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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 10-K

ANNUAL 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, 2011

COMMISSION FILE NO. 000-30202

mPHASE TECHNOLOGIES, INC.(Name of
issuer in its charter)

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

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 if the registrant is a well-known
seasoned issuer as defined in Rule 405 of the Securities Act.

Yes [   ]  No [ X ]

Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [   ]  No [ X ]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [ X ]  No [    ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter
period that the registrant was required to submit and post such files).

Yes [   ]  No [   ]

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.

[   ]

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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

|Large accelerated filer [   ] |                                
|----------------------------- | -------------------------------
|Non-accelerated filer [ X ]   | Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act)

Yes [   ] No  [ X ]

As of August 22, 2011 there were approximately 1,752,348,264
shares of common stock, $01 par value, outstanding and the aggregate market
price of shares held by non-affiliates was approximately $11,060,984. (Based
upon a closing common stock price of $.0069 on August 22, 2011 solely for the
purpose of calculating the preceding amount, all directors and officers of the
registrant are deemed to be affiliates.)

Documents Incorporated by Reference

None.

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|ANNUAL REPORT ON FORM 10-K      
|--------------------------------
|FOR THE YEAR ENDED JUNE 30, 2011
|TABLE OF CONTENTS               
|                                
|PART I                          
|ITEM 1.                         
|ITEM 1A.                        
|ITEM 2.                         
|ITEM 3.                         
|ITEM 4.                         
|PART II                         
|ITEM 5.                         
|ITEM 6.                         
|ITEM 7.                         
|ITEM 7A.                        
|ITEM 8.                         
|ITEM 9.                         
|ITEM 9A.                        
|ITEM 9B.                        
|PART III                        
|ITEM 10.                        
|ITEM 11.                        
|ITEM 12.                        
|ITEM 13.                        
|ITEM 14.                        
|PART IV                         
|ITEM 15.                        
|                                
|                                
|                                
|                                

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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 1A 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.

ITEM 1. BUSINESS

General Description of the Business

mPhase Technologies, Inc. is a publicly-held New Jersey company founded in 1996 with approximately 23,000 shareholders and approximately 1.63 billion shares of common stock outstanding as of June 30, 2011. The Company's common stock is traded on the
Over the Counter Bulletin Board under the ticker symbol XDSL. The Company has offices in Little Falls, New Jersey as well as Norwalk, Connecticut.

mPhase is a development-stage company specializing in developing smart surfaces using materials science engineering, nanotechnology science and the principles of microfluidics and microelectromechanical systems (MEMS). The Company
develops products for both commercial and military applications. The Company's flagship product is its Smart NanoBattery providing Power On Command. The new patent pending and 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
other innovative products such as medical devices including heart pacemakers and pumping devices.

mPhase has completed a Phase II Small Business Technology Transfer Program (STTR) grant, part of the Small Business Innovation Research (SBIR) program, with the U.S. Army for continued development of a reserve Smart NanoBattery for a critical
computer memory application. Such reserve battery can be activated by an electronic pulse.

In a separate effort, mPhase has also developed a mechanically- activated reserve battery. As a result of a unique combination of battery and mechanical engineering, such reserve battery also has a potentially infinite shelf-life. The battery was
part of the Company's pilot program for a new emergency flashlight product line that has been designed by and co-branded with Porsche Design Studio, a premiere world-class company specializing in high-end accessory products for the luxury automotive
manufacturer.

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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 the physical 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 repelling") state to a hydrophilic ("water attracting") state. In the hydrophobic state, the water beads up or is repelled by the surface. In the hydrophilic 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 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.

mPhase has also developed a manually-activated lithium reserve battery using an innovative industrial and mechanically-engineered design. The battery is activated by a unique triggering mechanism that rapidly releases and distributes the liquid
electrolyte held in a glass sealed reservoir inside the battery. By twisting a screw-like mechanism outside the battery the glass seal is broken and the electrolyte immediately contacts the battery's solid electrodes to produce electric power.
Unlike conventional batteries that have relatively short shelf lives prior to initial use of the flashlight, the mPhase reserve battery has a shelf life of over 20 years.

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. The Company began its efforts by entering into a $1.2 million 12 month Development Agreement in February of 2004 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). 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 extended its development effort twice for an additional 2 year period 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.

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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.

In July of 2007, mPhase formed a new wholly-owned subsidiary, AlwaysReady, 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 products. The Company decided in September of 2007 to transfer its development work out of Bell Labs (Alcatel/Lucent) in order to accelerate and broaden its nanotechnology product commercialization efforts. Bell Labs had
engaged in its battery research and development for the Company for zinc-based batteries and was limited since it did not have facilities capable of handling lithium chemistry. mPhase has continued to work with Rutgers ESRG which has facilities
capable of handling lithium based batteries and has also engaged in work with foundries and other companies to supply essential components, fabricate prototypes, and plan manufacturing approaches. These companies currently include Silex, a
well-respected silicon foundry in Sweden, and Eagle Picher, a well known battery designer and manufacturer that focuses on high-end batteries for military applications located in Joplin, Missouri.

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 NanoBattery referred to as the
multi-cell, micro-array reserve battery for a critical 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. 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 radio frequency identification 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 package and breakable separator (in place of the electrowettable membrane) that relies on mechanical rather
than electrical activation to provide Power On Command. The Company believes this to have been a significant milestone in moving from a low energy density zinc-based battery to a higher energy density lithium-based battery towards proving that
this mechanically-activated reserve battery would become economically and commercially viable.

In fiscal years ended June 30, 2009 and June 30, 2010, the Company focused upon further development of its Smart Nano Battery under a Phase II STTR grant from the U.S. Army as a potential reserve battery for a back-up computer memory application for
a weapons system. The Company has recently completed such Phase II Army grant. On November 12, of 2010, the Company announced that it had successfully triggered and activated its first functional multi-cell smart nano battery. Triggering and
activation of the cells of the battery were achieved by using the technique of electrowetting or programmable triggering. Triggering was accomplished by applying a pulse of electrical energy to a porous, smart surface membrane located inside each
cell in the battery causing the electrolyte to come in contact with the cells electrodes, creating the chemical reaction to produce voltage inside of the multi-cell battery. The multi-cell battery consists of a matrix of 12 individual cells
populated with an electrode stack consisting of lithium and carbon monofluoride materials with each rated at 3.0 volts. Using a custom designed circuit board for testing, each of the cells in the battery were independently triggered and activated
without affecting any of the non-activated cells in the multi-cell configuration. Each cell in the battery has a very long shelf-life prior to triggering.

During fiscal year ended June 30, 2011 the Company completed work on its Phase II STTR grant for the U.S. army for a nano-reserve battery for a back-up computer memory application. In addition the Company engaged First Principals, Inc to perform an
evaluation or each of its patents in order to identify a strategic partner whose products line will need the Companys SmartNanoBattery as a compelling solution.

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Emergency Flashlight

On December 5, 2008, mPhase Technologies, Inc. signed a contract with Porsche Design Gesellschaft m.b.H., Flugplatzstrasse 29, A,S700 Zell am see, Austria ("Porsche Design Studio"), to design a premium emergency flashlight (the mPower Emergency
Illuminator). A pilot program that began in March of 2010 has resulted in the sale of approximately 56 emergency flashlights. The flashlight sold in the pilot program contained mPhases proprietary mechanically-activated lithium reserve
battery. The battery contains a breakable barrier that separates the solid electrodes from the liquid electrolyte until the battery is manually activated. Unlike traditional batteries, the mPhase battery remains in an inert state with no leakage or
self-discharge until activation. The mPhase battery is designed to have an almost infinite shelf life making it ideal for emergency lighting applications. The premium flashlight will be marketed as an accessory for automobile roadside emergency
kits.

On January 29, 2009, the Company announced that it had contracted with EaglePicher Technologies to design and manufacture, in small quantities, its mechanically-activated battery that were used in the pilot program of sales of the Companys new
Emergency Flashlight. EaglePicher was selected for the pr0oject because of their experience in custom and standardized power solutions for the extreme environments of aerospace and military applications as well as medical and commercial
applications.

The reserve battery is a manually activated lithium cell designed to provide Power On Command. The battery remains dormant until turned on by the user. It is built to the highest standards with a minimum storage life of 20 years. Once
activated, the reserve battery is expected to deliver the electrical performance of a standard primary CR123 battery used in many portable electronic applications today.

EaglePicher Technologies, LLC, along with EaglePicher Company, is a world leader in custom and standardized power solutions for the extreme environments of aerospace and military applications as well as medical and commercial applications. The
company specializes in design and manufacture of battery cells, battery packaging, battery management systems (BMS), analysis, environmental testing, and energetic devices. Active in battery development and testing since 1922, EaglePicher
Technologies has the most experience and broadest capability in battery electrochemistry of any battery supplier.

Owing to cost considerations, the Company has decided to utilize a cost reduced active-reserve battery in its current version of its emergency flashlight product for potential sales after the pilot program. Such active reserve battery also has a
very long shelf life and enables the Company to significantly reduce the selling price of the Emergency Flashlight. In March 2011,the Company received an initial order from Porsche Design Group in Germany for mPhase's Porsche design branded mPower
Emergency illuminators to be sold in Porsche Design stores in Germany, Great Britain and the United States and it began shipments of the Emergency Illuminators in April of 2011.

Magnetometer

In March of 2005, the Company entered into a second Development Agreement for 12 months at a cost of $1.2 million per annum 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 on the same terms.
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 suspended in September 2007 so that all technical resources could be allocated to the battery
project. The Company is entitled to certain royalties from the magnetometer if Alcatel/Lucent ultimately generates revenues from the product.

DISCONTINUED BUSINESS-Internet Protocol Television(IPTV)

Historically, the Company, since its inception, had focused upon developing innovative solutions for the delivery of Broadcast Television as part of a "triple play" of services that would include voice and high-speed internet for telephone service
providers globally. The Company, however, has not been able to derive any significant revenue from its TV+ solution and no active development of the product has occurred since fiscal year 2007. The Company determined to discontinue this line of
business and all inventory has been written off. During the fourth quarter of the fiscal year ended June 30, 2010, the Company formally elected, for financial reporting purposes to treat its IPTV product line as a discontinued business.

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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 mere 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 current flagship 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 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 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.

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.

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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.

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 demonstrated 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 included an $850,000 funded project to
develop a battery for a mission critical computer memory backup application. The target was 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, handheld gaming devices, wireless sensor systems, radio frequency
identification 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.

Other Potential Products

The Company has been in active discussions with Picatinny Arsenal, Picatinny, New Jersey to jointly obtain federal funding under SBIR grants to develop additional new products for military small munitions applications. The Company has a strong
historic cooperative relationship for product development and testing.

In 2007 the Company entered into a Cooperative Research and Development Agreement (CRADA) with Picatinny Arsenal to test the single cell version of the SmartNanoBattery suitable for future research and development programs for projectile
launched munitions. From 2007 through the first quarter of calendar year 2010, numerous internal laboratory air gun simulation tests were performed, including a live-air gun and live gun fired test at the United States Armys facility at
Aberdeen Proving Grounds, Aberdeen, Maryland. A prototype of the SmartNanoBattery was the subject of a live fire test as part of a projectile
fired out of an Abrams Tank. The results of the test indicated that the battery
was activated by 10,000
G forces indicating that it could supply energy necessary to operate a guidance system for small munitions. In addition, the SmartNanoBattery demonstrated extreme resiliency to shock and acceleration since, it survived tests that subjected it to high
acceleration of over 30,000 G forces.

On February 9, 2011, the Company announced that it had signed a 3 year CRADA with the U.S. Army Armament Research, Development, and Engineering Center (ARDEC) at Picatinny, New Jersey, to continue to cooperatively test and evaluate the mPhase Smart
NanoBattery, including new design features functionally appropriate for DoD based systems requiring portable power sources. The army researchers are evaluating the prototypes using the Armys testing facilities at Picatinny Arsenal in New
Jersey in order to determine applicability of the technology to gun fired munitions and potentially to incorporate the technologies into research and development and other programs sponsored by Picatinny. The Research Agreement is supported by the
Fuze & Precision Armaments Technology Directorate.

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BUSINESS OF THE COMPANY

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.

From June of 1997-December of 2007, the Companys main business was the development and sale of telecommunication products and equipment and middleware products for the delivery of television by telephone service providers. This business was
formally discontinued by the Company for financial reporting as of June 30, 2010.

Effective February 3, 2004, the Company entered into a Development Agreement with the Bell Laboratories division of Lucent Technologies, Inc. for the development of micro power source arrays fabricated using nano textured super hydrophobic
materials.

Effective March 5, 2005, the Company extended its Development Agreement with Bell Labs for an additional 12 months for the development of micro power source arrays fabricated using nano textured super hydrophobic materials.

Effective March 10, 2005, the Company entered into a Development Agreement with Bell Labs for the development of a new generation of magnetic field sensors using the science of nanotechnology.

In April of 2006, the Company renewed each of the nanotechnology Development Agreements will Bell Labs dated March 5, 2005 and March 10, 2005 respectively for an additional 12 months at the cost of $100,000 per month for each agreement.

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 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 July 18, 2007, the Company announced the award of a Phase I US Army Small Business Technology Transfer (STTR) Program Grant. This award was a Phase I six month research effort to develop a 30 plus year shelf life, low power, green battery (coin
cell or similar) that would 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 was to 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 extended 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 than can be supplied by more common alkaline batteries. The Phase I grant, valued at
$100,000, enabled 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 supported the Company and its newly
formed subsidiary, AlwaysReady, Inc., during the award period as a subcontractor under the award guidelines.

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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 Packetport.com, Inc. a Nevada corporation, Microphase
Corporation, a Connecticut corporation 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 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 was 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 stated that
its goal was 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.

On September 9, 2008, the Company announced that it had 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.

On September 17, 2008, the Company announced that its breakthrough research in microfluidics on understanding how micro- and nanostructured surfaces could be engineered to have properties for repelling water and other types of liquids could
potentially be used in consumer applications to enable self-cleaning surfaces such as shower doors or windows and other materials used in self-cleaning systems.

On September 23, 2008, the Company announced that it had produced compact reserve lithium battery prototypes with a manually activated breakable separator capable of powering a high-intensity emergency flashlight for more than two hours continuously
at full brightness. The work was done in conjunction with Eagle Picher, a respected battery design and development firm located in Joplin, Missouri. mPhase stated that it was pursuing the concept of using a reserve battery with a breakable separator
in a high-intensity emergency flashlight either as the primary power supply or as a reliable source of backup power. Cylindrical and planar battery and flashlight designs are possible. These flashlights may be equipped with either a krypton bulb or
light emitting diode (LED), the choice depending on the required brightness and runtime characteristics. A manually activated breakable separator technology has been created that is analogous to that of the AlwaysReady Smart NanoBattery with the
patented electrowettable membrane, both of which keep the liquid electrolyte separate from the solid electrodes until the battery is actually needed. This provides a battery with potentially infinite shelf-life that will not lose power while sitting
on the shelf or in storage. Whereas the electrowettable membrane is activated by applying a voltage at the interface between the liquid and membrane surface, the breakable separator is manually activated through a well-defined physical force. The
result in both cases is that the liquid electrolyte mixes with the solid electrodes, thus releasing the stored energy and 3 volts of power when lithium chemistry is employed.

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On December 5, 2008, the Company announced that it had signed a contract with Porsche Design Gesellschaft m.b.H., Flugplatzstrasse 29, A,S700 Zell am see, Austria ["Porsche Design Studio"], to design a premium version of the AlwaysReady emergency
flashlight. The flashlight was to use mPhase's proprietary lithium reserve battery. The battery contains a breakable barrier that separates the solid electrodes from the liquid electrolyte until the battery is manually activated. Unlike traditional
batteries, the mPhase battery remains in an inert state with no leakage or self-discharge until activation. The mPhase battery was designed to have an almost infinite shelf life making it ideal for emergency lighting applications. The premium
flashlight was to be marketed as an accessory for automobile roadside emergency kits.

On January 15, 2009, the Company announced that its SmartNanoBattery being developed pursuant to a Phase II Army Grant for a critical mission computer backup reserve battery may also have wider application for unattended electronic ground sensors
that provide mission critical information for military operatives.

On January 29, 2009, the Company announced that it had contracted EaglePicher Technologies to manufacture the reserve battery for use in its emergency flashlight. EaglePicher was selected for the project because of their experience in custom and
standardized power solutions for the extreme environments of aerospace and military applications as well as medical and commercial applications.

On March 18, 2009, the Company announced that it had received the first working model for the emergency flashlight from the Porsche Design Studio in Zell am See, Austria, representing a major step forward as the Company prepared for the initial
product launch.

On June 23, 2009, the Company announced that it had achieved a major milestone in the development of its Smart NanoBattery Technology. mPhase reported that it had successfully manufactured a six-inch silicon-based wafer containing its key membrane
(separator) technology. This separator is responsible for keeping the Smart NanoBattery's chemicals separated until activated. The membrane's unique surface and structure allows for control of a liquid on a nanostructured surface.

On August 5, 2009, the Company announced that it had completed the first functional prototype of its lithium reserve battery intended for use in the Company's emergency flashlight. The prototype is the first time the mPhase battery technology had
come together in a "ready for production" prototype. The mPhase lithium reserve battery stores energy until it is literally "turned on." It is manually activated by a unique triggering mechanism that rapidly releases and distributes the liquid
electrolyte inside the battery. The electrolyte immediately contacts the solid electrode materials to produce 3 volts. The reserve battery is designed for backup power and emergency applications. With a shelf life of over 20 years, the mPhase
lithium reserve battery allows the emergency flashlight to function as a reliable emergency light source in countless situations.

On August 6, 2009, the Company announced that it had completed the first fully functional prototype of its emergency flashlight. A world renowned automobile design firm created a sleek design to accompany the flashlight's unparalleled functionality.
The new illuminator features mPhase's first reserve battery that allows for backup power to be always ready through a simple activation method.

On August 27, 2009, the Company announced that its Phase II grant from the United States Army had been renewed for a second year.

On November 2, 2009, the Company reported that it had been granted a United States patent for its concept for a battery that is safer for the environment in that it is based on the idea of neutralizing the harmful chemisty inside the battery by
dispensing a neutralizing agent or containment polymer located inside the battery fixture and dispensed once the barrery is depleted. This reduces the risk of potentially harmful chemicals leaking through the battery container and polluting the
ground or air after the battery has been discarded.

On March 9, 2010, the Company announced that its mPower On Command Reserve Battery had successfully met all United Nations/US Department of Transportation safety standards and had received UN DOT certification for the safe transport of
lithium-containing batteries. Certification required successful passage of eight tests, altitude, thermal, vibration, shock, impact, overcharge, forced discharge, and external short circuit.

On May 14, 2010, the Company announced that both its mPower Emergency Illuminator and the Power On Command reserve battery technology passed a series of rigorous tests necessary to qualify for CE marking. The CE mark certifies that a product has met
European Union consumer safety requirements and allows both products to be sold in the European Economic Area, which includes members and non-members of the European Union.

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On June 14, 2010, the Company reported that it had been granted a United States patent for the concept of the porous membrane made from silicon that is capable of controlling the flow of a wide range of liquids, including electrolytes, used in both
primary and rechargeable batteries. This is the concept used in the development of the Companys Smart NanoBattery. The issued patent is jointly held between the Company and Alcatel Lucent and is based on a prior cooperative research and
development agreement between the two companies.

On July 31, 2010, the Company announced that its scalable smart reserve cell technology is one of the items included in the Fiscal Year 2011 Defense Appropriations Bill that was passed out of subcommittee by the U.S. House of Representatives to
receive approximately $2,500,000 in federal funding.

On August 25, 2010 the Company announced that it signed a representative agreement with Tritech Lt. of Hod HaSharon, Israel, a leading stocking representative and distributor of major manufacturers of electronic components serving the Military,
Communication, Medical, Industrial Control and Security Industries to promote the Companys products exclusively in Israel.

On November 12, 2010, the Company reported that it had successfully triggered and activated its first functional multi-cell Smart NanoBattery, achieved by applying a brief pulse of electrical energy to a porous, smart surface membrane, located
inside each cell in the battery, which caused the electrolyte to come in contact with the cell's electrodes, creating the chemical reaction to produce voltage inside the cell of the multi-cell battery. The mPhase multi-cell battery consists of a
matrix of 12 individual cells populated with an electrode stack consisting of lithium and carbon monofluoride materials (Li/CFx), with each cells rated at 3.0 volts. Using a specially designed circuit board for testing and characterization studies,
each of the cells in the battery were independently triggered and activated without affecting any of the non-activated cells in the multi-cell configuration. Because of the unique design of the multi-cell battery, each cell in the battery has very
long shelf until it is triggered.

On February 9, 2011, the Company announced that it signed a 3 year CRADA (Cooperative Research and Development Agreement) with the U.S. Army Armament Research, Development, and Engineering Center (ARDEC) at Picatinny, New Jersey, to continue to
cooperatively test and evaluate the mPhase Smart NanoBattery, including new design features and functionally appropriate for DoD based systems requiring portable power sources. The army researchers would further evaluate the prototypes using the
Army's testing facilities at Picatinny Arsenal in New Jersey in order to potentially incorporate the technologies into research and development and other programs sponsored by Picatinny.

On May 20, 2011, the Company reported that it had been granted a United States patent for the unique concept of a smart battery design that could contain different battery chemistries within the same battery configuration or battery pack. The
techniques described in the patent are based on the idea of creating individual cells within a battery system, where each cell could contain a custom combination of electrolyte and electrode materials. The patent describes how individual cells in a
battery could be activated based on conditions such as the surrounding temperatures or other conditions such as power drain requirements, which can be used in determining which cells in the battery to activate. The concepts behind this patent could
be used to create a new type of reserve battery that would work in a wide range of applications, such as electronic devices and sensors used in very high and low temperature environments, where the temperature conditions may change over time, or in
other environments where optimal battery performance is not easily achieved based on a single non optimized battery chemistry.

On June 15, 2011, the Company announced that it had engaged First Principals, Inc. (FPI), a world-class technology appraisal and commercialization enterprise located in Cleveland, Ohio, to perform a complete economic and strategic evaluation of
mPhase's Patent Portfolio and identify a broad array of potential innovative products for "smart surfaces." In addition, FPI is to assist the Company in identifying strategic partners leading to additional commercialization applications and
opportunities with respect to its SmartNanoBattery.

On June 29, 2011, the Company received approval from its shareholders at a Special Meeting of Shareholders to amend the Companys Articles of Incorporation to increase the Companys authorized shares of common stock from 2 billion to 6
billion shares.

On July 28, 2011, the Company announced it had executed a Letter of Intent to acquire Energy Innovative Products, a company engaged in energy conservation product development (See Subsequent Events on page 62).

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Products & Services

Since its 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 profile since they involve exploratory research to achieve significant scientific breakthroughs from existing
products that can have a substantial economic impact and benefit upon successful commercialization.

NanoBattery

The Smart NanoBattery is an outgrowth of the science of nanotechnology that the Company began in February of 2004 with the entry 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 electrolytes on nano structured electrode
surfaces. This scientific research 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 a 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 significantly longer shelf life prior to initial activation than that of conventional batteries. The Smart NanoBattery has potentially significant applications for critical
mission power 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 5 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 lose capacity. Conventional batteries have significant limits on how long they can be stored prior to their
first activation and in providing a reliable source of power needed for critical applications requiring portable power supplies.

Mechanically-Activated Reserve Battery

In April of 2008, mPhase successfully produced its first lithium-based breakable separator. This provided the basis of a new reserve battery product that relies on mechanical rather than electrical activation to provide Power on Command. In contrast
to the Company's SmartNanoBattery product that is being developed using the science of nanotechnology and relies on an electro wetting membrane, this reserve battery is designed for mechanical rather than electrical activation. Such reserve battery
is based upon an innovative mechanical and battery engineering design that is activated by puncturing a soft pouch containing electrolyte. Such reserve battery was especially designed to be used in the Company's new emergency flashlight product. It
was designed for the Company by Eagle Picher, a major U.S. battery designer, and the flashlight was designed for the Company by Porsche Design Studio. The Company transitioned the flashlights backup battery from the Eagle Picher battery to a
cost-reduced modified primary battery with an extended shelf life.

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Magnetometer: Development Suspended in 2007

In March of 2005, the Company engaged the Bell Labs division of Lucent Technologies, Inc. to develop, using the science of nanotechnology, both a low and high sensitivity magnetometer for both military and commercial use.

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s background field used to orient compasses) and static magnetic fields due to near-by magnetic objects. In March of 2007, the Company ceased development with Alcatel/Bell Labs of its magnetometer
product in order to conserve financial resources.

Competitive Business Conditions

Battery Segment

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 in terms of its combination of small size and 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 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 is 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 and $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 during that period alone, it is expected that there will be substantial commercial demand for thin film batteries.

Traditional reserve batteries are 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.

Flashlight Market

The Company believes that there may be a significant market for a high-end emergency flashlight containing its mechanically activated reserve battery. The need for absolute reliability in many emergency situations includes those of fire, police and
other emergency service providers. In addition to providing an emergency light source, when needed, the flashlight developed with such lithium reserve battery has, as an alternative to providing light, a port capable of recharging a cellular
telephone produced by Porsche Design Studio as well as those of other major cellular telephone providers. Since the market for new and innovative portable electronic batteries continues to expand, especially in the field of wireless hand-held
devices, the Company believes that its emergency flashlight and reserve battery may benefit significantly from this trend.

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Outsourcing

Research and Development

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. For current development of its flashlight and reserve
battery, the Company has outsourced the majority of the work. 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 superhydrophobic effect that occurs as a result of the ability to manipulate materials of a very small size or less than 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 fiscal years 2009 and 2010, the Company outsourced considerable foundry work for final development of the
SmartNanoBattery to Silex, a Swedish company

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.

As previously noted, the Company outsourced to Eagle Picher company most of the prototype development of its mechanically-activated reserve battery and Porsche Design Studio the prototype development and MKE for its design and manufacturing of its
pilot program Emergency Flashlight product.

Prototype Development

As the Company moved from development to commercialization of its emergency flashlight products utilizing its mechanically activated reserve battery, the Company outsourced the creation of prototypes to Porsche Design Studio in December of 2008 and
MKE, a mechanical design company in Austria that works closely with them. The reserve battery prototype development work was outsourced to Eagle Picher in early 2009. The Company engaged Microphase Corporation, a related party, under contract for
project management and testing of its new Emergency Flashlight and the mechanically- activated reserve battery initially used in such flashlight at a cost of $50,000 per month for 6 months beginning April 1, 2009 and ending on September 30,
2009. From October 1, 2009 through June 30, 2011 the Company has paid Microphase Corporation a total of $225,000 in connection with its Emergency Flashlight pilot sales program.

Manufacturing

mPhase subcontracts all of the manufacturing of its products to outside sources including related parties such as Microphase Corporation. During the fiscal year ended June 30, 2011, the Company paid MKE $87,766 for the manufacture and packaging
of its Emergency Illuminator. During the fiscal year ended June 30, 2010, the Company engaged MKE in connection with the manufacture and packaging of its Emergency Illuminator at a cost of $199,092. From April 1, 2009 through August 31, 2009, we
paid $50,000 per month to Microphase for project management services in connection with development of the Company's flashlight with Porsche Design Studio and the concurrent development of its mechanically-activated reserve battery by Eagle
Picher. The Company believes that such payments are the same as would be charged by other management services provided by non-affiliated third party providers of such services. By using contract manufacturers, mPhase avoids the substantial capital
investments required for internal production.

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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:

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

Various aspects of the mPhase technology are protected by patents either owned directly by the Company or with respect to which the Company has full sub-licensing rights. The Companys current battery related patent portfolio consists of seven
issued patents, of which one is jointly owned with Rutgers University, two are jointly owned with Lucent Technologies and four are licensed from Lucent Technologies. These cover such aspects of the technology as the ability to use electrowetting to
create a moveable liquid lens, methodology and apparatus for reducing friction between a fluid and a body, methodology for etching planar silicon substrates to develop a reserve battery device, methodology and apparatus for controlling the flow
resistance of a fluid on nanostructured or microstructured surfaces, methodology for creating a structured membrane with controllable permeability, methodology for a nanostructured battery with end of life cells, and methodology for making a
multi-cell battery system with multiple chemistries in each individual cell of the battery pack. Some of these patents are specific to the development of a battery device while others are more generalized. The Company also has four patent
applications related to the Smart Surfaces technology that have been filed with the United States Patent Office and other foreign patent offices and that are in various stages of examiner review, as well as four additional patent applications
related to other Smart Surfaces technologies under review.

The Company has obtained trademark protection for its mPower Emergency Illuminator and mPower on Command, and it currently has one additional trademark application pending.

