UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-K



QANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR
THE YEAR ENDED JUNE 30, 2008



COMMISSION FILE NO. 000-24969



mPHASE TECHNOLOGIES, INC.

(Name of issuer in its charter)



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



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



Registrant's telephone number, including area code:(203) 838-2741



SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF
THE ACT:



COMMON STOCK, $.01 PAR VALUE(Title of Class)



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. YesQNo£



Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to the
Form 10-K.

As of September 23, 2008 there were approximately 527,000,000
shares of common stock, $01 par value, outstanding and the aggregate market
price of shares held by non-affiliates was approximately $21,000,000 (Based upon
a closing common stock price of $.04 on September 23, 2008 solely for the
purpose of calculating the preceding amount, all directors and officers of the
registrant are deemed to be affiliates.)

3

---



|               |                                                                                                | PAGE
|-------------- | ---------------------------------------------------------------------------------------------- | ----
|PART I        
|ITEM 1.        | Business                                                                                       | 6   
|ITEM 2.        | Properties                                                                                     | 23  
|ITEM 3.        | Legal Proceedings                                                                              | 23  
|ITEM 4.        | Submission of Matters to a Vote of Security
    Holders                                        | 23  
|PART II       
|ITEM 5.        | Market for Registrant's Common Equity and
    Related Stockholder Matters                      | 24  
|ITEM 6.        | Selected Consolidated Financial Data                                                           | 33  
|ITEM 7.        | Management's Discussion and Analysis of
    Financial Condition and Results of Operations Data | 36  
|ITEM 7A        | Qualitative and Quantitative Disclosures
    About Market Risks                                | 48  
|ITEM 8 and 8A. | Financial Statements and Supplementary Data
    Internal Control Assessment                    | 48  
|ITEM 9.        | Changes in and Disagreements with Accountants
    on Accounting and Financial Disclosure       |     
|PART III      
|ITEM 10.       | Directors and Executive Officers                                                               | 50  
|ITEM 11.       | Executive Compensation                                                                         | 52  
|ITEM 12.       | Security Ownership of Certain Beneficial
    Owners and Management                             | 54  
|ITEM 13.       | Certain Relationships and Related
    Transactions                                             | 55  
|PART IV       
|ITEM 14        | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                            | 60  
|               | Report of Independent Public Accountants                                                       | 64  
|               | Report of Certified Public Accountants                                                         | 66  
|               | Consolidated Financial Statements                                                              | 67  
|               | Notes to Consolidated Financial Statements                                                     | 77  

4

---

PART I

FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements". In some
cases, you can identify forward-looking statements by terms such as "may,"
"intend," "might," "will," "should," "could," "would," "expect," "believe,"
"estimate," "predict," "potential," or the negative of these terms and similar
expressions intended to identify forward-looking statements. These statements
reflect the Company's current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. The Company discusses
many of these risks and uncertainties in greater detail in Part I, Item 1 of
this 10-K under the heading "Risk Factors." These risks and uncertainties may
cause the Company's actual results, performance, or achievements to be
materially different from any future results, performance, or achievements
expressed or implied by the forward-looking statements. You should not place
undue reliance on these forward-looking statements. Also, these forward-looking
statements represent the Company's estimates and assumptions as of the date of
this report. The Company is under no duty to update any of the forward-looking
statements after the date of this report to conform such statements to actual
results or to changes in our expectations.

The following discussion should be read in conjunction with
mPhase Technologies' financial statements and related notes included elsewhere
in this report.

5

---

General Description of the Business

mPhase Technologies, Inc., is a publicly-held New Jersey
company founded in 1996 with over 19,000 shareholders and approximately 440
million shares of common stock outstanding as of June 30, 2008. The Company's
common stock is traded on the Over the Counter Bulletin Board under the ticker
symbol XDSL.

mPhase is a development company specializing in microfluidics,
microelectromechanical systems (MEMS) and nanotechnology. Through its wholly
owned subsidiary AlwaysReady, Inc., mPhase is commercializing its first
nanotechnology-enabled product for military and commercial applications - The
Smart NanoBattery providing Power On Command. The new well-patented battery
technology, based on the phenomenon of electrowetting, offers a unique way to
store energy and manage power.. Features of the Smart NanoBattery include:
potentially infinite shelf life, environmentally friendly design, fast ramp to
power, programmable control, and direct integration with microelectronic
devices.

The platform technology behind the Smart NanoBattery is a
porous nanostructured material used to repel and precisely control the flow of
liquids. The material has a Smart Surfacethat can potentially be
designed for self-cleaning applications, water purification/desalination, liquid
filtration/separation, and environmental cleanup.

mPhase has been awarded a Phase II Small Business Technology
Transfer Program (STTR) grant, part of the Small Business Innovation Research (SBIR)
program, from the U.S. Army for continued development of a reserve Smart
NanoBattery for a critical computer memory application.

mPhase is headquartered in Little Falls, New Jersey, with
additional offices in Norwalk, Connecticut, and New York, New York.

Description of Operations

Microfluidics, MEMS, and Nanotechnology

In February of 2004, mPhase entered the business of
developing new products based on materials whose properties and behavior are
controlled at the micrometer and nanometer scales. (For reference, a micrometer
or micron is equal one millionth (10-6) of a meter and a nanometer is
one billionth (10-9) of a meter  the scale of atoms and molecules. A
human hair is approximately 50 microns in diameter, or 50,000 nanometers thick.)

The Company has expertise and capabilities in microfluidics,
microelectromechanical systems (MEMS), and nanotechnology. Microfluidics refers
to the behavior, precise control and manipulation of fluids that are
geometrically constrained to a small, typically micrometer scale. MEMS is the
integration of mechanical elements, sensors, actuators, and electronics on a
common silicon substrate through microfabrication technology. Nanotechnology is
the creation of functional materials, devices and systems through control of
matter (atoms and molecules) on the nanometer length scale (1-100 nanometers),
and exploitation of novel phenomena and properties (physical, chemical,
biological, mechanical, electrical) at that length scale.

In its Smart NanoBattery, mPhase exploits thephysical
phenomenon of electrowetting by which a voltage is used to change the wetting
properties of a liquid/solid interface at the nanometer scale. Consider water as
the liquid. Through electrowetting, mPhase can change a surface from what is
referred to as a hydrophobic ("water fearing") state to a hydrophilic ("water
loving") state. In the hydrophobic state, the water beads up or is repelled by
the surface. In the hydrophillc state, the water spreads out or is absorbed by
the surface. The ability to electronically control the wetting characteristics
of a surface at the nanometer scale forms the basis of mPhase's nanotechnology
operations and intellectual property portfolio.

In the Smart NanoBattery application, mPhase uses
electrowetting as a new technique to s activate or literally "turn on" a battery
once it is ready to be used for the first time.. At the heart of the Smart
NanoBattery is a porous, nanostructured superhydrophic or superlyophobic
membrane designed and fabricated by mPhase. The so-called superhydrophobic
membrane applies to water and the superlyophobic membrane applies to nonaqueous
or organic liquids such as ethanol or mineral oil. The difference between the
two membrane types lies in the nanoscale architecture at the surface. By virtue
of its superhydrophobic or superlyophobic character, the membrane, although
porous, is able to physically separate the liquid electrolyte from the solid
electrodes so that the battery remains dormant or inactive, thus providing no
voltage, or current until called upon. This electrolyte-electrode separation
gives the battery the feature of potentially unlimited shelf life and the
benefit of being always ready when needed, which is not necessarily the case for
conventional batteries. Electrowetting alters the liquid/membrane interface so
that the liquid is now able to flow over the membrane's surface and rapidly move
through the pores where it is able to contact the solid electrode materials
located on the other side of the membrane.

mPhase uses MEMS, to precisely control the machining of
silicon-based materials at the micrometer and nanometer scales. This ability has
led to the Company's proprietary membrane design that controls the wetting and
movement of liquids on a solid surface. mPhase uses microfluidics to control the
flow of liquid electrolyte through the porous membrane and is also the basis for
other possible applications such as self-cleaning surfaces, filtration and
separation and liquid delivery systems.

6

---

History of Nanotechnology Operations

Smart NanoBattery

mPhase Technologies along with Bell Labs, jointly
conducted research from February 2004 through April of 2007 that demonstrated
control and manipulation of fluids on superhydrophobic and superlyophobic
surfaces to create a new type of battery or energy storage device with power
management features obtained by controlling the wetting behavior of a liquid
electrolyte on a solid surface. The scientific research conducted set the ground
work for continued development of the Smart NanoBattery and formed a path to
commercialization of the technology for a broad range of market opportunities.
During 2005 and 2006, the battery team tested modifications and enhancements to
the internal design of the battery to optimize its power and energy density
characteristics, as well as making engineering improvements that were essential
in moving the battery from a zinc-based chemistry to a commercial lithium-based
chemistry that can be manufactured on a large scale. The Company began its
efforts by entering into a $1.2 million 12 month Development Agreement with the
Bell Labs division of Alcatel/Lucent for exploratory research of control and
manipulation of fluids on superhydrophobic surfaces to create power cells (
batteries) by controlling wetting behavior of an electrolyte on nanostructured
electrode surfaces. The goal was to develop a major breakthrough in battery
technology creating batteries with longer shelf lives as the result of no direct
electrode contact (meaning no power drain prior to activation). The Company
extended its development effort twice for an additional 2 year ending in March
of 2007 and for two additional periods thereafter through July 31, 2007. During
this time, the technical focus shifted from trying to separate the liquid
electrolyte from nanostructured electrodes to developing a nanostructured
membrane that could physically separate the liquid electrolyte from the solid
electrodes.

mPhase also began working with the Rutgers University Energy
Storage Research Group (ESRG) in July of 2005 to conduct contract research in
advanced battery chemistries involving lithium. This work involved
characterizing and testing materials that could be used in the mPhase battery.
In July of 2007, the relationship shifted to a collaboration focused on
developing a memory backup battery needed by the U.S. Army. The work was funded
through a Phase I Small Business Technology Transfer Program (STTR) grant.

Also in July of 2007, mPhase formed a new wholly-owned
subsidiary, Always Ready, Inc., to focus on the development of its
nanotechnology products. The Company has used this subsidiary as a division of
the Company in order to develop increasing brand recognition of its battery
product. The Company decided in September of 2007 to transfer its development
work out of Bell Labs (Alcatel/Lucent) in order to broaden its nanotechnology
product commercialization efforts. In terms of the battery, Bell Labs was no
longer sufficient because they had no in-house means to handle lithium
chemistry. mPhase/AlwaysReady continued to work with Rutgers ESRG which could
work with lithium, but also engaged in work with other companies to supply
essential components , fabricate prototypes, and plan manufacturing approaches.
These companies included a well-respected silicon foundry and battery
manufacturer.

In February of 2008, the Company announced that a prototype
of its Smart NanoBattery was successfully deployed in a gun-fired test at the
Aberdeen Proving Ground at Maryland. The test was conducted by the U.S. Army
Armament Research and Development and Engineering Center (ARDEC) of Picatinny,
New Jersey. The battery not only survived the harsh conditions of deployment at
a gravitational force in excess of 45,000 g , but was also flawlessly activated
in the process .

In March of 2008, mPhase announced that it had been invited
to submit a proposal for a Phase II STTR grant based upon the successful work it
had performed on the Phase I grant to develop a version of the Smart NnaoBattey
referred to as the multi-cell, micro-array reserve battery for a critical U.S.
Army memory backup application The Phase II grant in the gross amount of
$750,000 (net $500,000) was granted to the Company in the middle of September of
2008 (see subsequent events). In March of 2008, the Company also announced the
successful transfer to a commercial foundry of certain processes critical to the
manufacturing of its Smart NanoBattery. This will enable fabrication of the
porous membranes for the multi-cell, micro-array reserve battery mentioned
above.. The Company successfully manufactured nanostructured membranes at the
foundry that are essential to commercial production of the battery. By achieving
a series of delayed activations, the shelf-life and continuous run-time of such
battery is increased to a period of time in excess of twenty years. In April of
2008, the Company announced that it had successfully activated it first Smart
NanoBattery prototype by electrowetting using a hard-wired configuration and a
remotely-activated device. Remote activation plays a key role in providing power
to wireless sensors systems and RFID tags.

Also, in April of 2008, the Company announced that it had
successfully produced its first lithium-based reserve battery with a soft or
pouch

Magnetometer

In March of 2005, the Company entered into a second
Development Agreement for 12 months at a cost of $1.2 million with the Bell Labs
to develop MEMS-based ultrasensitive magnetic sensor devices, also known as
magnetometers, that could be used in military and commercial electronics (e.g.,
cell phones) for determining location, as well as in portable security and metal
detection applications. The agreement was renewed in April of 2006 for another
12 months. Although proven to work in the lab, the magnetometer technology could
not be scaled up as quickly and as cost effectively as the battery. The project
was shelved in September 2007 so that all technical resources could be allocated
to the battery project.

7

---

IPTV

Historically, the Company since its inception has focused
upon developing innovative solutions for the delivery of Broadcast Television as
part of a "triple play" of services that includes voice and high-speed internet
for telephone service providers globally. Beginning in fiscal year 2004, the
Company began developing Broadcast television delivery solutions through
software/middleware designed to enable telephone service providers to deliver
video data using internet protocol. The Company's middleware/software is highly
scalable, potentially saving telephone service providers significant hardware
deployment costs for routers and servers required for the carrier class delivery
of broadcast television using internet protocol. Such solution potentially
expands the content of available information from the internet into broadcast
quality television. The Company's middleware is capable of delivering over
copper, fiber, coax or any infrastructure representing a combination of the
foregoing that is used by a telecommunications service provider. The Company has
not to date been able to derive any significant revenue from our TV+ solution.
We believe that this is due to a number of factors:

1.

The Company's
original product, the Traverser Digital Video Data Delivery System, was designed
to enable telephone service providers to deliver Broadcast Television, high
speed-internet and voice over copper telephone lines using DSL compression
technology. The technology developed in partnership with Georgia Tech Research
Corporation marked a significant architectural breakthrough in design using a
non-internet protocol proprietary technology. As internet technology for video
transmission improved, telecommunications service providers worldwide moved to
requiring internet protocol and open carrier class standards for their
transition to a "triple play" of converged services to customers that includes
Broadcast quality television. In 2003 the Company transitioned from its legacy
Traverser DVDDS product to its TV+ solution. The TV+ is middleware using
internet protocol with open carrier-class standards compatible with all modes of
hardware. The TV+ enables telephone service providers to deliver over any
topology or infrastructure (e.g. copper, fiber or coax) broadcast quality
television, video on demand, high-speed internet and voice required by telephone
service providers.

2.

The Company's
strategic focus for its broadcast television solution for telecommunications
service providers targeted telephone service providers outside the United States
in emerging markets where fiber and cable infrastructure did not exist.
Penetration of these emerging international markets proved more difficult and
costly than the Company originally anticipated. Telephone service providers in
such areas owned by the government or recently privatized, often lack reliable
infrastructure to accommodate basic test deployments and are demanding robust
television features that their customer base is unable to afford absent
significant governmental subsidies.

3.

The Company now
believes, based upon its development efforts over a period of approximately 10
years, that its TV+ solution is a compelling solution for large deployments by
telephone service providers in the United States owing to its superior
scalability that requires significantly less hardware (primarily routers and
servers) per customer that can assist in the migration of the delivery of
broadcast television using internet protocol. The Company is currently seeking a
strategic partner in the United States to test and deploy its TV+ solution.

Because the roll-out of broadcast television using internet
protocol has been a lengthy process for major service providers in the United
States, the Company has temporarily suspended development of new features for
its TV+ solution in order to conserve financial resources pending further
development in the U.S. market. All inventory has been written off and all
strategic alternatives relative to this business segment including the valuation
and sale of assets or licensing of the technology are being evaluated.

8

---

Nanotechnology Products

Platform Technology

The surface is an important part of virtually every physical
object and often plays an overriding role in many processes, beyond just
connectivity and structural support, but more deeply into areas involving
chemical and biological interactions. In some instances, the surface provides an
easy entry into the chemical or biological systems, in others it protects the
internal elements of the object, surrounded by the surfaces.

mPhase's platform technology is the Smart Surface. By
being able to control the surface properties of materials down to the nanometer
scale, new and improved devices can be designed and built that may lead to
compelling business opportunities. One type of smart surface of particular
interest allows the properties to be changed in response to an external
stimulus.

Initially, mPhase's development focused on MEMS devices by
manipulating the surface of silicon materials  the same material used to make
microelectronic materials and devices. Using physical and chemical processes,
the surface of the silicon is modified to make solid porous structures known as
membranes. This is where microfluidics comes into play. These membranes can be
used to selectively control the flw of liquids through the pores or openings at
the micrometer length scale.

Surfaces may be characterized as hydrophilicor hydrophobicdepending on whether or not they attract or repel water (or
other liquids). A hydrophilic surface can be wet and adsorbs water. A
hydrophobic surface, on the other hand, cannot be wet. Hydrophilic and
hydrophobic surfaces are abundant in nature and in synthetic materials, both
organic and inorganic in chemical composition. A familiar example of a
hydrophilic surface is a sponge that readily soaks up water. By contrast, many
plant leaves and flower petals are hydrophobic, as are insect parts and bird
feathers. Synthetic hydrophobic surfaces include Scotchgard treated fabric,
Teflon® coated metal, or Rain-X® coated glass. On a hydrophobic surface, water
beads up and can move around without being absorbed by the solid material that
it is resting on.

So-called superhydrophobicsurfaces are also found in
nature and can now be replicated in the lab. The lotus leaf and rose petal, for
example, exhibit superhydrophobicity. Here water droplets form almost perfect
spheres with hardly any contact with the underlying solid surface. This makes
the liquid even easier to move and manipulate.

The synthesis of superhydrophobic surfaces has recently been
made possible by advances in nanotechnology and mPhase is leading the way to
better understand and create materials and devices incorporating these unique
surface properties.

As mPhase's research and development efforts evolve, in
addition to silicon materials, the ability to control the surface properties of
materials can be extended to other substances such as polymers, ceramics, metals
and fibers as examples, providing opportunities for our platform technology to
be used in a range of potential applications such as energy storage and power
management for portable electronics and microelectronics, self-cleaning
surfaces, filters for water purification or desalination systems, materials for
environmental remediation that separate liquids or solvents, and other
situations where the control of the interaction of a solid surface exposed to a
liquid is vitally important.

9

---

Smart NanoBattery

Battery technology has changed little in its fundamentals
over the past 150 years. As a result, ordinary batteries begin dissipating
energy as soon as they are assembled and therefore have limited shelf life.
Chemistries are fixed inside the package so the user cannot interact with the
contents to program functionality. The size and form of batteries have not kept
pace with the miniaturization of electrical components, microprocessors and
integrated circuits. As a result, the optimal implementation of an electronic
device is not always achieved. Some batteries contain chemicals that are not
considered safe or environmentally friendly ("green"). This makes disposal a
potential issue.

mPhase is challenging this convention by using their
proprietary superhydrophobic porous silicon membrane technology as the basis to
build the Smart NanoBattery providing Power On Command.

Superhydrophobicity initially keeps the liquid electrolyte
physically separated from the solid electrodes of the battery, thus preventing
the chemical reactions from occurring that cause the battery to provide power.
This gives the Smart NanoBattery the benefit of potentially infinite shelf life.

A conventional battery loses some capacity while sitting on
the shelf in its package or stored in an electronic or electrical device, even
before being used for the first time. On the other hand, the Smart NanoBattery
is built so that it is inactive and remains that way indefinitely until it is
turned on. No power is lost to self-discharge or leakage current prior to
activation. When needed, the Smart NanoBattery can be activated on command via
the phenomenon of electrowetting. The surface properties of the porous silicon
membrane are selectively controlled to shift instantly from a superhydrophobic
to hydrophilic state. In other words, electrowetting acts as the triggering
mechanism.

mPhase has successfully fabricated and demonstrated its first
3-volt lithium-based Smart NanoBattery, based on a design allowing either manual
or remote activation by the user, the feature known as Power on Command.

By incorporating the phenomenon of electrowetting on
nanostructured surfaces into a revolutionary way of storing energy, the Smart
NanoBattery provides power to portable electronic and microelectronic devices
exactly when and where it is needed. It is an alternative and an augmentation to
conventional batteries, still converting stored chemical energy into usable
electrical energy, but in a way that is potentially more reliable, more
versatile, more environmentally friendly, and less expensive than the industry
norm.

10

---

Applications

mPhase is exploring military and commercial applications of
smart surfaces in which the properties can be accurately and precisely
controlled down to the nanometer scale. Electrowetting allows the switching from
a hydrophobic to hydrophilic state as a result of an electronic stimulus.

The Smart NanoBattery, mPhase's first smart surface product,
has a unique architecture that enables a shelf life of decades, remote
activation, programmable control, scalable manufacturing, and adaptability to
multiple configurations. The value proposition to the end user is to have a
source of energy or power that is literally always ready - reliable, convenient,
low cost - a battery guaranteed to work at full capacity when and where you need
it.

The Smart NanoBattery can conceivably supply power "on
command"to a wide variety of portable electronic and microelectronic
devices used in military, medical, industrial, and consumer applications.

mPhase has already proven that the battery works in lab tests
as well as in a significant field test conducted for the U.S. Army as part of a
guided munitions project. The relationship with the Army also includes a
$850,000 funded project to develop a battery for a mission critical computer
memory backup application. The target is a small footprint, 3-volt lithium
battery with a minimum shelf life of 20 years and uninterruptible power output
during this time period. No other battery technology available today can deliver
the long-term performance requirements specified by the U.S. Army for this
application.

The Smart NanoBattery can potentially be designed to
accommodate a variety of sophisticated portable electronic and microelectronic
devices including next-generation cell phones and PDAs, handheld gaming devices,
wireless sensor systems, RFID tags, high-tech flashlights and beacons, health
alert alarms, and non-implantable and implantable medical devices such as
pacemakers.

Initial applications will address the need to supply
emergency and backup power to a range of products for defense and security, with
future applications in the commercial and consumer arenas.

As its first commercial product, mPhase is developing an
emergency flashlight using a simplified version of the Smart NanoBattery with a
patent-pending breakable separator in place of the electrowettable membrane. The
emergency flashlight is envisioned as a compact device that would be activated
with a simple push-button switch to provide Power On Command in the event of an
emergency. The device would be ideal for storing in the glove compartment of a
car, on boats, trains or planes, coupled with fire extinguishers, packed with
safety, first aid and survival kits.

11

---



Business Development, Organization, and Acquisition
Activities

mPhase was incorporated in New Jersey in 1979 under the name
Tecma Laboratory, Inc. In 1987, the Company changed its name to Tecma
Laboratories, Inc. As Tecma Laboratories, Inc., the Company was primarily
engaged in the research, development and exploration of products in the skin
care field. On February 17, 1997, the Company acquired Lightpaths, Inc., a
Delaware corporation, which was engaged in the development of telecommunications
products incorporating DSL technology, and the Company changed its name to
Lightpaths TP Technologies, Inc.

On January 29, 1997, the Company formed another wholly-owned
subsidiary called TLI Industries, Inc. The shares of TLI were spun off to its
stockholders on March 31,1997 after the Company transferred the assets and
liabilities, including primarily fixed assets, patents and shareholder loans
related to the prior business of Tecma Laboratories. As a consequence of these
transactions, the Company became the holding company of its wholly-owned
subsidiary, Lightpaths, Inc. on February 17, 1997.

On May 5, 1997, the Company completed a reverse merger with
Lightpaths TP Technologies, Inc. and thereafter changed its name to mPhase
Technologies, Inc. on June 2, 1997.

On March 26, 1998, the Company entered into a Licensing
Agreement with Georgia Tech Research Corporation ("GTRC") in which mPhase became
the exclusive licensee of all patents received by GTRC in connection with
development of the legacy Traverser DVDDS. GTRC is entitled to receive a royalty
equal to 5% of gross sales of the Traverser DVDDS and 30% of any "lump sum
payments" received in connection with revenues received by mPhase from the
Traverser DVDDS product under the terms of its license, as amended. The
Traverser DVDDS has been replaced by the Company's IPTV solution.

On June 25, 1998, mPhase acquired Microphase
Telecommunications, Inc., a Delaware corporation, from Microphase Corporation by
issuing 2,500,000 shares of its common stock. Microphase Telecommunications'
principal assets were patents and patent applications utilized in the
development of its proprietary Traverser technology.

In March 2000, mPhase entered into a joint venture with
AlphaStar International, Inc. to form an entity called mPhaseTelevision.Net,
Inc. in which the Company held a 50% interest. On May 1, 2000, the Company
acquired an additional 6.5% interest in mPhaseTelevision.Net, Inc. and made it
one of its consolidated subsidiaries.

On March 14, 2000, mPhase entered into an agreement with BMW
Manufacturing Corp., located in South Carolina. Under the agreement, the Company
installed its legacy Traverser DVDDS product for BMW's telephone transmission
network at an automotive manufacturing plant to enable video broadcast of
information to its employees. Such system was replaced with a competitor's
network during fiscal year 2007.

In December of 2001, Hart Telephone company located in
Hartwell, Georgia completed the building and development of its digital headend
enabling Hart to test the Company's legacy Traverser DVDDS product with
approximately 20 customers receiving about 80 channels of television services
utilizing such platform.

In May of 2002, mPhase initiated discussion for development
of a cost-reduced set top box (INI) with the Bell Laboratories division of
Lucent Technologies, Inc.

Effective December 1, 2002, mPhase entered into a Development
Agreement with the Bell Laboratories division of Lucent Technologies, Inc. for
the development of mPhase's broadcast television switch as an integrated
platform with the Lucent Stinger DSL Access Concentrator.

On December 9, 2002, pursuant to a Statement of Work, Lucent
commenced development of the Broadcast Television Switch for mPhase. On December
15, 2002, mPhase engaged Lucent for the cost reduction of its Traverser INI set
top box.

On January 21, 2003 mPhase entered into a Co-Branding
Agreement with Lucent Technologies under which mPhase's INI set top box would be
co-branded with the Lucent Technologies name and logo.

On April 4, 2003, mPhase entered into a Systems Integration
Agreement with Lucent Technologies. Under the terms of such an agreement mPhase
has been given the exclusive rights to sell worldwide as a 'bundled' solution
the Stinger in connection with mPhases's BTS.

Effective September 15, 2003, mPhase entered into a
Development Agreement with the Bell Laboratories division of Lucent
Technologies, Inc. that has been extended through December of 2005 pursuant to
additional Statements of Work under such Development Agreement for development
of its IPTV solution.

12

---

Effective February 3, 2004, mPhase entered into a Development
Agreement with the Bell Laboratories division of Lucent Technologies, Inc. for
the development of micro power source arrays fabricated using nanotextured
superhydorphobic materials.

On November 28, 2004, mPhase entered into a Software License
Agreement with Espial Group, Inc to be used in the set top box of its TV+
solution. Espial Group, Inc. is a leader in system operating software for set
top boxes used to receive IPTV.

On January 3, 2005, mPhase entered into a work order with
Magpie Telecom Insiders, Inc. pursuant to the terms of a Software Development
Agreement dated September 2, 2004 for purposes of adding video on demand to its
TV+ solution.

Effective March 5, 2005, mPhase extended its Development
Agreement with Bell Labs for an additional 12 months for the development of
micro power source power arrays.

Effective March 10, 2005, mPhase entered into a Development
Agreement with the Bell Laboratories division of Lucent Technologies Inc. for
the development of a new generation of magnetic field sensors using the science
of nanotechnology.

In April of 2006, mPhase renewed each of the nanotechnology
agreements with Bell Labs dated March 5, 2005 and March 10, 2005, respectively,
for an additional 12 months at the cost of $100,000 per month each.

In May of 2006, the Development Agreement with the Bell Labs
division of Lucent Technologies, Inc. covering the Company's TV+ solution was
not renewed by the Company and Velankani, a software designer headquartered in
India, assumed responsibilities for development of the system management
software object code and system integration of the Company's TV+ solution. The
Company has been working with Velankani for system integration testing since
January of 2006.

On June 27, 2006, the Company entered into Amendment No. 4 to
a Software License Agreement with Espial Group, Inc. which extended the term of
its original development agreement through 2008 for Software development and
support of the TV+ software in connection with multiple set top boxes of various
vendors.

On September 13, 2006, the Company announced its first test
of it IPTV solution with Comstar/Odessa, a major telecommunications service
provider in the Ukraine for a trial deployment of our IPTV solution. Upon
successful completion of such trial, it is anticipated that a 6,000 subscriber
deployment would follow generating the Company's first revenues with respect to
its IPTV solution.

As of November 14, 2006, the Company entered into a Common
Amendment to its Statement of Work with Velankani Systems Technologies, Inc.
rescheduling certain payments due for software integration services for the
Company's IPTV solution performed by Velankani for mPhase including a conversion
of a portion of the outstanding payable to mPhase common stock at $.17 per
share.

On December 13, 2006, the Company entered into a
Non-Exclusive Distribution Agreement with Netdialogue, a reseller and service
integrator of IPTV middleware for telecommunications service providers located
in Russia.

On January 4, 2007, the Company entered into a Cooperative
Research and Development Agreement for Novel Reserve Cell Technologies and High
Sensitivity Magnetometer Technology with the U.S. Army Armament Research Center
located in Picatinny, New Jersey.

On January 23, 2007, the Company entered into a Memorandum of
Understanding with Latens Systems Limited under which Latens grants to mPhase a
license to use its conditional access software (encoding and encryption for IPTV
delivery).

On February 3, 2007, the Company entered into Amendment No. 4
to a Development Agreement effective February 3, 2004, with Lucent Technologies,
Inc. extending research and development through April 27, 2007, relating to
micro-power source arrays fabricated using nano-textured superhydrophobic
materials.

On February 17, 2007, the Company extended a Cooperative
Research Agreement through December 31, 2007, originally entered into on July
15, 2005 with Rutgers, The State University of New Jersey governing cooperative
research on a Lithium nanostructured reserve battery.

On February 22, 2007, the Company entered into a new
Statement of Work with Espial Group, Inc for Integration of its EVO software to
the Bitband Server for two set top boxes manufactured by Amino and Tilgin
respectively in connection with mPhase's IPTV solution. The Company
simultaneously entered into a Payment Agreement with Espial Group, Inc
rescheduling certain payments owed by the Company for services performed in
connection with software development of its IPTV solution.

13

---

On March 28, 2007, the Company entered into a Reseller
Agreement with Steeleye Technology, Inc. for software utilized for high use
rollover redundancy for IPTV.

On April 17, 2007, the Company announced that it had formed
AlwaysReady, Inc., a New Jersey Corporation, as a new wholly-owned subsidiary.
The Company plans to transfer all of its nanotechnology assets and appropriate
liabilities to such company as a first step in the separation of its
nanotechnology product line from its IPTV product. The Company plans to staff
AlwaysReady, Inc with a new management team experienced in the nanotechnology
area in order to unlock and maximize overall shareholder value. On May 29, 2007,
AlwaysReady, Inc announced the hiring of Source Capital Group, an investment
banking firm specializing in the raising of private equity, to raise a minimum
of $1.5 million in a Private Placement in which the Company would sell up to a
10% interest in AlwaysReady, Inc. to institutional and accredited investors. In
addition the Company announced that it planned to eventually transform
AlwaysReady, Inc. into a publicly traded company. mPhase plans to retain a 90%
interest in Always Ready, Inc. and the shares of common stock of Always Ready,
Inc. will be registered on appropriate filings with the SEC under the Securities
Act of 1933, as amended, as well as the Securities Exchange Act of 1934, as
amended, and listed for trading on the over the counter bulletin board.

On April 28, 2007, the Company extended its Development
Agreement with Lucent Technologies relating to micro-power source arrays
fabricated using nano-textured superhydrophobic materials originally entered
into in February of 2004 with Amendment #5 through July 31, 2007.

On May 10, 2007, the Company entered into a Consulting
Agreement with CT NanoBusiness Alliance to produce a report and assist the
Company with respect to its strategy for development and marketing of its nano
power cell product.

On May 11, 2007, the Company entered into an Escrow Agreement
with Bitband Technologies, Inc. governing certain payments to be made by the
Company to Bitband in connection with certain servers provided and services
rendered for the Company's IPTV product testing.

On June 20, 2007, the Company announced that it is forming a
new subsidiary, Granita Media, Inc. ("Granita"), a Delaware corporation, that
will provide targeted advertising to users of the TV+ middleware solution.
Through the use of specific viewer demographics such as age, gender and defined
consumer preferences, the Company believes that a new form of broadcast
television advertising could develop that is more powerful and focused than is
currently being used by broadcasters. It is believed that targeted advertising
software to be developed by Granita will enhance mPhase's middleware by offering
a source of additional revenues for a telephone service provider deploying IPTV.
mPhase planed to fund the new company initially through up to $500,000 of equity
to be provided by employees and additional outside institutional financing which
will involve the sale of up to 10% of the common stock of Granita with mPhase
retaining 90% of the stock of Granita. The financing of the new company was
unsuccessful and its employees were terminated or resigned between October and
December of 2007.

On July 6, 2007, the Company announced that it has executed
with Double U. Master Fund, L.P., a limited partnership organized under the laws
of the British Virgin Islands, a Private Equity Credit Agreement for an
aggregate of up to $6 million in financing through the sale, from time to time,
of the common stock of the Company at a 14% discount to its market value
(determined as set forth in detail in the Private Equity Credit Agreement). The
terms of the Agreement provide that mPhase will have the option to "PUT" up to
$300,000 of its common stock to the Partnership per month upon the effectiveness
of a Form S-1 Registration Statement covering such shares of common stock. Under
the terms of the Agreement, the Company is not obligated to draw any minimum
amount of money under the Private Equity Credit Line

On July 18, 2007, the Company announced the award of a Phase
I US Army Small Business Technology Transfer (STTR) Program Grant. This award is
a Phase I six month research effort to develop a 30 plus year shelf life, low
power, green battery (coin cell or similar) that will continuously power a
static random access memory circuit for a computer device. SRAM is a common type
of digital memory chip used in a wide variety of electronic systems for data
storage. During the six month research period, the team will characterize the
design, conduct capacity and stability measurements of a reserve style power
cell based on Lithium chemistry. Long term stability and shelf life is achieved
by initially separating the active materials of the power cell during storage,
and controlling the activation of the cell until needed to provide power. This
research program extends the design of the company's smart battery to support
the use of non-water based electrolytes that are commonly used in lithium based
batteries. Lithium batteries are favored for powering many different types of
electronic devices due to their higher voltage and power requirements that can
be supplied by more common alkaline batteries. The Phase I grant, valued at
$100,000, will enable the Company to competitively compete for a Phase II award
as an avenue used by U.S. government defense agencies to adopt advanced
technology for commercialization and use. Rutgers University will support the
Company and its newly formed subsidiary AlwaysReady, Inc. during the award
period as a subcontractor under the award guidelines.

