---

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

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTER ENDED MARCH 31, 2010

COMMISSION FILE NO.000-30202

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

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

ISSUER'S TELEPHONE NUMBER, (203) 838-2741

INDICATE BY CHECK MARK WHETHER
THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, DURING THE PRECEDING 12 MONTHS (OR
FOR SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORT), AND
(2) HAS BEEN SUBJECT TO SUCH FILINGREQUIREMENTS FOR THE PAST 90
DAYS.

YES[X]NO[
 ]

THE NUMBER OF SHARES
OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS OF MAY 13,
2010 IS 1,158,726,952 SHARES, ALL OF ONE CLASS OF $.01 STATED VALUE COMMON
STOCK.

1

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mPHASE TECHNOLOGIES, INC.

INDEX

|               |                                                                                                                                                                                    | PAGE
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I         | FINANCIAL INFORMATION                                                                                                                                                              |     
|               |                                                                                                                                                                                    |     
|ITEM 1         | Consolidated Balance Sheets June
    30, 2009 (Audited) and March 31, 2010 (Unaudited)                                                                                             | 3   
|               | Unaudited Consolidated Statements of
      Operations-Three months ended March 31, 2009 (as restated) and 2010 and
    from October 2, 1996 (Date of Inception) to March 31, 2010. | 4   
|               | Unaudited Consolidated Statements
    of Operations-Nine Months ended March 31, 2009 (as restated) and 2010 and
    from October 2, 1996 (Date of Inception) to March 31, 2010.    | 5   
|               | Unaudited Consolidated Statement of Changes in
    Stockholders' Equity (Deficit) Nine Months ended March 312009 and 2010.                                                         | 6   
|               | Unaudited Consolidated Statement
    of Cash Flow-Nine Months Ended March 31, 2009 (as restated) and 2010 and
    from October 2, 1996 (Date of Inception) to March 31, 2010.      | 7   
|               |                                                                                                                                                                                    |     
|               | Notes to Consolidated
      Financial Statements                                                                                                                                   | 8   
|               |                                                                                                                                                                                    |     
|ITEM 2         | Management's
      Discussion and Analysis of Financial Condition and Condition and Results
      of Operations                                                                    | 21  
|               |                                                                                                                                                                                    |     
|ITEM 3         | Quantitative and
      Qualitative Disclosures about market risk                                                                                                                   | 32  
|               |                                                                                                                                                                                    |     
|ITEM 4         | CONTROLS AND PROCEDURES                                                                                                                                                            | 32  
|               |                                                                                                                                                                                    |     
|PART II        | OTHER INFORMATION                                                                                                                                                                  |     
|               |                                                                                                                                                                                    |     
|Item 1.        | Legal Proceedings                                                                                                                                                                  | 34  
|Item 2.        | Changes in Securities                                                                                                                                                              | 34  
|Item 3.        | Defaults Upon Senior
      Securities                                                                                                                                              | 37  
|Item 4.        | Submission of Matters to a Vote of
      Security Holders                                                                                                                          | 37  
|Item 5.        | Other Information                                                                                                                                                                  | 37  
|Item 6         | Exhibits and Reports on Form 8-K                                                                                                                                                   | 37  
|Signature Page |                                                                                                                                                                                    | 38  
|               |                                                                                                                                                                                    |     

2

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

|                                                                                                                                                                                        |   | June 30,     |   |   | March 31,    |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                                                                                                                                                        |   | 2009         |   |   | 2010         |  
|                                                                                                                                                                                        |   |              |   |   | (Unaudited)  |  
|ASSETS                                                                                                                                                                                  |   |              |   |   |              |  
|CURRENT ASSETS                                                                                                                                                                          |   |              |   |   |              |  
|Cash                                                                                                                                                                                    | $ | 100,138      |   | $ | 499,770      |  
|Accounts receivable                                                                                                                                                                     |   | 46,065       |   |   | 43,810       |  
|Inventory                                                                                                                                                                               |   | -            |   |   | 64,313       |  
|Prepaid and other current assets                                                                                                                                                        |   | 153,636      |   |   | 274556       |  
|Current Portion, Notes receivable-
      (Note 4)                                                                                                                                       |   | -            |   |   | 2,400,000    |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|TOTAL CURRENT
      ASSETS                                                                                                                                                              |   | 299,839      |   |   | 3,282,449    |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|Property and equipment,
      net                                                                                                                                                       |   | 39,648       |   |   | 71,271       |  
|Notes receivable - (Note 4)                                                                                                                                                             |   | 3,150,000    |   |   | 2,614,000    |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|TOTAL ASSETS                                                                                                                                                                            | $ | 3,489,487    |   | $ | 5,967,720    |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|LIABILITIES AND STOCKHOLDERS'
      DEFICIT                                                                                                                                             |   |              |   |   |              |  
|CURRENT LIABILITIES                                                                                                                                                                     |   |              |   |   |              |  
|Accounts payable                                                                                                                                                                        | $ | 1,864,956    |   | $ | 1,640,560    |  
|Accrued expenses                                                                                                                                                                        |   | 482,388      |   |   | 529,667      |  
|Due to related parties                                                                                                                                                                  |   | 369,920      |   |   | 49,961       |  
|Notes payable, related parties                                                                                                                                                          |   | 1,332,400    |   |   | 926,556      |  
|Short term notes                                                                                                                                                                        |   | 240,820      |   |   | 240,820      |  
|Current Portion, Long term debt                                                                                                                                                         |   | -            |   |   | 7,461        |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|TOTAL CURRENT
      LIABILITIES                                                                                                                                                         | $ | 4,290,484    |   | $ | 3,395,025    |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|Long term portion
      Equipment loan                                                                                                                                                  |   | -            |   |   | 32,981       |  
|Convertible debt derivative liability - (Note 4)                                                                                                                                        |   | 2,380,816    |   |   | 2,411,905    |  
|Convertible debentures net of discount of
      $1,385,395 and $2,629,453 on June 30, 2009 and March 31, 2010,
      respectively (Note 4)                                              |   | 2,052,355    |   |   | 4,443,047    |  
|TOTAL LIABILITIES                                                                                                                                                                       | $ | 8,723,655    |   | $ | 10,282,958   |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|COMMITMENTS AND
      CONTINGENCIES (Note 6)                                                                                                                                            |   |              |   |   |              |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|STOCKHOLDERS' DEFICIT                                                                                                                                                                   |   |              |   |   |              |  
|Common stock, par value $.01, 2,000,000,000 shares
      authorized 870,419,882 and 1,109,199,888 shares issued and outstanding at
      June 30, 2009 and March 31, 2010, respectively |   | 8,704,197    |   |   | 11,091,997   |  
|Additional paid in capital                                                                                                                                                              |   | 172,861,427  |   |   | 174,395,733  |  
|Deficit accumulated during development stage                                                                                                                                            |   | (186,791,819 | ) |   | (189,794,995 | )
|Less-Treasury stock, 13,750 shares
      at cost                                                                                                                                        |   | (7,973       | ) |   | (7,973       | )
|TOTAL STOCKHOLDERS' DEFICIT                                                                                                                                                             | $ | (5,234,168   | ) | $ | (4,315,238   | )
|                                                                                                                                                                                        |   |              |   |   |              |  
|                                                                                                                                                                                        |   |              |   |   |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS'
      DEFICIT                                                                                                                                       | $ | 3,489,487    |   | $ | 5,967,720    |  

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  |  
|                                                                                                                                                                                                    |   | Mar 31,                    |   |   | Mar 31,       |  
|                                                                                                                                                                                                    |   | 2009                       |   |   | 2010          |   |   | 2010         |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|REVENUES                                                                                                                                                                                            | $ | 44,029 $                   |   | $ | 141,747       |   | $ | 22,976,740   |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|COSTS AND EXPENSES                                                                                                                                                                                  |   |                            |   |   |               |   |   |              |  
|Cost of Sales                                                                                                                                                                                       |   | 0                          |   | $ | 1,501         |   |   | 16,426,193   |  
|Research and Development (including
      non-cash stock related charges of $0, $0 and $2,503,719 for the three
      months ended Mar. 31, 2009, 2010 and inception to date respectively)          |   | 265,552                    |   | $ | 712,266       |   |   | 62,022,012   |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|General and Administrative (including non-cash stock
      related charges of $0, $0 and
      $67,887,964 for the three months ended Mar. 31, 2009, 2010 and inception to date
      respectively) |   | 429,965                    |   | $ | 452,835       |   |   | 120,389,002  |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|Depreciation and Amortization                                                                                                                                                                       |   | 3,902                      |   | $ | 7,086         |   |   | 3,323,821    |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|TOTAL COSTS AND
      EXPENSES                                                                                                                                                                      |   | 699,419                    |   |   | 1,173,688     |   | $ | 202,161,028  |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|LOSS FROM OPERATIONS                                                                                                                                                                                |   | (655,390                   | ) |   | (1,031,941    | ) |   | (179,184,288 | )
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|OTHER INCOME (EXPENSE)                                                                                                                                                                              |   |                            |   |   |               |   |   |              |  
|Interest (Expense), net                                                                                                                                                                             |   | (73,858                    | ) |   | (32,547       | ) |   | (2,459,204   | )
|Reparation, Impairment and Other
      (Expense) net                                                                                                                                                |   | 46,314                     |   |   | 52,389        |   |   | (8,489,564   | )
|Change in Derivative Value and Debt Discount                                                                                                                                                        |   | (26,800                    | ) |   | 1,906,004     |   |   | 337,903      |  
|TOTAL OTHER INCOME (EXPENSE)                                                                                                                                                                        |   | (744                       | ) |   | 1,925,846     |   |   | (10,610,865  | )
|NET INCOME (LOSS)                                                                                                                                                                                   | $ | (656,134                   | ) | $ | 893,905       |   | $ | (189,794,995 | )
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|LOSS PER COMMON SHARE,
      basic and diluted                                                                                                                                                      | $ | (0.00                      | ) | $ | .00           |   |   |              |  
|                                                                                                                                                                                                    |   |                            |   |   |               |   |   |              |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,                                                                                                                                                         |   |                            |   |   |               |   |   |              |  
|basic                                                                                                                                                                                               |   | 671,278,600                |   |   | 1,057,751,508 |   |   |              |  
|diluted                                                                                                                                                                                             |   | 671,278,600                |   |   | 1,534,563,992 |   |   |              |  

