UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

Q     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. 
FOR THE QUARTER ENDED March 31, 2009

COMMISSION FILE NO. 000-24969

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

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


(203) 838-2741
ISSUERS TELEPHONE NUMBER

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.

YESQ NO
£

THE NUMBER OF SHARES
OUTSTANDING OF EACH OF THE REGISTRANTS CLASSES OF COMMON STOCK AS OF May 4,
2009 IS 777,315,561 SHARES, ALL OF ONE CLASS OF $.01 STATED VALUE COMMON
STOCK.

1

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mPHASE TECHNOLOGIES, INC.

INDEX

|              |                         |                                                                                                                                                                             | PAGE  
|------------- | ----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|              |                         |                                                                                                                                                                             |       
|PART I        | Financial Information   | 3                                                                                                                                                                          
|              |                         |                                                                                                                                                                             |       
|              | ITEM 1                  | Audited Consolidated Balance Sheets-June 30,
      2008 and Unaudited March 31, 2009                                                                                        | 3     
|              |                         |                                                                                                                                                                             |       
|              |                         | Unaudited Consolidated Statements of
      Operations-Three months ended March
      31, 2008 and 2009 and from October 2, 1996 (Date of Inception)
      to March 31, 2009 | 4     
|              |                         |                                                                                                                                                                             |       
|              |                         | Unaudited Consolidated Statements of Operations-Nine Months
      ended March 31, 2008 and 2009 and from October 2,
      1996 (Date of Inception) to March 31, 2009        | 5     
|              |                         |                                                                                                                                                                             |       
|              |                         | Unaudited Consolidated Statement of Changes in
      Shareholders Deficit Nine
      Months ended March 31, 2009                                                            | 6     
|              |                         |                                                                                                                                                                             |       
|              |                         | Unaudited Consolidated Statement of Cash Flow-Nine Months
      Ended March 31, 2008 and 2009 and from October 2,
      1996 (Date of Inception) to March 31, 2009          | 7     
|              |                         |                                                                                                                                                                             |       
|              |                         | Notes
      to Consolidated Financial Statements                                                                                                                            | 8-15  
|              |                         |                                                                                                                                                                             |       
|              | ITEM 2                  | Managements Discussion and Analysis of Financial Condition
      and Condition and Results of Operations                                                                   | 16 -25
|              |                         |                                                                                                                                                                             |       
|              | ITEM
      3            | Quantitative and Qualitative Disclosures about market risk                                                                                                                  | 26    
|              |                         |                                                                                                                                                                             |       
|              |                         |                                                                                                                                                                             |       
|              | ITEM 4                  | Controls and Procedures                                                                                                                                                     | 26    
|              |                         |                                                                                                                                                                             |       
|PART
      II | Other
      Information | 26                                                                                                                                                                         
|              |                         |                                                                                                                                                                             |       
|              |                         |                                                                                                                                                                             |       
|              | ITEM 1                  | Legal Proceedings                                                                                                                                                           | 26    
|              |                         |                                                                                                                                                                             |       
|              | ITEM
      2            | Changes in Securities                                                                                                                                                       | 27-29 
|              |                         |                                                                                                                                                                             |       
|              |                         |                                                                                                                                                                             |       
|              | ITEM 3                  | Defaults Upon Senior Securities                                                                                                                                             | 30    
|              |                         |                                                                                                                                                                             |       
|              | ITEM
      4            | Submission of Matters to a Vote of Security Holders                                                                                                                         | 30    
|              |                         |                                                                                                                                                                             |       
|              |                         |                                                                                                                                                                             |       
|              | ITEM 5                  | Other Information                                                                                                                                                           | 30    
|              |                         |                                                                                                                                                                             |       
|              | ITEM
      6            | Exhibits and Reports on Form 8-K                                                                                                                                            | 30    
|              |                         |                                                                                                                                                                             |       
|              |                         |                                                                                                                                                                             |       
|              |                         | SIGNATURE                                                                                                                                                                   | 31    

2

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PART I - FINANCIAL INFORMATION



Item 1.

Audited Consolidated Balance Sheets-June 30,
      2008 and Unaudited March 31, 2009



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

|                                                                                                                                                                                           |   | June 30,     |   |   | March 31,    |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------ | - | - | ------------ | -
|                                                                                                                                                                                           |   | 2008         |   |   | 2009         |  
|                                                                                                                                                                                           |   | (Audited)    |   |   | (Unaudited)  |  
|ASSETS                                                                                                                                                                                     |   |              |   |   |              |  
|CURRENT ASSETS                                                                                                                                                                             |   |              |   |   |              |  
|Cash                                                                                                                                                                                       | $ | 15,533       |   | $ | 69,039       |  
|Accounts receivable                                                                                                                                                                        |   | 4,000        |   |   | 15,000       |  
|Prepaid and
      other current assets                                                                                                                                                     |   | 121,882      |   |   | 45,254       |  
|Total Current
      Assets                                                                                                                                                                 |   | 141,415      |   |   | 129,293      |  
|Property and equipment, net                                                                                                                                                                |   | 149,418      |   |   | 38,338       |  
|Note receivable and related
      interest                                                                                                                                                 |   | 1,950,000    |   |   | 3,814,000    |  
|Investment in
      Sovereign                                                                                                                                                              |   | 110,000      |   |   | 110,000      |  
|TOTAL ASSETS                                                                                                                                                                               | $ | 2,350,833    |   | $ | 4,091,631    |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                      |   |              |   |   |              |  
|CURRENT LIABILITIES                                                                                                                                                                        |   |              |   |   |              |  
|Accounts payable                                                                                                                                                                           | $ | 2,076,965    |   | $ | 1,949,013    |  
|Accrued expenses                                                                                                                                                                           |   | 388,444      |   |   | 427,180      |  
|Due to related
      parties                                                                                                                                                               |   | 1,030,167    |   |   | 177,125      |  
|Notes payable, related parties                                                                                                                                                             |   | 204,038      |   |   | 1,332,563    |  
|Short term notes                                                                                                                                                                           |   | 240,820      |   |   | 240,820      |  
|Convertible debt                                                                                                                                                                           |   | 54,000       |   |   | 54,000       |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                  | $ | 3,994,434    |   | $ | 4,180,701    |  
|                                                                                                                                                                                           |   |              |   |   |              |  
|Convertible debt
      derivative liability - (Note 4)                                                                                                                                     |   | 750,151      |   |   | 1,621,798    |  
|Convertible
      debentures net of discount of $2,953,899 and
      $2,228,355 on June 30, 2008 and March 31, 2009
      respectively (Note 4)                                            |   | 411,101      |   |   | 2,112,723    |  
|TOTAL LIABILITIES                                                                                                                                                                          | $ | 5,155,686    |   | $ | 7,915,222    |  
|COMMITMENTS AND CONTINGENCIES (Note 6)                                                                                                                                                     |   |              |   |   |              |  
|STOCKHOLDERS'
      DEFICIT                                                                                                                                                                |   |              |   |   |              |  
|Common stock,
      par value $.01, 2,000,000,000 shares authorized 440,395,000 and
      744,516,930 shares issued and outstanding at June 30, 2008 and March.31,
      2009 respectively |   | 4,403,950    |   |   | 7,445,169    |  
|Additional paid in capital                                                                                                                                                                 |   | 165,067,510  |   |   | 171,004,036  |  
|                                                                                                                                                                                           |   |              |   |   |              |  
|Deficit accumulated during
      development stage                                                                                                                                         |   | (172,268,340 | ) |   | (182,264,823 | )
|Less-Treasury
      stock, 13,750 shares at cost                                                                                                                                           |   | (7,973       | ) |   | (7,973       | )
|TOTAL STOCKHOLDERS'
      DEFICIT                                                                                                                                                          | $ | (2,804,853   | ) | $ | (3,823,591   | )
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                | $ | 2,350,833    |   | $ | 4,091,631    |  