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 has
discontinued further development and marketing of this product owing to the lack of demand for loop diagnostics systems by telephone service providers.

In July of 2009, the Company filed for 3 new patents covering the unique design features of its manually-activated lithium reserve battery and emergency flashlight products.

On May 20, 2011, the Company announced that it had been granted a U.S. patent for multi-chemistry battery architecture.

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

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Research and Development

From March of 2005 through March of 2007, the Company had engaged Bell Labs 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 further costs with respect to its magnetometer since the Company has suspended further development of the product to conserve
financial resources.

On September 23, 2008, the Company announced that its internal research and development effort had resulted in the successful creation of a compact lithium reserve battery reserve battery prototype with a breakable separator capable of powering a
high-intensity emergency flashlight. The manually-activated reserve battery is based upon the same principles of separation of liquid electrolyte from solid electrodes as the Companys smart nanobattery but was developed based upon traditional
mechanical engineering technology.

Our SmartNanoBattery and power cell technology research and development was performed by the Bell Labs division of Alcatel/Lucent from February of 2004 through March of 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 engaged a number of small foundries during fiscal year ended June 30, 2008 for commercialization of its SmartNanoBattery at a cost of approximately $150,000. In fiscal year ended June 30, 2009,
the Company engaged Eagle Picher at a cost of $75,000 to design and engineer a prototype of its manually-activated lithium reserve battery and Posche Design studio at a cost of $79,123 for design of its emergency flashlight product. In
addition, the Company secured a Co-Branding Agreement with Porsche Design Studio for its emergency flashlight product. In fiscal year ended June 30, 2010, the Company paid $950,018 in connection with producing and bringing this product to
market, and in fiscal year ended June 30, 2011, the Company incurred $33,254 of expenses in connection with this product. During the fiscal year ended June 30, 2009, the Company engaged Silex, a silicon foundry in Sweden, at a cost of
$21,200 for further development of its SmartNanoBattery; payments to Silex for fiscal year ended June 30, 2010 in connection with the SmartNanoBattery amounted to $396,780, and for fiscal year ended June 30, 2011 they were $40,800.

During fiscal years ended June 30, 2008, June 30, 2009 and June 30, 2010 the Company engaged in joint research with Rutgers University in connection with a $750,000 STTR Grant from the United States Army for purposes of developing an emergency
reserve battery to backup a computer memory application.

During fiscal years ended June 30, 2009, June 30, 2010 and June 30, 2011 the Company engaged MKE, an approved vendor of Porche Design Studio to manufacture prototypes as well as a series of commercialized emergency flashlights utilizing the design
developed for the Company by Porsche Design Studio.

Commencing in fiscal year ended June 30, 2011, the Company engaged Porsche Design Studio to develop a second automotive product for the Company.

Employees

mPhase and its subsidiary companies presently have a total of 6 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.

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ITEM 1A. RISK FACTORS

RISKS RELATED TO FINANCIAL ASPECTS OF OUR BUSINESS

The Company has been forced to curtail development of all products except its SmartNanoBattery and Emergency Flashlight in order to conserve financial resources

The Company has been forced to focus on commercialization of only two 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 ten years and remains volatile.

The market price of our common stock closed at $7.88 on July 26, 2000 and at $.0069 on August 22, 2011. During such period the number of shares outstanding of the Company increased from approximately 30 million shares to approximately 1.63
billion shares. This increase was the result of periodic private placements and other financing arrangements involving convertible debt issued by the Company in order to finance company operations. Stocks in micro cap companies having stock values
below $1.00 per share 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 market our SmartNanoBattery and Emergency Flashlight applications of our technology on any meaningful scale.

We may not be able to obtain the amount of additional capital needed until the Company has established 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 reserve batteries and emergency flashlights; and
|    |                                                                                                            
|(4) | the perception in the capital markets of our ability to execute our business plan.                         

We have reported net operating losses for each of our fiscal years from our inception in 1996 through the fiscal year ended June 30, 2011 and may not be able to operate profitability in the future.

We have had net losses of approximately $194.6 million since our inception in 1996 including approximately $.49 million and $7.3 million for the fiscal years ended June 30, 2011 and June 30, 2010, 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 equity private placements and
existing convertible debt arrangements to continue operations. As of June 30, 2011, we have working capital of approximately $(2,937,888) and a stockholders deficit of $(5,591,774). Cumulative negative cash flow from operations since
inception has amounted to approximately $(87,512,744).

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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.
Janifast Ltd. shut down its operations in March of 2009 owing to its financial condition and is currently being liquidated. 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.

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

The reports of the Company's outside auditors Demetrius & Company, LLC., and its prior auditors Rosenberg, Rich, Baker, Berman & Company, Arthur Andersen & Co., with respect to its latest audited reports on Form10-K for each of the
fiscal years commencing in the fiscal year ended June 30, 2001 through the current fiscal year ended June 30, 2011, 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 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, 2011, outstanding convertible debt plus accrued interest is equal to $1,339,505, all of which has the right to convert into additional shares of our common stock at discounts of up to 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, 2011, we have warrants and options convertible into 21,480,837 and 113,720,000 shares of our common stock at $.05 per share or more that,
upon exercise, may result in significant future dilution to many of our current shareholders and may adversely affect the future price of our common stock. In addition certain common stock grants to officers and directors since after June 30, 2011
(see Subsequent Events have causes significant additional dilution. 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 products, including our SmartNanoBattery and our Emergency Flashlight products.

We have derived no material revenues from our SmartNanoBattery from inception of development in February 2004 through June 30, 2011 or the Emergency Flashlight and we have been forced to discontinue 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 SmartNanoBattery 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. The Companys current battery related patent portfolio consists of seven issued patents, of which one is jointly owned with Rutgers University, two are jointly owned
with Lucent Technologies and four are licensed from Lucent Technologies. We also have four patent applications related to the Smart Surfaces technology that have been filed with the United States Patent Office and other foreign patent offices and
that are in various stages of examiner review, as well as four additional patent applications related to other Smart Surfaces technologies under review. Our pending patent applications may never be granted for various reasons, including the
existence of conflicting patents or defects in our applications. Even if additional U.S. patents are 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 to bring patent litigation based upon claims of patent infringement.

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RISKS RELATED TO OUR TARGETED MARKETS

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

Commercialization of new technology products often has 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 SmartNanoBattery is in its very early stages and acceptance and demand for such products can often be a long evolutionary process.

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

Microfluid 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, and changing customer demands.

Large companies such as General Electric with great resources 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 our products are tied to the success of such end 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 the success of our SmartBattery and
other applications of our technology will depend upon the continuing need for the end user products and market demand.

FURTHER LEGAL AND ECONOMIC RISKS

The Company has sold convertible notes to JMJ Financial in the aggregate principal amount of $10,270,000 through June 30, 2011. JMJ has converted into common stock and sold a substantial number of shares without registration under the Securities
Act of 1933, as amended of qualification under state blue sky laws. The structure of the transaction involves JMJ periodically funding the purchase price of the convertible notes over time under a secured promissory note. Since such secured note
allows JMJ prepay any future amounts due under the secured note by returning the secured note to the Company rather than make a payment in cash, certain questions of economic risks may be raised to the proper holding period for shares converted and
sold by JMJ under the Convertible Note as meeting the requirements of Rule 144 of the Securities Act of 1933,as amended. At June 30, 2011, approximately 395 million shares of our outstanding common stock issued in respect of our convertible note
transactions with JMJ Financial could be subject to rescission with a potential liability approximating $4.08 million, including a liability of approximately $448,000 for interest at 10% per annum.

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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 $3,000 month. The Company also maintains an office in Little Falls, New Jersey with monthly rent of $2,271 per month.

ITEM 3. LEGAL PROCEEDINGS

From time to time mPhase may be involved in various legal proceedings and other matters arising in the normal course of business. During its fiscal year ended June 30, 2011, the Company was not involved in any material legal proceedings or matters.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(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, 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   | 
|Fiscal year ended June 30, 2009 |   |       |  |   |       | 
|First Quarter                   | $ | .08   |  | $ | .03   | 
|Second Quarter                  |   | .05   |  |   | .01   | 
|Third Quarter                   |   | .04   |  |   | .01   | 
|Fourth Quarter                  |   | .05   |  |   | .01   | 
|Fiscal year ended June 30, 2010 |   |       |  |   |       | 
|First Quarter                   | $ | .03   |  | $ | .02   | 
|Second Quarter                  |   | .02   |  |   | .01   | 
|Third Quarter                   |   | .03   |  |   | .02   | 
|Fourth Quarter                  |   | .02   |  |   | .01   | 
|Fiscal year ended June 30, 2011 |   |       |  |   |       | 
|First Quarter                   | $ | .0189 |  | $ | .0100 | 
|Second Quarter                  |   | .0147 |  |   | .0080 | 
|Third Quarter                   |   | .0105 |  |   | .0045 | 
|Fourth Quarter                  |   | .0032 |  |   | .0123 | 

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(B) HOLDERS

As of June 30, 2011, mPhase had approximately 1.63 billion shares of common stock outstanding and approximately 23,000 stockholders of record and 21,480,837, 113,720,000 and 807,165,971 shares of common stock reserved for issuance upon the
conversion of warrants, options and convertible debentures respectively. In addition the Company has reserved 116,763,169 shares for conversion of officer notes. Such notes may only be converted if the Board of Directors determines that such shares
are not needed for general corporate financing or other purposes.

(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 ten 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, which were exempt from registration pursuant to Section 4(2) and/or
Rule 506 of Regulation D of the Act, 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.

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.

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 respectively into 2,200,000 and 1,200,000shares 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 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.

(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 had 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 under the terms of a 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 pursuant to Section 3(a)(9) of the Act 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. The conversion of $1,182,658 of such liabilities, 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.

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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) Liabilities of $620,000 and $360,000 due to Microphase Corporation and Janifast Ltd. were converted 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, which date was determined pursuant to EITF 00-19, 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 the
$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 a sales manager who was 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.

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 2,300,000 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 $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.

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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 were exercisable for a period of 5 years and were callable at $.10 per $100,000 of the value of the shares into which such warrants might be converted if the common stock of the company traded 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, aggregating approximately $1.8 million into 5 year cashless warrants pursuant to Section 4(2) and to Section
3(a)(9) of the Act 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 was in arrears with respect to the first payment on the note
and renegotiated the amount of the note and payment schedule since the note included past and future royalty payments with respect to the Company's patents covering its Traverser DVDDS, some of which the Company considered relinquishing going
forward.

A July 2004 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 purposes 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 in connection with his conversion of a $75,000 promissory note plus accrued interest of $9,975. Also 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 for conversion of $13,000 of accrued interest on various promissory notes issued by the Company as well as 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. Dotoli 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. Suozzo, 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.

A December 31, 2004 subscriptions receivable balance of $50,000 was fully collected in January of 2005. Additionally, a 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 2005 private placement realized net proceeds of $357,250 upon issuance of 1,793,750 shares of Ccommon 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, which options provided for the right of stock purchase at an exercise
price of $.25; these options had a five year life and expired 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 offered 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, resulting 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 model.

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 priced 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 resulted in a charge to general and administrative non-cash expense 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.

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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 provided 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 was expensed to general and administrative non-cash expenses in the third quarter of fiscal 2005.

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 issued in January 2005 to purchase 714,296 shares of common stock 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 placements
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 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 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 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 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 issued 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)

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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 fourth 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.

Options and Stock Based Compensation

At various points during the fiscal year ended June 30, 2006, 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 was included in general and administrative expense. The fair value of options granted in 2007 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 108.5%, 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 to purchase 277,778 shares. 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.

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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 in private placements generating net proceeds of $1,777,503; included in this amount was an estimate of finders 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 in private placements generating net proceeds of $2,476,000; included in this amount was an estimate of finders 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 options and warrants to employees, officers, and consultants granting the right to purchase 10,455,000 common shares and 2,821,113 common shares, respectively.
Pursuant to the adoption of FAS 123(R), the Company recognized an expense in the amount of $1,321,853, all of which was 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 ranging between 80% -95%, 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 additional cash investments 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.

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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 for 11,111,112 shares issued. Such transaction generated net proceeds of $650,000.

Other Equity Transactions

During the year ended June 30, 2008, the Company issued 500,000 shares of stock, 110,000 of options and approximately 13.1 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 to pay for finders fees valued at $100,000, and 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 ranging between 70 -81%, 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 remained the controlling shareholder in Granita Media and such results were consolidated, this
investment was 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 was convertible 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 was 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.

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Long Term Convertible Debentures / Note Receivable / Debt Discount and Related Interest

During fiscal year ended June 30, 2008 the Company entered into three separate convertible debt arrangements with independent investors. These transactions were intended to provide liquidity and capital to the Company and are generally structured as
follows:

The form of the transaction may involve the following:

- The receipt of cash.
- The issuance of a note payable from mPhase.
- The issuance of a note receivable due to mPhase.
- A Securities Purchase Agreement.
- The note payable contains conversion features which permit the holder to convert debt into equity. Such debt is eligible to be converted into the Company's common stock immediately, thus requiring the recording of the entire liability upfront.
Finally, to encourage conversion, a discount from market value is offered.
- The aggregate amount of notes payable exceed the amount of cash received. As "Consideration" for this difference, the Company takes back a secured note receivable. Security is generally liquid investments of the investor.
- The note receivable provides a commitment to fund mPhase. The notes are secured and collateralized and carry terms which are different from the related note payable and no right of offset exists.

Derivative Value and Debt Discount

It was determined that the value of the note payable to the holder (investor) was primarily due to the favorable conversion features of the note. In accordance with SFAS 133, the conversion feature requires the bifurcation of the embedded derivative
from the host document and separate reporting of the embedded conversion feature at fair value determined by a Black-Scholes calculation. The value of the agreement includes the conversion feature and the variable amount of shares that may be
converted at any particular point in time. As such and under GAAP, our Balance Sheet reflects the value of the embedded conversion feature as Derivative Value and the corresponding contra account to Notes Payable called Debt Discount.

At the end of every quarter the fair value of Derivative Securities is reviewed and adjustments made accordingly. The volatility of the stock price, the amount and variable number of shares involved and the low price of our stock has caused this
value to fluctuate significantly. In addition, the debt discount is adjusted for any conversions and amortized over the remaining life of the loan.

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As of fiscal year end June 30, 2011, no convertible debentures remain outstanding in respect of the three convertible debt arrangements entered into during fiscal year ended June 30, 2008. Those arrangements are briefly summarized below.

Arrangement #1 (Golden Gate Investors)

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 holder of the convertible debenture.

Conversion of the outstanding debenture into common shares is at the option of the holder. The number of shares into which this debenture was 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 the 20 day trading period prior to conversion. At the time of the transaction (December 11, 2007) the derivative value of the conversion feature was calculated to be $1,678,471. On June 30,
2008, given the decrease in the Company's stock price, this value had decreased to $322,636. As of June 30, 2009, all of the related debt had been converted and no derivative value balance remained. This resulted in an increase in earnings for
the year of $322,636. In addition, the transaction resulted in a note discount of $1.5 million which has been amortized as expense. During the year ended June 30, 2009, amortization of debt discount amounted to $1,122,649. In March of
2009, by mutual consent of the parties, the Securities Purchase Agreement was terminated. Total draws under this facility were $1.5 million.

During the fiscal year ended June 30, 2009, $1,365,000 of such debt was converted into 74,368,943 shares of common stock and the Company received a total of $950,000 under the provisions of the related Note Receivable. As of June 30, 2009,
all notes receivable had been paid and all debt converted. No further obligations exist by either party.

Arrangement #2 (St. George Investments, LLC)

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 provided for a 7.5% interest rate, a due date of February 2012 and allowed 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 was amortized to expense over the life of the debenture. In the event of default under the note payable the holder was entitled to certain compensatory fees. During the period ended June 30, 2009, amortization
of debt discount amounted to $502,083.

During the fiscal year ended June 30, 2009, $614,209 of such debt plus accrued interest was converted into 60,536,582 shares of common stock. As of June 30, 2009, all debt had been converted and no further obligation exists by either party.

Arrangement #3 (JMJ Financial, Inc.)

In April, 2008, the Company received proceeds of $300,000 under a Securities Purchase Agreement. This transaction involved three related agreements: 1) a Securities Purchase Agreement which, under certain circumstances, permitted 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 holders of the convertible debentures.

Conversion of outstanding debentures into common shares was at the option of the holder. The number of shares into which the debentures could be converted was equal to the dollar amount of the debentures divided by 75% of the 3 lowest volume
weighted average prices during the 20 day trading period prior to conversion. An amendment of December 31, 2008 allowed one conversion of $200,000 of principal to be converted into common stock at the rate of 70% of the lowest trading price
during the 20 day period prior to conversion and reduced the conversion price from 80% to 75% for future conversions.

During the fiscal year ended June 30, 2009, $964,250 of such debt and accrued interest was converted into 100,951,309 shares of common stock. As of June 30, 2011, all notes receivable had been paid and all debt converted.

At the time of the transaction the embedded conversion feature of this security was calculated to be $2,493,212. On June 30, 2008, this value had decreased to $284,922. On June 30, 2009, such value had increased to $444,552, creating a
non-cash expense for the twelve month period of $159,630. On June 30, 2010, the value was $0. In addition, the transaction resulted in a note discount which has been amortized as expense over the life of the loan. During the twelve month
period ended June 30, 2009, amortization of debt discount amounted to $1,007,097, and during that same period ended June 30, 2010, amortization of debt discount amounted to $0.

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During the fiscal year ending June 30, 2009, the following transactions impacted stockholders equity.

Private Placements

During the quarter ended September 30, 2008, the Company issued 4,000,000 shares of its common stock at $.05 per share in private placements, generating net proceeds of $180,000. Related to this transaction was the issuance of 3,862,000
shares as reparations shares to effect re-pricing at a cost estimated to be $216,689.

During the quarter ended March 31, 2009, the Company issued 35,000,000 shares of its common stock at $.01 per share in private placements generating net proceeds of $315,000. Related to these transactions was the issuance of 7,660,000 shares
as reparations shares to effect re-pricing, costing an estimated $99,483.

During the quarter ended June 30, 2009, the Company issued 33,333,333 shares of its common stock at $.0075 per share in private placements generating gross proceeds of $225,000. Related to these transactions was the issuance of 2,000,000
shares as reparations shares to effect re-pricing, costing an estimated $64,000 and finder's fees of $25,000.

Also during the quarter ended June 30, 2009, the Company issued 20,775,000 shares in settlement of $169,875 of prior promissory notes payable plus accrued interest and incurred a beneficial conversion of $114,500.

Stock Based Compensation

During the three months ended September 30, 2008, the Company issued 5 year options to purchase 104,675,000 shares of common stock at $.05 per share. The value of such options was estimated to be $4,071,348 using the Black Scholes method,
based on an assumed volatility of 78% and an interest rate of 1.5% . In addition, 61,750,000 shares of common stock valued at $3,525,615 were issued to employees and consultants. (See note 3.)

No such transactions occurred in the quarters ending December 31, 2008 and March 31, 2009.

During the quarter ended June 30, 2009, the Company granted 3 officers of the Company the right to convert an aggregate of $1,465,992 of loans and accrued and unpaid compensation and accrued interest into common stock of the Company at a price
of $.0075 per share.

Conversion of debt securities

During the fiscal year ended June 30, 2009, $3,303,333 of debt was converted into 278,346,019 shares of common stock. Included in this amount is $112,500 of notes payable to a related party which were sold to an investor for $112,500
cash and subsequently converted into 15,000,000 shares of the Company's common stock valued at $.0075 per share. Additionally $57,375 of prior notes plus accrued interest outstanding was settled by the issuance of 5,775,000 shares of common
stock. All other debt converted involved long term convertible debentures as described below.

Long Term Convertible Debentures / Note Receivable / Debt Discount and Related Interest

During the fiscal year ended June 30, 2009, the Company entered into convertible debt arrangements as follows:

Arrangement #4 (JMJ Financial, Inc.)

On December 31, 2008, the Company entered into a second agreement with JMJ Financial. This transaction involved 1) a convertible debenture in the amount of $1.1 million, plus a one-time interest factor of 12% ($132,000) and a maturity date
of December 31, 2011, and 2) a secured note receivable in the amount of $1.0 million, plus a one-time interest factor of 13.2 % ($132,000) and maturity date of December 31, 2012 due from the holder of the convertible debentures. No cash was
exchanged relative to this agreement.

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% of the lowest trading price during
the 20 day trading period prior to conversion. At the commitment date the embedded conversion feature of such security was $536,000 and the debt discount valued at $636,000. As of June 30, 2009, the value of the embedded conversion feature
increased to $855,920, creating a charge to earnings of $269,254 while the debt discount had been amortized by $97,778. As of June 30, 2011, no amounts remain outstanding under this agreement

During the fiscal year ended June 30, 2010, the Company received $1,000,000 of cash advances and $132,000 of contract interest. During the year ended June 30, 2010, the holder converted $1,232,000 of principal and interest into
78,792,702 shares of the Companys common stock. Additionally, the Company recorded $488,889 amortization of debt discount under this agreement.

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Arrangement #5 (LaJolla Cove Investors, Inc.)

On Sept 11, 2008, the Company received proceeds of $200,000 under a Securities Purchase Agreement. This transaction involved three related agreements: 1) a Securities Purchase Agreement which may under certain circumstances permit the Company to
draw up to $2,000,000 of funds, 2) a convertible debenture totaling $2,000,000, with an interest rate of 7 1/4% and a maturity date of September 30, 2011, and 3) a secured note receivable in the amount of $1,800,000, with an interest
rate of 8 1/4% and maturity dates of September 30, 2011 due from the holder of the convertible debenture. In addition, the holder of the debenture is related to the holder in Arrangement #1.

Conversion of outstanding debentures into common shares is similar to the terms of Arrangement #1. At the time of the transaction (September 11, 2008), the embedded conversion feature of this security was calculated to be $859,756. . In
addition, the transaction resulted in a note discount which is being amortized as expense over the life of the loan. As of FYE 2009, $190,000 of debt was converted into 21,714,285 shares of common stock. On June 30, 2009 and June 30, 2010 the
note receivable balance was $1,800,000, the note payable was $1,810,000 and the FMV addition $387,228 for which the Company recorded a reserve for utilization against each of $600,000. As of June 30, 2010, the derivative value of
this security was calculated to be $1,114,768.

On March 16, 2011, the holder and the Company entered into a termination agreement whereby $1,800,000 of the principal of both the note receivable and the convertible debenture, plus $90,291 in accrued interest receivable and $84,175 in
accrued interest payable, was cancelled. Additionally in connection with the termination, the Company paid the holder $17,000 and assigned to a consultant engaged by the Company the unconverted portion of the convertible debenture in the amount
of $10,000 which had been fully funded in cash and which remained outstanding at March 31, 2011 and the derivative value of the remaining security was calculated to be $3,468 As of June 30, 2011, this value was calculated to be $3,442.
During the year ended June 30, 2011, amortization of debt discount amounted to $282,774, reducing the balance to $0.

During the twelve months ended June 30, 2011, the holder converted $0 of principal into 0 shares of common stock.

During the fiscal year ending June 30, 2010, the following transactions impacted stockholders equity

Stock Based Compensation

The Company did not issue any awards of common stock or options to officers, directors or employees during the fiscal year ended June 30, 2010. The Company issued 1,575,000 shares of common stock to various vendors and consultants valued at a total
of $34,313 based upon the market price of the common stock on various different dates to such persons during the period.

Private Placements

During the fiscal year ended June 30, 2010, the Company received $225,000 of net proceeds from the issuance of 30,666,667 shares of common stock in private placements with accredited investors effected pursuant to Rule 506 of Regulation D under
the Securities Act. The aggregate cost of these placements was $25,000, and Eagle Advisors acted as placement agent. All proceeds received from the financings were used by the Company for working capital needs. The dates and amounts of each
placement are as follows: 6,666,667 common shares were issued on August 14, 2009; 6,666,667 common shares on August 15, 2009; 13,333,333 common shares on August 24, 2009; and two placements of 2,000,000 common shares each on March 17, 2010.

Conversion of debt securities

During the fiscal year ended June 30, 2010, $3,415,250 of debt was converted into 232,723,736 shares of common stock to holders of Convertible Notes. In addition the Company issued 26,666,667 shares of common stock to Microphase Corporation for
the conversion of $200,000 of previously outstanding accounts payable at $.0075 per share. The price was based upon the price offered to investors in concurrent private placements with accredited investors during this period. The Company
recorded an addition to interest expense on this beneficial conversion feature.

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Long Term Convertible Debentures / Note Receivable / Debt
Discount and Related Interest

Arrangement #6 (JMJ Financial, Inc.)

On August 19, 2009 the Company issued a 12% convertible note
maturing on August 10, 2012 in the principal amount of $1,870,000 to JMJ
Financial for a purchase price of $1,700,000. The Company initially received
$250,000 in cash as partial payment of the purchase price for the convertible
note plus a 13.2% secured promissory note maturing on August 10, 2012 in the
amount of $1,450,000. As of June 30, 2010, the Company has received a total of
$1,523,500 cash and has issued 109,920,635 shares of common stock to the holder
upon conversions. The remaining $570, 900 of cash to be received from the holder
plus accrued and unpaid interest is convertible into shares of common stock at
the option of the holder. Upon receipt, in full, of cash by the Company equaling
the purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total
amount of interest funded that would accrue to maturity into additional shares
of common stock . The number of shares into which this convertible note can be
converted is equal to the dollar amount of the debenture divided by 75% of the
lowest trading price during the 20 day trading period prior to conversion. As of
June 30, 2011 all principal plus accrued interest with respect to this
convertible note had been converted into shares of common stock and no further
obligations by the Company remained.

At the time of the transaction, the embedded feature of this
security was calculated to be $1,054,395. On June 30, 2011, this value had
decreased to $0, creating a non-cash credit to earnings of $1,054,395. In
addition, the transaction resulted in a note discount that is being amortized as
expense over the life of the loan. During the twelve month period ended June 30,
2011, amortization of debt discount amounted to $222,081. During the twelve
months ended June 30, 2011, the holder converted $346,501 of principal and
interest of $224,400 into 66,172,223 shares of common stock.

Arrangement #7 (JMJ Financial, Inc.)

On September 30, 2009, the Company issued a 12% convertible
note maturing on September 23, 2012 in the principal amount of $1,200,000 to JMJ
Financial for a purchase price of $1,100,000. The Company initially received
$150,000 in cash as partial payment of the purchase price for the convertible
note plus a 13.2% secured promissory note maturing on August 10, 2012 in the
amount of $950,000. Through June 30, 2011the Company has received a total of
$1,200,000 of principle and $144,000 of interest for full funding of the
purchase price of this note. The cash received from the holder plus accrued and
unpaid interest is convertible into shares of common stock at the option of the
holder. Upon receipt, in full, of cash by the Company equaling the purchase
price of the convertible note plus interest or any portion thereof payable
through maturity, the holder may convert such portion of the total amount of
interest funded that would accrue to maturity into additional shares of common
stock. The number of shares into which this convertible note can be converted is
equal to the dollar amount of the note divided by 75% of the lowest trading
price during the 20 day trading period prior to conversion.

At the time of the transaction, the embedded feature of this
security was calculated to be $480,000 on June 30, 2010 this value had increased
to $938,843. On June 30, 2011, this value had decreased to $0 creating a
non-cash charge to earnings of $938,843. In addition, this transaction resulted
in a note discount that is being amortized as an expense over the life of the
loan. During the twelve months ended June 30, 2011the holder converted
$1,200,000 of principle and $144,000 of interest into 240,722,223 shares of
common stock and the amortization of debt discount amounted to $386,668,
reducing the debt and debt discount balances to $0.

Arrangement #8 (JMJ Financial, Inc.)

On November 17, 2009, the Company received a total of $186,000
of proceeds in connection with a new financing agreement with JMJ Financial.
This transaction consists of the following: 1) a convertible note in the amount
of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity
date of September 23, 2012 and (2) a secured promissory note in the amount of
$1,100,000 plus a one-time interest rate factor of 13.2% ($144,000 each) and a
maturity date of September 23, 2012 due from the holder of the convertible note.
Conversion of outstanding principal into shares of common stock is at the option
of the holder. The number of shares into which this note can be converted is
equal to the dollar amount of the note divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion.

To date the Company has received a total of $639,500 in cash
and has issued 10,000,000 shares of common stock to the holder upon conversions
of $33,750. The remaining $604,600 of cash to be received from the holder plus
accrued and unpaid interest is convertible into shares of common stock at the
option of the holder. Upon receipt, in full, of cash by the Company equaling the
purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total
amount of interest funded that would accrue to maturity into additional shares
of common stock . Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 222,142,857 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated.

