 and $16,409, respectively.

On December 31, 2005, Microphase agreed to
convert all amounts charged to the Company under the terms of these agreements
into 2,050,000 shares of common stock and a 5 year warrant to purchase a like
amount of shares at $.18.

As a result of the foregoing transactions as
of December 31, 2005, the Company had a $0 payable to Microphase. Additionally,
at December 31, 2005, there are not undelivered purchase orders that remain
outstanding to Microphase.

JANIFAST LTD.

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.

During the six months ended December 31, 2004
and 2005 and the period from inception (October 2, 1996) to December 31, 2005,
$398,715, $544,449 and $15,514,374, respectively have been charged by Janifast
to The Company for components of inventory or cost of sales expense that is
included in operating expenses in the accompanying statements of operations.

On December 31, 2005, Janifast agreed to
convert amounts charged to the Company under the terms of these agreements into
950,000 shares of common stock and a 5 year warrant to purchase a like amount of
shares at $.18.

As a result of the foregoing transactions as
of December 31, 2005, the Company had $23,648 payable to Janifast, which is
included in amounts due to related parties in the accompanying balance sheet.
Additionally, at December 31, 2005, approximately $343,962 of undelivered
purchase orders remain outstanding to Janifast ltd.

OTHER RELATED PARTIES

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:

a. $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, and September 1, 2006 with a final payment of $75,000 on
December 1, 2006.

b. The Company also delivered a 5 year
cashless warrant to purchase $150,000 worth of common stock at $.25 per share.

As of December 31, 2005, the Company made each
payment owed to Piper Rudnick LLP.

Mr. Abraham Biderman was employed until
September 30, 2003 by our former investment-banking firm Lipper & Company.
During the three months and six months ended December 31, 2005, Mr. Biderman's
current firm Eagle Advisers, Inc. has acted as a finder of money in connection
with finder's fees of $211,067 and $312,067 respectively.

During the six month period ended December 31,
2005, Mr. Durando, Mr. Dotoli and Mr. Smiley made bridge loans to the Company in
the aggregate amounts of $50,000, $100,000 and $150,000. The loans due Mr.
Ditoli and Mr. Smiley are outstanding at December 31, 2005. All of the loans
have since been repaid.

|Charges and Expenses with Related Parties                    | (Unaudited)                      
|------------------------------------------------------------ | ---------------------------------
|                                                             | Six
    months ended December 31,
|                                                             | 2004                             
|Charges incurred with Janifast Ltd. included in:             |                                  
|Cost
    of sales and ending inventory                       | 398,715                          
|Total
    Janifast Ltd.                                      | 398,715                          
|                                                             |                                  
|Charges incurred with Microphase Corp. included in:          |                                  
|Cost
    of sales and ending inventory (Including Royalties) | 11,784                           
|Research and development                                     | 41,000                           
|General and administrative                                   | 147,213                          
|Total
    Microphase Corp.                                   | 199,997                          
|                                                             |                                  
|Total
    Charges with Related Parties                       | $      598,712                   
|                                                             |                                  
|Included in Cost of Sales in the Consolidated                |                                  
|Statements of Operations (including changes in inventory)    |                                  
|                                                             |                                  
|Janifast Ltd.                                                | $299,350                         
|Microphase (including royalties)                             | $16,410                          
|                                                             |                                  
|Total
    Related Party Expenses Included In Cost of Sales   | $315,760                         
|                                                             |                                  




LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2005 mPhase had working
capital deficit of $1,455,755 as compared to working capital deficit of
$3,093,043 at December 31, 2004. Through December 31, 2005, the Company had
incurred development stage losses totaling approximately $138,403,461. At
December 31, 2005, the Company had $1,172,757 of cash, cash equivalents and
$158,594 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 December 31, 2005, the Company had cash and
cash equivalents of $1,172,757 compared to $351,185 at June 30, 2005, accounts
receivable of $158,594 and inventory of $447,943. This compared to $533,841 of
accounts receivable and $460,000 of inventory at June 30, 2005.

Cash used in operating activities was
$5,365,403 during the six months ending December 31, 2005. The cash used by
operating activities principally consists of the net loss, and significant
changes in assets and liabilities, including additional cash used by decreasing
accounts payable and accrued expenses by approximately $464,999 by depreciation
and amortization of $84,669, and by non-cash charges of $5,059,150 for common
stock options and warrants issued for services and reparations. 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 December 31,
2005 and 2004, respectively, and $13,539,932 from the period from inception
through December 31, 2005. GTRC may receive a royalty of up to 5% from any
future sales by the Company of its legacy TraverserTM DVDDS product.

As of December 31, 2005, mPhase is obligated
to pay Lucent Technologies, Inc., the sum of $313,600 in 2 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 separate Development Agreement with Lucent covering development of its new
battery developed through the science of Nanotechnology as well as $100,000 per
month through March of 2006 to Lucent in connection with development of its
magnetometer product line using the science of Nanotechnology.