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)

|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------- | -- | - | ------------ | -
|                                                                                                                                                                                                         |   | For the Nine |   |   | Date of       |   
|                                                                                                                                                                                                         |   | Months ended |   |   | Inception to  |   
|                                                                                                                                                                                                         |   | March 31,    |   |   | March 31,     |   
|                                                                                                                                                                                                         |   | 2009         |   |   | 2010          |    |   | 2010         |  
|                                                                                                                                                                                                         |   | As Restated  |   |   |               |    |   |              |  
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|REVENUES                                                                                                                                                                                                 | $ | 95,152       |   | $ | 228,122       |    | $ | 22,976,740   |  
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|COSTS AND EXPENSES                                                                                                                                                                                       |   |              |   |   |               |    |   |              |  
|Cost of Sales                                                                                                                                                                                            |   | 0            |   |   | 1,501         |    |   | 16,426,193   |  
|Research and Development (including
      non-cash stock related charges of $93,600, $0 and $2,503,719 for the nine
      months ended Mar. 31, 2009, 2010 and inception to date respectively)           |   | 868,848      |   |   | 1,805,839     |    |   | 62,022,012   |  
|General and Administrative (including non-cash stock
      related charges of $5,511,950, $43,050 and $67,887,964 for the nine months
      ended Mar.31, 2009, 2010 and inception to date respectively) |   | 7,168,950    |   |   | 1,367,049     |    |   | 120,389,002  |  
|Depreciation and Amortization                                                                                                                                                                            |   | 30,027       |   |   | 19,657        |    |   | 3,323,821    |  
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|TOTAL COSTS AND
      EXPENSES                                                                                                                                                                           |   | 8,067,825    |   |   | 3,190,046     |    |   | 202,161,028  |  
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|LOSS FROM OPERATIONS                                                                                                                                                                                     |   | (7,972,673   | ) |   | (2,961,924    | )  |   | (179,184,288 | )
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|OTHER INCOME (EXPENSE)                                                                                                                                                                                   |   |              |   |   |               |    |   |              |  
|Interest (Expense), net                                                                                                                                                                                  |   | (174,561     | ) |   | (755,364      | )  |   | (2,459,204   | )
|Reparation, Impairment and Other
      (Expense) net                                                                                                                                                     |   | (152,058     | ) |   | 21143         |    |   | (8,489,564   | )
|Change in Derivative Value and Debt Discount                                                                                                                                                             |   | (1,263,891   | ) |   | 692,969       |    |   | 337,903      |  
|TOTAL OTHER INCOME (EXPENSE)                                                                                                                                                                             |   | (1,590,510   | ) |   | (41,252       | )) |   | (10,610,865  | )
|NET (LOSS)                                                                                                                                                                                               | $ | (9,563,183   | ) | $ | (3,003,176    | )  | $ | (189,794,995 | )
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|LOSS PER COMMON SHARE, basic and
      diluted                                                                                                                                                           | $ | (0.02        | ) | $ | (0.00         | )  |   |              |  
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|                                                                                                                                                                                                         |   |              |   |   |               |    |   |              |  
|WEIGHTED AVERAGE COMMON
      SHARES OUTSTANDING,                                                                                                                                                        |   |              |   |   |               |    |   |              |  
|basic and diluted                                                                                                                                                                                        |   | 592,455,950  |   |   | 1,003,375,484 |    |   |              |  

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 inShareholders' Deficit For
The Nine Months Ended March 31, 2010(unaudited)

|                                                                                                  |  | Common Stock  |  |   |            |  |   |           |   |   |             |   |   |              |  
|------------------------------------------------------------------------------------------------- |  | ------------- |  | - | ---------- |  | - | --------- | - | - | ----------- | - | - | ------------ | -
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|                                                                                                  |  |               |  |   | $.01 Par   |  |   | Treasury  |   |   | Additional  |   |   | Accumulated  |  
|                                                                                                  |  | Shares        |  |   | Value      |  |   | **Stock** |   |   | Paid in     |   |   | **Deficit**  |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   | Capital     |   |   |              |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Balance June 30, 2009                                                                             |  | 870,419,882   |  | $ | 8,704,197  |  | $ | (7,973    | ) | $ | 172,861,427 |   | $ | (186,791,819 | )
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Conversions of Convertible Debentures plus
      accrued interest                                 |  | 177,696,672   |  |   | 1,776,697  |  |   | -         |   |   | 972,283     |   |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Conversions of Accounts Payable                                                                   |  | 26,666,667    |  |   | 266,667    |  |   | -         |   |   | (66,667     | ) |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Issuance of common stock in private
      placements net of offering cost ($25,000)               |  | 30,666,667    |  |   | 306,667    |  |   | -         |   |   | (81,667     | ) |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Issuance of Common Stock for Services                                                             |  | 2,050,000     |  |   | 20,500     |  |   |           |   |   | 22,550      |   |   |              |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Issuance of Common Stock for Reparations                                                          |  | 1,700,000     |  |   | 17,000     |  |   |           |   |   | 18,530      |   |   |              |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Beneficial Conversion feature of Officers'
      Notes Payable and conversion of accounts payable |  | -             |  |   | -          |  |   | -         |   |   | 669,276     |   |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Net Loss for the Nine Months Ended March
      31, 2010                                           |  | -             |  |   | -          |  |   | -         |   |   | -           |   |   | (3,003,176   | )
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  
|Balance March 31, 2010                                                                            |  | 1,109,199,888 |  | $ | 11,091,997 |  | $ | (7,973    | ) | $ | 174,395,733 |   | $ | (189,794,995 | )
|                                                                                                  |  |               |  |   |            |  |   |           |   |   |             |   |   |              |  

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

6

---

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

|                                                                                                                        |   |                       |   |   |            |   |       | October 2, 1996 |  
|----------------------------------------------------------------------------------------------------------------------- | - | --------------------- | - | - | ---------- | - | ----- | --------------- | -
|                                                                                                                        |   | For Nine Months Ended |   |   | (Date of   |  
|                                                                                                                        |   |                       |   |   |            |   |       | Inception)      |  
|                                                                                                                        |   | March 31,             |   |   | March 31,  |   |       | March 31,       |  
|                                                                                                                        |   | 2009                  |   |   | 2010       |   |       | 2010            |  
|                                                                                                                        |   | (As restated)         |   |   |            |   |       |                 |  
|Cash Flow From Operating
      Activities:                                                                              |   |                       |   |   |            |   |       |                 |  
|Net Income (Loss)                                                                                                       | $ | (9,563,183            | ) | $ | (3,003,176 | ) | $     | (189,794,995    | )
|Adjustments to reconcile net loss to
      net cash used in operating activities:                                       |   |                       |   |   |            |   |       |                 |  
|Depreciation and amortization                                                                                           |   | 111,080               |   |   | 28,396     |   |       | 7,428,696       |  
|(Gain) loss on debt extinguishments                                                                                     |   | (165,154              | ) |   | 28         |   |       | (937,342        | )
|Non-cash charges relating to issuance of common stock,
      common stock options and warrants                          |   | 5,605,550             |   |   | 43,050     |   |       | 70,260,481      |  
|Reparation charges                                                                                                      |   | 316,172               |   |   | 35,530     |   |       | 8,264,264       |  
|Derivative Value and Debt Discount charges                                                                              |   | 1,263,891             |   |   | (692,969   | ) |       | 312,090         |  
|Write off of Granita
      Inventory/Sovereign Investment                                                               |   | -                     |   |   | -          |   |       | 615,910         |  
|Other non cash charges including amortization of deferred
      compensation and beneficial conversion interest expense |   | -                     |   |   | 669,276    |   |       | 2,712,901       |  
|Changes in assets and liabilities:                                                                                      |   |                       |   |   |            |   |       |                 |  
|Accounts receivable                                                                                                     |   | (11,000               | ) |   | 2,255      |   |       | 384,066         |  
|Inventories                                                                                                             |   | -                     |   |   | (64,313    | ) |       | (574,784        | )
|Prepaid expenses and Other current assets                                                                               |   | 76,628                |   |   | (120,920   | ) |       | (193,495        | )
|Other                                                                                                                   |   |                       |   |   |            |   |       | 906,535         |  
|Accounts payable, Accrued expenses,
      Deferred revenue                                                              |   | 174,039               |   |   | 86,884     |   |       | 8,396,765       |  
|Due to/from related parties                                                                                             |   | -                     |   |   | -          |   |       | -               |  
|Microphase / Janifast//Lintel                                                                                           |   | -                     |   |   | (119,959   | ) |       | 5,389,928       |  
|Officers and Other                                                                                                      |   | 275,483               |   |   | (135,844   | ) |       | 1,575,513       |  
|Net cash used in operating activities                                                                                   | $ | (1,916,494            | ) | $ | (3,271,762 | ) | $     | (85,253,467     | )
|                                                                                                                        |   |                       |   |   |            |   |       |                 |  
|Cash Flow from Investing Activities:                                                                                    |   |                       |   |   |            |   |       |                 |  
|Payments related to patents and licensing
      rights                                                                  |   |                       |   |   |            |   |       | (450,780        | )
|Purchase of fixed assets                                                                                                |   |                       |   |   | (15,000    | ) |       | (3,302,560      | )
|Investment in Sovereign                                                                                                 |   | -                     |   |   | -          |   |       | (110,000        |  
|Net Cash (used) in investing activities                                                                                 | $ | 0                     |   | $ | (15,000    | ) | **$** | (3,863,340      | )
|                                                                                                                        |   |                       |   |   |            |   |       |                 |  
|                                                                                                                        |   |                       |   |   |            |   |       |                 |  
|Cash Flow from
      Financing Activities:                                                                              |   |                       |   |   |            |   |       |                 |  
|Proceeds from issuance of common stock, exercises warrants
      and finders fees, net                                  |   | 495,000               |   |   | 225,000    |   |       | 82,923,879      |  
|Payments of short term notes and equipment
      loan                                                                   |   | -                     |   |   | (4,606     | ) |       | (1,286,158      | )
|Advances from Microphase                                                                                                |   |                       |   |   |            |   |       | 347,840         |  
|Issuance of Convertible Debentures                                                                                      |   | 75,000                |   |   | 500,000    |   |       | 766,500         |  
|                                                                                                                        |   |                       |   |   |            |   |       |                 |  
|Net Proceeds (Repayment) from notes
      payable related parties                                                       |   | -                     |   |   | (270,000   | ) |       | (35,484         | )
|Proceeds from collection of notes receivable under
      securities purchase agreements (note 4)                        |   | 1,400,000             |   |   | 3,236,000  |   |       | 6,386,000       |  
|Sale of minority interest in Granita
      subsidiary                                                                   |   | -                     |   |   | -          |   |       | 514,000         |  
|Repurchase of treasury stock at cost                                                                                    |   | -                     |   |   | -          |   |       | -               |  

|Net cash provided by financing activities            | $ | 1,970,000 |   | $ | 3,686,394 |  |  | $89,616,577 | 
|---------------------------------------------------- | - | --------- | - | - | --------- |  |  | ----------- | 
|Net increase in cash                                 | $ | (53,506   | ) | $ | 399,632   |  |  | $499,770    | 
|CASH AND CASH EQUIVALENTS, beginning of
      period |   | 15,533    |   |   | 100,138   |  |  |             | 
|CASH AND CASH EQUIVALENTS, end of period             | $ | 69,039    |   | $ | 499,770   |  |  | $499,770    | 

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 FASB ASC 915 "Development Stage Entities." The Company's present
activities are focused on the development of innovative power cells and related
products through the science of microfluidics, microelectromechanical systems
(MEMS) and nanotechnology. 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 considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended March 31,
2010 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/A for the year ended June 30, 2009.