The Company and the holder are presently negotiating potential
amendments to this agreement, and funding and conversions have not occurred
since April, 2011. For accounting purposes the note receivable has been fully
reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 115,380,952 shares of common stock. At the
commitment date, the derivative value of the embedded conversion feature of such
security was $536,000 and the debt discount was valued at $636,000. As of June
30, 2011, this value was calculated to be $472,773. During the year ended June
30, 2011the holder converted $33,750 of principle into 10,000,000 shares of
common stock and amortization of debt discount amounted to $412,332, reducing
the debt discount balance to $100,000.

34

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Arrangement #9 (JMJ Financial, Inc.)

On December 15, 2009 the Company entered into a new financing
agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the amount of $1,500,000 plus a one-time interest
factor of 12% ($180,000) and a maturity date of December15, 2012 and (2) a
secured promissory note in the amount of $1,400,000 plus a one-time interest
rate factor of 13.2% ($180,000 ) and a maturity date of December 15, 2012 due
from the holder of the convertible note. To date the Company has received a
total of $300,000 cash and has issued no shares of common stock to the holder
upon conversions. The remaining $1,280,000 of cash to be received from the
holder plus accrued and unpaid interest is convertible into shares of common
stock at the option of the holder. Upon receipt, in full, of cash by the Company
equaling the purchase price of the convertible note plus interest or any portion
thereof payable through maturity, the holder may convert such portion of the
total amount of interest funded that would accrue to maturity into additional
shares of common stock. The number of shares into which this convertible note
can be converted is equal to the dollar amount of the note divided by 75% of the
lowest trade price during the 20 day trading period prior to conversion. Based
upon the price of the Companys common stock on June30, 2011 of $.0073 per share
the holder could convert the remaining principal amount plus interest of this
convertible note into approximately 285,714,286 shares of common stock at the
full contract value; of which the derivative liability associated with this
arrangement is calculated.

The Company and the holder are presently negotiating potential
amendments to this agreement, and funding and conversions have not occurred
since April, 2011. For accounting purposes the note receivable has been fully
reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 38,095,238 shares of common stock. At the
commitment date, the derivative value of the embedded conversion feature of such
security was $542,714 and the debt discount was valued at $642,714. As of June
30, 2011, this value was calculated to be $608,482. During the year ended June
30, 2011, amortization of debt discount amounted to $418,552, reducing the
balance to $100,000. During the twelve months ended June 30, 2011, the holder
converted $0 of principal into 0 shares of common stock.

Arrangement #10 (JMJ Financial, Inc.)

On April 5, 2010, the Company entered into a new financing
agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the principal amount of $1,200,000 plus a one-time
interest factor of 12% ($144,000) and a maturity date of December 15, 2012, and
(2) a secured promissory note from the holder of the convertible note in the
amount of $1,100,000 plus a one-time interest rate factor of 13.2% ($144,000
each) and a maturity date of December 15, 2012. To date the Company has received
a total of $100,000 cash and has issued no shares of common stock to the holder
upon conversions. The remaining $1,144,000 of cash to be received from the
holder plus accrued and unpaid interest is convertible into shares of common
stock at the option of the holder. Upon receipt, in full, of cash by the Company
equaling the purchase price of the convertible note plus interest or any portion
thereof payable through maturity, the holder may convert such portion of the
total amount of interest funded that would accrue to maturity into additional
shares of common stock .The number of shares into which this convertible note
can be converted is equal to the dollar amount of the note divided by 75% of the
lowest trade price during the 20 day trading period prior to conversion. Based
upon the price of the Companys common stock on June 30, 2011 of $.0073 per
share the holder could convert the remaining principal amount plus interest of
this convertible note into approximately 228,571,429 shares of common stock at
the full contract value; of which the derivative liability associated with this
arrangement is calculated.

The Company and the holder are presently negotiating potential
amendments to this agreement, and funding and conversions have not occurred
since April, 2011. For accounting purposes the note receivable has been fully
reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 19,047,619 shares of common stock. At the
commitment date, the derivative value of the embedded conversion feature of such
security was $421,891 and the debt discount was valued at $521,891. As of June
30, 2011, this value was calculated to be $486,795. During the year ended June
30, 2011, amortization of debt discount amounted to $378,761, reducing the
balance to $100,000. During the twelve months ended June 30, 2011, the holder
converted $0 of principal into 0 shares of common stock.

Arrangement #11 ( J. Fife)

On March 5, 2010, the Company entered into a new financing
agreement with J. Fife that consists of a convertible note issued by the Company
in the principal amount of $550,000 bearing interest at 7.5% per annum in which
the Company received $495,000 cash up front. The convertible note has a maturity
date of one year from the date of issuance. In addition, the Company had
committed to issue in the future 2 additional promissory notes each in the
principal amount of $275,000, each with an interest rate of 7.5% and each upon
the receipt of $250,000 of cash funding in exchange for such notes. The issuance
of each of such notes was expected to take place upon the full conversion of the
holder of its previous note into common stock of the Company. As of June 30,
2011, the 2 additional promissory notes are expected to be cancelled as part of
a new extension and forbearance agreement the Company is presently
re-negotiating with the holder. Conversion of each of the convertible notes into
common stock of the Company is at the option of the holder at a price equal to
the dollar amount of the note being converted divided by 75% of the three lowest
volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion. Based upon the price of the Companys common
stock on June 30, 2011 of $.0073 per share, the holder could convert the
remaining principal amount plus interest of this convertible note into
approximately 55,845,329 shares of common stock.

At the time of the transaction, the embedded feature of this
security was calculated to be $193,767. On June 30, 2011 this liability was
estimated to be $396,291. On June 30, 2011 this value had decreased to $77,059
creating a non-cash credit to earnings of $318,232. In addition, the transaction
resulted in a note discount that is being amortized as an expense over the life
of the loan. During the twelve month period ended June 30, 2011, amortization of
debt discount was $227,621. During the twelve months ended June 30, 2011, the
holder converted $398,245 of principal into 65,280,866 shares of common stock.

35

---

During the fiscal year ending June 30, 2011, the following
transactions impacted stockholders equity.

Stock Based Compensation

The Company did not issue any awards of common stock or options
to officers, directors or employees during the fiscal year ended June 30, 2011.
The Company issued 15,075,000 shares of common stock to various vendors and
consultants valued at a total of $126,945 based upon the market price of the
common stock on various different dates to such persons during the period.

Private Placements

During the fiscal year ended June 30, 2011, the Company
received $265,500 of net proceeds from the issuance of 67,500,000 shares of
common stock in private placements with accredited investors effected pursuant
to Rule 506 of Regulation D under the Securities Act. The aggregate cost of
these placements was $29,500, and Eagle Advisors acted as placement agent. All
proceeds received from the financings were used by the Company for working
capital needs. The dates and amounts of each placement are as follows:
10,000,000 shares of common stock were issued on both November 18, 2010 and
December 1, 2010 respectively, 5 million shares of common stock were issued on
December 20, 2010 and 30 million shares of common stock were issued on June 30,
2011. Subsequently, 12,500,000 shares of common stock were issued on July 6,
2011 .

Conversion of debt securities

During the fiscal year ended June 30, 2011, $2,346,896 of debt
and interest thereon was converted into 382,175,312 shares of common stock to
holders of Convertible Notes.

Long Term Convertible Debentures / Note Receivable / Debt
Discount and Related Interest

On October 22, 2010 the Company entered into a Forbearance
Agreement with J. Fife in respect of the financing agreement entered into on
March 3, 2010, in which the lender agreed not to convert any additional amounts
under the convertible notes until January 15, 2011 in exchange for increasing
the original principal amount of those notes by 10% from $550,000 to $605,000
resulting in a charge of $55,000 for debt extension fees corresponding with the
addition to the note principal. At the time of the October 22, 2010 transaction,
the embedded conversion feature of this security for this incremental liability
and loan discount was calculated to be $20,005.

On June 30, 2011, given the changes in the Companys stock
price during the 20 day look-back period for June 30, 2011, this estimated
liability decreased to $15,556; a decrease for the period from October 22, 2010
through June 30, 2011 of $4,449, creating a non-cash credit to earnings for the
period ended June 30, 2011 of that amount. During the same period ended June 30,
2011, amortization of debt discount amounted to $20,005 reducing the balance to
$0. Also, as of June 30, 2011, $30,000 of additional interest was accrued and
$28,000 intervention fees were added to principal on the original note,
consistent with the terms of a new extension and forbearance agreement the
Company is presently renegotiating with the holder. This note which was
originally scheduled to mature March 4, 2011 is expected to be extended to June
30, 2012. These increases in the convertible note will also be convertible into
common stock of the Company at the option of the holder at a price equal to the
dollar amount of the note being converted divided by 75% of the three lowest
volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion.

36

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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, 2009 and the balance sheet data as of June 30, 2002 through
June 30, 2009 are derived from financial statements that have been audited by
Rosenberg Rich Baker Berman & Company. The statement of operations data for
the year ended June 30, 2010 and the balance sheet data as of June 30, 2010 are
derived from financial statements that have been audited by Demetrius &
Company, L.L.C. The statement of operations for the year ended June 30, 2011 and
the balance sheet data as of June 30, 2011 have been audited by Demetrius &
Company, L.L.C., independent auditors, and are included in this document.

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

|                                                          |   |             |   |   |                             |   |   |             |   |   |               |   |   |               |   |   | from
      inception |  
|--------------------------------------------------------- | - | ----------- | - | - | --------------------------- | - | - | ----------- | - | - | ------------- | - | - | ------------- | - | - | -------------------- | -
|                                                          |   |             |   |   | Fiscal Years Ended June 30, |   |   |             |   |   |               |   |   | October 2,    |  
|                                                          |   |             |   |   |                             |   |   |             |   |   |               |   |   |               |   |   | 1996 to              |  
|                                                          |   | 2007        |   |   | 2008                        |   |   | 2009        |   |   | 2010          |   |   | 2011          |   |   | June 30,
      2011  |  
|Total revenues                                            | $ | 44          |   | $ | 108                         |   | $ | 187         |   | $ | 354           |   | $ | 49            |   | $ | 744                  |  
|Cost of sales                                             |   | 0           |   |   | 0                           |   |   | 0           |   |   | 66            |   |   | 50            |   |   | 116                  |  
|Research and
      development                            |   | 2,505       |   |   | 988                         |   |   | 1,256       |   |   | 2,203         |   |   | 626           |   |   | 12,258               |  
|General and administrative                                |   | 3,402       |   |   | 4,021                       |   |   | 9,554       |   |   | 1,845         |   |   | 1,823         |   |   | 27,230               |  
|Depreciation and
      amortization                       |   | 94          |   |   | 145                         |   |   | 34          |   |   | 25            |   |   | 15            |   |   | 578                  |  
|Operating loss                                            |   | (5,957      | ) |   | (5,046                      | ) |   | ( 10,637    | ) |   | (3,785        | ) |   | (2,465        | ) | $ | (39,438              | )
|Other income
      (expense), net                         |   | (1,726      | ) |   | 2,379                       | ) |   | (3,118      | ) |   | (118          | ) |   | 2,120         |   | $ | (7,790               | )
|Interest income (expense)                                 |   | (18         | ) |   | (215                        | ) |   | (1,321      | ) |   | (3,463        | ) |   | (141          | ) | $ | (2,628               | )
|Discontinued
      Operations                             |   | (9,151      | ) |   | (501                        | ) |   |             |   |   | -             |   |   | -             |   |   | (144,788             | )
|Net Loss                                                  | $ | (16,852     | ) | $ | (3,383                      | ) | $ | (15,096     | ) | $ | (7,366        | ) | $ | (486          | ) | $ | (194.644             | )
|Basic and
      diluted net loss per share - continuing   | $ | (0.02       | ) | $ | (0.01                       | ) | $ | (0.03       | ) | $ | (.01          | ) | $ | (.00          | ) |   |                      |  
|Basic and diluted net loss per
      share- discontinued  | $ | (0.02       | ) | $ | (0.00                       | ) | $ | (0.00       | ) | $ | 0.00          |   | $ | (.00          | ) |   |                      |  
|Shares used in
      basic and diluted net loss per share |   | 310,395,562 |   |   | 405,032,339                 |   |   | 592,455,950 |   |   | 1,041,685,519 |   |   | 1,402,130,735 |   |   |                      |  

BALANCE SHEET DATA in $000's

|                                              |   | 2007   |   |   | 2008   |   |   | 2009   |   |   | 2010   |   |   | 2011   |  
|--------------------------------------------- | - | ------ | - | - | ------ | - | - | ------ | - | - | ------ | - | - | ------ | -
|Cash and cash equivalents                     | $ | 23     |   | $ | 16     |   | $ | 100    |   | $ | 228    |   | $ | 2      |  
|Working capital (deficit)                     | $ | (3,088 | ) | $ | (3,853 | ) | $ | (3,991 | ) | $ | 201    |   | $ | (2,938 | )
|Total assets                                  | $ | 1,808  |   | $ | 2,351  |   | $ | 3,489  |   | $ | 5,844  |   | $ | 235    |  
|Long-term obligations, net of current portion | $ | 0      |   | $ | 1,595  |   | $ | 4,433  |   | $ | 28     |   | $ | 16     |  
|Total stockholders' (deficit)                 | $ | (2,754 | ) | $ | (3,238 | ) | $ | (5,234 | ) | $ | (7,884 | ) | $ | (5,592 | )

37

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Selected Quarterly Financial Information

The statement of operations data as of the quarterly periods
indicated below are derived from unaudited financial statements on Form 10Q
filings, and include all adjustments (consisting of normal recurring items) that
management considers necessary for a fair presentation of the financial
statements.

|FISCAL 2011 QUARTERLY                           |   |               |   |   | Three Months
      Ended |   |   |               |  
|----------------------------------------------- | - | ------------- | - | - | ------------------------ | - | - | ------------- | -
|STATEMENT OF OPERATIONS                         |   | September 30, |   |   | December 31,             |   |   | March 31,     |  
|DATA:                                           |   |               |   |   |                          |   |   |               |  
|(in thousands, except
      share amounts)      |  
|Total revenues                                  | $ | 29            |   | $ | 1                        |   | $ | 18            |  
|Costs and Expenses:                             |   |               |   |   |                          |   |   |               |  
|Cost of sales                                   |   | 9             |   |   | 5                        |   |   | 37            |  
|Research and development                        |   | 193           |   |   | 141                      |   |   | 111           |  
|General and administrative                      |   | 523           |   |   | 446                      |   |   | 455           |  
|Depreciation and amortization                   |   | 3             |   |   | 4                        |   |   | 4             |  
|Operating loss                                  |   | (701          | ) |   | (595                     | ) |   | (589          | )
|Interest expense, Net                           |   | (30           | ) |   | (25                      | ) |   | (26           | )
|Other Income (expense)                          |   | 2,725         |   |   | (100                     | ) |   | (709          | )
|Discontinued operations                         |   |               |   |   |                          |   |   |               |  
|Net ( Loss) Income                              | $ | 1,994         |   | $ | (720                     | ) |   | (1,324        | )
|Basic net (loss) gain per share-                |   |               |   |   |                          |   |   |               |  
|Continuing
      operations                     | $ | 0             |   | $ | 0                        |   | $ | 0             |  
|Discontinued operations                         | $ | 0             |   | $ | 0                        |   | $ | 0             |  
|Diluted net (loss) gain per share-              |   |               |   |   |                          |   |   |               |  
|Continuing operations                           | $ | 0             |   | $ | 0                        |   | $ | 0             |  
|Discontinued operations                         | $ | 0             |   | $ | N/A                      |   | $ | N/A           |  
|Shares used in basic net loss per share         |   | 1,189,554,845 |   |   | 1,226,037,125            |   |   | 1,456,690,423 |  
|Shares used in diluted net
      loss per share |   | 1,713,140,738 |   |   | N/A                      |   |   | N/A           |  

|FISCAL 2010 QUARTERLY                     |   |                         |   |   | Three Months Ended                   |   |   |               |  
|----------------------------------------- | - | ----------------------- | - | - | ------------------------------------ | - | - | ------------- | -
|STATEMENT OF OPERATIONS                   |   | September
      **30,** |   |   | December
      **31,**               |   |   | March 31,     |  
|DATA:                                     |   |                         |   |   |                                      |   |   |               |  
|                                          |   |                         |   |   | (in thousands, except share amounts) |  
|Total revenues                            | $ | 52                      |   | $ | 34                                   |   | $ | 142           |  
|Costs and Expenses:                       |   |                         |   |   |                                      |   |   |               |  
|Cost of sales                             |   | 0                       |   |   | 0                                    |   |   | 2             |  
|Research and development                  |   | 515                     |   |   | 579                                  |   |   | 712           |  
|General and administrative                |   | 421                     |   |   | 489                                  |   |   | 453           |  
|Depreciation and amortization             |   | 5                       |   |   | 7                                    |   |   | 7             |  
|Operating loss                            |   | (889                    | ) |   | (1041                                | ) |   | (1032         | )
|Interest expense, Net                     |   | (681                    | ) |   | (42                                  | ) |   | (33           | )
|Other Income (expense)                    |   | 1173                    |   |   | (2417                                | ) |   | 1959          |  
|Discontinued operations                   |   | 0                       |   |   | 0                                    |   |   | 0             |  
|Net ( Loss) Income                        | $ | (397                    | ) | $ | (3,500                               | ) | $ | 894           |  
|Basic net (loss) gain per share-          |   |                         |   |   |                                      |   |   |               |  
|Continuing operations                     | $ | (0.01                   | ) | $ | (0.01                                | ) | $ | 0.00          |  
|Discontinued operations                   | $ | -                       |   | $ | -                                    |   | $ | -             |  
|Diluted net (loss) gain per share-        |   |                         |   |   |                                      |   |   |               |  
|Continuing operations                     | $ | (0.01                   | ) | $ | (0.01                                | ) | $ | 0.00          |  
|Discontinued operations                   | $ | -                       |   | $ | -                                    |   | $ | -             |  
|Shares used in basic net loss per share   |   | 934,821,600             |   |   | 934,821,600                          |   |   | 1,057,751,508 |  
|Shares used in diluted net loss per share |   | 934,821,600             |   |   | 934,821,600                          |   |   | 1,534,563,992 |  

Includes certain reclassification from previous reported
amounts

38

---

|                                                          |             |                                            |   |             |                          |   |             |       |   |             |          | 
|--------------------------------------------------------- | ----------- | ------------------------------------------ | - | ----------- | ------------------------ | - | ----------- | ----- | - | ----------- | -------- | 
|FISCAL 2009 QUARTERLY                                     |             |                                            |   |             | Three
      Months Ended |   |             |       |  
|STATEMENT OF OPERATIONS DATA:                             |             | **September**                              |   |             | **31-Dec**               |   |             | March |   |             | June 30, | 
|                                                          |             | **30,**                                    |   |             |                          |   |             | 31,   |   |             |          | 
|                                                          |             | (in
      thousands, except share amounts) |  
|Total revenues                                            | $           | 6                                          |   | $           | 45                       |   | $           | 44    |   | $           | 92       | 
|Costs and Expenses:                                       |             |                                            |   |             |                          |   |             |       |   |             |          | 
|Cost of sales                                             |             | -                                          |   |             | -                        |   |             | -     |   |             | -        | 
|Research and development                                  | 388         |                                            |   | 216         |                          |   | 265         |       |   | 386         |         
|General and
      administrative                          | 6,239       |                                            |   | 499         |                          |   | 430         |       |   | 2,387       |         
|Depreciation and amortization                             |             | 13                                         |   |             | 13                       |   |             | 4     |   |             | 4        | 
|Operating loss                                            | (6,634      | )                                          |   | (683        | )                        |   | (655        | )     |   | (2,685      | )       
|Interest expense, Net                                     | (39         | )                                          |   | (61         | )                        |   | (74         | )     |   | (1,146      | )       
|Other Income
      (expense)                              | 355         |                                            |   | (1,845      | )                        |   | 73          |       |   | (1,702      | )       
|Discontinued Operations                                   |             | -                                          |   |             | -                        |   |             | -     |   |             | -        | 
|Net
      Loss                                            | (6,318      | )                                          | $ | (2,589      | )                        | $ | (656        | )     | $ | (5,533      | )       
|Basic and diluted net (loss)
      gain per share-        |             |                                            |   |             |                          |   |             |       |   |             |          | 
|Continuing
      Operations                               | (0.01       | )                                          | $ | (0.01       | )                        | $ | -           |       | $ | (0.01       | )       
|Discontinued Operations                                   | $           | -                                          |   | $           | -                        |   | $           | -     |   | $           | -        | 
|Shares used in
      basic and diluted net loss per share | 452,895,360 |                                            |   | 452,895,360 |                          |   | 671,278,600 |       |   | 786,484,581 |         



|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                                                   |                    | (2,056           
|Interest
      expense, Net                                            |                    | (12              
|Other
      Income (expense)                                           |                    | (718             
|Discontinued Operations                                                |                    | -                
|Net (Loss)
      Income                                                | $                  | (2,786           
|Basic and
      diluted net (loss) gain per share                      |                    |                  
|Continuing
      operations                                            | $                  | (0.01            
|Discontinued
      operations                                          | $                  | -                
|Shares used in
      basic and diluted net loss per share              |                    | 389,791,154      
|Includes certain
      reclassification from previous reported amounts |                    |                  

39

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|FISCAL 2007 QUARTERLY                |   |                                            |   |   | Three months ended |   |   |             |  
|------------------------------------ | - | ------------------------------------------ | - | - | ------------------ | - | - | ----------- | -
|STATEMENT OF OPERATIONS              |   | 30-Sep                                     |   |   | 31-Dec             |   |   | 31-Mar      |  
|                                     |   | (in thousands, except
      share amounts) |  
|Total revenues                       | $ | 30                                         |   | $ | 4                  |   | $ | 4           |  
|Costs and Expenses:                  |   |                                            |   |   |                    |   |   |             |  
|Cost of sales                        |   | 0                                          |   |   | 0                  |   |   | 0           |  
|Research and development             |   | 776                                        |   |   | 672                |   |   | 488         |  
|General and administrative           |   | 765                                        |   |   | 548                |   |   | 642         |  
|Depreciation and amortization        |   | 22                                         |   |   | 22                 |   |   | 23          |  
|Operating loss                       |   | (1,534                                     | ) |   | (1,238             | ) |   | (1,148      | )
|Interest expense, Net                |   | (4                                         | ) |   | (8                 | ) |   | 1           |  
|Other Income (expense)               |   | 187                                        |   |   | (1,505             | ) |   | (175        | )
|Discontinued Operations              |   | (2,607                                     | ) |   | (1,088             | ) |   | (1,942      | )
|Net Loss                             | $ | (3,958                                     | ) | $ | (3,839             | ) | $ | (3,264      | )
|Basic and diluted net loss per share |   |                                            |   |   |                    |   |   |             |  
|Continuing operations                | $ | -                                          |   | $ | (0.01              | ) | $ | -           |  
|Discontinued operations              | $ | (0.01                                      | ) | $ | -                  |   | $ | (0.01       | )
|Shares used in basic and diluted net |   | 282,306,237                                |   |   | 300,483,022        |   |   | 327,195,047 |  

40

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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 focused on the development of innovative power cells and related
products through the science of microfluidics, microelectromechanical systems
(MEMS) and nano- technology. mPhase is primarily focused on commercializing its
first nanotechnology-enabled product for military and commercial applications -
the Smart NanoBattery providing Power On CommandTM. Our new patented and
patent-pending battery technology, based on the phenomenon of electrowetting,
offers a unique way to store energy and manage power that could 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
heart pacemakers and other medical devices.

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. In July 2007, m Phase received a Small Business Technology Transfer (STTR) Program Phase I grant 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. That award was renewed in 2009 for a second year. The company has also been working with the U.S. Army as part of a Cooperative Research and Development Agreement (CRADA). 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 was developed for an emergency flashlight application.

New Products developed during Fiscal Year 2011

The Company has designed and developed its first generation emergency flashlight product containing its manually-activated reserve battery. Designed by Porsche Design Studio, the mPower Emergency Illuminator was initially sold into the consumer
market containing the Companys proprietary mechanically-activated lithium reserve battery designed by Eagle Picher. This reserve battery has a potentially infinite shelf-life since it remains in an inert state prior to initial activation. The
emergency flashlight was designed for two primary batteries and a secondary back-up battery. Both the mPower Emergency Illuminator and its Power on Command Reserve Battery technology (the Eagle Picher battery) have passed a series of rigorous tests
necessary to obtain a CE mark that is a mandatory conformity mark enabling both products to be sold into the European Economic Area that includes members and non-members of the European Union. Europe represents a key market for the flashlight
product. The Company has transitioned the backup battery from the Eagle Picher reserve battery to a cost-reduced modified primary battery with an extended shelf life and has undergone similar extensive testing of this cost-reduced version of its
battery for use as a secondary backup source of power in the mPower Emergency Illuminator. In March of fiscal year 2011 Porsche Design Studio executed an order to purchase 150 of the Companys emergency flashlight products to be distributed
worldwide through a network of Porsche Design stores.

41

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TWELVE MONTHS ENDED JUNE 30, 2011 VS. JUNE 30, 2010

Revenues. Total revenues for the year ended June 30, 2011 decreased from $ 354,157 in 2010 to $49,210 in 2011. The revenue for the current fiscal year was derived primarily from payments received by the Company under the
Phase II STTR grant from the United States Army and from sales of the mPower emergency illuminator.

Cost of sales. Cost of sales decreased $15,744 for the year ended June 30, 2011 to $50, 260. In addition, grants and fees received in connection with our Nanotechnology power cell have relatively low associated cost of
sales.

Research and Development. Research and development expenses were $625,417 for the year ended June 30, 2011 as compared to $2,203,383 in the year ended June 30, 2010, a decrease of $1,577,966. Such decrease is attributable
to the Companys completion of both a mechanically-activated reserve battery and emergency flashlight in addition to substantial completion of research on its SmartNanoBattery product.

General and Administrative Expenses. Selling, general and administrative expenses were $1,823,178 for the year ended June 30, 2011, down from $1,844,776 for the comparable period in 2010, a decrease of $21,598. During
fiscal year ended June 30, 2011, the Company incurred non-cash charges amounting to $62,945 for stock based compensation awarded to officers, employees and consultants. During fiscal year ended June 30, 2010, such charges amounted to
$34,313, an increase of $28,632 in fiscal year ended June 30, 2011. This increase was offset by the reduction of salaries of employees in fiscal year ended June 30, 2011 resulting in lower payroll by approximately $189,000 as compared to
the payroll for fiscal year ended June 30, 2010. Expenses were reduced across the board, including a reduction in legal expense of $52,000 and marketing expense of $211,000.

Other Income and Expense.The current FYE 2011 reflects non-cash charges of $0 for reparations, and net settlement income of $21,016. During the prior FYE 2010, reparation expense amounted to $35,530 and net settlement income was
$203,940. In addition during FYE 2011, the Company realized a non-cash net gain of approximately $2,099,064 compared to a non-cash net loss of $2,961,939 in FYE 2010 resulting from the issuance and the changes in the derivative liability
values relative to convertible debt. The current FYE 2011 includes a gain
resulting from the change in derivative value of $4,068,545 offset in part by
amortization of debt discount, stock issuance costs and other charges including
a $55,000 extension and forbearance fee and a $28,000 intervention fee amounting to
$2,319,318. This compares to a gain resulting from the change in derivative value of $356,566 offset in part by amortization of debt discount, stock issuance cost and other charges amounting to $3,318,505 in FYE 2010.

Net loss. mPhase recorded a net loss of $486,391 for the year ended June 30, 2011 as compared to a loss of $7,365,765 for the same period ended June 30, 2010. This represents a loss per common share of ($.00 ) in 2011 as compared
to $(.01) in 2010, based upon weighted average common shares outstanding of 1,402,130,735 and 1,041,685,519 during the periods ending June 30, 2011 and June 30, 2010 respectively.

CURRENT PLAN OF OPERATIONS

The Company is actively pursuing both military and commercial applications of its smart surface technology. In the meantime, it is seeking significantly to increase sales of its current product, the mPower Emergency Illuminator, and to enhance
profitability of this product by offering a cost reduced version containing a modified primary battery with extended shelf life instead of its proprietary Eagle Picher designed mechanically activated lithium reserve battery. In March 2011, the
Company received an initial order from Porsche Design Group in Germany for mPhase's Porsche design branded mPower Emergency illuminators to be sold in Porsche Design stores in Germany, Great Britain and the United States and it began shipments of
the Emergency Illuminators in April of 2011. In June of 2011the Company engaged First Principals, a premiere patent evaluation and commercialization firm to identify key strategic partners with products for which mPhases SmartNano Battery will
be a compelling and critical component.

