---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
OF THE SECURITIES EXCHANGE ACT OF 1934. 
FOR THE QUARTER ENDED SEPTEMBER 30, 2004 
COMMISSION FILE NO. 000-24969

mPhase Technologies, Inc.

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


587 CONNECTICUT AVE., NORWALK, CT 06854-1711

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 /X/ NO / /

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK AS OF NOVEMBER 12, 2004 IS 90,571,962 SHARES, ALL OF ONE
CLASS OF $.01 STATED VALUE COMMON STOCK.

1

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mPHASE TECHNOLOGIES, INC. 
INDEX

|                   |                                                                     | PAGE
|------------------ | ------------------------------------------------------------------- | ----
|PART I             | FINANCIAL INFORMATION                                               |     
|                   |                                                                     |     
|ITEM 1             | FINANCIAL STATEMENTS                                                |     
|                   |                                                                     |     
|                   | Consolidated Balance
    Sheets-June 30, 2004 and                   |     
|                   | September 30, 2004, (Unaudited)                                     | 3   
|                   |                                                                     |     
|                   | Unaudited
    Consolidated Statements of Operations-Three months    |     
|                   | ended
    September 30, 2003 and 2004 and from October 2, 1996      |     
|                   | (Date of
    Inception) to September 30, 2004                       | 4   
|                   |                                                                     |     
|                   | Unaudited
    Consolidated Statement of Changes in Shareholders'    |     
|                   | Deficit
    Three months ended September 30, 2004                   | 5   
|                   |                                                                     |     
|                   | Unaudited
    Consolidated Statements of Cash Flows-Three Months    |     
|                   | ended
    September 30, 2003 and 2004 and from October 2, 1996      |     
|                   | (Date of
    Inception) to June 30, 2004                            | 6   
|                   |                                                                     |     
|                   | Notes to Unaudited
    Consolidated Financial Statements            | 7   
|                   |                                                                     |     
|ITEM 2             | Management's
    Discussion and Analysis of Financial Condition and |     
|                   | Condition and Results of Operations                                 | 14  
|                   |                                                                     |     
|ITEM 3             | Quantitative and
    Qualitative Disclosures about market risk      | 24  
|                   |                                                                     |     
|ITEM 4             | CONTROLS AND
    PROCEDURES                                         | 24  
|                   |                                                                     |     
|PART II            | OTHER INFORMATION                                                   | 25  
|                   |                                                                     |     
|Item 1.            | Legal Proceedings                                                   | 25  
|                   |                                                                     |     
|Item 2.            | Changes in Securities                                               | 25  
|                   |                                                                     |     
|Item 3.            | Defaults Upon Senior
    Securities                                 | 25  
|                   |                                                                     |     
|Item 4.            | Submission of Matters
    to a Vote of Security Holders             | 25  
|                   |                                                                     |     
|Item 5.            | Other Information                                                   | 25  
|                   |                                                                     |     
|Item 6.            | Exhibits on Reports
    on Form 8-K                                 | 26  
|                   |                                                                     |     
|Signature
    Page | 27                                                                 
|                   |                                                                     |     
|Certifications     | 28                                                                 

2

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

|                                                       |               | June 30,    | September 30,
|------------------------------------------------------ | ------------- | ----------- | -------------
|                                                       |               | 2004        |              
|                                                       |               |             |              
|                                                       |               |             | (Unaudited)  
|ASSETS                                                 |               |             |              
|                                                       |               |             |              
|CURRENT ASSETS                                         |               |             |              
|Cash and cash equivalents                              | $             | 90,045      | $            
|Accounts receivable, net of bad debt reserve           |               |             |              
|of $0 for each period                                  |               | 64,100      |              
|Stock subscription receivable                          |               | 886,000     |              
|Inventories, net                                       |               | 1,237,972   |              
|Prepaid expenses and other current assets              |               | 81,061      |              
|                                                       |               |             |              
|                                                       |               |             |              
|                                                       |               |             |              
|Total Current Assets                                   |               | 2,359,178   |              
|                                                       |               |             |              
|                                                       |               |             |              
|Property and equipment, net                            |               | 52,685      |              
|Patents and licensing rights, net                      |               | 161,605     |              
|Other Assets                                           |               | 17,250      |              
|                                                       |               |             |              
|                                                       |               |             |              
|TOTAL ASSETS                                           | $             | 2,590,718   | $            
|                                                       |               |             |              
|LIABILITIES AND STOCKHOLDERS' EQUITY                   |               |             |              
|                                                       |               |             |              
|CURRENT LIABILITIES                                    |               |             |              
|Accounts payable                                       |               | 2,088,658   |              
|Accrued expenses                                       |               | 691,033     |              
|Due to related parties                                 |               | 625,956     |              
|Notes payable, related parties                         |               | 300,000     |              
|Current portion of long-term
    debt                  |               | 550,803     |              
|Deferred revenue                                       |               | 214,180     |              
|                                                       |               |             |              
|TOTAL CURRENT LIABILITIES                              |               | 4,470,630   |              
|                                                       |               |             |              
|                                                       |               |             |              
|Long-term debt, net of current portion                 |               | 139,500     |              
|Other Liabilities                                      |               | 618,550     |              
|Other Liabilities, related parties                     |               | 280,000     |              
|                                                       |               |             |              
|                                                       |               |             |              
|COMMITMENTS AND CONTINGENCIES (Note 9)                 |               |             |              
|                                                       |               |             |              
|STOCKHOLDERS' DEFICIT                                  |               |             |              
|                                                       |               |             |              
|Common stock, stated value $.01, 250,000,000           |               |             |              
|shares authorized; 88,899,962
    and                  |               |             |              
|90,509,962 shares issued and
    outstanding at        |               |             |              
|June 30, 2004 and September 30,
    2004, respectively |               | 888,999     |              
|Additional paid in capital                             |               | 111,976,095 |              
|Deficit accumulated during development stage           | (115,775,083) |             | (117,606,945)
|Less-Treasury stock, 13,750 shares at cost             |               | (7,973)     |              
|                                                       |               |             |              
|TOTAL STOCKHOLDERS' DEFICIT                            |               | (2,917,962) |              
|                                                       |               |             |              
|                                                       |               |             |              
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT            | $             | 2,590,718   | $            