14

---

On August 21, 2007, the Company announced the acquisition of
a 10% stock ownership position in Sovereign Tracking Systems LLC, a company
located in New Jersey with a patent covering active, real-time, tracking systems
that use radio frequency identification tags to secure high-end personnel
tracking and monitoring systems. The Company believes that, although such
company faces severe financial challenges, such patent could potentially
compliment and enhance the Company's smart battery application being developed
through AlwaysReady, Inc. a wholly-owned subsidiary.

On September 5, 2007, the Company announced that it had made
significant progress, pursuant to the requirements of the STTR grant, in
developing a prototype of a lithium manganese dioxide prototype of its
SmartBattery product.

On October 19, 2007, the Company announced that in connection
with the settlement and dismissal of a civil law suit originally filed on
November 16, 2005 by the Securities and Exchange Commission in the Federal
District Court in the District of Connecticut, the SEC issued a Cease and Desist
Order and certain remedial sanctions against two officers of mPhase
Technologies, Inc. (the "Company"). The civil suit was filed against
Packport.com, Inc. a Nevada corporation, Microphase Corporation, a Connecticut
corporation, a company that provides administrative services to the Company and
shares common management with the Company, and others. The two officers of the
Company were Mr. Ronald A. Durando, President and Chief Executive Officer and
Mr. Gustave T. Dotoli, the Chief Operating Officer. The Civil suit by the SEC
named as respondents Mr. Durando, Mr. Dotoli and others in connection with their
activities as officers and directors of Packetport.com. The cease and desist
order from the SEC found that (1) All parties had violated Section 5 of the
Securities Act of 1933, as making unregistered offers or sales of Packetport.com
common stock. (2) Mr. Durando and Mr. Dotoli had violated Section 16(a) of
the Securities Exchange Act of 1934, as amended, and Rule 16(a) thereunder by
failing to timely disclose the acquisition of their holdings on Form 3's and (3)
Mr. Durando had violated Section 13(d) of the Securities Exchange Act of 1934,
as amended, for failing to disclose the acquisition of more than five percent of
the stock of Packetport.com. Under the order Mr. Durando was required to
disgorge $150,000 and Mr. Dotoli was required to disgorge $100,000. The Company
was not named as a party to the civil suit. More information regarding the
detailed terms of the settlement can be found in SEC release No 8858 dated
October 18, 2007 promulgated under the Securities Act of 1933 and SEC Release
No. 56672 dated October 18,2007 promulgated pursuant to the Securities Exchange
Act of 1934. Mr. Durando and Mr. Dotoli have continued to serve as officers and
directors of the Company. Mr Durando and Mr. Dotoli together with Microphase
corporation and others, without admitting or denying the findings of the SEC,
except as to jurisdiction and subject matter, have consented to the entry of the
Order Instituting Cease and Desist Proceedings, Making findings and Imposing a
Cease and Desist Order and Remedial Sanctions pursuant to Section 8A of the
Securities Exchange Act of 1933 and Section 21C of the Securities Exchange Act
of 1934.

On October 30, 2007, together with its subsidiary Granita
Media, Inc, jointly announced that Comstar/Odessa, a major provider to
telecommunications services in the Ukraine, had terminated the trial of the
Company's TV+ solution.

On November 2, 2007, the Company announced the retirement of
Mr. Necdet F. Egrul at the age of 84 from the Company's Board of Directors.

On February 20, 2008, the Company announced that a prototype
of its smart reserve nanobattery was successfully deployed and activated by the
resulting g force in a gun-fired test at the Aberdeen Proving Grounds in
Maryland. The test was conducted by the U.S. Army Armament Research,
Development, and Engineering Center (ARDEC) of Picatinny New Jersey. In this
test, the AlwaysReady battery delivered power to the test load inside the
standard military anti-tank round (M830A1 or HEAT-High Explosive Anti Tank) and
demonstrated extreme resiliency, surviving the harsh environment as well as the
high acceleration at a g-Force in excess of 45,000 (One "g" is equal to the pull
of gravity at sea level). The gun-fired test was part of a prototype evaluation
process that the U.S. Army is conducting as part of its CRADA (Cooperative
Research and Development Agreement). The Company's Engineers collaborated with
those at Picatinny involved in the development of precision guidance components
to successfully package this reserve electrochemical storage system to operate
during the gun-firing and flight environment of a very high "g" round. The
developmental qualification work, prior to the live test firing, was performed
using Picatinny's air gun test facilities by subjecting battery prototypes to
various launch accelerations and various design iterations. The test validated
the performance of the AlwaysReady battery with a current armament used by the
Army. The Company has stated that its goal is to potentially incorporate this
battery technology into smart, gun-fired munitions programs being developed by
Picatinny.

On May 2, 2008 the Company announced that it had produced its
first lithium-based battery that can be manually activated by providing power on
command with a significantly longer shelf life prior to initial activation than
those found in other batteries. The battery can be activated by command
wirelessly from a remote location by a radio frequency signal giving it added
mobility for sensor and similar applications.

15

---

Products & Services

Since our inception in 1996, mPhase has been a development
stage company focused on the development of intellectual property involving high
technology innovative solutions and products with high-growth potential. The
Company has served as an incubator for exploratory research and initial
development for products that are best characterized as having a high risk/high
reward

The Smart NanoBattery is an outgrowth of the
science of nanotechnology that the Company began in February of 2004 with the
entering into a Project Development Agreement with the Bell Labs Division of
Lucent Technologies, Inc. The Company has historically outsourced its Research
and Development of new products to larger companies or institutions with
significant scientific resources and experience in exploratory research. mPhase
Technologies along with Alcatel/Lucent/Bell Labs, jointly conducted research
from February 2004 through April of 2007 that demonstrated control and
manipulation of fluids on superhydrophobic surfaces to create power cells, by
controlling wetting behavior of electrolyte on nano structured electrode
surfaces. This scientific research conducted set the ground work for continued
exploration in the development of intelligent nanotechnology power cells (nano-batteries),
and formed a path to commercialization of the technology for a broad range of
market opportunities. During 2005 and 2006, the battery team tested
modifications and enhancements to the internal design of the battery to optimize
its power and energy density characteristics, as well as engineering
improvements that were essential in moving the battery from a zinc based
chemistry to design using lithium based chemistry The Company established a
strategic research working relationship with the Energy Storage Research Group (ESRG),
a center of excellence in Rutgers University that has lab research facilities
capable of handling lithium based battery development.

mPhase's current flagship product is its Smart
NanoBattery that has a significant longer shelf life prior to initial activation
than that of conventional batteries. The Smart NanoBattery has potentially
significant applications for critical missionpower
sources that must be reliable and available upon command by the electronic
device it is powering. Such applications involve, emergency flashlights and
beacons, back -up power sources for computers and life support products, as well
as significant military applications where critical mission backup power is
essential for weapons control computers and electronic warfare equipment used in
combat. Other potential military applications include power sources activated by
g forces for guided munitions.

The Smart NanoBattery utilizes a proprietary
technology developed over a period of 4 years. The battery design, prior to
initial activation, has a membrane that separates the electrolyte and electrodes
used to generate power. Conventional batteries do not provide for such
separation and therefore their power begins to dissipate prior to the first time
they are activated causing them to loose capacity. Conventional batteries have
significant limits upon how long they can be stored prior to their first
activation and in providing a reliable source of power required for critical
applications requiring portable power supplies.

Other Nanotechnology Products

Magnetometer: Work Suspended in 2007 (See also description of
operations)

Magnetometers can be used in a wide range of applications for
the detection of magnetic fields in applications that include military
surveillance, securing the retail environment, automotive sensors and actuators,
industrial processing, medical imaging, scientific measurements, detection of
mineral deposits and even air and space exploration. In sensor networks
ultra-sensitive magnetometers can be used, for example, to detect and accurately
pinpoint battlefield objects or they might also be used to study the workings of
the human brain.

Magnetometers work by sensing changes in magnetic fields due
to the motion of magnetic objects or changes in electrical currents generated by
those objects. The magnetometer detects these objects by measuring time-varying
magnetic signals that are superimposed on the combination of earth

16

---

TV+ Solution: Work Suspended (See also description of
operations)

As mentioned previously, the roll-out of broadcast television
using internet protocol has been a lengthy process for major service providers
in the United States, the Company has temporarily suspended development of new
features for its TV+ solution in order to conserve financial resources pending
further development in the U.S. market. All inventories have been written off
and all strategic alternatives relative to this business segment, including the
valuation and sale of assets or licensing of the technology are being evaluated.

Competitive Business Conditions:

The design and functionality of the mPhase/AlwaysReady
lithium Smart Nanobattery make it unique to the portable electronics battery
market segment.. To the best of our knowledge, there is no existing product that
directly competes with the Smart NanoBattery that combines small size with a
reserve design. As a reserve battery, the Smart NanoBattery remains dormant
until it is activated on command. It does not self-discharge or die prior to its
first activation , thereby offering extremely long shelf life prior to use as
either as a primary or backup battery in a device. Shelf life is projected to be
in excess of twenty years.

There are numerous thin film batteries based on lithium
metal, lithium ion and lithium polymer, as well as other chemistries, used in
military devices, portable electronics, RFID tags and wireless sensor networks,
that are similar in size to the Smart NanoBattery, often referred to as
microbatteries. None of these designs are based on reserve battery
architectures. Thin film batteries are manufactured by companies including:
Cymbet Corporation, Front Edge Technology, Infinite Power Solutions, ITN Energy
Systems, Johnson Research and Development Company, KSW Microtec, Lithium
Technology Corporation, MPower Solutions, Oak Ridge Micro-Energy, Power Paper,
Solicore, VoltaFlex Corporation. Large companies such as Energizer, Ultralife,
Varta and Proctor & Gamble are also involved with developing thin film
batteries. Thin film battery markets are anticipated to reach 10 billion units,
$11 billion dollars by 2012. The market driving forces are those of wide
expansion of portable devices in that time frame. With 3.5 billion cell phone
users and 67 billion RFID tags per year anticipated in that time frame alone, it
is anticipated that the volumes will be in place to create commercial demand for
thin film batteries.

Traditional reserve batteries are quite distinct from the
mPhase/AlwaysReady Smart NanoBattery in terms of size and activation mechanism.
The market for reserve batteries has largely been limited to the military for
supplying power to munitions and other mission-critical electronic devices. The
traditional reserve battery tends to be larger and certain types are built by
hand and contain mechanical parts to activate the battery. The Smart NanoBattery
relies on the phenomenon of electrowetting to initiate activation or a
mechanical barrier that can be broken, in the case of the breakable barrier
design. Traditional reserve batteries for military applications have been
supplied by companies such as EaglePicher, Yardney and Storage Battery Systems,
Inc.

Manufacturing

mPhase subcontracts all of the manufacturing of its
products to outside sources including related parties such as Janifast Ltd. and
Microphase Corporation. We currently have no contracts in place for the
manufacturing of our products with either Microphase Corporation or Janifast
Ltd. or any other non-affiliated third party manufacturers. By using contract
manufacturers, mPhase avoids the substantial capital investments required for
internal production.

Outsourcing

The Company practices an outsourcing model whereby it
contracts with third party vendors to perform research and development rather
than performing the bulk of these functions internally. It also maintains a
small core R/D staff of engineers and scientists in the fields critical for the
battery development. From February of 2004 through March of 2007 the Company
engaged Lucent/Bell Labs to develop, using the science of nanotechnology, micro
power cell arrays creating a structure for zinc batteries that separated the
chemicals or electrolytes prior to initial activation. This was done by
suspending on nano grass or small spoke like pieces of silicon a liquid
electrolyte taking advantage of a super hydrophobiceffect that occurs as a result of the ability to manipulate materials of
a very small size or less that 1/50,000 the size of a human hair. The Company
has, as a result of outsourcing, been able to have access to facilities,
equipment and research capabilities that the Company would not be able to
develop on its own given the financial resources and time that would be required
to build or acquire such research capabilities. The Company has also been able
to achieve key strategic alliances with the U.S. Army to successfully test,
under military combat conditions, its SmartBattery design, leading to further
validation of its path to product development under a Cooperative Research and
Development Agreement (CRADA). In addition the Company has formed a relationship
with Energy Storage Research Group, a center of excellence at Rutgers
University, in New Jersey, that has enabled the Company to expand its battery
development from a zinc to a lithium battery capable of delivering significantly
more power. During the period from March of 2005 to April of 2007, the Company engaged the Bell Labs division of Lucent Technologies, Inc. to develop a
magnetometer or electronic sensor also using the science of nanotechnology.
Although the Company has, in order to conserve financial resources, currently
suspended further development of its magnetometer product line, we believe that
the intellectual property developed from the research to date could be resumed
to develop viable military and industrial products depending upon future
financial resources of the Company and future competitive market conditions.

17

---

The
Company has developed its current TV+ middleware solution that represents and
evolution of product development since 1998 that was completed through major
outsourcing contracts with Georgia Tech Research Institute and the Bell Labs
division of Alchatel/Lucent. As previously noted, the Company in order to focus
exclusively on its SmartBattery product has suspended further development of new
features for the TV+. The Company continues to believe that the intellectual
property pertaining to the TV+ middleware may have significant value in the
future as the market for IPTV delivery evolves in the United States. The Company
believes that the unique scalability of its platform and open carrier class
standards is ideally suited for large-scale deployments of IPTV. The Company is
currently seeking a major telephone service provider in the United States for a
strategic partner to further test, customize and use as a network management
platform to roll-out converged services including broadcast television, high
speed internet, voice and Video on Demand.

Patents and Licenses

We have filed and intend to file United States patents, in
some cases EU patents and/or copyright applications relating to some of our
proposed products and technologies, either with our collaborators, strategic
partners or on our own. There can be no assurance; however, that any of the
patents obtained will be adequate to protect our technologies or that we will
have sufficient resources to enforce our patents.

Because we may license our technology and products in foreign
markets, we may also seek foreign patent protection for some specific patents.
With respect to foreign patents, the patent laws of other countries may differ
significantly from those of the United States, as to the patentability of our
products or technology. In addition, it is possible that competitors in both the
United States and foreign countries, many of which have substantially greater
resources and have made substantial investments in competing technologies, may
have applied for, or may in the future apply for and obtain, patents, which will
have an adverse impact on our ability to make and sell our products. There can
also be no assurance that competitors will not infringe on our patents or will
not claim that we are infringing on their patents. Defense and prosecution of
patent suits, even if successful, are both costly and time consuming. An adverse
outcome in the defense of a patent suit could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require us to cease our operations.

The Company has intellectual property as follows:

IPTV:

In June of 2008, the Company filed a provisional patent for
certain unique delivery aspects of its IPTV middleware.

The Company has recently decided not to incur the cost of
maintaining certain patents originally obtained by Georgia Tech Research
Corporation in connection with its Traverser DVDDS legacy product in which the
Company was the exclusive worldwide licensee for a 5 % royalty. As previously
noted, the TV+ solution has replaced the legacy product.

Nano Technology, Micro Electrical Mechanical Systems (MEMS)
and Battery Portfolio:

The Company has applied for seven (7) patent applications in
the area of battery designs, microfludics and MEMS fabrication. In addition, the
Company has two (2) joint patent applications with the Bell Labs division of
Lucent Technologies, obtained during the development period, and the licensing
rights for use of five (5) additional patents from Lucent after the development
period.

Other Patents

On July 12, 2005, mPhase announced that it had been granted a
U.S. patent that covers a series of techniques for splitting different voice and
data signals in DSL access networks that is used in its Broadband Loop Watch
product. The Company is not currently pursuing further development and marketing
of this product owing to the lack o f demand for loop diagnostics systems by
telephone service providers.

We also rely on unpatented proprietary technology, and we can
make no assurance that others may not independently develop the same or similar
technology to ours o r otherwise obtain access to our unpatented technology.

18

---

Government Regulation

The Federal Communication Commission, or FCC, and various
state public utility and service commissions, regulate most of mPhase

To the best of our knowledge, there is no
state or local laws to which we are subject that are relevant to our system from
a regulation and certification standpoint. At the Federal level, we are subject
to Federal Communications Commission (FCC) Regulations Under the Code of Federal
Regulations, Title 47, Chapter 1, Part 15-RADIO FREQUENCY DEVICES, and Part
68-CONNECTION OF TERMINAL EQUIPMENT TO THE TELEPHONE NETWORK. Part 15 sets out
the requirements to obtain a license for operating a radiator of electromagnetic
energy, and the technical and administrative specifications relating to the
marketing of such radiators. Part 68 sets out the rules and regulations to
provide for uniform standards for the protection of the telephone network from
harms caused by the connection of terminal equipment and associated wiring
thereto, and for the compatibility of hearing aids and telephones so as to
ensure that persons with hearing aids have reasonable access to the telephone
network.

Our products and equipment were designed to
comply with the aforementioned rules and regulations. .Compliance with FCC rules
and regulations allows our equipment to be marketed and sold in the United
States. While the certification process and costs associated have no material
effect on mPhases financial condition, failure to comply
with FCC rules and regulations would result in loss of revenue and additional
costs on product revision and/or redesign.

Research and Development

mPhase has designed the legacy Traverser Digital Video Data
Delivery System (DVDDS) product to delivery broadcast television , high-speed
internet and voice to customers of telephone service providers . The digital
engineering and design was developed primarily on an outsourced basis through
Georgia Tech Research Corporation with analog portions of the product developed
by Microphase Corporation. As of June 30, 2008, we had been billed a cumulative
total of approximately $13,563,000 for research and development conducted by
Georgia Tech Research Corporation.

mPhase originally contracted with the Bell Labs division of
Lucent Technologies, Inc. in fiscal year 2002 to reduce the cost of its INI set
top box used with the Traverse r DVDDS platform. During fiscal year 2003, the
Company engaged Lucent to develop an integrated system with the Lucent Stinger
DSLAM and mPhase middleware for the delivery of Television, high speed internet
and voice on an open standards system to replace the proprietary Traverser
product. Releases 1.0 and 2.0 of the TV+ solution were designed by Bell Labs to
be ATM systems that operated exclusively with the Lucent Stinger DSLAM to enable
a telecommunications service provider to deliver broadcast television, voice and
high speed internet over DSL.

Release 3.0 of our TV+ system that replaced the ATM protocol
that was used in prior releases of the TV+ uses internet protocol and is
referred to as out IPTV solution. It was completed during May of 2006 by the
Bell Labs division of Alcatel/Lucent Technologies, Inc. under a contract
extended in August of 2005. We have not renewed our contract for software
development of our TV+ product with Bell Labs. In the aggregate we have paid
Bell Labs approximately $4.9 million our TV+ solution.

Since 2006 major vendors of further software development for
the TV+ included Velankani Communications (the successor to Bell Labs as systems
integrator of the TV+), Magpie Telecom Insiders, Inc, Espial Telecommunications,
Inc. As of June 30, 2008 we have been billed a cumulative total of approximately
$3.2 million for research and development for our TV+ from these vendors. During
the fiscal year ended June 30, 2008 such activity was suspended. The Company is
currently in disputes with several of its vendors in connection with its TV+
solution regarding the failure of such vendors of deliver certain aspects of its
TV+ software that are not, in the Company's opinion of carrie r class quality.

Our SmartBattery and power cell technology research and
development was performed by the Bell Labs division of Alcatel/Lucent from
February of 2004 through March o f 2007 at an aggregate cost of $3.8 million.
The Company paid Bell Labs $300,000 covering the period from April 27, 2007
through July 30,2007 at which time it determined that in order to develop a
lithium battery for higher density energy than zinc, it required facilities
capable of handling lithium battery research that Bell Labs does not have. The
Company has engaged a number of small foundries during fiscal year ended June
30, 2008 for commercialization of its SmarBattery at a cost of approximately
$150,000.

From March of 2005 through March of 2007, the Company had
further engaged Bell Labs in under separate Development Agreements for the
development of a new generation of ultra magnetic sensors (magnetometers) using
the science of nanotechnology with a total cost of $2.4 million. The Company did
not renew such its engagement with Bell Labs upon expiration and did not incur
any costs with respect to its magnetometer in fiscal year 2008 since the Company
has suspended further development of the product to conserve financial
resources.

Employees

mPhase and its subsidiary companies presently have a total of
10 full-time employees and consultants, two of whom are also employed by
Microphase Corporation. See the description in the section entitled Certain
Relationships and Related Transactions.

19

---

RISK FACTORS

RISKS RELATED TO FINANCIAL ASPECTS OF OUR
BUSINESS

The Company has  been forced to curtail development of
all products except its SmartBattery in order to conserve financial resources

The Company has currently been forced to focus exclusively on
commercialization of only one of its products thereby eliminating product
diversification. The Company's lack of financial resources to simultaneously
develop multiple products increases its overall risk profile as a
development-stage company.

mPhase's stock price has suffered significant declines during
the past eight years and remains volatile.

The market price of our common stock closed at $7.88 on July
26, 2000 and closed at $.041 on September 23, 2008. During such period the
number of shares outstanding of the Company increased from approximately 30
million shares to 527 million shares. Such increase was the result of periodic
private placements by the Company in order to finance company operations. Stocks
in telecommunications equipment providers of DSL products have been very
volatile during such period. Our common stock is a highly speculative investment
and is suitable only for such investors with financial resources that enable
them to sustain the loss of their entire investment in such stock. Because the
price of our common stock is less than $5.00 per share and is not traded on the
NASDAQ National or NASDAQ Small Cap exchanges, it is considered to be a "penny
stock" limiting the type of customers that broker/dealers can sell to. Such
customers consist only of "established customers" and "Accredited Investors"
(within the meaning of Rule 501 of Regulation D of the Securities Act of 1933,
as amended-generally individuals and entities of substantial net worth) thereby
limiting the liquidity of our common stock.

We may not be able to raise sufficient capital to meet bring
our SmartBattery and other applications of our technology to market.

We may not be able to obtain the amount of additional capital
needed until the Company has established a significant and predictable sales and
revenues from our technology. We have been successful in the past as a micro-cap
development stage company in raising capital; however recent trends in the
capital markets are likely to pose significant challenges for the Company.
Factors affecting the availability of capital include:

1.

The price,
volatility and trading volume of our common stock.

2.

Future financial
results including sales and revenues generated from operations.

3.

The market's
view of the business sector of nanotechnology and batteries.

4.

The perception
in the capital markets of our ability to execute our business plan.

We have reported net losses for each of our fiscal years from
our inception in 1996 through the fiscal year ended June 30, 2008 and may not be
able to operate profitability in the future.

We have had net losses of approximately $172 million since
our inception in 1996 including approximately $3.9 million and $16.9 million for
the fiscal year ended June 30, 2008 and June 30, 2007, respectively and cannot
be certain when or if we will ever be profitable. We expect to continue to have
net losses for the foreseeable future and have a need to raise not less than $5
million in additional cash in the next 12 months through further offerings and
existing convertible debt arrangements to continue operations. As of June 30,
2008 we have negative working capital of approximately $3.8 million and a
stockholders deficit of $2.8 million. Cumulative negative cash flow from
operations since inception has amounted to approximately $79 million

Economic support from affiliated companies has been
significant.

During the downturn in the telecommunications industry
beginning in 2001, both Microphase Corporation, and Janifast Ltd. provided
significant financial support to mPhase in the form of either cash infusions or
conversions of related party debt. Such companies, which share common management
with mPhase, are under no legal obligation to and may not be able to sustain
such economic support of mPhase in the future should such support be necessary.

20

---

Our independent auditor's report expresses doubt about our
ability to continue as a going concern.

The reports of the Company's outside auditors, Rosenberg,
Rich, Baker, Berman & Company with respect to its latest audited 10K for the
fiscal years ended June 30, 2008, June 30, 2007, June 30, 2006, stated that
"there is substantial doubt of the Company's ability to continue as a going
concern." Such opinion from our outside auditors makes it significantly more
difficult and expensive for the Company to raise additional needed capital
necessary to continue our operations.

Our common stock is subject to significant dilution upon
issuance of shares we have reserved for future issuance.

As of June 30, 2008 outstanding convertible debt equal to $
3,419,000 all of which has the right to convert into additional shares of our
common stock at discounts ranging from 20%-25% of mPhase's then current stock
price computed on a formula basis that may adversely affect the future price of
our common stock. As of June 30, 2008 we have warrants and options convertible
into approximately 192 million shares of our common stock at $.50 per share or
less that, upon exercise may result in significant dilution to many of our
current shareholders and may adversely affect the future price of our common
stock. We may be forced to raise additional cash for operations by selling
additional shares of our common stock to shareholders at depressed prices
resulting in further dilution to our shareholders.

RISK FACTORS RELATED TO OUR OPERATIONS

We have been a development-stage company since our inception
in 1996 and have not to date had a significant or successful deployment of any
of our flagship product including our SmartBattery.

We have derived no material revenues from our SmartBattery
from inception of development in February 2004 through June 30, 2008 and we have
been forced to discontinue further product development and marketing of both our
TV+ and Magnetometer products owing to limited financial resources.

The loss of key personnel could adversely affect our business

Management and employment contracts with all of our officers
have expired and no assurances can be given that such executives will remain
with the Company or that the Company will be able to successfully enter into
agreements with such key executives. All of our officers have made significant
investments in the Company in the form of equity periodic purchases of common
stock and bridge loans and been granted stock and stock options that are
intended to represent a key component of their compensation. Such grants may not
provide the intended incentives to such officers if our stock price declines or
experiences significant volatility.

We may incur substantial expenditures in the future in order
to protect our intellectual property.

We believe that our intellectual property with respect to our
SmartBattery and our proprietary rights with respect to the Company's permeable
membrane design consisting of both micro and nano scale silicon features, that
are coated with a monolayer chemistry used to repel liquids is critical to our
future success. We have four patents pending with respect to our SmartBattery
product in order to protect our product, however no patents have yet been
granted. Our pending patent applications may never be granted for various
reasons, including the existence of conflicting patents or defects in our
applications. Even if a U.S. patent is ultimately granted there are significant
risks regarding enforcement of patents in international markets. There are many
patents being filed as the science of nanotechnology develops and the Company
has limited financial resources compared to large, well established companies,
in order to bring patent litigation based upon claims of patent infringement.

RISKS RELATED TO OUR TARGETED MAKETS

The sale of new high technology products often has a long
lead-time and a multiplicity of risks.

Commercialization of new technology products often have very
long lead time since it is not possible to predict when major companies will
license such technology for sale to their customers. The Science of
Nanotechnology and Microfluidics used to develop our SmartBattery is in its very
early stages and acceptance and demand for such products can often be a long
evolutionary process. In the case of the Company's IPTV solution the roll-out of
delivery of broadcast television by telephone service providers using internet
protocol has taken 10 years to develop and is still moving slowly which has
resulted in the Company currently delaying any further development of such
product to conserve financial resources.

21

---

The science of nanotechnology is at a very early stage as a
discipline and is subject to great uncertainty and swift changes in technology.

Micro fluid dynamics and the manipulation of materials of
nano size and dimensions is a very new science and the creation of new products
is dependent upon new and different properties of such materials created that
will result in many uncertain applications and rapid change. The evolution of
nanotechnology as a new science adds greater uncertainty to new applications and
new and improved product introductions is unpredictable.

We may not be able to create new products from our
intellectual property using microfluidics that will be acceptable in water
purification, oil separation from water and other environment markets.

The market for "green" products and solutions is
characterized by: Changing regulatory standards; New and improved product
introductions; Changing customer demands; and

Large companies such as Exxon with great resources that are
currently focusing significant monies for new solutions.

Our future success will depend upon our ability to achieve
compelling technology innovations that are economic and practical to produce in
large quantities .Success in new technology, products and services is a complex
and uncertain process requiring high levels of innovation, highly-skilled
engineering and development personnel, and the accurate anticipation of
technological and market trends. We may not be able to identify, develop, market
or support new or enhanced technology, products, or services on a timely basis,
if at all owing to our size and limited financial resources.

The commercialization of many applications of our
technologies will depend on our ability to establish strategic relationships
with commercial partners.

We are seeking commercial partners with established lines of
business and greater financial resources than our own. Such partners may not
place the priority that we do on joint projects because the success or failure
of such projects is not as material to other existing well developed lines of
business.

Our SmartBattery and our potential applications of our
technology are components of end products and therefore the products are tied to
the success of such products

The compelling need for critical mission batteries and other
applications of our nanotechnology will depend upon both military and commercial
needs going forward and the demand for our products as components. Thus are
SmartBattery and other applications of our technology success will depend upon
the continuing need for the end user products over which will depend upon market
demand.

22

---

ITEM 2. PROPERTIES

Our corporate headquarters is located at 587 Connecticut
Avenue, Norwalk, CT 06854-1711. The Company leases this office space from
Microphase Corporation under a facilities agreement with Microphase that
provides that mPhase lease office space, lab facilities and administrative staff
on a month-to-month basis for $5,000 month. The Company also maintains an office
in Little Falls, New Jersey with monthly rent of $12,656 per month.

ITEM 3. LEGAL PROCEEDINGS

On October 19, 2007, in connection with the settlement and
dismissal of a civil law suit originally filed on November 16, 2005 by the
Securities and Exchange Commission in the Federal District Court in the District
of Connecticut, the SEC issued a Cease and Desist Order and certain remedial
sanctions against two officers of mPhase Technologies, Inc. (the "Company"). The
civil suit was filed against Packport.com, Inc. a Nevada corporation, Microphase
Corporation, a Connecticut corporation, a company that provides administrative
services to the Company and shares common management with the Company, and
others. The two officers of the Company were Mr. Ronald A. Durando, President
and Chief Executive Officer and Mr. Gustave T. Dotoli, the Chief Operating
Officer. The Civil suit by the SEC named as respondents Mr. Durando, Mr. Dotoli
and others in connection with their activities as officers and directors of
Packetport.com. The cease and desist order from the SEC found that (1) All
parties had violated Section 5 of the Securities Act of 1933, as amended, by
making unregistered offers or sales of common stock of Packetport.com.(2) Mr. Durando and
Mr. Dotoli had violated Section 16(a) of the Securities Exchange Act of 1934, as
amended, and Rule 16(a) there under by failing to timely disclose the
acquisition of their holdings on Form 3's and (3) Mr. Durando had violated
Section 13(d) of the Securities Exchange Act of 1934, as amended, for failing to
disclose the acquisition of more than five percent of the stock of Packetport.com. Under the order Mr. Durando was required to disgorge $150,000
and Mr. Dotoli was required to disgorge $100,000. The Company was not named as a
party to the civil suit. More information regarding the detailed terms of the
settlement can be found in SEC release No 8858 dated October 18, 2007
promulgated under the Securities Act of 1933 and SEC Release No. 56672 dated
October 18, 2007 promulgated pursuant to the Securities Exchange Act of 1934.

Mr. Durando and Mr. Dotoli have continued to serve as
officers and directors of the Company. Mr. Durando and Mr. Dotoli together with
Microphase corporation and others, without admitting or denying the findings of
the SEC, except as to jurisdiction and subject matter, have consented to the
entry of the Order Instituting Cease and Desist Proceedings, Making findings and
Imposing a Cease and Desist Order and Remedial Sanctions pursuant to Section 8A
of the Securities Exchange Act of 1933 and Section 21C of the Securities
Exchange Act of 1934. From time to time mPhase may be involved in various legal
proceedings and other matters arising in the normal course of business.

On November 9, 2007, Magpie Telecom Insiders, Inc ("Magpie")
filed a lawsuit in the Federal District Court in the State of Colorado alleging
a breach of contract by mPhase in connection with a Statement of Work dated July
10, 2006 in connection with software supplied by Magpie for mPhase's TV+
solution. The claim alleges the failure of mPhase to make payments amounting to
$679,969 under the contract. mPhase believes it has certain affirmative defenses
to the claim including deficiencies in the software delivered by Magpie and
failure to deliver support services by Magpie. mPhase has counterclaimed against
Magpie asserting that the software delivered was not of "carried class"
standards required in the telecommunications industry and that Magpie sold or
attempted to sale mPhase common stock received in connection with a modification
of the payments due under the Statement of Work in violation of Rule 10b-5 and
the Federal Securities Laws. This litigation, at the time of filing was
considered to be the culmination of a dispute in the ordinary course of business
involving a vendor of mPhase's TV+ solution, it is now considered to involve a
significant amount of time and legal expenses to defend as to be material to the
Company's TV+ solution and a prime cause of the termination by Comstar/Odessa of
its TV+ test in September of 2007. The Company cannot, at this time predict the
outcome of this letter but believes it has meritorious defenses and
counterclaims against Magpie in this action.