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

3

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

|                                                                                                                                                                                                         |   |                                  |   |   |              |   |   | Date of      |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------------- | - | - | ------------ | - | - | ------------ | -
|                                                                                                                                                                                                         |   | For the
      Three Months Ended |   |   | Inception to |  
|                                                                                                                                                                                                         |   | March.
      31,                 |   |   | March 31,    |  
|                                                                                                                                                                                                         |   | 2008                             |   |   | 2009         |   |   | 2009         |  
|REVENUES                                                                                                                                                                                                 | $ | 545                              |   | $ | 44,029       |   | $ | 22,657,191   |  
|COSTS AND EXPENSES                                                                                                                                                                                       |   |                                  |   |   |              |   |   |              |  
|Cost of Sales                                                                                                                                                                                            |   | 0                                |   |   | 0            |   |   | 16,424,692   |  
|Research and Development (including non-cash stock
      related charges of $0, $0 and $2,503,719 for three months ended March
      31,2008, 2009 and inception to date respectively)                   |   | 275,565                          |   |   | 265,552      |   |   | 59,829,356   |  
|General and
      Administrative (including non-cash stock related charges of $1,750, $0 and
      $67,844,914 for the three months ended March 31, 2008, 2009 and inception
      to date respectively) |   | 576,473                          |   |   | 429,965      |   |   | 116,640,713  |  
|Depreciation and Amortization                                                                                                                                                                            |   | 21,097                           |   |   | 3,902        |   |   | 3,300,215    |  
|TOTAL COSTS AND EXPENSES                                                                                                                                                                                 |   | 873,135                          |   |   | 699,419      |   |   | 196,194,976  |  
|LOSS FROM
    OPERATIONS                                                                                                                                                                                 | $ | (872,590                         | ) | $ | (655,390     | ) | $ | (173,537,785 | )
|OTHER INCOME
    (EXPENSE) net                                                                                                                                                                           |   |                                  |   |   |              |   |   |              |  
|Interest (Expense), net                                                                                                                                                                                  |   | (144,966                         | ) |   | (73,858      | ) |   | (557,890     | )
|Reparation,
      Impairment and Other Income (Expense) net                                                                                                                                              |   | (57,512                          | ) |   | 46,314       |   |   | (8,310,705   | )
|Change in
      Derivative Value and Debt Discount                                                                                                                                                       |   | (2,430,101                       | ) |   | 26,800       |   |   | 141,557      |  
|TOTAL OTHER
      INCOME (EXPENSE)                                                                                                                                                                       | $ | (2,632,579                       | ) | $ | (744         | ) | $ | (8,727,038   | )
|NET (LOSS)                                                                                                                                                                                               | $ | (3,505,169                       | ) | $ | (656,134     | ) | $ | (182,264,823 | )
|LOSS PER COMMON SHARE,
      basic and diluted                                                                                                                                                           | $ | (0.01                            | ) | $ | (0.00        | ) |   |              |  
|WEIGHTED AVERAGE
      COMMON SHARES OUTSTANDING, basic and diluted                                                                                                                                      |   | 397,367,531                      |   |   | 671,278,600  |   |   |              |  

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

4

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

|                                                                                                                                                                                                                   |   |                                       |   |   |              |   |   | Date of      |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------------------------------- | - | - | ------------ | - | - | ------------ | -
|                                                                                                                                                                                                                   |   | For the
      Nine Months ended Ended |   |   | Inception to |  
|                                                                                                                                                                                                                   |   | March 31,                             |   |   | March 31,    |  
|                                                                                                                                                                                                                   |   | 2008                                  |   |   | 2009         |   |   | 2009         |  
|REVENUES                                                                                                                                                                                                           | $ | 96,259                                |   | $ | 95,152       |   | $ | 22,657,191   |  
|COSTS AND EXPENSES                                                                                                                                                                                                 |   |                                       |   |   |              |   |   |              |  
|Cost of Sales                                                                                                                                                                                                      |   | 949                                   |   |   | 0            |   |   | 16,424,692   |  
|Research and Development
      (including non-cash stock related charges of $0, $93,600 and $2,503,719
      for nine months ended March 31 ,2008 & 2009 and inception to date
      respectively)                 |   | 1,615,609                             |   |   | 868,848      |   |   | 59,829,356   |  
|General and
      Administrative (including non-cash stock related charges of $417,414,
      $5,511,950 and $67,844,914 for the nine months ended March 31, 2008 &
      2009 and inception to date respectively) |   | 3,057,928                             |   |   | 7,168,950    |   |   | 116,640,713  |  
|Depreciation and Amortization                                                                                                                                                                                      |   | 136,283                               |   |   | 30,027       |   |   | 3,300,215    |  
|TOTAL COSTS AND
      EXPENSES                                                                                                                                                                                     |   | 4,810,769                             |   |   | 8,067,825    |   |   | 196,194,976  |  
|LOSS FROM OPERATIONS                                                                                                                                                                                               | $ | (4,714,510                            | ) | $ | (7,972,673   | ) | $ | (173,537,785 | )
|OTHER INCOME (EXPENSE)
      net                                                                                                                                                                                   |   |                                       |   |   |              |   |   |              |  
|Interest (Expense), net                                                                                                                                                                                            |   | (196,024                              | ) |   | (174,561     | ) |   | (557,890     | )
|Reparation,
      Impairment and Other Income (Expense) net                                                                                                                                                        |   | 89,915                                |   |   | (152,058     | ) |   | (8,310,705   | )
|Change in Derivative Value and Debt
      Discount                                                                                                                                                                 |   | (1,363,877                            | ) |   | (1,697,191   | ) |   | 141,557      |  
|TOTAL OTHER
      INCOME (EXPENSE)                                                                                                                                                                                 | $ | (1,469,986                            | ) | $ | (2,023,810   | ) | $ | (8,727,038   | )
|NET LOSS                                                                                                                                                                                                           | $ | (6,184,496                            | ) | $ | (9,996,483   | ) | $ | (182,264,823 | )
|LOSS PER COMMON SHARE,
      basic and diluted                                                                                                                                                                     | $ | (0.02                                 | ) | $ | (0.02        | ) |   |              |  
|WEIGHTED AVERAGE
    COMMON SHARES
      OUTSTANDING, basic and diluted                                                                                                                                            |   | 394,601,102                           |   |   | 592,455,950  |   |   |              |  

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

5

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

|                                                                                    |  |             |   |   |             |   |   |          |   |   |             |   |   |              |   |   | Total        |  
|----------------------------------------------------------------------------------- |  | ----------- | - | - | ----------- | - | - | -------- | - | - | ----------- | - | - | ------------ | - | - | ------------ | -
|                                                                                    |  |             |   |   |             |   |   |          |   |   | Additional  |   |   |              |   |   | Shareholders |  
|                                                                                    |  |             |   |   | $.01 Stated |   |   | Treasury |   |   | Paid in     |   |   | Accumulated  |   |   | (Deficit)    |  
|                                                                                    |  | Shares      |   |   | Value       |   |   | Stock    |   |   | Capital     |   |   | Deficit      |   |   | Equity       |  
|Balance June 30,
      2008                                                         |  | 440,395,000 |   | $ | 4,403,950   |   | $ | (7,973   | ) | $ | 165,067,510 |   | $ | (172,268,340 | ) | $ | (2,804,853   | )
|Issuance of common stock in
      private placements net of offering cost ($55,000) |  | 39,000,000  |   | $ | 390,000     |   |   |          |   | $ | 105,000     |   |   |              |   | $ | 495,000      |  
|Issuance of additional shares effect repricing                                      |  | 11,522,000  |   | $ | 115,220     |   |   |          |   | $ | 200,952     |   |   |              |   | $ | 316,172      |  
|Stock options /
      warrants awarded to employees and investors                   |  |             |   |   |             |   |   |          |   | $ | 2,825,900   |   |   |              |   | $ | 2,825,900    |  
|Stock based
      compensation                                                      |  | 61,750,000  |   | $ | 617,500     |   |   |          |   | $ | 2,162,150   |   |   |              |   | $ | 2,779,650    |  
|Vendor settlements                                                                  |  | (1,926,470  | ) | $ | (19,265     | ) |   |          |   | $ | (9,634      | ) |   |              |   | $ | (28,899      | )
|Conversion of
      debt securities                                                 |  | 193,776,400 |   | $ | 1,937,764   |   |   |          |   | $ | 652,158     |   |   |              |   | $ | 2,589,922    |  
|Net Loss                                                                            |  |             |   |   |             |   |   |          |   |   |             |   | $ | (9,996,483   | ) | $ | (9,996,483   | )
|Balance March
      31, 2009                                                        |  | 744,516,930 |   | $ | 7,445,169   |   | $ | (7,973   | ) | $ | 171,004,036 |   | $ | (182,264,823 | ) | $ | (3,823,591   | )