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

3

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

|                                     |   |                    |           |               | October 2, 1996
|------------------------------------ | - | ------------------ | --------- | ------------- | ---------------
|                                     |   | Three Months Ended |           |               | (Date of       
|                                     |   | September 30,      |           | Inception) to
|                                     |   |                    |           |               | September 30,  
|                                     |   | 2003               |           | 2004          |                
|                                     |   |                    |           |               |                
|                                     |   |                    |           |               |                
|REVENUES                             | $ | 2,489,201          | $         | 179,163       | $              
|                                     |   |                    |           |               |                
|                                     |   |                    |           |               |                
|COSTS AND EXPENSES                   |   |                    |           |               |                
|Cost of Sales                        |   | 2,098,744          | 129,781   |               | 14,042,988     
|Research and development             |   |                    |           |               |                
|including
    non-cash stock related |   |                    |           |               |                
|charges of $0,
    $0                |   |                    |           |               |                
|and $2,117,669,
    respectively)    |   | 611,420            | 1,101,400 |               | 39,518,200     
|General and Administrative           |   |                    |           |               |                
|(including
    non-cash stock        |   |                    |           |               |                
|related
    charges of $112,245,     |   |                    |           |               |                
|$0 and
    $47,333,142               |   |                    |           |               |                
|respectively)                        |   | 604,892            | 708,895   |               | 79,763,992     
|Depreciation and amortization        |   | 46,104             |           | 1,021         |                
|                                     |   |                    |           |               |                
|TOTAL COSTS AND EXPENSES             |   | 3,361,160          |           | 1,941,097     |                
|                                     |   |                    |           |               |                
|                                     |   |                    |           |               |                
|LOSS FROM OPERATIONS                 |   | (871,959)          |           | (1,761,934)   |                
|                                     |   |                    |           |               |                
|OTHER INCOME                         |   |                    |           |               |                
|Gain (Loss) on extinguishments       |   | 23,087             |           | (40,500)      |                
|Minority interest loss in            |   |                    |           |               |                
|consolidated
    subsidiary          |   | -                  |           | -             |                
|Loss on Sale of Securities           |   | -                  |           | -             |                
|Loss from unconsolidated             |   |                    |           |               |                
|subsidiary                           |   | -                  |           | -             |                
|Interest Income (expense), net       |   | (15,639)           |           | (29,428)      |                
|                                     |   |                    |           |               |                
|                                     |   |                    |           |               |                
|TOTAL OTHER INCOME (EXPENSE)         |   | 7,448              |           | (69,928)      |                
|                                     |   |                    |           |               |                
|                                     |   |                    |           |               |                
|NET LOSS                             | $ | (864,511)          | $         | (1,831,862)   | $              
|                                     |   |                    |           |               |                
|                                     |   |                    |           |               |                
|LOSS PER COMMON SHARE,               |   |                    |           |               |                
|basic and diluted                    | $ | (.01)              | $         | (.02)         |                
|                                     |   |                    |           |               |                
|WEIGHTED AVERAGE COMMON SHARES       |   |                    |           |               |                
|OUTSTANDING, basic and diluted       |   | 71,725,318         |           | 89,719,962    |                

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

4

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mPHASE TECHNOLOGIES, INC. (A Development Stage Company) 
Consolidated Statement of Changes in 
Shareholders' Deficit (unaudited)

|                                      |            |             |          |               |                | Total       
|------------------------------------- | ---------- | ----------- | -------- | ------------- | -------------- | ------------
|                                      |            |             |          | Additional    |                | Shareholders
|                                      |            | $.01 Stated | Treasury | Paid-in       | Accumulated    | (Deficit)   
|                                      | Shares     | Value       | Stock    | Capital       | Deficit        | Equity      
|                                      |            |             |          |               |                |             
|                                      |            |             |          |               |                |             
|Balance June 30, 2004                 | 89,899,962 | $888,999    | $(7,973) | $111,976,095  | $(115,775,083) | $(2,917,962)
|                                      |            |             |          |               |                |             
|                                      |            |             |          |               |                |             
|Issuance of warrants in               |            |             |          |               |                |             
|connection with settlement            |            |             |          |               |                |             
|of liabilities                        | --         | --          | --       | 169,500       | --             | 169,500     
|                                      |            |             |          |               |                |             
|Issuance of common stock with         |            |             |          |               |                |             
|warrants in private placement, net of |            |             |          |               |                |             
|cash expenses of $15,900              | 1,672,000  | 16,720      | --       | 385,380       | --             | 402,100     
|                                      |            |             |          |               |                |             
|Net Loss                              | --         | --          | --       | --            | (1,831,862)    | (1,831,862) 
|                                      |            |             |          |               |                |             
|                                      |            |             |          |               |                |             
|Balance, September, 2004              | 90,571,962 | $ 905,719   | $(7,973) | $ 112,530,975 | $(117,606,945) | $(4,178,224)