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

None

23

---

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

(A) MARKET PRICES OF COMMON STOCK

The primary market for mPhase's common stock is the NASDAQ
OTC Bulletin Board, where it trades under the symbol "XDSL." The Company became
publicly traded through a merger with Lightpaths TP Technologies, formerly known
as Tecma Laboratories, Inc. pursuant to an agreement dated February 17, 1997.
The following table sets forth the high and low closing prices for the shares
for the periods indicated as provided by the NASDAQ's OTCBB System. The
quotations shown reflect inter-dealer prices, without retail mark-up, markdown,
or commission and may not represent actual transactions. These figures have been
adjusted to reflect a 1 for 10 reverse stock split on March 1, 1997.

|YEAR/QUARTER                    | HIGH  | LOW  
|------------------------------- | ----- | -----
|Fiscal year ended June 30, 2001 |       |      
|First Quarter                   | $9.25 | $3.00
|Second Quarter                  | 5.94  | 1.47 
|Third Quarter                   | 3.38  | 1.22 
|Fourth Quarter                  | 2.61  | 1.03 
|                                |       |      
|Fiscal year ended June 30, 2002 |       |      
|First Quarter                   | $1.67 | $.31 
|Second Quarter                  | .86   | .31  
|Third Quarter                   | .62   | .27  
|Fourth Quarter                  | .50   | .23  
|                                |       |      
|Fiscal Year ended June 30, 2003 |       |      
|First Quarter                   | $.32  | $.15 
|Second Quarter                  | .31   | .15  
|Third Quarter                   | .36   | .19  
|Fourth Quarter                  | .42   | .28  
|                                |       |      
|Fiscal year ended June 30, 2004 |       |      
|First Quarter                   | $.42  | $.29 
|Second Quarter                  | .61   | .29  
|Third Quarter                   | .69   | .38  
|Fourth Quarter                  | .46   | .29  
|                                |       |      
|Fiscal year ended June 30, 2005 |       |      
|First Quarter                   | $.31  | $.21 
|Second Quarter                  | .35   | .23  
|Third Quarter                   | .60   | .30  
|Fourth Quarter                  | .41   | .25  
|                                |       |      
|Fiscal year ended June 30, 2006 |       |      
|First Quarter                   | $.29  | $.21 
|Second Quarter                  | .32   | .15  
|Third Quarter                   | .45   | .19  
|Fourth Quarter                  | .34   | .18  
|                                |       |      
|Fiscal year ended June 30, 2007 |       |      
|First Quarter                   | $.21  | $.16 
|Second Quarter                  | .20   | .15  
|Third Quarter                   | .24   | .15  
|Fourth Quarter                  | .19   | .09  

|                                |      |     
|------------------------------- | ---- | ----
|Fiscal year ended June 30, 2008 |      |     
|First Quarter                   | $.13 | $.07
|Second Quarter                  | .09  | .05 
|Third Quarter                   | .14  | .05 
|Fourth Quarter                  | .13  | .07 

24

---

(B) HOLDERS

As of June 30, 2008, mPhase had approximately 440 million
shares of common stock outstanding and approximately 19,000 stockholders of
record and 192 million shares of common stock reserved for issuance upon the
conversion of warrants and options respectively. As of June 30, 2007, we had
approximately 388 million shares of common stock outstanding and approximately
18,000 shareholders

(C) DIVIDENDS

mPhase has never declared or paid any cash dividends on its
common stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings, if
any, to finance operations and the expansion of its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be based upon mPhase's financial condition, operating
results, capital requirements, plans for expansion, restrictions imposed by any
financing arrangements and any other factors that the Board of Directors deems
relevant.

Issuances of Unregistered Securities

The following securities were issued by us within the past
three years and were not registered under the Securities Act of 1933, as amended
(the "Act"). Each of the transactions is claimed to be exempt from registration
under the Act.

In September 2001, certain of our officers and directors
purchased an aggregate of 2,000,000 shares of common stock for an aggregate
investment of $1,000,000. These issuances included 1,000,000 shares to Mr. L.
Barton, a director at that time, for an investment of $500,000; 400,000 shares
to Mr. Ronald A. Durando, the Company's president and a director, for an
investment of $200,000; 400,000 shares to Mr. Gustave Dotoli, the Company's
vice-president and a director, for an investment of $200,000; and; 200,000
shares to Mr. Martin S. Smiley, the Company's vice-president, for an investment
of $100,000; and were exempt pursuant to Section 4(2) and/or Rule 506 of
Regulation D of the Act.

In December 2001 and January 2002, we issued 6,797,643 shares
of common stock and a like amount of warrants at an exercise price of $.30 per
share for a term of five (5) years pursuant to Rule 506 of Regulation D of the
Act for approximately $2,000,000 in cash. This issuance was exempt pursuant to
Section 4(2) and/or Rule 506 of Regulation D of the Act.

During the year ended June 30, 2002 the Company issued
7,492,996 shares of its common stock, and 5,953,490 warrants to related parties
and strategic vendors, in connection with the conversion of $2,738,658 of
accounts payable and accrued expenses, of which 6,150,000 shares of common stock
and 3,400,000 warrants were issued in settlement of $1,460,000 of accounts
payable to related parties as follows:

a.)

During December
2001, the Company converted $660,000 of liabilities due to Microphase and
$360,000 of liabilities due to Janifast into 2,200,000 and 1,200,000,
respectively, shares of the Company's common stock and a like amount of warrants
to purchase one share each of the Company's common stock at an exercise price of
$.30 pursuant to debt conversion agreements pursuant to Section 3(a)(9) of the
Act and 320,000 shares of common stock plus warrants to purchase another 320,000
shares of common stock at $.30 for a term of 5 years, respectively, were issued
to strategic vendors pursuant to Section 3(a)(9) of the Act.

b.)

During the
quarter ended March 31,2002 the Company converted $96,000 of liabilities due to
Strategic Vendors into 320,000 shares of the Company's common stock and a like
amount of warrants to purchase one share each of the Company's common stock at
an exercise price of $.30 pursuant to debt conversion agreements pursuant to
Section 3(a)(9) of the Act.

25

---

c.)

Effective March
31, 2002, the Company converted $420,872 of liabilities due to Piper Rudnick LLP,
outside legal counsel to mPhase pursuant to Section 3(a)(9) of the Act into a
warrant to purchase up to a total of $1,683,490 shares of the Company's common
stock which pursuant to EITF 96 18, has an approximate value of $.30 per share
and a warrant to purchase 550,000 shares of the Company's common stock at an
exercise price of $.30 per share pursuant to the terms of payment agreement. In
addition, Piper agreed to accept a Promissory note for $420,872 of current
payables at an interest rate of 8% with payments of $5,000 per month commencing
June 1, 2002 and continuing through December 1, 2003, with a final payment of
principal plus accrued interest due at maturity on December 31, 2003.
Additionally, 1,022,996 shares of common stock were issued to strategic vendors,
the value of which was based upon the price of the Company's common stock on the
effective date of settlement with each strategic vendor, to settle $761,786 of
liabilities pursuant to Section 3(a)(9) of the Act. The conversion of $1,182,658
of such liabilities which, together with gains from cash settlements of $27,960
resulted in an aggregate gain on extinguishments of $142,236.

d.)

Effective for
June 30 2002, the Company converted $360,000 of liabilities due to Microphase
and $80,000 of liabilities due to Janifast into 2,250,000 and 500,000 shares of
the Company's common stock, respectively, pursuant to debt conversion agreements
pursuant to Section 3(a)(9) of the Act.

From August 2001 to June 2002, we issued an aggregate of
2,976,068 shares of common stock to consultants for an aggregate of $1,202,997.
We also issued an aggregate of 2,675,000 warrants to consultants for an
aggregate of $1,040,000. Each transaction was pursuant to Section 4(2) of the
Act.

During the year ended June 30, 2003, we issued 4,296,680
shares of Common Stock at $.30 per share plus 5 year warrants to purchase
4,296,680 shares of Common Stock at $.30 per share in a Private Placement
pursuant to Rule 506 of Regulation D of the Act, generating net proceeds to the
company of approximately $1,164,000.

During the year ended June 30, 2003, the Company issued
426,000 shares of its common stock valued at $112,245 and 1,690,000 warrants,
valued at $203,150 based upon the fair market value of the Company's common
stock on the date of the grant using the Black-Scholes option pricing model. The
Company recorded these charges, totaling $318,395 to operations for the year
ended June 30, 2003. Each transaction was pursuant to Section 4(2) of the Act.

During the fiscal year ended June 30, 2003, the Company
converted certain payables and accrued expenses with officers, related parties
and strategic vendors pursuant to Section 4(2) and to Section 3(a)(9) of the Act
aggregating approximately $1.9 million into 5,923,333 restricted shares of the
Company's common stock and 5 year warrants to purchase an additional 3,706,800
restricted shares of the Company's common stock. Of these, 5,533,333 shares of
common stock and 3,491,800 warrants were issued in settlement of $1,748,756 of
debt to related parties as follows:

a.)

The conversion
of $620,000 and $360,000 of liabilities due to Microphase corporation, and
Janifast Ltd into 3,033,000 shares and 1,500,000 shares of stock, respectively.
The value attributable to the shares was based upon the market price of the
Company's common stock on the measurement date, such date was determined
pursuant to EITF00-1, as to when all the contingent terms of the conversion
agreements were met, in which no gain or loss was recognized on the conversion
of $980,000 of debt, and;

b.)

Also included in
such conversions during the year ended June, 30 2003, were transactions whereby
the Company converted $525,967 of liabilities; $269,362 due to the Company's
president, $211,605 due to the vice president and $45,000 due to the a sales
manager who is also concurrently employed by Microphase, for unpaid management
compensation and sales commissions due from mPhase into warrants to purchase up
to a total of 2,656,500 shares of the Company's common stock. The aggregate
value of such warrants was estimated using the Black-Scholes options pricing
model, pursuant to EITF 96-18, having an approximate value of $.21 per share, or
$538,173. The Company recorded a settlement expense of approximately $12,206
with respect to the Company's president and vice president.

c.)

Strategic
vendors converted $117,486 of payables into 340,000 shares of the Company's
common stock on the measurement date the value of which was based upon the price
of the Company's common stock on the effective date of settlement with each
party. This resulted in a gain of $37,383, which, when combined with all
conversions and the gains from cash settlements of $36,049 for the fiscal year
2003, resulted in a net gain on extinguishments in the statements of operations
of $61,226 for the year ended June 30, 2003.

In August of 2003, the Company issued 333,334 shares of its
common stock together with a like amount of warrants in a private placement
pursuant to Rule 506 of Regulation D of the Act, generating net proceeds of
$100,000 which was collected during the three month period ended on September
30, 2003.

26

---

During the six months ending December 31, 2003, the Company
granted 924,667 shares of its common stock and warrants to purchase 249,667
shares of its common stock to consultants for services performed, valued at
$307,243, and charged to operations during the period. Each transaction was
pursuant to Section 4(2) of the Act.

During the three months ended December 31, 2003, the Company issued 500,000
shares of its common stock pursuant to warrants previously issued to purchase
said shares pursuant to Rule 506 of Regulation D of the Act for an aggregate of
$150,000 in cash.

In December of 2003, the Company issued to five accredited
investors 2,300,000shares 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 $.35 per share, in a private placement pursuant to Rule 506 of
Regulation D of the Act generating net proceeds of $805,000, $175,000 of which
was collected in January, 2004. An advisor of the Company was issued 100,000
shares for assisting in this transaction.

In January of 2004, the Company issued to twenty-three
accredited investors 7,160,720 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 $.35 per share, in a private placement pursuant
to Rule 506 of Regulation D of the Act generating net proceeds of $2,506,250,
all of which was collected in January, 2004.

In March and April of 2004, the Company issued to six
accredited investors 1,811,429 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 $.35 per share, in a private placement pursuant
to Rule 506 of Regulation D of the Act generating net proceeds of $634,000, all
of which was collected in March and April, 2004. Two advisors of the company
were issued 128,826 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 $.35 per share for assisting in this transaction.

In June of 2004, the Company issued to three accredited
investors 3,844,000 shares of its common stock together with two warrants each
to purchase a like amount of stock at $.35 and $.50 respectively at a price of
$.25 per unit. Such warrants are exercisable for a period of 5 years and are
callable at $.10 per $100,000 of the value of the shares in which such warrants
may be converted if the common stock of the company trades for 20 consecutive
days above (i) $.50 per share in the case of the $.35 warrant and (ii) $.75 per
share in the case of the $.50 warrant.

During the year ended June 30, 2004, the Company issued
17,446,441 shares of its common stock valued at $6,419,545 and 900,000 warrants,
valued at $300,901 based upon the fair market value of the Company's common
stock on the date of the grant using the Black-Scholes option pricing model. The
Company recorded these charges, totaling $130,450 to operations for the year
ended June 30, 2004. Each transaction was pursuant to Section 4(2) of the Act.

During the fiscal year ended June 30, 2004, the Company
converted certain payables and accrued expenses with GTRC, a strategic vendor,
pursuant to Section 4(2) and to Section 3(a)(9) of the Act aggregating
approximately $1.8 million into 5 year cashless warrants to purchase an
additional 5,039,200 restricted shares of the Company's common stock valued at
$.35 per share plus a $100,000 term promissory note. The Company is in arrears
with respect to the first payment on the note and is currently renegotiating the
amount of the note and payment schedule since the note includes past and future
royalty payments with respect to the Company's patents covering its Traverser
DVDDS, some of which the Company may relinquish going forward.

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 was sold for $ 247,400, each warrant specifying the right to purchase
one additional share at $.25 and $.35, respectively. A total of 3,344,000 shares
have been reserved to provide for conversion in connection with these warrants.

During the three months ending December 31, 2004, the Company
granted 134,500 shares of its common stock to consultants for services performed
valued at $26,900. Additionally, the Company issued 2,817,954 shares of its
common stock pursuant to the exercise of previously outstanding warrants,
generating net proceeds intended to be used for general corporate purpose of
$563,590. During the quarter ended December 31 of 2004, the Company issued
equity units consisting of 10,717,500 shares of its common stock together with a
like amount of warrants, with an exercise price of $.25, in a private placement
generating net proceeds intended to be used for working capital and general
corporate purposes, of 2,116,600 of which $2,066,600 was collected through
December 31, 2004 and $50,000 was collected in January of 2005. A consultant who
assisted the Company with this transaction also received 100,000 shares of the
Company's common stock.

During January of 2005, the Company issued an additional
3,750,000 shares of equity units as part of the private placement begun in the
second quarter of fiscal year 2005, generating additional proceeds of $750,000.
Additionally, 1,000,000 shares of common stock plus a 5 year warrant for a like
amount of shares at $.25 per share were issued to Janifast Ltd. upon conversion
of $200,000 of accounts payable. In addition 424,875 shares of common stock plus
a 5 year warrant for a like amount of shares at $.25 per share were issued to
Martin Smiley, CFO and General Counsel of the Company in connection with his
conversion of a $75,000 promissory note plus accrued interest of $9,975. In
addition 65,000 shares of common stock and a 5 year warrant for a like amount of
stock at $.25 per share were issued to Mr. Durando, President and CEO of the
Company for conversion of $13,000 of accrued interest on various promissory
notes issued by the Company and also received 1,395,400 shares of common stock
of the Company in connection with the exercise of a warrant at $.01 per share
previously awarded for unpaid compensation. A reduction in principal of $13,954
of a $75,000 promissory note to Mr. Durando was made for payment of the exercise
price of $.01 per share under the warrant. Mr. Gustave T. Dotoli, Chief
Operating Officer of the Company also was issued 375,000 shares of common stock
of the Company in connection with the exercise of a portion of a warrant at $.01
per share. Payment for such exercise was made in exchange for cancellation of
$3,750 of accrued interest on a $75,000 promissory note. Finally Mr. Souzzo, a
consultant, received 100,000 shares of common stock plus a 5 year warrant for a
like amount of stock at $.25 per share in exchange for cancellation of $20,000
of accounts payable.

27

---

The December 31, 2004 an outstanding subscriptions receivable
balance of $50,000 was fully collected in January of 2005. Additionally, the
December 2004 private placement was closed out in January of 2005 with the
placement of 3,600,000 equity units at $.20 per unit consisting of one share of
common stock plus 5 year warrants for a like amount of shares with a strike
price of $.25 per share generating net proceeds of $720,000 to the Company.

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

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

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

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

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

On January 15, 2005, Martin Smiley converted a $100,000
convertible note payable by the Company in exchange for 400,000 shares of common
stock and a like number of warrants that were price at $.25 per unit. General
and Administrative non-cash expense in the amount of $131,750 was recognized in
the third quarter of fiscal year 2005 consistent with the market price of the
stock of $.31 on the date of the award.

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

In January of 2005 there were stock option awards issued to
two consultants for services performed. The company granted 250,000 options to a
consultant for professional services, these options provide for the right of
stock purchase at an exercise price of $.25; these options have a five year life
and expire in January of 2010. A second award issued a like number of options to
another service provider under similar terms, except that the options associated
with this second award offer a call feature, available to the company, for
redemption of such options at a call price of $.45 at any time during their five
year life. In aggregate, 400,000 options were issued in connection with these
awards and will result in a charge to General and Administrative non-cash
expense in the amount of $ 133,990 in the third quarter of fiscal 2005. The
valuation of this charge was made on the basis of the fair market value of the
Company's common stock on the date of grant using the Black-Scholes option
premium model assumptions of a 145% volatility or beta factor and a 2.6%
interest rate factor.

28

---

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

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

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

On January 15, 2005, the company converted a $ 100,000
convertible note payable to Martin Smiley in exchange for 400,000 shares and a
like number of warrants that were price at $.25 per unit or $100,000 in
aggregate. Also in January of 2005, Martin Smiley was awarded additional
compensation of 425,000 shares of common stock. This award will result in a
charge to General and Administrative non-cash expense in the amount of $ 131,750
in the third quarter of fiscal 2005, representing expense recognition consistent
with the market price of that stock of $.31 on the date of that award.

In late February and early March of 2005, the Company
converted approximately $173,898 in accounts payable due various vendors into
535,296 shares of common stock aggregating $183,310 in full settlement of those
obligations and pursuant to Section 3(a)(9) of the Act.

During May 2005, the Company adjusted the exercise price of
$.45 per share of an investor's 5 year warrant to purchase 714,296 shares of
common stock. The warrant was originally issued in January 2005, to $.225 in
July of 2005. In July of 2005 such investor exercised a portion of such warrant,
as adjusted, to purchase 200,000 shares of the Company's common stock generating
$45,000 of net proceeds to the Company.

During the Fiscal Year Ending June 30, 2006 the following
transactions impacted stockholders equity.

On July 20, 2005, at the Company's annual meeting of
Shareholders, the Shareholders ratified an amendment to its Certificate of
Incorporation to increase the number of authorized shares of common stock from
250,000,000 to 500,000,000 shares.

Private Placements:

During the first fiscal quarter, the Company issued 4,648,625
unregistered shares together with 5 year warrants to purchase 4,648,625 shares
at $.25 per share in a private placement pursuant to Rule 506 of Regulation D of
the Securities Act of 1933 generating $920,000 of gross proceeds. Also during
the quarter, the Company issued 9,877,000 shares of its common stock together
with 5 year warrants to purchase a like amount of shares at $.20 per share in
two private placement pursuant to Rule 506 of Regulation D of the Securities Act
of 1933 generating $2,167,400 of gross proceeds.

During the second fiscal quarter the Company issued 1,702,900
shares together with of 5 year warrants to purchase 1,702,900 shares of the
Company's common stock to accredited investors at $.20 per share in a private
placement generating pursuant to Rule 506 of Regulation D of the Securities Act
of 1933 generating $340,580 of gross proceeds Also during the quarter, the
Company issued 11,477,785 shares together with of 5 year warrants to purchase
11,477,785 shares of the Company's common stock to accredited investors at $.18
per share in a private placement pursuant to Rule 506 of Regulation D of the
Securities Act of 1933 generating $2,238,973 of gross proceeds.

During the third fiscal quarter, the Company issued
29,861,772 shares together with of 5 year warrants to purchase 29,861,772 shares
of the Company's common stock to accredited investors at $.18 per share in a
private placement generating pursuant to Rule 506 of Regulation D of the
Securities Act of 1933 generating $5,065,265 of gross proceeds.

In addition, the Company issues approximately 2,426,698
shares as finders fees as part of the private placements during the year. (See
also comments regarding 12,792,117 shares explained under Reparations below)

Warrants Exercised:

During the first fiscal quarter the Company issued 225,000
shares of common stock pursuant to the exercise of warrants issued prior to the
3 month period generating net cash proceeds of $45,000.

During the second fiscal quarter, the Company issued
1,714,286 shares of its common stock pursuant to the exercise of warrants,
generating net proceeds of $294,857.

During the third fiscal quarter, the Company issued
12,530,834 shares of its common stock pursuant to the exercise of warrants,
generating net proceeds of $2,525,867.

During the forth fiscal quarter the Company issued 1,250,000
shares of its common stock pursuant to the exercise of warrants, generating net
proceeds of $250,000 to the Company.

29

---

Options and Stock Based Compensation

At various points during the fiscal year ended June 30, 2007,
the Company issued stock options to employees and officers for the right to
purchase 23,595,000 shares. Pursuant to the adoption of FAS 123(R), the Company
recognized an expense in the amount of $3,837,423, all of which has been
included in general and administrative expense. The fair value of options
granted in 2007 were estimated as of the date of grant using the Black-Scholes
stock option pricing model, based on the following weighted average assumptions:
annual expected return of 0%, annual volatility of 108.5%, based on a risk-free
interest rate of 4.4% and expected option life of 3 years.

During the fiscal year the Company issued to key employees
and consultants common stock shares in the aggregate amount of 11,500,000 for
services rendered. The value of such shares was determined based on the fair
market value of the Company's stock on the date that such transaction was
authorized. Accordingly, the Company recorded a charge to earnings in the
aggregate amount of $2,439,000.

Debt Conversions

During the second fiscal quarter the Company converted
$369,000 and $171,000 of liabilities due to Microphase Corporation, and Janifast
Ltd into 2,050,000 shares and 950,000 shares of stock and warrants ,
respectively. In addition the Company converted $50,000 of liabilities due to a
strategic vendor into 331,864 shares of stock plus warrants of 277,778. The
value attributable to the shares was based upon the market price of the
Company's common stock on the measurement date.

Reparations

At various times during the second and third fiscal quarters,
the Company issued shares of its common stock together with a like amount of
warrants as reparation to affect revised pricing on previous private offerings.
This additional consideration was afforded to stockholders who participated in
the private placement of equity units and invested a minimum of 30% of their
original investment. Each unit consisted of one share of stock and a warrant to
purchase an equal amount of shares at $.18 per share. As additional
consideration, each investor received the amount of shares that were required to
bring the average cost of the total investment down to $.18 per share (range of
original investment $.25 - $.35). A total of 29,848,271 of such shares were
issued as reparation under such a program and the Company recorded a charge to
earnings (Other Expense) in the amount of $5,530,504. In addition, shares in the
amount of 12,792,117 were issued and charged to "Additional Paid In Capital" as
an appropriate incentive for the additional cash investment.

During the Fiscal Year Ending June 30, 2007 the following
transactions impacted stockholders equity.

Private Placements:

During the quarter ended September 30, 2006, the Company
issued 6,780,716 shares of its common stock together with 5,555,556 of 5 year
warrants to purchase one share each of the Company's common stock, with an
exercise price of $.18 per share in private placements generating net proceeds
of $1,104,000.

During the quarter ended December 31, 2006, the Company
issued 6,622,223 shares of its common stock together with 5 year warrants to
purchase 1,388,889 of the Company's common stock, with an exercise price of $.18
per share in private placements generating net proceeds of $833,866. Included in
these amounts are finders fees paid in cash and 566,667 additional shares of
common stock.

During the quarter ended March 31, 2007, the Company issued
14,973,083 shares of its common stock. Private placements generating net
proceeds of $1,777,503; included in this amount is an estimate of finder's fees
to be paid of $209,000.

During the quarter ended June 30, 2007, the Company issued
19,582,038 shares of its common stock. Private placements generating net
proceeds of $2,476,000; included in this amount is an estimate of finder's fees
to be paid of $41,000

Warrants Exercised:

During the quarter ended September 30, 2006, the Company
issued 138,889 shares of its common stock pursuant to the exercise of warrants,
generating net proceeds of $25,000 to the Company.

During the quarter ended December 31, 2006, the Company
issued 12,101,780 shares of its common stock pursuant to the exercise of
warrants, generating net proceeds of $1,669,667 to the Company. In addition, the
Company issued to certain investors new 5 year warrants to purchase 11,111,112
of the Company's common stock, with exercise prices ranging from $.15 - $.18 per
share.

During the quarter ended March 31, 2007, the Company issued
2,500,000 shares of its common stock pursuant to the exercise of warrants,
generating net proceeds of $375,000 to the Company.

30

---

Options and Stock Based Compensation

During the twelve months ended June 30, 2007, the Company
authorized the issuance of 10,455,000 in options and warrants of 2,821,113 to
employees, officers, and consultants granting the right to purchase a like
amount of common shares. Pursuant to the adoption of FAS 123(R), the Company
recognized an expense in the amount of $1,321,853, all of which has been
included in general and administrative expense. The fair value of options
granted was estimated as of the date of grant using the Black-Scholes stock
option pricing model, based on the following weighted average assumptions:
annual expected return of 0%, annual volatility of ranging between 80% -95%,
based on a risk-free interest rate of 4.8% and expected option life of 5 years.

During the twelve months ended June 30, 2007, the Board of
Directors authorized the issuance of 18,172,983 shares of common stock, with an
aggregate value of $2,668,615 as compensation to consultants and employees. The
stock value ranged in price from $.12 to $.20 per share, the fair value on the
date of the awards.

Debt Conversions

During the twelve months ended June 30, 2007, the Company
converted accounts payable of $991,709 into 6,073,728 shares of common stock.

Reparations

During the twelve month period ended June 30, 2007, the
Company became obligated to issue 22,664,580 of its common stock as reparation
to affect revised pricing on previous private placements. This additional
consideration was afforded to past investors who agreed to make an additional
cash investment as part of a new private placement. The cost of such
consideration was estimated to be the fair value of such shares at the time of
the investment of $1,874,020.

During the Fiscal Year Ending June 30, 2008 the following
transactions impacted stockholders equity

Private Placements

During the quarter ended September 30, 2007, the Company
issued 500,000 shares of its common stock in private placements generating net
proceeds of $50,000

During the quarter ended December 31, 2007, the Company
issued 850,000 shares of its common stock in private placements generating net
proceeds of $48,000

During the quarter ended June 30, 2008, the Company issued
23,250,000 shares of its common stock in private placements generating net
proceeds of $1,162,500.

Exercise of Warrants

During the quarter ended June 30, 2008, 11,111,112 warrants
to purchase common stock were exercised and additional warrants of 11,111,112
issued. Such transaction generated net proceeds of $650,000.

Other Equity Transactions

During the year months ended, June 30, 2008, the Company
issued 500,000 shares of stock, 110,000 of options and approximately 13.5
million warrants to purchase common stock valued at $346,985 to individuals and
investors. In addition, it issued approximately 5.2 million shares of common
stock valued at $230,927 to reflect re-pricing agreements, 1,109,200 shares were
issued to pay for finders fees valued at $100,000 and issued 5,250,000 shares of
common stock valued at $165,000 in connection with debt financing arrangement
(see convertible debt below) The fair value of shares issued was estimated as of
the date of grant using the Black-Scholes pricing model, based on the following
weighted average assumptions: annual expected return of 0%, annual volatility of
ranging between 70 -79 %, based on a risk-free interest rate of 2.25% and
expected option life of 5 years

Investment in Granita Media inc

An investment of $514,000 was received by Granita Media, Inc,
a subsidiary formed July 1, 2007, to operate its IPTV business. Since the
company remains the controlling shareholder in Granita Media and such results
are consolidated, this investment is included in Additional Paid In Capital.

Convertible Debt Short Term

In September, 2007, the Company received proceeds of $154,000
of convertible debt bearing interest at an annual rate of 15% and due September
1, 2008. Such debt may be converted into the Company's common shares at a price
equal to a 20% discount from the 20 day average bid and ask price. Such election
is at the option of the Company on September 1, 2008. In March 2008, $100,000 of
such debt was converted into 2,727,264 shares of common stock.

Long Term Convertible Debentures / Note Receivable / Debt
Discount

During Fiscal Year ended June 30, 2008 the Company entered
into three separate convertible debt arrangements with independent investors.
These transactions are intended to provide liquidity and capital to the Company
and are summarized below.

31

---

Arrangement #1

In December, 2007, the Company received proceeds of $500,000
under a Securities Purchase Agreement. This transaction involves three related
agreements: 1) A Securities Purchase Agreement which may under certain
circumstances permit the Company to draw up to $6,000,000 of funds; 2) A
Convertible Debenture in the amount of $1.5 million, with an interest rate of 7
1⁄4% and a maturity date of December 11, 2010 and 3) A Secured Note Receivable in
the amount of $1.0 million, with an interest rate of 8 1⁄4 % and a maturity date
of February 1, 2011 due from the same parties who are the holders of the
Convertible Debentures

Conversion of outstanding debentures into common shares is at
the option of the holder. The number of shares into which this debenture can be
converted is equal to the dollar amount of the debenture divided by the lesser
of $.35 per share or 80% of the 3 lowest Volume Weighted Average Prices during a
20 day trading period. At the time of the transaction (December 11, 2007) the
derivative value of this security was calculated to be $1,678,471. On June 30,
2008, given the decrease in the stock price, this value had decreased to
$322,636 creating a non-cash credit to earnings over the year of $1,355,835 In
addition, the transaction resulted in a note discount of $1.5 million which is
being amortized as expense over the life of the loan.

During the fourth quarter of FYE 2008, $135,000 of such debt
was converted into 2,177,723 shares of common stock and the Company received a
$50,000 payment under the provisions of the related Note Receivable.
Subsequently, through September 18, 2008, an additional $560,000 was converted
into 14,792,000 shares and the Company received additional payments of $700,000
of its Note Receivable. The Note Receivable is secured by all the assets of
Golden Gate. It should also be noted that the holder has the right to offset
unpaid principal amount against the note receivable as well as receive certain
compensatory fees in the event of a default.

Arrangement #2

In February 2008, the Company entered into a Convertible
Debenture transaction which involved the receipt of $500,000 cash, a note
payable of $550,000 and the issuance of 3,250,000 shares of stock valued at
$260,000. The relative fair value of the shares was $105,000 as of June 30,
2008. The terms of the debenture provide for a 7.5% interest rate, a due date of
February 2012 and allow similar conversion privileges equal to 75% of the
average of the three lowest prices over a 20 day period. The derivative value of
such security was estimated to be $581,428 on the date of issuance. On June 30,
2008, this value had decreased to $142,593 creating a non cash credit to
earnings of $438,835. The cost of the shares issued and related debt discount is
being amortized to expense over the life of the debenture. In the event of
default under the note payable the holder is entitled to certain compensatory
fees.

Arrangement #3

In April, 2008, the Company received proceeds of $300,000
under a Securities Purchase Agreement. This transaction involves three related
agreements: 1) A Securities Purchase Agreement which may under certain
circumstances permit the Company to draw up to $1,300,000 of funds; 2) Two
Convertible Debentures totaling $1,450,000, with a one time interest factor of
12% and a maturity date of March 25, 2011 and 3) A Secured Note Receivable in
the amount of $1.0 million, with a one time interest factor of 13.2 % and
maturity dates of March 25, 2012 due from the same parties who are the holders
of the Convertible Debentures.

Conversion of outstanding debentures into common shares is at
the option of the holder. The number of shares into which this debenture can be
converted is equal to the dollar amount of the debenture divided by 75%- 80% of
the 3 lowest Volume Weighted Average Prices during a 20 day trading period. At
the time of the transaction the derivative value of this security was calculated
to be $2,493,212. On June 30, 2008, given the decrease in the stock price, this
value had decreased to, $284,922 creating a non-cash credit to earnings over the
year of $2,208,290. In addition, the transaction resulted in a note discount
which is being amortized as expense over the life of the loan. Draws under the
Note Receivable are not anticipated until October 2008 and is collateralized by
$1 million of Blue Chip Stocks. In total 2 million shares were issued in
connection with the convertible debenture with a relative fair value of $160,000
included in debt discount.

32

---

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and notes
included in this annual report. The statement of operations data from October 2,
1996 (date of inception) to June 30, 1997 and for the year ended June 30, 1998,
and the balance sheet data as of June 30, 1997 and 1998, are derived from
financial statements that have been audited by Schuhalter, Coughlin & Suozzo,
LLC, independent auditors, and are included in this document. The statement of
operations data for the years ended June 30, 1999, 2000, and 2001 and the
balance sheet data as of June 30, 1999, 2000, and 2001 are derived from
financial statements that have been audited by Arthur Andersen LLP., independent
auditors. The statement of operations data for each year ended June 30, 2002
through June 30, 2008 and the balance sheet data as of June 30, 2002 through
June 30, 2008 are derived from financial statements that have been audited by
Rosenberg Rich Baker Berman & Company, independent auditors, and are included in
this document.

