---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTER ENDED DECEMBER 31, 2006



COMMISSION FILE NO. 000-24969



mPhase Technologies, Inc.

(Exact name of registrant as specified in its charter)

|                                         |                       
|---------------------------------------- | ----------------------
|NEW JERSEY                               | 22-2287503            
|(State or other jurisdiction of          | (I.R.S. 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 FILING
REQUIREMENTS FOR THE PAST 90 DAYS.



YESXNO ___



THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS CLASSES OF
COMMON STOCK AS OF FEBRUARY 1, 2007 IS 310,549,410 SHARES, ALL OF ONE CLASS OF
$.01 STATED VALUE COMMON STOCK.

---



mPHASE TECHNOLOGIES, INC.

INDEX

|          |                                                                                       | PAGE
|--------- | ------------------------------------------------------------------------------------- | ----
|PART I    | FINANCIAL INFORMATION                                                                 |     
|ITEM 1    |                                                                                       |     
|          | Audited Consolidated Balance Sheets-June 30,
    2006 and Unaudited December 31, 2006 | 5   
|          |                                                                                       |     
|          | Unaudited Consolidated Statements of
    Operations-Three months ended December 31,   |     
|          | 2005 and 2006 and from October 2, 1996 (Date
    of Inception) to December 31, 2006   | 6   
|          |                                                                                       |     
|          | Unaudited Consolidated Statements of
    Operations-Six Months ended December 31,     |     
|          | 2005 and 2006 and from October 2, 1996 (Date
    of Inception) to December 31, 2006   | 7   
|          |                                                                                       |     
|          | Unaudited Consolidated Statement of Changes
    in Shareholders Deficit Six months    |     
|          | ended December 31, 2006                                                               | 8   
|          |                                                                                       |     
|          | Unaudited Consolidated Statement of Cash
    Flow-Six Months Ended December 31, 2005  |     
|          | and 2006 and from October 2, 1997 (Date of
    Inception) to December 31, 2006        | 9   
|          |                                                                                       |     
|          | Notes to Consolidated Financial Statements                                            | 10  
|          |                                                                                       |     
|          | Managements Discussion and Analysis of
    Financial Condition and Condition and     |     
|ITEM 2    |                                                                                       | 17  
|          | Results of Operations                                                                 |     
|ITEM 3    | Quantitative and Qualitative Disclosures
    about market risk                        | 31  
|ITEM 4    | CONTROLS AND PROCEDURES                                                               | 31  
|PART II   | OTHER INFORMATION                                                                     |     
|Item 1.   | Legal Proceedings                                                                     | 32  
|Item 2.   | Changes in Securities                                                                 | 32  
|Item 3.   | Defaults Upon Senior Securities                                                       | 33  
|Item 4.   | Submission of Matters to a Vote of Security
    Holders                               | 33  
|Item 5.   | Other Information                                                                     | 33  
|Item 6.   | Exhibits and Reports on Form 8-K                                                      | 33  
|Signature |                                                                                       | 34  

---

4



mPHASE TECHNOLOGIES 
(A Development Stage Company)

|                                          | June 30,      |  | December 31, 
|----------------------------------------- | ------------- |  | -------------
|                                          | 2006          |  | 2006         
|                                          |               |  | (Unaudited)  
|ASSETS                                    |               |  |              
|CURRENT ASSETS                            |               |  |              
|Cash and cash equivalents                 | $1,359,925    |  | $659,414     
|Accounts receivable, net of bad debt      |               |  |              
|reserve of $0 for each period             | 106,237       |  | 58,740       
|Inventories                               | 161,270       |  | 369,572      
|Prepaid expenses and other current assets | 66,777        |  | 126,017      
|                                          |               |  |              
|Total Current Assets                      | 1,694,209     |  | $1,213,743   
|                                          |               |  |              
|Property and equipment, net               | 350,120       |  | 270,704      
|Patents and licensing rights, net         | 87,579        |  | 66,213       
|Other assets                              | 50,000        |  | 50,000       
|TOTAL ASSETS                              | $2,181,908    |  | $1,600,660   
|                                          |               |  |              
|LIABILITIES AND                           |               |  |              
|STOCKHOLDERS EQUITY                      |               |  |              
|CURRENT LIABILITIES                       |               |  |              
|Accounts payable                          | $1,638,322    |  | $3,120,817   
|Accrued expenses                          | 557,342       |  | 332,966      
|Due to related parties                    | 274,271       |  | 719,695      
|Notes payable, related parties            |               |  | 163,000      
|Current portion of long-term debt         | 318,058       |  | 101,640      
|Deferred revenue                          |               |  | 52,158       
|TOTAL CURRENT LIABILITIES                 | $2,787,993    |  | $4,490,276   
|                                          |               |  |              
|TOTAL LIABILITIES                         | $2,787,993    |  | $4,490,276   
|                                          |               |  |              
|COMMITMENTS AND                           |               |  |              
|CONTINGENCIES (Note 4)                    |               |  |              
|                                          |               |  |              
|STOCKHOLDERS DEFICIT                     |               |  |              
|Common stock, par value $.01,             |               |  |              
|500,000,000 shares authorized             |               |  |              
|278,235,984 and 314,589,555 shares        |               |  |              
|issued and outstanding at June 30, 2006   |               |  |              
|and December 31, 2006, respectively       | $2,782,360    |  | $3,145,896   
|Additional paid in capital                | 148,079,585   |  | 153,229,360  
|Deficit accumulated during development    |               |  |              
|stage                                     | (151,460,057) |  | (159,256,899)
|Less-Treasury stock, 13,750 shares at     |               |  |              
|cost                                      | (7,973)       |  | (7,973)      
|TOTAL STOCKHOLDERS                       |               |  |              
|DEFICIT                                   | ($606,085)    |  | ($2,889,616) 
|TOTAL LIABILITIES AND                     |               |  |              
|STOCKHOLDERS DEFICIT                     | $2,181,908    |  | $1,600,660   

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

---

5

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

|                                                     |                    |               | (Date of      
|---------------------------------------------------- | ------------------ | ------------- | --------------
|                                                     | Three Months Ended | Inception) to
|                                                     | December 31,       | December 31, 
|                                                     | 2005               | 2006          | 2006          
|                                                     |                    |               |               
|REVENUES                                             | $168,208           | $14,742       | $22,416,195   
|                                                     |                    |               |               
|COSTS AND
    EXPENSES                               |                    |               |               
|Cost of Sales                                        | 135,098            |               | 16,419,331    
|Research and
    Development (including non-cash     |                    |               |               
|stock related
    charges of $135,550, $0 and        |                    |               |               
|$2,318,519, for
    2005, 2006 and inception to date |                    |               |               
|respectively)                                        | 1,960,650          | 1,723,411     | 55,292,926    
|                                                     |                    |               |               
|                                                     |                    |               |               
|General and
    Administrative (including non-cash   |                    |               |               
|stock related
    charges of $1,175,075 $180,484 and |                    |               |               
|$57,194,655 for
    2005, 2006 and inception to date |                    |               |               
|respectively)                                        | 2,090,185          | 1,405,347     | 100,123,272   
|Depreciation and
    Amortization                    | 20,495             | 21,739        | 3,074,640     
|                                                     |                    |               |               
|TOTAL COSTS AND
    EXPENSES                         | 4,206,428          | 3,150,497     | 174,910,169   
|                                                     |                    |               |               
|LOSS FROM
    OPERATIONS                             | (4,038,220)        | (3,135,755)   | (152,493,974) 
|                                                     |                    |               |               
|OTHER INCOME                                         |                    |               |               
|Interest Income
    (Expense), net                   | (6,083)            | (7,734)       | (162,289)     
|Other Income
    (Expense) net                       | (4,270,511)        | (695,352)     | (6,600,636)   
|                                                     |                    |               |               
|                                                     |                    |               |               
|TOTAL OTHER
    INCOME (EXPENSE)                     | (4,276,594)        | (703,086)     | (6,762,925)   
|                                                     |                    |               |               
|NET LOSS                                             | ($8,314,814)       | ($3,838,841)  | ($159,256,899)
|                                                     |                    |               |               
|LOSS PER COMMON
    SHARE, basic and                 |                    |               |               
|diluted                                              | ($0.05)            | ($0.01)       |               
|                                                     |                    |               |               
|                                                     |                    |               |               
|WEIGHTED AVERAGE
    COMMON SHARES                   |                    |               |               
|OUTSTANDING,
    basic and diluted                   | 174,998,048        | 300,483,022   |               