5

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

|                                                     |   |                    |   |                  |   | October 2,   
|---------------------------------------------------- | - | ------------------ | - | ---------------- | - | -------------
|                                                     |   |                    |   |                  |   | 1996         
|                                                     |   | Three Months Ended |   | (Date of        
|                                                     |   | September 30,      |   | Inception) to   
|                                                     |   |                    |   |                  |   | September 30,
|                                                     |   | 2003               |   | 2004             |   | 2004         
|                                                     |   |                    |   |                  |   |              
|                                                     |   |                    |   |                  |   |              
|Cash Flow From Operating Activities:                 |   |                    |   |                  |   |              
|Net Loss                                             | $ | (864,511)          | $ | (
    1,831,862) | $ | (117,606,945)
|Adjustments to reconcile net loss to net             |   |                    |   |                  |   |              
|cash used in operating
    activities:               |   |                    |   |                  |   |              
|Depreciation and amortization                        |   | 210,543            |   | 15,384           |   | 6,345,623    
|Book Value of fixed assets
    disposed              |   | --                 |   | --               |   | 74,272       
|Provision for doubtful accounts                      |   | --                 |   | --               |   | 32,124       
|(Gain) loss on debt extinguishments                  |   | (23,087)           |   | 40,500           |   | (313,020)    
|Loss on unconsolidated subsidiary                    |   | --                 |   |                  |   | 1,466,467    
|Impairment of note receivable                        |   | --                 |   |                  |   | 232,750      
|Loss on Security                                     |   |                    |   |                  |   | 11,258       
|Non-cash charges relating to
    issuance of         |   | 112,245            |   |                  |   | 49,458,890   
|common stock, common stock
    options and           |   |                    |   |                  |   |              
|Warrants                                             |   |                    |   |                  |   |              
|Changes in assets and liabilities:                   |   |                    |   |                  |   |              
|Accounts receivable                                  |   | (442,320)          |   | 50,191           |   | (46,033)     
|Inventories                                          |   | 1,014,452          |   | 84,740           |   | (942,993)    
|Prepaid expenses and other
    current assets        |   | (263)              |   | (329,071)        |   | (906,253)    
|Other non-current assets                             |   | --                 |   | (81,123)         |   | (81,123)     
|Accounts payable                                     |   | 49,692             |   | 263,633          |   | 4,592,740    
|Accrued expenses                                     |   | (400,014)          |   | (87,487)         |   | 1,692,382    
|Due to/from related parties                          |   |                    |   |                  |   |              
|Microphase                                           |   | (57,778)           |   | 89,633           |   | 2,469,344    
|Janifast                                             |   | 21,963             |   | 44,213           |   | 2,747,118    
|Officers                                             |   | (90,583)           |   | 10,820           |   | 479,576      
|Lintel                                               |   | --                 |   | -                |   | 477,000      
|Others                                               |   | --                 |   | (50,000)         |   | 129,472      
|Receivables from Subsidiary                          |   | --                 |   | -                |   | (150,000)    
|Deferred revenue                                     |   | 53,000             |   | 110,820          |   | 325,000      
|                                                     |   |                    |   |                  |   |              
|Net cash used in operating activities                |   | (416,662)          |   | ( 1,669,609)     |   | (49,512,351) 
|                                                     |   |                    |   |                  |   |              
|                                                     |   |                    |   |                  |   |              
|Cash Flow from Investing Activities:                 |   |                    |   |                  |   |              
|Payments related to patents and
    licensing rights |   | --                 |   | (32,451)         |   | (449,064)    
|Purchase of fixed assets                             |   | (5,500)            |   | -                |   | (2,641,106)  
|                                                     |   |                    |   |                  |   |              
|Net Cash (used)/provided by investing                |   |                    |   |                  |   |              
|activities                                           |   | (5,500)            |   | (32,451)         |   | (3,090,170)  
|                                                     |   |                    |   |                  |   |              
|Cash Flow from Financing Activities:                 |   |                    |   |                  |   |              
|Proceeds from issuance of common
    stock and       |   |                    |   |                  |   |              
|exercises of
    options and warrants                |   | 173,840            |   | 1,288,000        |   | 50,874,976   
|Payments of notes payable                            |   | (2,000)            |   | (105,498)        |   | (327,335)    
|Advances from Microphase                             |   | --                 |   | 175,000          |   | 522,840      
|Proceeds from notes payable - officers               |   | --                 |   | 600,000          |   | 1,030,000    
|Repayments of notes payable - offiers                |   | --                 |   | (300,000)        |   | (330,000)    
|Repurchase of treasury stock at
    cost             |   | --                 |   | --               |   | (7,973)      
|                                                     |   |                    |   |                  |   |              
|Net cash provided by financing activities            |   | 171,840            |   | 1,657,502        |   | 52,648,008   
|                                                     |   |                    |   |                  |   |              
|Net increase (decrease) in cash                      |   | (250,322)          |   | (44,558)         |   | --           
|CASH AND CASH EQUIVALENTS, beginning of
    period   |   | 396,860            |   | 90,045           |   | --           
|                                                     |   |                    |   |                  |   |              
|CASH AND CASH EQUIVALENTS, end of period             | $ | 146,538            | $ | 45,487           | $ | 45,487       

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

6

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

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

mPhase Technologies, Inc. (the "Company") was organized on October 2, 1996.
On February 17, 1997, the Company acquired Tecma Laboratories, Inc. ("Tecma") in
a transaction accounted for as a reverse merger. On June 25, 1998, the Company
acquired Microphase Telecommunications, Inc. ("MicroTel"), through the issuance
of 2,500,000 shares of its common stock in exchange for all the issued and
outstanding shares of MicroTel. The assets acquired in this acquisition were
patents related to the mPhase line of DSL component products (e.g., POTS
Splitters) and patent applications utilized in the Company's proprietary
Traverser(TM) Digital Video Data Delivery System ("Traverser"). The primary
business of the company is to design, develop, manufacture and market high
band-width telecommunication products incorporating digital subscriber line
("DSL") technology. The present activities of the Company are focused (a) upon
cost reduction and enhancement of its proprietary Traverser(TM) product under an
Agreement with Lucent Technologies, Inc. and (b) deployment of the Traverser(TM)
product. The Traverser(TM) enables telecommunications service providers to
simultaneously deliver MPEG2 digital quality television (utilizing non-internet
protocol), high-speed Internet and voice over copper telephone wire utilizing
DSL technology. Additionally, the Company sells DSL component products which
includes microfilters, splitters, and line extenders.

The Company is in the development stage, as defined by Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises." and its present activities are focused on the commercial
deployment of its proprietary Traverser (TM) and associated DSL component
products. Since mPhase is in the development stage, the accompanying
consolidated financial statements should not be regarded as typical for normal
operating periods.

BASIS OF PRESENTATION-The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the regulations of
the Securities Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ending
September 30, 2004 are not necessarily indicative of the results that may be
expected for a full fiscal year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 2004.

Through September 30, 2004, the Company had incurred cumulative (a)
development stage losses totaling approximately $117,606,945 and (b) negative
cash flow from operations equal to $49,512,351. At September 30, 2004, the Company
had approximately $45,487 of cash, cash equivalents and approximately $13,909 of
trade receivables to fund short-term working capital requirements. The Company's
ability to continue as a going concern and its future success is dependent upon
its ability to raise capital in the near term to: (1) satisfy its current
obligations, (2) continue its research and development efforts, and (3) allow
the successful wide scale development, deployment and marketing of its products.

USE OF ESTIMATES-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

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

7

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

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-mPhase has elected to continue to account for
stock-based compensation under APB Opinion No. 23, under which no compensation
expense has been recognized for stock options and certain compensating warrants
granted to employees at fair market value. In accordance with SFAS No. 148 the
Company has elected to implement the disclosure only provisions of this
statement. Had compensation expense for stock options granted under the Plan and
certain warrants granted to employees in 2003 and 2004 been determined based on
fair value at the grant dates, mPhase's net loss for the three months ended
September 30, 2003 and 2004 would have been increased to the pro forma amounts
shown below.

|                    |   | Three Months Ended
|------------------- | - | ------------------
|                    |   | September 30,     
|                    |   |                   
|                    |   | 2003              
|                    |   |                   
|Net Loss:           |   |                   
|As reported         | $ | (864,511)         
|                    |   |                   
|Pro forma           | $ | (864,511)         
|                    |   |                   
|Net Loss Per Share: |   |                   
|As reported         | $ | (.01)             
|Pro forma           | $ | (.01)             

8

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). This
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for 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 is not expected to have a significant impact on the Company's
results of operations or financial position.