Through March 31, 2010, the Company had incurred cumulative (a)
development stage losses totaling approximately ($189,794,995 ) (b)
stockholders' deficit of ($(4,315,238), and (c) negative cash flow from
operations equal to ($85,283,467). At March 31, 2010, the Company had $ 499,770
of cash and $43,810 of trade receivables to fund short-term working capital
requirements. In addition, the Company relies on the continuation of funding
under certain convertible securities agreements (See Note 4) The Company's
ability to continue as a going concern and its future success is dependent upon
its ability to raise capital in the near term to: (1) satisfy its current
obligations, (2) continue its research and development efforts, and (3) allow
the successful wide scale development, deployment and marketing of its products.

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

LOSS PER COMMON SHARE, BASIC AND DILUTED - The Company accounts
for net loss per common share in accordance with the provisions of ASC 260-10,
"EARNINGS PER SHARE" ("EPS"). ASC 260-10 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, 2010, the
Company's convertible debentures agreements are convertible into approximately
476,812,485 shares of common stock. The officers notes payable and accrued
interest therein are convertible into shares of common stock, if available.

NEW ACCOUNTING PRONOUNCEMENTS- In June 2008, the Financial
Accounting Standards Board (FASB) ratified the final consensuses for ASC
815-40-5 Determining Whether an Instrument (or Embedded Feature) Is Indexed to
an Entitys Own Stock (ASC 815-40-5). ASC 815-40-5 became effective for
fiscal years beginning after December 15, 2008. The adoption of ASC 915-40-50
did not have a material effect on the Company's results of operations or
financial condition. Effective July 1, 2009, the Company adopted the Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
105-10, Generally Accepted Accounting Principles  Overall(ASC
105-10). ASC 105-10 establishes the FASB Accounting Standards Codification(the Codification) as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with U.S. GAAP. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. All guidance
contained in the Codification carries an equal level of authority. The
Codification superseded all existing non-SEC accounting and reporting
standards.

8

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All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative . The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(ASUs). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.

Effective January 1, 2009, the Company adopted FASB ASC Topic
805, Business Combinations(ASC 805). ASC 805 establishes principles
and requirements for how the acquirer of a business recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree. ASC 805 also provides
guidance for recognizing and measuring the goodwill acquired in the business
combination and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. ASC 805 also provides guidance for recognizing changes in
an acquirers existing income tax valuation allowances and tax uncertainty
accruals that result from a business combination transaction as adjustments to
income tax expense. The adoption of ASC 805 did not have an impact on the
Company's results of operations or financial condition.

In April 2009, the FASB issued updated guidance related to
business combinations, which is included in the Codification in ASC 805-20,
Business Combinations  Identifiable Assets, Liabilities and Any
Noncontrolling Interest(ASC 805-20). ASC 805-20 amends and clarifies ASC
805 to address application issues regarding initial recognition and measurement,
subsequent measurement and accounting and disclosure of assets and liabilities
arising from contingencies in a business combination. In circumstances where the
acquisition-date fair value for a contingency cannot be determined during the
measurement period and it is concluded that it is probable that an asset or
liability exists as of the acquisition date and the amount can be reasonably
estimated, a contingency is recognized as of the acquisition date based on the
estimated amount. ASC 805-20 is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not believe ASC 805-20 will have a material
impact on the Companys future financial statements.

Effective January 1, 2008, the Company adopted FASB ASC 820-10,
Fair Value Measurements and Disclosures Overall(ASC 820-10) with
respect to its financial assets and liabilities. In February 2008, the FASB
issued updated guidance related to fair value measurements, which is included in
the Codification in ASC 820-10-55, Fair Value Measurements and Disclosures 
Overall  Implementation Guidance and Illustrations. The updated guidance
provided a one year deferral of the effective date of ASC 820-10 for
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually. Therefore, the Company adopted the provisions of ASC 820-10 for
non-financial assets and non-financial liabilities effective January 1, 2009,
and such adoption did not have a material impact on the Companys results of
operations or financial condition.

Effective April 1, 2009, the Company adopted FASB ASC
820-10-65, Fair Value Measurements and Disclosures Overall  Transition and
Open Effective Date Information(ASC 820-10-65). ASC 820-10-65 provides
additional guidance for estimating fair value in accordance with ASC 820-10 when
the volume and level of activity for an asset or liability have significantly
decreased. ASC 820-10-65 also includes guidance on identifying circumstances
that indicate a transaction is not orderly. The adoption of ASC 820-10-65 did
not have an impact on the Companys results of operations or financial
condition.

Effective April 1, 2009, the Company adopted FASB ASC
825-10-65, Financial Instruments  Overall  Transition and Open Effective
Date Information(ASC 825-10-65). ASC 825-10-65 amends ASC 825-10 to
require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements and also amends
ASC 270-10 to require those disclosures in all interim financial statements. The
adoption of ASC 825-10-65 did not have a material impact on the Companys
results of operations or financial condition.

9

---

Effective April 1, 2009, the Company adopted FASB ASC 855-10,
Subsequent Events  Overall(ASC 855-10). ASC 855-10 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. It requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date  that is,
whether that date represents the date the financial statements were issued or
were available to be issued. This disclosure should alert all users of financial
statements that an entity has not evaluated subsequent events after that date in
the set of financial statements being presented. Adoption of ASC 855-10 did not
have a material impact on the Companys results of operations or financial
condition.

Effective July 1, 2009, the Company adopted FASB ASU No.
2009-05, Fair Value Measurements and Disclosures (Topic 820)(ASU
2009-05). ASU 2009-05 provided amendments to ASC 820-10, Fair Value
Measurements and Disclosures  Overall,for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Companys results of operations or financial condition.

In October 2009, the FASB issued ASU 2009-13,
Multiple-Deliverable Revenue Arrangements,(amendments to FASB ASC Topic
605, Revenue Recognition) (ASU 2009-13) and ASU 2009-14, Certain
Arrangements That Include Software Elements, (amendments to FASB ASC Topic
985, Software) (ASU 2009-14). ASU 2009-13 requires entities to
allocate revenue in an arrangement using estimated selling prices of the
delivered goods and services based on a selling price hierarchy. The amendments
eliminate the residual method of revenue allocation and require revenue to be
allocated using the relative selling price method. ASU 2009-14 removes tangible
products from the scope of software revenue guidance and provides guidance on
determining whether software deliverables in an arrangement that includes a
tangible product are covered by the scope of the software revenue guidance. ASU
2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with early adoption permitted. The Company does not expect
adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the
Companys results of operations or financial condition.

2. SUPPLEMENTAL CASH FLOW INFORMATION

For the Nine Months ended March 31,

|                                                               |   | 2009      |  |   | 2010      | 
|-------------------------------------------------------------- | - | --------- |  | - | --------- | 
|                                                               |   |           |  |   |           | 
|Interest Accrued Unpaid                                        | $ | 131,712   |  |   | 261,975   | 
|Non Cash Investing and Financing Activities:                   |   |           |  |   |           | 
|Stock issued in settlement of
      accrued expenses           | $ | 0         |  | $ | 200,000   | 
|Conversion of convertible debt and interest thereon            | $ | 2,589,922 |  | $ | 2,749,250 | 
|Conversion of related party
      obligations to notes payable | $ | 1,068,338 |  | $ | 0         | 
|Beneficial Conversion of Officer's Notes                       | $ | 0         |  |   |           | 
|and Conversion of Accounts Payable                             |   |           |  | $ | 669,276   | 

10

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3. RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

mPhase's President and Chief Operating Officer of the Company
are also officers of Microphase and mPhase's President and Chairman of the Board
is a shareholder of Microphase. On May 1, 1997, the Company entered into an
agreement with Microphase, whereby mPhase uses 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 were $5,000 per month and were changed to $3,000 in July of
2008. In addition, Microphase also charges fees for specific projects on a
project-by-project basis. During the nine months ended March 31, 2009 and 2010
and from inception (October 2, 1996) through March 31, 2010, $44,462, $283,210
and $9,606,682, respectively, have been charged to expense.

As a result of the foregoing transactions, as of March 31,
2010, the Company had a payable to Microphase of $49,961.

JANIFAST LTD.

The Company has in the past purchased products and incurs
certain research and development expenses with Janifast Ltd., which is owned by
U.S. Janifast Holdings, Ltd., a company in which three directors of mPhase are
significant shareholders and one is an officer, in connection with the
manufacturing of POTS Splitter shelves and component products including cards
and filters sold by the Company. In March of 2009 Janifast Ltd. ceased
operations owing to adverse financial conditions globally

During the Nine Months ended March 31, 2009 and 2009 and the
period from inception (October 2, 1996) to March 31, 2010, $0, $0 and $16,031,811 respectively,
have been charged by Janifast Ltd to inventory or is included in operating
expenses in the accompanying statements of operations.

OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by
our former investment-banking firm Lipper & Company. On March 31, 2010, Mr.
Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid finders
fees in the amount of $150,000. During the nine months ended March 31, 2010 and
March 31, 2009 finders fees in the amount of $25,000 and $55,000, respectively,
were recorded.

Transactions with Officers

At various points during the current quarter 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. All
of the notes are payable on demand.

11

---

Total compensation (including the value of stock awards) to
related parties and payables to officers are summarized below.