42

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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 is coated with a monolayer chemistry used to repel liquids. The membrane works using a 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 superhydrophobic surface that
prevents the batterys 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 develop a power cell using the
science of nanotechnology. The Company terminated its development efforts with Lucent Bell Labs in fiscal year 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 determined that in order to develop a commercially viable product, higher energy lithium based batteries were required and it 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 develop a magnetometer or electronic sensor products using the science of nanotechnology. The Company did not renew
this Project Development Agreement 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 of 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. Expenditures for discontinued Traverser DVDDS product
are included in discontinued operations. 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 with
Lucent/Bell Labs in FYE 2007 have been in connection with nanotechnology.

During the year ended June 30, 2008, the Company incurred research and development expenses of $188,000 related to the development of IPTV solutions compared to $4.1 million for the same period ended June 30, 2007. Expenditures for the IPTV
discontinued product are included in discontinued operations. 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.During the fiscal year ended June 30, 2009, the Company incurred research and development expenses of $1,255,655, all of which was in connection with its nanotechnology, manually activated battery and
emergency flashlight products. During the fiscal year ended June 30, 2010, the Company incurred research and development expenses of $2,203,383 and during the fiscal year ended June 30, 2011, such research and development expenses amounted to
$625,417.

During the years ended June 30, 2009, June 30, 2010 and June 30, 2011 the Company was primarily engaged in joint research and development with Rutgers University in connection with a $750,000 Phase II STTR grant from the United States Army for
development of a reserve battery with an extended shelf life suitable for serving as a backup energy source for a computer memory application. In addition, during such period significant design services were provided by Porsche Design Studio in
connection with the development of the Companys emergency flashlight product.

The amount of research and development costs the Company has expended on its current technology, from its inception through June 30, 2011, is $12,257,562.

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. In addition, the Company has a co-branding agreement with Porsche Design Studio for its emergency flashlight product.

43

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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."

OPTIONS, WARRANTS AND OTHER CONVERTIBLE EQUITY INSTRUMENTS

STOCK BASED COMPENSATION

On July 1, 2005, the Company adopted the provisions of Financial Accounting Standards Board Statement "Accounting for Stock Based Compensation". The currently promulgated standards require companies to measure and recognize compensation expense for
all employee stock-based payments at fair value over the service period underlying the arrangement. Therefore, the Company is now required to record the grant-date fair value of its stock-based payments (i.e., stock options and other equity-based
compensation) in the statement of operations. The fair value of options granted in fiscal year ended June 30, 2009 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 80.3% and a risk-free interest rate 3.0% .

MATERIAL EQUITY INSTRUMENTS

The Company has material equity instruments including convertible debentures and convertible notes that are accounted for as derivative liabilities (SEE BELOW) and options and warrants that are evaluated quarterly for potential reclassification as
liabilities pursuant to FASB codification topic 815 previously known as EITF 00-19 (SEE ALSO NOTE 8 "Stockholders Equity" under the caption "Other Equity"). The Company utilized a sequencing method prescribed by EITF 00-19, based upon applying
shares available to contracts with the earliest inception date first. During the fiscal year ended June 30, 2008, the Company reclassified contracts for warrants to purchase 12,604,168 shares at fixed prices ranging from $.13 to $.15 per
share to liabilities.

The liability was recorded at the fair market value, which estimated value, as restated, was based upon the contractual life of the free standing warrants, using the Black-Sholes pricing model, based on the following weighted average assumptions:
annual expected return of 0%, an average life of 5 years, annual volatility 81% and a risk-free interest rate 2.25% . At the issuance date of the free standing warrants, which warrants were issued during the fourth quarter of fiscal June 30, 2008;
the estimated value approximated $1,006,200 and as recalculated on the quarterly measurement dates, at June 30, 2008 the estimated value approximated $433,300. During fiscal year ended 2009, the estimated value was determined to no longer be
material. The net change in the liability was credited to the change in derivative value in the Consolidated Statement of Operations for the fiscal years ended June 30, 2008 and 2009 for $572,900 and $433,300, respectively, for each of these
periods in accordance FASB Standards Codification Topic 815 (previously known EITF 00-19). Effective May, 2009, warrants to purchase 11,111,112 shares, and effective September, 2009, warrants to purchase 1,493,056 shares; representing all of the
contracts for warrants to purchase 12,604,168 shares that were reclassified to liabilities during the fiscal year ended June 30, 2008, were reclassified to permanent equity. Subsequent to September 30, 2009 the Company has not entered into, and
presently the Company does not have, any contracts for warrants or other equity instruments subject to reclassification to liabilities as prescribed by FASB Standards Codification Topic 815 (previously known as EITF 00-19).

DERIVATIVE FINANCIAL INSTRUMENTS

Presently promulgated accounting literature requires all derivatives to be recorded on the balance sheet at fair value. The conversion features of the convertible debentures are embedded derivatives and are separately valued and accounted for on our
balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use
for determining fair value of our derivatives is the Black-Scholes Pricing Model with a 20 day life for the look-back period of each conversion feature using volatility of 100%. Valuations derived from this model are subject to ongoing internal and
external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management's judgment and may impact net income.

44

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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.

LIQUIDITY AND CAPITAL RESOURCES

Through June 30, 2011, the Company had incurred development stage losses totaling approximately $194,643,955 and had cash and cash equivalents of $1,744. At June 30, 2011, mPhase had working capital of ($2,937,888) as compared to working
capital of $24,707 as of June 30, 2010.

The Company has convertible debentures and notes outstanding that, if funded, could enable the Company to raise $100,000-$200,000 per month for the next fiscal year. Draws under these facilities commenced in March of 2008. However no
conversions into common stock have occurred since April of 2011 owing to several factors including;

|1. | the accumulation of unsold common stock by holders of such instruments as a result of the Companys declining stock price and generally negative conditions in the capital markets.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                    
|2. | The Company and current holders of such instruments are presently negotiating potential amendments to the existing agreements, and                                                 
|   |                                                                                                                                                                                    
|3. | The Company and current holders of such instruments are presently negotiating new arrangements for funding.                                                                        

In addition, on June 23, 2011, the common stock of the Company ceased to be eligible for fast trading by investors by the Depository Trust Company that handles the clearance of all securities in the United States. As a result the liquidity of
the Companys common stock has contracted and financing the Company exclusively through such instruments may be limited in the future. The Company believes that supplemental private placements of equity will enable it to satisfy short-term
liquidity.

In the longer term, we estimate that the Company will need to raise approximately $5-10 million of additional capital above the funds anticipated from the monthly fundings and conversions by holders of revised or replacement convertible
securities, to meet longer term liquidity needs through June 30, 2012. Such monies will be necessary primarily to fund future operating expenditures as well as marketing, cost-reductions and commercialization of its SmartNanoBattery and Emergency
Flashlight products. Finally, depending upon sales and margins in fiscal year 2012, additional capital may be required to fund a portion of any growth necessary in operations.

Cash used in operating activities was $1,765,506 during the twelve months ended June 30, 2011. During such period, the cash used by operating activities consisted principally of the net loss ($486,391) plus non-cash credits related to
convertible debt issued and associated changes in derivative value ($2,116,064) reduced by an increase of accounts payable and accrued expenses of $412,144. These amounts are offset in part by non-cash charges related to issuance of common
stock and options for services of $126,945.

During the twelve-month period ended June 30, 2011, the Company raised capital through private placements with accredited investors, whereby the Company issued 67,500,000 shares of the Company's common stock, generating net proceeds to the Company
of $265,500.

During the twelve-month period ended June 30, 2010, the Company raised capital through private placements with accredited investors, whereby the Company issued 30,667,000 shares of the Company's common stock, generating net proceeds to the Company
of $225,000.

45

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Equity Conversions of Debt and Other Financial Instruments
with Related Parties

Conversion of debt with related parties and strategic vendors
during the periods enumerated is as follows: During the fiscal years ended June
30, 2009 and June 30, 2011, there were no equity conversions of debt or other
financial instruments with related parties.

|                                      |   | 2009 |  |   | 2010       |  |   | 2011 | 
|------------------------------------- | - | ---- |  | - | ---------- |  | - | ---- | 
|Janifast:                             |   |      |  |   |            |  |   |      | 
|Number of shares                      |   | NONE |  |   | NONE       |  |   | NONE | 
|Number of warrants                    |   | NONE |  |   | NONE       |  |   | NONE | 
|Amount converted to equity            | $ | NONE |  | $ | NONE       |  | $ | NONE | 
|Microphase Corporation:               |   |      |  |   |            |  |   |      | 
|Number of shares                      |   | NONE |  |   | 26,666,667 |  |   | NONE | 
|Number of warrants                    |   | NONE |  |   | 0          |  |   | NONE | 
|Amount converted to equity            | $ | NONE |  | $ | 200,000    |  | $ | NONE | 
|Strategic Vendor Conversions:         |   |      |  |   |            |  |   |      | 
|Number of shares                      |   | NONE |  |   | NONE       |  |   | NONE | 
|Number of warrants                    |   | NONE |  |   | NONE       |  |   | NONE | 
|Amount converted to equity            | $ | NONE |  | $ | NONE       |  | $ | NONE | 
|Officers                              |   |      |  |   |            |  |   |      | 
|Number of shares                      |   | NONE |  |   | NONE       |  |   | NONE | 
|Number of warrants (A)                |   | NONE |  |   | NONE       |  |   | NONE | 
|Amount converted to equity            | $ | NONE |  | $ | NONE       |  | $ | NONE | 
|Total Related Party
      Conversions |   |      |  |   |            |  |   |      | 
|Number of shares                      |   | NONE |  |   | 26,666,667 |  |   | NONE | 
|Number of warrants                    |   | NONE |  |   | 0          |  |   | NONE | 
|Amount converted to equity            | $ | NONE |  | $ | 200,000    |  | $ | NONE | 

LOSSES DURING THE
      DEVELOPMENT STAGE AND MANAGEMENT'S PLANS

As noted above, through June 30, 2011, the Company incurred
development stage losses totaling approximately $194,643,955 and at June 30,
2011 had working capital of ($2,937,888). Funding in our traditional capital
markets was difficult during FYE 2011. Management of the Company desired to
avoid unnecessary dilution by issuing large amounts of equity at depressed
prices to raise larger sums of cash. The Company was able to enter into
convertible debt arrangements with independent investors to provide liquidity
and capital resources during the year.

The Company is presently renegotiating its convertible debt
arrangements to provide continuing working capital. These arrangements will
likely provide much of the working capital anticipated to be needed during the
next fiscal year. The Company has also significantly reduced employee
compensation, in many instances by as much as 20%, effective July 2010. In
addition and from time to time the Company has raised necessary working capital
via bridge loans from officers (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, (3) continue its
efforts to commercialize and sell and receive military grants for its
SmartBattery, and (4) commercialize and sell its emergency flashlight.

The Company is currently focused on development and
commercialization of its emergency flashlight product as well as the further
development of its smart nano battery in both single and multi cell form. The
Company believes that these reserve batteries which have a much longer shelf
life than conventional batteries will have significant commercial and military
applications which the Company intends to actively pursue. The Company has
temporarily suspended, to conserve financial resources, development of its
magnetometer sensor devices, also developed using the science of
nanotechnology.

46

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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, 2011. 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.







47

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages beginning 73.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.







48

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ITEM 9A. CONTROLS AND PROCEDURES

Assessment of Internal Controls

Evaluation of Disclosure Controls and Procedures

The Company has implemented 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, 2011, 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, 2011.

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. The Company utilizes the COSO Framework for internal control over financial reporting. 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 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, 2011. 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.

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 9A 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 9A in this annual report.

49

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Changes in Internal Control over Financial Reporting

The Company has made steps toward remediating the internal control condition identified in the fiscal year June 30, 2009, described above. The Company has obtained, on a fee basis, an outside consultant to act as an accounting manager to assist the
Company with the accounting of convertible debentures and derivatives and the consultant was utilized during all four quarters of the fiscal year ended June 30, 2011. However, mPhase Technologies is a small company with a total staff of
approximately 6 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 may be 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.

There were no changes in our internal control over financial reporting during the fiscal year ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

None.







50

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

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, 2011 are as follows:

|NAME                      | AGE | POSITION(S)                               
|------------------------- | --- | ------------------------------------------
|Ronald A. Durando         | 54  | Chief Executive Officer
      and Director
|Gustave T. Dotoli (2)     | 74  | Chief Operating Officer and Director      
|Martin Smiley             | 63  | Chief Financial Officer                   
|OUTSIDE DIRECTORS         |     |                                           
|Anthony H. Guerino (1)(2) | 64  | Director                                  
|Abraham Biderman (1)(2)   | 63  | Director                                  
|Dr. Victor Lawrence       | 62  | 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 a Director of Microphase Corporation.
From 1986-1994, Mr. Durando was President and Chief Executive Officer of Nutley
Securities, Inc., a registered broker-dealer. Mr. Durando also served as
president of PacketPort until his resignation in February, 2008, when PacketPort
merged with Wyndstorm Corporation.

GUSTAVE T. DOTOLI has served as mPhase's Chief Operating
Officer as well as 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 was also a Director
and Vice President of Packet Port. He was 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 had
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.

51

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DR VICTOR LAWRENCE is Batcheler Chair Professor of Electrical Engineering and Associate Dean for Special Programs in the Charles V Schafer, Jr. School of Engineering, at Stevens 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 Stevens 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 major
international voiceband modem standards, 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. As an entrepreneur, 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 event a director resigns or is
removed from office, or continues until a successor director is elected and qualified.

52

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SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Directors, executive officers, and individuals 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 2011 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 2011. All the officers and directors filed all of the required forms in a timely manner.





53

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ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal year ended June
30, 2011 and the two previous fiscal years, the compensation earned by mPhase's
chief executive officer and the 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, 2011.

|SUMMARY EXECUTIVE COMPENSATION |  |      |  |   |         |  |   |       |  |   |           |     |   |           |     |  |           |  | 
|------------------------------ |  | ---- |  | - | ------- |  | - | ----- |  | - | --------- | --- | - | --------- | --- |  | --------- |  | 
|NAME&                          |  |      |  |   |         |  |   |       |  |   |           |     |   |           |     |  | NON-      |  | 
|PRINCIPAL                      |  |      |  |   |         |  |   |       |  |   | STOCK     |     |   | OPTION    |     |  | EQUITY    |  | 
|POSITION                       |  | YEAR |  |   | SALARY  |  |   | BONUS |  |   | AWARDS    |     |   | AWARDS    |     |  | INCENTIVE |  | 
|Ronald                         |  | 2011 |  | $ | 160,000 |  | $ | 0     |  | $ | 0         |     | $ | 0         |     |  | N/A       |  | 
|Durando                        |  | 2010 |  | $ | 200,000 |  | $ | 0     |  | $ | 0         |     | $ | 0         |     |  | N/A       |  | 
|Chief Executive Officer        |  | 2009 |  | $ | 275,718 |  | $ | 0     |  | $ | 1,541,700 | (2) | $ | 1,944,912 | (3) |  | N/A       |  | 
|Gustave                        |  | 2011 |  | $ | 144,000 |  | $ | 0     |  | $ | 0         |     | $ | 0         |     |  | N/A       |  | 
|Dotoli                         |  | 2010 |  | $ | 180,000 |  | $ | 0     |  | $ | 0         |     | $ | 0         |     |  | N/A       |  | 
|Chief Operating Officer        |  | 2009 |  | $ | 229,000 |  | $ | 0     |  | $ | 913,600   | (2) | $ | 1,166,947 | (3) |  | N/A       |  | 
|Martin                         |  | 2011 |  | $ | 140,000 |  | $ | 0     |  | $ | 0         |     | $ | 0         |     |  | N/A       |  | 
|Smiley                         |  | 2010 |  | $ | 175,000 |  | $ | 0     |  | $ | 0         |     | $ | 0         |     |  | N/A       |  | 
|CFO and General Counsel        |  | 2009 |  | $ | 182,292 |  | $ | 0     |  | $ | 571,000   | (2) | $ | 700,168   | (3) |  | N/A       |  | 

FOOTNOTES

|(1) | Interest on loans to the Company.                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Share grants are valued at the share price on the date
      the grant was authorized by the board of directors. The shares under the
      2009 grant to officers are restricted from resale through August, 2012.                                                                                                                      
|(3) | The fair value of options granted in fiscal year ended 2009 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 80.3%
and a risk-free interest rate 3.0%.



54

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|OUTSTANDING EQUITY AWARDS at FISCAL
      YEAR END JUNE 30, 2011       
|-----------------------------------------------------------------------
|Number of Securities underlying
      Unexercised Options (Exercisable)
|Exercise                                                               
|Price                                                                  
|Ronald Durando                                                         
|President
      CEO                                                    
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Gustave Dotoli                                                         
|COO                                                                    
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Martin Smiley                                                          
|Executive
      VP                                                     
|CFO Chief Legal                                                        
|Council                                                                
|                                                                       
|                                                                       

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION

The members of the Compensation Committee during fiscal 2011
were Messrs. Dotoli, Biderman and Guerino. Neither Messrs. Biderman nor Guerino
has been an mPhase's officer or employee. 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 2011
that has a director or executive officer serving also as a director on mPhase's
Board of Directors. Mr. Dotoli, together with Mr. Durando and Mr. Ergul, were
collectively controlling shareholders and Directors of Janifast Ltd. In March of
2009, Janifast Ltd. terminated operations.

55

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth as of August 25, 2011 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 our outstanding common
      stock;
|- | ----------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                   
|  |                                                                                                                                   
|2 | each of our directors;                                                                                                            
|  |                                                                                                                                   
|  |                                                                                                                                   
|3 | by each executive officer named in the Summary Compensation Table; and                                                            
|  |                                                                                                                                   
|  |                                                                                                                                   
|4 | by all of our directors and executive officers as a group.                                                                        

|AFFILIATES(1&2)               |  | Shares        |  |  | **Warrants** |  |  | **Options** |  |  | **TOTAL**     |  |  | %       | 
|----------------------------- |  | ------------- |  |  | ------------ |  |  | ----------- |  |  | ------------- |  |  | ------- | 
|                              |  |               |  |  |              |  |  |             |  |  |               |  |  |         | 
|Victor Lawrence               |  | 10,100,000    |  |  | -            |  |  | 200,000     |  |  | 10,300,000    |  |  | 0.39%   | 
|Anthony Guerino               |  | -             |  |  | -            |  |  | 260,000     |  |  | 260,000       |  |  | 0.01%   | 
|Abraham Biderman              |  | 45,226,890    |  |  | -            |  |  | 2,160,000   |  |  | 47,386,890    |  |  | 1.77%   | 
|Gustave Dotoli  (3)           |  | 318,107,805   |  |  | 77,749,111   |  |  | 30,000,000  |  |  | 425,856,916   |  |  | 15.31%  | 
|Ron Durando (3)               |  | 452,241,922   |  |  | 115,014,183  |  |  | 50,000,000  |  |  | 617,256,105   |  |  | 21.75%  | 
|Ned Ergul                     |  | 2,850,000     |  |  | -            |  |  | 450,000     |  |  | 3,300,000     |  |  | 0.12%   | 
|Martin Smiley (3)             |  | 313,760,629   |  |  | 58,132,124   |  |  | 18,000,000  |  |  | 389,892,753   |  |  | 14.18%  | 
|Microphase Corporation(4) (5) |  | 42,726,686    |  |  | -            |  |  | -           |  |  | 42,726,686    |  |  | 1.60%   | 
|                              |  |               |  |  |              |  |  |             |  |  |               |  |  |         | 
|TotalAffiliates               |  | 1,185,013,932 |  |  | 250,895,418  |  |  | 101,070,000 |  |  | 1,536,979,350 |  |  | 55.13 % | 

(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 beneficially owned by them. The percentage for each beneficial owner listed above is based on 2,673,502,264
shares outstanding on August 25, 2011, and, with respect to each person holding options or warrants to purchase shares that are exercisable
within 60 days after August 25, 2011, 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.

(3) Includes as warrants 115,014,183 shares, 77,749,111 shares and 58,132,124 shares issuable for unpaid compensation and loans plus accrued
interest, if converted, for Messrs. Durando, Dotoli and Smiley respectively. Such conversions are subject to availability of authorized shares. On
April 27, 2009, the board of directors consolidated all amounts outstanding for all obligations to the officers, including unpaid compensation,
and authorized the issuance of new notes with a term of five years, an interest rate of 12% and a conversion feature at a
price of $.0075, and on August 25, 2011 this conversion feature was amended to $.0040 on amounts outstanding plus accrued interest
thereon. During the fiscal years ended June 30, 2009 and June 30, 2010, the Company recorded $914,060 and $82,609, respectively, of
beneficial interest expense with respect to the conversion feature.

(4) Messrs. Ergul and Durando and certain members of their families may be deemed to exercise shared majority voting and dispositive power
for Microphase Corporation through their indirect ownership interests in Microphase Holding Company, LLC which owns 88.4% of Microphase common stock. The holding company is owned 43.9%
 by the Ergul Family Limited Partnership, which is wholly owned by Mr. Ergul, his wife and daughters, and 50% by Edson Realty
Inc. which is 83% owned by Mr. Durando, 12% by Mr. Ergul and 5% by three unrelated shareholders. Mr. Durando owns an additional 1.6%
 of Microphase common stock in his individual name.

(5) Includes 26,666,667 shares issued in June 2009 in connection with which the Company, during the quarter ended September 30, 2009,
recorded $586,667 in beneficial interest expense in respect of the conversion of $200,000 of accounts payable.

56

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE

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. Prior to March,
2008, it had purchased finished goods, primarily consisting of DSL splitter
shelves and filters, from Janifast Limited. The Company also incurred costs in
the past for obtaining transmission rights for a product it had planned to
develop within its incorporated joint venture, mPhase Television. Net, in which
the Company owned a 56.5% interest. This line of business has been discontinued.

Mr. Durando, President and CEO of mPhase, owns a controlling
interest and is a director and President of Janifast Limited. Mr. Durando and
Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a
shareholder of Janifast Limited prior to its discontinuing operations in March
of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase
Corporation and is a director and shareholder of Janifast Limited. Microphase
Corporation and Janifast Ltd. are significant shareholders of mPhase.

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.

Management believes the amounts charged to the Company by
Microphase, Janifast Ltd., mPhase Television. Net and Hart Telephone are
commensurate with amounts that would be incurred if outside parties were used.
The Company believes Microphase Corporation has the ability to fulfill its
obligations to the Company without further support from the Company.

Transactions with Officers, Directors and their
Affiliates

Directors that were significant shareholders of Janifast
Limited prior to its ceasing operations in March of 2009 included Messrs.
Durando and Dotoli.

|Summary of compensation to related parties for the Twelve
      Months Ended June 30, 2011 |   |         |  |   |         |  |   |         |  |   |          |  
|------------------------------------------------------------------------------------------ | - | ------- |  | - | ------- |  | - | ------- |  | - | -------- | -
|                                                                                           |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Biderman |  
|Consulting / Salary                                                                        | $ | 160,000 |  | $ | 144,000 |  | $ | 140,000 |  |   |          |  
|Interest                                                                                   | $ | 33,728  |  | $ | 18,610  |  | $ | 16,569  |  |   |          |  
|Rent                                                                                       |   |         |  |   |         |  |   |         |  | $ |          | $
|G&A                                                                                        |   |         |  |   |         |  |   |         |  | $ |          | $
|R&D                                                                                        |   |         |  |   |         |  |   |         |  |   |          |  
|Finders
      Fees                                                                         |   |         |  |   |         |  |   |         |  | $ | 24,500   |  
|Total compensation                                                                         | $ | 193,728 |  | $ | 162,610 |  | $ | 156,569 |  | $ | 24,500   | $
|                                                                                           |   |         |  |   |         |  |   |         |  |   |          |  
|Summary of compensation to related parties for the Twelve
      Months Ended June 30, 2010 |   |         |  |   |         |  |   |         |  |   |          |  
|                                                                                           |   |         |  |   |         |  |   |         |  |   |          |  
|                                                                                           |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Biderman |  
|Consulting / Salary                                                                        | $ | 200,000 |  | $ | 180,000 |  | $ | 175,000 |  |   |          |  
|Interest                                                                                   | $ | 56,483  |  | $ | 39,375  |  | $ | 24,356  |  |   |          |  
|Rent                                                                                       |   |         |  |   |         |  |   |         |  |   |          | $
|G&A                                                                                        |   |         |  |   |         |  |   |         |  |   |          | $
|R&D                                                                                        |   |         |  |   |         |  |   |         |  |   |          | $
|Finders Fees                                                                               |   |         |  |   |         |  |   |         |  | $ | 25,000   |  
|Total compensation                                                                         | $ | 256,483 |  | $ | 219,375 |  | $ | 199,356 |  | $ | 25,000   | $

57

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|                                                                 |   |         |  |   |         |  |   |         |  |   | Total Notes |  |   |          |  |   |            |  |   |           | 
|---------------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ----------- |  | - | -------- |  | - | ---------- |  | - | --------- | 
|Summary
      of payables to related parties as of June 30, 2011 |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |   | Total     | 
|Notes payable                                                    | $ | 263,479 |  | $ | 148,306 |  | $ | 111,030 |  | $ | 522,815     |  |   |          |  |   |            |  | $ | 522,815   | 
|Due to
      Officers / Affiliates                               |   |         |  |   |         |  |   |         |  |   |             |  | $ | 150,000  |  | $ | 27,242     |  | $ | 177,242   | 
|Interest Payable                                                 | $ | 151,685 |  | $ | 120,498 |  | $ | 80,725  |  | $ | 352,909     |  |   |          |  |   |            |  | $ | 352,909   | 
|Total
      Payable to Officers / Affiliates                     | $ | 415,164 |  | $ | 268,804 |  | $ | 191,755 |  | $ | 875,724     |  | $ | 150,000  |  | $ | 27,242     |  | $ | 1,052,966 | 
|                                                                 |   |         |  |   |         |  |   |         |  |   |             |  |   |          |  |   |            |  |   |           | 
|Summary of payables to related parties as of June 30,
      2010 |   |         |  |   |         |  |   |         |  |   |             |  |   |          |  |   |            |  |   |           | 
|                                                                 |   |         |  |   |         |  |   |         |  |   | Total Notes |  |   |          |  |   |            |  |   |           | 
|                                                                 |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |   | Total     | 
|Notes
      payable                                              | $ | 301,479 |  | $ | 166,306 |  | $ | 119,030 |  | $ | 586,815     |  |   |          |  |   |            |  | $ | 586,815   | 
|Due to Officers / Affiliates                                     | $ | 0       |  | $ | 0       |  | $ | 0       |  | $ | 0           |  |   |          |  | $ | 19,214     |  | $ | 19,214    | 
|Interest
      Payable                                           | $ | 117,957 |  | $ | 101,888 |  | $ | 64,157  |  | $ | 284,002     |  | $ | 150,000  |  |   |            |  | $ | 434,002   | 
|Total Payable to Officers / Affiliates                           | $ | 419,436 |  | $ | 268,194 |  | $ | 183,187 |  | $ | 870,817     |  | $ | 150,000  |  | $ | 19,214     |  | $ | 1,040,031 | 

58

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In July of 2009, Microphase Corporation converted $200,000 of Accounts Payable owed by the Company into common stock valued at $.0075 per share (26,666,667 shares). Such price was determined based upon the price of private placements of
equity by the Company during such period.

On October 7, 2009, the Company paid Messrs. Durando, Dotoli and Smiley $45,000, $45,000 and $25,000 respectively in reduction of amounts owed to them by the Company for unpaid compensation and bridge loans.

During the twelve months ended June 30, 2010, the Company incurred finders fees of $25,000 with Mr. Bidermans affiliated firm of Palladium Capital Advisors. Mr. Biderman was employed until September 30, 2003, by our former investment
banking firm, Lipper & Company. As of June 30, 2010, the Company owed Palladium Capital Advisors $25,000 in unpaid finders fees.

During the twelve months ended June 30, 2011, the Company incurred additional finders fees of $24,500 with Mr. Bidermans firm Eagle Strategic Advisers.

During the twelve months ended June 30, 2007, Mr. Biderman, 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. As of June 30, 2010, only $110,030 payable to Mr. Smiley remained
outstanding.

During the 12 month period ended June 30, 2006, Eagle Advisers, an investment banking firm founded by Mr. Biderman 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.

59

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During the fiscal year ended June 30, 2006, 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 ended 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 ended June 30, 2006, 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.