STATEMENT OF CASH FLOW SUPPLEMENTAL INFORMATION

|              |   |       |   |     
|------------- | - | ----- | - | ----
|              |   | 2003  |   | 2004
|              |   |       |   |     
|Interest Paid | $ | 3,000 | $ | 0   
|              |   |       |   |     
|Taxes Paid    | $ | 250   | $ | 0   

Non Cash Investing and Financing Activities:

|                                   | 2003 |  | 2004      
|---------------------------------- | ---- |  | ----------
|Conversion of accounts payable and |      |  |           
|accrued expenses  to equity        | $  0 |  | $ 129,000 
|                                   |      |  |           
|Conversion of accounts payable and |      |  |           
|accrued expenses to  notes payable | $  0 |  | $  460,000

9

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

2. RELATED PARTY TRANSACTIONS

mPhase's President, Chief Operating Officer and Chairman of the Board of the
Company are also officers of Microphase and mPhase's president and chairman of
the board are shareholders of Microphase. On May 1, 1997, the Company entered
into an agreement with Microphase, whereby it will use office space as well as
the administrative services of Microphase, including the use of accounting
personnel. This agreement was for $5,000 per month and was on a month-to-month
basis. In July 1998, the office space agreement was revised to $10,000, in
January 2000 to $11,050 per month, in July 2001 to $11,340 per month, in July
2002 to $12,200 per month, in January 2003 to $10,000 per month, and in July
2003 to $18,000 per month. Additionally, in July 1998, mPhase entered into an
agreement with Microphase, whereby mPhase reimburses Microphase $40,000 per
month for technical research and development. In January 2003 the technical
research and development agreement was revised to $20,000 per month, and in July
2003 it was further revised to $5,000 per month.

Microphase also charges fees for specific projects on a project-by-project
basis. During the three months ended September 30, 2003 and 2004 and from
inception (October 2, 1996) to September 30, 2004, $72,948, $45,000, and
$7,269,526 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 September 30, 2003
and 2004, mPhase recorded royalties to Microphase totaling $63,507 and $5,670,
respectively.

As a result of the foregoing transactions as of September 30, 2004, the
Company had $235,183 payable to Microphase, which is included in amounts due to
related parties in the accompanying consolidated balance sheet. Additionally, at
September 30, 2004, there are no undelivered purchase orders that remain
outstanding to Microphase.

The Company purchases products and incurs certain research and development
expenses with Janifast Ltd., which is owned by U.S. Janifast Holdings, Ltd., a
company in which three directors of mPhase are significant shareholders and one
is an officer, in connection with the manufacturing of POTS Splitter shelves and
component products including cards and filters sold by the Company.

During the three months ended September 30, 2003 and 2004 and the period from
inception (October 2, 1996) to September 30, 2004, $1,185,995, $160,684 and
$13,624,295, respectively have been charged by Janifast to inventory or expense
and is included in operating expenses in the accompanying statements of
operations.

As a result of the foregoing transactions as of September 30, 2004, the
Company had $467,118 payable to Janifast, which is included in amounts due to
related parties in the accompanying balance sheet. Additionally, at September,
2004, approximately $556,500 of undelivered purchase orders remain outstanding
to Janifast Ltd.

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

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



10

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY)

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 September 30, 2004 inventory is comprised of the
following:

|Raw materials                      | $ | 75,834   
|---------------------------------- | - | ---------
|Work in progress                   |   | 525,647  
|Finished goods                     |   | 940,076  
|                                   |   |          
|Total                              |   | 1,541,557
|Less: Reserve for
    Obsolescence |   | (388,325)
|                                   |   |          
|Net Inventory                      | $ | 1,153,232

4. INCOME TAXES

The Company accounts for income taxes using the asset and liability method in
accordance with SFAS No. 109 "ACCOUNTING FOR INCOME TAXES". Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Because of the
uncertainty as to their future realizability, net deferred tax assets,
consisting primarily of net operating loss carry-forwards, have been fully
reserved for. Accordingly, no income tax benefit for the net operating loss has
been recorded in the accompanying consolidated financial statements.

Utilization of net operating losses generated through September 30, 2004 may
be limited due to changes in ownership that have occurred.

5. ACCRUED EXPENSES

At September, 2004 accrued expenses consisting of administrative expenses
were $346,926 and accrued expenses for research and development expenses
incurred with Lucent Technologies, Inc. were $256,000, totaling $602,926.

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.

11

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY)

During the three months ended September, 2003 and ended September 30, 2004,
mPhaseTelevision.Net, Inc., was charged $0 and $0, respectively for fees and
costs by its joint venture partner and its affiliates.

Pursuant to an agreement dated as of June 18, 2002,
mPhaseTelevision.Net has terminated its lease of the earth station and Alphastar
and its affiliated entity have converted certain accounts payable into shares of
the Company's common stock. Additionally, under this Agreement, mPhase is
obligated to pay Alphastar and its affiliates $35,000, which is included in
amounts due to related parties in the accompanying consolidated balance sheet.

7. EQUITY TRANSACTIONS

During the three months ending September 2003, the Company granted 174,667
shares of its common stock and warrants to purchase 249,667 shares of its common
stock to consultants for services performed valued at $112,243. In August of
2003, the Company issued 333,334 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 $.30 per share, in a private placement
generating net proceeds of $100,000 which was collected during the three month
period ended on September 30, 2003.

In July of 2004, the Company issued 622,000 shares of its commons stock
together with a like amount of callable warrants at $.35 and $.50 respectively
in a private placement .In August and September of 2004, Company issued 1,050,000
shares and of its commons stock together with a like amount of callable warrants
at $.25 and $.50 in private placements, which after cash outlays of
approximately $15,900, generated net proceeds of $247,500. The
aggregate net proceeds of such private placements of $402,100 were
collected during the three month period ended on September 30, 2004.