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

---



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

|                                                     |                  |               | (Date of      
|---------------------------------------------------- | ---------------- | ------------- | --------------
|                                                     | Six Months Ended | Inception) to
|                                                     | December 31,     | December 31, 
|                                                     | 2005             | 2006          | 2006          
|                                                     |                  |               |               
|REVENUES                                             | $548,802         | $120,588      | $22,416,195   
|                                                     |                  |               |               
|COSTS AND
    EXPENSES                               |                  |               |               
|Cost of Sales                                        | 473,071          | 85,390        | 16,419,331    
|Research and
    Development ( including non-cash    |                  |               |               
|stock related
    charges of $135,550, $0 and        |                  |               |               
|$2,318,519, for
    2005, 2006 and inception to date |                  |               |               
|respectively)                                        | 3,822,070        | 3,713,724     | 55,292,926    
|                                                     |                  |               |               
|General and
    Administrative (including non-cash   |                  |               |               
|stock related
    charges of $1,175,075, $873,855    |                  |               |               
|and $57,194,655
    for 2005, 2006 and inception to  |                  |               |               
|date
    respectively)                               | 3,182,481        | 3,367,179     | 100,123,272   
|Depreciation and
    Amortization                    | 40,764           | 43,638        | 3,074,640     
|                                                     |                  |               |               
|TOTAL COSTS AND
    EXPENSES                         | 7,518,386        | 7,209,931     | 174,910,169   
|                                                     |                  |               |               
|LOSS FROM
    OPERATIONS                             | (6,969,584)      | (7,089,343)   | (152,493,974) 
|                                                     |                  |               |               
|OTHER INCOME                                         |                  |               |               
|Interest Income
    (Expense), net                   | (20,284)         | (12,148)      | (162,289)     
|Other Income
    (Expense) net                       | (4,404,186)      | (695,351)     | (6,600,636)   
|                                                     |                  |               |               
|                                                     |                  |               |               
|TOTAL OTHER
    INCOME (EXPENSE)                     | (4,424,470)      | (707,499)     | (6,762,925)   
|                                                     |                  |               |               
|NET LOSS                                             | ($11,394,054)    | ($7,796,842)  | ($159,256,899)
|                                                     |                  |               |               
|LOSS PER COMMON
    SHARE, basic and                 |                  |               |               
|diluted                                              | ($0.07)          | ($0.03)       |               
|                                                     |                  |               |               
|                                                     |                  |               |               
|                                                     |                  |               |               
|WEIGHTED AVERAGE
    COMMON SHARES                   |                  |               |               
|OUTSTANDING,
    basic and diluted                   | 163,613,560      | 296,412,769   |               

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

---

7



mPHASE TECHNOLOGIES, INC. 
(A Development Stage Company)

|                                        |             |             |          |              |                | Total       
|--------------------------------------- | ----------- | ----------- | -------- | ------------ | -------------- | ------------
|                                        |             |             |          | Additional   |                | Shareholders
|                                        |             | $.01 Stated | Treasury | Paid in      | Accumulated    | (Deficit)   
|                                        | Shares      | Value       | Stock    | Capital      | Deficit        | Equity      
|Balance June 30,
    2006               | 278,235,984 | $2,782,360  | ($7,973) | $148,079,585 | ($151,460,057) | ($606,085)  
|Issuance of
    common stock            |             |             |          |              |                |             
|pursuant to the
    exercise of         |             |             |          |              |                |             
|warrants                                | 12,240,669  | $122,407    |          | $1,572,261   |                | $1,694,668  
|Issuance of
    common stock with       |             |             |          |              |                |             
|warrants in
    private placements, net |             |             |          |              |                |             
|of cash expenses
    of $216,134        | 13,402,939  | $134,029    |          | $1,803,837   |                | $1,937,866  
|Issuance of
    common stock for        |             |             |          |              |                |             
|services                                | 1,822,983   | $18,230     |          | $321,158     |                | $339,388    
|Conversion of
    vendor debt           | 1,873,092   | $18,731     |          | $288,694     |                | $307,425    
|Issuance of
    additional shares and   |             |             |          |              |                |             
|warrants to
    effect repricing        | 7,013,888   | $70,139     |          | $629,357     |                | $699,496    
|Stock options
    awarded to employees  |             |             |          |              |                |             
|and officers                            |             |             |          | $534,468     |                | $534,468    
|Net Loss                                |             |             |          |              | ($7,796,842)   | ($7,796,842)
|Balance December
    31, 2006           | 314,589,555 | $3,145,896  | ($7,973) | $153,229,360 | ($159,256,899) | ($2,889,616)
|                                        |             |             |          |              |                |             

---

8



mPHASE TECHNOLOGIES 
(A Development Stage Company)

|                                                          |                  |                     | October 2, 1996
|--------------------------------------------------------- | ---------------- | ------------------- | ---------------
|                                                          | Six Months Ended | (Date of Inception)
|                                                          | December 31,     | To December 31,    
|                                                          | 2005             | 2006                | 2006           
|                                                          |                  |                     |                
|Cash Flow From Operating
    Activities:                  |                  |                     |                
|Net Loss                                                  | ($11,394,054)    | ($7,796,842)        | ($159,256,899) 
|Adjustments to reconcile net loss
    to net cash used in |                  |                     |                
|operating activities:                                     |                  |                     |                
|Depreciation and amortization                             | 84,669           | 109,410             | 6,927,174      
|(Gain) loss on debt
    extinguishments                   |                  |                     | (772,216)      
|Loss on unconsolidated subsidiary                         |                  |                     | 1,466,467      
|Non-cash charges relating to
    issuance of common       |                  |                     |                
|stock, common stock options and
    warrants              | 624,356          | 873,855             | 59,945,232     
|Reparation charges                                        | 4,434,794        | 699,496             | 6,230,000      
|Other non cash charges to income                          | 17,250           |                     | 387,816        
|Changes in assets and
    liabilities:                    |                  |                     |                
|Accounts receivable                                       | 375,247          | 47,497              | 369,136        
|Inventories                                               | 42,199           | (208,302)           | (374,133)      
|Prepaid expenses and other
    current assets             | (32,113)         | (59,240)            | (44,956)       
|Other non-current assets                                  | 17,250           |                     | (609,932)      
|Accounts payable (including debt
    conversion)          | 299,147          | 1,789,920           | 5,795,452      
|Accrued expenses                                          | (1,899)          | (224,376)           | 2,466,906      
|Due to/from related parties                               |                  |                     |                
|Microphase                                                | 216,101          | 204,131             | 2,780,403      
|Janifast                                                  | (48,350)         | 24,964              | 2,496,376      
|Officers                                                  |                  | 216,329             | 695,885        
|Lintel and others                                         |                  |                     | 506,472        
|Deferred revenue                                          |                  | 52,158              | 52,158         
|Net cash used in operating
    activities                 | ($5,365,403)     | ($4,271,000)        | ($70,938,659)  
|                                                          |                  |                     |                
|Cash Flow from Investing
    Activities:                  |                  |                     |                
|Payments related to patents and
    licensing rights      |                  |                     | ($450,780)     
|Purchase of fixed assets                                  | ($192,504)       | ($8,629)            | (3,111,704)    
|Net Cash (used) in investing
    activities               | ($192,504)       | ($8,629)            | ($3,562,484)   
|Cash Flow from Financing
    Activities:                  |                  |                     |                
|Proceeds from issuance of common
    stock and            |                  |                     |                
|exercises of options and warrants                         | $6,291,723       | $3,632,536          | $75,564,103    
|Payments of notes payable                                 | (143,044)        | (216,418)           | (876,704)      
|Advances from Microphase                                  |                  |                     | 347,840        
|Proceeds from notes payable -
    officers                | 230,800          | 163,000             | 1,128,000      
|Repayments of notes payable -
    officers                |                  |                     | (994,709)      
|Repurchase of treasury stock at
    cost                  |                  |                     | (7,973)        
|Net cash provided by financing
    activities             | $6,379,479       | $3,579,118          | $75,160,557    
|Net increase (decrease) in
    cash                       | $821,572         | ($700,511)          | $659,414       
|CASH AND CASH EQUIVALENTS,
    beginning of               |                  |                     |                
|period                                                    | $351,185         | $1,359,925          |                
|CASH AND CASH EQUIVALENTS, end of
    period              | $1,172,757       | $659,414            | $659,414       
|                                                          |                  |                     |                

---

9

mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

NATURE OF OPERATIONS - mPhase Technologies,
Inc. (the "Company") was organized on October 2, 1996 and is in the development
stage, as defined by Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." The Companys
present activities are focused on the commercial deployment of its proprietary
IPTV or TV+ solution and DSL component products. The Company is also engaged in
exploratory research though Lucent Technologies Inc. of electronic sensors and
power cells (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 (consisting of normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the six months ending December 31, 2006 are not
necessarily indicative of the results that may be expected for a full fiscal
year. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Companys Annual Report on Form 10-K for
the year ended June 30, 2006.
Through December 31, 2006, the Company had
incurred cumulative (a) development stage losses totaling ($159,256,899), (b) a
stockholders equity (deficit) of ($2,889,616), and (c) negative cash flow from
operations equal to ($70,938,659). At December 31, 2006, the Company had
$659,414 of cash and cash equivalents and $58,740 of trade receivables to fund
short-term working capital requirements. The Companys ability to continue as a
going concern and its future success is dependent upon its ability to raise
capital in the near term to: (1) satisfy its current obligations, (2) continue
its research and development efforts, and (3) allow the successful wide scale
development, deployment and marketing of its products.
USE OF ESTIMATES - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
RECLASSIFICATIONS - Certain reclassifications
have been made in the prior period consolidated financial statements to conform
to the current period presentation. The most substantial reclassification in
these financial statements is for charges for reparation expenses for equity
issued to investors for market value adjustments previously included in general
and administrative expenses which are now included in the other income
(expense).