SUMMARY OPERATING DATA
Year Ended June 30, 
(in thousands except per share data)

|                   |            |             |             |             |             | Cumulative    
|------------------ | ---------- | ----------- | ----------- | ----------- | ----------- | --------------
|                   |            |             |             |             |             | from inception
|                   |            |             |             |             |             | October 2,    
|                   |            |             |             |             |             | 1996 to       
|                   | 2004       | 2005        | 2006        | 2007        | 2008        | June 30, 2008 
|Total revenues     | $4,641     | $1,711      | $975        | $154        | $113        | $22,562       
|Cost of sales      | 4,068      | 1,446       | 974         | 90          | 1           | 16,425        
|Research and       |            |             |             |             |             |               
|development        | 4,070      | 5,127       | 8,035       | 6,393       | 988         | 58,960        
|General and        |            |             |             |             |             |               
|administrative     | 4,178      | 6,580       | 11,121      | 8,684       | 4,032       | 109,472       
|Depreciation and   |            |             |             |             |             |               
|amortization       | 123        | 63          | 79          | 94          | 145         | 3,270         
|Operating loss     | (7,798)    | (11,505)    | (19,234)    | (15,107)    | (5,053)     | (165,565)     
|Other income       |            |             |             |             |             |               
|(expense), net     | 150        | 382         | (5,182)     | (1,726)     | 1,311       | (6,320)       
|Interest income    |            |             |             |             |             |               
|(expense)          | (111)      | (111)       | (35)        | (18)        | (215)       | (383)         
|Net loss           | ($7,759)   | ($11,234)   | ($24,451)   | ($16,851)   | ($3,957)    | ($172,268)    
|Basic and diluted  |            |             |             |             |             |               
|net loss per share | ($0.10)    | ($0.10)     | ($0.12)     | $0.05       | $0.01       |               
|Shares used in     |            |             |             |             |             |               
|basic and diluted  |            |             |             |             |             |               
|net loss per share | 77,677,120 | 108,657,578 | 199,610,372 | 310,395,562 | 405,032,339 |               

BALANCE SHEET DATA 
in $000's

|                              | 2004     | 2005     | 2006     | 2007     | 2008    
|----------------------------- | -------- | -------- | -------- | -------- | --------
|                              |          |          |          |          |         
|Cash and cash equivalents     | $90      | $351     | $1,360   | $23      | $16     
|Working capital (deficit)     | ($2,112) | ($1,674) | ($1,093) | ($3,088) | ($3,853)
|Total assets                  | $2,591   | $2,232   | $2,182   | $1,808   | $2,351  
|Long-term obligations, net    |          |          |          |          |         
|of current portion            | $1,038   | $315     | $0       | $0       | $1,161  
|                              |          |          |          |          |         
|Total stockholders' (deficit) | ($2,918) | ($1,618) | ($606)   | ($2,754) | ($2,805)

33

---

Selected Quarterly Financial Information

The statement of operations data as of the quarterly periods
indicated below are derived from unaudited financial statements reviewed by
Rosenberg, Rich, Baker, Berman & Company, and include all adjustments
(consisting of normal recurring items) that management considers necessary for a
fair presentation of the financial statements.

|FISCAL 2008 QUARTERLY                                                | Three Months
    Ended                  
|-------------------------------------------------------------------- | ----------------------------------------
|STATEMENT OF OPERATIONS DATA:                                        | September 30,                           
|                                                                     |                                         
|                                                                     | (in thousands,
    except share amounts)
|Total revenues                                                       | $35                                     
|Costs and Expenses:                                                  |                                         
|Cost of sales                                                        | 0                                       
|Research and development                                             | 560                                     
|General and administrative                                           | 1,497                                   
|Depreciation and amortization                                        | 34                                      
|Operating loss                                                       | (2056)                                  
|Interest expense, Net                                                | (12)                                    
|Other Income (expense)                                               | (718)                                   
|Net Loss                                                             | ($2,786)                                
|Basic and diluted net (loss) gain per share                          | ($0.01)                                 
|Shares used in basic and diluted net loss per
    share              | 389,791,154                             
|Includes certain reclassification from
    previous reported amounts |                                         



|FISCAL 2007 QUARTERLY                               | Three months
    ended                  
|--------------------------------------------------- | ----------------------------------------
|STATEMENT OF OPERATIONS DATA:                       | September 30                            
|                                                    |                                         
|                                                    | (in thousands,
    except share amounts)
|Total revenues                                      | $106                                    
|Costs and Expenses:                                 |                                         
|Cost of sales                                       | 85                                      
|Research and development                            | 1,990                                   
|General and administrative                          | 1,962                                   
|Depreciation and amortization                       | 22                                      
|Operating loss                                      | (3,954)                                 
|Interest expense, Net                               | (4)                                     
|Other Income (expense)                              |                                         
|Net Loss                                            | ($3,958)                                
|Basic and diluted net loss per share                | ($0.01)                                 
|Shares used in basic and diluted net loss per share | 282,306,237                             

34

---



|FISCAL 2006 QUARTERLY                                  | Three months
    ended                  
|------------------------------------------------------ | ----------------------------------------
|STATEMENT OF OPERATIONS DATA:                          | September 30                            
|                                                       |                                         
|                                                       | (in thousands,
    except share amounts)
|Total revenues                                         | $381                                    
|Cost of Sales                                          | 337                                     
|Research and development                               | 1,861                                   
|General and administrative                             | 1,092                                   
|Depreciation and amortization                          | 20                                      
|Operating loss                                         | (2,929)                                 
|Interest expense, Net                                  | (14)                                    
|OTHER income (EXPENSE) NET                             | (12)                                    
|Net loss                                               | ($2,955)                                
|Basic and diluted net loss per share                   | ($.02)                                  
|Shares used in basic and diluted net loss per share(1) | 152,291,645                             



|FISCAL 2005 QUARTERLY                                  | Three months
    ended                  
|------------------------------------------------------ | ----------------------------------------
|STATEMENT OF OPERATIONS DATA:                          | September 30                            
|                                                       |                                         
|                                                       | (in thousands,
    except share amounts)
|Total revenues                                         | $179                                    
|Costs and Expenses:                                    |                                         
|Cost of Sales                                          | 130                                     
|Research and development                               | 1,101                                   
|General and administrative                             | 709                                     
|Depreciation and amortization                          | 1                                       
|Operating loss                                         | (1,762)                                 
|Interest expense, Net                                  | (29)                                    
|Other Income (Expense) Net                             | (41)                                    
|Net loss                                               | ($1,832)                                
|Basic and diluted net loss per share                   | ($.02)                                  
|Shares used in basic and diluted net loss per share(1) | 89,719,962                              



|FISCAL 2004 QUARTERLY                                  | Three months
    ended                  
|------------------------------------------------------ | ----------------------------------------
|STATEMENT OF OPERATIONS DATA:                          | September 30                            
|                                                       |                                         
|                                                       | (in thousands,
    except share amounts)
|Total revenues                                         | $2,489                                  
|Costs and Expenses:                                    |                                         
|Cost of sales                                          | 2,099                                   
|Research and development                               | 611                                     
|General and administrative                             | 605                                     
|Depreciation and amortization                          | 46                                      
|Operating loss                                         | (872)                                   
|Interest expense, Net                                  | (16)                                    
|Other Income (Expense) Net                             | 23                                      
|Net Loss                                               | ($865)                                  
|Basic and diluted net loss per share                   | ($.01)                                  
|Shares used in basic and diluted net loss per share(1) | 71,725,318                              

35

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS AND PLAN 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.

RESULTS OF OPERATIONS

OVERVIEW

mPhase Technologies, Inc. (OTC BB: XDSL.OB) is a development
company specializing in microfluidics, microelectromechanical systems (MEMS)
and nano- technology. Through its wholly owned subsidiary AlwaysReady, Inc.,
mPhase is focused on commercializing its first nanotechnology-enabled product
for military and commercial applications - The Smart NanoBattery providing Power
On CommandTM. Our new well-patented battery technology, based on the phenomenon
of electrowetting, offers a unique way to store energy and manage power that
will revolutionize the battery industry. Features of the Smart NanoBattery
include: potentially infinite shelf life, environmentally friendly design, fast
ramp to power, programmable control, and direct integration with microelectronic
devices.

The platform technology behind the Smart NanoBattery is a
porous nanostructured material used to repel and precisely control the flow of
liquids. The material has a Smart Surface that can potentially be designed for
self- cleaning applications, water purification/desalination, liquid
filtration/separation, and drug delivery. mPhase has been awarded a Phase II
Small Business Technology Transfer Program (STTR) grant, part of the Small
Business Innovation Research (SBIR) program, from the U.S. Army for continued
development of a reserve Smart Nano- Battery for a critical computer memory
application. mPhase Technologies, Inc. was founded in 1996 and is headquartered
in Little Falls, New Jersey, with additional offices in Norwalk, Connecticut,
and New York City.

36

---

mPhase Technologies, Inc., is an inventive and innovative
development company specializing in microfluidics, micro- electromechanical
systems (MEMS) and nanotechnology.A public company trading under the stock
symbol OTC BB: XDSL, mPhase was founded in 1996 and is headquartered in Little
Falls, New Jersey, with additional offices in Norwalk, Connecticut, and New York
City.In 2004, mPhase Technologies collaborated with the renowned Bell
Laboratories to develop a new technology called the Smart NanoBattery that has
the potential to revolutionize the battery industry. This well-patented
technology is based on a phenomenon known as electrowetting that provides a
unique way to activate the battery to gain access to energy stored and manage
power. The platform technology behind the Smart NanoBattery is a porous
nanostructured component that repels and precisely controls the flow of certain
liquid.

mPhase's Smart NanoBattery technology has been incorporated
in leading-edge research and development projects supported by various groups
within the U.S. Army for mission critical static random access memory (SRAM)
backup and guided munitions applications. mPhase also sees opportunities beyond
batteries given the versatility of its enabling platform technology.

m Phase received a Small Business Technology Transfer (STTR)
Program Phase I grant last year for $100,000 from the U.S. Army and in September
2008 was awarded a prestigious $750,000 (net $500,000) Phase II STTR grant to continue battery
development work for the SRAM project. The company has also been working with
the U.S. Army as part of a Cooperative Research and Development Agreement (CRADA).

Recently, through its wholly-owned subsidiary, mPhase has
focused on development of a lithium Smart NanoBattery. Working closely with
Rutgers University, mPhase introduced the first version of the lithium Smart
NanoBattery designed for portable electronics and microelectronic applications.

One version of the lithium battery based on a breakable
separator is being developed for an emergency flashlight application. mPhase
collaborates with other companies and organizations and is actively seeking
partners interested in using the Smart NanoBattery or its platform technology
for power systems and other applications.

Controlling Surface Properties

The surface is an important part of virtually every physical
object and often plays an overriding role in many processes, beyond just
connectivity and structural support, but more deeply into areas involving
chemical and biological interactions. In some instances, the surface provides an
easy entry into the chemical or biological systems, in others it protects the
internal elements of the object, surrounded by the surfaces.

37

---

Microscopic Changes, World-Changing Innovation
mPhase's platform technology is the Smart Surface. By being able to
control the surface properties of materials down to the nanometer scale, new and
improved devices can be designed and built that may lead to compelling business
opportunities. One type of smart surface of particular interest allows the
properties to be changed in response to an external stimulus.

Initially, mPhase's development focused on MEMS devices by
manipulating the surface of silicon materials  the same material used to make
microelectronic materials and devices. Using physical and chemical processes,
the surface of the silicon is modified to make solid porous structures known as
membranes. This is where microfluidics comes into play. These membranes can be
used to selectively control the flow of liquids through the pores or openings at
the micrometer length scale.

Surfaces may be characterized as hydrophilic or hydrophobic depending on whether or not they attract or repel water (or
other liquids). A hydrophilic surface can be wet and adsorbs water. A
hydrophobic surface, on the other hand, cannot be wet. Hydrophilic and
hydrophobic surfaces are abundant in nature and in synthetic materials, both
organic and inorganic in chemical composition.

Platform Technology

A familiar example of a hydrophilic surface is a sponge that
readily soaks up water. By contrast, many plant leaves and flower petals are
hydrophobic, as are insect parts and bird feathers. Synthetic hydrophobic
surfaces include ScotchgardTM treated fabric, Teflon® coated metal, or Rain-X®
coated glass. On a hydrophobic surface, water beads up and can move around
without being absorbed by the solid material that it is resting on.

Engineering Inspired by Nature

But there is more. So-called superhydrophobic surfaces
are also found in nature and can now be replicated in the lab. The lotus leaf
and rose petal, for example, exhibit superhydrophobicity. Here water droplets
form almost perfect spheres with hardly any contact with the underlying solid
surface. This makes the liquid even easier to move and manipulate.

The synthesis of superhydrophobic surfaces has recently been
made possible by advances in nanotechnology and mPhase is leading the way to
better understand and create materials and devices incorporating these unique
surface properties.

38

---

Enormous Application Possibilities

As mPhase's research and development efforts evolve, in
addition to silicon materials, the ability to control the surface properties of
materials can be extended to other substances such as polymers, ceramics, metals
and fibers as examples, providing opportunities for our platform technology to
be used in a range of potential applications such as energy storage and power
management for portable electronics and microelectronics, self-cleaning
surfaces, filters for water purification or desalination systems, materials for
environmental remediation that separate liquids or solvents, and other
situations where the control of the interaction of a solid surface exposed to a
liquid is vitally important.

Building a Better Battery

Battery technology has changed little in its fundamentals
over the past 150 years. As a result, ordinary batteries begin dissipating
energy as soon as they are assembled and therefore have limited shelf life.
Chemistries are fixed inside the package so the user cannot interact with the
contents to program functionality. The size and form of batteries have not kept
pace with the miniaturization of electrical components, microprocessors and
integrated circuits. As a result, the optimal implementation of an electronic
device is not always achieved. Some batteries contain chemicals that are not
considered safe or environmentally friendly ("green"). This makes disposal a
potential issue.

mPhase is challenging this convention by using their
proprietary superhydrophobic porous silicon membrane technology as the basis to
build the Smart NanoBattery providing Power On CommandTM.

Infinite Shelf Life & Improved Power Management

Superhydrophobicity initially keeps the liquid
electrolyte physically separated from the solid electrodes of the battery, thus
preventing the chemical reactions from occurring that cause the battery to
provide power. This gives the Smart NanoBattery the benefit of potentially
infinite shelf life.

A conventional battery loses some capacity while sitting on
the shelf in its package or stored in an electronic or electrical device, even
before being used for the first time. On the other hand, the Smart NanoBattery
is built so that it is inactive and remains that way indefinitely until it is
turned on. No power is lost to self-discharge or leakage current prior to
activation. When needed, the Smart NanoBattery can be activated on command via
the phenomenon of electrowetting. The surface properties of the porous silicon
membrane are selectively controlled to shift instantly from a superhydrophobic
to hydrophilic state. In other words, electrowetting acts as the triggering
mechanism.

Smart Nanobattery

mPhase has successfully fabricated and demonstrated its first
3-volt lithium-based Smart NanoBattery, based on a design allowing either manual
or remote activation by the user, a feature known as Power on CommandTM. By
incorporating the phenomenon of electrowetting on nanostructured surfaces into a
revolutionary way of storing energy, the Smart NanoBattery provides power to
portable electronic and microelectronic devices exactly when and where it is
needed. It is an alternative and an augmentation to conventional batteries,
still converting stored chemical energy into usable electrical energy, but in a
way that is potentially more reliable, more versatile, more environmentally
friendly, and less expensive than the industry norm.

39

---

Delivering Guaranteed Power on Command

mPhase is exploring military and commercial applications of
smart surfaces in which the properties can be accurately and precisely
controlled down to the nanometer scale. Electrowetting allows the switching from
a hydrophobic to hydrophilic state as a result of an electronic stimulus.

The Smart NanoBattery, mPhase's first smart surface product,
has a unique architecture that enables a shelf life of decades, remote
activation, programmable control, scalable manufacturing, and adaptability to
multiple configurations. The value proposition to the end user is to have a
source of energy or power that is literally always ready - reliable, convenient,
low cost - a battery guaranteed to work at full capacity when and where needed

The Smart NanoBattery can conceivably supply power "on
command"to a wide variety of portable electronic and microelectronic
devices used in military, medical, industrial, and consumer applications.

mPhase has already proven that the battery works in lab tests
as well as in a significant field test conducted for the U.S. Army as part of a
guided munitions project. The relationship with the Army also includes a
$850,000 funded project to develop a battery for a mission critical computer
memory backup application. The target is a small footprint, 3-volt lithium
battery with a minimum shelf life of 20 years and uninterruptible power output
during this time period. No other battery technology available today can deliver
the long-term performance requirements specified by the U.S. Army for this
application.

The Smart NanoBattery can potentially be designed to
accommodate a variety of sophisticated portable electronic and microelectronic
devices including next- generation cell phones and PDAs, handheld gaming
devices, wireless sensor systems, RFID tags, high-tech flashlights and beacons,
health alert alarms, and non- implantable and implantable medical devices such
as pacemakers.

Initial applications will address the need to supply emergency and backup
power to a range of products for defense and security, with future applications
in the commercial and consumer arenas.

As its first commercial product, mPhase is developing an emergency flashlight
using a simplified version of the Smart NanoBattery with a patent-pending
breakable separator in place of the electrowettable membrane. The emergency
flashlight is envisioned as a compact device that would be activated with a
simple push-button switch to provide Power On CommandTM in the event of an
emergency. The device would be ideal for storing in the glove compartment of a
car, on boats, trains or planes, coupled with fire extinguishers, or packed with
safety, first aid and survival kits.

Electrowetting is the physical phenomenon by which a voltage is used to
change the wetting properties of a liquid/solid interface. An example of this is
a water droplet on a hydrophobic (water repelling) surface. A water droplet will
minimize its contact with such a surface. In its battery application, mPhase
uses electrowetting as a new technique to activate a battery once it is ready
for first time use.

40

---

TWELVE MONTHS ENDED JUNE 30, 2008 VS. JUNE 30, 2007

Revenues. Total revenues for the year ended June 30,
2008 decreased from $153,504 to $112,928. The decrease was primarily
attributable the phasing out of Company's IPTV products. Revenue for the FYE was
derived from the testing the Company's nanotechnology battery

Cost of sales. Cost of sales was declined by
approximately $89,000 for the year ended June 30, 2008. The decrease results
from the shift in strategy related to the IPTV segment and the sale of component
parts (POTS Splitters etc) to an IPTV solution system based product such as (Comstar/Odessa).
In addition, advisory fees received in connection with our Nanotechnology power
cell have no associated cost of sale.

Research and Development. Research and development
expenses were $988,091 for the year ended June 30, 2008 as compared to
$6,393,215 in the year ended June 30, 2007, a decrease of $5,405,124. During the
year, as a result of the refocus of efforts exclusively into the nanotechnology
battery research cost dropped significantly. The phasing out of research efforts
relative to IPTV and the magnetometer reduced cost by approximately $3.1 million
and $1.2 million, respectively. In addition, included in 2008 results, is the
reversal of a $400,000 accrual recorded in June of 2007, after a reassessment of
our strategy related to the Magnetometer and the lack of a contractual
obligation.

General and Administrative Expenses. Selling, general
and administrative expenses were $4,031,618 for the year ended June 30, 2008
down from $8,684,053 for the comparable period in 2007, a decrease of
$4,652,435. During fiscal year ended June 30, 2008, the company incurred
non-cash charges amounting to $185,874 for stock based compensation awarded to
officers, employees and consultants. During fiscal year ended June 30, 2007,
such charges amounted to $3,363,218 a decrease of $3,016,233. In addition, the
number of employees decreased by 15 resulting in lower payroll of approximately
$600,000 and reduced level of expenses across the board including: legal
$400,000, marketing related $250,000 and travel $320,000.

Other Income and Expense. The current FYE 2008
reflects non cash charges of $392,038 for reparations, $505,910 charges related
to the impairment of Granita Inventory and net settlement income of $200,890
During the prior FYE 2007, reparation expense amounted to $1,874,020 and
settlement income was $336,009.In addition, during FYE 2008, the Company
realized a non-cash net gains of approximately $1,838,748 resulting from the
issuance and the changes in value relative to convertible debt. Included is a
gain resulting from the change in derivative value of $3,837,960 offset in part
by amortization of debt discount, stock issuance cost and other charges
amounting to $1,899,212 as well as a non cash interest charge of $100,000

Net loss. mPhase recorded a net loss of $3.956,721
million for the year ended June 30, 2008 as compared to a loss of $16.9 million
for the same period ended June 30, 2007. This represents a loss per common share
of ($.01) in 2008 as compared to $(.05) in 2007, based upon weighted average
common shares outstanding of 405,032,339 and 310,395,562 during the periods
ending June 30, 2008 and June 30, 2007 respectively.

TWELVE MONTHS ENDED JUNE 30, 2007 VS. JUNE 30, 2006

Revenues. Total revenues for the year ended June 30,
2007 decreased to $153,504 from $975,482 for the year ended June 30, 2006. The
decrease was primarily attributable to decreased sales of the Company's ADSL
POTS Splitter product line caused by a downturn of orders and the move of
telecommunications service providers from ADSL to VDSL technology for deployment
of IPTV. The Company also recognized $43,192 of revenue in connection with its
nanotechnology battery product mostly in the form of advisory revenues to a
major credit card provider seeking to develop a "smart" credit card. The Company
did not receive any additional revenues in fiscal year 2007 from its new IPTV
solutions. The Company spent considerable efforts during fiscal year 2007
continuing product development of its IPTV solution and we do expect certain
added revenue in fiscal year 2008 from deployments of our TV+ solution.

41

---

Cost of sales. Cost of sales was $89,802 for the year
ended June 30, 2007 as compared to $974,583 in the year ended June 30, 2006.
This decrease of $884,781 reflects the decline in sales resulting from the shift
in strategy in the IPTV segment from the sale of component parts (POTS Splitters
etc) to an IPTV solution system based product such as (Comstar/Odyessa). In
addition, advisory fees received in connection with our Nanotechnology power
cell have no associated cost of sale.

Research and Development. Research and development
expenses were $6,393,215 for the year ended June 30, 2007 as compared to
$8,034,964 in the year ended June 30, 2006, a decrease of $1,641,749.
Expenditures to strategic vendors related to the IPTV business amounted to $3.1
for FYE 2007 as compared to $4.0 million for FYE 2006. Expenditures related to
Nanotechnology amounted to $2.3 million compared to $2.5 for FYE 2006.

General and Administrative Expenses. Selling, general
and administrative expenses were $8,684,053 for the year ended June 30, 2007
down from $11,121,235 for the comparable period in 2006, a decrease of
$2,437,182. During fiscal year ended June 30, 2006, the company incurred
non-cash charges amounting to $6,276,423 for stock based compensation (including
options) awarded to officers, employees and consultants. During fiscal year
ended June 30, 2007, such charges amounted to $3,363,218 a decrease of
$2,913,205. Other significant components were an increase in payroll of $474,130
to $1,987,119 and an increase in legal expense of $449,545 to $726,122. These
increases were partially offset by a decrease in officer compensation fees of
$325,000.

Other Income and Expense reflects non cash charges of
$1,874,020 for FYE 2007 versus $5,530,504 in FYE 2006 for the value of shares
issued to investors to reflect market changes in the common stock (reparation
expense).

Net loss. mPhase recorded a net loss of $16.8 million
for the year ended June 30, 2007 as compared to a loss of $24.5 million for the
same period ended June 30, 2006. This represents a loss per common share of
($.05) in 2007 as compared to $(.12) in 2006, based upon weighted average common
shares outstanding of 310,395,562 and 199,610,372 during the periods ending June
30, 2008 and June 30, 2007 respectively.

42

---

CURRENT PLAN OF OPERATIONS

Expanded Market Potential for Proprietary Membrane Technology
-

The core membrane technology used to enable the Smart
NanoBattery's propriety membrane design can potentially be used to develop other
non-power source applications and products. The Company's market potential for
using the membrane design of this patent pending core technology broadens the
application areas outside the portable power energy field.

The Company's permeable membrane design consisting of both
micro and nano scale silicon features, that are coated with a monolayer
chemistry used to repel liquids. The membrane works using microfluidics
principle that permits the dynamic control of surfaces when interacting with
liquids, and as a result, the membrane can be tuned to filter out certain types
of materials. In the reserve battery application, the properties of the membrane
are used to create a super hydrophobic that prevents the batteries electrolyte
from coming into contact with the dry electrodes of the battery until
activation. In a similar way, the membrane can be designed so that it can
control the passing of liquids through the pores of the membrane, acting as a
filter, allowing and restricting materials to pass through the membrane. This
ability opens up the potential to use the membrane's design in new
configurations for applications that require controlled filtering of materials
used in the health, environmental, food services as well as other industries.

RESEARCH AND DEVELOPMENT

mPhase throughout its history has outsourced its research and
development activity with respect to all of its product lines. The Company
engaged the Bell Labs division of Lucent Technologies in February of 2004 to
development a power cell using the science of nanotechnology. The Company
terminated its development efforts with Lucent Bell Labs in fiscal years 2008
with respect to micro power cell products using the science of nanotechnology
since the facilities at Bell Labs were only able to provide development of zinc
based batteries. The Company has determined that in order to develop a
commercially viable product that higher energy lithium based batteries are
required and has established a research relationship with Rutgers University
that has facilities capable of handling development of lithium batteries.

From March of 2005 through March of 2007, the Company
pursuant to the terms of a Project Development Agreement engaged Bell Labs to
development a magnetometer or electronic sensor products using the science of
nanotechnology. Such Project Development Agreement was not renewed by the
Company in order to conserve financial resources. No further development has
occurred on the magnetometer, however, the Company, believes that the
intellectual property created may have significant value in the future depending
upon further scientific progress in the field and market developments.

Since inception, but prior to the end fiscal year 2006, the
Company incurred $13.5 million for research and development conducted by Georgia
Tech Research Corporation in connection with its legacy Traverser DVDDS
technology that was a proprietary end to end solution of hardware and software
enabling telecommunications service providers to delivery broadcast television,
high-speed internet and voice over copper telephone lines In fiscal year 2003
the Company began the transition of its product to development of a carriers
standard open platform using middleware platform and transferred its research
and development from Georgia Tech Research Corporation to the Bell Labs division
of Lucent Technologies Inc. In May of 2007, the Company decided not to renew its
Project Development Agreement for its TV+ solution with Bell Labs and chose a
number of new software vendors to finalize its IPTV solution. The Company
incurred research and development expenses with Lucent for fiscal years ended
June 30, 2007 and 2006 of $2.3 million and $4.4 million. It should be noted that
all expenditures during FYE 2007 have been in connection with Nanotechnology.

The amount of research and development costs the Company has
expended from its inception through June 30, 2008 is $59.0 million. During the
year ended June 30, 2008, the Company incurred research and development expenses
of $188,000 related to the development IPTV solutions compared to $4.1 million
for the same period ended June 30, 2007. In addition the Company incurred
research and development expenses for the fiscal year June 30, 2008 of $800,000
for its nanotechnology products as compared to $2.3 million for fiscal year
ended June 30, 2007.

STRATEGIC ALLIANCES IMPLEMENTED

The Company and Lucent share jointly in certain intellectual
property developed with respect to nanotechnology products. The Company has
established a working relationship with Rutgers University for development and
testing of Lithium based batteries.

43

---

CRITICAL ACCOUNTING POLICIES

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."

STOCK-BASED COMPENSATION

On July 1, 2005, the Company adopted the provisions of
Financial Accounting Standards Board Statement No. 123R,"Share-Based
Payment" (SFAS 123R). SFAS 123R revised SFAS 123, "Accounting for Stock
Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees." SFAS 123R requires companies to measure and recognize
compensation expense for all employee stock-based payments at fair value over
the service period underlying the arrangement. Therefore, the Company is now
required to record the grant-date fair value of its stock-based payments (i.e.,
stock options and other equity-based compensation) in the statement of
operations. Effective, July 1,2005, the Company adopted FAS 123R using the
"modified prospective" method, and has recorded as an expense the fair value of
all stock based grants to employees after such date The Company has not restated
its operating results for any prior fiscal year end or quarter.

REPARATION EXPENSE

As an incentive for additional equity contributions, the
Company will from time to time, adjust the cost of past private purchases of
common stock through the issuance of additional shares in such magnitude as to
reduce an investor's cost to an average price that more closely approximates
current market value. The market value of additional shares issued without cash
investment is charged to Reparation Expense, which is included in Other
Expenses.

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 within its incorporated joint venture mPhase
Television.Net, in which the Company owns a 56.5% interest.

Directors that are significant shareholders of Janifast
Limited include Messrs Ronald A. Durando, Gustave T. Dotoli, Martin Smiley and
Necdet F. Ergul.

Mr. Abraham Biderman is a Managing Director of Eagle
Advisers, Inc., a firm that performs investment banking services for the Company
and was employed until September 30, 2003 by our former investment banking firm
Lipper & Company.

Mr. Durando, the President and CEO of mPhase, owns a
controlling interest and is a director of Janifast Limited. Mr. Durando is Chief
Operating Officer and Mr. Dotoli is an officer of Microphase Corporation. Mr.
Ergul, who was the chairman of the board of mPhase until November 2007, owns a
controlling interest and is a director of Microphase Corporation and Janifast
Ltd. Microphase, Janifast and Hart Telephone have converted significant
liabilities to equity in fiscal years June 30, 2001, 2002 and in the current
fiscal year.

The following summarizes compensation to related parties for
the fiscal year ended June 30, 2006:

|                                  |            |            |          |          |          |         |            |            | TOTAL     
|--------------------------------- | ---------- | ---------- | -------- | -------- | -------- | ------- | ---------- | ---------- | ----------
|                                  | Durando    | Dotoli     | Ergul    | Biderman | Smiley   | Guerino | Janifast   | Microphase | RELATED   
|                                  |            |            |          |          |          |         |            |            |           
|Consulting/Salary                 | $643,600   | $357,000   |          | $39,000  | $175,000 |         |            |            | $1,214,600
|Directors Stipend                 | $7,500     | $7,500     |          |          |          | $7,500  |            |            | $22,500   
|Rent                              |            |            |          | $36,000  |          |         |            | $204,444   | $240,444  
|Cost of Sales/Royalty             |            |            |          |          |          |         | $770,441   | $32,014    | $802,455  
|Loan Interest                     |            |            |          |          |          |         |            | $10,800    | $10,800   
|R&D                               |            |            |          |          |          |         |            | $197,639   | $197,639  
|SG&A                              |            |            |          |          |          |         |            | $86,923    | $86,923   
|Estimated Value of Stock Issued   | $1,260,000 | $525,000   | $210,000 | $105,000 | $331,213 |         |            |            | $2,431,213
|Estimated Value of Options Issued | $1,596,200 | $836,400   | $273,740 | $85,890  | $213,850 | $56,990 |            |            | $3,063,070
|Reparations Shares                |            |            |          |          |          |         | $834,633   | $728,434   | $1,563,067
|Totals                            | $3,507,300 | $1,725,900 | $483,740 | $265,890 | $720,063 | $64,490 | $1,605,074 | $1,260,254 | $9,632,711

44

---

The Following Summaries Compensation to Related Parties for the Fiscal Year
Ended June 30, 2007

|                                         |            |          |          |          |          |         |          |          |            | TOTAL     
|---------------------------------------- | ---------- | -------- | -------- | -------- | -------- | ------- | -------- | -------- | ---------- | ----------
|                                         | Durando    | Dotoli   | Ergul    | Biderman | Smiley   | Guerino | Lawrence | Janifast | Microphase | RELATED   
|                                         |            |          |          |          |          |         |          |          |            |           
|Consulting / Salary                      | $393,600   | $282,000 |          |          | $200,000 |         |          |          |            | $875,600  
|Directors Stipend and Interest           | $7,500     | $7,538   | $3,750   | $3,750   | $8,550   | $3,750  | $3,750   |          |            | $38,588   
|Rent                                     |            |          |          |          |          |         |          |          | $60,000    | $60,000   
|R&D                                      |            |          |          |          |          |         |          |          | $236,492   | $236,492  
|Finders Fees (including common shares)   |            |          |          | $520,000 |          |         |          |          |            | $520,000  
|Cost of Sales and SG&A                   |            |          |          |          |          |         |          | $110,912 | $36,342    | $147,254  
|Reparations and Stock Based Compensation | $1,044,000 | $555,000 | $201,000 | $16,800  | $306,250 | $14,700 |          | $138,462 |            | $2,276,212
|Totals                                   | $1,445,100 | $844,538 | $204,750 | $540,550 | $514,800 | $18,450 | $3,750   | $249,374 | $332,834   | $4,154,146
|PacketPort.com legal expense             |            |          |          |          |          |         |          |          |            | $611,807  
|Total expense to related parties         |            |          |          |          |          |         |          |          |            | $4,765,953

The Following Summaries Compensation to Related Parties for the Fiscal Year
Ended June 30, 2008

|                       |          |          |          |          |            | TOTAL     
|---------------------- | -------- | -------- | -------- | -------- | ---------- | ----------
|                       | Durando  | Dotoli   | Biderman | Smiley   | Microphase | RELATED   
|                       |          |          |          |          |            |           
|Consulting / Salary    | $393,600 | $282,000 |          | $200,000 |            | $875,600  
|Interest               | $19,490  | $4,156   |          | $18,752  |            | $42,398   
|Rent                   |          |          |          |          | $60,000    | $60,000   
|R&D                    |          |          |          |          | $28,151    | $28,151   
|Finders Fees           |          |          | $188,472 |          |            | $188,472  
|Cost of Sales and SG&A |          |          |          |          | $30,089    | $30,089   
|                       |          |          |          |          |            |           
|Totals                 | $413,090 | $286,156 | $188,472 | $218,752 | $118,240   | $1,224,710

45

---

Summary of amounts due to Officers 
For the year ended June 30, 2008

|                                      | RON        | GUS        | MARTIN    |           
|------------------------------------- | ---------- | ---------- | --------- | ----------
|                                      | DURANDO    | DOTOLI     | SMILEY    | TOTAL     
|NOTES PAYABLE OFFICERS                |            |            |           |           
|BALANCE 6/30/07                       | $85,000    | $75,000    | $161,000  | $321,000  
|July 2007 Advances (Payments)         | ($30,000)  | ($75,000)  |           | ($105,000)
|August 2007 Advances (Payments)       | $35,000    | $75,100    | $35,000   | $145,100  
|Sept 2007 Advances (Payments)         | $110,000   |            |           | $110,000  
|Assumption of Note Payable- Sovereign | $110,000   |            |           | $110,000  
|Oct 2007 Advances (Payments)          | $25,000    | $25,000    | $25,000   | $75,000   
|Nov 2007 Advances (Payments)          | $76,000    | $36,000    | $11,000   | $123,000  
|Dec 2007 Advances (Payments)          | $25,000    | $0         | $0        | $25,000   
|Transferred to Deferred Comp          | ($148,000) | ($123,500) |           | ($271,500)
|Jan 2008 Advances (Payments)          | $2,000     | $32,000    |           | $34,000   
|Feb 2008 Advances (Payments)          | $0         | $55,000    | $72,038   | $127,038  
|Mar 2008 Advances (Payments)          | ($180,000) | ($47,500)  | ($40,000) | ($267,500)
|April 2008 Advances (Payments)        | ($110,000) | ($52,100)  | ($45,000) | ($207,100)
|May 2008 Advances (Payments)          |            |            | ($15,000) | ($15,000) 
|June 2008 Advances (Payments)         |            |            |           |           
|BALANCE Notes Payable Officers        | $0         | $0         | $204,038  | $204,038  
|                                      |            |            |           |           
|Deferred Compensation                 | $278,000   | $323,500   |           | $601,500  
|                                      |            |            |           |           
|Due To Officers                       |            |            |           |           
|BALANCE 6/30/07                       | $188,400   | $75,500    |           | $263,900  
|Consulting Fee Earned -1st Qtr        | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 1st Qtr        | ($39,500)  | ($32,500)  |           | ($72,000) 
|Consulting Fee Earned - 2nd Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 2nd Qtr        | ($10,000)  | ($10,000)  |           | ($20,000) 
|Consulting Fee Earned - 3rd Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 3rd Qtr        | ($12,000)  | ($8,500)   |           | ($20,500) 
|Consulting Fee Earned - 4th Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 4th Qtr        | ($221,510) | ($204,244) |           | ($425,754)
|Balance Due to Officers               | $298,990   | $102,256   |           | $401,246  
|                                      |            |            |           |           
|Interest Payable                      | $0         | $0         | $18,751   | $18,751   
|Totals Payable to Officers            | $576,990   | $425,756   | $222,789  | $1,225,535

LIQUIDITY AND CAPITAL RESOURCES

Through June 30, 2008, the Company has incurred development
stage losses totaling approximately $172 million and had cash and cash
equivalents of $15,533. At June 30, 2008, mPhase had a working capital deficit
of $3,853,019 as compared to a working capital deficit of $3,088,439 as of June
30, 2007. The Company has a Convertible Debenture equity line of credit with
Golden Gate Investors (total line of $6 million) that should enable the Company
to raise $250,000 per month for the next fiscal year. Draws under this facility
commenced July 2008. In addition, the Company has a similar $1.0 million
facility with JMJ Financial with draws anticipated to be available in October
2008 The Company believes this will be sufficient for its short-term liquidity.
In the longer term, we estimate that the Company will need to raise
approximately $1-$1.5 million of additional capital above the funds anticipated
from the monthly conversion by Golden Gate Investors and JMJ, to meet longer
term liquidity needs through June 30, 2009. Such monies would be necessary
primarily to fund future expenditures for commercialization of its SmartBattery
products. Finally, depending upon sales and margins in fiscal year 2009,
additional capital may be required to fund a portion of any growth necessary in
operations.