8. DEBT TRANSACTIONS/CONVERSIONS

During the three months ending September 30, 2003, a note payable in the
amount of $360,000 to Microphase Corporation was executed in exchange for the
cancellation of a like amount of accounts payable to Microphase on September 25,
2003 which matures on July 25, 2004. Additionally, a note payable to Martin
Smiley, CFO and General Counsel of mPhase, in the amount of $100,000 was
extended from September 25, 2003 to July 24, 2004. Both liabilities carry an
interest rate of 12% payable quarterly in arrears. Each note is convertible into
Common Stock of mPhase at the rate of $.30 cents per share through July 25,
2004. Upon conversion, each note holder will be granted warrants to purchase an
equivalent amount of mPhase Common stock at $.30 cents per share for a period of
five years from the date of conversion.

During the three months ending September 30, 2004, a note payable in the
amount of $180,000 to Microphase Corporation, a related party, remained
outstanding. Such note was extended by Microphase from July 25,2004 and now
matures on July 25, 2005. Additionally, a note payable to Martin Smiley, CFO and
General Counsel of mPhase, in the amount of $100,000 was extended from July 25,
2004 to July 25, 2005. Both liabilities carry an interest rate of 12% payable
quarterly in arrears and were extended effective June 30, 2004. Each note is
convertible into Common Stock of mPhase at the rate of $.25 cents per share plus
a 5 year warrant for a like amount of common stock at $.25 per share through
July 25, 2005 and a second 5 year warrant at $.50 per share convertible into a
like amount of shares.

On August 30, 2004, the Company paid $100,000 to Piper&Rudnick, LLP, its
outside counsel, in connection with the renegotiation of a Payment Agreement
effective June 30, 2004. Under the terms of the renegotiated Payment Agreement,
the Company agreed to payments of $25,000 each on December 1, 2004, March 1,
2005, June 1, 2005 and September 1, 2005 and a payment of $50,000 on December 1,
2006 plus $25,000 payments on March 1, 2006, June 1, 2006, September 1, 2006 and
a final payment of $75,000 payment on December 1, 2007. In addition,
Piper&Rudnick LLP agreed to convert $150,000 of such payable into a 5 year
cashless warrant to purchase the Company's common stock at $.25 per share.

On August 30, 2004 the Company issued two demand promissory notes each in the
principal amount of $75,000 at 12% interest in consideration of loans of $75,000
to the Company from each of Mr. Dotoli, its COO and Mr. Smiley, its CFO and
General Counsel. In addition on September 30, 2004, the Company issued a demand
promissory note to Microphase Corporation, a related party, for a loan of
$175,000 to the Company with a 12% interest rate. Finally, the Company issued
demand promissory notes with an interest rate of 12% to Mr. Ronald Durando, CEO
of the Company for loans made to the Company dated August 30, 2004, as well as
demand promissory notes to Mr. Durando, its CEO, for loans to the Company of
$200,000 on August 30, 2004, $75,000 on September 28, 2004 and $175,000 on
September 30, 2004 respectively.

12

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY)

9. COMMITMENTS AND CONTINGENCIES



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(TM) DVDDS.

As of February 3, 2004, the Company entered into 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 2005.

As of September 15, 2004, the Company entered into Amendment Number 2. to its
Development Agreement dated as of September 15, 2003, for Development of Release
3.0 of its TV+ solution for a total cost of $1,411,200 payable in 9 installments of $156,800 each between September 27, 2004 and April 25, 2005 each
payable 60 days, in arrears of 9 completion milestones occurring between such
dates.

10. DEFERRED REVENUE

Deferred revenue as of September 30, 2004 consists of customer's billings
totaling $267,000 on the POTS product line whereby completion of customer
acceptance will be attained when original splitters are upgraded to the next
generation splitters and deposits of $58,000 from Beta customers on the Traverser(TM) product line orders to be delivered when it reaches commercial
production.

13

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ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS

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

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

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

RESULTS OF OPERATIONS

OVERVIEW

mPhase, a New Jersey corporation, founded in 1996 is a publicly-held company
with over 12,000 shareholders and approximately 90 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 RF and filtering technologies within the
defense and telecommunications industry. It has been in operation for almost 50
years and supports mPhase with both engineering, administrative and financial
resources as needed.

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

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

14

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The Traverser(TM) is installed at Hart Telephone Company in Hartwell,
Georgia, where a user system is currently operational that is being replaced by
the TV+ solution.. The legacy Traverser DVDDS system is also installed at the
BMW manufacturing plant in Spartanburg, South Carolina for use as a
telebroadcast system in a commercial setting.

The mPhase TV+ platform, developed in conjunction with the Bell Labs division
of Lucent Technologies, Inc. (Lucent), enables telephone service providers to
deliver high speed data, and broadcast TV over copper telephone lines between a
telephone service provider's central office and the customer premises. The new
mPhase TV+ system, developed in conjunction with Bell Laboratories division of
Lucent Technologies, Inc., is also designed to allow for the simultaneous
delivery of voice, high speed data, and broadcast TV over copper telephone lines
between a telephone service provider's central office (CO) and the customer
premises. The TV+ system was developed in conjunction with Bell Laboratories as
an outgrowth of mPhase's engagement of Bell Labs in fiscal year 2003 to cost
reduce mPhase's set top box that operates with the legacy DVDDS sytem developed
by GTRC. The TV+ system replaces the DVDDS system with an open industry
standards-based platform. Release 1 of the mPhaseTV+ system is complete and
ready for commercial deployment. The TV+ system delivers 255 broadcast
television channels over ADSL and utilizes an industry-leading, standards-based
Lucent Technologies, Inc.'s Stinger

The mPhase TV+ system provides comprehensive end to end management of
delivery of digital broadcast television by interfacing with the Stinger and a
video headend built by a telephone service provider to downlink broadcast
television programming from satellites. mPhase software manages the broadcast
television compressed data prior to the distribution to a customer by the
Stinger and supports administrative tasks associated with subscriber management.
The use of the Lucent Stinger (digital subscriber line access mutiplexer
commonly known as a DSLAM) for transport in the TV+ system results in a highly
scalable architecture for the delivery of broadcast television. This is
accomplished by internally multicasting each television channel for delivery
from the CO to a larger number of end users. Release 1.0 of the TV+ system is
capable of distributing 255 channels of broadcast television simultaneously to
455 customers by one Lucent Stinger DSLAM concentrator. We believe that the TV+
platform is the most cost-effective standards-based solution for delivery of
broadcast television using ADSL. For mPhase the alliance with Lucent marks a
change in strategy from selling a complete proprietary platform to providing an
industry-standards solution.