Summary of compensation to related parties for the Nine
Months Ended March 31, 2010

|                                           |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Biderman |  |   | Microphase |  |   | Total   | 
|------------------------------------------ | - | ------- |  | - | ------- |  | - | ------- |  | - | -------- |  | - | ---------- |  | - | ------- | 
|Consulting / Salary                        | $ | 150,000 |  | $ | 135,000 |  | $ | 131,250 |  |   |          |  |   |            |  | $ | 416,250 | 
|Interest                                   | $ | 47,439  |  | $ | 33,636  |  | $ | 19,880  |  |   |          |  |   |            |  | $ | 100,954 | 
|Rent                                       |   |         |  |   |         |  |   |         |  |   |          |  | $ | 27,000     |  | $ | 27,000  | 
|G&A                                        |   |         |  |   |         |  |   |         |  |   |          |  | $ | 6,210      |  | $ | 6,210   | 
|R&D                                        |   |         |  |   |         |  |   |         |  |   |          |  | $ | 250,000    |  | $ | 250,000 | 
|Finders Fees                               |   |         |  |   |         |  |   |         |  | $ | 25,000   |  |   |            |  | $ | 25,000  | 
|Stock based compensation (shares issued)*  |   |         |  |   |         |  |   |         |  |   |          |  |   |            |  | $ | 0       | 
|Stock based compensation (options issued)* |   |         |  |   |         |  |   |         |  |   |          |  |   |            |  | $ | 0       | 
|Total compensation                         | $ | 197,439 |  | $ | 168,636 |  | $ | 151,130 |  | $ | 25,000   |  | $ | 283,210    |  | $ | 835,414 | 

Summary of payables to related parties as of March 31,
2010

|                                                            |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Microphase | 
|----------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ---------- | 
|Notes payable                                               | $ | 301,479 |  | $ | 241,306 |  | $ | 119,030 |  |   |            | 
|Due to Officers / Affiliates                                | $ | 0       |  | $ | 0       |  | $ | 0       |  | $ | 49,961     | 
|Interest Payable                                            | $ | 108,912 |  | $ | 96,149  |  | $ | 59,680  |  |   |            | 
|                                                            |   |         |  |   |         |  |   |         |  |   |            | 
|Total Payable to related parties
      as of March 31, 2010 | $ | 410,391 |  | $ | 337,455 |  | $ | 178,710 |  | $ | 49,961     | 

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 (5years @5 cents)           |   | 50,000,000 |  |   | 30,000,000 |  |   | 18,000,000 |  |   | 2,000,000 |  |   |            |  |   | 100,000,000 | 

12

---

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.

4. EQUITY TRANSACTIONS AND CONVERTIBLE DEBT

Private Placements

During the nine months ended March 31, 2010, the Company issued
30,666,667 shares of its common stock at $.0075 and $.0125 per share in private
placements generating gross proceeds of $250,000 with placement costs of
$25,000, netting $225,000.

During the nine months ended March 31, 2009, the Company issued
39,000,000 shares of its common stock at $.05 and $.01per share in private
placements generating net proceeds of $495,000 after placement costs of $55,000.
Related to these transactions was the issuance of 11,522,000 shares as
reparations shares to effect re-pricing costing an estimated $316,172.

Stock Based Compensation

During the nine months ended March 31, 2010, the Company issued
2,050,000 shares of common stock to employees and consultants valued at
$43,050.

During the nine months ended March 31, 2009, 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. In addition, 61,750,000 shares of common stock valued at $2,779,650 were
issued to employees and consultants.

Conversion of debt securities and Strategic vendor payables

During the nine months ended March 31, 2010, $2,749,250 of
convertible debt and accrued interest thereon was converted into 177,696,672
shares of Common stock.

During the nine months ended March 31, 2010, $200,000 of
accounts payable to Microphase Corporation was converted into 26,666,667 shares
of Common stock. The Company recorded $586,667 interest expense on the
beneficial conversion feature. The Company recorded $82,609 interest expense on
the beneficial conversion feature of officers notes during the nine months
ended March 31, 2010.

During the nine months ended March 31, 2009, $ 2,589,922 of
convertible debt was converted into 193,776,400shares of common stock.

13

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Long Term Convertible Debentures / Note Receivable / Debt
Discount

The Company currently has six separate convertible debt
arrangements with independent investors outstanding at March 31, 2010. During
the Nine Months ended March 31, 2010, $2,749,250 of convertible debt and accrued
interest thereon was converted into 177,696,672 shares of Common stock.These transactions are intended to provide liquidity and capital to the
Company and are summarized below.

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 transactions may generally be described as
follows:

- The receipt of cash
- The issuance of a note payable from mPhase.
- The issuance of a note receivable due to mPhase
- A Securities Purchase Agreement
- The note payable contains conversion features which permit the holder to
  convert debt into equity. Such debt was 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 operations at
  particular points in time. It was this commitment that required us to record
  on our books the note payable and the note receivable separately versus
  netting the balances.

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 FASB ASC 815-15-25-1, 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 (LaJolla Cove Investors Inc,)

On Sept 11, 2008, the Company received proceeds of $200,000
under a Securities Purchase Agreement from La Jolla Cove Investors, Inc. 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 date of September 30,2011 due from the same parties who are
the holders of the Convertible Debentures. Conversion of outstanding debentures
into common shares is at the option of the holder at a price equal to the dollar
amount of the debenture divided by the lesser of $.35 per share or 80% of the
three lowest Volume Weighted Average Prices during a 20 day trading period. At
the time of the transaction (September 11, 2008) the derivative value of this
security was calculated to be $1,176,471. The agreement also provides for the
Company to decline advances when the Company stock price falls below $.04.

As of June 30, 2009 the derivative value of this security was
calculated to be $1,080,343. As of December 31, 2009 this value had increased to $1,076,482.
On March 31, 2010, given the changes in the stock price, this value had
decreased to $467,728, a $608,753 decrease this quarter creating a non-cash
credit to earnings for the quarter ended March 31, 2010 of that amount. During
the nine month period ended March 31, 2010, amortization of debt discount
amounted to $214,938 reducing the balance to $359,498. As of March 31, 2010 the
note receivable had a balance of $1,800,000 and the note payable had a balance
of $1,810,000; for which the Company recorded a reserve for utilization against
each of $300,000.

14

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Arrangement #2 JMJ Financial

On March 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, with a one time interest factor of 12% and a maturity
date of December 31, 2011 and 2) a Secured Note Receivable in the amount of $1.0
million, with a one time interest factor of 13.2 % and maturity date of December
31, 2012 due from the same party who is the holder of the Convertible Debenture.
Conversion of outstanding debentures into common shares is at the option of the
holder. The number of shares into which this debenture can be converted is equal
to the dollar amount of the debenture divided by 75% of the Lowest Trading Price
during the 20 day trading period prior to conversion. For the nine months ended
March 31, 2010 the Company received $900,000 of cash draws under the Debenture
and the holder had converted into 122,776,037 common stock principal and accrued
interest thereon in the amount of $1,891750.

On June 30, 2009 the derivative value of this security was
calculated to be $444,552. On September 30, 2009, that amount was 195,721 and on
December 31, 2009 that value was decreased to $55,595 given the changes in the
stock price combined with the fact that the principle plus interest due under
the debenture had material conversions in satisfaction of the debt liability,
reducing the outstanding debt to $79,025; and this note was reduced futher to
zero by March 31, 2010. The decrease in the derivative liability for the three
months ended March 31, 2010 was $55,595. During the nine month period ended
March 31, 2010, amortization of debt discount amounted to $508,821 reducing the
debt discount balance also to zero.

Arrangement#3 (JMJ Financial, Inc.)

On August 19, 2009, the Company received proceeds of $250,000
in connection with a third agreement with JMJ Financial. This transaction
involves 1) a Convertible Debenture in the amount of $1,870,000, plus a one time
interest factor of 12% ($224,400) and a maturity date of August 10, 2012 and 2)
a Secured Note Receivable in the amount of $1,700,000 plus a one time interest
factor of 13.2% ($224,400) and a maturity date of August 10, 2012 due from the
same partys who is the holder of the Convertible Debenture. Conversion of
outstanding into common shares is at the option of the holder. The number of
shares into which this debenture can be converted is equal to the dollar amount
of the debenture divided by 75% of the lowest trade price during the 20 day
trading period prior to conversion.At the commitment date the derivative
liability for the embedded conversion feature of such security was $1,054,395
and the debt discount was valued at $1,224,395. . For the nine months ended
March 31, 2010 the Company the holder had converted into 54,920,635 shares of common stock
principal and accrued interest thereon in the amount of $857,500.

On September 30, 2009 the derivative liability had decreased to
$759,333. and on December 31, 2009, this value had increased to$1,076,482. On
March 31, 2010, given the changes in the stock price this value had decreased to
$467,728, a $608,753 decrease this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$765,574 reducing the balance to $458,821.

Arrangement#4 (JMJ Financial, Inc.)

On September 30, 2009, the Company received a total of $150,000
of proceeds in connection with another agreement with JMJ Financial. This
transaction involves 1) A Convertible Debenture in the amount of $1,200,000 plus
a one time interest factor of 12% ($144,000) and a maturity date of September
23, 2012 and (2) a Secured Note in the amount of $1,100,000 plus a one time
interest rate factor of 13.2% ($144,000 each) and a maturity date of September
23, 2012 due from the same party who is the holder of the Convertible
Debenture.Conversion of outstanding into common shares is at the option of the
holder. The number of shares into which this debenture can be converted is equal
to the dollar amount of the debenture divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion. In addition, the Company
has received a commitment from JMJ Financial to enter into an identical
financing not later than 60 days from September 23, 2009. At the commitment date
of September 23, 2009, the embedded conversion feature of such security was
$480,000 and the debt discount was valued at $580,000.

On September 30, 2009, the derivative liability had increased
to $487,272, and on December 31, 2009, this value had increased to $844,221, On
March 31, 2010, given the changes in the stock price this value decreased to
$429,268, a $414,953 decrease for this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$144,999 reducing the balance to $435,001.

15

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Arrangement#5 (JMJ Financial, Inc.)

On November 17, 2009, the Company received a total of $186,000
of proceeds in connection with another agreement with JMJ Financial. This
transaction involves 1) a Convertible Debenture in the amount of $1,200,000 plus
a one time interest factor of 12% ($144,000) and a maturity date of September
23, 2012 and (2) a Secured Note in the amount of $1,100,000 plus a one time
interest rate factor of 13.2% ($144,000 each) and a maturity date of September
23, 2012 due from the same party who is the holder of the Convertible Debenture.
Conversion of outstanding into common shares is at the option of the holder. The
number of shares into which this debenture can be converted is equal to the
dollar amount of the debenture divided by 75% of the lowest trade price during
the 20 day trading period prior to conversion. At the commitment date the
derivative value of the embedded conversion feature of such security was
$536,000 and the debt discount was valued at $636,000.

On December 31, 2009, this value had increased to $844,221.On
March 31, 2010, given the changes in the stock price this value had decreased to
$429,268., a $414,953 decrease this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$70,667 reducing the balance to $565,333.

Arrangement#6 (JMJ Financial, Inc.)

On December 22, 2009, the Company received a total of $300,000
of proceeds in connection with another agreement with JMJ Financial. This
transaction involves 1) a Convertible Debenture in the amount of $1,500,000 plus
a one time interest factor of 12% ($180,000) and a maturity date of December 15,
2012 and (2) a Secured Note in the amount of $1,400,000 plus a one time interest
rate factor of 13.2% ($180,000 each) and a maturity date of December 15, 2012
due from the same party who is the holder of the Convertible Debenture.