10

LOSS PER COMMON SHARE, BASIC AND DILUTED - The Company
accounts for net loss per common share in accordance with the provisions of SFAS
No. 128, "EARNINGS PER SHARE" ("EPS"). SFAS No. 128 requires the disclosure of
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Common equivalent shares have been excluded from the computation of diluted EPS
for all periods presented since their affect is anti dilutive.
2. SUPPLEMENTAL CASH FLOW INFORMATION

|                                    | Six Months Ended
|----------------------------------- | ----------------
|                                    | December 31,    
|                                    | 2005            
|                                    |                 
|Interest Paid                       | $20,284         
|                                    |                 
|Non Cash Investing and Financing    |                 
|Activities:                         |                 
|Conversion of vendor debt to equity | $590,000        

RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

mPhases President, Chief Operating Officer
and Chairman of the Board of the Company are also officers of Microphase and
mPhases President and Chairman of the Board are shareholders of Microphase. On
May 1, 1997, the Company entered into an agreement with Microphase, whereby it
will use office space as well as the administrative services of Microphase,
including the use of accounting personnel. This agreement was for $5,000 per
month and was on a month-to-month basis. In July 1998, the office space
agreement was revised to $10,000, in January 2000 to $11,050 per month, in July
2001 to $11,340 per month, in July 2002 to $12,200 per month, in January 2003 to
$10,000 per month, and in July 2003 to $18,000 per month. Additionally, in July
1998, mPhase entered into an agreement with Microphase, whereby mPhase
reimburses Microphase $40,000 per month for technical research and development.
In January 2003 the technical research and development agreement was revised to
$20,000 per month, and in July 2003 it was further revised to $5,000 per month
for technical and research development, $5,000 per month for administrative
services and $5,000 per month under the office space agreement. Beginning July
1, 2006, billings for all of the above services has been $5,000 per month. In
addition, Microphase also charges fees for specific projects on a
project-by-project basis. During the six months ended December 31, 2005 and 2006
and from inception (October 2, 1996) to December 31, 2006, $90,000, $142,250 and
$8,869,365 respectively, have been charged to expense.

As a result of the foregoing transactions as
of December 31, 2006, the Company had a $204,131 payable to Microphase.

---

11

JANIFAST LTD.The Company purchases products and incurs
certain research and development expenses with Janifast Ltd., which is owned by
U.S. Janifast Holdings, Ltd., a company in which three directors of mPhase are
significant shareholders and one is an officer, in connection with the
manufacturing of POTS Splitter shelves and component products including cards
and filters sold by the Company.
During the six months ended December 31, 2005
and 2006 and the period from inception (October 2, 1996) to December 31, 2006,
$544,449, $134,715 and $16,031,811 respectively have been charged by Janifast to
inventory or is included in operating expenses in the accompanying statements of
operations.
As a result of the foregoing transactions as
of December 31, 2006, the Company had $132,151 payable to Janifast.OTHER RELATED PARTIESOn August 30, 2004, the Company paid $100,000
in cash to Piper Rudnick LLP, outside legal counsel to the Company as part of a
renegotiated settlement agreement that was originally effective as of March 31,
2002. The Company was in arrears with respect to payments due under the original
settlement agreement and as part of the renegotiated agreement agreed to make
the following payments:
a.    
$25,000 on each of December 1, 2004, March 1, 2005, June 1,2005, September 1,
2005 and a $50,000 payment on December 1, 2005. Thereafter the Company was
obligated to pay $25,000 on each of March 1, 2006, June 1, 2006, and September
1, 2006 with a final payment of $75,000 on December 1, 2006.
b.   
The Company also delivered a 5 year cashless warrant to purchase $150,000 worth
of common stock at $.25 per share. The warrant was valued pursuant to EITF
96-18, the ascribed value of the warrant minus the debt cancelled resulting loss
of $40,500.
As of December 31, 2006, the Company has made
each payment owed to Piper Rudnick LLP, with the exception of the $25,000
payment due September 1, 2006 and the $75,000 payment due December 1, 2006.
Mr. Abraham Biderman was employed until
September 30, 2003 by our former investment-banking firm Lipper & Company.
During the six months ended December 31, 2006, Mr. Bidermans affiliated firm of
Palladium Capital Advisors earned a cash finders fee of $185,000 as well as
566,667 shares of the Companys stock with an estimated value of $85,000.
In addition, at various points during the
current fiscal year Messrs, Durando, Dotoli and Smiley provided $490,000 in
bridge loans to the Company which was evidenced by individual promissory notes.
During December 2006, Messrs Durando and Dotoli agreed to convert their notes,
in the amounts of $130,000 and $200,000 respectively, to a deferred compensation
arrangement, the repayment terms of which have not been specified. Mr. Smiley
has extended bridge loans to the Company of $160,000, evidenced by promissory
notes for $101,000 and a $60,000 note with a 12% rate of interest. Both of the
foregoing promissory notes are payable on demand.

12



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

The following table summarizes all related party expenses
during the six months ended December 31, 2006

|              |          |          |         |          |          |         |          |          |            | TOTAL     
|------------- | -------- | -------- | ------- | -------- | -------- | ------- | -------- | -------- | ---------- | ----------
|              | Durando  | Dotoli   | Ergul   | Biderman | Smiley   | Guerino | Lawrence | Janifast | Microphase | RELATED   
|              |          |          |         |          |          |         |          |          |            |           
|Consulting /  |          |          |         |          |          |         |          |          |            |           
|Salary        | $196,800 | $141,000 |         |          | $100,000 |         |          |          |            | $437,800  
|Directors     |          |          |         |          |          |         |          |          |            |           
|Stipend       | $7,500   | $7,500   | $3,750  | $3,750   | $3,750   | $3,750  | $3,750   |          |            | $33,750   
|Rent          |          |          |         |          |          |         |          |          | $30,000    | $30,000   
|R&D           |          |          |         |          |          |         |          |          | $112,250   | $112,250  
|Finders Fees  |          |          |         |          |          |         |          |          |            |           
|(including    |          |          |         |          |          |         |          |          |            |           
|common        |          |          |         |          |          |         |          |          |            |           
|shares)       |          |          |         | $270,000 |          |         |          |          |            | $270,000  
|Cost of Sales |          |          |         |          |          |         |          |          |            |           
|and SG&A      |          |          |         |          |          |         |          | $134,715 |            | $134,715  
|Reissued      |          |          |         |          |          |         |          |          |            |           
|Options       | $196,000 | $126,000 | $63,000 | $8,400   | $56,000  |         |          |          |            | $449,400  
|Totals        | $400,300 | $274,500 | $66,750 | $282,150 | $159,750 | $3,750  | $3,750   | $134,715 | $142,250   | $1,467,915
|              |          |          |         |          |          |         |          |          |            |           

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13

mPHASE TECHNOLOGIES, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)
3. EQUITY TRANSACTIONS
Private Placements

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

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

Warrant Exercise

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

During the quarter ended December 31, 2006,
the Company issued 12,101,780 shares of its common stock pursuant to the
exercise of warrants, generating net proceeds of $1,669,668 to the Company. In
addition, the Company issued to certain investors 11,111,112 new 5 year warrants
to purchase one share of the Companys common stock, with an exercise price
ranging from $.15 - $.18 per share.

Options and Stock Issued for Services

During the six months ended December 31, 2006, the Company
authorized the issuance of 3,852,500 options to employees and officers for the
right to purchase a like amount of common shares. Pursuant to the adoption of
FAS 123(R), the Company recognized an expense in the amount of $534,468, all of
which has been included in general and administrative expense. The fair value of
options granted was estimated as of the date of grant using the Black-Scholes
stock option pricing model, based on the following weighted average assumptions:
annual expected return of 0%, annual volatility of 95.6%, based on a risk-free
interest rate of 4.8% and expected option life of 5 years.

During the six months ended December 31, 2006, the Board of
Directors authorized the issuance of 1,822,983 shares of common stock, with an
aggregate value of $339,388 as compensation to consultants and employees. The
stock value ranged in price from $.17 to $.20 per share, the fair value on the
date of the awards.

Other Equity Transactions

During the six months ended December 31, 2006, the Company
converted accounts payable of $307,425 into 1,873,092 shares of common stock.

In addition, during the quarter ended December 31, 2006, the
Company became obligated to issue 7,013,888 of its common stock as reparation to
affect revised pricing on previous private placements. This additional
consideration was afforded to past investors who agreed to make an additional
cash investment as part of a new private placement. The cost of such
consideration was estimated to be the fair value of such shares at the time of
the investment ($.18 per share) and amounted to a $699,496 charge to earnings
after an appropriate allocation to Additional Paid in Capital of the Company.