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







6

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

|                                                                                               |   |                             |   |   |                     |   |   | October 2, 1996 |  
|---------------------------------------------------------------------------------------------- | - | --------------------------- | - | - | ------------------- | - | - | --------------- | -
|                                                                                               |   | For Nine
      Months Ended |   |   | (Date of Inception) |  
|                                                                                               |   | March 31,                   |   |   | March 31,           |   |   | To March 31,    |  
|                                                                                               |   | 2008                        |   |   | 2009                |   |   | 2009            |  
|Cash Flow
      From Operating Activities:                                                     |   |                             |   |   |                     |   |   |                 |  
|Net Loss                                                                                       |   | ($6,184,496                 | ) |   | ($9,996,483         | ) |   | ($182,264,823   | )
|Adjustments to
      reconcile net loss to net cash used in operating activities:              |   |                             |   |   |                     |   |   |                 |  
|Depreciation and amortization                                                                  |   | 202,591                     |   |   | 111,080             |   |   | 7,393,437       |  
|(Gain) loss on
      debt extinguishments                                                      |   | 57,513                      |   |   | (165,154            | ) |   | (937,370        | )
|Non-cash charges relating to
      issuance of common stock, common stock options and warrants |   | 3,329                       |   |   | 5,605,550           |   |   | 68,226,018      |  
|Reparation
      charges                                                                       |   | 256,897                     |   |   | 316,172             |   |   | 8,112,734       |  
|Derivative Value and Debt
      Discount charges                                               |   | 1,497,422                   |   |   | 1,697,191           |   |   | 508,594         |  
|Write off of
      Granita Inventory                                                           |   | 505,910                     |   |   |                     |   |   | 505,910         |  
|Other non cash charges including
      amortization of deferred compensation                   |   | 414,084                     |   |   |                     |   |   | 1,015,065       |  
|Changes in
      assets and liabilities:                                                       |   |                             |   |   |                     |   |   |                 |  
|Accounts receivable                                                                            |   | 1,961                       |   |   | (11,000             | ) |   | 412,876         |  
|Inventories                                                                                    |   | 0                           |   |   |                     |   |   | (510,471        | )
|Prepaid expenses and Other
      current assets                                                |   | 323,844                     |   |   | 76,628              |   |   | 35,807          |  
|Other                                                                                          |   |                             |   |   |                     |   |   | 906,535         |  
|Accounts payable, Accrued expenses,
      Deferred revenue                                     |   | (168,376                    | ) |   | 174,039             |   |   | 8,208,599       |  
|Due to/from
      related parties                                                              |   |                             |   |   |                     |   |   |                 |  
|Microphase / Janifast//Lintel                                                                  |   | 707,128                     |   |   |                     |   |   | 5,378,063       |  
|Officers and
      Other                                                                       |   | 0                           |   |   | 275,483             |   |   | 1,710,736       |  
|Net cash used in operating
      activities                                                    |   | ($2,382,193                 | ) |   | ($1,916,494         | ) |   | ($81,298,290    | )
|Cash Flow from
      Investing Activities:                                                     |   |                             |   |   |                     |   |   |                 |  
|Payments related to patents and
      licensing rights                                         |   | -                           |   |   |                     |   |   | (450,780        | )
|Purchase of
      fixed assets                                                                 |   | (64,063                     | ) |   |                     |   |   | (3,279,387      | )
|Investment in Sovereign                                                                        |   |                             |   |   |                     |   |   | (110,000        | )
|Net Cash
      (used) in investing activities                                                  |   | ($64,063                    | ) | $ | 0                   |   |   | ($3,840,167     | )
|Cash Flow from Financing
      Activities:                                                     |   |                             |   |   |                     |   |   |                 |  
|Proceeds from
      issuance of common stock, exercises warrants and finders fees, net         |   | 598,000                     |   |   | 495,000             |   |   | 82,481,852      |  
|Payments of short term notes                                                                   |   |                             |   |   |                     |   |   | (1,281,552      | )
|Advances from
      Microphase                                                                 |   |                             |   |   |                     |   |   | 347,840         |  
|Issuance of Convertible
      Debentures                                                       |   | 154,000                     |   |   | 75,000              |   |   | 229,000         |  
|Net Proceeds
      (Repayment) from notes payable related parties                              |   | 169,323                     |   |   |                     |   |   | 174,329         |  
|Proceeds under securities
      purchase agreements                                            |   | 1,000,000                   |   |   | 1,400,000           |   |   | 2,750,000       |  
|Sale of minority
      interest in Granita subsidiary                                          |   | 514,000                     |   |   |                     |   |   | 514,000         |  
|Repurchase of treasury stock at
      cost                                                     |   |                             |   |   |                     |   |   | (7,973          | )
|Net cash
      provided by financing activities                                                | $ | 2,435,323                   |   | $ | 1,970,000           |   | $ | 85,207,496      |  
|Net increase in cash                                                                           |   | ($10,933                    | ) | $ | 53,506              |   | $ | 69,039          |  
|CASH AND
      CASH EQUIVALENTS, beginning of period                                           | $ | 23,253                      |   | $ | 15,533              |   |   | -               |  
|CASH AND CASH EQUIVALENTS, end of
      period                                                 | $ | 12,320                      |   | $ | 69,039              |   | $ | 69,039          |  

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

7

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mPHASE TECHNOLOGIES, INC.(A Development Stage
Company)Notes To Consolidated Financial Statements(Unaudited)

|1. | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | NATURE OF OPERATIONS - mPhase Technologies, Inc. (the
      "Company") was organized on October 2, 1996 and is in the development
      stage, as defined by Statement of Financial Accounting Standards ("SFAS")
      No. 7, "Accounting and Reporting by Development Stage Enterprises." Since
      December 2007, the Company has focused its efforts and financial resources
      exclusively on its "Smart" Nano Battery product with the goal of moving
      such product to commercialization as quickly as possible. The Company has,
      in order to conserve financial resources, temporarily suspended its
      development activities with respect to its IPTV product and its
      nanotechnology Magnetometer product. The Company is no longer involved in
      sales involving DSL component products. Since mPhase is in the development
      stage, the accompanying consolidated financial statements should not be
      regarded as typical for normal operating periods.                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | BASIS OF PRESENTATION - The accompanying unaudited
      consolidated financial statements have been prepared in accordance with
      generally accepted accounting principles for interim financial information
      and pursuant to the regulations of the Securities Exchange Commission.
      Accordingly, they do not include all of the information and footnotes
      required by generally accepted accounting principles for complete
      financial statements. In the opinion of management, all adjustments
      (consisting of normal recurring nature) considered necessary for a fair
      presentation have been included. Operating results for the nine months
      ending March 31, 2009 are not necessarily indicative of the results that
      may be expected for a full fiscal year. For further information, refer to
      the consolidated financial statements and footnotes thereto included in
      the Companys Annual Report on Form 10-K for the year ended June 30,
      2008.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Through March 31, 2009, the Company had incurred
      cumulative (a) development stage losses totaling of ($182,264,823) (b) a
      stockholders deficit of ($3,823,591), and (c) negative cash flow from
      operations equal to $81,298,290. At March 31, 2009, the Company had  $69,039 of cash
      and cash equivalents to fund short-term working capital requirements. The
      Companys ability to continue as a going concern and its future success is
      dependent upon its ability to raise capital in the near term to: (1)
      satisfy its current obligations, (2) continue its research and development
      efforts, and (3) allow the successful wide scale development, deployment
      and marketing of its products.                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | CONVERTIBLE DEBT and DERIVATIVE LIABILITY - The Company
      has estimated the value of the derivative liability associated with its
      convertible debt. Such estimate is based on a Black Sholes calculation at
      the time the debt was issued. Periodically, the value of this liability is
      marked to market and adjusted accordingly. Such adjustments are included
      in Other Income (Expense). In addition, the value of any common stock
      issued and related to such agreements was established at the time of
      issuance and is being amortized into expense over the term of the
      debenture.                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | LOSS PER COMMON SHARE, BASIC AND DILUTED - The Company
      accounts for net loss per common share in accordance with the provisions
      of SFAS No. 128, "EARNINGS PER SHARE" ("EPS"). SFAS No. 128 requires the
      disclosure of the potential dilution that could occur if securities or
      other contracts to issue common stock were exercised or converted into
      common stock or resulted in the issuance of common stock that then shared
      in the earnings of the entity. Common equivalent shares have been excluded
      from the computation of diluted EPS for all periods presented since their
      affect is anti dilutive. At March 31, 2009, potential dilutive securities
      included approximately 363 million shares related to convertible debt
      issues and 305 million through the exercise of options and
  warrants.                                                                                                                                                   

8

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|   |                                    
|-- | -----------------------------------
|2. | SUPPLEMENTAL CASH FLOW INFORMATION 
|   |                                    
|   | For the nine months ended March 31,

| |                                                                |   | 2008    |  |   | 2009      | 
| | -------------------------------------------------------------- | - | ------- |  | - | --------- | 
| | Non Cash Investing and Financing
      Activities:             |   |         |  |   |           | 
| | Assumption of Sovereign note payable                           | $ | 110,000 |  |   |           | 
| | Stock issued in settlement of accrued
      expenses           | $ | 100,000 |  |   |           | 
| | Conversion of debt into equity                                 | $ | 106,123 |  | $ | 2,589,922 | 
| | Conversion of related party obligations to
      notes payable |   |         |  | $ | 1,068,338 | 

|3. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | MICROPHASE CORPORATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | mPhases President, Chief Operating Officer and Chairman
      of the Board of the Company are also officers of Microphase and mPhases
      President and Chairman of the Board are shareholders of Microphase. On May
      1, 1997, the Company entered into an agreement with Microphase, whereby it
      will use office space as well as the administrative services of
      Microphase, including the use of accounting personnel. This agreement was
      for $5,000 per month and was on a month-to-month basis. In July 1998, the
      office space agreement was revised to $10,000, in January 2000 to $11,050
      per month, in July 2001 to $11,340 per month, in July 2002 to $12,200 per
      month, in January 2003 to $10,000 per month, and in July 2003 to $18,000
      per month. Additionally, in July 1998, mPhase entered into an agreement
      with Microphase, whereby mPhase reimburses Microphase $40,000 per month
      for technical research and development. In January 2003 the technical
      research and development agreement was revised to $20,000 per month, and
      in July 2003 it was further revised to $5,000 per month for technical and
      research development, $5,000 per month for administrative services and
      $5,000 per month under the office space agreement. Beginning July 1, 2006,
      billings for all of the above services have been $5,000 per month. In
      addition, Microphase also charges fees for specific projects on a
      project-by-project basis. During nine months ended March 31, 2008 and 2009
      and from inception (October 2, 1996) to March 31, 2009, $60,731, $44,462
      and $9,188,056 respectively, have been charged to expense.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | As a result of the foregoing transactions as of March 31,
      2009, the Company had a $68,846 payable to Microphase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | JANIFAST LTD.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company has historically purchased products
      manufactured by Janifast Ltd, which is owned by Janifast Holdings, a
      Company in which two directors of mPhase are significant shareholders and
      one is an officer. The Company previously sold DSL products produced by
      Janifast Ltd. but has refocused its operations exclusively on its
      nanotechnology battery product and is not expected to make significant
      purchases from Janifast Ltd. In 2009, Janifast Ltd, has ceased
      operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | During the nine months ended March 31, 2008 and 2009 and
      the period from inception (October 2, 1996) to March 31, 2009, $0, $0 and
      $16,031,811 respectively have been charged by Janifast to inventory or is
      included in operating expenses in the accompanying statements of
      operations. As a result of the foregoing transactions as of March 31,
      2009, the Company had $19,336 receivable from Janifast, which is netted
      against Due to Related Parties on the Balance
Sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

9

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OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until
September 30, 2003 by our former investment-banking firm Lipper & Company.
During the nine months ended March 31, 2009 and 2008 finders fees in the amount
of $55,000 and were $100,000 respectively were paid to Mr. Bidermans firm of
Palladium Capital Advisors.