Effective June
30, 2001 the Company converted $2,420,039 of liabilities due to directors and
related parties into 4,840,077 shares of the Company's common stock pursuant to
debt conversion agreements.



During the fiscal
year ended June 30, 2002 certain strategic vendors and related parties converted
approximately $2.7 million of accounts payable and accrued expenses into
7,492,996 shares of the Company's common stock and 5,953,490 warrants. Such
vendors include Microphase Corporation, Janifast, Ltd., and Piper Rudnick LLP,
mPhase's outside counsel.



During the twelve
months ending June 30, 2003, certain strategic vendors and related parties
converted approximately $1.9 million of accounts payable and accrued expenses
into 5,923,333 shares of the Company's common stock and warrants to purchase
3,706,800 shares of common stock of mPhase.



During the twelve months ending June 30, 2004, certain strategic
vendors and related parties converted approximately $1.9 million of  accounts
payable and accrued expenses into 110,467 shares of the Company's common stock
and warrants to purchase 5,069,242 shares of common stock of mPhase.



During the twelve months ending June 30, 2005, certain strategic
vendors and related parties converted approximately $1.2 million of accounts
payable and accrued expenses into 3,895,171 shares of the Company' s common
stock and warrants to purchase 4,616,571shares of the Company's common stock.



During the six months ended December 31, 2005 certain strategic
vendors and related parties converted approximately $590,000 of accounts payable
and accrued expenses into 3,336,864 shares of the Company's common stock
and warrants to purchase 3,277,778 shares of common stock of mPhase.



As of December
31, 2005, mPhase is obligated to pay Lucent Technologies, Inc., the sum of
$313,600 in 2 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 1, 2006 under a separate Development Agreement with Lucent
covering development of its new battery developed through the science of
NanoTechnology.



The Company also
has 3 remaining payments of $100,000 per month as of December 31, 2005 through
March of 2006 with the expansion of its research and development efforts with
Lucent Technologies Inc in the science of Nanotechnology entering of a second
Research and Development Agreement in March of 2005 to develop a Magnetometer
product through the science of Nanotechnology.



The Company is
currently negotiating with Bell Labs division of Lucent Technologies, Inc. to
extend its Development Agreements described above for the TV+ solution and both
the Magnetometer and power cell Nanotechnology product lines.



In order to
broaden and diversify its current line of business into additional high growth
technology areas, the Company had previously renewed in February of 2005 its
Development Agreement, originally executed in February 3, 2004, with the Bell
labs division of Lucent Technologies, Inc. to commercialize the use of nano
power cell technology. Under the terms of the $1.2 million contract, Lucent/
Bell Labs will develop for mPhase micro-power source arrays fabricated using
nanotextured, superhydrophobic materials. This new 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.



The Company has
no commitments from affiliates or related parties to provide additional
financing. The Company has, from time to time, been able to obtain financing
from affiliates when conditions in the capital markets make third party
financing difficult to obtain or when external financing is available only upon
very unattractive terms to the Company, and when such capital has been available
from the affiliates. As a result, conversions of Debt with related parties and
strategic vendors during the periods enumerated is a follows:



|                                        | For the Six Months
|--------------------------------------- | ------------------
|                                        | Ended December 31,
|                                        | (Unaudited)       
|Equity Conversions of Debt With Related | 2004              
|Parties and Strategic Vendors           |                   
|Related Party Conversions               |                   
|Number of shares                        | 2,689,875         
|Number of warrants                      | 2,689,875         
|Amount converted to equity              | $527,975          
|Strategic Vendor Conversions            |                   
|Number of shares                        | 100,000           
|Number of warrants                      | 700,000           
|Amount converted to equity              | $20,000           
|Total Related Party and Strategic       |                   
|Party Conversions                       |                   
|Number of shares                        | 2,789,875         
|Number of warrants                      | 3,389,875         
|Gain (Loss) on Extinguishment of Debt   | $697,975          
|                                        | $(40,500)         
|                                        |                   



24




LOSSES DURING THE DEVELOPMENT STAGE AND
MANAGEMENT'S PLANS

>From inception (October 2, 1996) through
December 31, 2005 the Company had incurred development stage losses and has an
accumulated deficit of approximately $138,403,461 and a stockholders' deficit of
$1,359,185. For the six months ended December 31, 2005, and from inception
through December 31, 2005 respectively, the Company had negative cash flow from
operations of $5,365,403 and $3,037,959 respectively. The report of the
Company's outside auditors, Rosenberg, Rich, Baker, Berman and Company with
respect to its latest audited 10K for the fiscal year ended June 30, 2005 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 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 2006 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 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 $5 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 108 million shares of common
stock at exercise prices of approximately $.18 - $.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 December 31, 2005, plus financing to be secured during the balance
of fiscal year 2006, and expected POTS splitter revenues, will be sufficient to
meet our obligations through the end of fiscal year 2006. 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.