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14

4. COMMITMENTS AND CONTINGENCIESmPhase has entered into various agreements
with Georgia Tech Research ("GTRC") and its affiliate, Georgia Tech Applied
Research Corporation, ("GTARC"), pursuant to which the Company receives
technical assistance in developing the commercialization of its Digital Video
and Data Delivery System. The amount incurred by the Company for GTRC technical
assistance with respect to its research and development activities during the
quarters ended December 31, 2005 and 2006 totaled $0 and $0 respectively and
$13,539,952 from the period from inception through December 31, 2006. If and
when sales commence utilizing its legacy DVDDS digital broadcast television
platform, mPhase will be obligated to pay to GTRC a royalty up to 5% of product
sales, as defined.
As of December 31, 2006, mPhase is obligated
to pay Lucent Technologies, Inc. $200,000 per month through and including the
first of each month from March 1, 2006 through and including February 1, 2007
plus $100,000 due in March of 2007 in connection with the development of its
Nanotechnology product line. The Company owed Lucent $300,000 in accounts
payable on December 31, 2006. The amount incurred by the Company with Lucent for
assistance with respect to its research and development activities during the
quarters ended December 31, 2005 and 2006 and inception to date totaled
$1,228,000, $600,000 and $12,606,651 respectively.
Other significant contractual obligations
require the Company to pay Magpie Telecom Insiders Inc, certain amounts related
to the successful development of its TV+ product. This contract requires a
payment of a $60,000 monthly relationship fee plus $135,000 per achievement of
specified milestones. During the six months ended December 31, 2006, the Company
issued 323,530 shares of common stock valued at $.17 per share in partial
satisfaction of this obligation. The Company owed Magpie $650,000 as of December
31, 2006. This contract expires in January 2007.
In addition, the Company has an agreement with
Velankani Information Systems to further develop its TV+ product. During the six
months ended December 31, 2006, the Company issued 749,562 shares of common
stock in partial satisfaction of this obligation. The Company owed Velankani
$399,135 as of December 31, 2006. The agreement with Velankani has been
restructured and currently requires payments of past due amounts and continued
service to be satisfied by a combination of stock issuance and cash payments.
From time to time, mPhase may be involved in
various legal proceedings and other matters arising in the normal course of
business. On November 15, 2005 a civil enforcement action (c.v. action no. 3:05
cv1747) was filed in Federal District Court in the State of Connecticut against
Packetport.com, Inc. and others including Messrs. Durando and Dotoli in their
individual capacity for alleged violations of the federal securities laws in
connection with their activities as Officers and Directors of Packetport.com
during the year 1999-2000. A summary of the Complaint is contained in SEC
Litigation Release No. 19465 dated November 15, 2005. The original complaint may
be accessed on the SEC web site under http://www.sec.gov/litigation. As noted in other public filings with
the SEC, mPhase Technologies, Inc. is not named as a party to the civil action.
Both Messrs. Durando and Dotoli continue to deny any wrongdoing and will
vigorously defend all allegations in the complaint.

15

5. SUBSEQUENT EVENTThe Company's current low levels of liquidity
have required that payments of accounts payable to vendors, including research
partners, be extended beyond terms. The Company is actively engaged in
negotiations with several vendors to work out an equitable restructure of
payment terms and/or conversion of such debt into equity. Subsequent to December
31, 2006, $176,869of
such debt has been converted into1,040,407 shares of common stock. It is anticipated that such
negotiations will continue throughout the current fiscal year. Additionally, as
of February 9, 2007, the Company has raised $675,000 through the sale of
4,500,000shares of common stock in a Private Placement.



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16

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 14,000 shareholders and approximately
214 million shares of common stock outstanding. The Companys common stock is
traded on the Over the Counter Bulletin Board under the ticker symbol XDSL. We
are headquartered in Norwalk, Connecticut with offices in Little Falls, NJ and
New York, N.Y. mPhase shares common office space with Microphase Corporation, a
privately held company. Microphase is a leader in the field of 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 developer of broadband
communications products, specifically, IP TV plus a digital subscriber line
(DSL) products for telecommunications service providers around the world. In
February of 2004 mPhase has entered into the new and emerging area of
Nanotechnology. 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.

17

Description of OperationsSince our inception in 1996, our primary
activities through fiscal year 2003 consisted of designing, manufacturing and
testing our flagship products designed to enable telephone service providers to
deliver digital broadcast television over DSL. Fiscal years 2004 and 2005 marked
a significant shift of the Companys focus, in response to technology
advancements with respect to the delivery of video data using internet protocol.
The Company has shifted it telecommunications solution focus from technology for
the delivery of broadcast television high speed internet and voice over DSL to
the development of middleware/software for carrier class delivery of IP TV over
copper, fiber, coax or any infrastructure representing a combination of the
foregoing that is used by a telecommunications service provider. Our current
Version 6.0 of our IPTV solution is a carrier class middleware designed for a
very high degree of reliability and scalability which the Company believes are
critical requirements for any telecommunications service provider seeking to
deploy IPTV. The Company has shifted as of May of 2006 its software development
an integration work from Lucent Technologies, Inc. to Velankani and has engaged
Magpie Insiders, Inc and Espial for development of portions of its IPTV
solution. This shift has taken place over the past two years and has culminated
in our flagship product, namely, Release 6.0 of our TV+ solution. This product
is scheduled for final testing in the third quarter of fiscal year 2007 as part
of an initial deployment of 1000 ports with a major telecommunications service
provider in the Ukraine. Subject to passing a product acceptance test, the
Company plans to deploy its IPTV middleware to initially 6,000 customers of such
telecommunications service provider for the delivery of IPTV. We have not, as
yet, derived any significant revenue from our TV+ solution, which is the
culmination of several earlier versions that have been changed to accommodate
the latest in technological innovation and market demand for IPTV. The Companys
recent entry into the field of nanotechnology is focused upon exploratory
development of batteries with significantly longer shelf lives and enhanced
capabilities and magnetometer sensor devices with potentially wide applicability
for both military and commercial security applications. The Company believes
that such development is consistent with its strategy of being a pioneer of high
growth technology products and potentially diversifies its product mix.
mPhase introduced its first TV over DSL
platform, the Traverser Digital Video and Data Delivery System ("DVDDS"), in
1998. The DVDDS is a patented end to end system that enables a
telecommunications service provider to deliver up to several hundred channels of
motion picture experts group two ("MPEG-2") standard broadcast digital
television, high speed internet and voice over copper telephone lines between a
central office facility of the provider and a customers premise. mPhase has
not, as yet, derived any material revenues from sales of the DVDDS. The DVDDS is
a proprietary technology developed in conjunction with Georgia Tech Research
Corporation (GTRC) and is one of the first systems of its kind developed. The
system is the only system on the market that utilizes non- Internet Protocol
("IP") transmission over ADSL. The DVDDS has been discontinued and replaced by
the Company Companys TV + solution.
For mPhase the shift from its original DVDDS
hardware/software end to end system to IPTV middleware marks a change in
strategy from selling a complete proprietary platform to providing an
industry-standards solution The Company believes that the demand for the TV+
system will initially be greatest in markets primarily outside of the United
States that do not have a hybrid fiber coaxial cable ("HFC") infrastructure
necessary for cable TV or fiber to the curb necessary for very fast DSL (VDSL).
As noted above, we are currently deploying for
a major telecommunications service provider in the Ukraine our TV+ solution as a
test deployment expected to be completed by April 30, 2007. The Company believes
that a successful deployment in the Ukraine of up to 6,000 customers of the IPTV
solution in fiscal year 2007 could represent its first major breakthrough in
sales of the IPTV resulting in potential additional deployments in the Ukraine
and Russia.