Cash used in operating activities was $3.7 million during the
twelve months ending June 30, 2008. During such period, the cash used by
operating activities consists principally of the net loss ($3.9 million) less
non cash changes related to convertible debt issued and associated changes in
derivative value ($1.2 million) and the reduction of accounts payable
($995,000). These amounts are offset in part by non-cash charges related to
issuance of common stock and options for services, the impairment of Granita
inventory and reparation cost of $185,874, $505,910 and $392,038 respectively.

During the twelve-month period ended June 30, 2008, the
Company raised capital through private placements with accredited investors,
whereby the Company issued 24.6 million shares of the Company's common stock,
generating net proceeds to the Company of $1,144,000 and generated $650,000 of
funds through the conversion of 11,111,113 warrants into shares of the Company's
common stock.

46

---

During the twelve-month period ended June 30, 2007, the
Company raised capital through private placements with accredited investors,
whereby the Company issued 47,958,060 shares of the Company's common stock,
generating net proceeds to the Company of $6.2 million and generated $2.1
million of funds through the conversion of 14,740,669 warrants into shares of
the Company's common stock.

As a result, conversion of debt with related parties and strategic vendors
during the periods enumerated is as follows:

Equity Conversions of Debt and Other Financial Instruments with Related
Parties

|Janifast:                       | 2006      | 2007       | 2008
|------------------------------- | --------- | ---------- | ----
|Number of shares                | 950,000   | 830,769    |     
|Number of warrants              | 950,000   | 0          |     
|Amount converted to equity      | $171,000  | $108,000   |     
|Microphase Corporation:         |           |            |     
|Number of shares                | 2,050,000 | 0          |     
|Number of warrants              | 2,050,000 | 0          |     
|Amount converted to equity      | $369,000  | $0         |     
|Strategic Vendor Conversions:   |           |            |     
|Number of shares                | 331,864   | 5,242,959  |     
|Number of warrants              | 277,778   | 0          |     
|Amount converted to equity      | $50,000   | $1,996,561 |     
|Officers                        |           |            |     
|Number of shares                | 0         | 0          |     
|Number of warrants (A)          | 0         | 0          |     
|Amount converted to equity      | $0        | $0         |     
|Total Related Party Conversions |           |            |     
|Number of shares                | 3,331,864 | 6,073,728  | NONE
|Number of warrants              | 3,277,778 | 0          |     
|Amount converted to equity      | $590,000  | $2,104,561 |     

LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS

Through June 30, 2008, the Company incurred development stage
losses totaling approximately $172 million and at June 30, 2008 had a working
capital deficit of $3,853,019. Funding in our tradition capital markets was
difficult during FYE 2008. Management of the Company desired to avoid
unnecessary dilution by issuing large amounts of equity at depressed prices to
raise larger sums of cash. Alternatively the Company was able to enter into
Convertible Debt arrangements with independent investors to provide liquidity
and capital resources during the year. Such arrangements not only provided the
Company with cash ($1,350,000) but also with an equity line of credit of up to
$7 million (inclusive of funds received). These arrangements will likely provide
much of the working capital anticipated to be needed during the next FYE. In
addition and from time to time during FYE 2008, the Company raised necessary
working capital via bridge loans from officers. Such loans have subsequently
been repaid (see notes payable to officers). The Company's ability to continue
as a going concern and its future success is dependent upon its ability to raise
capital in the near term to: (1) satisfy its current obligations, (2) continue
its research and development efforts, and (3) continue its efforts to
commercialize and sell and receive military grants for its SmartBattery..

The Company is currently focused upon development and
commercialization of its "Always Ready" battery product developed using the
science of nanotechnology. The Company believes that such battery has a much
longer shelf life than conventional batteries and will have significant
commercial and military applications. The Company has temporarily suspended, to
conserve financial resources, development of its magnetometer sensor devices
also developed using the science of nanotechnology. In addition, although the
Company has suspended all activity related to its IPTV business, it continues to
believe that the intellectual property created over years of development of its
TV+ solution may have significant value as the market for IPTV further develops.

On August 30, 2004, the Company entered into a Payment
Agreement with Piper & Rudnick LLC, its outside counsel in connection with the
renegotiation of a Payment Agreement effective June 30, 2004. The Company,
currently owes $65,000 that is overdue under the terms of such agreement.

47

---

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET RISKS

The Company is not exposed to changes in interest rates as
the Company has no floating rate 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 interest
rate yield curve would not materially affect the fair value of any financial
instruments at June 30, 2008. We believe that interest rate risks for our
accounts receivable are insignificant. Sales to customers are denominated in
dollars. Accordingly, we are not directly exposed to market risks from currency
fluctuations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages beginning 58.

ITEM 8A.

Assessment of Internal Controls

Evaluation of Disclosure Controls and Procedures

The Company is in the process of implementing disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934 (the ''Exchange Act''), that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports are recorded, processed, summarized, and reported within the time
periods specified in rules and forms of the Securities and Exchange Commission,
and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2008, the management of the Company carried
out an assessment, under the supervision of and with the participation of the
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and
15d-15(b). As of the date of this assessment, the Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective
as of June 30, 2008, as deemed appropriate for the size and scope of the
Company's transactions and financial reporting requirements; however we did note
certain deficiencies considered to be a reportable condition described below.

The Company's management performed additional accounting and
financial analyses and other post-closing procedures including detailed
validation work with regard to all the balance sheet account balances,
additional analysis on income statement amounts and managerial review of all
significant account balances and disclosures in the Annual Report on Form 10-K,
to ensure that the Company's Annual Report and the financial statements forming
part thereof are in accordance with accounting principles generally accepted in
the United States of America. Accordingly, management believes that the
financial statements included in this Annual Report fairly present, in all
material respects, the Company's financial condition, results of operations, and
cash flows for the periods presented.

Management's Report on Internal Control over Financial
Reporting

Management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of
America. Internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the

48

---

Company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company's assets that could have a
material effect on the interim or annual financial statements. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies
or procedures may deteriorate.

The Company's management assessed the effectiveness of the
Company's internal control over financial reporting as of June 30, 2008. A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis. Our evaluation
concluded that the company had no material weakness which would result in the
reasonable possibility of a material misstatement described above; yet it did
bring certain matters to our attention and we noted that we consider being a
reportable condition.

Reportable conditions involve matters coming to our attention
relating to significant deficiencies in the design or operation of the internal
control that in our judgment, could adversely affect the organization's ability
to record, summarize and report financial data consistent with the assertions of
management in the financial statements.

We noted that a condition which management considered to be a
reportable condition existed because of the Company's lack of sufficient
resources of accounting personnel with an appropriate level of knowledge and
experience commensurate with the increasingly expanding financial reporting
requirements of the Company, in both scope and complexity, as promulgated by SEC
and generally accepted accounting principals (GAAP). Contributing to the lack of
appropriate level of knowledge and experience commensurate with the Company's
financial reporting requirements for the current Fiscal Year Ended June 30, 2008
was the initial implementation of accounting for financing agreements the
Company entered into during this period which have characteristics of both
equity and debt. This condition resulted in the identification of adjustments
during the financial statement close process that have been recorded in the
consolidated financial statements.

Our considerations of internal control would not necessarily
disclose all matters in internal control that might be reportable conditions
and, accordingly, would not necessarily disclose all reportable conditions that
are also considered to be material weaknesses as defined above. However, none of
the reportable conditions described above is believed to be a material weakness.

Management concluded that the Company did maintain an
effective level of internal control over financial reporting as of June 30, 2008
appropriate for the financial reporting requirements of the Company.

This report does not include an attestation report of our
registered public accounting firm regarding our internal controls over financial
reporting. The disclosure contained under this Item 8A was not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only the disclosure under this Item 8A in
this annual report.

Changes in Internal Control over Financial Reporting

The Company is in the process of improving the internal
control condition described above. However, Mphase Technologies is a small
company with a total staff of approximately 10 employees and consultants. This
size limits and may continue to limit, the Company's ability to provide for
adequate backup of financial personnel Accordingly, efforts individually and in
the aggregate maybe insufficient to fully eliminate the condition that could
adversely affect the organization's ability to record, summarize and report
financial data consistent with the assertions of management in the financial
statements.

49

---

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Executive officers are selected by the Board of Directors. No
family relationships exist between any of the executive officers or directors.
The following table sets forth certain information with respect to each person,
who is an executive officer or director. mPhase's executive officers and
directors as of June 30, 2008 are as follows:

|NAME                                     | AGE | POSITION(S)                         
|---------------------------------------- | --- | ------------------------------------
|                                         |     |                                     
|Ronald A. Durando                        | 50  | Chief Executive Officer and Director
|Gustave T. Dotoli (2)                    | 72  | Chief Operating Officer and Director
|Martin Smiley                            | 60  | Chief Financial Officer             
|OUTSIDE DIRECTORS                        |     |                                     
|Anthony H. Guerino (1)(2)                | 59  | Director                            
|Abraham Biderman (1)(2)                  | 59  | Director                            
|Dr. Victor Lawrence                      | 60  | Director                            
|(1) Member of the Audit Committee        |     |                                     
|(2) Member of the Compensation Committee |     |                                     

RONALD A. DURANDO is a co-founder of mPhase and has served as
the Company's President, Chief Executive Officer and Director since its
inception in October 1996. Since 1994, Mr. Durando has been an Officer of
Microphase Corporation. Mr. Durando is not a Director of Microphase Corporation.
From 1986-1994, Mr. Durando was President and Chief Executive Officer of Nutley
Securities, Inc., a registered broker-dealer. In addition, Mr. Durando is also
Chairman of the Board of Janifast, Ltd., a Hong Kong company, for operational
and manufacturing companies in China. Mr. Durando is also President and a
Director of PacketPort.com, Inc. ("Packet Port").

GUSTAVE T. DOTOLI has served as mPhase's Chief Operating
Officer since October 1996 and has been a Director since October 1996. Prior to
joining the Company, Mr. Dotoli was President and CEO of State Industrial
Safety, Inc. from 1986-1996. In addition, Mr. Dotoli currently serves as the
Vice President of Corporate Development of Microphase Corporation. Mr. Dotoli is
also a Director and Vice President of Packet Port. He is formerly the President
and Chief Executive Officer of the following corporations: Imperial Electro-
Plating, Inc., World Imports USA, Industrial Chemical Supply, Inc., SISCO
Beverage, Inc. and Met Pack, Inc. Mr. Dotoli received a B.S. in Industrial
Engineering from Fairleigh Dickenson University in 1959.

ANTHONY H. GUERINO has been a member of the Board since
February 23, 2000. Since December 1997, Mr. Guerino has been an attorney in
private practice in New Jersey. Prior thereto, Mr. Guerino served as a judge of
the Newark Municipal Courts for over twenty (20) years, periodically sitting in
the Essex County Central Judicial Processing Court at the Essex County
Courthouse. Mr. Guerino has been a chairperson for and member of several
judicial committees and associations in New Jersey, and has been an instructor
for the Seton Hall School of Law's Trial Moot Court Program.

ABRAHAM BIDERMAN has been a member of the Board since August
3, 2000. He currently is the Managing Director of Eagle Advisers, Inc, a small
investment banking firm. From 1990 through September 30, 2003, Mr. Biderman was
been employed by Lipper & Co. as Executive Vice President; Executive Vice
President, Secretary and Treasurer of the Lipper Funds; and Co-Manager of Lipper
Convertibles, L.P. Prior to joining Lipper & Co. in 1990, Mr. Biderman was
Commissioner of the New York City Department of Housing, Preservation and
Development from 1988 to 1989 and Commissioner of the New York City Department
of Finance from 1986 to 1987. He was Chairman of the New York City Retirement
System from 1986 to 1989. Mr. Biderman was Special Advisor to former Mayor
Edward I. Koch from 1985 to 1986 and assistant to former Deputy Mayor Kenneth
Lipper from 1983 to 1985. Mr. Biderman is a Director of the Municipal Assistance
Corporation for the City of New York. Mr. Biderman graduated from Brooklyn
College and is a certified public accountant.

MARTIN SMILEY was elected on June 28, 2006 to the Board of
Directors he joined mPhase as Executive Vice President, Chief Financial Officer
and General Counsel in August 2000. Mr. Smiley has over twenty years experience
as a corporate finance and securities attorney and as an investment banker.
Prior to joining the company, Mr. Smiley served as a Principal at Morrison &
Kibbey, Ltd., a mergers and acquisitions and investment banking firm from 1998
to 2000, and as a Managing Director for CIBC Oppenheimer Securities from 1994 to
1998. He served as a Vice President of Investment Banking at Chase Manhattan
Bank from 1989 to 1994, and as a Vice President and Associate General Counsel
for Chrysler Capital Corporation from 1984 to 1989. Mr. Smiley graduated with a
B.A. in Mathematics from the University of Pennsylvania and earned his law
degree from the University of Virginia School Of Law.

50

---

DR VICTOR LAWRENCE is bachelor Chair professor of Electrical
Engineering and Associate Dean for Special Programs, in the Charles V Schafer,
Jr. School of Engineering, at Steven Institute of Technology. Dr. Victor
Lawrence is a member of the National Academy of Engineering and has worked in
the information technology and communications field for over thirty years. He is
an industry leader in digital communications R&D and services, an entrepreneur,
an active member of engineering professional organizations, an author, and a
teacher who has extensive international experience. Prior to joining Steven
Institute of Technology Dr. Lawrence was Vice President, Advanced Communications
Technology, Bell Laboratories, Lucent Technologies. He led the development of
technologies that go into the most innovative, reliable, and cost-effective
communications networks for the leading telecommunications service providers. He
has supported Lucent's businesses with a staff of about 500 leading
technologists and a budget of about $100M. Major projects included gigabit,
photonic, and wireless networking developments and services. He was responsible
for a team of engineers that worked on performance analysis, simulations and
development of broadband access and backbone networks for many national and
international service providers. All of Lucent's R&D organizations relied on his
high-technology support of computer-aided hardware design, physical and thermal
design, systems compliance testing and certification, and design for high
performance network control, signaling, and management. Earlier, he was
Director, Advanced Multimedia Communications at Bell Labs, where he was
responsible for systems engineering, exploratory development of multimedia
signal processing, transmission, and switching, including speech and audio
coding, modems, broadband transmission, ATM switching and protocols, and
wireless communication and signal processing. He held a variety of leadership
positions in data communications research, digital techniques, and information
systems. His application of digital signal processing to data communications in
the late 1980s and early 1990s led to many significant advances in high-speed
transmission over copper lines (e.g., voice band modems and DSL), which helped
create a global industry that leverages the public switched telephone network.
Dr. Lawrence played a significant role in the development of every major
international voiceband modem standard, making high-speed data communication
over international networks possible. The universal availability of high-speed
data connectivity stimulated the growth and widespread use of the Internet. He
led the development of high-speed modem/fax chip sets that are used in data
terminals, computers, and voice terminals for secure communications worldwide.
His work on high-speed transceivers for local loop and for premises applications
led to the development of a variety of DSL technologies, many of which are
deployed today for broadband services. Entrepreneurship Dr. Lawrence spun off
several ventures internal and external to Lucent to maximize the impact of
technology developed in his organization.

At each annual meeting of stockholders, the newly elected
directors' terms begin on the date of election and qualification, and continue
through the next annual meeting following election. Terms may differ in the case
where a director resigns, is removed from office, or until the time when a
successor director is elected and qualified.

SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Directors, executive officers, and individual owning more
than 10 percent of mPhase common stock are required to file initial reports of
ownership and changes in ownership with the SEC under Section 16(a) of the
Securities Exchange Act of 1934, as amended. The SEC regulations also require
those persons to provide copies of all filed Section 16(a) reports to the
Company. mPhase has reviewed the report copies filed in fiscal year 2007, and
based also on written representations from those persons, the Company believes
that there was compliance with Section 16(a) filing requirements for fiscal year
2008. All the officers and directors filed all of the required forms in a timely
manner.





51

---

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal year ended
June 30, 2008 and the two previous fiscal years, the compensation earned by
mPhase's chief executive officer and the four other executive officers, whose
compensation was greater than $100,000 for services rendered in all capacities
to the Company for the year ended June 30, 2008.

SUMMARY EXECUTIVE COMPENSATION

|NAME
    &                  |      |          |          | STOCK      | OPTION     | NON_EQUITY | PENSION |            |           
|--------------------------- | ---- | -------- | -------- | ---------- | ---------- | ---------- | ------- | ---------- | ----------
|PRINCIPAL POSITION          | YEAR | SALARY   | BONUS    | AWARDS     | AWARDS     | INCENTIVE  | VALUE   | OTHER      | TOTAL     
|                            |      |          |          |            |            |            |         |            |           
|Ronald Durando              | 2008 | 393,600  | $0       | $0         | $0         | N/A        | N/A     | $19,490 #4 | $413,090  
|President                   | 2007 | $393,600 | $0       | $860,000   | $196,000   | N/A        | N/A     | $7,500 #1  | $1,457,100
|Chief
    Executive Officer | 2006 | $393,600 | $250,000 | $1,260,000 | $1,596,200 |            |         | $7,500 #1  | $3,507,300
|                            |      |          |          |            |            |            |         |            |           
|Gustave Dotoli              | 2008 | $282,000 | $0       | $0         | $0         | N/A        | N/A     | $4,156 #4  | $286,156  
|Chief
    Operating Officer | 2007 | $282,000 | $0       | $450,000   | $126,000   | N/A        | N/A     | $7,538 #2  | $865,538  
|                            | 2006 | $282,000 | $75,000  | $525,000   | $836,400   |            |         | $7,500 #2  | $1,725,900
|                            |      |          |          |            |            |            |         |            |           
|Martin Smiley               | 2008 | $200,000 | $0       | $0         | $0         | N/A        | N/A     | $18,752 #4 | $218,752  
|Executive Vice President    | 2007 | $200,000 | $0       | $262,500   | $56,000    | N/A        | N/A     | $8,550 #3  | $527,050  
|CFO
    Chief Legal Council | 2006 | $175,000 | $0       | $331,213   | $213,850   | N/A        | N/A     | $0         | $720,063  

Footnotes

#1 consists of directors fees of $7,500 in both 2006 and 2007
# 2 consists of directors fees of $7,500 in both 2006 and 2007plus interest of
$38 in 2007on loan to the Company 
#3 consists of directors fees of $3,750 plus $4,800 interest on loans to the
Company 
#4 Interest on loans to the Company



52

---

|OUTSTANDING EQUITY AWARDS       |                                                                     |                                                                       |                                                     |                       |                       
|------------------------------- | ------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------------------------------- | --------------------- | ----------------------
|at FISCAL YEAR END JUNE 30.2008 |                                                                     |                                                                       |                                                     |                       |                       
|                                | Number of Securities underlying
  Unexercised Options (Exercisable) | Number of Securities underlying
  Unexercised Options (Unexercisable) | Equity Incentive Plan awards Number of
  Securities | Option Exercise Price | Option Expiration Date
|Ronald Durando                  | 500,000                                                             | 0                                                                     | 0                                                   | $0.45                 | 6/19/2009             
|President CEO                   | 1,000,000                                                           | 0                                                                     | 0                                                   | $0.45                 | 6/19/2009             
|                                | 2,500,000                                                           | 0                                                                     | 0                                                   | $0.35                 | 12/31/2009            
|                                | 550,000                                                             | 0                                                                     | 0                                                   | $0.18                 | 2/23/2011             
|                                | 3,450,000                                                           | 0                                                                     | 0                                                   | $0.18                 | 2/23/2011             
|                                | 475,000                                                             | 0                                                                     | 0                                                   | $0.21                 | 2/23/2011             
|                                | 3,525,000                                                           | 0                                                                     | 0                                                   | $0.21                 | 2/23/2011             
|                                | 1,000,000                                                           | 0                                                                     | 0                                                   | $0.21                 | 3/28/2011             
|                                | 750,000                                                             | 0                                                                     | 0                                                   | $0.25                 | 6/14/2011             
|                                | 25,000                                                              | 0                                                                     | 0                                                   | $0.25                 | 6/14/2011             
|                                | 1,400,000                                                           | 0                                                                     | 0                                                   | $0.21                 | 8/24/2011             
|                                |                                                                     |                                                                       |                                                     |                       |                       
|                                |                                                                     |                                                                       |                                                     |                       |                       
|Gustave Dotoli                  | 250,000                                                             | 0                                                                     | 0                                                   | $0.45                 | 6/19/2009             
|COO                             | 500,000                                                             | 0                                                                     | 0                                                   | $0.35                 | 6/19/2009             
|                                | 1,000,000                                                           | 0                                                                     | 0                                                   | $0.35                 | 12/31/2009            
|                                | 550,000                                                             | 0                                                                     | 0                                                   | $0.18                 | 2/23/2011             
|                                | 1,250,000                                                           | 0                                                                     | 0                                                   | $0.18                 | 2/23/2011             
|                                | 475,000                                                             | 0                                                                     | 0                                                   | $0.21                 | 2/23/2011             
|                                | 1,325,000                                                           | 0                                                                     | 0                                                   | $0.21                 | 2/23/2011             
|                                | 750,000                                                             | 0                                                                     | 0                                                   | $0.21                 | 3/28/2011             
|                                | 500,000                                                             | 0                                                                     | 0                                                   | $0.25                 | 6/14/2011             
|                                | 25,000                                                              | 0                                                                     | 0                                                   | $0.25                 | 6/14/2011             
|                                | 900,000                                                             | 0                                                                     | 0                                                   | $0.21                 | 8/24/2011             
|                                |                                                                     |                                                                       |                                                     |                       |                       
|                                |                                                                     |                                                                       |                                                     |                       |                       
|Martin Smiley                   | 550,000                                                             | 0                                                                     | 0                                                   | $0.18                 | 2/23/2011             
|Executive VP                    | 475,000                                                             | 0                                                                     | 0                                                   | $0.21                 | 2/23/2011             
|CFO Chief Legal                 | 25,000                                                              | 0                                                                     | 0                                                   | $0.21                 | 2/23/2011             
|Council                         | 250,000                                                             | 0                                                                     | 0                                                   | $0.25                 | 6/14/2011             
|                                | 400,000                                                             | 0                                                                     | 0                                                   | $0.21                 | 6/24/2011             

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during fiscal 2008
were Messrs. Biderman and Guerino. Neither Messrs. Biderman, nor Guerino have
been one of mPhase's officers or employees. None of the Company's directors or
executive officers served as a member of the Compensation Committee (or other
board committee performing equivalent functions or, in the absence of such
committee, the entire Board of Directors) of another entity during fiscal 2008
that has a director or executive officer serving also as a director on mPhase's
Board of Directors, except that Mr. Dotoli is also a member of the Board of
Directors of PacketPort, a company in which Mr. Durando serves as Chief
Executive Officer. Mr. Dotoli, together with Mr. Durando and Mr. Ergul, are
collectively controlling shareholders of Janifast and Mr. Dotoli and Mr. Ergul
are also Directors of Janifast. Janifast has produced components for the TV+.
mPhase plans to use Janifast to produce certain portions of orders for its
Television platform in the future.

53

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth as of June 30, 2008 certain
information regarding the beneficial ownership of our shares:

1.     by each person who is known by us
to be the beneficial owner of more than five percent (5%) of its outstanding
common stock; 
2.     each of our directors; 
3.     by each executive officer named in the Summary
Compensation Table; and, by all of our directors and executive officers as a
group.

|AFFILIATES (1 & 2-) | Shares     | Warrants  | Options    | TOTAL      | %     
|------------------- | ---------- | --------- | ---------- | ---------- | ------
|                    |            |           |            |            |       
|Victor Lawrence     | -          | -         | -          | -          |       
|Anthony Guerino     | -          | -         | 765,000    | 765,000    | 0.12% 
|Abraham Biderman    | 1,076,900  | -         | 1,065,000  | 2,141,900  | 0.34% 
|Gus Doteli          | 6,793,033  |           | 6,125,000  | 12,918,033 | 2.04% 
|Ron Durando (3)     | 16,588,965 | 65,000    | 12,675,000 | 29,328,965 | 4.64% 
|Ned Ergul           | 2,850,000  |           | 2,655,000  | 5,505,000  | 0.87% 
|Martin Smiley       | 6,262,629  | 2,345,569 | 1,225,000  | 9,833,198  | 1.56% 
|Microphase          | 16,060,019 | 5,572,222 | -          | 21,632,241 | 3.42% 
|Janifast            | 8,227,778  | 1,950,000 | -          | 10,177,778 | 1.61% 
|Total Affiliates    | 57,859,324 | 9,932,791 | 24,510,000 | 92,302,115 | 14.61%

(1) Unless otherwise indicated, the address of each
beneficial owner is 587 Connecticut Avenue, Norwalk, Connecticut 06854-1711.

(2) Unless otherwise indicated, mPhase believes that all
persons named in the table have sole voting and investment power with respect to
all shares of the Company shares beneficially owned by them. The percentage for
each beneficial owner listed above is based on 387,846,008 shares outstanding on
June 30, 2008, and, with respect to each person holding options or warrants to
purchase shares that are exercisable within 60 days after June 30, 2008, the
number of options and warrants are deemed to be outstanding and beneficially
owned by the person for the purpose of computing such person's percentage
ownership, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.







54

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Material Related Party Transactions

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

Mr. Durando, the President and CEO of mPhase, owns a
controlling interest and is a director and COB of Janifast Limited. Mr. Durando
and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli is also a
shareholder of Janifast Limited. Mr. Ergul, the chairman of the board of mPhase,
owns a controlling interest and is a director of Microphase Corporation and is a
director and shareholder of Janifast Limited. Microphase, Janifast, are
significant shareholders of mPhase.

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, and Janifast Limited has the ability to fulfill their
obligations to the Company without further support from the Company.

Transactions with Officers, Directors and their Affiliates

Directors that are significant shareholders of Janifast
Limited include Messrs Ronald A. Durando, Gustave T. Dotoli, Martin Smiley

The Following Summaries Compensation to Related Parties for
the Fiscal Year Ended June 30, 2008

|                       |          |          |          |          |            | TOTAL     
|---------------------- | -------- | -------- | -------- | -------- | ---------- | ----------
|                       | Durando  | Dotoli   | Biderman | Smiley   | Microphase | RELATED   
|                       |          |          |          |          |            |           
|Consulting / Salary    | $393,600 | $282,000 |          | $200,000 |            | $875,600  
|Interest               | $19,490  | $4,156   |          | $18,752  |            | $42,398   
|Rent                   |          |          |          |          | $60,000    | $60,000   
|R&D                    |          |          |          |          | $28,151    | $28,151   
|Finders Fees           |          |          | $188,472 |          |            | $188,472  
|Cost of Sales and SG&A |          |          |          |          | $30,089    | $30,089   
|                       |          |          |          |          |            |           
|Totals                 | $413,090 | $286,156 | $188,472 | $218,752 | $118,240   | $1,224,710

55

---

Summary of amounts due to Officers 
For the year ended June 30, 2008

|                                      | RON        | GUS        | MARTIN    |           
|------------------------------------- | ---------- | ---------- | --------- | ----------
|                                      | DURANDO    | DOTOLI     | SMILEY    | TOTAL     
|NOTES PAYABLE OFFICERS                |            |            |           |           
|BALANCE 6/30/07                       | $85,000    | $75,000    | $161,000  | $321,000  
|July 2007 Advances (Payments)         | ($30,000)  | ($75,000)  |           | ($105,000)
|August 2007 Advances (Payments)       | $35,000    | $75,100    | $35,000   | $145,100  
|Sept 2007 Advances (Payments)         | $110,000   |            |           | $110,000  
|Assumption of Note Payable- Sovereign | $110,000   |            |           | $110,000  
|Oct 2007 Advances (Payments)          | $25,000    | $25,000    | $25,000   | $75,000   
|Nov 2007 Advances (Payments)          | $76,000    | $36,000    | $11,000   | $123,000  
|Dec 2007 Advances (Payments)          | $25,000    | $0         | $0        | $25,000   
|Transferred to Deferred Comp          | ($148,000) | ($123,500) |           | ($271,500)
|Jan 2008 Advances (Payments)          | $2,000     | $32,000    |           | $34,000   
|Feb 2008 Advances (Payments)          | $0         | $55,000    | $72,038   | $127,038  
|Mar 2008 Advances (Payments)          | ($180,000) | ($47,500)  | ($40,000) | ($267,500)
|April 2008 Advances (Payments)        | ($110,000) | ($52,100)  | ($45,000) | ($207,100)
|May 2008 Advances (Payments)          |            |            | ($15,000) | ($15,000) 
|June 2008 Advances (Payments)         |            |            |           |           
|BALANCE Notes Payable Officers        | $0         | $0         | $204,038  | $204,038  
|                                      |            |            |           |           
|Deferred Compensation                 | $278,000   | $323,500   |           | $601,500  
|                                      |            |            |           |           
|Due To Officers                       |            |            |           |           
|BALANCE 6/30/07                       | $188,400   | $75,500    |           | $263,900  
|Consulting Fee Earned -1st Qtr        | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 1st Qtr        | ($39,500)  | ($32,500)  |           | ($72,000) 
|Consulting Fee Earned - 2nd Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 2nd Qtr        | ($10,000)  | ($10,000)  |           | ($20,000) 
|Consulting Fee Earned - 3rd Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 3rd Qtr        | ($12,000)  | ($8,500)   |           | ($20,500) 
|Consulting Fee Earned - 4th Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 4th Qtr        | ($221,510) | ($204,244) |           | ($425,754)
|Balance Due to Officers               | $298,990   | $102,256   |           | $401,246  
|                                      |            |            |           |           
|Interest Payable                      | $0         | $0         | $18,751   | $18,751   
|Totals Payable to Officers            | $576,990   | $425,756   | $222,789  | $1,225,535

The Following Summaries Compensation to Related Parties for the Fiscal Year
Ended June 30, 2007

|                                         |            |          |          |          |          |         |          |          |            | TOTAL     
|---------------------------------------- | ---------- | -------- | -------- | -------- | -------- | ------- | -------- | -------- | ---------- | ----------
|                                         | Durando    | Dotoli   | Ergul    | Biderman | Smiley   | Guerino | Lawrence | Janifast | Microphase | RELATED   
|                                         |            |          |          |          |          |         |          |          |            |           
|Consulting / Salary                      | $393,600   | $282,000 |          |          | $200,000 |         |          |          |            | $875,600  
|Directors Stipend and Interest           | $7,500     | $7,538   | $3,750   | $3,750   | $8,550   | $3,750  | $3,750   |          |            | $38,588   
|Rent                                     |            |          |          |          |          |         |          |          | $60,000    | $60,000   
|R&D                                      |            |          |          |          |          |         |          |          | $236,492   | $236,492  
|Finders Fees (including common shares)   |            |          |          | $520,000 |          |         |          |          |            | $520,000  
|Cost of Sales and SG&A                   |            |          |          |          |          |         |          | $110,912 | $36,342    | $147,254  
|Reparations and Stock Based Compensation | $1,044,000 | $555,000 | $201,000 | $16,800  | $306,250 | $14,700 |          | $138,462 |            | $2,276,212
|Totals                                   | $1,445,100 | $844,538 | $204,750 | $540,550 | $514,800 | $18,450 | $3,750   | $249,374 | $332,834   | $4,154,146
|PacketPort.com legal expense             |            |          |          |          |          |         |          |          |            | $611,807  
|Total expense to related parties         |            |          |          |          |          |         |          |          |            | $4,765,953

56

---

During the twelve months ended June 30, 2007, Mr. Biderman's
through his affiliated firm of Palladium Capital Advisors earned finder's fees
of $520,000 in connection with the raising of approximately $5 million in
various equity transactions during the year.

In addition, at various points during fiscal year ended June
30, 2007, Messrs, Durando, Dotoli and Smiley provided $650,000 in bridge loans
to the Company which was evidenced by individual promissory notes. During
December 2006, Messrs Durando and Dotoli agreed to convert their notes, in the
amounts of $130,000 and $200,000 respectively, to a deferred compensation
arrangement, the repayment terms of which have not been specified. Mr. Smiley
has extended bridge loans to the Company of $160,000, evidenced by promissory
notes for $101,000 and a $60,000 note with a 12% rate of interest. In summary as
of June 30, 2007, bridge loans outstanding were $85,000,$75,000 and $161,000 to
the Messrs Durando, Dotoli and Smiley, respectively. All of the foregoing
promissory notes were payable on demand and only the $161,000 payable to Mr.
Smiley remained outstanding in June 2008

During the 12 month period ended June 30, 2007 Eagle
Advisers, an investment banking firm founded by Mr. Abraham Biderman, a member
of the Board of Directors of the Company, earned fees and reimbursement expenses
of approximately $782,568 in connection with services in regard to private
placements of the Company's common stock and warrants and raised a total of
$5,820,652 net of such fees for the Company.

During the 12 month period ended June 30, 2005 Eagle
Advisers, earned fees and reimbursement expenses of approximately $633,000 in
connection with services in connection with private placements of the Company's
common stock and warrants and raised a total of $6,117,000 net of such fees for
the Company.

Additionally at June 30, 2004, Mr. Durando was owed $300,000
and Mr. Smiley was owed $100,000 by the Company as evidenced by a non-interest
bearing promissory note that was repaid in July 2004. As of June 30, 2004 a
total of $55,000 in the aggregate was due to Mr. Durando and Mr. Dotoli for
unpaid compensation.