In addition, at various points during
the most recent nine month period and at various points during the past fiscal
year the Messrs, Durando, Dotoli and Smiley provided bridge loans to the
Company, evidenced by individual promissory notes and deferred compensation so
as to provide working capital to the Company. During the nine months ended March
31, 2009 many of these bridge loans have been repaid. In addition, all deferred
compensation and a significant portion of accrued management fees have been
converted into notes. All of the remaining notes are payable on demand and carry
a 12% interest rate.

The following is a summary of related
party activity during the nine months ended, March 31, 2009 and 2008.

Summary of compensation to related
parties for the Nine Months Ended March 31, 2009

| |                                                                                                 |   | Durando    |  |   | Dotoli     |  |   | Smiley     |  |   | Biderman   |  |   | Microphase |   |   | Total       | 
| | ----------------------------------------------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- |  | - | ---------- |  | - | ---------- | - | - | ----------- | 
| | Consulting/
      Salary                                                                        | $ | 225,718    |  | $ | 184,000    |  | $ | 137,500    |  |   |            |  |   |            |   | $ | 547,218     | 
| | Interest                                                                                        | $ | 42,945     |  | $ | 48,992     |  | $ | 1,679      |  |   |            |  |   |            |   | $ | 93,616      | 
| | Rent                                                                                            |   |            |  |   |            |  |   |            |  |   |            |  | $ | 27,000     |   | $ | 27,000      | 
| | G&A                                                                                             |   |            |  |   |            |  |   |            |  |   |            |  | $ | 17,462     |   | $ | 17,462      | 
| | Finders Fees                                                                                    |   |            |  |   |            |  |   |            |  | $ | 55,000     |  |   |            |   | $ | 55,000      | 
| | Stock based compensation
      (shares issued)*                                                 | $ | 1,215,000  |  | $ | 720,000    |  | $ | 450,000    |  | $ | 180,000    |  |   |            |   | $ | 2,565,000   | 
| | Stock based
      compensation (options issued)*                                                | $ | 1,350,000  |  | $ | 810,000    |  | $ | 486,000    |  | $ | 54,000     |  |   |            |   | $ | 2,700,000   | 
| | Total compensation                                                                              | $ | 2,833,663  |  | $ | 1,762,992  |  | $ | 1,075,179  |  | $ | 289,000    |  | $ | 44,462     |   | $ | 6,005,296   | 
| | Common stock issued*                                                                            |   | 27,000,000 |  |   | 16,000,000 |  |   | 10,000,000 |  |   | 4,000,000  |  |   |            |   |   | 57,000,000  | 
| | Options issued (5 years @ 5
      cents)                                                        |   | 50,000,000 |  |   | 30,000,000 |  |   | 18,000,000 |  |   | 2,000,000  |  |   |            |   |   | 100,000,000 | 
| |                                                                                                 |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
| |                                                                                                 |   |            |  |   |            |  |   |            |  |   |            |  |  
| | Summary of
      compensation to related parties for the Nine Months Ended March 31,
      2008 |   |            |  |   |            |  |   |            |  |   |            |  |  
| |                                                                                                 |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
| |                                                                                                 |   | Durando    |  |   | Dotoli     |  |   | Smiley     |  |   | Biderman   |  |   | Microphase |   |   | Total       | 
| | Consulting/
      Salary                                                                        | $ | 295,200    |  | $ | 211,500    |  | $ | 150,000    |  |   |            |  |   |            |   | $ | 656,700     | 
| | Interest                                                                                        | $ | 19,170     |  | $ | 2,953      |  | $ | 14,340     |  |   |            |  |   |            |   | $ | 36,463      | 
| | Rent                                                                                            |   |            |  |   |            |  |   |            |  |   |            |  | $ | 45,000     |   | $ | 45,000      | 
| | R&D                                                                                             |   |            |  |   |            |  |   |            |  |   |            |  | $ | 28,152     |   | $ | 28,152      | 
| | Other                                                                                           |   |            |  |   |            |  |   |            |  |   |            |  | $ | 26,420     |   | $ | 26,420      | 
| | Total compensation                                                                              | $ | 314,370    |  | $ | 214,453    |  | $ | 164,340    |  | $ | 0          |  | $ | 99,572     |   | $ | 136,035     | 
| |                                                                                                 |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
| |                                                                                                 |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
| | Summary of
      payables to related parties as of March 31, 2009                               |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
| |                                                                                                 |   | Durando    |  |   | Dotoli     |  |   | Smiley     |  |   | Microphase |  |   | Janifast   |   |   | Total       | 
| | Notes payable                                                                                   | $ | 617,582    |  | $ | 450,756    |  | $ | 264,225    |  |   |            |  |   |            |   | $ | 1,332,563   | 
| | Deferred Compensation                                                                           | $ | 0          |  | $ | 0          |  |   |            |  |   |            |  |   |            |   | $ | 0           | 
| | Due to Officers/
      Affiliates                                                               | $ | 17,000     |  | $ | 17,000     |  |   |            |  | $ | 68,846     |  |   | ($19,336   | ) | $ | 83,510      | 
| | Interest Payable                                                                                | $ | 42,945     |  | $ | 48,992     |  | $ | 1,679      |  |   |            |  |   |            |   | $ | 93,615      | 
| | Total Payable
      to Officers                                                                 | $ | 677,528    |  | $ | 516,748    |  | $ | 265,903    |  | $ | 68,846     |  |   | ($19,336   | ) | $ | 1,509,688   | 

*Shares issued to officers are pursuant
to agreements dated August 8, 2008 between the Company and the Messrs Durando,
Dotoli and Smiley. The agreements state that the stock granted may not be sold
until the earlier of two (2) years orwhen the stock price for 60
consecutive days closes at a price of $.25 per share or greater and the average
trading volume during such 60 day period is not less than 1,000,000 shares per
day.

10

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | EQUITY TRANSACTIONS AND CONVERTIBLE DEBT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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 repricing, costing an estimated $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 this
      transaction was the issuance of 7,660,000 shares as reparations shares to
      effect repricing, costing an estimated $99,483                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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
      $2,825,900 using the Black Scholes method, a volatility of 78% and an
      interest free rate of 1.5%. In addition, 61,750,000 shares of common stock
      valued at $2,779,650 were issued to employees and consultants. (See note
      3).                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | No such transactions occurred in the quarters ending
      December 31, 2008 nor March 31, 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Conversion of debt securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | During the nine months ended March 31, 2009,
      $2,589,922  of debt was converted into 193,776,400 shares of common
      stock. Included in this amount is $75,000 of notes payable to a related
      party which were sold to an investor for $75,000 cash and subsequently
      converted into 10,000,000 shares of the Companys common stock valued at
      1.6 cents per share resulting in settlement expense of $85,000. 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 five 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 may involve the
    following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

11

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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.

A summary of our arrangement 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 permitted the
Company to draw up to $6.0 of funds; 2) A Convertible Debenture in the amount of
$1.5 million, with an interest rate of 7 1⁄4% and a maturity date of December
11, 2010 and 3) A Secured Note Receivable in the amount of $1.0 million, with an
interest rate of 8 1⁄4% and a maturity date of February 1, 2011 due from the
same parties who are the holders of the Convertible Debentures . 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.

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.
Subsequently, but prior to March 31, 2009 all related debt had been converted
and no derivative value balance remained. This has resulted in a credit to
earnings for the nine and three month period of $322,636 and $119,091
respectively. In addition, the transaction resulted in a note discount of $1.5
million which has been amortized as expense. During the nine month and three
month period ended March 31, 2009, amortization of debt discount amounted to
$1,122,649 and $168,625 respectively.

During the first nine months of FYE
2009, $1,365,000 of such debt was converted into shares of common stock and the
Company received a total of $950,000 under the provisions of the related Note
Receivable.