18

Currently the TV+ solution, utilizes a
communications framework based upon Internet Protocol (IP) instead of
Asynchronous Transfer Mode (ATM) that was used in earlier versions of our
middleware comprising the TV+ solution. ATM is an industry standard for
transportation of data based upon a packaging of information into a fixed-size
cell format for transportation across networks. Many telecommunications service
providers currently deploy equipment that handles this protocol because it can
support voice, video, data and multimedia applications simultaneously with a
high degree of reliability. IP is another transport protocol that maintains
network information and routes packets across networks. IP packets are larger
and can hold more data than ATM cells. Historically, there have been concerns
that service providers would be unable to provide the same quality of service
with IP because it is not optimized for time-sensitive signals such as broadcast
television and voice. Nevertheless, there is a greater demand by
telecommunication service providers for IP systems for delivery of television,
voice and high-speed data because such systems are significantly more cost
effective to deploy based upon greater scalability.
Our current Release 6.0 of the TV+ solution is
a system management software/middleware product that will operate with both the
Lucent Stinger as well as the DSLAMs and multicast video transport products of
other major vendors. Release 6.0 of the TV system will also be able to send
multiple TV channels over both fiber, coax as well as down a single DSL line
over copper using ADSL2 supported DSLAMs and be capable of delivery of Video on
Demand. We believe that our TV+ solution is an open standards-based, carrier
class technology with tremendous scalability and enables a telecommunications
service provider to custom tailor the deployment of feature rich IP television,
high speed internet and voice. Such solution enables a telecommunications
service provider to significantly enhance revenue, margins with a very high rate
of return as compared to the traditional economics for delivery of telephone
voice services only. In addition, Telecos around the world are under increased
pressure to delivery multiple converged services in order to retain their
traditional telephone voice customers. The TV+ solution may be used in
combination with any vendors set top box designed for the delivery of IP TV of
all major vendors. The solution allows a service provider to start small and
test its take rate among customers with a maximum of flexibility of design,
features and cost allowing it to enter the market for converged services to its
customers on an optimal basis.
mPhase has transformed itself from a developer
of closed end proprietary technology for the delivery of TV over DSL to a
Company that has developed a carrier class middleware/software solution for the
delivery of IP TV using a standards-based platform designed to provide
telecommunications with maximum flexibility in system configuration with
components from all major vendors. . mPhases current IPTV solution is designed
to be used over fiber, coax and copper or any combination thereof currently
deployed by a telecommunications service provider. In addition our IPTV solution
may be used with other telecommunications transport technology such as Multicast
Routers instead of DSLAMs for the delivery of voice, data and IPTV. The Company
believes the initial major deployments and the resultant revenues of its
Flagship product, the TV+ platform, are not expected until the fourth quarter of
fiscal year 2007, which along with any upturn of spending in the telephone
industry will also increase sales and improve the Companys margins and provide
the Company with the opportunity to attain profitability
mPhase DSL Component Products.
mPhase continues to design and market a line of DSL component products ranging
from commodity items such as POTS splitters. Most notable in the suite of DSL
component products is the recently introduced VDSL customer premises POTS
Splitter product. The VDSL product reflects a migration of technological
development for the delivery of Broadcast Television providers such as ATT/Bell
South that are deploying fiber to the curb in combination with VDSL to the
home.. Additionally, as competition for high speed Internet expands, the market
is witnessing a reduction in price. Therefore, it has become imperative that
telecommunications service providers lower the operational costs involved with
supporting DSL services.

19

Nanotechnology
Effective February 3, 2004, mPhase has entered
into a Development Agreement with Lucent Technologies, Inc. to commercialize the
use of nano power cell technology. The initial agreement was for a 12 month
period of exploratory development at the cost of $100,000 per month of a new
form of power cell having a shelf life far in excess of conventional battery
technology. In March of 2005 the Company extended such Agreement for another 12
months at the cost of $100,000 per month to continue development of the nano
power cell product. We believe that this arrangement with the Bell Labs division
of Lucent will give mPhase the opportunity to develop and offer breakthrough
battery technology and other potential applications, initially to the government
market for defense and homeland security and ultimately to the commercial
market. It is anticipated that the initial applications for nano power cells
will address the need to supply emergency and reserve power to a broad range of
products for the defense department.
The Company believes that its entry into this
new field of high technology growth will provide product diversification without
negatively affecting its focus upon its IPTV solution. The Company developed a
lab prototype of its first nano power cell product that was completed in the
second quarter of fiscal year 2006. The Company is unable, at this time, to
predict when significant commercialization and material revenues will be derived
from its entry into the Nanotechnology business.
On March 10, 2005, the Company announced an
agreement with the Bell Labs research and development arm of Lucent
Technologies, Inc. to co-develop using the science of nanotechnology and
commercialize uncooled magnetic ultra-sensitive sensors for a host of defense
and civilian applications. The sensors, technically referred to as
magnetometers, are based upon Micro Electro Mechanical Systems (MEMS) using
designs based upon fundamental breakthroughs made in the past few years at Bell
Labs as part of the New Jersey Nanotechnology Consortium. Initial tests of
theses MEMS magnetometers indicate sensitivities 1000 times those achieved in
presently available uncooled magnetometers. Such devices are designed to create
a new generation of ultra sensitive magnetic field sensors that will enable
military combatants to detect with greater accuracy and range hostile military
forces. Commercial applications may include inexpensive navigational components
for mobile phones to sensing devices for identification used in homeland
security products, as well as sensors used in diagnostic systems for detection
of metal fatigue for numerous industrial applications.
In May of 2006, the Company renewed through
February 2007 and March 2007 each of its Development Agreements with Lucent
Technologies, Inc. with respect to its battery and magnetometer products being
developed through the science of nanotechnology at a cost of $100,000 per month
each. The Company expects to renew for another 12 months each of the two
nanotechnology development agreements with Lucent/Bell Labs.
Nano Battery:

mPhase Technologies along with its partner
Lucent/Bell Labs, has been jointly conducting research since February 2004 that
demonstrates control and manipulation of fluids on super hydrophobic surfaces to
create power cells by controlling wetting behavior of electrolyte on
nanostructured electrode surfaces. The scientific research conducted this year
has set the groundwork for continued exploration in the development of
intelligent nanotechnology power cells (nano-batteries), and forms a path to
commercialization of the technology for a broad range of market opportunities.
During the first half of 2005 the battery team has been testing 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
will assist in making the battery easier to manufacture when the project
research that level of maturity.

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20



In June of 2005, the
battery project was expanded to include a joint technical development effort
through December 2005 between mPhase and Rutgers University to potentially
incorporate a Lithium based design. This work program has initial started as a
modest technology effort to help characterize and test the nano battery design
using Lithium chemistry and determine if the current design is capable of
supporting the lithium based chemistry. Based on the results of the testing with
Rutgers University during 2006, mPhase has decided that sufficient technical
progress has been made to warrant the extension of the development agreement
with Rutgers University though 2007 and mPhase may decide to accelerate the work
effort as milestones are achieved.

Magnetomete

In February 2005, mPhase and Lucent
Technologies Bell Laboratories entered into a joint effort to develop an
extremely sensitive magnetometer. Magnetometers can be used in a wide range of
applications that include military surveillance, securing the retail
environment, automotive sensors and actuators, industrial processing, medical
imaging, scientific measurements, detection of mineral deposits and even air and
space exploration. In sensor networks ultra-sensitive magnetometers can be used,
for example, to detect and accurately pinpoint battlefield objects or they might
also be used to study the workings of the human brain.

Magnetometers work by sensing changes in
magnetic fields due to the motion of magnetic objects or changes in electrical
currents generated by those objects. The magnetometer detects these objects by
measuring time-varying magnetic signals that are superimposed on the combination
of earths background field (used to orient compasses) and static magnetic
fields due to nearby magnetic objects.

Highly Sensitive Magnetometers

The new technology
being developed by Bell Labs and mPhase employs a number of different designs
based on Micro-Mechanical Systems (MEMS). These designs use the very high
"Quality Factor (Q)" of the mechanical resonance in single crystals of silicon.
A resonance is similar to the fundamental frequency of a tuning fork. When
tapped, a tuning fork will vibrate for a length of time inversely proportional
to the internal friction of vibration within the metal of the tuning fork. A
comparable tuning fork made from single crystal silicon, which has less internal
friction than the hardest metal, will vibrate almost a thousand times longer.
Based on this principal, a device employing a high Q resonator will have
enhanced amplitude of vibration at the resonance frequency, and hence will
display a greater sensitivity to external perturbations that affect its
resonance frequency. By coupling the mechanical motion of a bar or a paddle
constructed from silicon to the ambient magnetic field, this high mechanical
sensitivity can be converted to high magnetic field sensitivity. The technical
approach that the team is developing can be achieved either statically with an
integrated magnetic film, or dynamically through motion of the silicon bar or
paddle.

Lower Sensitivity Magnetometers -

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21

The Benefits of MEMS- Commercial magnetometers using purely electronic detection, such as Hall,
magneto-resistance or flux-gate devices, have sensitivities limited by theirelectronic Q-factor. This Q-factor depends on the natural electrical
resistance, or electronic friction, of the metal in the circuit. For
room-temperature operations it is therefore difficult to reduce the electrical
Q-factor. Mechanical resonators made from semiconductor-grade silicon, on the
other hand, exhibit mechanical Q-factors, approaching 100,000 at room
temperature. In all, these new, smaller and less costly magnetometers should be
100-1000 times more sensitive than existing commercial devices, thus enabling a
new class of sensor systems that mPhase plans on commercializing.

The mPhase and Lucent
magnetometer team has successfully reached an early milestone and have produced
a number MEM based sensor samples from the clean room facilities and are working
on integrating them into the surrounding electronic circuitry so that
measurement, characterization and sensitivity testing can be conducted.

Financial Highlights

Revenues

The Company
believes that significant deployments and resulting revenues from the deployment
of the TV+ are not expected until the end of calendar year 2007. The Company
further believes that an increase in capital expenditures in the
telecommunications industry will increase sales, improve margins and that the
Company will be profitable in the future. The Company does not expect to derive
any material revenue from its Nanotechnology product development until fiscal
year 2008

Cost of revenues.
The costs necessary to generate revenues from the sale of POTS Splitter Shelves
and other related DSL component products include direct material, labor and
manufacturing. mPhase paid these costs to Janifast Ltd., which has facilities in
the Peoples Republic of China and is owned by and managed by certain senior
executives of the Company. The cost of revenues also includes certain royalties
paid to Microphase Corporation, a privately held corporation organized in 1955,
which shares certain common management with the Company and is majority-owned by
a director of mPhase. Costs for future production of the TV + Platform will
consist primarily of payments to manufacturers to acquire the necessary
components and assemble the product

Research and development.
Research and development expenses consist principally of the payments made to
various subcontractors and Microphase, for development of the VDSL POTS Splitter
product, the TV+ IPTV solution and nanotechnology products. The IPTV+ solution
consists primarily of middleware/software designed for the delivery of feature
rich, carrier class, broadcast TV, high speed internet and voice by
telecommunications service providers open using standards based equipment and
transport configurations. All research and development costs are expensed as
incurred.