Conversion of outstanding into common shares is at the option
of the holder. The number of shares into which this debenture can be converted
is equal to the dollar amount of the debenture divided by 75% of the lowest
trade price during the 20 day trading period prior to conversion. In addition,
the Company has received a commitment from JMJ Financial to enter into similar
financing arrangement which involves involves 1) a Convertible Debenture in the
amount of $1,200,000 plus a one time interest factor of 12% ($144,000) and a
maturity date of December 15, 2012 and (2) a Secured Note in the amount of
$1,100,000 plus a one time interest rate factor of 13.2% ($144,000 each) and a
maturity date of December 15, 2012, such financing to commence not later than
February 15, 2009. At the commitment date, the derivative value of the embedded
conversion feature of such security was $542,714 and the debt discount was
valued at $642,714.

On December 31, 2009, this value had increased to $1,055,276.On
March 31, 2010, given the changes in the stock price this value had decreased to
$536,585, a $518,691 decrease this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$70,603 reducing the balance to $572,111.

Arrangement#7 (J. Fife)

On March 5, 2010, the Company received gross proceeds of
$500,000, net of legal fees of $5,000, under a Securities Purchase Agreement
from John Fife. This transaction involves the following related agreements: 1) a
Securities Purchase Agreement governing the sale of a $550.000 7.5 % Convertible
Note and two additional $275,000 Convertible Notes to be funded in the future
each with maturity dates 3 years from the issuance thereof; 2) a Convertible
Note totaling $550,000, with an interest rate of 7.5% and a maturity date of
March 3, 2011 3) two Secured Notes Receivable in the amount of $250,000 each
with an interest rate of 7.5% per annum and a maturity date of 4 years from the
date of issuance and a Security Agreement from the same party who is the holder
of the Convertible Notes. Conversion of outstanding debentures into shares of
common stock is at the option of the holder at a price equal to the dollar
amount of the debenture divided by 75% of the three lowest Volume Weighted
Average Prices during a 20 day trading period. At the time of the transaction
(March 5, 2010) the derivative value of this security was calculated to be
$193,767 and the debt discount was valued at $243,767. During the nine month
period ended March 31, 2010, amortization of debt discount amounted to $5,078
reducing the balance to $238,689.

16

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Other Equity

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

During the fiscal year ended June 30, 2008 the Company
reclassified contracts for warrants to purchase 12,604,168 shares of the
Companys common stock at fixed prices ranging from $.13 to $.15 per share to
liabilities. Contracts for warrants to purchase 11,111,112 shares of the
Companys common stock at $.14 per share were reclassified to permanent equity
in May of 2009, and contracts for warrants to purchase 1,604,168 shares of the
Companys common stock at fixed prices ranging from $.13 to $.15 per share were
reclassified to permanent equity in September, 2009. At the issuance dates
during the fiscal year ended June 30, 2008 the estimated value of the liability
of these warrants approximated $1,006,200; and as recalculated on the quarterly
measurement dates, as of June 30, 2008 the estimated value of the liability
approximated $433,300, and during the nine months ended March 31, 2009 the
estimated value of the liability was determined to no longer be material. The
net change in the liability was credited to the change in derivative value in
the Consolidated Statement of Operations for each period in accordance FASB
Standards Codification Topic 815 (previously known EITF 00-19).

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

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, 2010, Granita Media Inc did not conduct any
operations and management is considering all alternatives.

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6. FAIR VALUE MEASUREMENTS

Effective July 1, 2008, we adopted Accounting Standards
Codification ("ASC") 820-10-20, Fair Value Measurements, which provides a
framework for measuring fair value under GAAP. ASC 820-10-20defines fair value
as the exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. ASC 820-10-20 requires that valuation techniques maximize the
use of observable inputs and minimize the use of unobservable inputs. ASC
820-10-20 also establishes a fair value hierarchy, which prioritizes the
valuation inputs into three broad levels. Financial assets and liabilities
valued using level 1 inputs are based on unadjusted quoted market prices within
active markets. Financial assets and liabilities valued using level 2 inputs are
based primarily on quoted prices for similar assets or liabilities in active or
inactive markets. For certain long-term debt, the fair value was based on
present value techniques using inputs derived principally or corroborated from
market data. Financial assets and liabilities using level 3 inputs were
primarily valued using managements assumptions about the assumptions market
participants would utilize in pricing the asset or liability. Valuation
techniques utilized to determine fair value are consistently applied.

The table below presents a reconciliation for liabilities
measured at fair value on a recurring basis at March 31, 2010 and 2009:

|                                 |   | Fair Value Measurements           |  
|-------------------------------- | - | --------------------------------- | -
|                                 |   | Using Significant                 |  
|                                 |   | Unobservable Inputs (Level
    3) |  
|                                 |   | Derivative Liability              |  
|                                 |   | March                             |  
|                                 |   | 31, 2010                          |  
|                                 |   |                                   |  
|Balance at July 1                | $ | 2,380,816                         |  
|Decrease in Derivative Liability |   | (2,775,787                        | )
|Debt discounts                   |   | 2,806,816                         |  
|                                 |   |                                   |  
|Balance at December 31           | $ | 2,411,905                         |  

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

Some of the Companys financial instruments are not measured at
fair value on a recurring basis but are recorded at amounts that approximate
fair value due to their liquid or short-term nature, such as cash and cash
equivalents, receivables and payables.

We have determined that it is not practical to estimate the
fair value of our notes payable because of their unique nature and the costs
that would be incurred to obtain an independent valuation. We do not have
comparable outstanding debt on which to base an estimated current borrowing rate
or other discount rate for purposes of estimating the fair value of the notes
payable and we have not been able to develop a valuation model that can be
applied consistently in a cost efficient manner. These factors all contribute to
the impracticability of estimating the fair value of the notes payable. At March
31, 2010, the carrying value of all the notes payable and accrued interest,
including convertible debentures and officers',  was
approximately $7,990,000. The JMJ Convertible Notes, which are due at various
times through December 2012, yield an interest rate of 12%. Refer to Note 3 & 4 of
these financial statements for more information about the Companys notes
payable.

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7. COMMITMENTS AND CONTINGENCIES

The Company has a lease obligation for the rental of office
space in Little Falls New Jersey until May 31, 2010. The annual obligation under
such lease requires rent of $26,940 for the year beginning June 1, 2009 and
ending May 31, 2010.

mPhase has entered into various agreements with Georgia Tech
Research ("GTRC") and its affiliate, Georgia Tech Applied Research Corporation,
("GTARC"), pursuant to which the Company received technical assistance in
developing the commercialization of its Digital Video and Data Delivery System.
Cost incurred by the Company for GTRC technical assistance with respect to its
research and development activities has totaled $13,539,952 from the period from
inception through September 30, 2008, all of which was incurred prior to 2005.

Legal Proceedings

From time to time the Company may be involved in legal
proceedings in the ordinary course of business.

8. SUBSEQUENT EVENTS

As of May13, 2010, Long term convertible debt and accrued
interest thereon in the aggregate amount of $ 621,375 has been converted into
50,000,000 shares of common stock on convertible agreements outstanding as of
March 31, 2010.

Additionally during April , 2010, the Company entered into
another agreement with JMJ Financial. This transaction involves 1) a Convertible
Debenture in the amount of $1,200,000 plus a one time interest factor of 12%
($144,000) and a maturity date of December15, 2012 and (2) a Secured Note in the
amount of $1,100,000 plus a one time interest rate factor of 13.2% ($144,000
each) and a maturity date of December 15, 2012 due from the same party who is
the holder of the Convertible Debenture. The Company has received a $100,000
advance on this arrangement during the quarter ended March 31, 2010, which is
included in notes payable.

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9. RESTATEMENT OF RESULTS

The restatement involves reclassifying certain equity
instruments out of additional paid in capital into other liabilities for free
standing warrants to issue shares at a fixed price as such warrants were issued
subsequent to the Company entering into Convertible Debenture agreements which
have features that may result in the obligation to issue shares in excess of
authorized shares available. The  liability was recorded at the fair
market value at the issuance date of the free standing warrants and recalculated
at June 30, 2008 and again during fiscal year ended June 30, 2009, on the
quarterly measurement dates, with the net change in the liability
credited to the change in derivative value in the Consolidated Statement of
Operations for each period in accordance with FASB standards classification
topic 815 (previously known as EITF  0019). The restatements decrease the Net
Loss for the fourth quarter and for the fiscal year ended June 30, 2008 by
$572,900, as well as increase total liabilities and Total Stockholders Deficit
at June, 30 2008 by $433,300. The restatements decrease the Net Loss for the
fiscal year ended June 30, 2009 by $433,300.

The  liability was recorded at the fair market value
at the issuance date of the free standing warrants and recalculated on the
quarterly measurement date, with the net change in the contingent liability
credited to the change in derivative value in the Consolidated Statement of
Operations for each period in accordance with EITF  0019 resulting in the
following restatement to the financial captions listed below:

|Consolidated Balance Sheets                                           |   |                |   |  |            |   |   | June 30,      |   |   | June 30,    | 
|--------------------------------------------------------------------- | - | -------------- | - |  | ---------- | - | - | ------------- | - | - | ----------- | 
|                                                                      |   |                |   |  |            |   |   | 2009          |   |   | 2009        | 
|                                                                      |   |                |   |  |            |   |   | as originally |   |   | as restated | 
|                                                                      |   |                |   |  |            |   |   | reported      |   |   |             | 
|Contingent liabilities                                                |   |                |   |  |            |   | $ | -             |   | $ | -           | 
|Total Liabilities                                                     |   |                |   |  |            |   | $ | 8,723,655     |   | $ | 8,723,655   | 
|Additional paid in capital                                            |   |                |   |  |            |   | $ | 173,867,627   |   | $ | 172,861,427 | 
|Deficit accumulated during development stage                          |   |                |   |  |            |   | $ | (187,798,01   | ) | $ | 186,791,819 | 
|TOTAL STOCKHOLDERS DEFICIT                                           |   |                |   |  |            |   | $ | (5,234,168    | ) | $ | 5,234,168   | 
|                                                                      |   |                |   |  |            |   |   |               |   |   |             | 
|                                                                      |   |                |   |  |            |   |   |               |   |   |             | 
|Consolidated Statements of Operations-For the Nine
      Months Ended |   | March 31, 2009 |   |  |            |   |   |               |  
|                                                                      |   | (unaudited)    |   |  |            |   |   |               |  
|Other Income (Expense)                                                | $ | (2,038,810     | ) |  | (1,590,510 | ) |   |               |   |   |             | 
|Net (Loss)                                                            | $ | (9,996,483     | ) |  | (9,563,183 | ) |   |               |   |   |             | 
|Loss per Share                                                        | $ | (.02           | ) |  | (.02       | ) |   |               |   |   |             | 

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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 1.1
billion 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.