12

---

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 average of the three lowest prices over the 20
day period prior to conversion. The derivative value of the embedded conversion
feature was estimated to be $581,428 on the date of issuance. On June 30, 2008,
the derivative value was $142,593 and on March 31, 2009 such value was $28,241
creating a non-cash credit to earnings for the nine month and three month period
of $114,352 and $141,806 respectively. The cost of the shares issued and related
debt discount is being amortized to expense over the life of the debenture. In
the event of default under the note payable the holder is entitled to certain
compensatory fees. During the nine and three month period ended March 31, 2009,
amortization of debt discount amounted to $456,752 and $247,231 respectively.

During the first nine months of FYE
2009, $483,522 of such debt was converted into 47,094,382 shares of common
stock.

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 same parties
who are the holders of the Convertible Debentures.

Conversion of outstanding debentures
into common shares is at the option of the holder. The number of shares into
which the debentures can be converted is equal to the dollar amount of the
debenture 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 $200,00 of principal to be converted into
common stock at the rate of 70%of the three lowest volume weighted average
prices during the 20 day period prior to conversion. And reduced the conversion
price from 80% to 75%.

During the first nine months of FYE
2009, $581,400 of such debt was converted into 62,313,213 shares of common
stock.

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 March 31, 2009, such
value had increased to $442,919, creating a non-cash charge to earnings for the
nine month period of $157,997 and a three month credit to earnings of $335,748.
In addition, the transaction resulted in a note discount which is being
amortized as expense over the life of the loan. During the nine and three month
period ended March 31, 2009, amortization of debt discount amounted to $755,891
and $375,640 respectively.

Draws under the Note Receivable for the
nine month period ending March 31, 2009, have totaled $250,000. The Note
Receivable is collateralized by $1 million of Blue Chip Stocks.

Arrangement #3A (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 same parties who are the holders of the Convertible Debentures. No cash
was exchange 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 3 lowest Volume Weighted Average Prices during
the 20 day trading period prior to conversion. As of December 31, 2008 the
embedded conversion feature of such security was $622,222 and the debt discount
valued at $722,222. As of March 31, 2009 , the value of embedded conversion feature has decreased to
$467,304 creating a credit to earnings of $154,918 while the debt discount has
been amortized by $60,185 to $662,037.

13

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Arrangement #4 (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 same parties who are 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. At the time of the
transaction (September 11, 2008) the embedded conversion feature of this
security was calculated to be $1,176,471. On March 31, 2009, this value had
decreased to $683,333, creating a non-cash credit to earnings for the nine month
and three month period of $493,138 and $225,758 respectively. In addition, the
transaction resulted in a note discount which is being amortized as expense over
the life of the loan. During the nine and three month period ended March 31,
2009, amortization of debt discount amounted to $228,758 and $98,039
respectively.

|5. | GRANITA MEDIA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Effective July 1, 2007, the Company formed Granita Media,
      Inc. to separate its IPTV business and facilitate the raising of capital.
      Pursuant to an arrangement with 4 employees of mPhase, such employees were
      terminated from mPhase as of July 1, 2007 and became employees of Granita
      Media, Inc and invested solely in the common stock of Granita Media, Inc.
      Under the arrangement, each of the 4 employees was required to invest
      $125,000 in exchange for an aggregate 2% equity interest in Granitia
      Media, Inc with mPhase continuing to own 98% of the Company. The 4
      employees contributed a total of $339,000 of the total $500,000 equity
      investment required from them and raised from third party investors
      another $175,000 for a total of $514,000. Granita Media has 19,000,000
      shares of common stock outstanding of which 18,000,000 was owned by mPhase
      Technology and 1,000,000 is being held for issuance to the 4 employees and
      the third party investors pending an agreement among such persons of the
      allocation of such shares.                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Under the terms of the arrangement between mPhase and the
      4 employees, such employees were authorized to sell up to 7.99% of
      additional equity in the Company for a total of not less than $2,000,000
      of additional capital by December 31, 2007. As noted above, the employees
      raised a total of $175,000 of outside capital only and pursuant to the
      arrangement, such employees either resigned or were terminated by mPhase
      together with several lower level employees of Granita. A dispute has
      arisen between Granita Media and one of the former employees with respect
      to a sum of approximately $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 4 employee / officers of
      Granita Media were required to cover operating expenses of Granita Media
      after July 1, 2007 through equity investments either directly or from
      third parties, the Company has taken the position that such amount nor any
      related interest and fees are not owed to the employee. In addition, the
      Company has substantial rights of offset for unpaid rent with respect to
      the portion of its Little Falls office occupied by Granita Media after
      July 1, 2007.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During the nine month period ended March 31, 2009,
      Granita Media Inc did not conduct any operations and management is
      considering all alternatives including the possible sale of the IPTV
      business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

14

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|   |                              
|-- | -----------------------------
|6. | COMMITMENTS AND
CONTINGENCIES

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

Legal Proceedings

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

In March of 2009 the Company reached
final settlement with Magpie. The terms of this settlement provided for the
discharge of all open liabilities ($200,000) and the return of all stock issued
to Magpie as previous payment in return for the source codes used in the
research. In total the Company received back and cancelled 1,926,470 shares of
common stock and recorded the $200,000 discharge of liabilities as settlement
income.

The dispute that arose between the
Company and Golden Gate Investors (Note 4, arrangement #1) which was reported in
our previous 10Q, has been settled. Golden Gate had given the Company notice
that an Event of Default under the Securities Purchase Agreement has occurred.
This dispute involved the timely conversion of $252,000 of debt into common
stock, the required purchase of a second debenture and the payment of $500,000
to the Company which the Company maintains is due upon conversion. The
settlement provided for the cancellation of any further draws under the
Securities Purchase Agreement dated December 11, 2007 without penalty to either
party.

|7. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                             
|   | As of May 14, 2009 Long term convertible debt in the
      aggregate amount of $515,686 has been converted into, 58,366,910 shares of
      common stock and $200,000 has been received from repayment of notes
      receivable. In addition, the Company received $100,000 in exchange for
      20,000,000 shares of common stock in a private
placement.

15

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ITEM 2.

MANAGEMENTS
DISCUSSION OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

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

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

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

RESULTS OF OPERATIONS

OVERVIEW

mPhase, a New Jersey corporation, founded in 1996 is a
publicly-held company with over 19,000 shareholders and approximately 777
million shares of common stock outstanding. The Company's common stock is traded
on the Over the Counter Bulletin Board under the ticker symbol XDSL. We are
headquartered in Norwalk, Connecticut with offices in Little Falls, NJ. mPhase
shares common office space with Microphase Corporation, a privately held
company. Microphase is a leader in the field of radio frequency and filtering
technologies within the defense and telecommunications industry. It has been in
operation for over 50 years and supports mPhase with both engineering and
administrative and financial resources as needed.

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

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

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

16

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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 to 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 fearing") state to a hydrophilic ("water loving") state. In the hydrophobic state, the water beads up or is repelled by the surface. In the hydrophillc state, the water spreads out or is absorbed by the
surface. The ability to electronically control the wetting characteristics of a surface at the nanometer scale forms the basis of mPhase's nanotechnology operations and intellectual property portfolio.

In the Smart NanoBattery application, mPhase uses electrowetting as a new technique to 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.

17

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History of Nanotechnology Operations

Smart NanoBattery

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

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

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

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

In March of 2008, mPhase announced that it had been invited to submit a proposal for a Phase II STTR grant, based upon the successful work it had performed on the Phase I grant to develop a version of the Smart NanoBattey referred to as the
multi-cell, micro-array reserve battery for a critical U.S. Army memory backup application. The Phase II grant in the gross amount of $750,000 (net $500,000) was granted to the Company in the middle of September of 2008. 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 its first Smart NanoBattery prototype by electrowetting using a hard-wired configuration and a
remotely-activated device. Remote activation plays a key role in providing power to wireless sensors systems and RFID tags.

Also, in April of 2008, the Company announced that it had successfully produced its first lithium-based reserve battery with a soft or pouchpackage 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 that it is a significant milestone in moving from a low energy density zinc-based battery to a higher energy density lithium-based battery
towards proving that the Smart NanoBattery will eventually be economically and
commercially viable.

Emergency Flashlight

During the third quarter of fiscal year 2009 the Company
entered a contract with Eagle Picher, a major U.S. manufacturer of batteries to
create working prototypes of a reserve battery to be used as part of an
emergency flashlight. In a separate contract the Company engaged Porsche Design
Studio to design a high-end emergency flashlight using the reserve battery.