The Company believes that the demand for the TV+ system will be greatest in
markets primarily outside of the United States that do not have a hybrid fiber
coaxial cable ("HFC") infrastructure necessary for cable TV or fiber to the curb
necessary for very fast DSL (VDSL). We believe there is a significant cost
advantage when our mPhase TV+ solution is compared against other platforms
utilizing existing telephone lines containing the samefeatures. Release
1.0 of the mPhase TV+ system completed in July of 2004 does not contain features
such as the delivery of two or more TV channels over a single DSL copper
telephone line, video on demand, or interactive TV. Release 2.0 of the TV+
completed in September of 2004 contains the same basic characteristics of
Release 1.0 plus an enhanced electronic program guide. Releases 1.0 and 2.0 of
the TV+ system are designed to operate only with the Lucent Stinger DSLAM.

Release 3.0 of the TV+ solution, expected to be completed in the third
quarter of fiscal year 2005, will utilize a communications framework based upon
Internet Protocol (IP) instead of Asynchronous Transfer Mode (ATM) that is
utilized by Releases 1.0 and 2.0. ATM is an industry standard for transportation
of data based upon a packaging of information into a fixed-size cell format for
transportation across networks. Many telecommunications service providers
currently deploy equipment that handles this protocol because it can support
voice, video, data and multimedia applications simultaneously with a high degree
of reliability. IP is another transport protocol that maintains network
information and routes packets across networks. IP packets are larger and can
hold more data than ATM cells. Historically, there have been concerns that
service providers would be unable to provide the same quality of service with IP
because it is not optimized for time-sensitive signals such as broadcast
television and voice. Nevertheless, there is a greater demand by
telecommunication service providers for IP systems for delivery of television,
voice and high-speed data because such systems are significantly more cost
effective to deploy based upon greater scalability.

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

For those television markets in the United States that are not served by HFC,
we believe the availability of programming content is essential to facilitate
potential sales of our TV platforms over ADSL. In March of 2000, we established
mPhase Television net., Inc. (mPhase TV), a joint venture between mPhase and
Alphastar International, Inc. mPhase TV can provide contracts, licensing
agreements, marketing and legal support to service providers interested in
deploying television over ADSL for U.S. markets. mPhase TV has secured licenses
to resell programming for approximately 80 channels of U.S. broadcast
television. mPhase TV enables telecommunications service providers in the U.S.
to provide customers a full complement of television programming. This enables a

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



|15
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mPhase DSL Component Products - mPhase also has designed and markets a line
of DSL component products ranging from items such as Plain Old Telephone Service
(POTS) splitters to innovative loop management products. From our inception in
1996 to date virtually all of mPhase's revenue has been derived from sales of
our component DSL products such as POTS splitters and low pass filters. Our
newest innovation in our suite of DSL component products is our iPOTS or
Intelligent POTS splitter product. This product enables telephone service
providers comprehensive remote and automated test access to all elements of a
DSL network. The iPOTS1, and iPOTS3 allow a telephone service provider to bypass
POTS splitters on a DSL network and avoid having to manually intervene and
disrupt line usage so a test signal can pass through a DSL network. This product
marks an advancement in automating DSL loop management. As DSL deployments
increase, it is becoming more important for telecommunications service providers
to streamline the process for rolling-out and troubleshooting DSL services.
Additionally, as competition for high speed Internet expands, the market is
witnessing a reduction in the price for such service. Therefore, it has become
imperative that telecommunications service providers lower the operational costs
involved with supporting DSL services. Currently our iPOTS1 is designed for use
with the Lucent Stinger, whereas, the iPOTS3 is compatible with DSLAM's
manufactured by other vendors. mPhase currently has a non-exclusive worldwide
distribution agreement with Corning Cable Systems for the sale of the iPOTS
products. The Company is also aggressively pursuing direct efforts with respect
to sales of the iPOTS product.
mPhase was organized on October 2, 1996. On February 17, 1997, the Company
acquired Tecma Laboratories, Inc., a public corporation in a reverse merger
transaction. This resulted in the Company's stock becoming publicly traded on
the NASDAQ Over-the-Counter Bulletin Board. On June 25, 1998, the Company
acquired Microphase Telecommunications, Inc. in a stock for stock exchange,
whose principal assets included patents and patent applications utilized in the
Company's Traverser(TM) product. On March 2, 2000, mPhase acquired an interest
in mPhaseTelevision.Net, Inc., a joint venture organized to provide digital
television programming content to service providers deploying television over
DSL.
From mPhase's inception, the operating activities related primarily to
research and development, establishing third-party manufacturing and
distribution relationships and developing product brand recognition among
telecommunications service providers. These activities included establishing
trials and field tests of the Traverser(TM) and TV+ products with Hart Telephone
Company in Georgia, and establishing a core administrative and sales
organization.
In February of 2004, the Company entered into the business of developing a
new battery using the science of Nanotechnology initially targeted for military
applications. The Company entered into a Development Agreement with Lucent
Technology to develop such battery.
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 Traverser(TM) to various telecommunications service providers. Since the
Company believes that there may be a significant international market for the
Traverser(TM) involving many different countries, with different regulations,
certifications and commercial practices than the United States, future revenues
are highly subject to the changing variables and uncertainties. Additionally,
the recent instability of the telecommunications market evidenced by reduction
in capital spending across the whole telecom sector contributes to our
difficulty in accurately predicting future revenues.
Cost of revenues. The costs necessary to generate revenues from the sale of
POTS Splitter Shelves and other related DSL component products include direct
material, labor and manufacturing. mPhase paid these costs to Janifast Ltd.,
which has facilities in the People's Republic of China and is owned by and
managed by certain senior executives of the Company. The cost of revenues also
includes certain royalties paid to Microphase Corporation, a privately held
corporation organized in 1955, which shares certain common management with the
Company. Costs for future production of the Traverser(TM) product will consist
primarily of payments to manufacturers to acquire the necessary components and
assemble the products and future patent royalties payable to Georgia Tech
Research Corporation, ("GTRC").