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

21

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Since our inception in 1996 we have been a development-stage
company and operating activities have related primarily to research and
development, establishing third-party manufacturing relationships and developing
product brand recognition among telecommunications service providers.

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

22

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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.

22

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Also, in April of 2008, the Company announced that it had
successfully produced its first lithium-based reserve battery with a soft or
pouch package and breakable separator (in place of the electrowettable membrane)
that relies on mechanical rather than electrical activation to provide Power On
Command. The Company believes 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

On December 5, 2008, the Company signed a contract with Porsche
Design Studio to design a premium emergency flashlight (the mPower Emergency
Illuminator). The flashlight has initially been sold into the consumer market
containing mPhases proprietary mechanically-activated lithium reserve battery
designed by Eagle Picher. The reserve battery has a potentially infinite
shelf-life since it remains in an inert state prior to initial activation. The
emergency flashlight is designed for two primary batteries and a secondary
back-up battery. The Company is in the process of transitioning the backup
battery from the Eagle Picher reserve battery to a cost-reduced modified primary
battery with an extended shelf life. On May 14, 2010, the Company announced that
both the mPower Emergency Illuminator and its Power on Command Reserve Battery
technology (the Eagle Picher battery) have passed a series of rigorous tests
necessary to obtain a CE mark that is a mandatory conformity mark enabling both
products to be sold into European Economic Area, that includes member and
non-members of the European Union. Together with the United States, Europe
represents a key market for the flashlight product as part of the Companys
roll-out of the product. The Company is in the process of performing extensive
similar testing on the cost-reduced version of its battery to be used as a
secondary backup source of power in the mPower Emergency Illuminator.

Magnetometer

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

IPTV

Historically, the Company since its inception has focused upon
developing innovative solutions for the delivery of Broadcast Television as part
of a "triple play" of services that includes voice and high-speed internet for
telephone service providers globally. Beginning in fiscal year 2004, the Company
began developing Broadcast television delivery solutions through
software/middleware designed to enable telephone service providers to deliver
video data using internet protocol. The Company's middleware/software is highly
scalable, potentially saving telephone service providers significant hardware
deployment costs for routers and servers required for the carrier class delivery
of broadcast television using internet protocol. Such solution potentially
expands the content of available information from the internet into broadcast
quality television. The Company's middleware is capable of delivering over
copper, fiber, coax or any infrastructure representing a combination of the
foregoing that is used by a telecommunications service provider. The Company has
not to date been able to derive any significant revenue from our TV+ solution.
No active development of the product has occurred since fiscal year 2007.

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

24

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FINANCIAL OVERVIEW

Revenues. Since July 1,2007 and inclusive of the most
current quarter, revenue has primarily been attributable to grants from the
United States Army and testing arrangements involving its nanotechnology
products.

Cost of revenuesCost associated with revenues from Army
Grants and fees for testing our nanotechnology products is currently very low.
It is anticipated that the Companys cost of revenues will increase
significantly as the Company moves forward with the commercialization and
distribution of its emergency flashlight product and other potential products
associated with its mechanically-activated reserve battery.

Research and development. Research and development
expenses have consisted principally of direct labor and payments made to Eagle
Picher, Porsche Design Studio and Microphase, as well as other third party
vendors involved in the development of the solution and nanotechnology products.
All research and development costs are expensed as incurred.

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

Non-Cash compensation charges. The Company makes
extensive use of stock, stock options and warrants as a form of compensation to
employees, directors and outside consultants. We incurred non-cash compensation
charges totaling $74,565,481 from inception (October 2, 1996) through March 31,
2010.

Other Income (Expense).Included in Other Expense are
non-recurring items related to the change in the value of derivative securities
and amortization as related debt discount. Such amounts will fluctuate
significantly and should not be considered as recurring or in any way indicative
of operating results. In addition, it has been the Company's policy to record as
an expense the cost of re-pricing securities (Reparation Cost) to raise
capital.

Cumulative losses, net worth and capital needs

The Company has incurred cumulative development stage losses of
$189,794,995 and negative cash flow from operations of ($85,253,467) from
inception through March 31, 2010. The auditors report for the fiscal year ended
June 30, 2009 includes the statement that "there is substantial doubt of the
Company's ability to continue as a going concern". As of March 31, 2010, the
Company had a negative net worth of ($4,315,238) compared to a negative net
worth of ($5,234,168) as of June 30, 2009 as a result of continuing net losses.
The Company has Convertible Debentures funded with JMJ Financial, Inc that
should enable the Company to raise significant working capital for the next
fiscal year. Draws under this facility during the nine months ended March
31, 2010 amounted to $ 3,236,000 (accounted for as a pay-down of notes
receivable) and accrued interest thereon. The Company expects to be able to
receive approximately $300,000 per month through August of 2012 under its
current Convertible Debentures with JMJ Financial, Inc. While the Company
believes these facilities will fund short term capital needs it may from time to
time need to supplement such funding. In the longer term, we estimate that the
Company will need to raise approximately $5-15 million of additional capital
above the funds through June 30, 2011 in order to fund commercialization of its
products. The Company does not expect to derive any material revenue from its
Nanotechnology product development until the third quarter of fiscal year
2011.

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THREE MONTHS ENDED MARCH 31, 2010 VS. MARCH 31, 2009

REVENUE

Total revenues were $141,747 for the three months ended March
31, 2010 compared to $44,029 for the three months ended March 31, 2009. Revenue
derived in the current quarter was related to billings under a Phase II U.S.
Army Grant of $750,000 (net to the Company of $500,000) that began September
2008.

RESEARCH AND DEVELOPMENT

Research and development expenses were $712,266 for the three
months ended March 31, 2010 as compared to $265,552 during the comparable period
in 2009 or an increase of $446,714. This increase in spending is a result of
acceleration of work to bring its emergency flashlight using its mechanically
activated reserve battery to market . In connection with such efforts the
Company incurred increased research and development expenses with major vendors
including Eagle Pitcher totaling $149,185, Porsche Design Studio $38,154and
Microphase Corporation $75,000, respectively, for the quarter ended March 31,
2010.

Subject to available funds, the Company expects to increase its
research and development efforts throughout fiscal year 2010. Such research is
expected to also include products such as the Phase II Army Reserve Battery that
is being developed using the science 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 $452,835 for the
three months ending March 31, 2010 up from $429,965 or an increase of $22,870
from the comparable period in 2009. The increase in G&A expense is primarily the
result of increased expenditures in marketing for its emergency flashlight.

OTHER (EXPENSE) AND INCOME

Included in the current quarter are non-cash charges and costs
associated with convertible debt that include a non-cash credit for the change
in derivative value due to a decrease of $2,734,140 in the derivative liability,
reduced by amortization of debt discount costs of $828,136, resulting in net
income of $1,906,004 from derivative liabilities associated with the Company's
convertible debt in the three months ended March 31, 2010 as opposed to a net
charge from derivative liabilities of $26,800 for the same period in the prior
year and is not indicative of operating results.

NET INCOME AND (LOSS)

The Company recorded net income of $893,905 for the three
months ended March 31, 2010 as compared to a loss of $656,134 for the three
months ended March 31, 2009. This represents a net gain per common share of $.00
(based upon weight average shares of 1,057,751,508) and loss per share of
$.01(based upon weight average shares of 671,278,600) for the three month
periods ended March 31, 2010 and 2009 respectively. The decrease in net loss is
attributable to significant non-operating income resulting from
non-cash changes from derivative liabilities associated with the Companys
convertible debt recorded for the three months ended March 31, 2010.

26

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NINE MONTHS ENDED MARCH 31, 2010 VS MARCH 31, 2009

REVENUE

Total revenues were $228,122 for the nine months ended March
31, 2010, compared to $95,152 for the nine months ended March 31, 2009. Revenue
for this period is primarily 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.

RESEARCH AND DEVELOPMENT

Research and development expenses were $ 1,805,839 for the nine
months ended March 31, 2010, as compared to $ 868,848 during the comparable
period in 2009, or an increase of $936,991. During the most recent period the
Company had incurred most of its research and development expenses with
strategic vendors such as Porsche Design Studio, MKE and Eagle Picher in
connection with the development of an emergency flashlight using the Companys
mechanically-activated battery product for both commercial and military
applications. The overall increase in expense from the prior period is primarily
a result of increased research and development efforts regarding its battery
technology.

GENERAL AND ADMINISTRATIVE EXPENSES

General and Administrative expenses were $1,363,049 for the
nine months ended March 31, 2010, decreasing from $7,168,950, or a $5,805,901
decrease from the comparable period in 2009. The decrease is primarily due to
significant non-cash charges relating to the issuance of common stock and
options to employees and consultants, which amounted to $5,511,950 during the
nine month period ended on March 31, 2009. This decrease is augmented by an
additional $294,109 reduction of other General and Administrative expenses
primarily due to the fact that the Company engaged in significant salary
reductions for its employees in late September of 2008 that has continued and
the Company has reduced the size of its staff to 8 full time employees.

OTHER INCOME (EXPENSE)

Other Income and (Expense) was $(41,252) for the nine months
ended March 31, 2010, compared to expense of ($1,590,510) for the comparable
period ended March 31, 2009. This change is primarily due to a net credit to
income for the the change in derivative value due to a decrease of $2,775,787 in
the derivative liability, reduced by amortization of debt discount costs of
$2,082,818, resulting in net income of $692,969 from derivative liabilities in
the nine months ended March 31, 2010; as opposed to a net charge to income from
derivative liabilities totalling $1,263,891 for the same period in the prior
year; and an increase in interest expense (including beneficial conversion
interest charges) totaling $580,803 offset by a reduction of reparation
expenses of $173,201 in the current period.

NET LOSS

The Company recorded a net loss of ($3,003,176) for
the Nine Months ended March 31, 2010, as compared to a loss of ($9,563,183) for
the nine months ended March 31, 2009. This represents a loss per common share of
($.00 ) for the nine month period ended March 31, 2010 , as compared to a loss
per common share of ($0.02) for the nine months ending March 31, 2009, based
upon weighted average common shares outstanding of 1,003,375,484 and
592,455,950, respectively. Overall, the decreased loss is a result of non cash
charges related to the issuance of common stock and the decrease in cost
associated with convertible debt securities. This is offset in part by a significant reduction in personnel expense.

27

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CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

As required, mPhase has adopted ASC 605-10-525 "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.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as
incurred in accordance with ASC 730 "Research and Development."