18

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Magnetometer

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

Historical Product Development / IPTV

The Company, from its inception to June 30, 2007, had focused
upon developing innovative solutions for the delivery of Broadcast Television as
part of a "triple play" of services that includes voice and high-speed internet
for telephone service providers globally. Beginning in fiscal year 2004, the
Company began developing Broadcast television delivery solutions through
software/middleware designed to enable telephone service providers to deliver
video data using internet protocol. The Company's middleware/software is highly
scalable, potentially saving telephone service providers significant hardware
deployment costs for routers and servers required for the carrier class delivery
of broadcast television using internet protocol. Such solution potentially
expands the content of available information from the internet into broadcast
quality television. The Company's middleware is capable of delivering over
copper, fiber, coax or any infrastructure representing a combination of the
foregoing that is used by a telecommunications service provider. The Company has
not to date been able to derive any significant revenue from our TV+ solution.
We believe that this is due to a number of factors:

|1. | The Company's original product, the Traverser Digital
      Video Data Delivery System, was designed to enable telephone service
      providers to deliver Broadcast Television, high speed-internet and voice
      over copper telephone lines using DSL compression technology. The
      technology developed in partnership with Georgia Tech Research Corporation
      marked a significant architectural breakthrough in design using a
      non-internet protocol proprietary technology. As internet technology for
      video transmission improved, telecommunications service providers
      worldwide moved to requiring internet protocol and open carrier class
      standards for their transition to a "triple play" of converged services to
      customers that includes Broadcast quality television. In 2003 the Company
      transitioned from its legacy Traverser DVDDS product to its TV+ solution.
      The TV+ is middleware using internet protocol with open carrier-class
      standards compatible with all modes of hardware. The TV+ enables telephone
      service providers to deliver over any topology or infrastructure (e.g.
      copper, fiber or coax) broadcast quality television, video on demand,
      high- speed internet and voice required by telephone service
    providers.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|2. | The Company's strategic focus for its broadcast
      television solution for telecommunications service providers targeted
      telephone service providers outside the United States in emerging markets
      where fiber and cable infrastructure did not exist. Penetration of these
      emerging international markets proved more difficult and costly than the
      Company originally anticipated. Telephone service providers in such areas
      owned by the government or recently privatized, often lack reliable
      infrastructure to accommodate basic test deployments and are demanding
      robust television features that their customer base is unable to afford
      absent significant governmental subsidies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3. | The Company now believes, based upon its development
      efforts over a period of approximately 10 years, that its TV+ middleware
      is a solution for large deployments by large telephone
  service
providers. owing to its superior scalability that requires significantly less hardware (primarily routers and servers) per customer that can assist in the migration of the delivery of broadcast television using internet protocol. The Company is
currently seeking a strategic partner or purchaser to test and deploy its TV+ solution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

19

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

FINANCIAL OVERVIEW

Revenues. During the past two fiscal years, all revenue has been attributable to testing arrangements involving the Companys nanotechnology products. Activity related to this business segment is continuing. Previously, all material
revenues had been generated from sales of component products related its telecommunication business. Operations from this business line have been suspended pending a review of strategic alternatives.

Cost of Sales Prior to FYE June 30, 2007, Cost of sales consisted of POTS Splitter Shelves and other related DSL component products include direct material, labor and manufacturing. mPhase paid these costs to Janifast Ltd., which had
facilities in the People's Republic of China and is owned by and managed by certain senior executives of the Company. In 2009, Janifast Ltd ceased operations. The cost of revenues also includes certain royalties paid to Microphase Corporation, a
privately held corporation organized in 1955, which shares certain common management with the Company and is majority-owned by a director of mPhase.

Research and development. Such cost include internal labor of research scientists and consultants employed by the Company and third party contractors. The Company has shifted its commercial development of its nanotechnology battery products
from the original work done by Alchatel/Lucent. Current vendors that include Eagle Pitcher, a major developer of batteries, Rutgers University that has lithium battery capabilities and Porsche Design Studio for development of the Companys new
emergency flashlight product. The Company is using the services of Innovative Micro Technology, a silicon foundry for a large portion of the development work being performed with respect to the Phase II Army Grant.

Historically and prior to FYE June 30,2007, research and development expenses included projects related telecommunication business and included direct labor and payments made to Microphase,

General and administrative.General and administrative expenses consist primarily of executive consultants and related expenses for personnel engaged in legal and accounting personnel. Certain administrative activities are outsourced on a
monthly fee basis to Microphase and mPhase leases its principal office in Norwalk, Connecticut from Microphase.

Non-Cash compensation charges. The Company makes extensive use of stock options and warrants as a form of compensation to employees, directors and outside consultants. We have incurred non-cash compensation charges totaling $68,226,018 
from inception (October 2, 1996) through March 31, 2009.

Other Expense.Included in Other Expense are reparation cost and cost related to the change in the value of derivative securities and amortization as related debt discount. The change in the derivative value may fluctuate significantly
depending on market conditions and should not be considered as recurring or in any way indicative of operating results.

Cumulative losses, net worth and capital needs

The Company has incurred cumulative development stage losses of ($182,264,823) , and negative cash flow from operations of
($81,298,290). The auditors report for the fiscal year ended June 30, 2008 includes the statement that
"there is substantial doubt of the Company's ability to continue as a going concern". Management estimates that the Company needs to raise approximately $5 million during the next 12 months to continue its present level of operations. Such
operations will be directed toward the development of the nanotechnology product line. As of March 31, 2009, the Company had a negative net worth of ($3,823,591) compared to a negative net worth of ($2,804,853)as of June 30, 2008 as a result
of continuing net losses.

20

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Subsequent to March 31,2009 and in April, 2009 the Company received a $200,000 cash payment under a note receivable (JMJ) and $37,500 in cash from transfer of a note from an officer.

THREE MONTHS ENDED March 31, 2009 Vs. March 31, 2008

REVENUE

Total revenues were $44,029 for the three months ended March 31, 2009 compared to $545 for the three months ended March 31, 2008. Revenues derived in the current quarter relates exclusively to earnings and work performed under a Phase II
U.S. Army battery research grant. Work on such grant began September 2008, has a stated a maximum of $750,000 (net to the Company of $500,000) over a two year period.

RESEARCH AND DEVELOPMENT

Research and development expenses were $265,552 for the three months ended March 31, 2009 as compared to $275,565 during the comparable period in 2008. In both periods all such effort has been directed toward our nanotechnology battery.

Subject to available funds, the Company expects to continue its research and development efforts throughout fiscal year 2009. Such research is expected to be concentrated in the field of nanotechnology . The initial applications for the nano power
cell technology will address the need to supply emergency and reserved power to a wide range of electronic devices for both commercial and defense applications.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative (G&A) expenses were $429,965 for the three months ending March 31, 2009 as compared to $576,473 from the comparable period in 2008. The decrease in G&A expense is primarily the result of the reduction of
employees and consultant compensation.

OTHER (EXPENSE) INCOME

Included in the current quarter is income associated with convertible debt including the change in derivative value and amortization of debt discount resulting in a net gain $26,800 In the comparable period of prior year, declines in the value
of derivative securities resulting from a decline in stock prices had resulted in a net expense of $(2,430,101).

NET LOSS

The Company recorded a net loss of ($656,134) for the three months ended March 31, 2009 as compared to a loss of ($3,505,169) for the three months ended March 31, 2008. This represents a loss per common share of ($0.00) and ($0.01)
based on weighted average shares outstanding of 671,278,600 and 397,367,531 for the three month periods ended March 31, 2009 and 2008 respectively. This change is primarily attributable changes in the derivative value of convertible debt securities

21

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NINE MONTHS ENDED March 31, 2009 VS March 31, 2008

REVENUE

Total revenues were $95,152 for the nine months ended March 31, 2009 compared to $96,259 for the nine months ended March 31, 2008. Revenue for the most recent period is exclusively associated with a Phase II Grant from the U.S. Army for
developing a standby or backup battery for electronics based upon the technology of its nanotechnology battery. In the prior year revenue was related to a nanotechnology research project (Phase I U.S. Army Grant) that has expired.

RESEARCH AND DEVELOPMENT

Research and development expenses were for the nine months ended March 31, 2009, were $868,848 as compared to $1,615,609 during the comparable period in 2008, or a decrease of $746,761. During the nine month period ended March 31,2009,
the Company incurred most of its research and development expenses with strategic vendors such as Porsche Design Studio, Eagle Picher, a major designer and manufacture of batteries and IMT, a silicone foundry. These expenses were incurred. in
connection with the development of an emergency flashlight using the Companys SmartNanoBattery technology and the Phase II US Army Grant. The overall reduction in expense from the prior period is primarily a result of suspension of activity in
its IPTV product line which amounted to approximately $850,000 as well as scaled down operations and compensation associated with the Nanotechnology.

GENERAL AND ADMINISTRATIVE EXPENSES

General and Administrative expenses were $7,168,950 for the nine months ended March 31, 2009, increasing from $3,057,928 , or a $4,111,022 increase from the comparable period in 2008. The increase is primarily due to non-cash charges
relating to the issuance of common stock and options to employees and consultants, which amounted to $5,605,550. This increase is offset in part by a scale down of operations, salary cutbacks as well as suspension of the IPTV product line of
approximately and a previous cost of $570,000.

OTHER INCOME (EXPENSE)

Other Income and (Expense) was ($2,023,810) for the nine months ended March 31, 2009 compared to
expense of ($1,469,986) for the comparable period ended March 31, 2008. Included in this amount are charges related to derivative value and debt
discount which were $(1,697,191)and $(1,363,877) for the periods ending 2009 and 2008 respectively. Also included in this category is net settlement income of $165,154 and $345,779. for the period ending 2009 and 2008 respectively.
The most recent period includes a settlement of Magpie litigation resulting in a reduction of accounts payable and settlement income of $200,000

NET LOSS

The Company recorded a net loss for the nine months ended March 31, 2009, ($9,996,483) as compared to a loss of ($6,184,496) for the nine months ended March 31, 2008. This represents a loss per common share of ($0.02) for both periods
based upon weighted average common shares outstanding of 592,455,950 and 394,601,102 respectively. Overall, the increased loss is a result non cash charges related to the issuance of common stock and the increase in cost associated with convertible
debt securities. This is offset in part by the scale down of research activities, the suspension of development of the IPTV business segment and a significant reduction in personnel expense.

CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

As required, mPhase has adopted the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", which provides guidelines on applying generally accepted accounting principals
to revenue recognition based upon the interpretations and practices of the SEC.

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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."

DERIVATIVE LIABILITY

The Company has estimated the value of the derivative liability associated with its convertible debt. Such estimate is based on a Black Scholes calculation at the time the debt was issued. At each reporting period, the value of this liability is
marked to market and adjusted accordingly. Such adjustments are included in Other Income (Expense)

STOCK-BASED COMPENSATION

On July 1, 2005, the Company adopted the provisions of Financial Accounting Standards Board Statement No. 123R,"Share-Based Payment" (SFAS 123R). SFAS 123R revised SFAS 123, "Accounting for Stock Based Compensation" and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires companies to measure and recognize compensation expense for all employee stock-based payments at fair value over the service period underlying the arrangement. Therefore,
the Company is now required to record the grant-date fair value of its stock-based payments (i.e., stock options and other equity-based compensation) in the statement of operations. The Company adopted FAS 123R using the "modified prospective"
method, whereby fair value of all previously-granted employee stock-based arrangements that remained unvested at July 1, 2005 and all grants made on or after July 1, 2005 have been included in the Company's determination of stock-based compensation
expense .

MATERIAL RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

mPhases President, Chief Operating Officer and Chairman of the Board of the Company are also officers of Microphase and mPhases President and Chairman of the Board are shareholders of Microphase. On May 1, 1997, the Company entered into
an agreement with Microphase, whereby it will use office space as well as the administrative services of Microphase, including the use of accounting personnel. This agreement was for $5,000 per month and was on a month-to-month basis. In July
1998, the office space agreement was revised to $10,000, in January 2000 to $11,050 per month, in July 2001 to $11,340 per month, in July 2002 to $12,200 per month, in January 2003 to $10,000 per month, and in July 2003 to
$18,000 per month. Additionally, in July 1998, mPhase entered into an agreement with Microphase, whereby mPhase reimburses Microphase $40,000 per month for technical research and development. In January 2003 the technical research and
development agreement was revised to $20,000 per month, and in July 2003 it was further revised to $5,000 per month for technical and research development, $5,000 per month for administrative services and $5,000 per month under the
office space agreement. Beginning July 1, 2006, billings for all of the above services have been $5,000 per month. In addition, Microphase also charges fees for specific projects on a project-by-project basis. During nine months ended March 31,
2008 and 2009 and from inception (October 2, 1996) to March 31, 2009, $60,731, $44,462 and $9,188,056 respectively, have been charged to expense.

As a result of the foregoing transactions as of March 31, 2009, the Company had a $68,846 payable to Microphase.

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JANIFAST LTD.

The Company has historically purchased products manufactured by Janifast Ltd,
which is owned by Janifast Holdings, a Company in which two directors of mPhase
are significant shareholders and one is an officer. The Company previously sold
DSL products produced by Janifast Ltd. but has refocused its operations
exclusively on its nanotechnology battery product and is not expected to make
significant purchases from Janifast Ltd. In 2009, Janifast Ltd, has ceased
operations.

During the nine months ended March 31, 2008 and 2009 and the period from inception (October 2, 1996) to March 31, 2009, $0, $0 and $16,031,811 respectively have been charged by Janifast to inventory or is included in operating expenses
in the accompanying statements of operations. As a result of the foregoing transactions as of March 31, 2009, the Company had $19,336 receivable from Janifast, which is netted against Due to Related Parties on the Balance Sheet.

OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by our former investment-banking firm Lipper & Company. During the nine months ended March 31, 2009 and 2008 finders fees in the amount of $55,000 and were $100,000 respectively
were paid to Mr. Bidermans firm of Palladium Capital Advisors.

In addition, at various points during the most recent nine month period and at various points during the past fiscal year the Messrs, Durando, Dotoli and Smiley provided bridge loans to the Company, evidenced by individual promissory notes and
deferred compensation so as to provide working capital to the Company. During the nine months ended March 31, 2009 many of these bridge loans have been repaid. In addition, all deferred compensation and a significant portion of accrued management
fees have been converted into notes. All of the remaining notes are payable on demand and carry a 12% interest rate.

The following is a summary of related party activity during the nine months ended, March 31, 2009 and 2008.





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Summary of
compensation to related parties for the Nine Months Ended March 31, 2009

|                                                                                                |   | Durando    |  |   | Dotoli     |  |   | Smiley     |  |   | Biderman   |  |   | Microphase |   |   | Total       | 
|----------------------------------------------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- |  | - | ---------- |  | - | ---------- | - | - | ----------- | 
|Consulting/Salary                                                                               | $ | 225,718    |  | $ | 184,000    |  | $ | 137,500    |  |   |            |  |   |            |   | $ | 547,218     | 
|Interest                                                                                        | $ | 42,945     |  | $ | 48,992     |  | $ | 1,679      |  |   |            |  |   |            |   | $ | 93,616      | 
|Rent                                                                                            |   |            |  |   |            |  |   |            |  |   |            |  | $ | 27,000     |   | $ | 27,000      | 
|G&A                                                                                             |   |            |  |   |            |  |   |            |  |   |            |  | $ | 17,462     |   | $ | 17,462      | 
|Finders Fees                                                                                    |   |            |  |   |            |  |   |            |  | $ | 55,000     |  |   |            |   | $ | 55,000      | 
|Stock based compensation (shares
      issued)*                                                 | $ | 1,215,000  |  | $ | 720,000    |  | $ | 450,000    |  | $ | 180,000    |  |   |            |   | $ | 2,565,000   | 
|Stock based
      compensation (options issued)*                                                | $ | 1,350,000  |  | $ | 810,000    |  | $ | 486,000    |  | $ | 54,000     |  |   |            |   | $ | 2,700,000   | 
|Total compensation                                                                              | $ | 2,833,663  |  | $ | 1,762,992  |  | $ | 1,075,179  |  | $ | 289,000    |  | $ | 44,462     |   | $ | 6,005,296   | 
|Common
      stock issued*                                                                      |   | 27,000,000 |  |   | 16,000,000 |  |   | 10,000,000 |  |   | 4,000,000  |  |   |            |   |   | 57,000,000  | 
|Options issued (5 years @5
      cents)                                                         |   | 50,000,000 |  |   | 30,000,000 |  |   | 18,000,000 |  |   | 2,000,000  |  |   |            |   |   | 100,000,000 | 
|                                                                                                |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
|                                                                                                |   |            |  |   |            |  |   |            |  |   |            |  |  
|Summary of
      compensation to related parties for the Nine Months Ended March 31,
      2008 |   |            |  |   |            |  |   |            |  |   |            |  |  
|                                                                                                |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
|                                                                                                |   | Durando    |  |   | Dotoli     |  |   | Smiley     |  |   | Biderman   |  |   | Microphase |   |   | Total       | 
|Consulting/Salary                                                                               | $ | 295,200    |  | $ | 211,500    |  | $ | 150,000    |  |   |            |  |   |            |   | $ | 656,700     | 
|Interest                                                                                        | $ | 19,170     |  | $ | 2,953      |  | $ | 14,340     |  |   |            |  |   |            |   | $ | 36,463      | 
|Rent                                                                                            |   |            |  |   |            |  |   |            |  |   |            |  | $ | 45,000     |   | $ | 45,000      | 
|R&D                                                                                             |   |            |  |   |            |  |   |            |  |   |            |  | $ | 28,152     |   | $ | 28,152      | 
|Other                                                                                           |   |            |  |   |            |  |   |            |  |   |            |  | $ | 26,420     |   | $ | 26,420      | 
|Total compensation                                                                              | $ | 314,370    |  | $ | 214,453    |  | $ | 164,340    |  | $ | 0          |  | $ | 99,572     |   | $ | 136,035     | 
|                                                                                                |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
|                                                                                                |   |            |  |   |            |  |   |            |  |   |            |  |   |            |   |   |             | 
|Summary of payables to
      related parties as of March 31, 2009                               |   | Durando    |  |   | Dotoli     |  |   | Smiley     |  |   | Microphase |  |   | Janifast   |   |   | Total       | 
|Notes payable                                                                                   | $ | 617,582    |  | $ | 450,756    |  | $ | 264,225    |  |   |            |  |   |            |   | $ | 1,332,563   | 
|Deferred Compensation                                                                           | $ | 0          |  | $ | 0          |  |   |            |  |   |            |  |   |            |   | $ | 0           | 
|Due to Officers/
      Affiliates                                                               | $ | 17,000     |  | $ | 17,000     |  |   |            |  | $ | 68,846     |  |   | ($19,336   | ) | $ | 83,510      | 
|Interest Payable                                                                                | $ | 42,945     |  | $ | 48,992     |  | $ | 1,679      |  |   |            |  |   |            |   | $ | 93,615      | 
|Total Payable
      to Officers                                                                 | $ | 677,528    |  | $ | 516,748    |  | $ | 265,903    |  | $ | 68,846     |  |   | ($19,336   | ) | $ | 1,509,688   | 

*Shares issued to officers are pursuant to agreements dated
August 8, 2008 between the Company and the Messrs Durando, Dotoli and Smiley.
The agreements state that the stock granted may not be sold until the earlier of
two (2) years orwhen the stock price for 60 consecutive days closes at a
price of $.25 per share or greater and the average trading volume during such 60
day period is not less than 1,000,000 shares per day.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred development stage losses of
7,393,437  and negative cash flow from operations . The auditors report for
the fiscal year ended June 30, 2008 includes the statement that there is
substantial doubt of the Companys ability to continue as a going concern. As
of March 31, 2009, the Company had a negative net worth of ($3,823,591) compared
to a negative net worth of ($2,804,853) as of June 30, 2008.