16Research and development. Research and development expenses consist
principally of payments made to GTRC, Microphase Corporation and Lucent
Technologies, Inc. for development of the Traverser(TM) and the integration
mPhase's Broadcast Television Switch with the Lucent Stinger(R) voice and data
delivery system product. All research and development costs are expensed as
incurred.
General and administrative. Selling, general and administrative expenses
consist primarily of salaries and related expenses for personnel engaged in
direct marketing of the Traverser(TM), the POTS Splitter Shelves and other DSL
component products, as well as support functions including executive, legal and
accounting personnel. Certain administrative activities are outsourced on a
monthly fee basis to Microphase Corporation. Finally, mPhase leases the
principal office from Microphase Corporation.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 September 30, 2004 the Company has incurred cumulative
(a) development stage losses and has an accumulated deficit of $117,606,945 and
(b) negative cash flow from operations of $49,512,351. The auditors report for
the fiscal year ended June 30, 2004 includes the statement that "there is
substantial doubt of the Company's ability to continue as a going concern".
Management estimates that the Company needs to raise approximately $5-10 million
during the next 12 months to continue its present level of operations. As of
September 30, 2004, the Company had a negative net worth of $4,178,224 up from a
negative net worth of $2,917,962 as a result of continuing net losses incurred
after June 30, 2004.
In fiscal 2001, the Company had anticipated that the sales of its component
products would be able to supplement the underwriting of the completion of our
flagship Television over DSL product line . In fiscal 2002 these sales declined
with the overall decline of DSL deployments and spending in the telephone
industry. For the first three months of fiscal year 2004, sales of POTS
splitters were $2,489,201 which was greater than the total of sales of POTS
Splitters for the entire fiscal year ending June 30, 2003. However throughout
each subsequent quarter of fiscal year 2004, revenues from POTS Splitter sales
declined. In period ended September 30, 2004, revenues from POTS Splitter sales
were $179,163. The Company believes its new IPOTS product will capture some of
the existing DSL deployments, providing increases in revenue in fiscal year
2005. Until such time such revenues are realized, the Company intends on
maintaining its reduced cost structure to minimize its losses, which management
believes will permit the Company to sustain its development process and
ultimately achieve profitability.
The Company believes that significant deployments and resulting revenues from
these deployments of its flagship products, the TV+ respectively, are not
expected until the second half of fiscal year 2005. 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.



|17
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THREE MONTHS ENDED SEPTEMBER 30, 2004 VS. SEPTEMBER 30, 2003

REVENUE

Total revenues were $179,163 for the three months ended September 30, 2004
compared to $2,489,201 for the three months ended September 30, 2003. The
decrease was primarily attributable to a decreased demand of the Company's POTS
Splitter product line.

COST OF REVENUES

Cost of sales were $129,781 for the three months ended September 30, 2004 as
compared to $197,319 in the prior period, representing 72% of gross revenues for
the quarter ended September 30, 2004 and 84.3% for the quarter ended September
30, 2003, respectively. Our margins have contracted dramatically over the past
four 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 September 30, 2004,
increased by 12.3% over the margins for the same period ended September 30,
2003. We are unable to determine whether such increase in margins will continue
for the remainder of fiscal year 2005.

RESEARCH AND DEVELOPMENT

Research and development expenses were $1,104,400 for the three months ended
September 30, 2004 as compared to $611,420 during the comparable period in 2003
or an increase of $657,419. This increase consists of increased spending in TV+
product development activity and Nanotechnology battery exploratory research,
the year over year quarterly spending has increased $ 200,400 and $ 300,000 for
those products, respectively. Both areas represent activities contracted thought
Lucent Technologies and managed by mPhase. Reduced spending with MicroPhase
offsets these spending increases.

Research expenditures incurred with Microphase were related to the continuing
development of the Company's DSL component products, including the Company's
line of POTS Splitters and Microfilters and the Company's newest products, the
iPOTS(TM) and the mPhase Stretch. We believe the mPhase iPOTS(TM) offers a much
needed solution for the DSL industry; the iPOTS(TM) enables telcos to remotely
and cost-effectively perform loop management and maintenance including line
testing, qualification and troubleshooting. Prior to the introduction of the
iPOTS(TM), loop management could not be remotely performed through a
conventional POTS Splitter without the use of expensive cross connects or relay
banks because of the mandatory DC blocking capacitors in traditional POTS
splitters, as required by the ITU, ANSI and ETSI. The unique (patent pending)
iPOTS(TM) circuit allows most test heads to perform both narrow and wideband
testing of the local loop through the central office POTS Splitter without
having to physically disconnect the POTS Splitter, thereby eliminating the need
to dispatch personnel and a truckroll. The Company anticipates future demand for
this product, as it significantly reduces the cost of deploying and maintaining
DSL services. Also recently developed is the DSL loop extender product called
mPhaseStretch. This product extends the service distance for the mPhase
Traverser(TM) and can be used in conjunction with other DSL services. The
Company anticipates future demand for the Stretch loop extender product as it
addresses a primary issue in DSL services.

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GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $708,895 for the three
months ending September 30, 2004 up from $604,892 or an increase of $104,503
from the comparable period in 2003. The increase in this expense is attributable
to the growth in salaries and related expense of $78,788 and increased spending
on travel and trade shows of $62,946. This increased spending corresponds with a
ramp up of selling activities in anticipation of the planned release and
commercialization of the TV+ product.

NET LOSS

The Company recorded a net loss of $1,831,862 for the three months ended
September 30, 2004 as compared to a loss of $861,511 for the three months ended
September 30, 2003. This represents a loss per common share of $.02 for the
three month period ended September 30, 2004 as compared to a loss per common
share of $.01 for the three months ending September 30, 2003; based upon
weighted average common shares outstanding of 71,725,318 and 89,719,962 during
the periods ending September 30, 2003 and 2004, respectively.

The Company believes the initial major deployments and the
resultant revenues of its Flagship product the TV+ is not expected until the
second quarter of fiscal year 2005, which along with any upturn of spending in
the telephone industry will also increase sales and improve the Company's
margins and provide the Company with the opportunities to attain profitability.

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.

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Utilization of net operating losses generated through June 30, 2004 may be
limited due to "changes in control" of our common stock that occurred.STOCK-BASED COMPENSATION

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

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

INVENTORY RESERVE AND VALUATION ALLOWANCE

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

MATERIAL RELATED PARTY TRANSACTIONS

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

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

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

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LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2004 mPhase had working capital deficit of $3,573,904 as
compared to working capital deficit of $2,111,452 at June 30, 2004. Through
September 30, 2004, the Company had incurred development stage losses totaling
approximately $117,606,945. At September 30, 2004, the Company had approximately
$45,487 of cash, cash equivalents and approximately $13,909 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 cashflow used in operations,
although there can be no assurance as to the level and growth rate of such sales
in future periods as seen with quarter to quarter fluctuations in component
sales. At September 30, 2004, the Company had cash and cash equivalents of
$45,487 compared to $90,045 at June 30, 2004, accounts receivable of $13,909 and
inventory of $1,153,232. This compared to $64,100 of accounts receivable and
$1,237,972 of inventory at June 30, 2004.