25




ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

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

26




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. mPhase also serve as Directors and Officers of Packetport.
On November 15, 2005, a civil enforcement action was filed in Federal District
Court against Microphase Corporation and the CEO and COO of mPhase corporation.
mPhase is not named as a party in connection with this matter. As noted in other
public filings of mPhase, the CEO and COO of mPhase as well as Microphase
continue to deny any wrongdoing in connection with the Civil Action filed and
intend to vigorously defend any and all counts set forth in such action.

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
December 31, 2005 the Company issued the following unregistered securities:

The conversion of $369,061 and $175,000 of
liabilities due to Microphase Corporation, and Janifast Ltd into 2,050,000
shares and 950,000 shares of stock, respectively. The value attributable to the
shares was based upon the market price of the Company's common stock on the
measurement date, such date was determined pursuant to EITF00-1, as to when all
the contingent terms of the conversion agreements were met, in which no gain or
loss was recognized on the conversion of $544,061 of debt.

The Company issued 1,702,900 shares together
with of 5 year warrants to purchase 1,702,900 shares of the Company's common
stock to accredited investors at $.20 per share in a private placement
generating pursuant to Rule 506 of Regulation D of the Securities Act of 1933
generating $340,580 of gross proceeds available to the Company to be used for
general corporate purposes.

The Company issued 11,477,785 shares together
with of 5 year warrants to purchase 11,477,785 shares of the Company's common
stock to accredited investors at $.18 per share in a private placement
generating pursuant to Rule 506 of Regulation D of the Securities Act of 1933
generating $2,238,973 of gross proceeds available to the Company to be used for
general corporate purposes.

The Company also issued 35,196,777 shares of
its common stock together with a like amount of warrants to affect revised
pricing on previous private offerings.

The Company issued 772,128 shares of its
common stock pursuant to the exercise of warrants, generating net proceeds of
$192,000 to the Company.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

27




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(1) On November 16, 2005, the Company filed a
Form 8K with the SEC describing, in detail, the filing of a civil enforcement
action by the SEC against the CEO and COO of mPhase and Microphase Corporation
alleging violations of various provisions of the Federal Securities Laws in
connection with the acquisition and sale of certain shares of Packetport.com in
December of 1999 and January of 2000.

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




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 11, 2006 | By: /s/ Martin S.
    Smiley   
|                    | Martin S. Smiley               
|                    | Executive Vice President       
|                    | Chief Financial Officer
    and
|                    | General Counsel                

29




Exhibit 31.1

CERTIFICATIONS

I, Ronald A. Durando, certify that:

1. I have reviewed this quarterly report on
Form 10-Q/A of mPhase Technologies, Inc.;

2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this report;

3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report;

4. The registrant's other certifying officer
and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant's and have:

a. Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared;

b. Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the
registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer
and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

a. All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrants'
ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.

/s/ Ronald A. Durando

Ronald A. Durando 
Chief Executive Officer

May 11, 2006




Exhibit 31.2

CERTIFICATIONS

I, Martin S. Smiley, certify that:

1. I have reviewed this quarterly report on
Form 10-Q/A of mPhase Technologies, Inc.;

2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this report;

3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report;

4. The registrant's other certifying officer
and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant's and have:

a. Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared;

b. Evaluated the effectiveness of the
registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the
registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer
and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):

a. All significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrants'
ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that
involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.

/s/ Martin S. Smiley

Martin S. Smiley 
Chief Financial Officer

May 11, 2006




Exhibit 32.1

MPHASE TECHNOLGIES, INC.

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

In connection with the Quarterly Report of
mPhase Technologies, Inc., a New Jersey corporation (the "Company"), on Form
10Q/A for the quarter ended December 31, 2005, as filed with the Securities and
Exchange Commission (the "Report"), I, Ronald A. Durando, Chief Executive
Officer of the Company certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350), that to his knowledge:

1. The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and

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

/s/ Ronald A. Durando

Ronald A. Durando 
Chief Executive Officer

May 11, 2006




Exhibit 32.2

MPHASE TECHNOLGIES, INC.

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

In connection with the Quarterly Report of
mPhase Technologies, Inc., a New Jersey corporation (the "Company"), on Form
10Q/A for the quarter ended December 31, 2005, as filed with the Securities and
Exchange Commission (the "Report"), I, Martin S. Smiley, Chief Financial Officer
of the Company certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. Section 1350), that to his knowledge:

1. The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and

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

/s/ Martin S. Smiley

Martin S. Smiley 
Chief Financial Officer

May 11, 2006