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, the Companys outside counsel,
received such promissory note in March of 2002 plus two warrants that expired in March 8, 2007 in exchange for cancellation of certain payables. Such warrants had conversion rights into our common stock for a total of 2,233,490 shares that had been
registered under a Form S-1 Registration Statement, and were cashless. On September 3, 2003, in exchange for reducing the total payable to $550,000, the Company paid $10,000 in cash to Piper and issued an 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: 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, a payment of $50,000 on December 1, 2005, and a payment of $75,000 due on December 1, 2006. On August 30, 2004, the Company paid $100,000 to Piper&Rudnick, LLP 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. 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.

Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli are executive officers and shareholders of Microphase and Ronald Durando and Gustave T. Dotoli served as president and vice- president of PacketPort.com., respectively until Packetport.com
merged with Wyndstorm Corporation in February of 2008, at which time Mr. Durando and Mr. Dotoli resigned from their respective positions..

On November 26, 1999, PacketPort, Inc., a company owned 100% by Mr. Durando, acquired a 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.

60

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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 would use office space as well as the administrative services of
Microphase, including the use of accounting personnel. This agreement for fiscal year 2011 required mPhase to pay Micophase $3,000 per month. Microphase also charges fees for specific projects on a project-by-project basis. During the year ended
June 30, 2011 and for the period of time from mPhase's inception (October 2, 1996) to June 30, 2011, $45,356 and $9,477,961, respectively, have been charged to expense or inventory under these Agreements and is included in discontinued
operations in the accompanying consolidated statements of operations. Management believes that amounts charged to the Company by Microphase are commensurate with 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.

Mr. Durando, President and CEO of mPhase, owns a controlling interest and is a director and President of Janifast Limited. Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited prior
to its discontinuing operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director and shareholder of Janifast Limited. Microphase Corporation is a significant shareholder of the
Company. Janifast Limited had been a significant shareholder of the Company until September 17, 2009, when it transferred to Mr. Durando 11,735,584 shares, representing all the shares of the Company held by Janifast, in partial consideration of the
cancellation of loan obligations to Mr. Durando in connection with the plan of its liquidation.

Transactions with Janifast

Janifast Ltd., a Hong Kong corporation manufacturer, had produced components for our now discontinued Traverser_ DVDDS product. 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. Janifast Ltd. ceased operations in March, 2009, and the Company has had no transactions with Janifast
during or since its fiscal year ended June 30, 2010.

Reparation Shares issued to related parties

During the fiscal year ended June 30, 2006, the Company issued 3,931,382 shares valued at $728,434 and 4,504,542 shares valued at $834,633 for reparation of investments of $200,000 for 1,000,000 shares and $250,000 for 1,250,000
shares made during fiscal year ended June 30, 2005 by Janifast and Microphase, respectively, concurrently on the same terms reparations were issued to other investors of the same private placements.

During the fiscal year ended June 30, 2007, Janifast was issued 769,231 shares valued at $138,462 for reparation of an investment of $171,000 for 950,000 shares issued for an investment made in fiscal year ended June 30, 2006, concurrently
on the same terms reparations were issued to other investors of the same private placement.

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. The joint venture has been inactive for a period of five years and is in the process of being dissolved.

Mr. Durando, President and CEO of mPhase, owned a controlling interest and was a director and President of Janifast Limited. Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited
prior to its discontinuing operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director and shareholder of Janifast Limited.

Microphase Corporation is a significant shareholder of the Company. Janifast Limited had been a significant shareholder of the Company until September 17, 2009, when it transferred to Mr. Durando 11,735,584 shares, representing all the shares of the
Company held by Janifast, in partial consideration of the cancellation of loan obligations to Mr. Durando in connection with the plan of its liquidation.

61

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SUBSEQUENT EVENTS

On July 1, 2011, the Company filed an amendment to its Amended Certificate of
Incorporation with the Secretary of State of New Jersey increasing its
authorized shares of common stock to 6 billion shares.

On July 28, 2011, the Company announced that it entered into a letter of intent
(LOI) to acquire Energy Innovative Products, Inc. (EIP), a developer of
proprietary technologies for reducing energy usage in refrigeration and cooling
systems, as well as equipment utilizing AC induction motors. EIP, based in
Fairfield, NJ, uses patented and patent pending solutions to offer a series of
products that control voltage and current used by compressor systems, including
those in refrigeration decks, HVAC wall units, commercial refrigeration systems,
and consumer equipment. The company, founded in 2008, believes its technology is
uniquely positioned to capitalize on each of these multi-billion dollar market
opportunities by allowing legacy systems to achieve Energy Star status as well
as compliance with emerging standards by the United States Department of Energy
(DOE) and other regulatory bodies. In the United States alone, there are several
million legacy refrigerated vending machines used by major beverage companies.
The Company, subject to further due diligence, believes that EIP's solution is
the only one certified for Energy Star status and able to deliver a significant
reduction in power consumption by vending machines without reducing efficiency
or cooling and without requiring a change-out in the unit's refrigeration deck.
Governmental and power company rebates are available to support the purchase of
EIP's products in several states. The terms of the deal include the issuance of
common shares and warrants for an 81% stake in EIP. The transaction is expected
to become a Definitive Agreement by the end of August 2011 and close by October
2011.

On August 12, 2011, the Company issued a $25,000 Convertible Note with a 6 month
maturity convertible into 3,671,471 shares of common stock of the Company at a
price of $.0068 per share plus a 5 year warrant to purchase at $.0068 per share
an additional 3,671,471 shares of common stock of the Company pursuant to Rule
506 Regulation D of the Securities Act of 1933,as amended, in a Private
Placement to one accredited investor. The Convertible Note pays interest at a
rate of 1% per month. The Company is using $12,500 of the proceeds to fund a
loan to EIP prior to the closing of an expected 81% interest in EIP and $12,500
as additional working capital for the Company.

On August 24, 2011 the Company issued 10,000,000 shares of its common stock to
one Accredited Investor in a private placement pursuant to Rule 506 of
Regulation D of the Securities Act of 1933, as amended, in a Private Placement.
The Company received gross proceeds of $40,000 and paid a $4,000 placement fee
to Eagle Advisers, Inc. The proceeds will be used as working capital by the
Company.

On August 25, 2011, the Board of Directors awarded Messrs Ronald A. Durando,
CEO, Gustave T. Dotoli, COO and Martin Smiley, EVP, 395,000,000, 295,000,000 and
295,000,000 restricted shares of common stock of the Company and awarded Messrs.
Abraham Biderman and Victor Lawrence, as Directors 45,000,000 and 10 million
restricted shares of common stock of the Company. In addition, previous 5 year
option awards issued on September 18, 2008 to Messrs. Durando, Dotoli and Smiley
were re-priced to $.0040 per share from $.05 per share covering 50,000,000
shares, 30,000,000 shares and 18,000,000 shares of common stock of the Company
respectively. Additionally, the Board amended the conversion feature of officers
loans, originally authorized in April 2009 with a conversion price of $.0075, to
a conversion price of $.0040.

62

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Audit Fees

The audit fees paid to the accounting firms of Demetrius & Company, L.L.C. and Rosenberg Rich Baker Berman & Company, for the fiscal year ended June 30, 2010 were $69,500. The audit fees invoiced by our accounting firm of Demetrius &
Company, L.L.C. for fiscal year ended June 30, 2011 were $50,000.





63

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

|(a) | The following documents are filed as part of this Form
      10-K (1) Consolidated Financial Statements
|--- | -------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                                                             | PAGE
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Report of Demetrius &
      Company LLC                                                                                                                                                                                      | 68  
|Report of Rosenberg Rich Baker Berman
      & Company                                                                                                                                                                        | 69  
|Report of Arthur Andersen
      LLP                                                                                                                                                                                          | 70  
|Report of Schuhalter, Coughlin &
      Suozzo, PC                                                                                                                                                                            | 71  
|Consolidated Balance
      Sheets as of June 30, 2011 and 2010                                                                                                                                                               | 72  
|Consolidated Statements of Operations for the
      years ended June 30, 2009, 2010 and 2011 and for the period from inception
      (October 2, 1996) through June 30, 2011                                                 | 73  
|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 fourteen years in
      the period ended June 30, 2011 | 74  
|Consolidated Statements of Cash Flows for the
      years ended June 30, 2009, 2010 and 2011 and for the period from inception
      (October 2, 1996) through June 30, 2011, as restated                                    | 82  
|Notes to Consolidated
      Financial Statements                                                                                                                                                                             | 83  
|                                                                                                                                                                                                                             |     
|(2) Financial Statement Schedules                                                                                                                                                                                            |     
|None.                                                                                                                                                                                                                        |     
|                                                                                                                                                                                                                            
|(3) The Exhibits filed with this Form 10-K or, where so
      indicated by footnote in the case of previously filed exhibits,
      incorporated by reference are as set forth below:                                       

64

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|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 the Company.                                                                                                                                                                                                                                 
|3.2***   | Bylaws of the Company                                                                                                                                                                                                                                                              
|4.1*     | Minutes
      of Special Meeting of the Board of Directors held on April 27, 2009,
      authorizing convertibility of officers promissory
      notes.(Amendment No. 4 to Form 10-K for the period ended June
      30, 2010, filed January 11, 2011 (file no. 000-30202))       
|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)).
|10.9*    | 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 Preliminary Proxy on Schedule
      14A filed on March 21, 2001 (file no. 000- 30202).                                                                                                              
|10.18*** | Development Agreement effective
      February 3, 2004 between Lucent Technologies, Inc. and mPhase
      Technologies, Inc for development of micro fuel cell Nano Technology.                                                                                                    
|10.21*** | Development
      Agreement effective March 1, 2005 between Lucent Technologies Inc and
      mPhase Technologies relating to development of Magnetometers.                                                                                                                        
|10.22*** | Amendment No. 2 to Development
      Agreement executed as of March 9, 2005 amending Development Agreement
      effective as of February 5, 2004, as amended relating to Micro Power
      Source Cells between mPhase Technologies, Inc. and Lucent Technologies,
      Inc.     
|10.33*** | Amendment No. 3
      dated May 19, 2006 to Development Agreement between Lucent Technologies,
      Inc. and mPhase Technologies, Inc. effective February 3, 2004 for
      Development of micro fuel cell Nanotechnology.                                                        
|10.34*** | Amendment No. 4 dated February 3,
      2007 to Development Agreement between Lucent Technologies, Inc. and mPhase
      Technologies, Inc. effective February 3, 2004 for Development of micro
      fuel cell Nanotechnology.                                                    
|10.35*** | Cooperative Research Agreement Rutgers University and
      mPhase Technologies, Inc. executed October 18, 2005.                                                                                                                                                                   
|10.36*** | Modification No. 1 to
      Cooperative Research Agreement with Rutgers University dated February 22,
      2006.                                                                                                                                                                  

65

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|10.37***  | Modification No. 2 to Cooperative Research Agreement with
      Rutgers University dated September 22, 2006.                                                                                                                                                                                            
|--------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.38***  | Modification No. 3 to
      Cooperative Research Agreement with Rutgers University dated February 7,
      2007.                                                                                                                                                                                        
|10.40***  | CT
      NanoBusiness Alliance Consulting Agreement dated May 10, 2007.                                                                                                                                                                                                                                 
|10.41***  | Amendment No.5 dated April 28,
      2007 to Development Agreement between Lucent Technologies, Inc. and mPhase
      Technologies, Inc. effective February 3, 2004 for Development of micro
      fuel cell Nanotechnology.                                                                            
|10.43*    | Cooperative Research and
      Development Agreement between US Army Picatinny Arsenel and mPhase
      Technologies, Inc. dated December 20, 2006. (Exhibit 43 to Form S-1 filed
      July 12, 2007, File No. 333-144527).                                                                            
|10.44***. | Small Business Technology
      Transfer Collaboration Agreement between Rutgers University and mPhase
      Technologies, Inc. dated June 25, 2007                                                                                                                                                     
|10.46*    | Phase I Army Grant dated
      July 7, 2007 (Form 10-K filed October 7, 2009, Commission File No.
      000-24969)                                                                                                                                                                                      
|10.47*    | Securities Purchase Agreement dated December
      11, 1007 between mPhase Technologies, Inc. and Golden Gate Investors and
      Related Documents in connection with $1,500,000 Convertible Debenture
      Financing (Form 10-K filed October 7, 2009, Commission File No. 000-24969)                
|10.48*    | Securities Purchase Agreement
      dated February 29, 2008 between St. George Investments and mPhase
      Technologies, Inc and Related Documents in connection with $550,000
      Convertible Debenture Financing. (Form 10-K filed October 7, 2009,
      Commission File No. 000-24969)           
|10.49*    | Documentation including $350,000 Convertible
      Note and $1,000,000 Convertible Note and Secured Note for $1,000,000
      Financing between mPhase Technologies, Inc. and JMJ Financial dated March
      25, 2008 (Form 10-K filed October 7, 2009, Commission File No. 000-24969)                 
|10.52*    | Phase II Army Grant
      dated August 29, 2008 (Form 10-K filed October 7, 2009, Commission File
      No. 000-24969)                                                                                                                                                                                  
|10.53*    | Securities Purchase Agreement dated September
      12, 2008 between mPhase Technologies, Inc. and La Jolla Cove Investors and
      Related Documents in connection with $2,000,000 Convertible Debenture
      Financing (Form 8K filing dated September 18, 2008)                                    
|10.54*    | Design Development Agreement
      between mPhase Technologies, Inc. and Porsche Design Studio for Emergency
      Flashlight dated November 3, 2008. (Form 8K filed on March 12, 2009) **                                                                                                              
|10.55*    | Documentation dated December 31, 2008 for
      $1,100,000 Convertible Note and Secured Note Financing between mPhase
      Technologies, Inc. and JMJ Financial and Amendment to $350,000 Convertible
      Note Financing (Form 8K Filing dated January 21, 2009, Commission File No.
      000-24969)
|10.56*    | Eagle Picher Proposal for
      mPhase Technologies, Inc. dated January 26, 2009 for design and
      development of mechanically- activated Reserve Battery to be used in
      Emergency Flashlight. (Form 8-K filed January 30, 2009)**                                                              
|10.57*    | Termination Agreement with Golden Gate
      Investors dated March 17, 2009 with respect to Convertible Debenture
      Financing dated December 11, 2007 (Form 10-K filed October 7, 2009,
      Commission File No. 000-24969)                                                                        

66

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|       |                                                                                                                                                                                                                                                                                                                                                                                        
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.59* | Documentation including
    $1,870,000 Convertible Note and Secured Note for Financing with JMJ
    Financial dated August 21, 2009 (Form August 21, 2009, Commission File No.
    000-24969)                                                                                                                                                                                          
|10.60* | Documentation including two $1,200,00 Convertible Notes
executed September 23, 2009 and November 17, 2009 and Secured Notes r connection
with financing with JMJ Financial (Form Amendment No. 3 to Form 10Q for the
period ended December 31, 2009 file Septe Commission File No. 000-30202)                                                                                          
|10.61* | Promissory Notes Payable to Mr. Durando (Amendment No.
4 to Form 10-K for the period ended June 30, 2010, filed January 11, 2011
30202))                                                                                                                                                                                                                                               
|10.62* | Promissory Notes Payable to Mr. Dotoli (Amendment No. 4
to Form 10-K for the period ended June 30, 2010, filed January 11, 2011 (fil 10.63*Promissory Notes
Payable to Mr. Smiley (Amendment No. 4 to Form 10-K for the period
ended June 30, 2010, filed January 11, 2011 (fi 31.1 Certification of Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 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.
|    |                                                                                                                                                                                                                                                                                                                                   
|*** | Incorporated by reference from Amendment No. 6 to Form
      10K for the period ended June 30, 2009 file on August 13,
  2009.                                                                                                                                                                                                    

67

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Report of Independent Registered Public Accounting Firm

To The Board of Directors andShareholders 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 its subsidiaries as of June 30, 2010
and 2011 and the related consolidated statements of operations,
changes in stockholders equity (deficit) and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial statements of mPhase Technologies, Inc. for the period from inception to June 30, 2009. Those statements were audited by other auditors whose reports have been furnished to us
and our opinion, insofar as it relates to amounts for the period from inception to June 30, 2009, included in the cumulative totals, is based solely upon the report of the other auditors.

We conducted our audit 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. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of mPhase Technologies, Inc.and subsidiaries as of June 30, 2010
and 2011 and the results of their operations and
their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that mPhase Technologies, Inc.and subsidiaries will continue as a going concern. As shown in the financial statements, the Company has experienced significant
losses and negative operating cash flows resulting in a working capital deficiency and shareholders deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Managements plans in regard to these
matters are more fully described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Demetrius & Company, L.L.C.
Wayne, New Jersey 
September 12, 2011

68

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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 sheet of mPhase Technologies, Inc. (a New Jersey corporation and is in the development stage) and subsidiaries as of June 30, 2009, and the related consolidated statements of operations, changes
in stockholders equity (deficit) and cash flows for the year then ended, for the period from July 1, 2001 to June 30, 2009. 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.

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, 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, 2009, and the results of its
operations and its cash flows for the year then ended and for the period from July 1, 2001 to June 30, 2009, in conformity with accounting principles generally accepted in the United States of America.

Rosenberg Rich Baker Berman & Company

Somerset, New Jersey

September 25, 2009, (April 20, 2010 as to Other Equity included in Note 8)

69

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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.

70

---

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

71

---

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

|                                                                                                                                                                                                                  |   | June 30,     |   |   | June 30,     |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                                                                                                                                                                                  |   | 2010         |   |   | 2011         |  
|                                                                                                                                                                                                                  |   |              |   |   |              |  
|ASSETS                                                                                                                                                                                                            |   |              |   |   |              |  
|CURRENT ASSETS                                                                                                                                                                                                    |   |              |   |   |              |  
|Cash                                                                                                                                                                                                              | $ | 228,437      |   | $ | 1,744        |  
|Stock subscription receivable                                                                                                                                                                                     |   | -            |   |   | 50,000       |  
|Accounts receivable                                                                                                                                                                                               |   | 122,478      |   |   | -            |  
|Inventory                                                                                                                                                                                                         |   | 98,807       |   |   | 102,532      |  
|Prepaid and other current
      assets                                                                                                                                                                            |   | 208,707      |   |   | 35,242       |  
|Current Portion, Notes receivable                                                                                                                                                                                 |   | 2,700,000    |   |   | -            |  
|TOTAL CURRENT ASSETS                                                                                                                                                                                              | $ | 3,358,429    |   | $ | 189,518      |  
|                                                                                                                                                                                                                  |   |              |   |   |              |  
|Property and equipment, net                                                                                                                                                                                       |   | 62,311       |   |   | 45,114       |  
|Notes receivable, net of contra reserve for
      utilization of corresponding Convertible Debenture agreement with La Jolla
      of $600,000 at June 30, 2010                                                   |   | 2,464,000    |   |   | -            |  
|TOTAL ASSETS                                                                                                                                                                                                      | $ | 5,884,740    |   | $ | 234,632      |  
|                                                                                                                                                                                                                  |   |              |   |   |              |  
|LIABILITIES AND
      STOCKHOLDERS' DEFICIT                                                                                                                                                                       |   |              |   |   |              |  
|CURRENT LIABILITIES                                                                                                                                                                                               |   |              |   |   |              |  
|Accounts payable                                                                                                                                                                                                  | $ | 539,444      |   | $ | 748,560      |  
|Accrued expenses                                                                                                                                                                                                  |   | 390,203      |   |   | 162,038      |  
|Due to related parties                                                                                                                                                                                            |   | 169,214      |   |   | 177,242      |  
|Notes payable, related parties                                                                                                                                                                                    |   | 870,817      |   |   | 875,724      |  
|Short term notes                                                                                                                                                                                                  |   | 65,000       |   |   | 65,000       |  
|Accounts Payable and Accrued
      Expenses-Discontinued Activities                                                                                                                                               |   | 1,112,872    |   |   | 1,087,356    |  
|Current Portion, Long term
      debt                                                                                                                                                                             |   | 10,352       |   |   | 11,486       |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                                         | $ | 3,157,902    |   | $ | 3,127,406    |  
|                                                                                                                                                                                                                  |   |              |   |   |              |  
|Long term portion Equipment loan                                                                                                                                                                                  |   | 27,703       |   |   | 16,315       |  
|                                                                                                                                                                                                                  |   |              |   |   |              |  
|OTHER OBLIGATIONS CONVERTIBLE TO EQUITY-
      (Note 8 )                                                                                                                                                          |   |              |   |   |              |  
|Convertible debt derivative
      liability                                                                                                                                                                       |   | 5,966,149    |   |   | 1,432,180    |  
|Convertible debentures, net of discount of
      $2,628,739 and $300,000 on June 30, 2010 and June 30, 2011, respectively                                                                                         |   | 4,577,710    |   |   | 1,250,505    |  
|                                                                                                                                                                                                                  |   |              |   |   |              |  
|COMMITMENTS AND CONTINGENCIES -(Note 11)                                                                                                                                                                          |   |              |   |   |              |  
|                                                                                                                                                                                                                  |   |              |   |   |              |  
|STOCKHOLDERS' DEFICIT                                                                                                                                                                                             |   |              |   |   |              |  
|Common stock, par value $.01,
      2,000,000,000 and 6,000,000,000 shares authorized, 1,163,751,952 and
      1,628,502,264 shares issued and outstanding at June 30, 2010 and June 30,
      2011, respectively |   | 11,637,519   |   |   | 16,285,022   |  
|Additional paid in capital                                                                                                                                                                                        |   | 174,683,294  |   |   | 172,775,132  |  
|Deficit accumulated during
      development stage                                                                                                                                                                |   | (194,157,564 | ) |   | (194,643,955 | )
|Less-Treasury stock, 13,750 shares at cost                                                                                                                                                                        |   | (7,973       | ) |   | (7,973       | )
|TOTAL STOCKHOLDERS' DEFICIT                                                                                                                                                                                       |   | ($7,844,724  | ) |   | ($5,591,774  | )
|TOTAL LIABILITIES AND STOCKHOLDERS'
      DEFICIT                                                                                                                                                                 | $ | 5,884,740    |   | $ | 234,632      |  

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

72



---

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

|                                                                                                                                                                                                                                                                                                                  |   |                      |   |   |               |   |   | Date of      |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------- | - | - | ------------- | - | - | ------------ | -
|                                                                                                                                                                                                                                                                                                                  |   | For the FYE June 30, |   |   | Inception to  |  
|                                                                                                                                                                                                                                                                                                                  |   |                      |   |   |               |   |   | June 30,     |  
|                                                                                                                                                                                                                                                                                                                  |   | 2010                 |   |   | 2011          |   |   | 2011         |  
|                                                                                                                                                                                                                                                                                                                  |   |                      |   |   |               |   |   |              |  
|REVENUES                                                                                                                                                                                                                                                                                                          | $ | 354,157              |   | $ | 49,210        |   | $ | 743,639      |  
|COSTS AND EXPENSES                                                                                                                                                                                                                                                                                                |   |                      |   |   |               |   |   |              |  
|Cost of Sales                                                                                                                                                                                                                                                                                                     |   | 65,704               |   |   | 50,260        |   |   | 115,964      |  
|                                                                                                                                                                                                                                                                                                                  |   |                      |   |   |               |   |   |              |  
|Research and Development
      (including non-cash stock related charges of $0, $0 and $205,733 for FYE
      2010 & 2011 and inception to date respectively)                                                                                                                                                     |   | 2,203,383            |   |   | 625,417       |   |   | 12,257,562   |  
|                                                                                                                                                                                                                                                                                                                  |   |                      |   |   |               |   |   |              |  
|General and Administrative
      (including non-cash stock related charges of $34,313, $62,945 and
      $12,754,354 for FYE 2010 & 2011 and inception to date respectively)                                                                                                                                      |   | 1,844,776            |   |   | 1,823,178     |   |   | 27,230,052   |  
|Depreciation and Amortization                                                                                                                                                                                                                                                                                     |   | 25,704               |   |   | 15,491        |   |   | 578,330      |  
|TOTAL COSTS AND EXPENSES                                                                                                                                                                                                                                                                                          |   | 4,139,567            |   |   | 2,514,346     |   |   | 40,181,908   |  
|OPERATING LOSS                                                                                                                                                                                                                                                                                                    | $ | (3,785,410           | ) | $ | (2,465,136    | ) | $ | (39,438,269  | )
|OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                                            |   |                      |   |   |               |   |   |              |  
|Interest (Expense)                                                                                                                                                                                                                                                                                                |   | (786,805             | ) |   | (141,335      | ) |   | (2,627,585   | )
|Net Reparation, Impairment
      and Other Income (Expense)                                                                                                                                                                                                                                                       |   | 168,409              |   |   | 21,016        |   |   | (6,572,011   | )
|Net Charges related to Convertible Debt                                                                                                                                                                                                                                                                           |   | (2,961,939           | ) |   | 2,099,064     |   |   | (1,217,781   | )
|TOTAL OTHER INCOME
      (EXPENSE)                                                                                                                                                                                                                                                                                |   | (3,580,335           | ) |   | 1,978,745     |   | $ | (10,417,377  | )
|Loss From Continuing Operations, before
      Income Taxes                                                                                                                                                                                                                                                        | $ | (7,365,745           | ) | $ | (486,391      | ) | $ | (49,855,646  | )
|Income (Loss) From
      Discontinued Operations, Net of Income Taxes of $0 in 2010 and 2011,
      offset by benefit from tax loss carryforwards of $0 in 2010 and 2011
      (including non-cash stock related charges of $0, $0 and $ 57,515,718 for
      FYE 2010 & 2011 and inception to date respectively) |   | -                    |   |   | -             |   |   | (144,788,309 | )
|                                                                                                                                                                                                                                                                                                                  |   |                      |   |   |               |   |   |              |  
|Income Taxes                                                                                                                                                                                                                                                                                                      |   | -                    |   |   | -             |   |   | -            |  
|Net Loss                                                                                                                                                                                                                                                                                                          | $ | (7,365,745           | ) | $ | (486,391      | ) | $ | (194,643,955 | )
|Net loss per share from:                                                                                                                                                                                                                                                                                          |   |                      |   |   |               |   |   |              |  
|Continuing Operations                                                                                                                                                                                                                                                                                             | $ | (0.01                | ) | $ | (0.00         | ) |   |              |  
|Discontinued Operations                                                                                                                                                                                                                                                                                           | $ | -                    |   | $ | -             |   |   |              |  
|Weighted Average Number of Shares
      Outstanding;                                                                                                                                                                                                                                                              |   |                      |   |   |               |   |   |              |  
|Basic and Diluted                                                                                                                                                                                                                                                                                                 |   | 1,041,685,519        |   |   | 1,402,130,735 |   |   |              |  

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 THIRTEEN YEARS IN THE PERIOD ENDED JUNE 30,
      2011 | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                                                                                                                                                | 
|                                                                                                                                                                                                                                                                                                | 
|                                                                                                                                                                                                                                                                                                | 
|                                                                                                                                                                                                                                                                                                | 
|Balance, October 2, 1996(date of inception).                                                                                                                                                                                                                                                    | 
|Issuance of common stock of Tecma
      Laboratories, Inc., for 100% of the Company.                                                                                                                                                                                                            | 
|Issuance of common stock, in private
      placement, net of offering costs of $138,931                                                                                                                                                                                                         | 
|Net loss                                                                                                                                                                                                                                                                                        | 
|Balance, June 30, 1997                                                                                                                                                                                                                                                                          | 
|Issuance of common stock with warrants, in
      private placement, net of offering costs of $84,065                                                                                                                                                                                            | 
|Issuance of common stock for
      services                                                                                                                                                                                                                                                     | 
|Issuance of common stock in connection with
      investment in unconsolidated subsidiary                                                                                                                                                                                                       | 
|Repurchase of 13,750 shares of
      common stock                                                                                                                                                                                                                                               | 
|Issuance of common stock with warrants in
      private placement, net of offering costs of $121,138                                                                                                                                                                                            | 
|Issuance of common stock for
      financing services                                                                                                                                                                                                                                           | 
|Issuance of common stock in consideration
      for 100% of the common stock of Microphase Telecommunications, Inc.                                                                                                                                                                             | 
|Net loss                                                                                                                                                                                                                                                                                        | 
|Balance, June 30, 1998                                                                                                                                                                                                                                                                          | 

The accompanying notes are an integral part of these
Consolidated Financial Statements.