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

During the twelve month period ended June 30, 2005 Mr. Dotoli
and Mr. Smiley, the COO, and CFO and General Counsel of the Company
respectively, each lent the Company $75,000. Mr. Dotoli was repaid, the
principal amount of such loan, in cash in January, 2005 and Mr. Smiley converted
his $75,000 loan into 375,000 shares of common stock of the Company plus a 5
year warrant to purchase a like amount of shares at $.25 per share. In addition,
Mr. Smiley converted $9,975 of accrued interest into 49,875 shares of common
stock plus a 5 year warrant to purchase a like amount of shares at $.25 per
share. Finally Mr. Smiley received 25,000 additional shares of common stock as a
market adjustment to his equity investment of $25,000 on August 30, 2004. Mr.
Dotoli cancelled $3,750 of accrued and unpaid interest from August 15, 2004
through January 15, 2004 into 375,000 shares of common stock pursuant to the
terms of a portion of a warrant that was exercised at $.01 per share previously
given by the Company to Mr. Dotoli in exchange for and cancellation of unpaid
compensation. On January 15, 2004, Mr. Smiley was awarded 425,000 shares of
common stock as additional compensation.

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

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

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

In June of 2005, Mr. Smiley converted the his 12% $100,000
note converted plus accrued interest thereon to 520,000 shares of common stock
of mPhase at the rate of $.20 cents per share plus a 5 year warrant for an
additional 520,000 shares of common stock at $.25 per share.

57

---

In addition a demand note payable to Martin Smiley, CFO and
General Counsel of mPhase, in the amount of $75,000 was converted into 375,000
shares of common stock plus a 5 year warrant to purchase a like amount of shares
at $.25 per share and Mr. Smiley extended from July 25, 2004 to July 25, 2005 a
$100,000 promissory note carrying 12% interest. In addition Mr. Smiley converted
accrued and unpaid interest on his various promissory notes of $ 9,975 through
December 31, 2004 into 49,875 shares of common stock plus a 5 year warrant to
purchase a like amount of common stock at $.25 per share. Mr. Smiley's remaining
$100,000 note is convertible into Common Stock of mPhase at the rate of $.25
cents per share through July 25, 2009. Upon conversion, the note holder will be
granted warrants to purchase an equivalent amount of mPhase Common Stock at $.25
cents per share for a period of five years from the date of conversion plus a 5
year warrant for a like amount of shares at $.25 per share. Mr. Ronald A.
Durando converted $13,000 of accrued and unpaid interest on various demand notes
issued by the Company for loans by Mr. Durando during the six month period ended
December 31, 2004 into 65,000 shares of common stock plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. In addition Mr. Durando
converted $13,954 of principal of a $75,000 promissory note into the exercise,
in full, of a warrant to purchase 1,395,400 shares of common stock at $.01
previously granted to Mr. Durando in exchange for cancellation of unpaid
compensation. Finally, Mr. Gustave Dotoli, Chief Operating Officer of the
Company converted $ 3,750 of accrued and unpaid interest on a $75,000 promissory
note into 375,000 shares of common stock at $.01 pursuant to a portion of a
warrant previously granted to Mr. Dotoli for unpaid compensation.

During fiscal year end June 30, 2007, Mr. Edward Suozzo, a
consultant of the Company, converted $50,000 of accounts payable owed by the
Company into 331,864 shares of common stock plus a 5 year warrant to purchase
277,778 shares of common stock at $.18 per share. During fiscal year end June
30, 2005, Mr. Suozzo converted $20,000 of accounts payable owed by the Company
into 100,000 shares of common stock plus a 5 year warrant to purchase 100,000
shares of common stock at $.25 per share.

During fiscal year end June 30, 2007, Microphase Corporation
and Janifast Corp, both related parties respectively converted $369,000 and
$171,000 of accounts payable owed by the Company into 2,050,000 and 950,000
shares of common stock plus a 5 year warrant to purchase 2,050,000 and 950,000
shares of common stock at $.18 per share.

During the three months ending September 30, 2004, a note
payable in the amount of $180,000 to Microphase Corporation, 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.

Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli, our
Chairman, Chief Executive Officer and Chief Operating Officer, respectively, are
executive officers and shareholders of Microphase and Ronald Durando and Gustave
T. Dotoli are president and vice- president of PacketPort.com., respectively.

On November 26, 1999, Mr. Durando acquired, via a 100%
ownership of PacketPort, Inc., a controlling interest in Linkon Corporation, now
known as PacketPort.com, Inc. On November 26, 1999, PacketPort, Inc., a company
owned 100% by Mr. Durando, acquired controlling interest in Linkon Corp., which
subsequently changed its name to PacketPort.com, Inc. In connection with this
transaction, Mr. Durando transferred 350,000 shares of our common stock to
PacketPort, Inc.

58

---

Transactions with Microphase Corporation mPhase's President
and Chairman of the Board of the Company are also employees of Microphase. On
May 1, 1997, the Company entered into an agreement with Microphase, whereby it
will use office space as well as the administrative services of Microphase,
including the use of accounting personnel. This agreement for fiscal year 2006
required mPhase to pay Micophase $10,000 per month. Microphase also charges fees
for specific projects on a project-by-project basis. During the year ended June
30, 2007 and for the period of time from mPhase's inception (October 2, 1996) to
June 30, 2007, $531,820 and $8,670,776, respectively, have been charged to
expense or inventory under these Agreements and is included in operating
expenses in the accompanying consolidated statements of operations. Management
believes that amounts charged to the Company by Microphase are commensurate to
amounts that would be incurred if outside third parties were used. The Company
is obligated to pay a 3% royalty to Microphase on revenues from its proprietary
Traverser Digital Video and Data Delivery System and DSL component products.

Transactions with Janifast

Janifast Ltd., a Hong Kong corporation manufacturer, which
has produced components for our prototype Traverser_ DVDDS product, and may
produce such components for us in the future. Necdet F. Ergul, Ronald A. Durando
and Gustave T. Dotoli are controlling shareholders of Janifast Ltd. with an
aggregate ownership interest of greater than 75% of Janifast Ltd. Mr. Durando is
Chairman of the Board of Directors and Mr. Ergul is a Director of Janifast.

Transactions with Other Related Parties

In March 2000, mPhase acquired a 50% interest in
mPhaseTelevision.Net (formerly Telco Television Network, Inc.), an incorporated
joint venture. This percentage was increased to approximately 57% in fiscal year
2001. Alpha Star International, Inc currently owns the remaining joint venture
interest.

Effective June 30, 2004, the Company was $473,787 in arrears
with respect to a Promissory Note issued to Piper Rudnick LLP plus other legal
fees of $118,773.36. It should be noted that Piper & Rudnick received such
Promissory Note plus two warrants received in March of 2002 in exchange for
cancellation of certain payables. Such warrants have conversion rights into our
common stock for a total of 2,233,490 shares that have been registered under a
recently effective Form S-1 Registration Statement, and are cashless. On
September 3, 2003, the Company paid $10,000 in cash to Piper in exchange for
reducing the total payable to $550,000 plus the issuance of additional cashless
warrant for $150,000 worth of the Company's common stock valued at $.25 per
share. The remaining $300,000 payable had the following future payment schedule:

1. Payments of $25,000 each on December 1, 2004, March 1,
2005, June 1, 2005, September 1, 2005, March 1, 2006, June 1, 2006 and September
1, 2006.

2. A payment of $50,000 on December 1, 2005

3. A payment of $75,000 due on December 1, 2006

The Company has made all of the above payments except for
$65,000 of the $75,000 due December 1, 2006, that is presently in arrears.

SUBSEQUENT EVENT

Consistent with the terms of the securities purchase
agreement with Golden Gate Investors, during the period July 1,2008 to September
29, 2008 the company received cash of $700,000 as prepayment of its Note
Receivable and converted $415,000 of debt into 10,740,000 million shares of the
Company's Common Stock. In addition, during such period, the Company issued
2,600,000 shares of Common Stock to consultants

In August of 2008 was notified that it had been awarded a
research contract from the Department of the Army allowing the company an
opportunity to continue testing its Nanobattery in Phase #2. Such contract
provides the Company with approximately $500,000 of net revenue over two years

In August of 2008, at a meeting of shareholders, the Company
voted to increase the number of authorized shares of common stock to 2 billion
from 900 million.

In July the Company received $200,000 and issued a total of
7,862,000 shares in a private placement. Approximately 3,862,000 of such shares
represented reparation of past investments.

In September 2008 the Company issued 64,450,000 shares of
common stock and 104,950,000 options to purchase such stock at $.05 to various
employees consultants and individuals. Included in such issuance were 27,000,000
shares and 50,000,000 options to Mr. Durando, 16,000,000 shares and 30,000,000
options to Mr. Dotoli and 10,000,000 shares and 18,000,000 options to Mr.
Smiley. Shares outstanding as of September 24, 2008 had increased to 527,000,000
million, warrants to 146,000,000 and options to 150,000,000

59

---

ITEM 14A. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K

(a)(1) The following is a list of the financial statements,
financial statement schedules and exhibits, which are included in this Annual
Report on Form 10-K. Where so indicated by footnote, exhibits, which were
previously filed, are incorporated by reference.

FINANCIAL STATEMENT SCHEDULES:

EXHIBITS

|EXHIBITS  |                                                                                                                                                                                                                                                                                  
|--------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NUMBER    |                                                                                                                                                                                                                                                                                  
|REFERENCE | DESCRIPTION                                                                                                                                                                                                                                                                      
|2.1*      | Exchange of Stock Agreement and Plan of Reorganization (incorporated by reference to Exhibit 2(a) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                                                                                
|2.2*      | Exchange of Stock Agreement and Plan of Reorganization dated June 25, 1998 (incorporated by reference to Exhibit 2(b) to our registration statement on Form 10SB-12G filed on May 6, 1999 (file no. 000-24969)).                                                                 
|3.1*      | Certificate of Incorporation of Tecma Laboratory, Inc. filed December 20, 1979 (incorporated by reference to Exhibit 3(a) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                                                        
|3.2*      | Certificate of Correction to Certificate of Incorporation of Tecma Laboratory, Inc. dated June 19, 1987 (incorporated by reference to Exhibit 3(b) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                               
|3.3*      | Certificate of Amendment of Certificate of Incorporation of Tecma Laboratory, Inc. filed August 28, 1987 (incorporated by reference to Exhibit 3(c) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                              
|3.4*      | Certificate of Amendment of Certificate of Incorporation of Tecma Laboratories, Inc. filed April 7, 1997 (incorporated by reference to Exhibit 3(d) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                              
|3.5*      | Certificate of Amendment of Certificate of Incorporation of Lightpaths TP Technologies, Inc. filed June 2, 1997 (incorporated by reference to Exhibit 3(e) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                       
|3.6*      | Certificate of Amendment of Certificate of Incorporation of mPhase Technologies, Inc. filed September 15, 2000 (incorporated by reference to Exhibit 3i to our quarterly report on Form 10Q filed on November 13, 2000 (file no. 000-24969)).                                    
|3.7*      | Bylaws of the Company (incorporated by reference to Exhibit 3(g) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                                                                                                                 
|4.1*      | Form of Registration Rights Agreement, dated January 26, 2001, by and among the Company and the purchasers listed on Schedule A attached thereto (incorporated by reference to Exhibit 4.1 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).
|4.2*      | Form of Registration Rights Agreement, dated February 9, 2001, by and among the Company and the purchasers listed on Schedule A attached thereto (incorporated by reference to Exhibit 4.2 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).
|4.3*      | Form of Warrant.                                                                                                                                                                                                                                                                 
|4.4*      | Warrant Issued to Piper Rudnick LLP.                                                                                                                                                                                                                                             
|10.1*     | License Agreement, dated March 26, 1998, between the Company and Georgia Tech Research Corporation (incorporated by reference to Exhibit 10(e) to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000- 24969)).                                  
|10.2*     | First Amendment to the License Agreement dated January 8, 2001, between the Company and Georgia Tech Research Corporation (incorporated by reference to Exhibit 10.2 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).                      
|10.3*     | Employment Agreement between Ronald A. Durando and the Company (incorporated by reference to Exhibit 10.8 to our registration statement on Form SB-2 filed on August 13, 1999 (file no. 333-85147)).                                                                             
|10.4*     | Employment Agreement between Gustave T. Dotoli and the Company (incorporated by reference to Exhibit 10.9 to our registration statement on Form SB-2 filed on August 13, 1999 (file no. 333-85147)).                                                                             

60

---

|EXHIBITS  |                                                                                                                                                                                                                                                
|--------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NUMBER    |                                                                                                                                                                                                                                                
|REFERENCE | DESCRIPTION                                                                                                                                                                                                                                    
|          |                                                                                                                                                                                                                                                
|10.5*     | Employment Agreement between Martin S. Smiley and the Company, dated as of August 15, 2000 (incorporated by reference to Exhibit 10.5 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).                   
|10.8*     | Supply Agreement by and between the Company and Hart Telephone Company, Inc., date of August 19, 1998 (incorporated by reference to Exhibit 10.8 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).        
|10.9*     | Facilities/Services Agreement between the Company and Microphase Corporation, dated as of July 1, 1998. (incorporated by reference to Exhibit 10.9 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).      
|10.10*    | Company's 2001 Stock Incentive (incorporated by reference to Exhibit C to our preliminary proxy statement on Form Pre 14A filed on March 21, 2001 (file no.000-30202)).                                                                        
|10.11*    | License Agreement, dated July 31, 1996, by and between AT&T Paradyne Corporation and Microphase Corporation. (incorporated by reference to Exhibit 10.11 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).
|10.12(a)* | Assignment Agreement dated February 17, 1997, by and between the Company and Microphase Corporation. (incorporated by reference to Exhibit 10.12 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33- 63262)).       
|10.12(b)* | Distribution Agreement effective May 15, 2002 by and between Corning Cable System and the Company.                                                                                                                                             
|10.13.*   | Development Agreement between Lucent Technologies, Inc. and mPhase Technologies, Inc., effective as of December 1, 2002, relating to Video Services Switch and Statement of Work, dated December 9, 2002.**                                    
|10.14. *  | Purchase Order between the Company and Lucent Technologies, Inc., dated December 15, 2002, for cost reduction of the mPhase Traverser INI set box. **                                                                                          
|10.15.*   | Co-Branding Agreement, dated as of January 21, 2003, between the Company and Lucent Technologies, Inc.**                                                                                                                                       
|10.16*    | Systems Integrator Agreement, dated as of April 4, 2003, between the Company and Lucent Technologies, Inc.**                                                                                                                                   
|10.17*    | Development Agreement between Lucent Technologies, Inc and mPhase technologies, Inc. relating to Broadcast Television Switch (BTS) effective as of September 15, 2003.**                                                                       
|10.18*    | Development Agreement effective February 3, 2004 between Lucent Technologies, Inc. and mPhase Technologies, Inc for development of micro fuel cell Nano Technology.**                                                                          
|10.19*    | Software License Agreement between Espial Group, Inc, a Canadian Corporation and mPhase Technologies, Inc. entered into November 28, 2004.                                                                                                     
|10.20*    | Software Development Agreement between Magpie Telecom Insiders, Inc, and mPhase Technologies, dated September 2, 2004 and Work Order dated January 3, 2005                                                                                     
|10.21*    | Development Agreement effective March 11, 2005 between Lucent Technologies Inc and mPhase Technologies relating to development of Magnetometers.                                                                                               
|10.22*    | Amendment No. 2 to Development Agreement dated as of March 9, 2005 relating to                                                                                                                                                                 
|          | Micro Power Source Cells between mPhase Technologies, Inc and Lucent Technologies, Inc.                                                                                                                                                        
|10.23*    | Amendment No. 2 to Development Agreement between Lucent Technologies, Inc.                                                                                                                                                                     
|          | and mPhase Technologies, Inc. dated as September 15, 2003                                                                                                                                                                                      
|10.24*    | Amendment No. 3 to Development Agreement between Lucent Technologies, Inc and mPhase                                                                                                                                                           
|          | Technologies, Inc. dated September 15,2003                                                                                                                                                                                                     
|10.25*    | Amendment No. 4 to Development Agreement between Lucent Technologies, Inc and mPhase                                                                                                                                                           
|          | Technologies, Inc. dated as of September 15, 2003                                                                                                                                                                                              
|10.26*    | Annexure B Statement of Work dated August 22, 2005 between Magpie Insiders, Inc. and mPhase                                                                                                                                                    
|          | Technologies, Inc.                                                                                                                                                                                                                             
|10.27*    | Annexure C Statement of Work dated January 25, 2006 between Magpie Insiders Inc and mPhase                                                                                                                                                     
|          | Technologies, Inc.                                                                                                                                                                                                                             
|10.28*    | 3rd Amendment to Software License dated March 10, 2006 between Espial Group Inc. and mPhase Technologies, Inc.                                                                                                                                 
|10.29**   | 4th Amendment to Software License dated June 27,2006 between Espial Group, Inc and mPhase Technologies, Inc.                                                                                                                                   

61

---

|EXHIBITS
NUMBER |                                                                                                                                                                                                                                                                     
|--------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|REFERENCE       | DESCRIPTION                                                                                                                                                                                                                                                         
|                |                                                                                                                                                                                                                                                                     
|10.32A*         | Agreement between Rubenstein Investor Relations, Inc and mPhase Technologies, Inc dated January 16, 2007                                                                                                                                                            
|10.32B*         | Services Agreement between Rubenstein Associates, Inc and mPhase Technologies, Inc dated January 22, 2007                                                                                                                                                           
|10.33*          | Memorandum of Understanding between Latens and mPhase Technologies, Inc dated January 23, 2007                                                                                                                                                                      
|10.34*          | Amendment #4 between Lucent Technologies and mPhase Technologies, Inc dated February 3, 2007                                                                                                                                                                        
|10.35*          | First Amendment to the Master Work Agreement between Velankani and mPhase Technologies, Inc dated February 6, 2007                                                                                                                                                  
|10.36*          | Cooperative Research Agreement between Rutgers and mPhase Technologies, Inc dated February 5, 2007                                                                                                                                                                  
|10.37*          | Statement of Work Espial and mPhase Technologies, Inc dated February 22, 2007                                                                                                                                                                                       
|10.38*          | Payment Agreement between Espial and mPhase Technologies, Inc dated February 22, 2007                                                                                                                                                                               
|10.39*          | Reseller Agreement between Steeleye Technologies and mPhase Technologies, Inc dated March 28, 2007                                                                                                                                                                  
|10.40*          | Consulting Agreement between CT Nanobusiness Alliance and mPhase Technologies, Inc.  dated May 10, 2007                                                                                                                                                             
|10.41*          | Escrow Agreement  between Wilson Sonsini Goodrich & Rosati and mPhase Technologies, Inc dated May 2007                                                                                                                                                              
|10.42*          | Non-Exclusive Distribution Agreement between Netdialogue and mPhase Technologies, Inc. dated December 13, 2006                                                                                                                                                      
|10.43*          | Cooperative Research and Development Agreement between US Army Picatinny and mPhase Technologies, Inc dated December 20, 2006                                                                                                                                       
|10.44*          | Amendment # 5 between Lucent Technologies Inc and mPhase Technologies, Inc.                                                                                                                                                                                         
|10.45*          | Private Equity Credit Agreement by and between mPhase Technologies, Inc. and Double U Master Fund LP. Dated as of June 27, 2007.                                                                                                                                    
|21*             | List of Subsidiaries (incorporated by reference to Exhibit 21 to our registration statement on Form S-1 filed on June 18, 2001 (file no. 33-63262)).                                                                                                                
|23.1*           | Consents of Schuhalter, Coughlin & Suozzo, LLC dated August 31, 1998 and reference to Exhibit 23 to our registration statement on Form 10SB-12G filed on October 16, 1998 (file no. 000-24969)).                                                                    
|23.2*           | Consents of Schuhalter, Coughlin & Suozzo, LLC dated April 23, 1999 and Mauriello, Franklin & LoBrace, P.C. dated April 23, 1999 (incorporated by reference to Exhibit 23 to our registration statement on Form 10SB-12G filed on May 6, 1999 (file no. 000-24969)).
|23.3*           | Consent of Schuhalter, Coughlin & Suozzo, LLC dated August 13, 1999 (incorporated by reference to Exhibit 23.1 to our registration statement on Form SB-2 filed on August 13, 1999 (file no. 333-85147)).                                                           
|23.4            | Consent of Schuhalter, Coughlin & Suozzo, LLC.                                                                                                                                                                                                                      
|23.5            | Consent of Rosenberg Rich Baker Berman and Company.                                                                                                                                                                                                                 
|23.6*           | Consent of Piper Marbury Rudnick & Wolfe LLP (incorporated by reference to our registration statement, Amendment No. 2 filed on Aug. 15, 2001.)                                                                                                                     
|23.7*           | Consent of Rosenberg, Rich, Baker, Berman and Company (incorporated by reference to our registration statement, Amendment No. 1/A filed on August 1 2002.)                                                                                                          
|23.8*           | Consent of Schuhalter, Coughlin & Suozzo, LLC (incorporated by reference to our registration statement, Amendment No 1/A filed on August 2, 2002.)                                                                                                                  
|23.9*           | Consent of Piper&Rudnick LLP. (incorporated by reference to our registration statement, Amendment No. 1/A filed on August 2, 2002)                                                                                                                                  
|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.                                                                                                                                                                 

* Incorporated by reference. 
** All or portions of such Agreements have been omitted and the Company has
requested that the omitted sections be treated as "Confidential Information"
pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended and
has been filed with the Securities and Exchange Commission separately.

62

---

CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                                                                                                         | PAGE 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----
|                                                                                                                                                                                                         |      
|Report of Rosenberg Rich Baker Berman & Company                                                                                                                                                          | 64   
|                                                                                                                                                                                                         |      
|Report of Arthur Andersen LLP                                                                                                                                                                            | 65   
|                                                                                                                                                                                                         |      
|Report of Schuhalter, Coughlin & Suozzo, PC                                                                                                                                                              | 66   
|                                                                                                                                                                                                         |      
|Consolidated Balance Sheets as of June 30, 2008 and 2007                                                                                                                                                 | 67   
|                                                                                                                                                                                                         |      
|Consolidated Statements of Operations for the years ended June 30, 2006, 2007 and 2008 and for the period from inception (October 2, 1996) through June 30, 2008.                                        | 68   
|                                                                                                                                                                                                         |      
|Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the period from inception (October 2, 1996) to June 30, 1997 and for each of the eleven years in the period ended June 30, 2008 | 69-74
|                                                                                                                                                                                                         |      
|Consolidated Statements of Cash Flows for the years ended June 30, 2006, 2007 and 2008 and for the period from inception (October 2, 1996) through June 30, 2008.                                        | 76   
|                                                                                                                                                                                                         |      
|Notes to Consolidated Financial Statements                                                                                                                                                               | 77-93





63

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of mPhase
Technologies, Inc.:

We have audited the accompanying consolidated balance sheets
of mPhase Technologies, Inc. (a New Jersey corporation in the development stage)
and subsidiaries as of June 30, 2008 and June 30, 2007, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), cash flows and Schedule II (Valuation and Qualifying Accounts, Item
14B) for each of the three years ended June 30, 2008 and for the period from
inception (October 2, 1996) to June 30, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of mPhase Technologies, Inc. for the period from inception
to June 30, 2001. Those statements were audited by other auditors whose report
has been furnished to us and our opinion, insofar as it relates to amounts for
the period from inception to June 30, 2001, included in the cumulative totals,
is based solely upon the report of the other auditors.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of mPhase Technologies,
Inc. and subsidiaries as of June 30, 2008 and 2007 and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2008 and for the period from inception to June 30, 2008, in conformity
with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has suffered recurring
losses from operations and is in a working capital deficit position that raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Rosenberg Rich Baker Berman & Company 
Bridgewater, NJ

September 29, 2008

64

---

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of mPhase
Technologies, Inc.:

We have audited the accompanying consolidated balance sheets
of mPhase Technologies, Inc. (a New Jersey corporation in the development stage)
and subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended June 30, 2001 and for the period
from inception (October 2, 1996) to June 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of mPhase Technologies, Inc. for the period from
inception to June 30, 1998. Such amounts are included in the cumulative from
inception to June 30, 2001 totals of the statements of operations, changes in
stockholders' equity and cash flows and reflect total net loss of 6 percent of
the related cumulative totals. Those statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
amounts for the period from inception to June 30, 1998, included in the
cumulative totals, is based solely upon the report of the other auditors.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of mPhase Technologies, Inc. and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
2001 and for the period from inception to June 30, 2001, in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the consolidated financial statements, the Company has suffered recurring
losses from operations and is in a working capital deficit position that raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Arthur Andersen LLP 
Stamford, Connecticut

October 12, 2001

PURSUANT TO SEC RELEASE NO. 33-8070 AND RULE 437A UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, mPHASE TECHNOLOGIES, INC. HAS NOT RECEIVED
WRITTEN CONSENT AFTER REASONABLE EFFORT TO USE THIS REPORT. THIS REPORT IS A
COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT. THIS REPORT HAS NOT BEEN
REISSUED BY ARTHUR ANDERSEN LLP. WITH RESPECT TO THIS INSTANT 10K/A, YOU WILL
NOT BE ABLE TO RECOVER AGAINST ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE
SECURITIES ACT FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE
FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP OR ANY OMISSIONS TO STATE A
MATERIAL FACT REQUIRED TO BE STATED THEREIN.

65

---

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of mPhase
Technologies, Inc.:

We have audited the statements of operations, changes in
stockholders' equity, and cash flows for the period October 2, 1996 (date of
inception) through June 30, 1998 of mPhase Technologies, Inc. (a development
stage company). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, such financial statements present fairly, in
all material respects, the results of its operations and its cash flows for the
period of October 2, 1996 (date of inception) through June 30, 1998 in
conformity with generally accepted accounting principles.

Schuhalter, Coughlin & Suozzo, PC 
Raritan, New Jersey

January 28, 1999



66

---

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

|                                                                                                                                                                   | June 30,      | June 30,     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------- | -------------
|                                                                                                                                                                   | 2007          | 2008         
|                                                                                                                                                                   |               |              
|ASSETS                                                                                                                                                             |               |              
|CURRENT ASSETS                                                                                                                                                     |               |              
|Cash                                                                                                                                                               | $23,253       | $15,533      
|Accounts receivable                                                                                                                                                | 1,961         | 4,000        
|Subscriptions receivable                                                                                                                                           | 500,000       |              
|Inventories                                                                                                                                                        | 505,910       |              
|Prepaid and other current
    assets                                                                                                                               | 442,585       | 121,882      
|                                                                                                                                                                   |               |              
|Total Current Assets                                                                                                                                               | 1,473,709     | 141,415      
|                                                                                                                                                                   |               |              
|Property and equipment, net                                                                                                                                        | 282,801       | 149,418      
|Patents and licensing rights,
    net                                                                                                                              | 51,140        |              
|Note receivable                                                                                                                                                    |               | 1,950,000    
|Investment in Sovereign                                                                                                                                            |               | 110,000      
|                                                                                                                                                                   |               |              
|TOTAL ASSETS                                                                                                                                                       | $1,807,650    | $2,350,833   
|                                                                                                                                                                   |               |              
|LIABILITIES AND STOCKHOLDERS'
    DEFICIT                                                                                                                          |               |              
|CURRENT LIABILITIES                                                                                                                                                |               |              
|Accounts payable                                                                                                                                                   | $2,355,250    | $2,076,965   
|Accrued expenses                                                                                                                                                   | 933,145       | 388,444      
|Due to related parties                                                                                                                                             | 852,405       | 1,030,167    
|Notes payable, related parties                                                                                                                                     | 321,000       | 204,038      
|Short term notes                                                                                                                                                   | 76,640        | 240,820      
|Convertible debt                                                                                                                                                   |               | 54,000       
|Deferred revenue                                                                                                                                                   | 23,708        |              
|TOTAL CURRENT LIABILITIES                                                                                                                                          | $4,562,148    | $3,994,434   
|                                                                                                                                                                   |               |              
|Convertible debt derivative
    liability - (Note 8)                                                                                                               |               | $750,151     
|Convertible debentures net of
    discount of $2,953,899 (Note 8)                                                                                                  |               | $411,101     
|TOTAL LIABILITIES                                                                                                                                                  | $4,562,148    | $5,155,686   
|                                                                                                                                                                   |               |              
|COMMITMENTS AND CONTINGENCIES
    (Note 11 )                                                                                                                       | -             |              
|                                                                                                                                                                   |               |              
|STOCKHOLDERS' DEFICIT                                                                                                                                              |               |              
|Common stock, par value $.01,
    900,000,000 shares authorized 387,846,008 and 440,395,000 shares issued and
    outstanding at June 30, 2007, 2008, respectively | $3,878,460    | $4,403,950   
|Additional paid in capital                                                                                                                                         | 162,100,718   | 165,067,510  
|Deferred compensation                                                                                                                                              | (414,084)     |              
|Deficit accumulated during
    development stage                                                                                                                   | (168,311,619) | (172,268,340)
|Less-Treasury stock, 13,750
    shares at cost                                                                                                                     | (7,973)       | (7,973)      
|TOTAL STOCKHOLDERS' DEFICIT                                                                                                                                        | ($2,754,498)  | ($2,804,853) 
|                                                                                                                                                                   |               |              
|TOTAL LIABILITIES AND
    STOCKHOLDERS' DEFICIT                                                                                                                    | $1,807,650    | $2,350,833   

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

67

---

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

|                                                                                                                                                                                                        |                            |               |              | Date of       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------- | ------------ | --------------
|                                                                                                                                                                                                        | For the Fiscal Years Ended | Inception to 
|                                                                                                                                                                                                        | June 30,                   | June 30,     
|                                                                                                                                                                                                        | 2006                       | 2007          | 2008         | 2008          
|                                                                                                                                                                                                        |                            |               |              |               
|REVENUES                                                                                                                                                                                                | $975,482                   | $153,504      | $112,928     | $22,562,039   
|                                                                                                                                                                                                        |                            |               |              |               
|COSTS AND EXPENSES                                                                                                                                                                                      |                            |               |              |               
|Cost of Sales                                                                                                                                                                                           | 974,583                    | 89,802        | 949          | 16,424,692    
|Research and Development
    (including non-cash stock related charges of $200,850, $92,600,$0 and
    $2,410,119 for years ended 2006,2007,2008 and inception to date
    respectively)                | 8,034,964                  | 6,393,215     | 988,091      | 58,960,508    
|General and Administrative
    (including non-cash stock related charges of $6,075,573,$3,448,785, $564,878
    and $62,332,964 for years ended 2006,2007, 2008 and inception to date
    respectively) | 11,121,235                 | 8,684,053     | 4,031,618    | 109,471,763   
|Depreciation and Amortization                                                                                                                                                                           | 78,416                     | 93,855        | 145,331      | 3,270,188     
|                                                                                                                                                                                                        |                            |               |              |               
|TOTAL COSTS AND EXPENSES                                                                                                                                                                                | 20,209,198                 | 15,260,925    | 5,165,989    | 188,127,151   
|                                                                                                                                                                                                        |                            |               |              |               
|LOSS FROM OPERATIONS                                                                                                                                                                                    | (19,233,716)               | (15,107,421)  | (5,053,061)  | (165,565,112) 
|                                                                                                                                                                                                        |                            |               |              |               
|OTHER INCOME (EXPENSE) net                                                                                                                                                                              |                            |               |              |               
|Interest (Expense), net                                                                                                                                                                                 | (34,569)                   | (18,310)      | (214,878)    | (383,329)     
|Reparation, Impairment and
    Other (Expense) net                                                                                                                                                      | (5,182,365)                | (1,725,831)   | (527,530)    | (8,158,647)   
|                                                                                                                                                                                                        |                            |               |              |               
|Change in Derivative Value and
    Debt Discount                                                                                                                                                        |                            |               | 1,838,748    | 1,838,748     
|TOTAL OTHER INCOME (EXPENSE)                                                                                                                                                                            | (5,216,934)                | (1,744,141)   | 1,096,340    | (6,703,228)   
|                                                                                                                                                                                                        |                            |               |              |               
|NET LOSS                                                                                                                                                                                                | ($24,450,650)              | ($16,851,562) | ($3,956,721) | ($172,268,340)
|                                                                                                                                                                                                        |                            |               |              |               
|LOSS PER COMMON SHARE, basic
    and diluted                                                                                                                                                            | ($0.12)                    | ($0.05)       | ($0.01)      |               
|                                                                                                                                                                                                        |                            |               |              |               
|WEIGHTED AVERAGE COMMON SHARES
    OUTSTANDING, basic and diluted                                                                                                                                       | 199,610,372                | 310,395,562   | 405,032,339  |               

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

68

---

mPHASE TECHNOLOGIES INC. 
(A DEVELOPMENT STAGE COMPANY) 
CONSOLIDATED STATEMENTS OF CHANGES IN 
STOCKHOLDERS' EQUITY (DEFICIT) 
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) 
TO JUNE 30, 1997 AND FOR EACH OF THE ELEVEN YEARS 
IN THE PERIOD ENDED JUNE 30, 2008

|                                                                                                              | Common Stock Shares | Par Value  0.01 | Treasury Stock | Additional Paid-In Capital | Deferred Compensation | Accumulated Deficit | Total Stockholders Equity (Deficit)
|------------------------------------------------------------------------------------------------------------- | ------------------- | --------------- | -------------- | -------------------------- | --------------------- | ------------------- | -----------------------------------
|                                                                                                              |                     |                 |                |                            |                       |                     |                                    
|Balance, October 2, 1996(date of inception).                                                                  | 1,140,427           | $11,404         |                | $459,753                   |                       | ($537,707)          | ($66,550)                          
|Issuance of common stock of Tecma Laboratories, Inc., for 100% of the Company.                                | 6,600,000           | 66,000          |                | (537,157)                  |                       | 537,707             | 66,550                             
|Issuance of common stock, in private placement, net of offering costs of $138,931                             | 594,270             | 5,943           |                | 752,531                    |                       |                     | 758,474                            
|Net loss                                                                                                      |                     |                 |                |                            |                       | (781,246)           | (781,246)                          
|Balance, June 30, 1997                                                                                        | 8,334,697           | $83,347         |                | $675,127                   |                       | ($781,246)          | ($22,772)                          
|Issuance of common stock with warrants, in private placement, net of offering costs of $84,065                | 999,502             | 9,995           |                | 791,874                    |                       |                     | 801,869                            
|Issuance of common stock for services                                                                         | 300,000             | 3,000           |                | 147,000                    |                       |                     | 150,000                            
|Issuance of common stock in connection with investment in unconsolidated subsidiary                           | 250,000             | 2,500           |                | 122,500                    |                       |                     | 125,000                            
|Repurchase of 13,750 shares of common stock                                                                   |                     |                 | (7,973)        |                            |                       |                     | (7,973)                            
|Issuance of common stock with warrants in private placement, net of offering costs of $121,138                | 1,095,512           | 10,955          |                | 659,191                    |                       |                     | 670,146                            
|Issuance of common stock for financing services                                                               | 100,000             | 1,000           |                | (1,000)                    |                       |                     |                                    
|Issuance of common stock in consideration for 100% of the common stock of Microphase Telecommunications, Inc. | 2,500,000           | 25,000          |                | 1,685,000                  |                       |                     | 1,710,000                          
|Net loss                                                                                                      |                     |                 |                |                            |                       | (4,341,059)         | (4,341,059)                        
|Balance, June 30, 1998                                                                                        | 13,579,711          | $135,797        | ($7,973)       | $4,079,692                 |                       | ($5,122,305)        | ($914,789)                         

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

69

---

mPHASE TECHNOLOGIES INC.