OPTIONS, WARRANTS AN OTHER CONVERTIBLE EQUITY
INSTRUMENTS

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 fair value of options granted in fiscal year ended June 30, 2008
and 2009 was estimated as of the date of grant using the Black-Sholes stock
option pricing model, based on the following weighted average assumptions:
annual expected return of 0%, an average life of 5 years, annual volatility of
71% and 80.3% and a risk-free interest rate 2.25% and 3.0%in the years 2008 and
2009 respectively.

MATERIAL EQUITY INSTRUMENTS -The Company has material
equity instruments including Convertible Debentures and Convertible Notes that
are accounted for as Derivative liabilities (SEE BELOW) and options and warrants
that are evaluated quarterly for potential reclassification as liabilities
pursuant to EITF 00-19 (SEE ALSO NOTE 4. EQUITY TRANSACTIONS AND CONVERTIBLE
DEBT under the caption "Other Equity"). The Company utilized a sequencing method
prescribed by FASB Standards Codification Topic 815 (previously known EITF
00-19), based upon applying shares available to contracts with the earliest
inception date first. During the fiscal year ended June 30, 2008 the Company
reclassified contracts for warrants to purchase 12,604,168 shares at fixed
prices ranging from $.13 to $.15 per share to liabilities. The liability was
recorded at the fair market value, such estimated value, as restated, was based
upon the contractual life of the free standing warrants, using the Black Scholes
pricing model, based on the following weighted average assumptions: annual
expected return of 0%, an average life of 5 years, annual volatility 81% and a
risk-free interest rate 2.25% . At the issuance date of the free standing
warrants, such warrants were issued during the fourth quarter of fiscal June 30,
2008; the estimated value approximated $1,006,200 and as recalculated on the
quarterly measurement dates, at June 30, 2008 the estimated value approximated
$433,300. During the nine months ended March 31, 2009, the estimated value was
determined to no longer be material. The net change in the liability was
credited to the change in derivative value in the Consolidated Statement of
Operations for the Fiscal years ended June 30, 2008 and 2009 for $572,900 and
$433,300, respectively, for each of these periods in accordance FASB Standards
Codification Topic 815 (previously known EITF 00-19). Effective May, 2009,
warrants to purchase 11,111,112 shares, and effective September, 2009, warrants
to purchase 1,493,056 shares; representing all of the contracts for warrants to
purchase 12,604,168 shares that were reclassified to liabilities during the
fiscal year ended June 30, 2008, were reclassified to permanent equity.
Subsequent to September 30, 2009 the Company has not entered into, and presently
the Company does not have, any have contracts for warrants or other equity
instruments subject to reclassification to liabilities as prescribed by FASB
Standards Codification Topic 815 (previously known EITF 00-19),

DERIVATIVE FINANCIAL INSTRUMENTS-Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended and EITF Issue No. 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock" require all derivatives to be recorded on the balance sheet
at fair value. The conversion features of the convertible debentures are
embedded derivatives and are separately valued and accounted for on our balance
sheet with changes in fair value recognized during the period of change as a
separate component of other income/expense. Fair values for exchange-traded
securities and derivatives are based on quoted market prices. The pricing model
we use for determining fair value of our derivatives is the Black-Scholes
Pricing Model. Valuations derived from this model are subject to ongoing
internal and external verification and review. The model uses market-sourced
inputs such as interest rates and stock price volatilities. Selection of these
inputs involves management's judgment and may impact net income. "

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MATERIAL RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

mPhase's Presidentand Chief Operating Officer of the Company
are also officers of Microphase and mPhase's President and Chairman of the Board
is a shareholder of Microphase. On May 1, 1997, the Company entered into an
agreement with Microphase, whereby mPhase uses 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 were $5,000 per month and were changed to $3,000 in July
2008. In addition, Microphase also charges fees for specific projects on a
project-by-project basis. During the nine months ended March 31, 2009 and 2010
and from inception (October 2, 1996) through March 31, 2010, $44,462, $283,210
and $9,606,682, respectively, have been charged to expense.

As a result of the foregoing transactions, as of March 31,
2010, the Company had a payable to Microphase of $49,961

JANIFAST LTD.

The Company has historically purchased products and incurs
certain research and development expenses with Janifast Ltd., which is owned by
U.S. Janifast Holdings, Ltd., a company in which two directors of mPhase are
significant shareholders and one is an officer, in connection with the
manufacturing of POTS Splitter shelves and component products including cards
and filters sold by the Company that were discontinue in 2007. In March of 2009,
Janifast Ltd. ceased operations owing to adverse financial conditions globally.
During the Nine Months ended March 31, 2009 and 2009 and the period from
inception (October 2, 1996), $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.

Transactions with Officers

At various points during past fiscal years 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. All of the notes are payable on demand.. During the 9 months ended
March 31, 2010 interest accrued at 12% on such notes was $74,194and $230,000 of
such notes were repaid. This compared to interest accrued at 12% on such notes
of $8,582 and a net increase in the principal amount of such notes to $115,087
during the nine months ended March 31, 2009.

OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by
our former investment-banking firm Lipper & Company. On March 31, 2010, Mr.
Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid finders
fees in the amount of $150,000. During the nine months ended March 31, 2010 and
March 31, 2009 finders fees in the amount of $25,000 and $55,000, respectively,
were recorded.

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Total compensation (including the value of stock awards) to
related parties and payables to officers is summarized below:

Summary of compensation to related parties for the Nine
Months Ended March 31, 2010

|                                           |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Biderman |  |   | Microphase |  |   | Total   | 
|------------------------------------------ | - | ------- |  | - | ------- |  | - | ------- |  | - | -------- |  | - | ---------- |  | - | ------- | 
|Consulting / Salary                        | $ | 150,000 |  | $ | 135,000 |  | $ | 131,250 |  |   |          |  |   |            |  | $ | 416,250 | 
|Interest                                   | $ | 47,439  |  | $ | 33,636  |  | $ | 19,880  |  |   |          |  |   |            |  | $ | 100,954 | 
|Rent                                       |   |         |  |   |         |  |   |         |  |   |          |  | $ | 27,000     |  | $ | 27,000  | 
|G&A                                        |   |         |  |   |         |  |   |         |  |   |          |  | $ | 6,210      |  | $ | 6,210   | 
|R&D                                        |   |         |  |   |         |  |   |         |  |   |          |  | $ | 250,000    |  | $ | 250,000 | 
|Finders Fees                               |   |         |  |   |         |  |   |         |  | $ | 25,000   |  |   |            |  | $ | 25,000  | 
|Stock based compensation (shares issued)*  |   |         |  |   |         |  |   |         |  |   |          |  |   |            |  | $ | 0       | 
|Stock based compensation (options issued)* |   |         |  |   |         |  |   |         |  |   |          |  |   |            |  | $ | 0       | 
|Total compensation                         | $ | 197,439 |  | $ | 168,636 |  | $ | 151,130 |  | $ | 25,000   |  | $ | 283,210    |  | $ | 825,414 | 

Summary of payables to related parties as of March 31,
2010

|                                                            |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Microphase | 
|----------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ---------- | 
|Notes payable                                               | $ | 301,479 |  | $ | 241,306 |  | $ | 119,030 |  |   |            | 
|Due to Officers / Affiliates                                | $ | 0       |  | $ | 0       |  | $ | 0       |  | $ | 49,961     | 
|Interest Payable                                            | $ | 108,912 |  | $ | 96,149  |  | $ | 59,680  |  |   |            | 
|                                                            |   |         |  |   |         |  |   |         |  |   |            | 
|Total Payable to related parties as of March 31,
      2010 | $ | 410,391 |  | $ | 337,455 |  | $ | 178,710 |  | $ | 49,961     | 

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 (5years @5 cents)           |   | 50,000,000 |  |   | 30,000,000 |  |   | 18,000,000 |  |   | 2,000,000 |  |   |            |  |   | 100,000,000 | 

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.

30

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LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred cumulative development stage losses of
($189,794,995) and negative cash flow from operations of ($85,253,467). The
auditors report for the fiscal year ended June 30, 2009 includes the statement
that "there is substantial doubt of the Company's ability to continue as a going
concern". As of March 31, 2010, the Company had a negative net worth of ($
4,315,238 ) compared to a negative net worth of ($(5,234,168 ) as of June 30,
2009 as a result of continuing net losses. The Company has convertible debt
outstanding that is subject to additional funding which potentially allows the
Company access to additional funding of approximately $6.6 million Such
facilities should enable the Company to raise significant working capital for
the next fiscal year. Draws under these arrangements for the nine months March
31, 2010 amounted to $3,236,000. While the Company believes these facilities
will fund short term capital needs it may from time to time need to supplement
such funding. In the longer term, we estimate that the Company may need to raise
approximately $5 million of additional capital above the funds anticipated from
the note receivable. Such monies would be necessary primarily to roll-out its
Emergency Flashlight produce and fund future expenditures for commercialization
of its SmartBattery products. The Company does not expect to derive any material
revenue from its Nanotechnology product development until the first quarter of
fiscal year 2010.

MANAGEMENT'S PLANS

The Company has shifted its focus to the development of
products using the science of Nanotechnology. The Company does not expect to
derive any material revenue from its Emergency Flashlight product until the
first quarter of fiscal year 2010.

31

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

The Company is not exposed to changes in interest rates as the
Company has no debt arrangements and no investments in certain held-to-maturity
securities. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. A hypothetical 100
basis point adverse move in interest rates along the entire interest rate yield
curve would not materially affect the fair value of any financial instruments at
March 31, 2010.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our
management, including the Chief Executive Officer and Chief Financial Officer,
we have evaluated the effectiveness of our disclosure controls and procedures as
required by Exchange Act Rule 13a-15(b) as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective.

There were no changes in our internal control over financial
reporting during the quarter ended March 31, 2010 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company may be involved in legal actions
in the ordinary course of business.

normal course of business.

ITEM 2. CHANGES IN SECURITIES

Private Placements

During the nine months ended March 31, 2010, the Company issued
30,666,667 shares of its common stock at $.0075 and $.0125 per share in private
placements generating gross proceeds of $250,000 with placement costs of
$25,000, netting $225,000.

During the nine months ended March 31, 2009, the Company issued
39,000,000 shares of its common stock at $.05 and $.01per share in private
placements generating net proceeds of $495,000 after placement costs of $55,000.
Related to these transactions was the issuance of 11,522,000 shares as
reparations shares to effect re-pricing costing an estimated $316,172.

Stock Based Compensation

During the nine months ended March 31, 2010, the Company issued
2,050,000 shares of common stock to employees and consultants valued at
$43,050.

During the nine months ended March 31, 2009, 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. In addition, 61,750,000 shares of common stock valued at $2,779,650 were
issued to employees and consultants.

Conversion of debt securities and Strategic vendor payables

During the nine months ended March 31, 2010, $2,749,250 of
convertible debt and accrued interest thereon was converted into 177,696,672
shares of Common stock.