74

---

|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
      FOURTEEN YEARS | 
|IN THE PERIOD ENDED JUNE 30,
      2011                   | 
|                                                          | 
|                                                          | 
|                                                          | 
|                                                          | 
|Balance, June 30, 1998                                    | 
|Issuance of common stock with                             | 
|warrants in private placements, net                       | 
|of offering                                               | 
|Issuance of common stock for                              | 
|services                                                  | 
|Issuance of common stock with                             | 
|warrants in private placement, net                        | 
|of offering                                               | 
|Issuance of common stock in private                       | 
|placement, net of offering costs of                       | 
|$679,311                                                  | 
|Issuance of stock options for services                    | 
|Issuance of warrants for services                         | 
|Deferred employee stock option                            | 
|compensation                                              | 
|Net loss                                                  | 
|Balance, June 30, 1999                                    | 
|Issuance of common stock and                              | 
|options in settlement                                     | 
|Issuance of common stock upon                             | 
|exercise of warrants and options                          | 
|Issuance of common stock in private                       | 
|placement, net of cash offering                           | 
|costs of $200,000                                         | 
|Issuance of common stock in private                       | 
|placement, net of cash offering                           | 
|costs of $466,480                                         | 
|Issuance of common stock for                              | 
|services                                                  | 
|Issuance of options for services                          | 
|Deferred employee stock option                            | 
|compensation                                              | 
|Amortization of deferred employee                         | 
|stock option compensation                                 | 
|Net loss                                                  | 
|Balance, June 30, 2000                                    | 

The accompanying notes are an integral part of these
Consolidated Financial Statements.

75



---



|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
      FOURTEEN YEARS | 
|IN THE PERIOD
      ENDED JUNE 30, 2011                   | 
|                                                          | 
|                                                          | 
|                                                          | 
|                                                          | 
|Balance, June 30, 2000                                    | 
|                                                          | 
|Issuance of common stock                                  | 
|upon exercise of
      options                            | 
|Issuance of common stock with                             | 
|warrants in private                                       | 
|placements, net of
      cash                             | 
|offering costs of
      $512,195                          | 
|Issuance of common stock for                              | 
|services                                                  | 
|Issuance of options and                                   | 
|warrants for
      services                               | 
|Deferred employee stock                                   | 
|option compensation                                       | 
|Amortization of deferred                                  | 
|employee stock
      option                               | 
|compensation                                              | 
|Issuance of common stock in                               | 
|settlement of debt
      to                               | 
|directors and
      related parties                       | 
|Net Loss                                                  | 
|                                                          | 
|Balance June 30, 2001                                     | 
|                                                          | 
|Issuance of Common stock                                  | 
|with warrants in
      private                            | 
|placement                                                 | 
|Issuance of Common stock for                              | 
|services                                                  | 
|Issuance of options and                                   | 
|warrants for
      services                               | 
|Cancellation of unearned                                  | 
|options to former
      employees                         | 
|Amortization of deferred                                  | 
|employee stock
      option                               | 
|compensation                                              | 
|Issuance of common stock and                              | 
|warrants in
      settlement of                           | 
|debt to related
      parties and                         | 
|strategic vendors                                         | 
|Sale of Common stock to                                   | 
|certain Officers
      and                                | 
|Directors in
      private                                | 
|placement                                                 | 
|Issuance of Common stock                                  | 
|upon exercise of
      options                            | 
|Net Loss                                                  | 
|Balance, June 30, 2002                                    | 

The accompanying notes are an integral part of these
Consolidated Financial Statements.

76



---



|mPHASE TECHNOLOGIES,
      INC.                                                                                  | 
|---------------------------------------------------------------------------------------------------------------- | 
|CONSOLIDATED STATEMENT OF CHANGES
      IN                                                                       | 
|SHAREHOLDERS' EQUITY
      (DEFICIT)                                                                             | 
|FOR THE PERIOD FROM INCEPTION (OCTOBER 2,
      1996)                                                            | 
|TO JUNE 30, 1997 AND FOR EACH OF THE
      FOURTEEN YEARS                                                        | 
|IN THE PERIOD ENDED JUNE 30,
      2011                                                                          | 
|                                                                                                                 | 
|                                                                                                                 | 
|                                                                                                                 | 
|                                                                                                                 | 
|Balance, June 30, 2002                                                                                           | 
|Issuance of Common stock
      with warrants in private placement, net of Cash offering costs of $124,687        | 
|Issuance of Common stock for services                                                                            | 
|Issuance of options and
      warrants for services                                                              | 
|Amortization of deferred employee stock option compensations                                                     | 
|Issuance of common stock
      and warrants in settlement of debt to related parties and strategic
      vendors | 
|Net Loss                                                                                                         | 
|Balance, June
      30, 2003                                                                                     | 
|Issuance
      of common stock with warrants in private placement, net of cash offering
      costs of $313,200  | 
|Issuance of common
      stock for services                                                                      | 
|Issuance
      of options and warrants for services                                                              | 
|Issuance of common stock
      pursuant to exercise of warrants                                                  | 
|Issuance
      of common stock and warrants in settlement of debt to related parties and
      strategic vendors | 
|Net Loss                                                                                                         | 
|Balance, June 30, 2004                                                                                           | 

The accompanying notes are an integral part of these
Consolidated Financial Statements.

77

---

mPHASE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION
(OCTOBER 2, 1996)TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS
IN THE PERIOD ENDED JUNE 30, 2011

|                                                                                                                           |  |              |  |       |                 |  |       |            |   |       | Additional      |   |   |              |   |   | Total            |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ----- | --------------- |  | ----- | ---------- | - | ----- | --------------- | - | - | ------------ | - | - | ---------------- | -
|                                                                                                                           |  | Common       |  |       | Par Value       |  |       | Treasury   |   |       | Paid-In         |   |   | Accumulated  |   |   | Stockholders     |  
|                                                                                                                           |  | Stock Shares |  |       | 0.01            |  |       | Stock      |   |       | Capital         |   |   | Deficit      |   |   | 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.

78



---

|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
      FOURTEEN YEARS                                              | 
|IN THE PERIOD ENDED JUNE 30,
      2011                                                                | 
|                                                                                                       | 
|                                                                                                       | 
|                                                                                                       | 
|                                                                                                       | 
|Balance June 30, 2006                                                                                  | 
|Issuance of common stock pursuant to the exercise of
      warrants (net of cash expenses of $150,000) | 
|Issuance of common stock in private
      placements, (net of cash expenses of $216,134)               | 
|Issuance of common stock for services                                                                  | 
|Conversion of related party and strategic
      vendor debt to common stock                            | 
|Issuance of additional shares and warrants to effect
      repricing                                   | 
|Stock options awarded to employees and
      officers                                                  | 
|Deferred stock compensation                                                                            | 
|Net Loss                                                                                               | 
|Balance June 30, 2007                                                                                  | 

79

---



mPHASE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION
(OCTOBER 2, 1996)TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS
IN THE PERIOD ENDED JUNE 30, 2011

|                                                                                   |  |             |  |   |           |  |   |          |   |   | Additional  |   |   |              |   |   |              |   |   | Total       |  
|---------------------------------------------------------------------------------- |  | ----------- |  | - | --------- |  | - | -------- | - | - | ----------- | - | - | ------------ | - | - | ------------ | - | - | ----------- | -
|                                                                                   |  |             |  |   |           |  |   |          |   |   | Paid        |   |   |              |   |   |              |   |   | Shareholder |  
|                                                                                   |  |             |  |   | $.01 Par  |  |   | 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     |  
|Contingent liability recorded on warrant exercise above                            |  | 1,019,200   |  | $ | 10,192    |  |   |          |   |   | (1,006,200  | ) |   |              |   |   |              |   |   | (1,006,200  | )
|Common shares in settlement of accrued
      expenses                              |  |             |  |   |           |  |   |          |   | $ | 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                                                                           |  |             |  |   |           |  |   |          |   |   |             |   |   |              |   | $ | (3,383,821   | ) | $ | (3,383,821  | )
|Balance June 30, 2008                                                              |  | 440,395,000 |  | $ | 4,403,950 |  | $ | (7,973   | ) | $ | 164,061,310 |   |   | 0            |   | $ | (171,695,440 | ) | $ | (3,238,153  | )

The accompanying notes are an integral part of these
Consolidated Financial Statements.

80



---

mPHASE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION (OCTOBER
2, 1996)TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS IN THE
PERIOD ENDED JUNE 30, 2011

|                                                                                                    |  |             |   |   |           |   |   |          |   |   |             |   |   |              |   |   | Total        |  
|--------------------------------------------------------------------------------------------------- |  | ----------- | - | - | --------- | - | - | -------- | - | - | ----------- | - | - | ------------ | - | - | ------------ | -
|                                                                                                    |  |             |   |   |           |   |   |          |   |   | Additional  |   |   |              |   |   | Shareholders |  
|                                                                                                    |  |             |   |   | $.01 Par  |   |   | Treasury |   |   | Paid in     |   |   | Accumulated  |   |   | (Deficit)    |  
|                                                                                                    |  | Shares      |   |   | Value     |   |   | Stock    |   |   | Capital     |   |   | Deficit      |   |   | Equity       |  
|Balance June 30, 2008                                                                               |  | 440,395,000 |   | $ | 4,403,950 |   | $ | (7,973   | ) | $ | 164,061,310 |   | $ | (171,695,440 | ) | $ | (3,238,153   | )
|Issuance of common stock in private placements net of
      offering cost ($80,000)                 |  | 72,333,333  |   | $ | 723,333   |   |   |          |   | $ | (3,333      | ) |   |              |   | $ | 720,000      |  
|Issuance of additional shares effect
      repricing                                                |  | 19,522,000  |   | $ | 195,220   |   |   |          |   | $ | 236,952     |   |   |              |   | $ | 432,172      |  
|Stock options/ warrants awarded to employees and investors                                          |  |             |   |   |           |   |   |          |   | $ | 4,071,348   |   |   |              |   | $ | 4,071,348    |  
|Stock based compensation                                                                            |  | 61,750,000  |   | $ | 617,500   |   |   |          |   | $ | 2,908,115   |   |   |              |   | $ | 3,525,615    |  
|Vendor settlements                                                                                  |  | (1,926,470  | ) |   | ($19,265  | ) |   |          |   | $ | 19,265      |   |   |              |   | $ | 0            |  
|Beneficial Conversion feature of Notes
      Payable, including $914,060 on Officers' Notes Payable |  |             |   |   |           |   |   |          |   | $ | 1,028,560   |   |   |              |   | $ | 1,028,560    |  
|Forgiveness of related party debt                                                                   |  |             |   |   |           |   |   |          |   | $ | 19,336      |   |   |              |   | $ | 19,336       |  
|Conversion of debt securities and
      interest                                                    |  | 278,346,019 |   | $ | 2,783,459 |   |   |          |   | $ | 519,874     |   |   |              |   | $ | 3,303,333    |  
|Net Loss                                                                                            |  |             |   |   |           |   |   |          |   |   |             |   | $ | (15,096,379  | ) | $ | (15,096,379  | )
|Balance June 30, 2009                                                                               |  | 870,419,882 |   | $ | 8,704,197 |   | $ | (7,973   | ) | $ | 172,861,427 |   | $ | (186,791,817 | ) | $ | (5,234,168   | )

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

81

---



|mPHASE TECHNOLOGIES,
      INC.                                                                         | 
|------------------------------------------------------------------------------------------------------- | 
|CONSOLIDATED STATEMENT OF CHANGES
      IN                                                              | 
|SHAREHOLDERS' EQUITY
      (DEFECIT)                                                                    | 
|FOR THE PERIOD FROM INCEPTION (OCTOBER 2,
      1996)                                                   | 
|TO JUNE 30, 1997 AND EACH OF THE FOURTEEN
      YEARS IN THE PERIOD ENDED JUNE 30, 2011                 | 
|                                                                                                        | 
|                                                                                                        | 
|                                                                                                        | 
|                                                                                                        | 
|                                                                                                        | 
|Balance June 30, 2009                                                                                   | 
|Conversions of Convertible                                                                              | 
|Debentures plus accrued
      interest                                                                  | 
|                                                                                                        | 
|Conversions of Accounts
      Payable                                                                   | 
|Issuance of common stock in
      private placements net of offering cost ($25,000)                     | 
|Issuance
      of Common Stock for Services                                                             | 
|Issuance
      of Common Stock for Reparations                                                          | 
|Beneficial
      Conversion feature of Officers' Notes Payable and conversion of accounts
      payable | 
|Cancellation of
      Capital Notes in Subsidiary issued in connection with equity                      | 
|Net Loss
      for the Year Ended June 30, 2010                                                         | 
|Balance June 30, 2010                                                                                   | 

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

82

---

mPHASE TECHNOLOGIES, INC.(A Development Stage
Company)CONSOLIDATED STATEMENT OF CHANGES INSHAREHOLDERS'
EQUITY (DEFICIT)FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)TO JUNE 30, 1997 AND EACH OF THE FOURTEEN YEARS IN THE PERIOD ENDED
JUNE 30, 2011

|                                                                                                 |  | Common Stock  |  |   |            |  |   |          |   |   |             |   |   |              |  
|------------------------------------------------------------------------------------------------ |  | ------------- |  | - | ---------- |  | - | -------- | - | - | ----------- | - | - | ------------ | -
|                                                                                                 |  |               |  |   |            |  |   |          |   |   | Additional  |   |   |              |  
|                                                                                                 |  |               |  |   | $.01 Par   |  |   | Treasury |   |   | Paid in     |   |   | Accumulated  |  
|                                                                                                 |  | Shares        |  |   | Value      |  |   | Stock    |   |   | Capital     |   |   | Deficit      |  
|Balance July 1, 2010                                                                             |  | 1,163,751,952 |  | $ | 11,637,519 |  | $ | (7,973   | ) | $ | 174,683,294 |   | $ | (194,157,564 | )
|                                                                                                 |  |               |  |   |            |  |   |          |   |   |             |   |   |              |  
|Conversions of Convertible Debentures plus
      accrued interest                                |  | 382,175,312   |  |   | 3,821,753  |  |   |          |   |   | (1,474,857  | ) |   |              |  
|                                                                                                 |  |               |  |   |            |  |   |          |   |   |             |   |   |              |  
|Issuance of Common Stock for Services                                                            |  | 15,075,000    |  |   | 150,750    |  |   |          |   |   | (23,805     | ) |   |              |  
|                                                                                                 |  |               |  |   |            |  |   |          |   |   |             |   |   |              |  
|Issuance of Common Stock to accredited
      investors in private placement, net of $29,500 fees |  | 67,500,000    |  |   | 675,000    |  |   |          |   |   | (409,500    | ) |   |              |  
|                                                                                                 |  |               |  |   |            |  |   |          |   |   |             |   |   |              |  
|Net Loss for the Year Ended June 30, 2011                                                        |  |               |  |   |            |  |   |          |   |   |             |   |   | (486,391     | )
|                                                                                                 |  |               |  |   |            |  |   |          |   |   |             |   |   |              |  
|Balance June 30, 2011                                                                            |  | 1,628,502,264 |  |   | 16,285,022 |  |   | (7,973   | ) |   | 172,775,132 |   | $ | (194,643,955 | )

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

83



---



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

|                                                                                                                        |       |                   |   |       |                     |   |       | 2-Oct-96     |  
|----------------------------------------------------------------------------------------------------------------------- | ----- | ----------------- | - | ----- | ------------------- | - | ----- | ------------ | -
|                                                                                                                        |       | Fiscal Year Ended |   |       | (Date of Inception) |  
|                                                                                                                        |       | June 30,          |   |       | June 30,            |   |       | To June 30,  |  
|                                                                                                                        |       | 2010              |   |       | 2011                |   |       | 2011         |  
|Cash Flow From Operating Activities:                                                                                    |       |                   |   |       |                     |   |       |              |  
|Net Income (Loss) From
      Continuing Operations                                                                      | $     | (7,365,745        | ) | $     | (486,391            | ) | $     | (49,855,646  | )
|Net Income (Loss) From Disontinued Operations                                                                           | $     | 0                 |   | $     | 0                   |   | $     | (144,788,309 | )
|Adjustments to reconcile net
      loss to net cash used in operating activities:                                       |       |                   |   |       |                     |   |       |              |  
|Depreciation and amortization                                                                                           |       | 37,356            |   |       | 23,130              |   |       | 7,460,786    |  
|(Gain) loss on debt
      extinguishments                                                                               |       | (147,238          | ) |       | (25,516             | ) |       | (1,110,124   | )
|Non-cash charges relating to issuance of
      common stock, common stock options and warrants                          |       | 34,313            |   |       | 126,945             |   |       | 70,378,689   |  
|Reparation charges                                                                                                      |       | 35,530            |   |       | -                   |   |       | 8,264,264    |  
|Derivative Value and Debt Discount charges                                                                              |       | 2,961,939         |   |       | (2,116,064          | ) |       | 1,850,932    |  
|Write off of Granita
      Inventory/ Sovereign Investment                                                              |       |                   |   |       | -                   |   |       | 615,910      |  
|Other non cash charges including amortization
      of deferred compensation and beneficial conversion interest expense |       | 669,276           |   |       | -                   |   |       | 2,712,901    |  
|Changes in assets and
      liabilities:                                                                                |       |                   |   |       |                     |   |       |              |  
|Accounts receivable                                                                                                     |       | (76,413           | ) |       | 122,478             |   |       | 427,876      |  
|Inventories                                                                                                             |       | (98,807           | ) |       | (3,725              | ) |       | (613,003     | )
|Prepaid expenses and Other current assets                                                                               |       | (55,071           | ) |       | 173,465             |   |       | 45,819       |  
|Other                                                                                                                   |       |                   |   |       |                     |   |       | 906,535      |  
|Accounts payable, Accrued expenses, Deferred
      revenue                                                              |       | 256,441           |   |       | 412,144             |   |       | 8,978,468    |  
|Due to/from related parties
      Microphase / Janifast//Lintel                                                         |       | (17,114           | ) |       | 8,028               |   |       | 5,500,801    |  
|Officers and Other                                                                                                      |       | -                 |   |       | -                   |   |       | 1,711,357    |  
|Net cash used in operating
      activities                                                                             | $     | (3,765,533        | ) | $     | (1,765,506          | ) | $     | (87,512,744  | )
|Cash Flow from Investing Activities:                                                                                    |       |                   |   |       |                     |   |       |              |  
|Payments related to patents
      and licensing rights                                                                  |       | -                 |   |       | -                   |   |       | (450,780     | )
|Purchase of fixed assets                                                                                                |       | (15,000           | ) |       | (5,933              | ) |       | (3,308,493   | )
|Investment in Sovereign                                                                                                 |       | -                 |   |       | -                   |   |       | (110,000     | )
|Net Cash (used) in investing activities                                                                                 | **$** | (15,000           | ) | **$** | (5,933              | ) | **$** | (3,869,273   | )
|Cash Flow from Financing
      Activities:                                                                              |       |                   |   |       |                     |   |       |              |  
|Proceeds from issuance of common stock,
      exercises of warrants, net of finders fees                                |       | 225,000           |   |       | 215,500             |   |       | 83,139,379   |  
|Payment of short term notes
      & equipment loans                                                                     |       | (6,993            | ) |       | (10,254             | ) |       | (1,298,799   | )
|Advances from Microphase                                                                                                |       | -                 |   |       | -                   |   |       | 347,840      |  
|Issuance of Convertible
      Debentures                                                                                |       | 500,000           |   |       | -                   |   |       | 766,500      |  
|Net Proceeds (Repayment) from notes payable
      related parties                                                       |       | (595,175          | ) |       | (64,000             | ) |       | (424,659     | )
|Proceeds from the collection
      of Notes Receivable under securities purchase agreements                             |       | 3,786,000         |   |       | 1,403,500           |   |       | 8,339,500    |  
|Sale of minority interest in Granita
      subsidiary                                                                   |       | -                 |   |       | -                   |   |       | 514,000      |  
|Net cash provided by
      financing activities                                                                         |       | 3,908,832         |   |       | 1,544,746           |   |       | 91,383,761   |  
|                                                                                                                        |       |                   |   |       |                     |   |       |              |  
|Net increase (decrease) in
      cash                                                                                   | $     | 128,299           |   | **$** | (226,693            | ) | $     | 1,744        |  
|CASH AND CASH EQUIVALENTS, beginning of
      period                                                                    | $     | 100,138           |   | $     | 228,437             |   | $     | 0            |  
|CASH AND CASH EQUIVALENTS,
      end of period                                                                          | $     | 228,437           |   | $     | 1,744               |   | $     | 1,744        |  

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

**84**

---



mPHASE TECHNOLOGIES, INC.(A DEVELOPMENT STAGE COMPANY)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

1. ORGANIZATION AND NATURE OF BUSINESS

mPhase, a New Jersey corporation founded in 1996, is a publicly-held company with over 23,000 shareholders and approximately 1.63 billion shares of common stock outstanding as of June 30, 2011. 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.

In recent years, the Company has shifted its primary business focus to the development of innovative power cells and related products through the science of microfluidics, microelectromechanical systems (MEMS) and nano- technology. Using these
disciplines, it 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 disposal 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 planned 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. Although management and staff of AlwaysReady Inc were hired the Company funded all operations of Always Ready, Inc. to date 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.) As of June 30, 2011, the Company has treated Granita as a discontinued business.

We are headquartered in Norwalk, Connecticut with offices in Little Falls, NJ. mPhase shares common office space with Microphase Corporation, a privately held company in which the CEO of the company owns a minority interest. 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.

85

---

mPHASE TECHNOLOGIES, INC.(A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

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

Through June 30, 2011, the Company incurred development stage losses totaling approximately $194,643,955 and at June 30, 2011 had working capital of $(2,937,888). Funding in our traditional capital markets was difficult during FYE 2010 and
2011.

The Company was able to enter into convertible debt arrangements with independent investors to provide liquidity and capital resources during the year. Such arrangements have provided the Company with cash in the amounts of $4,511,000 and
$1,619,000 during FYE 2010 and 2011 respectively. These arrangements will likely need to be revised to continue to provide a portion of the working capital anticipated to be needed during the next fiscal year. In addition and from time to time
during FYE 2010 and 2011, the Company raised necessary working capital via bridge loans from officers and private placements of equity. Such loans have subsequently been repaid (see notes payable to officers).

The Company is currently focused on the continued development and commercialization of its "Always Ready" battery product 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 is also actively working on the commercialization and marketing of its emergency flashlight, the mPower Emergency Illuminator. The Company has suspended
development of its magnetometer sensor devices and discontinued all activities related to its IPTV business. It is unclear whether any intellectual property related to those operations will have significant value.

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 develop, 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 2011 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 and its 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.

86

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

STOCK BASED COMPENSATION

On July 1, 2005, the Company adopted the provisions of Financial Accounting Standards Board Statement Accounting for Stock Based Compensation" that 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 the promulgated authority "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. The Company recognizes revenue on its research grant contract upon delivery of milestones defined in the contract, at the fixed predetermined price under the contract in
which payment is reasonably expected as enumerated in SAB104.

RESEARCH AND DEVELOPMENT

Research and Development cost are charged to operations when incurred. The amounts charged to expense for the years ended 2010, 2011 and inception to date were $2,203,383, $625,417 and $12,257,562 for continuing operations 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 $0, and $0 for the years ended June 30, 2010 and 2011, respectively. As of June 30, 2008, the book value of such assets has been fully amortized.

INVENTORIES

The Company uses the First In First Out method (FIFO) to account for inventory which is carried at the lower of market value or 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). As of June 30, 2010 and June 30, 2011, the inventory related to the Emergency Flashlight was valued at $98,807 and $102,532
respectively.

87

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

LONG-LIVED ASSETS

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
$35,530, $0 and $8,299,794 for the years ended 2010, 2011 and inception to date, respectively.

LOSS PER COMMON SHARE, BASIC AND DILUTED

mPhase accounts for net loss per common share in accordance with the requirements FASB Earnings Per Share. Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed by dividing net loss adjusted for income or loss that would result from the assumed conversion of potential common shares from contracts that may be settled in stock or cash by the weighted average number of
shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The Company had warrants and options and convertible debentures (if funded in full  see note 8) outstanding at June 30, 2011,
convertible into, respectively, approximately 21,480,837 and 113,720,000 and 792,273,901 shares of the Company's common stock based upon the conversion terms at June 30, 2011. The Company has also granted a conversion feature to certain officers for
notes outstanding, giving these noteholders the right to convert principal and interest outstanding, subject to availability, into 116,763,169 shares of the Companys common stock based on a $.0075 per share conversion price (see note 13).
The inclusion of the warrants and potential common shares to be issued in connection with convertible debt have an anti-dilutive effect on diluted loss per share and have been omitted in such computation.

BUSINESS CONCENTRATIONS AND CREDIT RISK

To date, the Company's products have been sold to a limited number of customers, earlier primarily in the telecommunications and defense industry and recently including some sales of the Emergency Illuminator. In fiscal year ended 2010, revenue
continued to be derived from US Army research contracts as well as from sales by the Company of the Companys mPower Flashlight and battery products. In fiscal year ended 2011, revenue was derived from research contracts with the U.S. Army and
sales of the Companys mPower emergency illuminator. Throughout the year, cash balances that the Company maintains at financial institutions may exceed the Federal Deposit Insurance Corporation insurance limitation of up to $250,000. Cash
balances exceeded FDIC insured limits at times throughout the years ended June 30, 2010 and 2011.

MATERIAL EQUITY INSTRUMENTS

The Company has material equity instruments including convertible debentures and convertible notes that are accounted for as derivative liabilities (SEE BELOW) and options and warrants that are evaluated quarterly for potential reclassification as
liabilities pursuant to current accounting guidance.

88

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2010

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

DEBT DISCOUNTS

Costs incurred with parties who are providing the actual long-term financing, which generally may include the value of warrants, fair value of the derivative conversion feature, or the intrinsic value of conversion features associated with the
underlying debt, are reflected as a debt discount. These costs and discounts are generally amortized over the life of the related debt.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives are recorded on the balance sheet at fair value. The conversion features of the convertible debentures are embedded derivatives and are separately valued and accounted for on our balance sheet with changes in fair value recognized during
the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use for determining fair value of our derivatives is the
Black-Scholes Pricing Model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs
involves management's judgment and may impact net income. During the fiscal years ended June 30, 2010 and June 30, 2011, the Company utilized an expected life of 20 days based upon the look-back period of its convertible debentures and notes and a
volatility of 100%.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and
tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. At June 30, 2011, the Company had a full valuation allowance against its deferred tax assets.

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash, accounts payable, long term debt, line of credit, convertible debt and due to related parties. Management believes the estimated fair value of cash, accounts payable and debt instruments at June 30,
2011 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments or the use of market interest rates for debt instruments. Fair value of due to related parties cannot be determined due to
lack of similar instruments available to the Company.

NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board issued ASU 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04), which is intended to result in convergence
between U.S. GAAP and International Financial Reporting Standards requirements for measurement of, and disclosures about, fair value. ASU 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements
particularly for Level 3 fair value measurements. The new guidance is effective for our third quarter of the fiscal year ending June 30, 2012, and we do not expect its adoption to have a material effect on our financial position or results of
operations.

In June 2011, the Financial Accounting Standards Board issued ASU 2011-05 Presentation of Comprehensive Income, which makes the presentation of items within other comprehensive income (OCI) more prominent. The new standard will require
companies to present items of net income, items of OCI and total comprehensive income in one continuous statement or two separate consecutive statements, and companies will no longer be allowed to present items of OCI in the statement of
shareholders equity. Reclassification adjustments between OCI and net income will be presented separately on the face of the financial statements. The new guidance is effective for our fiscal year ending June 30, 2013, and we do not expect its
adoption to have a material effect on our financial position or results of operations.