Selling, general and administrative.
Selling, general and administrative expenses consist primarily of salaries and
related expenses for personnel engaged in direct marketing of the TV+, the POTS
Splitter Shelves and other DSL component products and Nanotechnology battery
product, as well as support functions including executive, legal and accounting
personnel. Certain administrative activities are outsourced on a monthly fee
basis to Microphase Corporation. Finally, mPhase leases the principal office
from Microphase Corporation.

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22

Non-Cash compensation charges.
The Company makes extensive use of stock grants, options and warrants as a form
of compensation to employees, directors and outside consultants. We incurred
non-cash compensation charges totaling $59,513,174 from inception (October 2,
1996) through December 31, 2006, of which $2,318,519 was included in research
and development expenses and $57,194,655 was included in general and
administrative expenses.
Development stage losses/ Liquidity.
The Company has incurred cumulative development stage losses of $159,256,899 and
negative cash flow from operations of $70,938,659. The auditors report for the
fiscal year ended June 30, 2006 includes the statement that "there is
substantial doubt of the Companys ability to continue as a going concern".
Management estimates that the Company needs to raise approximately $10,000,000
during the next 12 months to continue its present level of operations. As of
December 31, 2006, the Company had a negative net worth of $2,889,616 compared
to a negative net worth of $606,085 as of June 30, 2006 as a result of
continuing net losses.
THREE MONTHS ENDED DECEMBER 31, 2006 VS. DECEMBER 31, 2005
REVENUETotal revenues were $14,742 for the three months ended
December 31, 2006 compared to $168,208 for the three months ended December 31,
2005. The decrease was primarily attributable to decreased demand of the
Companys POTS Splitter product line.
COST OF SALES

No cost of sales were associated with the revenue earned for
the three months ended December 31, 2006 as compared to $135,098 in the
comparable prior period in 2005. This change is a result of product mix and the
phasing out of the Pots Splitter business line.
GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $1,405,347
for the three months ending December 31, 2006 down from $ 2,090,185 or a
decrease of $684,838 from the comparable period in 2005. The decrease in the
selling, general and administrative costs is comprised primarily of a decrease
in stock based compensation of approximately $1,022,000. This decline is offset
in part by increases related to payroll of $160,000; use of consultants and
professionals of $105,000 and smaller increases across a broad range of expense
categories.
RESEARCH AND DEVELOPMENT

Research and development expenses were $1,723,411 for the
three months ended December 31, 2006 as compared to $1,960,650 during the
comparable period in 2005 or an decrease of $237,239. Spending levels have not
fluctuated significantly in the past year and have been primarily related to
development and testing of Release 6.5 of the TV+ product for a Ukrainian
telecommunications provider and development activity of the new magnetometer and
power cell products using the science of Nanotechnology. Both areas represent
activities contracted though Lucent Technologies and other vendors such as
Magpie, Latens, Velankani, and Espial and managed by mPhase.

23

The Company expects to continue research and development
efforts throughout fiscal year 2007 as the Company continues its development of
the TV+ and Nanotechnology product lines. To broaden and diversify its current
line of business into additional high growth technology areas, the Company plans
to continue its development efforts with the Bell labs division of Lucent
Technologies, Inc. to commercialize the use of nano power cell technology.
Lucent/ Bell Labs is developing for mPhase micro-power source arrays fabricated
using nanotextured, super hydrophobic materials. This new business arrangement
with Lucent Bell Labs will give mPhase the opportunity to develop and offer
breakthrough battery technology applications, initially to government market
segments including defense and homeland security, and ultimately to the
commercial market. 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 the defense department. In addition the Company plans to
continue its research and development efforts with respect to the magnetometer
product line using the science of Nanotechnology.
OTHER INCOME AND (EXPENSE)

Other Income and (Expense) amounted to net expense of
$703,086 for the three months ended December 31, 2006 compared to a net expense
of $4,276,594 for the comparable period ended December 31, 2005. This decrease
is primarily due to reparation expense which amounted to $4,434,794 in 2005 to
$699,496 in 2006.
NET LOSS

The Company recorded a net loss of $3,838,841 for the three
months ended December 31, 2006 as compared to a loss of $8,314,814 for the three
months ended December 31, 2005. This represents a loss per common share of $.01
for the three month period ended December 31, 2006 as compared to a loss per
common share of $.05 for the three months ending December 31, 2005; based upon
weighted average common shares outstanding of 300,483,022 and 174,998,048 during
the periods ending December 31, 2006 and 2005, respectively. Approximately $3.74
million of the decrease in the Companys net loss was the result of reparation
cost in connection with the reduction in the strike price of certain warrants
and issuance of additional shares in connection with private placements.SIX MONTHS ENDED DECEMBER 31, 2006 VS. DECEMBER 31, 2005
REVENUETotal revenues were $120,588 for the six months ended
December 31, 2006 compared to $548,802 for the six months ended December 31,
2005. The decrease was attributable primarily to the phasing out of the
Companys ADSL POTS Splitter line of products and its emphasis on developing a
new VDSL customer premises POTS Splitter product to meet market advancements in
technology.
COST OF SALES

Cost of sales was $85,390 for the six months ended December
31, 2006 as compared to $473,071 in the comparable prior period. The decrease is
a direct result of the aforementioned phasing out of the POTS Splitter line of
business.

24

RESEARCH AND DEVELOPMENT

Research and development expenses were $3,713,724 for the six
months ended December 31, 2006 as compared to $3,822,070 during the comparable
period in 2005; or a decrease of $108,346. The Company incurred most of its
research and development expenses with vendors including Lucent, Microphase,
Magpie Insiders, Inc., Espial, Velankani and other strategic vendors. In the six
month period ended December 31, 2006 such charges totaled $3,331,966 as compared
to $3,354,217 during the comparable period in 2005. During the six month period
ended December 31, 2006, payments to third party vendors amounted to $1.2
million and $2.13 million for services related to Nanotechnology and IPTV,
respectively. During the six month period ended December 31, 2005, payments to
third party vendors amounted to $1.4 million and $1.95 million for services
related to Nanotechnology and IPTV, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $3,367,179
for the six months ended December 31, 2006 up from $3,182,481 or an increase of
$184,698 from the comparable period in 2005. Included in selling, general and
administrative costs are non-cash charges relating to the issuance of common
stock and options to employees and consultants, which totaled $873,856 for the
six months ended December 31, 2006 as compared to $1,175,075 for the comparable
period ended December 31, 2005 resulting in a decrease of $337,218. This
decrease was offset by increases payroll related cost which increased by
approximately $221,000, investors relations and marketing which increased by
$133,000 and legal and professional which increased by approximately $100,000.
OTHER INCOME AND (EXPENSE)

Other Income and (Expense) amounted to net expense of
$707,499 for the six months ended December 31, 2006 compared to a net expense of
$4,424,470 for the comparable period ended December 31, 2005. This decrease is
primarily do to reparation expense which declined from $4,434,794 in 2005 versus
$699,496 in 2006.
NET LOSS

The Company recorded a net loss of $7,796,842 for the six
months ended December 31, 2006 as compared to a loss of $11,394,054 for the six
months ended December 31, 2005. This represents a loss per common share of $.03
for the six month period ended December 31, 2006 as compared to a loss per
common share of $.07 for the six months ending December 31, 2005; based upon
weighted average common shares outstanding of 296,412,769 and 163,613,560 during
the periods ending December 31, 2006 and 2005, respectively. Approximately $3.74
million of the decrease in the Companys net loss was the result of reparation
cost in connection with the reduction in the strike price of certain warrants
and issuance of additional shares in connection with private placements.

25

CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITIONAs required, mPhase has adopted the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements", which provides guidelines on applying
generally accepted accounting principals to revenue recognition based upon the
interpretations and practices of the SEC. The Company recognizes revenue for its
POTS Splitter Shelf and Other DSL component products at the time of shipment, at
which time, no other significant obligations of the Company exist, other than
normal warranty support.
RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as
incurred in accordance with Statement of Financial Accounting Standards ("SFAS"),
No.2, "Accounting for Research and Development Cost."
INCOME TAXESmPhase accounts for income taxes using the
asset and liability method in accordance with SFAS No.109 "Accounting for Income
Taxes." Under this method, deferred tax assets and liabilities are measured
using currently enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that includes the enactment date. Because of the uncertainty as to
their future realizability, net deferred tax assets, consisting primarily of net
operating loss carry forwards, have been fully reserved for. Accordingly, no
income tax benefit for the net operating loss has been recorded in the
accompanying financial statements.
Utilization of net operating losses generated
through December 31, 2006 may be limited due to "changes in control" of our
common stock that occurred.STOCK-BASED COMPENSATIONOn July 1, 2005, the Company adopted the
provisions of Financial Accounting Standards Board Statement No. 123R,"Share-Based Payment"(SFAS
123R). SFAS 123R revised SFAS 123, "Accounting for Stock Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS
123R requires companies to measure and recognize compensation expense for all
employee stock-based payments at fair value over the service period underlying
the arrangement. Therefore, the Company is now required to record the grant-date
fair value of its stock-based payments (i.e., stock options and other
equity-based compensation) in the statement of operations. The Company adopted
FAS 123R using the "modified prospective" method, whereby fair value of all
previously-granted employee stock-based arrangements that remained unvested at
July 1, 2005 and all grants made on or after July 1, 2005 have been included in
the Companys determination of stock-based compensation expense for the three
and six months ended December 31, 2005 and December 31, 2006.