During the nine months ended March 31, 2010, $200,000 of
accounts payable to Microphase Corporation was converted into 26,666,667 shares
of Common stock. The Company recorded $586,667 interest expense on the
beneficial conversion feature. The Company recorded $82,609 interest expense on
the beneficial conversion feature of officers notes during the nine months
ended March 31, 2010.

During the nine months ended March 31, 2009, $ 2,589,922 of
convertible debt was converted into 193,776,400 shares of common stock.

A summary of our arrangement is as follows:

Arrangement #1 (LaJolla Cove Investors Inc,)

On Sept 11, 2008, the Company received proceeds of $200,000
under a Securities Purchase Agreement from La Jolla Cove Investors, Inc. 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 date of September 30,2011 due from the same parties who are
the holders of the Convertible Debentures. Conversion of outstanding debentures
into common shares is at the option of the holder at a price equal to the dollar
amount of the debenture divided by the lesser of $.35 per share or 80% of the
three lowest Volume Weighted Average Prices during a 20 day trading period. At
the time of the transaction (September 11, 2008) the derivative value of this
security was calculated to be $1,176,471. The agreement also provides for the
Company to decline advances when the Company stock price falls below $.04.

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As of December 31, 2009 this value had increased to $1,076,482.
On March 31, 2010, given the changes in the stock price, this value had
decreased to $467,728, a $608,753 decrease this quarter creating a non-cash
credit to earnings for the quarter ended March 31, 2010 of that amount. During
the nine month period ended March 31, 2010, amortization of debt discount
amounted to $214,938 reducing the balance to $359,498. As of March 31, 2010 the
note receivable had a balance of $1,800,000 and the note payable had a balance
of $1,810,000; for which the Company recorded a reserve for utilization against
each of $300,000.

Arrangement #2 JMJ Financial

On March 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, with a one time interest factor of 12% and a maturity
date of December 31, 2011 and 2) a Secured Note Receivable in the amount of $1.0
million, with a one time interest factor of 13.2 % and maturity date of December
31, 2012 due from the same party who is the holder of the Convertible Debenture.
Conversion of outstanding debentures into common shares is at the option of the
holder. The number of shares into which this debenture can be converted is equal
to the dollar amount of the debenture divided by 75% of the Lowest Trading Price
during the 20 day trading period prior to conversion. For the Nine Months ended
March 31, 2010 the Company received $900,000 of cash draws under the Debenture
and the holder had converted into 122,776,037 common stock principal and accrued
interest thereon in the amount of $1,891750.

On June 30, 2009 the derivative value of this security was
calculated to be $444,552. On September 30, 2009, that amount was 195,721 and on
December 31, 2009 that value was decreased to $55,595 given the changes in the
stock price combined with the fact that the principle plus interest due under
the debenture had material conversions in satisfaction of the debt liability,
reducing the outstanding debt to $79,025; and this note was reduced futher to
zero by March 31, 2010. The decrease in the derivative liability for the three
months ended March 31, 2010 was $55,595. During the nine month period ended
March 31, 2010, amortization of debt discount amounted to $508,821 reducing the
debt discount balance also to zero.

Arrangement#3 (JMJ Financial, Inc.)

On August 19, 2009, the Company received proceeds of $250,000
in connection with a third agreement with JMJ Financial. This transaction
involves 1) a Convertible Debenture in the amount of $1,870,000, plus a one time
interest factor of 12% ($224,400) and a maturity date of August 10, 2012 and 2)
a Secured Note Receivable in the amount of $1,700,000 plus a one time interest
factor of 13.2% ($224,400) and a maturity date of August 10, 2012 due from the
same partys who is the holder of the Convertible Debenture. Conversion of
outstanding into common shares is at the option of the holder. The number of
shares into which this debenture can be converted is equal to the dollar amount
of the debenture divided by 75% of the lowest trade price during the 20 day
trading period prior to conversion.At the commitment date the derivative
liability for the embedded conversion feature of such security was $1,054,395
and the debt discount was valued at $1,224,395. . For the Nine Months ended
March 31, 2010 the Company the holder had converted into 54,920,635common stock
principal and accrued interest thereon in the amount of $857,500.

On September 30, 2009 the derivative liability had decreased to
$759,333. and on December 31, 2009, this value had increased to$1,076,482. On
March 31, 2010, given the changes in the stock price this value had decreased to
$467,728, a $608,753 decrease this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$765,574 reducing the balance to $458,821.

Arrangement#4 (JMJ Financial, Inc.)

On September 30, 2009, the Company received a total of $150,000
of proceeds in connection with another agreement with JMJ Financial. This
transaction involves 1) A Convertible Debenture in the amount of $1,200,000 plus
a one time interest factor of 12% ($144,000) and a maturity date of September
23, 2012 and (2) a Secured Note in the amount of $1,100,000 plus a one time
interest rate factor of 13.2% ($144,000 each) and a maturity date of September
23, 2012 due from the same party who is the holder of the Convertible
Debenture.Conversion of outstanding into common shares is at the option of the
holder. The number of shares into which this debenture can be converted is equal
to the dollar amount of the debenture divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion. In addition, the Company
has received a commitment from JMJ Financial to enter into an identical
financing not later than 60 days from September 23, 2009. At the commitment date
of September 23, 2009, the embedded conversion feature of such security was
$480,000 and the debt discount was valued at $580,000.

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On September 30, 2009, the derivative liability had increased
to $487,272, and on December 31, 2009, this value had increased to $844,221, On
March 31, 2010, given the changes in the stock price this value decreased to
$429,268, a $414,953 decrease for this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$144,999 reducing the balance to $435,001.

Arrangement#5 (JMJ Financial, Inc.)

On November 17, 2009, the Company received a total of $186,000
of proceeds in connection with another agreement with JMJ Financial. This
transaction involves 1) a Convertible Debenture in the amount of $1,200,000 plus
a one time interest factor of 12% ($144,000) and a maturity date of September
23, 2012 and (2) a Secured Note in the amount of $1,100,000 plus a one time
interest rate factor of 13.2% ($144,000 each) and a maturity date of September
23, 2012 due from the same party who is the holder of the Convertible Debenture.
Conversion of outstanding into common shares is at the option of the holder. The
number of shares into which this debenture can be converted is equal to the
dollar amount of the debenture divided by 75% of the lowest trade price during
the 20 day trading period prior to conversion. At the commitment date the
derivative value of the embedded conversion feature of such security was
$536,000 and the debt discount was valued at $636,000.

On December 31, 2009, this value had increased to $844,221.On
March 31, 2010, given the changes in the stock price this value had decreased to
$429,268., a $414,953 decrease this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$70,667 reducing the balance to $565,333.

Arrangement#6 (JMJ Financial, Inc.)

On December 22, 2009, the Company received a total of $300,000
of proceeds in connection with another agreement with JMJ Financial. This
transaction involves 1) a Convertible Debenture in the amount of $1,500,000 plus
a one time interest factor of 12% ($180,000) and a maturity date of December 15,
2012 and (2) a Secured Note in the amount of $1,400,000 plus a one time interest
rate factor of 13.2% ($180,000 each) and a maturity date of December 15, 2012
due from the same party who is the holder of the Convertible Debenture.

Conversion of outstanding into common shares is at the option
of the holder. The number of shares into which this debenture can be converted
is equal to the dollar amount of the debenture divided by 75% of the lowest
trade price during the 20 day trading period prior to conversion. In addition,
the Company has received a commitment from JMJ Financial to enter into similar
financing arrangement which involves involves 1) a Convertible Debenture in the
amount of $1,200,000 plus a one time interest factor of 12% ($144,000) and a
maturity date of December 15, 2012 and (2) a Secured Note in the amount of
$1,100,000 plus a one time interest rate factor of 13.2% ($144,000 each) and a
maturity date of December 15, 2012, such financing to commence not later than
February 15, 2009. At the commitment date, the derivative value of the embedded
conversion feature of such security was $542,714 and the debt discount was
valued at $642,714.

On December 31, 2009, this value had increased to $1,055,276.On
March 31, 2010, given the changes in the stock price this value had decreased to
$536,585, a $518,691 decrease this quarter creating a non-cash credit to
earnings for the quarter ended March 31, 2010 of that amount. During the nine
month period ended March 31, 2010, amortization of debt discount amounted to
$70,603 reducing the balance to $572,111.

Arrangement#7 (J. Fife)

On March 5, 2010, the Company received $495,000 after payment
of $5,000 in legal fees under a Securities Purchase Agreement from John Fife.
This transaction involves the following related agreements: 1) a Securities
Purchase Agreement governing the sale of a $550.000 7.5 % Convertible Note and
two additional $275,000 Convertible Notes to be funded in the future each with
maturity dates 3 years from the issuance thereof; 2) a Convertible Note totaling
$550,000, with an interest rate of 7.5% and a maturity date of March 3, 2011 3)
two Secured Notes Receivable in the amount of $250,000 each with an interest
rate of 7.5% per annum and a maturity date of 4 years from the date of issuance
and a Security Agreement from the same party who is the holder of the
Convertible Notes. Conversion of outstanding debentures into shares of common
stock is at the option of the holder at a price equal to the dollar amount of
the debenture divided by 75% of the three lowest Volume Weighted Average Prices
during a 20 day trading period. At the time of the transaction (March 5, 2010)
the derivative value of this security was calculated to be $193,767.

35

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Other Equity

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

During the fiscal year ended June 30, 2008 the Company
reclassified contracts for warrants to purchase 12,604,168 shares of the
Companys common stock at fixed prices ranging from $.13 to $.15 per share to
liabilities. Contracts for warrants to purchase 11,111,112 shares of the
Companys common stock at $.14 per share were reclassified to permanent equity
in May of 2009, and contracts for warrants to purchase 1,604,168 shares of the
Companys common stock at fixed prices ranging from $.13 to $.15 per share were
reclassified to permanent equity in September, 2009. At the issuance dates
during the fiscal year ended June 30, 2008 the estimated value of the liability
of these warrants approximated $1,006,200; and as recalculated on the quarterly
measurement dates, as of June 30, 2008 the estimated value of the liability
approximated $433,300, and during the nine months ended March 31, 2009 the
estimated value of the liability was determined to no longer be material. The
net change in the liability was credited to the change in derivative value in
the Consolidated Statement of Operations for each period in accordance FASB
Standards Codification Topic 815 (previously known EITF 00-19).

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

36

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Form 8k dated March 5, 2010 relating to the issuance of a
$550,000 Convertible Debenture by the Company



|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.

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 17 , 2010 | By:/s/ Martin S.
      Smiley                    
|                     | Martin S. Smiley                                 
|                     | Executive Vice President                         
|                     | Chief Financial Officer and General
      Counsel

37

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