89

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mPHASE TECHNOLOGIES, INC.(A DEVELOPMENT STAGE
COMPANY)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30,
2011

|3. SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES - (Continued)                 |   |                      |  |  
|--------------------------------------------------------------------------------- | - | -------------------- |  | -
|                                                                                  |   | For the FYE June 30, | 
|SUPPLEMENTAL CASH FLOW INFORMATION                                                |   | 2010                 |  |  
|Statement of Operation Information:                                               |   |                      |  |  
|Fee on Amendment to Convertible Debt
      Arrangement                            | $ | 0                    |  | $
|Interest Received from Notes Receivable                                           | $ | 275,000              |  | $
|Interest Accrued Unpaid                                                           | $ | 324,229              |  | $
|Non
      Cash Investing and Financing Activities:                                |   |                      |  |  
|Interest Paid (net
      interest income)                                         | $ | 27,412               |  | $
|Stock issued in settlement of accrued expenses and accounts
      payable         | $ | 200,000              |  | $
|Beneficial Conversion of Officers Notes
      and Conversion of Accounts Payable | $ | 669,276              |  | $
|Convertible Debt issued for Notes
      Receivable                                | $ | 6,400,000            |  | $
|Conversion of
      Convertible Debt and Related Expenses                         | $ | 3,415,520            |  | $
|Reversal of note payable to former Granita employee
      (Footnote 7) to equity  | $ | 175,820              |  | $

|4. PROPERTY AND EQUIPMENT                                        |   |          |   |   |          |  
|---------------------------------------------------------------- | - | -------- | - | - | -------- | -
|                                                                 |   |          |   |   |          |  
|Property and equipment, at cost, consist of the
      following: |   |          |   |   |          |  
|                                                                 |   | 2010     |   |   | 2011     |  
|Research Equipment                                               | $ | 36,452   |   | $ | 42,385   |  
|Office and Marketing                                             |   | 142,280  |   |   | 142,280  |  
|Gross Cost                                                       |   | 178,732  |   |   | 184,665  |  
|Less
      Accumulated                                           |   |          |   |   |          |  
|Depreciation                                                     |   | (116,421 | ) |   | (139,551 | )
|Net
      Property and Equipment                                 | $ | 62,311   |   | $ | 45,114   |  

Depreciation expense for the years ended June 30, 2010 and 2011
was $37,356 and $23,130 respectively, of which $11,652 and $7,639, respectively,
relates to research laboratory and testing equipment included in research and
development expense.

|5. ACCRUED EXPENSES                                                            |   |                      |  |   |         | 
|------------------------------------------------------------------------------ | - | -------------------- |  | - | ------- | 
|                                                                               |   |                      |  |   |         | 
|Accrued expenses consist of the following as of each
      Balance Sheet date: |   | For the FYE June 30, | 
|                                                                               |   | 2010                 |  |   | 2011    | 
|Accrued Interest- Convertible
      Debentures                                 | $ | 324,229              |  | $ | 87,983  | 
|Other Expenses                                                                 | $ | 65,994               |  | $ | 74,055  | 
|Total                                                                          | $ | 390,203              |  | $ | 162,038 | 

90

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE
COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE
30, 2011

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 four 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 four 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 four 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 was being held for issuance to the four
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 four 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 arose between
Granita Media and one of the former employees with respect to a sum of
approximately $176,000 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 four 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 took the
position that neither such amount nor any related interest and fees are owed to
the employee. In addition, the Company had 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. Granita Meida, Inc. ceased operations in
December of 2007. In the fourth quarter of fiscal year 2010, the Company elected
to treat Granita Media, Inc. as a discontinued operation.

|7. SHORT TERM NOTES PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |               |  |   |               | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- |  | - | ------------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |               |  |   |               | 
|Short term debt is comprised of the
      following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |               |  |   |               | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |               |  |   |               | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | June 30, 2010 |  |   | June 30, 2011 | 
|Note payable to Granita Employee (See note #6) 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, of which $10,000 was paid in 2008. The Company is currently in
      default with respect to the remainder. | $ | 0             |  | $ | 0             | 
|Total Short Term Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 65,000        |  | $ | 65,000        | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | $ | 65,000        |  | $ | 65,000        | 

91



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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

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 2005, June 2006, and June 2008, the Company received authorization to increase the number of authorized
shares to 500 million, 900 million and 2 billion, respectively. A further increase in the number of authorized shares of common stock to 6 billion was approved at a Special Meeting of Shareholders of the Company held on June 29, 2011.

All other debt converted involved long term convertible debentures which are discussed below:

Long Term Convertible Debentures / Note Receivable / Debt Discount and related Interest

The Company has entered into eleven separate convertible debt arrangements with independent investors.

General

The economic substance of convertible debt arrangements entered into beginning December 2007 was to provide the Company with needed liquidity to supplement the private equity markets.

The form of the transaction generally involves the following:

- The receipt of cash.
- The issuance of a note payable from mPhase.
- The issuance of a note receivable due to mPhase.
- A Securities Purchase Agreement.
- The note payable contains conversion features which permit the holder to convert debt into equity. Such debt is eligible to be converted into the Company's common stock immediately, thus requiring the recording of the entire liability upfront.
Finally, to encourage conversion, a discount from market value is offered.
- The aggregate amount of notes payable exceeds the amount of cash received. As "Consideration" for this difference the Company takes back a secured note receivable. Security is generally liquid investments of the investor.
- The note receivable provides a commitment to fund mPhase. The notes are secured and collateralized and carry terms which are different from the related note payable and no right of offset exists.

A summary of our arrangements is as follows:

Arrangement #1 (Golden Gate Investors)

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, dated as of December 11, 2007, which may under certain
circumstances permit the Company to draw up to $1.5 million 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 holder of the convertible debenture. In March of 2009, by mutual consent of the parties, the Securities Purchase Agreement
was terminated. Total draws under this facility were $1.5 million.

As of June 30, 2008 $950,000 was included in notes receivable under this arrangement. During FYE 2009, $1,365,000 of such debt was converted into 74,368,943 shares of common stock and the Company received a total of $950,000 under the
provisions of the related note receivable. As of June 30, 2009 all notes receivable had been paid and all debt converted. No further obligations exist by either party.

92

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

8. STOCKHOLDERS' EQUITY-(continued)

Arrangement #2 ( St.George Investments, LLC)

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. The relative fair value of the shares was
$105,000. The terms of the debenture provide for a 7.5% interest rate, a due date of February 2012 and conversion privileges equal to 75% of the three lowest trading price over the 20 day period prior to conversion. During FYE 2009, $614,209
of such debt and related interest was converted into 60,536,482 shares of common stock. As of June 30, 2009, all debt had been converted and no further obligation exists by either party.

Arrangement #3 (JMJ Financial, Inc.)

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% ($132,000) 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 holders of the convertible debentures. The note receivable is collateralized by $1 million of Blue Chip Stocks. 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% of the lowest trade price during the 20 day trading period
prior to conversion.

As of June 30, 2008, $1,000,000 was included in notes receivable under this arrangement. During FYE 2009, $964,250 of such debt and related interest was converted into 100,951,309 shares of common stock. In addition, the Company received
$650,000 cash payments of the note receivable. As of June 30, 2009, the face value of the note receivable was $350,000 plus interest of $132,000 included in other current assets and the note payable was $527,750 plus interest of
$132,000 included in accrued expenses and an FMV adjustment of $115,801. As of June 30, 2010 both the note receivable and note payable were converted in full and funded in full.

Arrangement #4 (JMJ Financial, Inc.)

On December 31, 2008, the Company entered into a second agreement with JMJ Financial. This transaction involves: 1) a convertible debenture in the amount of $1.1 million, plus a one-time interest factor of 12% ($132,000) and a maturity date
of December 31, 2011, and 2) a secured note receivable in the amount of $1.0 million, plus a one-time interest factor of 13.2 % ($132,000) and maturity date of December 31, 2012 due from the holder 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% of the lowest trade price during the 20 day
trading period prior to conversion.

As of June 30, 2009, $1,000,000 was included in notes receivable under this arrangement. During FYE 2010 the Company collected the $1,000,000 note receivable plus $132,000 of accrued interest on this note. The FMV addition to this debt
during FYE 2010 was $307,899.On June 30, 2009 the derivative value of this security was calculated to be $444,552. During the year ended June 30, 2010, amortization of debt discount amounted to $508,821 reducing the debt discount balance
also to zero.

Arrangement #5 (LaJolla Cove Investors, Inc.)

On Sept 11, 2008, the Company received proceeds of $200,000 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 $2,000,000 of funds; 2) a convertible debenture totaling $2,000,000, with an interest rate of 7 1/4% and a maturity date of September 30, 2011; and 3) a secured note receivable in the amount of $1,800,000, with an interest
rate of 8 1/4% and maturity dates of September 30, 2011 due from the holders of the convertible debentures. In addition, the holder of the debenture is related to the holder in Arrangement #1. Conversion of outstanding debentures into common shares
is similar to the terms of Arrangement #1. As of FYE 2009, $190,000 of debt was converted into 21,714,285 shares of common stock. On June 30, 2009 and June 30, 2010 the note receivable balance was $1,800,000, the note payable was
$1,810,000 and the FMV addition $387,228 for which the Company recorded a reserve for utilization against each of $600,000. As of June 30, 2010, the derivative value of this security was calculated to be $1,114,768.

On March 16, 2011, the holder and the Company entered into a termination agreement whereby $1,800,000 of the principal of both the note receivable and the convertible debenture, plus $90,291 in accrued interest receivable and $84,175 in
accrued interest payable, was cancelled. Additionally in connection with the termination, the Company paid the holder $17,000 and assigned to a consultant engaged by the Company the unconverted portion of the convertible debenture in the amount
of $10,000 which had been fully funded in cash and which remained outstanding at March 31, 2011 and the derivative value of the remaining security was calculated to be $3,468 As of June 30, 2011, this value was calculated to be $3,442.
During the year ended June 30, 2011, amortization of debt discount amounted to $282,774, reducing the balance to $0.

93

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mPHASE TECHNOLOGIES, INC.(A DEVELOPMENT STAGE
COMPANY)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE
30, 2011

8. STOCKHOLDERS' EQUITY-(continued)

Arrangement #6 (JMJ Financial, Inc.)

On August 19, 2009, the Company issued a 12% convertible note
maturing on August 10, 2012 in the principal amount of $1,870,000 to JMJ
Financial for a purchase price of $1,700,000. The Company initially received
$250,000 in cash as partial payment of the purchase price for the convertible
note plus a 13.2% secured promissory note maturing on August 10, 2012 in the
amount of $1,450,000. As of June 30, 2010, the Company has received a total of
$1,523,500 cash and has issued 109,920,635 shares of common stock to the holder
upon conversions. The remaining $570, 900 of cash to be received from the holder
plus accrued and unpaid interest is convertible into shares of common stock at
the option of the holder. Upon receipt, in full, of cash by the Company equaling
the purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total
amount of interest funded that would accrue to maturity into additional shares
of common stock . The number of shares into which this convertible note can be
converted is equal to the dollar amount of the debenture divided by 75% of the
lowest trading price during the 20 day trading period prior to conversion. Based
upon the price of the Companys common stock on June 30, 2010 of $.0162 per
share the holder could convert the remaining principal amount plus interest of
this convertible note into approximately 46,987,654 shares of common stock. At
the commitment date, the derivative value of the embedded conversion feature of
such security was $1,080,395 and the debt discount was valued at $1,250,395. As
of June 30, 2011, this value was calculated to be $0. During the year ended June
30, 2011, the holder converted $346,501 of principal and $224,400 of interest
into 66,172,223 shares of common stock and amortization of debt discount
amounted to $222,081, reducing the balance to $ 0.

Arrangement #7 (JMJ Financial, Inc.)

On September 30, 2009, the Company issued a 12% convertible
note maturing on September 23, 2012 in the principal amount of $1,200,000 to JMJ
Financial for a purchase price of $1,100,000. The Company initially received
$150,000 in cash as partial payment of the purchase price for the Convertible
Note plus a 13.2% secured promissory note maturing on August 10, 2012 in the
amount of $950,000. Through June 30, 2011the Company has received a total of
$1,200,000 of principle and $144,000 of interest for full funding of the
purchase price of this note. Upon receipt, in full, of cash by the Company
equaling the purchase price of the convertible note plus interest or any portion
thereof payable through maturity, the holder may convert such portion of the
total amount of interest funded that would accrue to maturity into additional
shares of common stock .The number of shares into which this convertible note
can be converted is equal to the dollar amount of the note divided by 75% of the
lowest trading price during the 20 day trading period prior to conversion.

Based upon the price of the Companys common stock on June 30,
2010 of $.0162 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 110,617,784 shares of
common stock.

At the commitment date, the derivative value of the embedded
conversion feature of such security was $480,000 and the debt discount was
valued at $580,000. As of June 30, 2011, this value was calculated to be $0.
During the twelve months ended June 30, 2011the holder converted $1,200,000 of
principle and $144,000 of interest into 240,722,223 shares of common stock and
the amortization of debt discount amounted to $386,668, reducing the debt and
debt discount balances to $0.

Arrangement #8 (JMJ Financial, Inc.)

On November 17, 2009, the Company received a total of $186,000
of proceeds in connection with a new financing agreement with JMJ Financial.
This transaction consists of the following: 1) a convertible note in the amount
of $1,200,000 plus a one-time interest factor of 12% ($144,000) and a maturity
date of September 23, 2012 and (2) a secured promissory note in the amount of
$1,100,000 plus a one-time interest rate factor of 13.2% ($144,000 each) and a
maturity date of September 23, 2012 due from the holder of the convertible note.
Conversion of outstanding principal into shares of common stock is at the option
of the holder. The number of shares into which this note can be converted is
equal to the dollar amount of the note divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion.

To date the Company has received a total of $639,500 in cash
and has issued 10,000,000 shares of common stock to the holder upon conversions
of $33,750. The remaining $604,600 of cash to be received from the holder plus
accrued and unpaid interest is convertible into shares of common stock at the
option of the holder. Upon receipt, in full, of cash by the Company equaling the
purchase price of the convertible note plus interest or any portion thereof
payable through maturity, the holder may convert such portion of the total
amount of interest funded that would accrue to maturity into additional shares
of common stock . Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 222,142,857 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated.

The Company and the holder are presently negotiating potential
amendments to this agreement, and funding and conversions have not occurred
since April, 2011. For accounting purposes the note receivable has been fully
reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 115,380,952 shares of common stock. At the
commitment date, the derivative value of the embedded conversion feature of such
security was $536,000 and the debt discount was valued at $636,000. As of June
30, 2011, this value was calculated to be $472,773. During the year ended June
30, 2011 the holder converted $33,750 of principal into 10,000,000 shares of
common stock and amortization of debt discount amounted to $412,332, reducing
the debt discount balance to $100,000.

94

---

mPHASE TECHNOLOGIES, INC.(A DEVELOPMENT STAGE
COMPANY)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE
30, 2011

8. STOCKHOLDERS' EQUITY-(continued)

Arrangement #9 (JMJ Financial, Inc.)

On December 15, 2009 the Company entered into a new financing
agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the amount of $1,500,000 plus a one-time interest
factor of 12% ($180,000) and a maturity date of December15, 2012 and (2) a
secured promissory note in the amount of $1,400,000 plus a one-time interest
rate factor of 13.2% ($180,000 ) and a maturity date of December 15, 2012 due
from the holder of the convertible note. To date the Company has received a
total of $300,000 cash and has issued no shares of common stock to the holder
upon conversions. The remaining $1,280,000 of cash to be received from the
holder plus accrued and unpaid interest is convertible into shares of common
stock at the option of the holder. Upon receipt, in full, of cash by the Company
equaling the purchase price of the convertible note plus interest or any portion
thereof payable through maturity, the holder may convert such portion of the
total amount of interest funded that would accrue to maturity into additional
shares of common stock. The number of shares into which this convertible note
can be converted is equal to the dollar amount of the note divided by 75% of the
lowest trade price during the 20 day trading period prior to conversion. Based
upon the price of the Companys common stock on June 30, 2011 of $.0073 per
share the holder could convert the remaining principal amount plus interest of
this convertible note into approximately 285,714,286 shares of common stock at
the full contract value; of which the derivative liability associated with this
arrangement is calculated.

The Company and the holder are presently negotiating potential
amendments to this agreement, and funding and conversions have not occurred
since April, 2011. For accounting purposes the note receivable has been fully
reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 38,095,238 shares of common stock. .At the
commitment date, the derivative value of the embedded conversion feature of such
security was $542,714 and the debt discount was valued at $642,714. As of June
30, 2011, this value was calculated to be $607,994. During the year ended June
30, 2011, amortization of debt discount amounted to $418,552, reducing the
balance to $100,000.

Arrangement #10 (JMJ Financial, Inc.)

On April 5, 2010, the Company entered into a new financing
agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the principal amount of $1,200,000 plus a one-time
interest factor of 12% ($144,000) and a maturity date of December 15, 2012, and
(2) a secured promissory note from the holder of the convertible note in the
amount of $1,100,000 plus a one-time interest rate factor of 13.2% ($144,000
each) and a maturity date of December 15, 2012. To date the Company has received
a total of $100,000 cash and has issued no shares of common stock to the holder
upon conversions. The remaining $1,144,000 of cash to be received from the
holder plus accrued and unpaid interest is convertible into shares of common
stock at the option of the holder. Upon receipt, in full, of cash by the Company
equaling the purchase price of the convertible note plus interest or any portion
thereof payable through maturity, the holder may convert such portion of the
total amount of interest funded that would accrue to maturity into additional
shares of common stock .The number of shares into which this convertible note
can be converted is equal to the dollar amount of the note divided by 75% of the
lowest trade price during the 20 day trading period prior to conversion. Based
upon the price of the Companys common stock on June 30, 2011 of $.0073 per
share the holder could convert the remaining principal amount plus interest of
this convertible note into approximately 228,571,429 shares of common stock at
the full contract value; of which the derivative liability associated with this
arrangement is calculated.

The Company and the holder are presently negotiating potential
amendments to this agreement, and funding and conversions have not occurred
since April, 2011. For accounting purposes the note receivable has been fully
reserved, and the liability is recorded, when netted against the debt discount
and cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 19,047,619 shares of common stock. At the
commitment date, the derivative value of the embedded conversion feature of such
security was $421,891 and the debt discount was valued at $521,891. As of June
30, 2011, this value was calculated to be $486,795. During the year ended June
30, 2011, amortization of debt discount amounted to $378,761, reducing the
balance to $ 100,000.

Arrangement #11 (J. Fife)

On March 5, 2010, the Company entered into an new financing
agreement with J. Fife that consist of a convertible note issued by the Company
in the principal amount of $550,000 bearing interest at 7.5% per annum in which
the Company received $495,000 cash up front. The Convertible Note has a maturity
date of one year from the date of issuance. In addition, the Company had
committed to issue in the future 2 additional promissory notes each in the
principal amount of $275,000 each with an interest rate of 7.5% each upon the
receipt of $250,000 of cash funding in exchange for such notes. The issuance of
each of such notes was expected to take place upon the full conversion of the
holder of its previous note into common stock of the Company. As of June 30,
2011, the 2 additional promissory notes are expected to be cancelled as part of
a new extension and forbearance agreement the Company is presently
re-negotiating with the holder. Conversion of each of the Convertible Notes into
common stock of the Company is at the option of the holder at a price equal to
the dollar amount of the note being converted divided by 75% of the three lowest
volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion. At the time of the transaction (March 5, 2010)
the derivative value of this security was calculated to be $193,767 and the debt
discount was valued at $243,767. As of June 30, 2010 and 2011 this liability was
estimated to be $396,291 and $78,059, respectively, creating a non-cash credit
to earnings of $318,232 in fiscal 2011. During the year ended June 30, 2011 the
holder converted $398,245 of principal into 65,280,866 shares of common stock
and amortization of debt discount amounted to $ 227,621, reducing the balance of
the debt discount to $ 0.

95

---

mPHASE TECHNOLOGIES, INC.(A DEVELOPMENT STAGE
COMPANY)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE
30, 2011

8. STOCKHOLDERS' EQUITY-(continued)

On October 22, 2010, the Company entered into a Forbearance
Agreement with this convertible note holder in which the lender agreed not to
convert any additional amounts under the convertible notes until January 15,
2011 in exchange for increasing the original principal amount of those notes by
10% from $550,000 to $605,000 resulting in a charge of $55,000 for debt
extension fees corresponding with the addition to the note principal. At the
time of the October 22, 2010 transaction, the embedded conversion feature of
this security for this incremental liability and loan discount was calculated to
be $20,005.  On June 30, 2011, given the changes in the Companys stock
price during the 20 day look-back period for June 30, 2011, this estimated
liability decreased to $15,556; a decrease for the period from October 22, 2010
through June 30, 2011 of $4,449, creating a non-cash credit to earnings for the
period ended June 30, 2011 of that amount. During the same period ended June 30,
2011, amortization of debt discount amounted to $20,005 reducing the balance to
$0. Also, as of June 30, 2011, $30,000 of additional interest was accrued and
$28,000 intervention fees were added to principle on the original note,
consistent with the terms of a new extension and forbearance agreement the
Company is presently renegotiating with the holder. This note which was
originally scheduled to mature March 4, 2011 is expected to be extended to June
30, 2012. These increases in the convertible note will also be convertible into
common stock of the Company at the option of the holder at a price equal to the
dollar amount of the note being converted divided by 75% of the three lowest
volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion. Based upon the price of the Company's common
stock on June 30, 2011 of $.0073 per share, the holder could convert the
remaining principal amount plus interest of this convertible note into
approximately 55,845,329 shares of common stock

The following table summarizes notes receivable under
convertible debt and debenture agreements as of June 30, 2010 and June 30, 2011:

|                                                                 |   | June
      30, 2010 |   |   | June
      30, 2011 | 
|---------------------------------------------------------------- | - | ------------------- | - | - | ------------------- | 
|                                                                 |   |                     |   |   |                     | 
|                                                                 |   | Amount              |   |   | Amount              | 
|Arrangement #5- LaJolla Cove
      Investors, Inc.               | $ | 1,800,000           |   | $ | -                   | 
|less: reserve for utilization -LaJolla Cove
      Investors, Inc | $ | (600,000            | ) | $ | -                   | 
|Arrangement #7 - JMJ
      Financial, Inc                        | $ | 950,000             |   | $ | -                   | 
|Arrangement #8 - JMJ Financial, Inc                              | $ | 914,000             |   | $ | -                   | 
|Arrangement #9 - JMJ
      Financial, Inc                        | $ | 1,100,000           |   | $ | -                   | 
|Arrangement #10 - JMJ Financial, Inc                             | $ | 1,000,000           |   | $ | -                   | 
|total notes receivable                                           | $ | 5,164,000           |   | $ | -                   | 
|less:
      current portion, expected to be drawn within a year  | $ | (2,700,000          | ) | $ | -                   | 
|Notes Receivable-long term portion                               | $ | 2,464,000           |   | $ | -                   | 

The following table summarizes notes payable under convertible
debt and debenture agreements as of June 30, 2010 and June 30, 2011 :

|                                                                 |   | **June 30,** **2010** |   |       | June
      30, 2011 |  
|---------------------------------------------------------------- | - | --------------------- | - | ----- | ------------------- | -
|                                                                 |   |                       |   |       |                     |  
|                                                                 |   | Amount                |   |       | Amount              |  
|Arrangement #5- LaJolla Cove
      Investors, Inc.               | $ | 1,810,000             |   | (**1) | 10,000              |  
|less: reserve for utilization -LaJolla
      Cove Investors, Inc | $ | (600,000              | ) | $     | -                   |  
|Arrangement #6 - JMJ
      Financial, Inc                        | $ | 346,500               |   | $     | -                   |  
|Arrangement #7 - JMJ Financial, Inc                              | $ | 1,200,000             |   | $     | -                   |  
|Arrangement #8 - JMJ
      Financial, Inc                        | $ | 1,200,000             |   | $     | 705,750             |  
|Arrangement #9 - JMJ Financial, Inc                              | $ | 1,500,000             |   | $     | 400,000             |  
|Arrangement #10 - JMJ
      Financial, Inc                       | $ | 1,200,000             |   | $     | 200,000             |  
|Arrangement #11 - J. Fife                                        | $ | 550,000               |   | (**2) | 234,755             |  
|total notes payable                                              | $ | 7,206,500             |   | $     | 1,550,505           |  
|less:
      unamortized debt discount                            | $ | (2,628,790            | ) | $     | (300,000            | )
|Convertible Notes
      payable-long term portion                | $ | 4,577,710             |   | $     | 1,250,505           |  

(**1)INCLUDES BALANCE DUE TO ASSIGNEE SUBSEQUENT TO SETTLEMENT
OF MARCH 17, 2011(**2)INCLUDES INCREMENTAL LIABILITY SUBSEQUENT TO AMENDMENT
DATED OCTOBER 22, 2010

96

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

8. STOCKHOLDERS' EQUITY-(continued)

During the fiscal year ending June 30, 2011, the following transactions impacted stockholders equity

Private Placements

During the fiscal year ended June 30, 2011, the Company received $ 265,500 of net proceeds from the issuance of 67,500,000 shares of common stock in private placements with accredited investors, that included $50,000 of stock subscriptions
that were collected on July 6, 2011. The aggregate cost of such placements was $ 29,500.

Stock Based Compensation

The Company did not issue any awards of common stock or options to Officers, Directors or Employees during the fiscal year ended June 30, 2011.

Conversion of debt securities

During the fiscal year ended June 30, 2011, $ 2,346,896 of debt was converted into 382,175,312 shares of common stock to holders of Convertible Notes.

Reparations

The Company did not issue any shares to investors for reparations.

During the fiscal year ending June 30, 2010, the following transactions impacted stockholders equity

Private Placements

During the fiscal year ended June 30, 2010, the Company received $225,000 of net proceeds from the issuance of 30,666,667 shares of common stock in private placements with accredited investors. The aggregate cost of such placements was
$25,000.

Stock Based Compensation

The Company did not issue any awards of common stock or options to Officers, Directors or Employees during the fiscal year ended June 30, 2010. The Company issued 1,575,000 shares of common stock to various vendors and consultants valued at a total
of $34,313 based upon the market price of the common stock on various different dates to such persons during the period.

Conversion of debt securities

During the fiscal year ended June 30, 2010, $3,415,250 of debt was converted into 232,723,736 shares of common stock to holders of Convertible Notes. In addition the Company issued 26,666,667 shares of common stock to Microphase Corporation for
the conversion of $200,000 of previously outstanding accounts payable at $.0075 per share. The price was based upon the price offered to investors in concurrent private placements with accredited investors during this period. The Company
recorded an addition to interest expense on this beneficial conversion feature.

Reparations

On November 19, 2009, an investor received 1,700,000 shares of common stock valued at $35,530 for reparation of a prior investment of $50,000 for the issuance of 5,000,000 shares of common stock.

97

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

8. STOCKHOLDERS' EQUITY-(continued)

During the Fiscal Year Ended June 30, 2009 the following transactions impacted stockholders equity

Private Placements

During the quarter ended September 30, 2008, the Company issued 4,000,000 shares of its common stock at $.05 per share in private placements, generating net proceeds of $180,000. Related to this transaction was the issuance of 3,862,000
shares as reparations shares to effect re-pricing at a cost estimated to be $216,689.

No private placements occurred in the quarter ending December 31, 2008.

During the quarter ended March 31, 2009, the Company issued 35,000,000 shares of its common stock at $.01 per share in private placements generating net proceeds of $315,000. Related to these transactions was the issuance of 7,660,000 shares
as reparations shares to effect re-pricing, costing an estimated $99,483.

During the quarter ended June 30, 2009, the Company issued 33,333,333 shares of its common stock at $.0075 per share in private placements generating gross proceeds of $225,000. Related to these transactions was the issuance of 2,000,000
shares as reparations shares to effect re-pricing, costing an estimated $64,000 and finder's fees of $25,000.

Also during the quarter ended June 30, 2009, the Company issued 20,775,000 shares in settlement of $169,875 of prior promissory notes payable plus accrued interest and incurred a beneficial conversion of $114,500.

Stock Based Compensation

During the three months ended September 30, 2008, the Company issued 5 year options to purchase 104,675,000 shares of common stock at $.05 per share. The value of such options was estimated to be $4,071,348 using the Black Scholes method,
based on an assumed volatility of 78% and an interest rate of 1.5% . In addition, 61,750,000 shares of common stock valued at $3,525,615 were issued to employees and consultants. (See note 3.)

No such transactions occurred in the quarters ending December 31, 2008 and March 31, 2009.

During the quarter ended June 30, 2009, the Company granted 3 officers of the Company the right to convert an aggregate of $1,465,992 of loans and accrued and unpaid compensation and accrued interest into common stock of the Company at a price
of $.0075 per share.

Conversion of debt securities

During the fiscal year ended June 30, 2009, $3,303,333 of debt was converted into 278,346,019 shares of common stock. Included in this amount is $112,500 of notes payable to a related party which were sold to an investor for $112,500
cash and subsequently converted into 15,000,000 shares of the Company's common stock valued at $.0075 per share. Additionally $57,375 of prior notes plus accrued interest outstanding was settled by the issuance of 5,775,000 shares of common
stock. All other debt converted involved long term convertible debentures.