Cash used in operating activities was $1,669,609 during the three months ending
September 30, 2004.. The cash used by operating activities principally consists
of the net loss, the net decrease in inventory, the net decrease in accounts
receivable offset by depreciation and amortization, and by
non-cash charges for common stock options and warrants issued for services and
increased accrued expenses.

The Company has entered into various agreements with GTARC, pursuant to which
the Company receives technical assistance in developing the Digital Video and
Data Delivery System. The Company has incurred expenses in connection with
technical assistance from GTARC totaling approximately $0, $0, for the three
month periods ended September 30, 2004 and 2003, respectively, and $13,539,952
from the period from inception through September 30, 2004. On February 18, 2004,
the Company entered into an Agreement with GTARC to convert approximately $1.8
million in outstanding payables into a 5 year cashless warrant to purchase up to
5,069,200 shares of the Company's common stock through 2009. GTRC may receive a
royalty of up to 5% of product sales from the Traverser DVDDS product.

As of September 30,2004, mPhase is obligated to pay Lucent Technologies,
Inc., a total sum of $940,800 for completion of Version 3.0 of the TV+ product
in increments of $156,800 against project milestones. In addition in February of
2004, mPhase entered into a new Development Agreement with Lucent for
development of a micro cell battery using the science of Nanotechnology at a
total cost of $1.2 million payable in monthly installments of $100,000 each
through February of 2005.

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LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS

From inception (October 2, 1996) through September 30, 2004 the Company had
incurred development stage losses and has an accumulated deficit of
approximately $117,606,945 million and a stockholder's deficit of $4,178,224.
For the three months ended September 30, 2004, and from inception through
September 30, 2004 respectively, the Company had negative cash flow from
operations of $1,669,609 and $49,512,351, respectively. The report of the
Company's outside auditor's, Rosenberg, Rich, Baker, Berman and Company with
respect to its latest audited 10k for the fiscal year ended June 30,2004 stated
that "there is substantial doubt of the Company's ability to continue as a going
concern". Management estimates that the Company will need to raise approximately
$5-10 million during the next 12 months to continue its present level of
operations.

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

We have evaluated our cash requirements for fiscal year 2005 based upon
certain assumptions, including our ability to raise additional financing and
increased sales of our POTS splitter. The Company anticipates that it will need
to raise approximately $5-10 million primarily in private placements of its
common stock with accredited investors, during the next 12 months, or
alternatively we will need to curtail certain expenses as incurred at the
present levels including marketing and research and development expenses.
Additional investment in technology design to further enhance the capabilities
of the TV+ product will be necessary over the next 12 months. In the long-term,
the Company may also invest additional funds annually on research and
development of the Nanotechnology product line based upon sales levels, changes
to technology and the overall success of the Company attaining sufficient
financing until such time as it achieves profitable operations.

Should these cash flows not be available to us, we believe we would have the
ability to revise our operating plan and make certain further reductions in
expenses, so that our resources which were available at September 30, 2004, plus
financing to be secured during fiscal year 2005, and expected POTS splitter
revenues, will be sufficient to meet our obligations until the end of fiscal
year 2005. We have continued to experience operating losses and negative cash
flows. To date, we have funded our operations with a combination of component
sales debt conversions with related parties and strategic vendors, and private
equity offerings. Management believes that we will be able to secure the
necessary financing in the short-term to fund our operations into our next
fiscal year. However, failure to raise additional funds, or generate significant
cash flows through revenues, could have a material adverse effect on our ability
to achieve our intended business objectives.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not exposed to changes in interest rates as the Company has no
debt arrangements and no investments in certain held-to-maturity securities.
Under our current policies, we do not use interest rate derivative instruments
to manage exposure to interest rate changes. A hypothetical 100 basis point
adverse move in interest rates along the entire interest rate yield curve would
not materially affect the fair value of any financial instruments at September
30, 2004.

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 September 30, 2004 that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.

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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

mPhase was advised in April 2002 that following an investigation by the staff
of the Securities and Exchange Commission, the staff intended to recommend that
the Commission file a civil injunctive action against Packetport.com, Inc. ("Packetport")
and its Officer's and Directors. Such recommendation related to alleged civil
violations by Packetport and such Officers and Directors of various sections of
the Federal Securities Laws. The staff has alleged civil violations of Sections
5 and 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(d) of the
Securities Exchanges Act of 1934. As noted in other public filings of mPhase,
the CEO and COO of mPhase also serve as Directors and Officers of Packetport. At
that time these persons advised mPhase that they deny any violation of law on
their part and intend to vigorously contest such recommendation or action, if
any. To date no action has been filed against Packetport, its Officers or
Directors. mPhase is not named as a party in connection with this matter.

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Effective for the three-month period ended September 30, 2004 the Company
issued the following unregistered securities:

A July private placement of 622,000 shares, each with two separate 5 year
warrants were sold for $ 155,000, each warrant specifying the right to purchase
one additional share at $.25 and $.50, respectively. A September private
placement of 1,050,000 shares, each with two separate 5 year warrants were sold
for $ 247,400, each warrant specifying the right to purchase one additional
share at $.25 and $.35, respectively. A total of 3,344,00 shares have been
reserved to provide for conversion in connection with these warrants.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

EXHIBITS AND REPORTS ON FORM 8K.

(a) EXHIBITS

10.19 Amendment No 2 to Development Agreement with Lucent Technologies, Inc
for the development of Release 3.0 of the TV+ solution dated as of September 15,
2004.

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

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

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

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

(b) REPORTS ON FORM 8K.

1. On September 22, 2004, the Company reported on Form 8K the entry into a
  new amendment to its Development Agreement with Lucent Technologies, Inc.,
  dated as of September 15, 2004 to develop Version 3.0 of its TV+ solution at a
  cost of approximately $1.2 million.
2. On September 29, 2004, the Company reported on Form 8K a joint press
  release with Lucent Technologies, Inc. relating to the fabrication of nanotech
  based batteries that can store electric current.

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SIGNATURESPursuant 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: November
    15, 2004 | By: /s/ Martin S. Smiley       
|                             |                                
|                             | Martin S. Smiley               
|                             | Executive Vice President       
|                             | Chief
    Financial Officer and
|                             | General Counsel                

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