The Company has Securities Purchase Agreements with several
investors (see Note #4) which potentially allow the Company to access additional
funding of $3,550,000. Such facilities should provide adequate working capital
to the Company through the end of the current fiscal year and into the half of
FYE June 30 2010. Draws under these facilities for the nine months ended March
31, 2009 have amounted to $1,400,000 (payments under notes receivable). While
the Company believes these facilities will fund short term capital needs it may
from time to time be required to supplement such funding. In the longer term, we
estimate that the Company may need to raise approximately $5.0 million above
funding anticipated through payment of associated notes receivable. Such monies
will be necessary to fund further development and
commercialization of its SmartBattery products. The Company does not expect to derive any significant revenue from the sale of its Nanotechnology products until the second quarter of FYE June 30, 2010.

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MANAGEMENT'S PLANS

The Company has shifted its focus to the development of its commercial emergency flashlight product and its Phase II U.S. Army Grant using the science of Nanotechnology. The Company does not expect to derive any material revenue from either of these
products until the second quarter of fiscal year 2010.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not exposed to changes in interest rates as the Company has no debt arrangements and no investments in certain held-to-maturity securities. Under our current policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of any financial instruments at March 31, 2009.

ITEM 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of management including the
Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14c and of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedures are effective (as defined in Rules 13a  15(e) or 15d  15(e)). There
were no changes in our internal control over financial reporting during the
quarter ended March 31, 2009 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting. The
Company is in the process of considering changes in internal controls that
improve potential weaknesses as stated in our annual report (10K).

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PARTII  OTHERINFORMATION

ITEM1.

LEGAL PROCEEDINGS

Legal Proceedings

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

In March of 2009 the Company reached final settlement with Magpie. The terms of this settlement provided for the discharge of all open liabilities ($200,000) and the return of all stock issued to Magpie as previous payment in return for the
source codes used in the research. In total the Company received back and cancelled 1,926,470 shares of common stock and recorded the $200,000 discharge of liabilities as settlement income.

The dispute that arose between the Company and Golden Gate Investors (Note 4, arrangement #1) which was reported in our previous 10Q, has been settled. Golden Gate had given the Company notice that an Event of Default under the Securities Purchase
Agreement has occurred. This dispute involved the timely conversion of $252,000 of debt into common stock, the required purchase of a second debenture and the payment of $500,000 to the Company which the Company maintains is due upon
conversion. The settlement provided for the cancellation of any further draws under the Securities Purchase Agreement dated December 11, 2007 without penalty to either party.

ITEM2.

CHANGES IN SECURITIES

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 repricing, costing an estimated $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 this transaction was the issuance of 7,660,000 shares
as reparations shares to effect repricing, costing an estimated $99,483.

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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 $2,825,900 using the Black Scholes method, a
volatility of 78% and an interest free rate of 1.5%.  In addition, 61,750,000 shares of common stock valued at $2,779,650 were issued to employees and consultants. (See note 3).

No such transactions occurred in the quarters ending December 31, 2008 nor March 31, 2009

Conversion of debt securities

During the nine months ended March 31, 2009, $2,589,922 of debt was converted into 193,776,400 shares of common stock. Included in this amount is $75,000 of notes payable to a related party which were sold to an investor for $75,000
cash and subsequently converted into 10,000,000 shares of the Companys common stock valued at 1.6 cents per share resulting in settlement expense of $85,000. 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 five 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 may involve the following:

- The receipt of cash
- The issuance of a note payable or debenture 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 was offered.
- The aggregate amount of notes payable exceeded the amount of cash received. As Consideration for this difference the Company took 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 exist.

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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A summary of our arrangement 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 permitted the Company to draw up to $6.0 of funds; 2) A Convertible Debenture in the amount of $1.5 million, with an interest rate of 7 1⁄4%
and a maturity date of December 11, 2010 and 3) A Secured Note Receivable in the
amount of $1.0 million, with an interest rate of 8 1⁄4% and a maturity date of February 1, 2011 due from the same parties who are the holders of the Convertible Debentures . 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.

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. Subsequently, but prior to March 31, 2009 all related debt had been converted and no derivative value balance remained. This has resulted in a
credit to earnings for the nine and three month period of $322,636 and $119,091 respectively. In addition, the transaction resulted in a note discount of $1.5 million which has been amortized as expense. During the nine month and three
month period ended March 31, 2009, amortization of debt discount amounted to $1,122,649 and $168,625 respectively.

During the first nine months of FYE 2009, $1,365,000 of such debt was converted into shares of common stock and the Company received a total of $950,000 under the provisions of the related Note Receivable.

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 average of the three lowest prices over the 20 day period prior to conversion. The derivative value
of the embedded conversion feature was estimated to be $581,428 on the date of issuance. On June 30, 2008, the derivative value was $142,593 and on March 31, 2009 such value was $28,241 creating a non-cash credit to earnings for the nine
month and three month period of $114,352 and $141,806 respectively. The cost of the shares issued and related debt discount is being amortized to expense over the life of the debenture. In the event of default under the note payable the
holder is entitled to certain compensatory fees. During the nine and three month period ended March 31, 2009, amortization of debt discount amounted to $456,752 and $247,231 respectively.

During the first nine months of FYE 2009, $483,522 of such debt was converted into 47,094,382 shares of common stock.

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 same parties who are the holders of the Convertible Debentures.

Conversion of outstanding debentures into common shares is at the option of the
holder. The number of shares into which this debenture can be converted is equal
to the dollar amount of the debenture divided by 75% 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 $200,00 of principal
at the rate of 70% of the three lowest volume weighted average prices during the
20 day period prior to conversion. And reduced the conversion price from 80% to
75%.

29

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During the first nine months of FYE 2009, $581,400 of such debt was converted into 62,313,213 shares of common stock.

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 March 31, 2009, such value had increased to $442,919, creating a
non-cash charge to earnings for the nine month period of $157,997 and a three month credit to earnings of $335,748. In addition, the transaction resulted in a note discount which is being amortized as expense over the life of the loan.
During the nine and three month period ended March 31, 2009, amortization of debt discount amounted to $755,891 and $375,640 respectively.

Draws under the Note Receivable for the nine month period ending March 31, 2009, have totaled $250,000. The Note Receivable is collateralized by $1 million of Blue Chip Stocks.

Arrangement #3A (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 same parties who are the holders of the Convertible
Debentures. No cash was exchange 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 3 lowest Volume Weighted
Average Prices during the 20 day trading period prior to conversion. As of December 31, 2008 the embedded conversion feature of such security was $622,222 and the debt discount valued at $722,222. As of March 31, 2009 , the value of embedded
conversion feature has decreased to $467,304 creating a credit to earnings of $154,918 while the debt discount has been amortized by $60,185 to $662,037.

Arrangement #4 (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 same parties who are 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. At the time of the transaction (September 11, 2008) the embedded conversion feature of this security was calculated to be $1,176,471. On March 31,
2009, this value had decreased to $683,333, creating a non-cash credit to earnings for the nine month and three month period of $493,138 and $225,758 respectively. In addition, the transaction resulted in a note discount which is being
amortized as expense over the life of the loan. During the nine and three month period ended March 31, 2009, amortization of debt discount amounted to $228,758 and $98,039 respectively.

ITEM3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS

None.

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ITEM5.

OTHER INFORMATION

None.

ITEM6.

EXHIBITS AND REPORTS ON FORM 8?K

|EXHIBITS. | DESCRIPTION.                                                                                                   
|--------- | ---------------------------------------------------------------------------------------------------------------
|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.      



REPORTSONFORM8-K

Form 8-K dated January 20, 2009 announcing a new funding from JMJ Financial Corp and the issuance of $1.1
 million of convertible debentures

Form 8-K dated January 30, 2009 announcing a material contract with Eagle Picher, LLC

Form 8-K dated March 12, 2009 amending form 8K dated December 5, 2008 providing further information with respect to a contract with 
Porsche Design Studio.

Form 8-K dated March 17, 2009 announcing a settlement of litigation with Magpie Telecom Insiders Inc.

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SIGNATURES

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

|                     | mPHASE TECHNOLOGIES, INC.
|-------------------- | -------------------------
|                     |                          
|Dated:  May 15, 2009 | By: /s/                  
|                     |                          
|                     |                          
|                     |                          







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