98

---

mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE
COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE
30, 2011

8. STOCKHOLDERS' EQUITY-(continued)

Reparations

During the year ended June 30, 2009, the Company issued certain
shares to effect re-pricing of prior private placements and to induce new
investments as summarized of the following table:

|           |  |            |  |  | REPARATION |  |   |                                                           |  |   | PRIOR      |  |   | NEW        |  |  | NEW        |  |  | TOTAL   | 
|---------- |  | ---------- |  |  | ---------- |  | - | --------------------------------------------------------- |  | - | ---------- |  | - | ---------- |  |  | ---------- |  |  | ------- | 
|DATE       |  |            |  |  | SHARES     |  |   | VALUE                                                     |  |   | INVESTMENT |  |   | INVESTMENT |  |  | INVESTMENT |  |  |         | 
|           |  |            |  |  |            |  |   |                                                           |  |   |            |  |   |            |  |  | SHARES     |  |  |         | 
|9/30/2008  |  | INVESTOR 1 |  |  | 3,862,000  |  | $ | 216,689                                                   |  | $ | 1,000,000  |  | $ | 200,000    |  |  | 4,000,000  |  |  | 216,689 | 
|3/25/2009  |  | INVESTOR 2 |  |  | 7,660,000  |  | $ | 99,483                                                    |  | $ | 520,000    |  | $ | 150,000    |  |  | 15,000,000 |  |  | 99,483  | 
|           |  | INVESTOR   |  |  |            |  |   |                                                           |  |   |            |  |   |            |  |  | -          |  |  |         | 
|4/15/2009  |  |            |  |  |            |  |   |                                                           |  |   |            |  |   |            |  |  |            |  |  |         | 
|           |  | 3**        |  |  | 1,000,000  |  | $ | 12,000                                                    |  | $ | 1,126,723  |  |   | -          |  |  | -          |  |  | 12,000  | 
|           |  | INVESTOR   |  |  |            |  |   |                                                           |  |   |            |  |   |            |  |  |            |  |  |         | 
|5/15/2009  |  |            |  |  |            |  |   |                                                           |  |   |            |  |   |            |  |  |            |  |  |         | 
|           |  | 3**        |  |  | 1,000,000  |  | $ | 20,000                                                    |  | $ | -          |  | $ | -          |  |  | -          |  |  | 20,000  | 
|           |  | INVESTOR   |  |  |            |  |   |                                                           |  |   |            |  |   |            |  |  |            |  |  |         | 
|6/15/2009  |  |            |  |  |            |  |   |                                                           |  |   |            |  |   | -          |  |  |            |  |  |         | 
|           |  | 3**        |  |  | 1,000,000  |  | $ | 20,000                                                    |  | $ | -          |  | $ |            |  |  | -          |  |  | 20,000  | 
|6/29/2009  |  | INVESTOR 4 |  |  | 5,000,000  |  | $ | 64,000                                                    |  | $ | 250,000    |  | $ | 50,000     |  |  | 5,000,000  |  |  | 64,000  | 
|TOTALS     |  |            |  |  | 19,522,000 |  | $ | 432,172                                                   |  | $ | 2,896,723  |  | $ | 400,000    |  |  | 24,000,000 |  |  | 431,172 | 
|**INVESTOR |  | 3,000,000  |  |  | 52,000     |  |   | REPARATION of INVESTOR 3
      was for conversion of debt |  |   |            |  |   |            | 
|           |  |            |  |  |            |  |   |                                                           |  |   |            |  |   |            |  | 

**BENEFICIAL CONVERSION FEATURE**

In April 2009, the Board of Directors authorized the right for
the officers to convert into shares of the Company's common stock officers'
loans discussed in Note 9, plus accrued interest thereon, at any time for the
next five years providing such shares are issued, outstanding and available, at
a conversion price of $.0075. The officers' notes plus accrued interest are
convertible into approximately 116,763,169 shares of the Company's common stock
based upon the conversion terms at June 30, 2011 (see note 13).

**Other
Equity**

During the years ended June 30, 2008 and 2009, the Company
reevaluated warrants contracts to purchase 13,104,168 shares at fixed prices
ranging from $.05 to $.15 per share originally issued during fiscal year ended
June 30, 2008 pursuant to FASB Standards Codification Topic 815 (previously
known as EITF 00-19). Such reevaluation was to review if the Company should
record an additional derivative liability which would be recordable if the other
convertible instruments the Company has outstanding, primarily the convertible
debentures discussed above, would limit or prevent the Company from honoring the
conversion of these fixed price warrants during their contract term. The
evaluation was performed on a contract by contract basis on equity instruments
subject to FASB Standards Codification Topic 815 (previously known as EITF
00-19), namely warrants discussed above and the convertible debenture
agreements. The Company utilized a sequencing method prescribed by FASB
Standards Codification Topic 815 (previously known as EITF 00-19), applying
shares available to contracts with the earliest inception date first.

During the fiscal year ended June 30, 2008, the Company
reclassified contracts for warrants to purchase 12,604,168 shares at fixed
prices ranging from $.13 to $.15 per share to contingent liabilities. Contracts
for warrants to purchase 11,111,112 shares of the Companys common stock at $.14
per share were reclassified to permanent equity in May of 2009, and contracts
for warrants to purchase 1,604,168 shares of the Companys common stock at fixed
prices ranging from $.13 to $.15 per share were reclassified to permanent equity
in September, 2009.

The liability was recorded at the fair market value, such
estimated value, as restated, was based upon the contractual life of the free
standing warrants, using the Black Sholes pricing model, based on the following
weighted average assumptions: annual expected return of 0%, an average life of 5
years, annual volatility of 81% and a risk-free interest rate 2.25% . At the
issuance date of the free standing warrants, which warrants were issued during
the fourth quarter of fiscal June 30, 2008, the estimated value approximated
$1,006,200 and, as recalculated on the quarterly measurement dates, at June 30,
2008 the estimated value approximated $433,300. During the fiscal year ended
2009, the estimated value was determined to no longer be material. The net
change in the contingent liability was credited to the change in derivative
value in the Consolidated Statement of Operations for each of the fiscal years
ended June 30, 2008 and 2009 for $572,900 and $433,300, respectively, in
accordance FASB Standards Codification Topic 815 (previously known as EITF
00-19).

Subsequent to September 30, 2009, the Company has not entered
into, and presently the Company does not have, any have contracts for warrants
or other equity instruments subject to reclassification to liabilities as
prescribed by FASB Standards Codification Topic 815 (previously known EITF
00-19).

99

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mPHASE TECHNOLOGIES, INC(A DEVELOPMENT STAGE
COMPANY)NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30,
2011

8. STOCKHOLDERS' EQUITY-(continued)

STOCK INCENTIVE PLANS

A summary of the stock option activity for the years ended June
30, 2010 and 2011 pursuant to the terms of both plans, which include incentive
stock options and non-qualified stock options, is set forth on the below:

|                             |  | Number of   |   |   | Weighed  |  
|---------------------------- |  | ----------- | - | - | -------- | -
|                             |  | Options     |   |   | Average  |  
|                             |  |             |   |   | Exercise |  
|                             |  |             |   |   | Price    |  
|Outstanding at June 30, 2009 |  | 145,293,000 |   | $ | 0.11     |  
|Granted                      |  | 0           |   |   |          |  
|Exercised                    |  | 0           |   |   |          |  
|Cancelled/Expired            |  | (7,775,000  | ) |   | (0.25    | )
|Outstanding at June 30, 2010 |  | 137,518,000 |   | $ | .087     |  
|Granted                      |  | 0           |   |   |          |  
|Exercised                    |  | 0           |   |   |          |  
|Cancelled/Expired            |  | (23,798     | ) |   | (.21     | )
|Outstanding at June 30, 2011 |  | 113,720,000 |   | $ | $.063    |  

The fair value of options granted in fiscal year ended June 30,
2009 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 80.3%
and a risk-free interest rate of 3.0% in the year 2009.

The following summarizes information about stock options
outstanding at June 30, 2011:

|RANGE OF EXERCISE PRICE |  | NUMBER      |  |  | WEIGHTED    |  |   | WEIGHTED |  |  | NUMBER      |  |   | WEIGHTED | 
|----------------------- |  | ----------- |  |  | ----------- |  | - | -------- |  |  | ----------- |  | - | -------- | 
|                        |  | OUTSTANDING |  |  | AVERAGE     |  |   | AVERAGE  |  |  | EXERCISABLE |  |   | AVERAGE  | 
|                        |  |             |  |  | REMAINING   |  |   | EXERCISE |  |  |             |  |   | EXERCISE | 
|                        |  |             |  |  | CONTRACTUAL |  |   | PRICE    |  |  |             |  |   | PRICE    | 
|                        |  |             |  |  | LIFE        |  |   |          |  |  |             |  |   |          | 
|$.00-$.05               |  | 103,475,000 |  |  | 2.2         |  | $ | .05      |  |  | 103,475,000 |  | $ | .050     | 
|$.05-$.21               |  | 10,245,000  |  |  | .7          |  | $ | .195     |  |  | 10,245,000  |  | $ | .195     | 
|Totals                  |  |             |  |  |             |  |   |          |  |  | 113,720,000 |  | $ | .063     | 

During the fiscal year ended June 30, 2011, the Company issued
no warrants and warrants for 83,711,665 shares of common stock expired. During
the fiscal year ended June 30, 2010, the Company issued no warrants, and
warrants covering 40,953,943 shares of common stock expired. As of June 30, 2011
and 2010, warrants covering 21,480,837 and 105,192,502 shares respectively
remained outstanding with a weighted average exercise price of $ 0.063 and
$0.21, respectively.

The following summarizes information about warrants outstanding
at June 30, 2011:

|                        |  | NUMBER      |  |  | WEIGHTED    |  |   | WEIGHTED |  |  | NUMBER      |  |   | WEIGHTED | 
|----------------------- |  | ----------- |  |  | ----------- |  | - | -------- |  |  | ----------- |  | - | -------- | 
|RANGE OF EXERCISE PRICE |  | OUTSTANDING |  |  | AVERAGE     |  |   | AVERAGE  |  |  | EXERCISABLE |  |   | AVERAGE  | 
|                        |  |             |  |  | REMAINING   |  |   | EXERCISE |  |  |             |  |   | EXERCISE | 
|                        |  |             |  |  | CONTRACTUAL |  |   | PRICE    |  |  |             |  |   | PRICE    | 
|                        |  |             |  |  | LIFE        |  |   |          |  |  |             |  |   |          | 
|$.00-$.15               |  | 13,104,168  |  |  | 1.8         |  | $ | .1350    |  |  | 13,104,168  |  | $ | .1350    | 
|$16-$.21                |  | 8,376.669   |  |  | .5          |  | $ | .1816    |  |  | 8,376,669   |  | $ | .1816    | 
|Total                   |  |             |  |  |             |  |   |          |  |  | 21,480,837  |  |   | $.1532   | 

100

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

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., as a finder of money generated finders fees of $520,000, as well as additional administrative and occupancy charges of $43,400.

In 2008, Mr Biderman was paid $188,472 in finders fees. During fiscal years ended June 30, 2009 and June 30, 2010 Mr. Biderman charged finders fees of $80,000 and $25,000 respectively.

During the year ended June 30, 2011, Mr. Biderman charged finders fees of $24,500.

During fiscal year ended June 30, 2009, Messrs. Durando, Dotoli and Smiley provided no net bridge loans to the Company.

As of June 30, 2010, bridge loans outstanding, including accrued interest thereon, from Mr. Smiley equaled $183,187. As of June 30, 2011, outstanding bridge loans from Mr. Smiley, including accrued interest thereon, amounted to $191,755. All
of the promissory notes are payable on demand.

As of June 30, 2010, Mr. Durando and Mr. Dotoli were owed unpaid compensation plus accrued interest thereon at 12% per annum equal to $419,436 and $268,194 respectively.

As of June 30, 2011, unpaid compensation owing to Mr. Durando and Mr. Dotoli, plus accrued interest thereon at 12% per annum, equaled $415,164 and $268,204 respectively.

In April 2009, the Board of Directors authorized the right for the officers to convert such loans plus accrued interest thereon at any time for the next five years into common shares provided such shares are issued, outstanding and available, at a
conversion price of $.0075, which price is comparable to that of private placements during the period.

The Company recorded beneficial conversion interest expense of $914,060, $82, 609 and $0 during the years ended June 30, 2009, June 30, 2010 and June 30, 2011, respectively, on the conversion feature based upon principal at the
commitment date and accrued interest through June 30 of 2009, 2010 and 2011, respectively.

On October 7, 2009, the Company paid Messrs. Durando, Dotoli and Smiley $45,000, $45,000 and $25,000 respectively in reduction of amounts owed to them by the Company for unpaid compensation and bridge loans.

The officers' notes plus accrued interest are convertible into approximately 116,763,169 shares of the Company's common stock based upon the conversion terms at June 30, 2011.

101

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mPHASE TECHNOLOGIES, INC (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

9. RELATED PARTY TRANSACTIONS -(continued)

MICROPHASE

The Company leases office space from Microphase at both its Norwalk and Little Falls location. Current rental expense is $3,000 and $2,271 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.

During the year ended June 30, 2011, Microphase Corporation charged the Company $36,000 for rent and $9,356 for administrative expenses.

Additionally, in July 2009 Microphase Corporation converted $200,000 of accounts payable into 26,666,667 shares of the Company's common stock at $.0075 per share. Such price was determined based upon the price of private placements of equity
by the Company during such period.

The Company recorded beneficial conversion interest expense of $586.667 relating to this conversion during the year ended June 30, 2011.

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.

During the years ended June 30, 2003, 2004 and 2005 and the period from inception (October 2, 1996) to June 30, 2005, there had been $174,959, $2,771,925, 1,536,494 and $15,001,105, respectively, of invoices for products and services
that had been charged to inventory or expense and is included in discontinued operations in the accompanying statements of operations.

During the year ended June 30, 2007, Janifast agreed to convert $108,000 of debt into 830,000 shares of common stock and received 769,231 additional shares of stock as reparations.

In March of 2009, Janifast Ltd. ceased operations owing to its financial condition and the global downturn in the capital markets.

102

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mPHASE TECHNOLOGIES, INC (A DEVELOPMENT STAGE
COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE
30, 2011

9. RELATED PARTY TRANSACTIONS -(continued)

STRATEGIC VENDORS

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

|a. | $25,000 on each of December 1, 2004, March 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 in a loss of
$40,500.

Equity Conversions of Debt and Other Financial Instruments
with Related Parties

During the fiscal years ended June 30, 2010 and June 30, 2011,
there were limited equity conversions of debt or other financial instruments
with related parties.

|                                      |   | 2010       |  |   | 2011 | 
|------------------------------------- | - | ---------- |  | - | ---- | 
|Janifast:                             |   |            |  |   |      | 
|Number of shares                      |   | None       |  |   | None | 
|Number of warrants                    |   | None       |  |   | None | 
|Amount converted to equity            | $ | None       |  | $ | None | 
|Microphase Corporation:               |   |            |  |   |      | 
|Number of shares                      |   | 26,666,667 |  |   | None | 
|Number of warrants                    |   | 0          |  |   | None | 
|Amount converted to equity            | $ | 200,000    |  | $ | None | 
|Total Related Party
      Conversions |   |            |  |   |      | 
|Number of shares                      |   | 26,666,667 |  |   | None | 
|Number of warrants                    |   | 0          |  |   | None | 
|Amount converted to equity            | $ | 200,000    |  | $ | None | 

103

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|mPHASE TECHNOLOGIES,
      INC                                                             |  
|------------------------------------------------------------------------------------------ | -
|(A DEVELOPMENT STAGE
      COMPANY)                                                        |  
|NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS                                           |  
|JUNE 30, 2011                                                                              |  
|9. RELATED PARTY TRANSACTIONS -                                                            |  
|(continued)                                                                                |  
|                                                                                           |  
|Summary of compensation to related
      parties for the Twelve Months Ended June 30, 2011 |  
|                                                                                           |  
|Consulting / Salary                                                                        | $
|Interest                                                                                   | $
|Rent                                                                                       |  
|G&A                                                                                        |  
|R&D                                                                                        |  
|Finders Fees                                                                               |  
|Total compensation                                                                         | $
|                                                                                           |  
|Summary of compensation to related
      parties for the Twelve Months Ended June 30, 2010 |  
|                                                                                           |  
|Consulting / Salary                                                                        | $
|Interest                                                                                   | $
|Rent                                                                                       |  
|G&A                                                                                        |  
|R&D                                                                                        |  
|Finders Fees                                                                               |  
|Total compensation                                                                         | $

|                                                                 |   |         |  |   |         |  |   |         |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|---------------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ----------- |  | - | -------- |  | - | ---------- |  | ----- | ------------- | 
|Summary
      of payables to related parties as of June 30, 2011 |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                    | $ | 263,479 |  | $ | 148,306 |  | $ | 111,030 |  | $ | 522,815     |  |   |          |  |   |            |  | $     | 522,815       | 
|Due to
      Officers / Affiliates                               |   |         |  |   |         |  |   |         |  |   |             |  | $ | 150,000  |  | $ | 27,242     |  | $     | 177,242       | 
|Interest Payable                                                 | $ | 151,685 |  | $ | 120,498 |  | $ | 80,725  |  | $ | 352,909     |  |   |          |  |   |            |  | $     | 352,909       | 
|Total
      Payable to Officers / Affiliates                     | $ | 415,164 |  | $ | 268,804 |  | $ | 191,755 |  | $ | 875,724     |  | $ | 150,000  |  | $ | 27,242     |  | $     | 1,052,966     | 
|                                                                 |   |         |  |   |         |  |   |         |  |   |             |  |   |          |  |   |            |  |       |               | 
|Summary of payables to related parties as of June 30,
      2010 |   |         |  |   |         |  |   |         |  |   |             |  |   |          |  |   |            |  |       |               | 
|                                                                 |   |         |  |   |         |  |   |         |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|                                                                 |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                    | $ | 301,479 |  | $ | 166,306 |  | $ | 119,030 |  | $ | 586,815     |  |   |          |  |   |            |  | $     | 586,815       | 
|Due to Officers / Affiliates                                     | $ | 0       |  | $ | 0       |  | $ | 0       |  | $ | 0           |  |   |          |  | $ | 19,214     |  | $     | 19,214        | 
|Interest Payable                                                 | $ | 117,957 |  | $ | 101,888 |  | $ | 64,157  |  | $ | 284,002     |  | $ | 150,000  |  |   |            |  | $     | 434,002       | 
|Total Payable to Officers / Affiliates                           | $ | 419,436 |  | $ | 268,194 |  | $ | 183,187 |  | $ | 870,817     |  | $ | 150,000  |  | $ | 19,214     |  | **$** | **1,040,031** | 

104

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE
COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE
30, 2011

NOTE 10 - INCOME TAXES

The accompanying consolidated balance sheet includes the
following components of deferred taxes under the liability method:

The accompanying consolidated balance sheet includes the
following components of deferred taxes under the liability method:

|                                      |   | 2010        |  |   | 2011        |  
|------------------------------------- | - | ----------- |  | - | ----------- | -
|Deferred Tax Liabilities              |   |             |  |   |             |  
|Property and equipment                |   | -           |  |   | -           |  
|Accrued expenses                      |   | -           |  |   | -           |  
|Deferred Tax Assets                   |   |             |  |   |             |  
|Net operating loss
      carryforward | $ | 40,728,080  |  | $ | 44,185,925  |  
|Accrued expenses                      |   | -           |  |   | -           |  
|                                      |   | 40,728,080  |  |   | 44,185,925  |  
|Net Deferred Tax Asset                |   | 40,728,080  |  |   | 44,185,925  |  
|Valuation allowance                   |   | (40,787,080 |  |   | (44,185,925 | )
|                                      | $ | -           |  | $ | -           |  

At June 30, 2011, the Company has federal net operating loss
carryforwards of approximately $ 111.6 million and $ 110.7 million to offset
future federal and state income taxes, respectively, which expire at various
times from 2016 through 2030. The federal net operating loss carryforwards may
be subject to the separate return loss limitation rules and IRC section 382
limitations due to changes in ownership. The Company has assessed the evidence
of its forecasted future operations against the potential likelihood of the
realization of the deferred tax assets to make the determination that the
Company will not utilize these carryforwards and has recorded a valuation
allowance against the net deferred tax asset.

The Company has a loss of $ $7,365,745 in 2010 and $486,391 in
2011. Deferred income taxes relate principally to the use of net operating loss carryforwards; these can differ from computations based upon book losses for the
use for tax purposes of accelerated depreciation methods and the difference in
the book and tax basis of certain stock based compensation.

The provision for income taxes from continuing operations
differs from taxes that would result from applying Federal statutory rates
because of the following:

|                                                |   |            |   |  | Year ended June 30, |   |   |          
|----------------------------------------------- | - | ---------- | - |  | ------------------- | - | - | ---------
|                                                |   | 2010       |   |  |                     |   |   |          
|                                                |   | Amount     |   |  | Percent             |   |   | Amount   
|Taxes at Federal Statutory Rate                 | $ | (2,504,470 | ) |  | (34.0%              | ) | $ | (148,373)
|State Taxes Net of Federal Tax                  |   | (407,285   | ) |  | (5.60%              | ) |   | (24,438) 
|Benefit Utilization of NOL                      |   |            |   |  |                     |   |   |          
|Tax Credits                                     |   |            |   |  |                     |   |   |          
|Valuation Allowance                             |   | 2,911,715  |   |  | 39.6%               |   |   | 172,811  
|Other-non deductible stock based compensation-  |   |            |   |  |                     |   |   |          
|restricted shares and unexercised
      options |   |            |   |  |                     |   |   |          
|                                                | $ | -          |   |  | -                   |   | $ | -        

105

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mPHASE TECHNOLOGIES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2011

11. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company has a lease obligation for the rental of office space in Little Falls New Jersey until May 1, 2011. The annual obligation under such lease requires rent of $2,271 per month ($27,252 annually) for the year beginning June 1, 2011
and ending May 1, 2012.

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 2009, 2010 and 2011 totaled $0, $0 and $0
respectively, and $13,539,952 from the period from inception through June 30, 2011, all of which is included in discontinued operations.

CONTINGENCIES

The Company has offered and sold convertible notes to JMJ Financial in the aggregate principal amount plus accrued interest of $10,270,400 through June 30, 2011. Such convertible notes provide cash funding to the Company of up to $9,500,600.
Through June 30, 2011, approximately $6,472,000 of cash has been received by the Company, $5,936,150 of which has been converted by JMJ Financial into a substantial number of shares of common stock without registration under the Securities
Act of 1933, as amended, or qualification under state securities laws. The Company believes that any sales of common stock by JMJ are in full compliance with Rule 144 of the Securities Act of 1933, as amended, and has obtained an opinion of outside
counsel regarding such compliance.

Nevertheless, it is possible such compliance could be challenged in the future by either regulatory agencies or shareholders. In particular, questions regarding the economic risk of JMJ Financial with respect to the collateral required under the
secured note delivered by JMJ Financial in payment of the purchase price for the Company's convertible note could be raised since the secured note contains a prepayment provision allowing JMJ to prepay such note, in full, by returning the
convertible note. If a court of law determines that any offer or sale of common stock of the Company received in a conversion by JMJ Financial was not in compliance with Rule 144 then JMJ could be deemed to be an underwriter. The result would be
that the Company would have been engaged in a primary offering of common stock through an underwriter in violation of the registration requirements of the Securities Act of 1933, as amended.

The Securities Act of 1933, as amended, requires that any claim for rescission be brought within one year of the violation. The time periods within which claims for rescission must be brought under state securities laws vary and may be two years or
more from the date of the violation. At June 30, 2011, approximately 395 million shares of our outstanding common stock issued in respect of our convertible note transactions with JMJ Financial could be subject to rescission with a potential
liability approximating $4.08 million, including a liability of approximately $448,000 for interest at 10% per annum.

12. FAIR VALUE MEASUREMENTS

Effective July 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements(SFAS 157), which provides a framework for measuring fair value under GAAP. SFAS 157 defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 requires
that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. SFAS 157 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels.

Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets. Financial assets and liabilities valued using level 2 inputs are based primarily on quoted prices for similar assets or
liabilities in active or inactive markets. For certain long-term debt, the fair value was based on present value techniques using inputs derived principally or corroborated from market data. Financial assets and liabilities using level 3 inputs were
primarily valued using management's assumptions about the assumptions market participants would utilize in pricing the asset or liability. Valuation techniques utilized to determine fair value are consistently applied.

106

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|mPHASE TECHNOLOGIES, INC.   (A DEVELOPMENT STAGE
      COMPANY)   NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS  JUNE 30, 2011           
|--------------------------------------------------------------------------------------------------------------------------------------------
|12. FAIR VALUE MEASUREMENTS-(continued)                                                                                                     
|                                                                                                                                            
|The table below presents a reconciliation
      for liabilities measured at fair value on a recurring basis at June 30,
      2010 and 2011:
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|                                                                                                                                            
|Balance at July 1, 2009 and 2010                                                                                                            
|Increase (Decrease) in Derivative and associated
      liabilities                                                                          
|Debt discounts                                                                                                                              
|Balance at June 30, 2010 and 2011                                                                                                           

Financial instruments are considered Level 3 when their values
are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is
input is unobservable. Level 3 financial instruments also include those for
which the determination of fair value requires significant management judgment
or estimation.

13. SUBSEQUENT EVENTS

On July 1, 2011, the Company filed an amendment to its Amended
Certificate of Incorporation with the Secretary of State of New Jersey
increasing its authorized shares of common stock to 6 billion shares.

On July 28, 2011, the Company announced that it entered into a
letter of intent (LOI) to acquire Energy Innovative Products, Inc. (EIP), a
developer of proprietary technologies for reducing energy usage in refrigeration
and cooling systems, as well as equipment utilizing AC induction motors. EIP,
based in Fairfield, NJ, uses patented and patent pending solutions to offer a
series of products that control voltage and current used by compressor systems,
including those in refrigeration decks, HVAC wall units, commercial
refrigeration systems, and consumer equipment. The company, founded in 2008,
believes its technology is uniquely positioned to capitalize on each of these
multi-billion dollar market opportunities by allowing legacy systems to achieve
Energy Star status as well as compliance with emerging standards by the United
States Department of Energy (DOE) and other regulatory bodies. In the United
States alone, there are several million legacy refrigerated vending machines
used by major beverage companies. The Company, subject to further due diligence,
believes that EIP's solution is the only one certified for Energy Star status
and able to deliver a significant reduction in power consumption by vending
machines without reducing efficiency or cooling and without requiring a
change-out in the unit's refrigeration deck. Governmental and power company
rebates are available to support the purchase of EIP's products in several
states. The terms of the deal include the issuance of common shares and warrants
for an 81% stake in EIP. The transaction is expected to become a Definitive
Agreement by the end of August 2011 and close by October 2011.

On August 12, 2011, the Company issued a $25,000 Convertible
Note with a 6 month maturity convertible into 3,671,471 shares of common stock
of the Company at a price of $.0068 per share plus a 5 year warrant to purchase
at $.0068 per share an additional 3,671,471 shares of common stock of the
Company pursuant to Rule 506 Regulation D of the Securities Act of 1933,as
amended, in a Private Placement to one accredited investor. The Convertible Note
pays interest at a rate of 1% per month. The Company is using $12,500 of the
proceeds to fund a loan to EIP prior to the closing of an expected 81% interest
in EIP and $12,500 as additional working capital for the Company.

On August 24, 2011 the Company issued 10,000,000 shares of its
common stock to one Accredited Investor in a private placement pursuant to Rule
506 of Regulation D of the Securities Act of 1933, as amended, in a Private
Placement. The Company received gross proceeds of $40,000 and paid a $4,000
placement fee to Eagle Advisers, Inc. The proceeds will be used as working
capital by the Company.

On August 25, 2011, the Board of Directors awarded Messrs
Ronald A. Durando, CEO, Gustave T. Dotoli, COO and Martin Smiley, EVP,
395,000,000, 295,000,000 and 295,000,000 restricted shares of common stock of the
Company and awarded Messrs. Abraham Biderman and Victor Lawrence, as Directors
45,000,000 and 10 million restricted shares of common stock of the Company. In
addition, previous 5 year option awards issued on September 18, 2008 to Messrs.
Durando, Dotoli and Smiley were re-priced to $.0040 per share from $.05 per
share covering 50,000,000 shares, 30,000,000 shares and 18,000,000 shares of
common stock of the Company respectively.  Additionally, the Board amended
the conversion feature of officers loans discussed in Note 9, originally with a
conversion price of $.0075 in April 2009, to a conversion price of $.0040.

107

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SIGNATURES

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

mPHASE TECHNOLOGIES, INC.

Dated: September 12, 2011

By: /s/ RONALD A. DURANDO
Ronald A. Durando
 President, CEO

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.

|Ronald A. Durando, Chief Executive
      Officer, Director                                    | September 12, 2011
|--------------------------------------------------------------------------------------------- | ------------------
|Gustave T. Dotoli, Chief Operating Officer, Director                                          | September 12, 2011
|Martin S. Smiley, Executive Vice
      President, Chief Financial Officer and General Counsel | September 12, 2011
|Anthony Guerino, Director                                                                     | September 12, 2011
|Abraham Biderman, Director                                                                    | September 12, 2011
|Victor Lawrence, Director                                                                     | September 12, 2011

108

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