(A DEVELOPMENT STAGE COMPANY) 
CONSOLIDATED STATEMENTS OF CHANGES IN 
STOCKHOLDERS' EQUITY (DEFICIT) 
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996) 
TO JUNE 30, 1997 AND FOR EACH OF THE ELEVEN YEARS 
IN THE PERIOD ENDED JUNE 30, 2008

|                                                                                                | Common Stock Shares | Par Value  0.01 | Treasury Stock | Additional Paid-In Capital | Deferred Compensation | Accumulated Deficit | Total Stockholders Equity (Deficit)
|----------------------------------------------------------------------------------------------- | ------------------- | --------------- | -------------- | -------------------------- | --------------------- | ------------------- | -----------------------------------
|                                                                                                |                     |                 |                |                            |                       |                     |                                    
|Balance, June 30, 1998                                                                          | 13,579,711          | $135,797        | ($7,973)       | $4,079,692                 |                       | ($5,122,305)        | ($914,789)                         
|Issuance of common stock with warrants in private placements, net of offering costs of $107,000 | 3,120,000           | 31,200          |                | 2,981,800                  |                       |                     | 3,013,000                          
|Issuance of common stock for services                                                           | 1,599,332           | 15,993          |                | 8,744,873                  |                       |                     | 8,760,866                          
|Issuance of common stock with warrants in private placement, net of offering costs of $45,353   | 642,000             | 6,420           |                | 1,553,227                  |                       |                     | 1,559,647                          
|Issuance of common stock in private placement, net of offering costs of $679,311                | 4,426,698           | 44,267          |                | 10,343,167                 |                       |                     | 10,387,434                         
|Issuance of stock options for services                                                          |                     |                 |                | 7,129,890                  |                       |                     | 7,129,890                          
|Issuance of warrants for services                                                               |                     |                 |                | 16,302                     |                       |                     | 16,302                             
|Deferred employee stock option compensation                                                     |                     |                 |                |                            | (140,000)             |                     | (140,000)                          
|Net loss                                                                                        |                     |                 |                |                            |                       | (22,838,344)        | (22,838,344)                       
|Balance, June 30, 1999                                                                          | 23,367,741          | $233,677        | ($7,973)       | $34,848,951                | ($140,000)            | ($27,960,649)       | $6,974,006                         
|Issuance of common stock and options in settlement                                              | 75,000              | 750             |                | 971,711                    |                       |                     | 972,461                            
|Issuance of common stock upon exercise of warrants and options                                  | 4,632,084           | 46,321          |                | 5,406,938                  |                       |                     | 5,453,259                          
|Issuance of common stock in private placement, net of cash offering costs of $200,000           | 1,000,000           | 10,000          |                | 3,790,000                  |                       |                     | 3,800,000                          
|Issuance of common stock in private placement, net of cash offering costs of $466,480           | 1,165,500           | 11,655          |                | 9,654,951                  |                       |                     | 9,666,606                          
|Issuance of common stock for services                                                           | 1,164,215           | 11,642          |                | 8,612,265                  |                       |                     | 8,623,907                          
|Issuance of options for services                                                                |                     |                 |                | 9,448,100                  |                       |                     | 9,448,100                          
|Deferred employee stock option compensation                                                     |                     |                 |                | 1,637,375                  | (1,637,375)           |                     | -                                  
|Amortization of deferred employee stock option compensation                                     |                     |                 |                |                            | 551,707               |                     | 551,707                            
|Net loss                                                                                        |                     |                 |                |                            |                       | (38,161,542)        | (38,161,542)                       
|Balance, June 30, 2000                                                                          | 31,404,540          | $314,045        | ($7,973)       | $74,370,291                | ($1,225,668)          | ($66,122,191)       | $7,328,504                         

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

70

---



mPHASE TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)

TO JUNE 30, 1997 AND FOR EACH OF THE ELEVEN YEARS

IN THE PERIOD ENDED JUNE 30, 2008



|                                                                                                     | Common Stock 
  Shares | Par 
  Value  0.01 | Treasury Stock | Additional Paid-In Capital | Deferred Compensation | Accumulated Deficit | Total Stockholders Equity (Deficit)
|---------------------------------------------------------------------------------------------------- | ---------------------- | ------------------ | -------------- | -------------------------- | --------------------- | ------------------- | -----------------------------------
|                                                                                                     |                        |                    |                |                            |                       |                     |                                    
|Balance, June 30, 2000                                                                               | 31,404,540             | $ 314,045          | ($7,973)       | $74,370,291                | ($1,225,668)          | ($66,122,191)       | $7,328,504                         
|Issuance of common stock upon exercise of options                                                    | 320,000                | 3,200              |                | 324,300                    |                       |                     | 327,500                            
|Issuance of common stock with warrants in private placements, net of cash offering costs of $512,195 | 4,329,850              | 43,298             |                | 7,766,547                  |                       |                     | 7,809,845                          
|Issuance of common stock for services                                                                | 450,000                | 4,500              |                | 1,003,125                  |                       |                     | 1,007,625                          
|Issuance of options and warrants for services                                                        |                        |                    |                | 5,849,585                  |                       |                     | 5,849,585                          
|Deferred employee stock option compensation                                                          |                        |                    |                | 607,885                    | (607,885)             |                     |                                    
|Amortization of deferred employee stock option compensation                                          |                        |                    |                |                            | 1,120,278             |                     | 1,120,278                          
|Issuance of common stock in settlement of debt to directors and related parties                      | 4,840,077              | 48,402             |                | 2,371,637                  |                       |                     | 2,420,039                          
|Net Loss                                                                                             |                        |                    |                |                            |                       | (23,998,734)        | (23,998,734)                       
|Balance June 30, 2001                                                                                | 41,344,467             | $ 413,445          | ($7,973)       | $92,293,370                | ($713,275)            | ($90,120,925)       | $1,864,642                         
|Issuance of Common stock with warrants in private placement                                          | 6,980,643              | 69,807             |                | 1,903,943                  |                       |                     | 1,973,750                          
|Issuance of Common stock for services                                                                | 2,976,068              | 29,760             |                | 1,169,241                  |                       |                     | 1,199,001                          
|Issuance of options and warrants for services                                                        |                        |                    |                | 1,877,937                  |                       |                     | 1,877,937                          
|Cancellation of unearned options to former employees                                                 |                        |                    |                | (140,802)                  | 140,802               |                     |                                    
|Amortization of deferred employee stock option compensation                                          |                        |                    |                |                            | 548,550               |                     | 548,550                            
|Issuance of common stock and warrants in settlement of debt to related parties and strategic vendors | 7,492,996              | 74,930             |                | 2,663,728                  |                       |                     | 2,738,658                          
|Sale of Common stock to certain Officers and Directors in private placement                          | 2,000,000              | 20,000             |                | 980,000                    |                       |                     | 1,000,000                          
|Issuance of Common stock upon exercise of options                                                    | 13,334                 | 133                |                | 3,867                      |                       |                     | 4,000                              
|Net Loss                                                                                             |                        |                    |                |                            |                       | (11,249,387)        | (11,249,387)                       
|Balance, June 30, 2002                                                                               | 60,807,508             | $608,075           | ($7,973)       | $100,751,284               | ($23,923)             | $(101,370,312)      | $ (42,849)                         

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

71

---



mPHASE TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)

TO JUNE 30, 1997 AND FOR EACH OF THE ELEVEN YEARS

IN THE PERIOD ENDED JUNE 30, 2008



|                                                                                                     | Common Stock Shares | Par Value  0.01 | Treasury Stock | Additional Paid-In Capital | Deferred Compensation | Accumulated Deficit | Total Stockholders Equity (Deficit)
|---------------------------------------------------------------------------------------------------- | ------------------- | --------------- | -------------- | -------------------------- | --------------------- | ------------------- | -----------------------------------
|                                                                                                     |                     |                 |                |                            |                       |                     |                                    
|Balance, June 30, 2002                                                                               | 60,807,508          | $608,075        | ($7,973)       | $100,751,284               | ($23,923)             | $ (101,370,312)     | $ (42,849)                         
|Issuance of Common stock with warrants in private placement, net of Cash offering costs of $124,687  | 4,296,680           | 42,967          |                | 1,121,351                  |                       |                     | 1,164,318                          
|Issuance of Common stock for services                                                                | 426,000             | 4,260           |                | 107,985                    |                       |                     | 112,245                            
|Issuance of options and warrants for services                                                        |                     |                 |                | 274,100                    |                       |                     | 274,100                            
|Amortization of deferred employee stock option compensations                                         |                     |                 |                |                            | 23,923                |                     | 23,923                             
|Issuance of common stock and warrants in settlement of debt to related parties and strategic vendors | 5,923,333           | 59,233          |                | 1,826,329                  |                       |                     | 1,885,562                          
|Net Loss                                                                                             |                     |                 |                |                            |                       | (6,,646,185)        | (6,646,185)                        
|Balance, June 30, 2003                                                                               | 71,453,521          | $714,535        | ($7,973)       | $104,081,049               | $0                    | ($108,016,497)      | ($3,228,886)                       
|Issuance of common stock with warrants in private placement, net of cash offering costs of $313,200  | 15,177,973          | 151,779         |                | 4,322,934                  |                       |                     | 4,474,713                          
|Issuance of common stock for services                                                                | 924,667             | 9,247           |                | 238,153                    |                       |                     | 247,400                            
|Issuance of options and warrants for services                                                        |                     |                 |                | 1,067,393                  |                       |                     | 1,067,393                          
|Issuance of common stock pursuant to exercise of warrants                                            | 1,233,334           | 12,333          |                | 304,467                    |                       |                     | 316,800                            
|Issuance of common stock and warrants in settlement of debt to related parties and strategic vendors | 110,467             | 1,105           |                | 1,962,099                  |                       |                     | 1,963,204                          
|Net Loss                                                                                             |                     |                 |                |                            |                       | (7,758,586)         | (7,758,586)                        
|Balance, June 30, 2004                                                                               | 88,899,962          | $888,999        | ($7,973)       | $ 111,976,095              | $0                    | ($115,775,083)      | ($2,917,962)                       

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

72

---



mPHASE TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)

TO JUNE 30, 1997 AND FOR EACH OF THE ELEVEN YEARS

IN THE PERIOD ENDED JUNE 30, 2008



|                                                                                                                     | Common Stock Shares | Par Value  0.01 | Treasury Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders Equity (Deficit)
|-------------------------------------------------------------------------------------------------------------------- | ------------------- | --------------- | -------------- | -------------------------- | ------------------- | -----------------------------------
|                                                                                                                     |                     |                 |                |                            |                     |                                    
|Balance, June 30, 2004                                                                                               | 88,899,962          | $888,999        | ($7,973)       | $111,976,095               | ($115,775,083)      | ($2,917,962)                       
|Issuance of Shares in Private Placement                                                                              | 39,853,661          | 398,535         |                | 6,888,553                  |                     | 7,287,088                          
|Issuance of in connection with exercise of warrants                                                                  | 3,637,954           | 36,380          |                | 644,229                    |                     | 680,609                            
|Conversion of Debt to Common stock and warrants                                                                      | 3,895,171           | 38,952          |                | 1,174,134                  |                     | 1,213,086                          
|Options Awarded to Consultants                                                                                       |                     |                 |                | 2,191,043                  |                     | 2,191,043                          
|Options Awarded to Officers                                                                                          |                     |                 |                | 625,290                    |                     | 625,290                            
|Issuance of shares to Officers and consultants for services                                                          | 1,151,000           | 11,510          |                | 322,500                    |                     | 334,010                            
|Exercise of cashless warrants                                                                                        | 4,949,684           | 49,499          |                | (49,499)                   |                     |                                    
|Exercise of warrants by officers                                                                                     | 1,770,400           | 17,704          |                |                            |                     | 17,704                             
|Reparation of Private Placement Offering                                                                             | 891,000             | 8,910           |                | 176,811                    |                     | 185,721                            
|Net Loss                                                                                                             |                     |                 |                |                            | (11,234,324)        | (11,234,324)                       
|Balance June 30, 2005                                                                                                | 145,048,832         | $1,450,489      | $(7,973)       | $123.949,156               | $(127,009,407)      | $(1,617,735)                       
|Issuance of common stock pursuant to the exercise of warrants, net of cash expenses of $108,000                      | 15,720,120          | 157,201         |                | 2,850,523                  |                     | 3,007,724                          
|Issuance of common stock with warrants in private placements, net of cash expenses of $674,567                       | 72,786,897          | 727,868         |                | 9,329,781                  |                     | 10,057,649                         
|Issuance of common stock for services                                                                                | 11,500,000          | 115,000         |                | 2,324,000                  |                     | 2,439,000                          
|Conversion of related party and strategic vendor debts to common stock and warrants                                  | 3,331,864           | 33,319          |                | 556,681                    |                     | 590,000                            
|Stock options awarded to consultants, employees and officers                                                         |                     |                 |                | 3,837,423                  |                     | 3,837,423                          
|Issuance of additional shares and warrants to effect revised pricing on previous private offering charged to expense | 29,848,271          | 298,483         |                | 5,232,021                  |                     | 5,530,504                          
|Net loss                                                                                                             |                     |                 |                |                            | (24,450,650)        | (24,450,650)                       
|Balance, June 30, 2006                                                                                               | 278,235,984         | $2,782,360      | ($7,973)       | $148,079,585               | ($151,460,057)      | ($606,085)                         

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

73

---



mPHASE TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)

TO JUNE 30, 1997 AND FOR EACH OF THE ELEVEN YEARS

IN THE PERIOD ENDED JUNE 30, 2008



|                                                                                                 |             | $.01 Stated | Treasury | Additional Paid in | Deferred     | Accumulated    | Total Shareholders (Deficit)
|------------------------------------------------------------------------------------------------ | ----------- | ----------- | -------- | ------------------ | ------------ | -------------- | ----------------------------
|                                                                                                 | Shares      | Value       | Stock    | Capital            | Compensation | Deficit        | Equity                      
|                                                                                                 |             |             |          |                    |              |                |                             
|Balance June 30, 2006                                                                            | 278,235,984 | $2,782,360  | ($7,973) | $148,079,585       |              | ($151,460,057) | ($606,085)                  
|Issuance of common stock pursuant to the exercise of warrants (net of cash expenses of $150,000) | 14,740,669  | $147,406    |          | $1,922,261         |              |                | $2,069,667                  
|Issuance of common stock in private placements, (net of cash expenses of $216,134)               | 47,958,060  | $479,581    |          | $5,711,788         |              |                | $6,191,369                  
|Issuance of common stock for services                                                            | 18,172,983  | $181,730    |          | $2,486,885         | ($627,250)   |                | $2,041,365                  
|Conversion of related party and strategic vendor debt to common stock                            | 6,073,728   | $60,737     |          | $930,972           |              |                | $991,709                    
|Issuance of additional shares and warrants to effect repricing                                   | 22,664,580  | $226,646    |          | $1,647,374         |              |                | $1,874,020                  
|Stock options awarded to employees and officers                                                  |             |             |          | $1,321,853         |              |                | $1,321,853                  
|Deferred stock compensation                                                                      |             |             |          |                    | $213,166     |                | $213,166                    
|Net Loss                                                                                         |             |             |          |                    |              | ($16,851,562)  | ($16,851,562)               
|Balance June 30, 2007                                                                            | 387,846,004 | $3,878,460  | ($7,973) | $162,100,718       | ($414,084)   | ($168,311,619) | ($2,754,498)                

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

74

---

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

|                                                          |             |             |          |                 |              |                | Total       
|--------------------------------------------------------- | ----------- | ----------- | -------- | --------------- | ------------ | -------------- | ------------
|                                                          |             |             |          | Additional Paid |              |                | Shareholders
|                                                          |             | $.01 Stated | Treasury | in              | Deferred     | Accumulated    | (Deficit)   
|                                                          | Shares      | Value       | Stock    | Capital         | Compensation | Deficit        | Equity      
|Balance June 30, 2007                                     | 387,846,004 | $3,878,460  | ($7,973) | $162,100,718    | ($414,084)   | ($168,311,619) | ($2,754,498)
|Issuance of common stock
    in private placements net of |             |             |          |                 |              |                |             
|$116,253 offering cost                                    | 24,600,000  | $246,000    |          | $898,247        |              |                | $1,144,247  
|Exercise of Warrants net
    of Offering Cost $72,222     | 11,111,113  | $111,111    |          | $538,889        |              |                | $650,000    
|Common shares in
    settlement of accrued expenses       | 1,019,200   | $10,192     |          | $89,808         |              |                | $100,000    
|Issuance of additional
    shares effect repricing        | 4,663,741   | $46,637     |          | $345,401        |              |                | $392,038    
|Stock options/ warrants
    awarded to employees and      |             |             |          |                 |              |                |             
|investors                                                 |             |             |          | $85,682         |              |                | $85,682     
|Stock based compensation                                  | 1,000,000   | 10,000      |          | $90,192         |              |                | $100,192    
|Amortization of deferred
    stock compensation           |             |             |          |                 | $414,084     |                | $414,084    
|Investment in Granita                                     |             |             |          | $514,000        |              |                | $514,000    
|Conversion of debt                                        | 4,904,942   | $49,050     |          | $192,073        |              |                | $241,123    
|Cost related to
    convertible debt financing            | 5,250,000   | $52,500     |          | $212,500        |              |                | $265,000    
|Net Loss                                                  |             |             |          |                 |              | ($3,956,721)   | ($3,956,721)
|Balance June,30, 2008                                     | 440,395,000 | $4,403,950  | ($7,973) | $165,067,510    | $0           | ($172,268,340) | ($2,804,853)

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

75

---

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

|                                                           |               |                     |              | October 2, 1996    
|---------------------------------------------------------- | ------------- | ------------------- | ------------ | -------------------
|                                                           |               | For The Years Ended |              | (Date of Inception)
|                                                           |               | June 30,            |              | To June 30,        
|                                                           | 2006          | 2007                | 2008         | 2008               
|Cash
    Flow From Operating Activities:                   |               |                     |              |                    
|Net Loss                                                   | ($24,450,650) | ($16,851,562)       | ($3,956,721) | ($172,268,340)     
|Adjustments to reconcile net loss to net cash used in      |               |                     |              |                    
|operating activities:                                      |               |                     |              |                    
|Depreciation and amortization                              | 206,935       | 218,237             | 246,355      | $7,282,357         
|(Gain) loss on debt
    extinguishments                    |               |                     |              | ($772,216)         
|                                                           |               |                     |              |                    
|Non-cash charges
    relating to issuance of common stock, |               |                     |              |                    
|common
    stock options and warrants                      | 6,276,423     | 3,363,218           | 185,874      | $62,620,468        
|Reparation charges                                         | 5,530,504     | 1,874,020           | 392,038      | $7,796,562         
|Derivative Value and Debt Discount charges                 |               |                     | (1,188,597)  | ($1,188,597)       
|Write off of Granita
    Inventory                         |               |                     | 505,910      | $505,910           
|Other
    non cash charges including amortization of       |               |                     |              |                    
|deferred compensation                                      |               | 213,166             | $414,084     | $1,015,065         
|Changes
    in assets and liabilities:                     |               |                     |              |                    
|Accounts receivable                                        | 887,604       | 104,276             | (2,039)      | $423,876           
|Inventories                                                | 328,872       | (344,640)           |              | ($510,471)         
|Prepaid expenses and
    other current assets              | (23,905)      | (325,808)           | 320,703      | ($40,821)          
|Loss on
    Unconsolidated Subsidary and Other             |               |                     |              | $906,535           
|                                                           |               |                     |              |                    
|Accounts payable,
    Accrued expenses, Deferred revenue   | 785,006       | 2,084,440           | (746,694)    | $8,034,560         
|Due
    to/from related parties                            |               |                     |              |                    
|Microphase / Janifast//Lintel                              | (546,343)     | 73,742              | (249,835)    | $5,378,063         
|Officers
    and Other                                     | (23,400)      | 528,100             | 427,597      | $1,435,253         
|Net cash used in
    operating activities                  | ($11,028,954) | ($9,062,811)        | ($3,651,325) | ($79,381,796)      
|                                                           |               |                     |              |                    
|Cash Flow from
    Investing Activities:                   |               |                     |              |                    
|Payments
    related to patents and licensing rights       |               | -                   |              | ($450,780)         
|Purchase of fixed assets                                   | ($340,493)    | ($114,480)          | ($61,832)    | ($3,279,387)       
|Investment in Sovereign                                    |               |                     | (110,000)    | (110,000)          
|Net Cash (used) in
    investing activities                | ($340,493)    | ($114,480)          | ($171,832)   | ($3,840,167)       
|                                                           |               |                     |              |                    
|Cash Flow from
    Financing Activities:                   |               |                     |              |                    
|Proceeds
    from issuance of common stock,                |               |                     |              |                    
|exercises warrants and
    finders fees, net               | $13,065,375   | $7,761,037          | $2,294,247   | $81,986,852        
|Payments
    of short term notes                           | (372,479)     | (241,418)           | (379,848)    | ($1,281,552)       
|Advances from Microphase                                   |               |                     |              | $347,840           
|Issuance
    of Convertible Debentures                     |               |                     | 154,000      | $154,000           
|Net Proceeds (Repayment)
    from notes payable related    |               |                     |              |                    
|parties                                                    | (314,709)     | 321,000             | (116,962)    | $174,329           
|Proceeds of Long Term
    Convertible Debentures           |               |                     | 1,350,000    | $1,350,000         
|Sale of
    minority interest in Granita subsidiary        |               |                     | 514,000      | $514,000           
|Repurchase of treasury
    stock at cost                   |               |                     |              | ($7,973)           
|Net
    cash provided by financing activities              | $12,378,187   | $7,840,619          | $3,815,437   | $83,237,496        
|                                                           |               |                     |              |                    
|Net
    increase (decrease) in cash                        | $1,008,740    | ($1,336,672)        | ($7,720)     | $15,533            
|CASH AND CASH
    EQUIVALENTS, beginning of                | $351,185      | $1,359,925          | $23,253      |                    
|                                                           |               |                     |              |                    
|CASH AND CASH
    EQUIVALENTS, end of period               | $1,359,925    | $23,253             | $15,533      | $15,533            

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

76

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

1. ORGANIZATION AND NATURE OF BUSINESS mPhase, a New Jersey corporation
founded in 1996, is a publicly-held company with over 19,000 shareholders and
approximately 442 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.

The Company is in the development stage and historically has
focused much of its' efforts in the commercial deployment of its TV+ products
for delivery of broadcast IPTV, and DSL component products which include POTS
splitters. Beginning in 2004, the Company added a new line of power cell
batteries and electronic sensors (magnetometers) being developed through the use
of Nanotechnology. Since mPhase is in the development stage, the accompanying
consolidated financial statements should not be regarded as typical for normal
operating periods.

The Company has recently shifted its primary business focus
to the development of battery technology and using the science of nanotechnology
has developed a battery that has a significantly longer shelf life prior to
activation than conventional batteries. In addition, such battery product,
unlike conventional batteries, is capable of being disposed of after use without
harm to the environment.

On April 17, 2007, the Company announced that it had formed
AlwaysReady, Inc., a New Jersey Corporation, as a new wholly-owned subsidiary.
The Company plans to transfer all of its nanotechnology assets and appropriate
liabilities to such company so as to separate its nanotechnology product line
from its IPTV product. Management and staff of AlwaysReady Inc have been hired,
however, during the fiscal year ended June 30, 2008 the Company funded the all
the operations of Always Ready, Inc and no assets or liabilities have been
transferred.

On June 20, 2007, the Company announced the formation of a new subsidiary,
Granita Media, Inc. ("Granita"), a Delaware corporation, to promote and develop
its IPTV product line including targeted advertising. and middleware solution.
Capitalization of Granita amounted to $514,000 of equity, provided by employees
and independent investors. During FYE June 30, 2008, related assets and
liabilities were transferred to Granita and its results consolidated into the
these financial statements. Additional funding was to have been arranged from
outside institutional financing and potentially involve the sale of up to 10% of
the common stock of Granita with mPhase retaining 90% of the stock of Granita.
Owing to very challenging conditions in the capital markets, Granita was unable
to raise funds necessary to operate as a self sufficient enterprise and fund the
additional software development necessary for a targeted advertising enhancement
capability of its TV+ solution. In order to conserve financial resources, all
employees of Granita were either terminated or had resigned by December 31,
2007. (see also footnote #6)We are
headquartered in Norwalk, Connecticut with offices in Little Falls, NJ and New
York, NY. mPhase shares common office space with Microphase Corporation, a
privately held company. Microphase is a leader in the field of radio frequency
and filtering technologies within the defense and telecommunications industry.
It has been in operation for over 50 years and has supported mPhase with
engineering, administrative and financial resources.

2. LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENT'S PLANS

Through June 30, 2008, the Company incurred development stage losses totaling
approximately $172 million and at June 30, 2008 had a working capital deficit of
$3,853,019. Funding in our tradition capital markets was difficult during FYE
2008. Management of the Company desired to avoid unnecessary dilution by issuing
large amounts of equity at depressed prices to raise larger sums of cash.
Alternatively the Company was able to enter into Convertible Debt arrangements
with independent investors to provide liquidity and capital resources during the
year. Such arrangements not only provided the Company with cash ($1,350,000) but
also with an equity line of credit of up to $7 million (inclusive of funds
received). These arrangements will likely provide much of the working capital
anticipated to be needed during the next FYE (See Footnote #8). In addition and
from time to time during FYE 2008, the Company raised necessary working capital
via bridge loans from officers. Such loans have subsequently been repaid (see
notes payable to officers).

The Company is currently focused upon development and
commercialization of its "Always Ready" battery product developed using the
science of nanotechnology. The Company believes that such battery has a much
longer shelf life than conventional batteries and will have significant
commercial and military applications. The Company has temporarily suspended, to
conserve financial resources, development of its magnetometer sensor devices
also developed using the science of nanotechnology. In addition, although the
Company has suspended all activity related to its IPTV business, it continues to
believe that the intellectual property created over years of development of its
TV+ solution may have significant value as the market for IPTV further develops.

77

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

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) successfully market and sell its products. The
Company believes that it will be able to complete the necessary steps in order
to meet its cash flow requirements throughout fiscal 2009 and continue its
development and commercialization efforts.

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 required, to permit the Company to
realize its plans. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION 
The consolidated financial statements include the accounts of mPhase, it's
wholly-owned and majority owned subsidiaries. Significant inter-company accounts
and transactions have been eliminated in consolidation.

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 period.
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.

STOCK BASED COMPENSATION 
On July 1, 2005, the Company adopted the provisions of Financial Accounting
Standards Board Statement No. 123R,"Share-Based Payment" (SFAS 123R).
SFAS 123R revised SFAS 123, "Accounting for Stock Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS
123R requires companies to measure and recognize compensation expense for all
employee stock-based payments at fair value over the service period underlying
the arrangement. Therefore, the Company is now required to record the grant-date
fair value of its stock-based payments (i.e., stock options and other
equity-based compensation) in the statement of operations. Effective, July
1,2005, the Company adopted FAS 123R using the "modified prospective" method,
and has recorded as an expense the fair value of all stock based grants to
employees after such date The Company has not restated its operating results for
any prior fiscal year end or quarter.

PROPERTY AND EQUIPMENT 
Property and equipment is recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of three to five years.

REVENUE RECOGNITION 
As required, mPhase has adopted the Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in Financial
Statements," which provides guidelines on applying generally accepted accounting
principles to revenue recognition based on the interpretations and practices of
the SEC. Revenue related to research agreements relative to its nanotechnology
line are amortized over the term of the agreement on a straight line basis

RESEARCH AND DEVELOPMENT 
Research and Development cost are charged to operations when incurred. The
amounts charged to expense for the years ended 2006, 2007, 2008 and inception to
date were $8,034,964, $6,393,215, $988,091 and $58,960,508, respectively.

PATENTS AND LICENSES 
Patents and licenses are capitalized when mPhase determines there will be a
future benefit derived from such assets, and are stated at cost. Amortization is
computed using the straight-line method over the estimated useful life of the
asset, generally five years. Amortization expense was $55,987, $36,439, and
$51,140 for the years ended June 30, 2006, 2007, and 2008, respectively. As of
June 30, 2008, the book value of such assets has been fully amortized.

78

---

mPHASE TECHNOLOGIES, INC. 
DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2008

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

INVENTORIES 
The Company uses the First In First Out method (FIFO) to account for inventory
which is carried at cost As of June 30, 2007 Inventory consisted primarily of
component parts being assembled on location in anticipation of deployment of
specific IPTV systems. Appropriate reserves have been taken to assure that the
cost of such inventory does not exceed the value of the underlying contract.
During the year ended June 30, 2008, the Company determined that the value of
inventory related to IPTV had been impaired and charged to earnings all
associated amounts ($505,910)

LONG-LIVED ASSETS 
In August 2001, the FASB issued Statement No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets," which became effective for the Company July
1, 2002 for the fiscal years ended June 30, 2005, June 30, 2006 thru June 30,
2008. The Company assesses long-term assets for impairment under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No.
144, the Company reviews long-term assets for impairment whenever events or
circumstances indicate that the carrying amount of those assets may not be
recoverable. The Company also assesses these assets for impairment based on
their estimated future cash flows.

REPARATION EXPENSE 
As an incentive for additional equity contributions, the Company will from time
to time, adjust the cost of past private purchases of common stock through the
issuance of additional shares in such magnitude as to reduce an investors cost
to an average price that more closely approximates current market value. The
market value of additional shares issued without cash investment is charged to
Reparation Expense, which is included in Other Expenses. Reparations expenses
have amounted to $5,530,504, $1,874,020, $392,038 and $7,796,562 for the years
ended 2006, 2007, 2008 and inception to date, respectively.

LOSS PER COMMON SHARE, BASIC AND DILUTED 
mPhase 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 since their effect is anti-dilutive.

BUSINESS CONCENTRATIONS AND CREDIT RISK 
To date the Company's products have been sold to a limited number of customers,
primarily in the telecommunications and defense industry. The Company had
revenue from two customers of 48% and 22% during the fiscal year ended June 30,
2007. During the year ended the June 30, 2008 all revenue is attributable to
research contracts with the US Army

Throughout the year, cash may exceed FDIC insured limits. The Company
maintains cash balances at financial institutions. The balances are insured by
the Federal Deposit Insurance Corporation up to $100,000. Cash balances exceeded
FDIC insured limits at times throughout the years ended June 30, 2007 and 2008.

|SUPPLEMENTAL CASH
    FLOW INFORMATION                |          |          |           
|----------------------------------------------------- | -------- | -------- | ----------
|                                                      |          |          |           
|                                                      | 2006     | 2007     | 2008      
|Interest Paid                                         | $34,569  | $18,310  | $214.878  
|Non Cash Investing and
    Financing Activities:      |          |          |           
|Conversion of vendor
    debt to equity               | $590,000 | $991,709 | $0        
|Conversion of
    convertible debt                    |          |          | $241,123  
|Shares issued relative
    to debt financing          |          |          | $265,000  
|Shares issued in settlement of accrued expenses       |          |          | $100,000  
|Convertible notes payable issued for notes receivable |          |          | $2,000,000

79

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

4. PROPERTY AND EQUIPMENT

Property and equipment, at cost, consist of the following:

|                                      | 2007      | 2008     
|------------------------------------- | --------- | ---------
|Research Equipment                    | $470,939  | $505,905 
|Office and Marketing                  | 195,900   | 224,998  
|Gross Cost                            | 666,839   | 730,903  
|Less
    Accumulated
    Depreciation | (384,038) | (581,485)
|Net
    Property and Equipment        | $282,801  | $149,418 

Depreciation expense for the years ended June 30, 2006,
2007and 2008 was $206,935, $218,237 and $246,355 respectively, of which
$128,519, $124,382 and $101,024 respectively, relates to research laboratory and
testing equipment included in research and development expense.

5. ACCRUED EXPENSES

Accrued expenses consist of the following:

|                    | 2007     | 2008    
|------------------- | -------- | --------
|Lucent Projects (a) | $400,000 |         
|Finders Fees        | $250,000 | $160,000
|Other Projects      | $283,145 | $228,444
|Total               | $933,145 | $388,444

|(a) Based on an estimate continued
    work relating to the Magnetometer.
    Such project was abandoned without
    liability and reversed in FYE 2008
|-------------------------------------------------------------------------------------------------------------------------------------------------------

6. GRANITA MEDIA

Effective July 1, 2007, the Company formed Granita Media, Inc. to separate
its IPTV business and facilitate the raising of capital. Pursuant to an
arrangement with 4 employees of mPhase, such employees were terminated from
mPhase as of July 1, 2007 and became employees of Granita Media Inc and invested
solely in the common stock of Granita Media Inc. Under the arrangement, each of
the 4 employees were required to invest $125,000 in exchange for an aggregate 2%
equity interest in Granitia Media, Inc with mPhase continuing to own 98% of the
Company. The 4 employees contributed a total of $339,000 of the total $500,000
equity investment required from them and raised from third party investors
another $175,000 for a total of $514,000 Granita Media has 19,000,000 shares of
common stock outstanding of which 18,000,000 was owned by mPhase Technology and
1,000,000 is being held for issuance the 4 employees and the third party
investors pending an agreement among such persons of the allocation of such
shares.