INVENTORY RESERVE AND VALUATION ALLOWANCE

The Company carries its inventory at the lower
of cost, determined on a first in, first out basis, or market. Inventory
consists mainly of equipment to be included in deployment of an IPTV project. In
determining the lower of cost or market, the Company periodically reviews and
estimates a valuation allowance to reserve for technical obsolescence and
marketability.

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26



MATERIAL RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

mPhases President, Chief Operating Officer
and Chairman of the Board of the Company are also officers of Microphase and
mPhases President and Chairman of the Board are shareholders of Microphase. On
May 1, 1997, the Company entered into an agreement with Microphase, whereby it
will use office space as well as the administrative services of Microphase,
including the use of accounting personnel. This agreement was for $5,000 per
month and was on a month-to-month basis. In July 1998, the office space
agreement was revised to $10,000, in January 2000 to $11,050 per month, in July
2001 to $11,340 per month, in July 2002 to $12,200 per month, in January 2003 to
$10,000 per month, and in July 2003 to $18,000 per month. Additionally, in July
1998, mPhase entered into an agreement with Microphase, whereby mPhase
reimburses Microphase $40,000 per month for technical research and development.
In January 2003 the technical research and development agreement was revised to
$20,000 per month, and in July 2003 it was further revised to $5,000 per month
for technical and research development, $5,000 per month for administrative
services and $5,000 per month under the office space agreement. Beginning July
1, 2006, billings for all of the above services has been $5,000 per month. In
addition, Microphase also charges fees for specific projects on a
project-by-project basis.

During the six months ended December 31, 2005
and 2006 and from inception (October 2, 1996) to December 31, 2006, $90,000,
$142,250 and $8,869,365 respectively, have been charged to expense.

As a result of the foregoing transactions as
of December 31, 2006, the Company had a $204,131 payable to Microphase.

The Company is obligated to pay a 3% royalty
to Microphase on revenues from its proprietary Traverser (TM) Digital Video and
Data Delivery System and DSL component products. For the three months ended
December 31, 2005 and 2006, mPhase recorded royalties to Microphase totaling
$16,409 and $0, respectively.

JANIFAST LTD.

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

During the six months ended December 31, 2005
and 2006 and the period from inception (October 2, 1996) to December 31, 2006,
$544,449, $134,715 and $16,031,811 respectively have been charged by Janifast to
inventory or is included in operating expenses in the accompanying statements of
operations.

As a result of the foregoing transactions as
of December 31, 2006, the Company had $132,151 payable to Janifast.

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27

OTHER RELATED PARTIESOn August 30, 2004, the Company paid $100,000
in cash to Piper Rudnick LLP, outside legal counsel to the Company as part of a
renegotiated settlement agreement that was originally effective as of March 31,
2002. The Company was in arrears with respect to payments due under the original
settlement agreement and as part of the renegotiated agreement agreed to make
the following payments:
a.    
$25,000 on each of December 1, 2004, March 1, 2005, June 1,2005, September 1,
2005 and a $50,000 payment on December 1, 2005. Thereafter the Company was
obligated to pay $25,000 on each of March 1, 2006, June 1, 2006, and September
1, 2006 with a final payment of $75,000 on December 1, 2006.
b.    
The Company also delivered a 5 year cashless warrant to purchase $150,000 worth
of common stock at $.25 per share. The warrant was valued pursuant to EITF
96-18, the ascribed value of the warrant minus the debt cancelled resulting loss
of $40,500.
As of December 31, 2006, the Company has made
each payment owed to Piper Rudnick LLP, with the exception of the $25,000
payment due September 1, 2006 and the $75,000 payment due December 1, 2006.
Mr. Abraham Biderman was employed until
September 30, 2003 by our former investment-banking firm Lipper & Company.
During the six months ended December 31, 2006, Mr. Bidermans affiliated firm of
Palladium Capital Advisors earned a cash finders fee of $185,000 as well as
566,667 shares of the Companys stock with an estimated value of $85,000.
In addition, at various points during the
current fiscal year but prior to December 31, 2006, Messrs, Durando, Dotoli and
Smiley provided $490,000 in bridge loans to the Company which was evidenced by
individual promissory notes. Subsequently, Messrs Durando and Dotoli agreed to
convert their notes, in the amounts of $130,000 and $200,000 respectively, to a
deferred compensation arrangement, the repayment terms of which have not been
specified. Mr. Smiley has extended bridge loans to the Company of $160,000,
evidenced by promissory notes for $101,000 and a $60,000 note with a 12% rate of
interest. Both of the foregoing promissory notes are payable on demand.
The following table summarizes all related
party expenses during the six months ended December 31, 2006

|              |          |          |         |          |          |         |          |          |            | TOTAL     
|------------- | -------- | -------- | ------- | -------- | -------- | ------- | -------- | -------- | ---------- | ----------
|              | Durando  | Dotoli   | Ergul   | Biderman | Smiley   | Guerino | Lawrence | Janifast | Microphase | RELATED   
|              |          |          |         |          |          |         |          |          |            |           
|Consulting /  |          |          |         |          |          |         |          |          |            |           
|Salary        | $196,800 | $141,000 |         |          | $100,000 |         |          |          |            | $437,800  
|Directors     |          |          |         |          |          |         |          |          |            |           
|Stipend       | $7,500   | $7,500   | $3,750  | $3,750   | $3,750   | $3,750  | $3,750   |          |            | $33,750   
|Rent          |          |          |         |          |          |         |          |          | $30,000    | $30,000   
|R&D           |          |          |         |          |          |         |          |          | $112,250   | $112,250  
|Finders Fees  |          |          |         |          |          |         |          |          |            |           
|(including    |          |          |         |          |          |         |          |          |            |           
|common        |          |          |         |          |          |         |          |          |            |           
|shares)       |          |          |         | $270,000 |          |         |          |          |            | $270,000  
|Cost of Sales |          |          |         |          |          |         |          |          |            |           
|and SG&A      |          |          |         |          |          |         |          | $134,715 |            | $134,715  
|Reissued      |          |          |         |          |          |         |          |          |            |           
|Options       | $196,000 | $126,000 | $63,000 | $8,400   | $56,000  |         |          |          |            | $449,400  
|Totals        | $400,300 | $274,500 | $66,750 | $282,150 | $159,750 | $3,750  | $3,750   | $134,715 | $142,250   | $1,467,915
|              |          |          |         |          |          |         |          |          |            |           

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28

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2006, mPhase had working
capital deficit of $3,276,533 as compared to working capital deficit of
$1,093,784 at June 30, 2006. Through December 31, 2006, the Company had incurred
development stage losses totaling $159,256,899.
Historically, mPhase has funded its operations
and capital expenditures primarily through private placements of common stock.
Management expects that its ongoing financial needs will continue to be provided
by such financing activities and believes that the sales of its IPTV and DSL
component products will provide some offset to cash flow used in operations,
although there can be no assurance of such events. At December 31, 2006, the
Company had cash and cash equivalents of $659,414 compared to $1,359,925 at June
30, 2006, accounts receivable of $58,740 and inventory of $369,572. This
compared to $106,237 of accounts receivable and $161,270 of inventory at June
30, 2006.
Cash used in operating activities was
$4,271,000 during the six months ending December 31, 2006. The cash used in
operating activities consists principally of the net loss offset in part by
significant changes in assets and liabilities, including an increase in accounts
payable of $1,482,495, non-cash charges of $873,855 for common stock and options
issued for services and $699,496 for reparations. The Companys ability to
continue as a going concern and its future success is dependent upon its ability
to raise capital in the near term to: (1) satisfy its current obligations, (2)
continue its research and development efforts, and (3) the successful wide scale
development, deployment and marketing of its products.
As of December 31, 2006, mPhase is obligated
to pay Lucent Technologies, Inc. $100,000 per month through February of 2007
under a Development Agreement covering development of its new battery and
$100,000 per month through March of 2007 in connection with development of its
magnetometer. Both product lines use the science of Nanotechnology.
Other significant contractual obligations
require the Company to pay Magpie Telecom Insiders, Inc. certain amounts related
to the successful development of its TV+ product. This contract requires a
payment of a $60,000 monthly relationship fee plus $135,000 per achievement of
specified milestones. During the six months ended December 31, 2006, the Company
issued 323,530 shares of common stock in partial satisfaction of this
obligation. The Company owed Magpie $650,000 as of December 31, 2006. This
contract expires in January 2007. In addition, as of January of 2007, the
Company is currently, in arrears with respect to $550,000 payable to Espial and
is currently rescheduling payments including converting a portion of such
payable into common stock.
In addition, the Company has an agreement with
Velankani Information Systems to further develop its TV+ product. During the six
months ended December 31, 2006, the Company issued 749,562 shares of common
stock in partial satisfaction of this obligation. The Company owed Velankani
$399,135 as of December 31, 2006. The agreement with Velankani has been
restructured and currently requires payments of past due amounts and continued
service to be satisfied by a combination of stock issuance and cash payments.
LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENTS PLANS
From inception (October 2, 1996) through
December 31, 2006 the Company has incurred development stage losses and has an
accumulated deficit of $159,256,899 and a stockholders deficit of $2,889,616.
The report of the Companys outside auditors, Rosenberg, Rich, Baker, Berman and
Company with respect to its latest audited 10K for the fiscal year ended June
30, 2006, stated that "there is substantial doubt of the Companys ability to
continue as a going concern".

29

We continue our efforts to raise additional
funds through private placements of our common stock and strategic alliances,
the proceeds of which are required to fund continuing expenditures and the
controlled development stage rollout of our TV+. However, there can be no
assurance that mPhase will generate sufficient revenues to provide positive cash
flows from operations or that sufficient capital will be available, when needed,
or at terms that we deem to be reasonable.
We have evaluated our cash requirements for
the remainder of fiscal year 2007 based upon certain assumptions, including our
ability to raise additional financing and sales of our TV+ products. Additional
investments in development of the TV+ and Nanotechnology battery products will
be required in the next 12 months. The Company anticipates that it will need to
raise, at a minimum, approximately $10 million, primarily in private placement
of its common stock with accredited investors, during the next 12 months. In
addition, we will need to focus on and control certain expenses.
Management believes that the up to $10 million
to be raised, in new Private Placements in the capital markets, will be
sufficient to cover its current operating expenses and permit the company to
maintain its present operational levels. This amount may be supplemented with
additional funds that could be received from investors, currently holding
warrants to purchase up to a total of approximately 108 million shares of common
stock at exercise prices of approximately $.18 - $.30 per share which are
presently "in the money" and can be exercised during the next 12 months.
Should these cash flows not be available to
us, we believe we would have the ability to revise our operating plan and make
certain further reductions in expenses, so that our resources which were
available at December 31, 2006, plus financing to be secured during the balance
of fiscal year 2007, and expected TV+ revenues, will be sufficient to meet our
obligations through the end of fiscal year 2008. We have continued to experience
operating losses and negative cash flows. To date, we have funded our operations
with a combination of component sales debt conversions with related parties and
strategic vendors, and private equity offerings. Management believes that we
will be able to secure the necessary financing in the short-term to fund our
operations into our next fiscal year. However, failure to raise additional
funds, or generate significant cash flows through revenues, could have a
material adverse effect on our ability to achieve our intended business
objectives.

30

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 December 31, 2006.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of
management including the Chief Executive Officer and Chief Financial Officer, we
have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14c and of the end of
the period covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures are effective. There were no changes in our internal
control over financial reporting during the quarter ended December 31, 2006 that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.

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31

PART II OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS

mPhase was advised in April 2002 that
following an investigation by the staff of the Securities and Exchange
Commission, the staff intended to recommend that the Commission file a civil
injunctive action against Packetport.com, Inc. ("Packetport") and its Officers
and Directors. Such recommendation related to alleged civil violations by Packetport and such Officers and Directors of various sections of the Federal
Securities Laws. The staff has alleged civil violations of Sections 5 and 17(a)
of the Securities Act of 1933 and Sections 10(b) and 13(d) of the Securities
Exchanges Act of 1034. mPhase also serve as Directors and Officers of Packetport.
On November 15, 2005, a civil enforcement action was filed in Federal District
Court against Microphase Corporation and the CEO and COO of mPhase Corporation.
mPhase is not named as a party in connection with this matter. As noted in other
public filings of mPhase, the CEO and COO of mPhase as well as Microphase
continue to deny any wrongdoing in connection with the Civil Action filed and
intend to vigorously defend any and all counts set forth in such action.

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

ITEM 2. CHANGES IN SECURITIES

Private Placements

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

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

Warrant Exercise

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

During the quarter ended December 31, 2006,
the Company issued 12,101,780 shares of its common stock pursuant to the
exercise of warrants, generating net proceeds of $1,669,668 to the Company. In
addition, the Company issued to certain investors 11,111,112 new 5 year warrants
to purchase one share of the Companys common stock, with an exercise price
ranging from $.15 - $.18 per share.

Options and Stock Issued for Services

During the six months ended December 31, 2006, the Company
authorized the issuance of 3,852,500 options to employees and officers for the
right to purchase a like amount of common shares. Pursuant to the adoption of
FAS 123(R), the Company recognized an expense in the amount of $534,468, all of
which has been included in general and administrative expense. The fair value of
options granted was estimated as of the date of grant using the Black-Scholes
stock option pricing model, based on the following weighted average assumptions:
annual expected return of 0%, annual volatility of 95.6%, based on a risk-free
interest rate of 4.8% and expected option life of 5 years.

During the six months ended December 31, 2006, the Board of
Directors authorized the issuance of 1,822,983 shares of common stock, with an
aggregate value of $339,388 as compensation to consultants and employees. The
stock value ranged in price from $.17 to $.20 per share, the fair value on the
date of the awards.

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32

Other Equity Transactions

During the six months ended December 31, 2006, the Company
converted accounts payable of $307,425 into 1,873,092 shares of common stock.
In addition, during the quarter ended December 31, 2006, the
Company became obligated to issue 7,013,888 of its common stock as reparation to
affect revised pricing on previous private placements. This additional
consideration was afforded to past investors who agreed to make an additional
cash investment as part of a new private placement. The cost of such
consideration was estimated to be the fair value of such shares at the time of
the investment ($.18 per share) and amounted to a $699,496 charge to earnings
and an appropriate charge to Additional Paid in Capital of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.
ITEM 5. OTHER INFORMATION

None.

ITEM6. EXHIBITS AND REPORTS ON FORM 8-K

(1) Form 8K filed
December 29, 2006, announcing that American Express Travel Related Services
Company, Inc. entered into a contract the Company for consulting services in
connection with power solutions for a state of the art credit card with enhanced
capabilities.

(2) Form 8k filed
October 17, 2006, announcing certain modifications of its nanostructured silicon
battery.

EXHIBITS.

|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.





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33

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.

|Dated: February 14, 2007 | mPHASE
    TECHNOLOGIES, INC. 
    By: /s/ MartinS. Smiley 
    Martin S. Smiley 
    Executive Vice President 
    Chief Financial Officer and 
    General Counsel, Director
|------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







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34

Exhibit 31.1
CERTIFICATIONSI, Ronald A. Durando, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of mPhase Technologies, Inc.;
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrants other certifying officer
and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
a. Designed such
disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Evaluated the
effectiveness of eth registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this
report any change in the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The registrants other certifying officer
and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent
functions):
a. All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial
information; and
b. Any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
/s/ Ronald A. Durando
Ronald A. Durando 
Chief Executive Officer
February 14, 2007

35

Exhibit 31.2
CERTIFICATIONSI, Martin S. Smiley, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of mPhase Technologies, Inc.;
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrants other certifying officer
and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrants and have:
a. Designed such
disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b. Evaluated the
effectiveness of eth registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this
report any change in the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and
5. The registrants other certifying officer
and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent
functions):
a. All significant
deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial
information; and
b. Any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
/s/ Martin S. Smiley
Martin S. Smiley 
Chief Financial Officer
February 14, 2007

36

Exhibit 32.1
MPHASE TECHNOLGIES, INC.
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 
(18 U.S.C. SECTION 1350)In connection with the Quarterly Report of
mPhase Technologies, Inc., a New Jersey corporation (the "Company"), on Form 10Q
for the quarter ended December 31, 2005, as filed with the Securities and
Exchange Commission (the "Report"), I, Ronald A. Durando, Chief Executive
Officer of the Company certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350), that to his knowledge:1.The Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

2.

/s/ Ronald A. Durando

Ronald A. Durando 
Chief Executive Officer

February 14, 2007

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37

Exhibit 32.2
MPHASE TECHNOLGIES, INC.
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350)In connection with the Quarterly Report of
mPhase Technologies, Inc., a New Jersey corporation (the "Company"), on Form 10Q
for the quarter ended December 31, 2005, as filed with the Securities and
Exchange Commission (the "Report"), I, Martin S. Smiley, Chief Financial Officer
of the Company certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. Section 1350), that to his knowledge:1.The Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

2.

/s/ Martin S. Smiley

Martin S. Smiley 
Chief Financial Officer

February 14, 2007

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