Under the terms of the arrangement between mPhase and the 4 employees, such
employees were authorized to sell up to 7.99% of additional equity in the
Company for a total of not less than $2,000,000 of additional capital by
December 31, 2007. As noted above, the employees raised a total of $175,000 of
outside capital only and pursuant to the arrangement, such employees either
resigned or were terminated by mPhase together with several lower level
employees of Granita. A dispute has arisen between Granita Media and one of the
former employees with respect to a sum of approximately $168,000 included in
short term loans. It is the Company's position that such sums were voluntarily
advanced to fund operating expenses after July 1, 2007. Since the 4 employee /
officers of Granita Media were required to cover operating expenses of Granita
Media after July 1, 2007 through equity investments either directly or from
third parties, the Company has taken the position that such amount nor any
related interest and fees are not owed to the employee. In addition, the Company
has substantial rights of offset for unpaid rent with respect to the portion of
its Little Falls office occupied by Granita Media after July 1, 2007.

80

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

During the twelve month period ended June 30, 2008, Granita Media Inc
sustained losses estimated to be $762,000, had exhausted all cash resources and
was past due on payables to key vendors. In October, 2007, Granita Media
received notice that its test system being deployed at Comstar/Odessa, a major
telephone service provider in the Ukraine was being replaced by a system of
another vendor used by its parent company in Russia. This event, together with
the inability of the 4 employees to successfully arrange not less than $2
million of additional equity financing under their arrangement with the Company
to fund operating expenses of Granitia Media, Inc, prompted a suspension of
operations and the resignation by all of the 4 employees the termination and all
other technical employees. The Company is currently undergoing a review of
strategic alternatives including the licensing of technology developed for the IPTV product and the potential of moving forward with its Targeted Advertising
addition to such product.

7. SHORT TERM NOTES PAYABLE

|Short term debt is comprised of the
    following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | June 30, | June 30,
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | --------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 2007     | 2008    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |          |         
|Note payable to Granita Employee (See
    note #6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |          | $175,820
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |          |         
|Note payable to law firm bearing 8% interest, originally monthly
    installments of $5,000 per month commencing in June 2002 and continuing
    through December 1, 2003 with a final payment of principal plus accrued
    interest due at maturity on December 31, 2003, this note was in arrears as
    of June 30, 2004 and the company negotiated a new settlement arrangement as
    of August 31, 2004. Under such settlement agreement, the Company made a
    $100,000 cash payment and gave a cashless warrant to purchase $150,000 worth
    of common stock valued at $.25 per share. In addition, the Company agreed to
    pay $25,000 on each of December 1, 2004, March 1, 2005, June 1, 2005,
    September 1, 2005 and $50,000 on December 1, 2005. Thereafter, the Company
    was 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
    ($10,000 paid in 2008). The Company is currently in default | $75,000  | $65,000 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |          |         
|Notes Payable Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $1,640   | -0-     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |          |         
|Total Short Term Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $76,640  | $240,820

8. STOCKHOLDERS' EQUITY

mPhase initially authorized capital of 50,000,000 shares of common stock with
no par value. On February 23, 2000, the Board of Directors proposed and on May
22, 2000 the shareholders approved an increase in the authorized capital to
150,000,000 shares of common stock. On June 15, 2004, a Special Meeting of
Shareholders of the Company approved a proposal by the Company to amend the
Company's Certificate of Incorporation under New Jersey law to increase the
authorized shares of common stock from 150 million to 250 million shares and
change the par value of all shares of common stock from no par to $0.01 par
stock.. Effective, June 30, 2005 and June 2006, the Company received
authorization to increase the number of authorized shares to 500 million and 900
million respectively. (See also subsequent events)

During the Fiscal Year Ending June 30, 2008 the following transactions
impacted stockholders equity

Private PlacementsDuring the quarter ended September 30, 2007, the Company issued 500,000
shares of its common stock in private placements generating net proceeds of
$50,000 During the quarter ended December 31, 2007, the Company issued 850,000
shares of its common stock in private placements generating net proceeds of
$48,000 During the quarter ended June 30, 2008, the Company issued 23,250,000
shares of its common stock in private placements generating net proceeds of
$1,162,500.

Exercise of WarrantsDuring the quarter ended June 30, 2008, 11,111,112 warrants to purchase
common stock were exercised and additional warrants of 11,111,112 issued. Such
transaction generated net proceeds of $650,000.

81

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

Other Equity Transactions During the year months ended, June 30, 2008, the Company issued 1,000,000
shares of stock, 110,000 of options to purchase common stock valued at $100,192
to individuals. In addition, it issued 4,663,741 shares of common stock valued
at $392,038 to reflect re-pricing agreements, 1,109,200 shares were issued to
pay for finders fees valued at $100,000 and issued 5,250,000 shares of common
stock valued at $265,000 in connection with debt financing arrangement (see
convertible debt below) The fair value of shares issued was estimated as of the
date of grant using the Black-Scholes pricing model, based on the following
weighted average assumptions: annual expected return of 0%, annual volatility of
ranging between 70 -79 %, based on a risk-free interest rate of 2.25% and
expected option life of 5 years

Investment in Granita Media incAn investment of $514,000 was received by Granita Media, Inc, a subsidiary
formed July 1, 2007, to operate its IPTV business. Since the company remains the
controlling shareholder in Granita Media and such results are consolidated, this
investment is included in Additional Paid In Capital.

Convertible Debt Short TermIn September, 2007, the Company received proceeds of $154,000 of convertible
debt bearing interest at an annual rate of 15% and due September 1, 2008. Such
debt may be converted into the Company's common shares at a price equal to a 20%
discount from the 20 day average bid and ask price. Such election is at the
option of the Company on September 1, 2008. In March 2008, $100,000 of such debt
was converted into 2,727,264 shares of common stock.

Long Term Convertible Debentures / Note Receivable / Debt DiscountDuring Fiscal Year ended June 30, 2008 the Company entered into three
separate convertible debt arrangements with independent investors. These
transactions are intended to provide liquidity and capital to the Company and
are summarized below.

Arrangement #1

In December, 2007, the Company received proceeds of $500,000
under a Securities Purchase Agreement. This transaction involves three related
agreements: 1) A Securities Purchase Agreement which may under certain
circumstances permit the Company to draw up to $6,000,000 of funds; 2) A
Convertible Debenture in the amount of $1.5 million, with an interest rate of 7
1⁄4% and a maturity date of December 11, 2010 and 3) A Secured Note Receivable in
the amount of $1.0 million, with an interest rate of 8 1⁄4 % and a maturity date
of February 1, 2011 due from the same parties who are the holders of the
Convertible Debentures

Conversion of outstanding debentures into common shares is at
the option of the holder. The number of shares into which this debenture can be
converted is equal to the dollar amount of the debenture divided by the lesser
of $.35 per share or 80% of the 3 lowest Volume Weighted Average Prices during a
20 day trading period. At the time of the transaction (December 11, 2007) the
derivative value of this security was calculated to be $1,678,471. On June 30,
2008, given the decrease in the stock price, this value had decreased to
$322,636 creating a non-cash credit to earnings over the year of $1,355,835 In
addition, the transaction resulted in a note discount of $1.5 million which is
being amortized as expense over the life of the loan.

During the fourth quarter of FYE 2008, $135,000 of such debt
was converted into 2,177,723 shares of common stock and the Company received a
$50,000 payment under the provisions of the related Note Receivable.
Subsequently, through September 18, 2008, an additional $560,000 was converted
into 14,792,000 shares and the Company received additional payments of $700,000
of its Note Receivable. The Note Receivable is secured by all the assets of
Golden Gate. It should also be noted that the holder has the right to offset
unpaid principal amount against the note receivable as well as receive certain
compensatory fees in the event of a default.

Arrangement #2

In February 2008, the Company entered into a Convertible
Debenture transaction which involved the receipt of $500,000 cash, a note
payable of $550,000 and the issuance of 3,250,000 shares of stock valued at
$260,000. The relative fair value of the share discount was $105,000 as of June
30, 2008. The terms of the debenture provide for a 7.5% interest rate, a due
date of February 2012 and allow similar conversion privileges equal to 75% of
the average of the three lowest prices over a 20 day period. The derivative
value of such security was estimated to be $581,428 on the date of issuance. On
June 30, 2008, this value had decreased to $142,593 creating a non cash credit
to earnings of $438,835. The cost of the shares issued and related debt discount
is being amortized to expense over the life of the debenture. In the event of
default under the note payable the holder is entitled to certain compensatory
fees.

82

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

Arrangement #3

In April, 2008, the Company received proceeds of $300,000
under a Securities Purchase Agreement. This transaction involves three related
agreements: 1) A Securities Purchase Agreement which may under certain
circumstances permit the Company to draw up to $1,000,000 of funds; 2) Two
Convertible Debentures totaling $1,450,000, with a one time interest factor of
12% and a maturity date of March 25, 2011 and 3) A Secured Note Receivable in
the amount of $1.0 million, with a one time interest factor of 13.2 % and
maturity dates of March 25, 2012 due from the same parties who are the holders
of the Convertible Debentures.

Conversion of outstanding debentures into common shares is at
the option of the holder. The number of shares into which this debenture can be
converted is equal to the dollar amount of the debenture divided by 75%- 80% of
the 3 lowest Volume Weighted Average Prices during a 20 day trading period. At
the time of the transaction the derivative value of this security was calculated
to be $2,493,212. On June 30, 2008, given the decrease in the stock price, this
value had decreased to, $284,922 creating a non-cash credit to earnings over the
year of $2,208,290. In addition, the transaction resulted in a note discount
which is being amortized as expense over the life of the loan. Draws under the
Note Receivable are not anticipated until October 2008 and is collateralized by
$1 million of Blue Chip Stocks. In total 2 million shares were issued in
connection with the convertible debenture with a relative fair value of $160,000
included in debt discount.

During the Fiscal Year Ending June 30, 2007 the following transactions
impacted stockholders equity.

Private Placements: During the quarter ended September 30, 2006, the Company issued 6,780,716
shares of its common stock together with 5,555,556 of 5 year warrants to
purchase one share each of the Company's common stock, with an exercise price of
$.18 per share in private placements generating net proceeds of $1,104,000.

During the quarter ended December 31, 2006, the Company
issued 6,622,223 shares of its common stock together with 5 year warrants to
purchase 1,388,889 of the Company's common stock, with an exercise price of $.18
per share in private placements generating net proceeds of $833,866. Included in
these amounts are finders fees paid in cash and 566,667 additional shares of
common stock.

During the quarter ended March 31, 2007, the Company issued 14,973,083 shares
of its common stock. Private placements generating net proceeds of $1,777,503;
included in this amount is an estimate of finder's fees to be paid of $209,000.

During the quarter ended June 30, 2007, the Company issued 19,582,038 shares
of its common stock. Private placements generating net proceeds of $2,476,000;
included in this amount is an estimate of finder's fees to be paid of $41,000

Warrants Exercised: During the quarter ended September 30, 2006, the Company issued 138,889
shares of its common stock pursuant to the exercise of warrants, generating net
proceeds of $25,000 to the Company.

During the quarter ended December 31, 2006, the Company
issued 12,101,780 shares of its common stock pursuant to the exercise of
warrants, generating net proceeds of $1,669,667 to the Company. In addition, the
Company issued to certain investors new 5 year warrants to purchase 11,111,112
of the Company's common stock, with exercise prices ranging from $.15 - $.18 per
share.

During the quarter ended March 31, 2007, the Company issued 2,500,000 shares
of its common stock pursuant to the exercise of warrants, generating net
proceeds of $375,000 to the Company.

Options and Stock Based Compensation During the twelve months ended June 30, 2007, the Company authorized the
issuance of 10,455,000 in options and warrants of 2,821,113 to employees,
officers, and consultants granting the right to purchase a like amount of common
shares. Pursuant to the adoption of FAS 123(R), the Company recognized an
expense in the amount of $1,321,853, all of which has been included in general
and administrative expense. The fair value of options granted was estimated as
of the date of grant using the Black-Scholes stock option pricing model, based
on the following weighted average assumptions: annual expected return of 0%,
annual volatility of ranging between 80% -95%, based on a risk-free interest
rate of 4.8% and expected option life of 5 years. During the twelve months ended
June 30, 2007, the Board of Directors authorized the issuance of 18,172,983
shares of common stock, with an aggregate value of $2,041,365 as compensation to
consultants and employees. The stock value ranged in price from $.12 to $.20 per
share, the fair value on the date of the awards.

Debt Conversions During the twelve months ended June 30, 2007, the Company converted accounts
payable of $991,709 into 6,073,728 shares of common stock.

83

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

Reparations During the twelve month period ended June 30, 2007, the Company became
obligated to issue 22,664,580 of its common stock as reparation to affect
revised pricing on previous private placements. This additional consideration
was afforded to past investors who agreed to make an additional cash investment
as part of a new private placement. The cost of such consideration was estimated
to be the fair value of such shares at the time of the investment, or
$1,874,020.

Conversions, Settlements and Gain on Extinguishments As a result of the preceding, during the three years ended June 30, 2008,
extinguishments, cancellations and conversions of debt for issuance of the
Company's common stock to related parties is summarized in Note 11 and amounts
relating to strategic investors is summarized as follows:

|                                                      | For the Years Ended June 30,
|----------------------------------------------------- | ----------------------------
|Equity Conversions of
    Debt with Strategic Vendors | 2006                        
|                                                      |                             
|                                                      |                             
|Number of Shares                                      | 3,331,864                   
|                                                      |                             
|Number of Warrants                                    | 3,277,778                   
|                                                      |                             
|Amount Converted to Equity                            | $590,000                    
|                                                      |                             
|Gain
    on Extinguishments of Debt                   | $30,608                     

The Company has no commitments from affiliates or related parties to provide
additional financings. The Company has, from time to time, been able to obtain
financings from affiliates when conditions in the capital markets make third
party financing difficult to obtain or when external financing is available only
upon very unattractive terms to the Company, and when such capital has been
available from the affiliates.

84

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

STOCK INCENTIVE PLANS

A summary of the stock option activity for the years ended June 30, 2007 and,
2008 pursuant to the terms of both plans, which include incentive stock options
and non-qualified stock options, is set forth on the below:

|                             |            | Weighed 
|---------------------------- | ---------- | --------
|                             |            | Average 
|                             | Number     | Exercise
|                             | of Options | Price   
|                             |            |         
|Outstanding at June 30, 2006 | 43,473,000 | $.26    
|Granted                      | 8,855,000  | $0.21   
|Exercised                    |            |         
|Cancelled/Expired            | 6,435,000  | $0.81   
|Outstanding at June 30, 2007 | 45,893,000 | $0.25   
|Granted                      | 85,000     | $0.15   
|Exercised                    |            |         
|Cancelled/Expired            | 0          | 0       
|Outstanding at June 30, 2008 | 45,978,000 | $0.25   

The fair value of options granted in fiscal year ended June 30, 2007 and 2008
was estimated as of the date of grant using the Black-Scholes stock option
pricing model, based on the following weighted average assumptions: annual
expected return of 0%, an average life of 5 years, annual volatility of 79% and
71% and a risk-free interest rate 4.8% and 2.25% in the years 2007 and 2008
respectively.

The following summarizes information about stock options outstanding at June
30, 2008:

|RANGE OFEXERCISE
    PRICE | NUMBER
    OUTSTANDING | WEIGHTED
    AVERAGE
    REMAINING
    CONTRACTUAL
    LIFE | WEIGHTED
    AVERAGE
    EXERCISE
    PRICE | NUMBER
    EXERCISABLE | WEIGHTED
    AVERAGE
    EXERCISE
    PRICE
|-------------------------- | ---------------------- | ----------------------------------------------------------- | ------------------------------------------- | ---------------------- | -------------------------------------------
|$.13 -
    $.45            | 45,373,000             | 2.4
    years                                               | $.25                                        | 45,373,000             | $.25                                       

WARRANTS During The fiscal year ended June 30, 2008 the company issued 13,104,168 of
warrants at exercises prices ranging from $.05 to $.15.and 5,271,740 warrants
expired. In addition the Company received a total of $650,000 (net of fees)
through the exercise of 11,111,113 warrants.

During The fiscal year ended June 30, 2007 the company issued
19,862,781 of warrants at exercises prices ranging from $.17 to $.25.and
10,165,399 warrants expired or were cancelled. In addition the Company received
a total of $2,069,667 through the exercise of 14,740,669 warrants.

As of June 30, 2008 and 2007 warrants covering 146,146,505
and 150,818,245 shares remain outstanding with a weighted average exercise price
of $.21 and $.22 respectively.



85

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

9. RELATED PARTY TRANSACTIONS

Mr. Durando, the President and CEO of mPhase together with
Mr. Ergul own a controlling interest and are officers of Janifast Limited. Mr.
Durando and Mr. Dotoli are officers of Microphase Corporation. Mr. Ergul,
retired as the chairman of the board of mPhase in Nov 2007, owns a controlling
interest and is a director of Microphase Corporation,

Mr. Abraham Biderman was employed until September 30, 2003 by
our former investment-banking firm Lipper & Company. During the fiscal year
ended June 30 2007, Mr. Biderman's current firm Eagle Advisers, Inc. has acted
as a finder of money in connection with finder's fees of $520,000, as well as
addition administrative and occupancy charges of $43,400. In 2008, Mr Biderman
was paid $188,472 of finders fees.

In addition, at various points during fiscal year ended June 30, 2008,
Messrs. Durando, Dotoli and Smiley provided $650,000 in bridge loans to the
Company which was evidenced by individual promissory notes. During December
2006, Messrs Durando and Dotoli agreed to convert their notes, in the amounts of
$130,000 and $200,000 respectively, to a deferred compensation arrangement, the
repayment terms of which have not been specified. Mr. Smiley has extended bridge
loans to the Company of $160,000, evidenced by promissory notes for $101,000 and
a $60,000 note with a 12% rate of interest. In summary, as of June 30, 2008,
bridge loans outstanding were $85,000,$75,000 and $161,000 to the Messrs.
Durando, Dotoli and Smiley, respectively. All of the foregoing promissory notes
are payable on demand.

JANIFAST

During the year ended June 30, 2000, mPhase advanced money to Janifast
Limited, which is owned by U.S. Janifast Holdings, Ltd, a related party of which
three directors of mPhase are significant shareholders, in connection with the
manufacturing of POTS Splitter shelves and DSL component products. As of June
30, 2000 the amount advanced to Janifast was approximately $1,106,000, which is
included in production advances-related parties on the accompanying balance
sheet. There were no such advances during the years ended June 30, 2002 and
2003. Pursuant to debt conversion agreements between the Company and Janifast,
for the year ended June 30, 2001 Janifast received 1,200,000 shares of mPhase
common stock canceling liabilities of $600,000, and for the year ended June 30,
2002 Janifast received 3,450,000 shares of mPhase common stock and 1,200,000
warrants to purchase mPhase common stock for the cancellation of $720,000 of
liabilities, as discussed in Note 10. During the year ended June 30, 2003
Janifast was issued 1,500,000 shares of mPhase common stock in connection with
the cancellation of $360,000 of outstanding liabilities of mPhase, the value of
which was based upon the price of the Company's common stock on the effective
date of settlement. No gain or loss was recognized in connection with
conversions by Janifast for fiscal 2003. During the years ended June 30, 2003,
2004 and 2005 and the period from inception (October 2, 1996) to June 30, 2005,
there has been $174,959, $2,771,925, 1,536,494 and $15,001,105, respectively, of
invoices for products and services have been charged to inventory or expense and
is included in operating expenses in the accompanying statements of operations.
Effective December 30, 2004, Janifast Ltd. agreed to convert $200,000 of
accounts payable into common stock of the Company at $.20 per share plus a 5
year warrant for a like amount of shares at $.25 per share. During the year
ended June 30, 2007, Janifast agreed to converted $108,000 of debt into 830,000
shares of common stock and received 769,231 additional shares of stock as
reparations.

MICROPHASE

The company leases office space from Microphase at both its Norwalk and
Little Falls location. Current rental expense is $5,000 and $13,800 per month at
Norwalk and Little Falls respectively. In addition, Microphase provides certain
research and development services and shares administrative personnel from time
to time.

86

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

9. RELATED PARTY TRANSACTIONS -(continued)

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

a.

$25,000 on each of December 1, 2004,
March 2005, June 1, 2005, September 1, 2005 and a $50,000 payment on December 1,
2005. Thereafter the Company is obligated to pay $25,000 on each of March 1,
2006, June 1 2006, and September 1, 2006 with a final payment of $75,000 of
December 1, 2006.

b.

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

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

As of June 30, 2004, Mr. Smiley and Microphase each agreed to extend to July
25, 2005, the maturity on their 12% convertible promissory notes in the
principal amount of $100,000 and $180,000 respectively.

Additionally at June 30, 2004, Mr. Durando was owed $300,000
by the Company as evidenced by a non-interest bearing promissory note that was
repaid in July 2004. As of June 30, 2004 a total of $55,000 in the aggregate was
due to Mr. Durando and Mr. Dotoli for unpaid compensation.

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

During the fiscal year ended June 30, 2005, Mr. Dotoli and
Mr. Smiley, the COO, and CFO and General Counsel of the Company respectively,
each lent the Company $75,000. Mr. Dotoli was repaid, the principal amount of
such loan, in cash in January, 2005 and Mr. Smiley converted his $75,000 loan
into 375,000 shares of common stock of the Company plus a 5 year warrant to
purchase a like amount of shares at $.25 per share. In addition, Mr. Smiley
converted $9,975 of accrued interest into 49,875 shares of common stock plus a 5
year warrant to purchase a like amount of shares at $.25 per share. Finally Mr.
Smiley received 25,000 additional shares of common stock as a market adjustment
to his equity investment of $25,000 on August 30, 2004. Mr. Dotoli cancelled
$3,750 of accrued and unpaid interest from August 15, 2004 through January 15,
2004 into 375,000 shares of common stock pursuant to the terms of a portion of a
warrant that was exercised at $.01 per share previously given by the Company to
Mr. Dotoli in exchange for and cancellation of unpaid compensation. On January
15, 2004, Mr. Smiley was awarded 425,000 shares of common stock as additional
compensation.

In July of 2005, Mr. Smiley was repaid a loan of $35,000,
without interest made to the Company in June of 2005. In the three month period
ended September 30, 2005, Mr. Durando and Mr. Smiley lent the Company $50,000
and $100,000, respectively, which was repaid by the Company, without interest in
October of 2005.

87

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

The following summarizes compensation to related parties for the fiscal year
ended June 30, 2006:

|                                          |            |            |          |          |          |         |            |            | TOTAL     
|----------------------------------------- | ---------- | ---------- | -------- | -------- | -------- | ------- | ---------- | ---------- | ----------
|                                          | Durando    | Dotoli     | Ergul    | Biderman | Smiley   | Guerino | Janifast   | Microphase | RELATED   
|                                          |            |            |          |          |          |         |            |            |           
|Consulting/Salary                         | $643,600   | $357,000   |          | $39,000  | $175,000 |         |            |            | $1,214,600
|Directors Stipend                         | $7,500     | $7,500     |          |          |          | $7,500  |            |            | $22,500   
|Rent                                      |            |            |          | $36,000  |          |         |            | $204,444   | $240,444  
|Cost of Sales/Royalty                     |            |            |          |          |          |         | $770,441   | $32,014    | $802,455  
|Loan Interest                             |            |            |          |          |          |         |            | $10,800    | $10,800   
|R&D                                       |            |            |          |          |          |         |            | $197,639   | $197,639  
|SG&A                                      |            |            |          |          |          |         |            | $86,923    | $86,923   
|Estimated Value of Stock
    Issued       | $1,260,000 | $525,000   | $210,000 | $105,000 | $331,213 |         |            |            | $2,431,213
|Estimated Value of
    Options
    Issued | $1,596,200 | $836,400   | $273,740 | $85,890  | $213,850 | $56,990 |            |            | $3,063,070
|Reparations Shares                        |            |            |          |          |          |         | $834,633   | $728,434   | $1,563,067
|Totals                                    | $3,507,300 | $1,725,900 | $483,740 | $265,890 | $720,063 | $64,490 | $1,605,074 | $1,260,254 | $9,632,711

The Following Summaries Compensation to Related Parties for the Fiscal Year
Ended June 30, 2007

|                                           |            |          |          |          |          |         |          |          |            | TOTAL     
|------------------------------------------ | ---------- | -------- | -------- | -------- | -------- | ------- | -------- | -------- | ---------- | ----------
|                                           | Durando    | Dotoli   | Ergul    | Biderman | Smiley   | Guerino | Lawrence | Janifast | Microphase | RELATED   
|                                           |            |          |          |          |          |         |          |          |            |           
|Consulting /
    Salary                    | $393,600   | $282,000 |          |          | $200,000 |         |          |          |            | $875,600  
|Directors Stipend                          |            |          |          |          |          |         |          |          |            |           
|and Interest                               | $7,500     | $7,538   | $3,750   | $3,750   | $8,550   | $3,750  | $3,750   |          |            | $38,588   
|Rent                                       |            |          |          |          |          |         |          |          | $60,000    | $60,000   
|R&D                                        |            |          |          |          |          |         |          |          | $236,492   | $236,492  
|Finders Fees
    (including common shares) |            |          |          | $520,000 |          |         |          |          |            | $520,000  
|Cost of Sales and
    SG&A                 |            |          |          |          |          |         |          | $110,912 | $36,342    | $147,254  
|Reparations and Stock BasedCompensation    | $1,044,000 | $555,000 | $201,000 | $16,800  | $306,250 | $14,700 |          | $138,462 |            | $2,276,212
|Totals                                     | $1,445,100 | $844,538 | $204,750 | $540,550 | $514,800 | $18,450 | $3,750   | $249,374 | $332,834   | $4,154,146
|PacketPort.com                             |            |          |          |          |          |         |          |          |            |           
|legal expense                              |            |          |          |          |          |         |          |          |            | $611,807  
|Total expense
    to related parties       |            |          |          |          |          |         |          |          |            | $4,765,953

88

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

The Following Summaries Compensation to Related Parties for the Fiscal Year
Ended June 30, 2008

|                           |          |          |          |          |            | TOTAL     
|-------------------------- | -------- | -------- | -------- | -------- | ---------- | ----------
|                           | Durando  | Dotoli   | Biderman | Smiley   | Microphase | RELATED   
|Consulting / Salary        | $393,600 | $282,000 |          | $200,000 |            | $875,600  
|Interest                   | $19,490  | $4,156   |          | $18,752  |            | $42,398   
|Rent                       |          |          |          |          | $60,000    | $60,000   
|R&D                        |          |          |          |          | $28,151    | $28,151   
|Finders Fees               |          |          | $188,472 |          |            | $188,472  
|Cost of Sales
    and SG&A |          |          |          |          | $30,089    | $30,089   
|                           |          |          |          |          |            |           
|Totals                     | $413,090 | $286,156 | $188,472 | $218,752 | $118,240   | $1,224,710





89

---

Summary of amounts due to Officers 
For the year ended June 30, 2008

|                                          | RON        | GUS        | MARTIN    |           
|----------------------------------------- | ---------- | ---------- | --------- | ----------
|                                          | DURANDO    | DOTOLI     | SMILEY    | TOTAL     
|NOTES
    PAYABLE OFFICERS                |            |            |           |           
|BALANCE 6/30/07                           | $85,000    | $75,000    | $161,000  | $321,000  
|July 2007
    Advances (Payments)         | ($30,000)  | ($75,000)  |           | ($105,000)
|August 2007 Advances (Payments)           | $35,000    | $75,100    | $35,000   | $145,100  
|Sept 2007
    Advances (Payments)         | $110,000   |            |           | $110,000  
|Assumption of Note Payable-
    Sovereign | $110,000   |            |           | $110,000  
|Oct 2007
    Advances (Payments)          | $25,000    | $25,000    | $25,000   | $75,000   
|Nov 2007 Advances (Payments)              | $76,000    | $36,000    | $11,000   | $123,000  
|Dec 2007
    Advances (Payments)          | $25,000    | $0         | $0        | $25,000   
|Transferred to Deferred Comp              | ($148,000) | ($123,500) |           | ($271,500)
|Jan 2008
    Advances (Payments)          | $2,000     | $32,000    |           | $34,000   
|Feb 2008 Advances (Payments)              | $0         | $55,000    | $72,038   | $127,038  
|Mar 2008
    Advances (Payments)          | ($180,000) | ($47,500)  | ($40,000) | ($267,500)
|April 2008 Advances (Payments)            | ($110,000) | ($52,100)  | ($45,000) | ($207,100)
|MaY 2008
    Advances (Payments)          |            |            | ($15,000) | ($15,000) 
|June 2008 Advances (Payments)             |            |            |           |           
|BALANCE
    Notes Payable Officers        | $0         | $0         | $204,038  | $204,038  
|                                          |            |            |           |           
|Deferred
    Compensation                 | $278,000   | $323,500   |           | $601,500  
|                                          |            |            |           |           
|Due To
    Officers                       |            |            |           |           
|BALANCE 6/30/07                           | $188,400   | $75,500    |           | $263,900  
|Consulting Fee
    Earned -1st Qtr        | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 1st Qtr            | ($39,500)  | ($32,500)  |           | ($72,000) 
|Consulting Fee
    Earned - 2nd Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 2nd Qtr            | ($10,000)  | ($10,000)  |           | ($20,000) 
|Consulting Fee
    Earned - 3rd Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 3rd Qtr            | ($12,000)  | ($8,500)   |           | ($20,500) 
|Consulting Fee
    Earned - 4th Qtr       | $98,400    | $70,500    |           | $168,900  
|Consulting Fees Paid - 4th Qtr            | ($221,510) | ($204,244) |           | ($425,754)
|Balance Due
    to Officers               | $298,990   | $102,256   |           | $401,246  
|                                          |            |            |           |           
|Interest
    Payable                      | $0         | $0         | $18,751   | $18,751   
|Totals Payable to Officers                | $576,990   | $425,756   | $222,789  | $1,225,535

90

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

Equity Conversions of Debt and Other Financial Instruments with Related
Parties

|Janifast:                       | 2006      | 2007       | 2008
|------------------------------- | --------- | ---------- | ----
|Number of shares                | 950,000   | 830,769    |     
|Number of warrants              | 950,000   | 0          |     
|Amount converted to
    equity  | $171,000  | $108,000   |     
|Microphase Corporation:         |           |            |     
|Number of shares                | 2,050,000 | 0          |     
|Number of warrants              | 2,050,000 | 0          |     
|Amount converted to
    equity  | $369,000  | $0         |     
|Strategic Vendor Conversions:   |           |            |     
|Number of shares                | 331,864   | 5,242,959  |     
|Number of warrants              | 277,778   | 0          |     
|Amount converted to
    equity  | $50,000   | $1,996,561 |     
|Officers                        |           |            |     
|Number of shares                | 0         | 0          |     
|Number of warrants (A)          | 0         | 0          |     
|Amount converted to
    equity  | $0        | $0         |     
|Total Related Party Conversions |           |            |     
|Number of shares                | 3,331,864 | 6,073,728  | NONE
|Number of warrants              | 3,277,778 | 0          |     
|Amount converted to
    equity  | $590,000  | $2,104,561 |     

10. INCOME TAXES

No provision has been made for corporate income taxes due to cumulative
losses incurred. At June 30, 2008, mPhase has operating loss carry forwards of
approximately $89.3 million and $88.7 million to offset future federal and state
income taxes respectively, which expire at various times from 2016 through 2024.
Certain changes in stock ownership can result in a limitation in the amount of
net operating loss and tax credit carryovers that can be utilized each year.

91

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008

11. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company has a lease obligation for the rental of office space in Little
Falls New Jersey until May 31, 2009. The annual obligation under such lease
requires rent of $151,862 for the year beginning June 1, 2008 and ending May 31,
2009.

mPhase has entered into various agreements with Georgia Tech Research ("GTRC")
and its affiliate, Georgia Tech Applied Research Corporation, ("GTARC"),
pursuant to which the Company receives technical assistance in developing the
commercialization of its Digital Video and Data Delivery System. The amount
incurred by the Company for GTRC technical assistance with respect to its
research and development activities during the years ended, 2005, 2006 and 2007
totaled $0, $0 and $0 respectively, and $13,539,952 from the period from
inception through June 30, 2008.

12. SUBSEQUENT EVENTS

Consistent with the terms of the securities purchase agreement with Golden
Gate Investors, during the period July 1,2008 to September 29, 2008 the company
received cash of $700,000 as prepayment of its Note Receivable and converted
$415,000 of debt into 10,740,000 million shares of the Company's Common Stock.
In addition, during such period, the Company issued 2,600,000 shares of Common
Stock to consultants

In August of 2008 was notified that it had been awarded a research contract
from the Department of the Army allowing the company an opportunity to continue
testing its Nanobattery in Phase #2. Such contract provides the Company with
approximately $500,000 of net revenue over two years

In August of 2008, at a meeting of shareholders, the Company voted to
increase the number of authorized shares of common stock to 2 billion from 900
million.

In July the Company received $200,000 and issued a total of 7,862,000 shares
in a private placement. Approximately 3,862,000 of such shares represented
reparation of past investments.

In September 2008 the Company issued 64,450,000 shares of common stock and
104,950,000 options to purchase such stock at $.05 to various employees
consultants and individuals. Included in such issuance were 27,000,000 shares
and 50,000,000 options to Mr. Durando, 16,000,000 shares and 30,000,000 options
to Mr. Dotoli and 10,000,000 shares and 18,000,000 options to Mr. Smiley. Shares
outstanding as of September 24, 2008 had increased to 527,000,000 million,
warrants to 146,000,000 and options to 150,000,000

92

---

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2008



SCHEDULE II

ITEM 14B. VALUATION AND QUALIFYING
ACCOUNTS
No Material Accounts exist







93

---

SIGNATURES

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

|mPHASE TECHNOLOGIES, INC.    
|-----------------------------
|                             
|Dated: September 29,
    2008
|                             
|                             
|                             

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

|Necdet F. Ergul, Chairman of the Board                   | September 29, 2008
|-------------------------------------------------------- | ------------------
|Ronald A. Durando,
    Chief Executive Officer, Director | September 29, 2008
|Gustave T. Dotoli, Chief Operating Officer, Director     | September 29, 2008
|Martin S. Smiley,
    Chief Financial Officer            | September 29, 2008
|Anthony Guerino, Director                                | September 29 2008 
|Abraham Biderman,
    Director                           | September 29, 2008
|Victor Lawrence, Director                                | September 29, 2008

94

---