---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 10-Q

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

FOR THE QUARTER ENDED September 30, 2010

COMMISSION FILE NO. 000-30202

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

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

(203) 838-2741ISSUERS TELEPHONE NUMBER

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

YES [X]NO [   ]

THE NUMBER OF SHARES
OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS OF NOVEMBER
4, 2010 IS 1,260,932,713 SHARES, ALL OF ONE CLASS OF $.01 PAR VALUE COMMON
STOCK.

---

mPHASE TECHNOLOGIES, INC.

INDEX

|        |                                                                                                                                                                                | PAGE
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----
|PART I  | FINANCIAL INFORMATION                                                                                                                                                          | 3   
|        |                                                                                                                                                                                |     
|ITEM 1  | Consolidated Balance Sheets
      June 30, 2010 (Audited) and September 30, 2010 (Unaudited)                                                                                   | 4   
|        | Unaudited Consolidated Statements of
      Operations Three months ended September 30, 2009 and 2010 and from
      October 2, 1996 (Date of Inception) to September 30, 2010. | 5   
|        | Unaudited Consolidated
      Statement of Changes in Stockholders' Equity (Deficit) Three Months
      September 30, 2010.                                                     | 6   
|        | Unaudited Consolidated Statement of Cash Flow Three Months Ended September 30, 2009 and 2010 and from October 2, 1996
      (Date of Inception) to September 30, 2010.         | 7   
|        |                                                                                                                                                                                |     
|        | Notes to Consolidated Financial Statements                                                                                                                                     | 8   
|        |                                                                                                                                                                                |     
|        |                                                                                                                                                                                |     
|ITEM 2  | Management's Discussion and
      Analysis of Financial Condition and Results of Operations                                                                                    | 19  
|ITEM 3  | Quantitative and Qualitative Disclosures about
      market risk                                                                                                               | 29  
|ITEM 4  | CONTROLS AND PROCEDURES                                                                                                                                                        | 29  
|        |                                                                                                                                                                                |     
|PART II | OTHER INFORMATION                                                                                                                                                              | 30  
|        |                                                                                                                                                                                |     
|Item 1. | Legal Proceedings                                                                                                                                                              | 30  
|Item 2. | Unregistered Sales of Equity Securities and Use
      of Proceeds                                                                                                              | 30  
|Item 3. | Defaults Upon Senior Securities                                                                                                                                                | 33  

|Item 4.        | Removed and Reserved            | 33
|-------------- | ------------------------------- | --
|Item 5.        | Other Information               | 33
|Item 6         | Exhibits and Reports on Form 8K | 33
|Signature Page |                                 | 34

2

---

PART I-FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                                                                                                                                                                        |   | June 30,     |   |   | September 30, |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------- | -
|                                                                                                                                                                                        |   | 2010         |   |   | 2010          |  
|                                                                                                                                                                                        |   | (audited)    |   |   | (unaudited)   |  
|ASSETS                                                                                                                                                                                  |   |              |   |   |               |  
|CURRENT ASSETS                                                                                                                                                                          |   |              |   |   |               |  
|Cash                                                                                                                                                                                    | $ | 228,437      |   | $ | 63,644        |  
|Accounts receivable                                                                                                                                                                     |   | 122,478      |   |   | 89,225        |  
|Inventory                                                                                                                                                                               |   | 98,807       |   |   | 145,461       |  
|Prepaid and other current assets                                                                                                                                                        |   | 208,707      |   |   | 248,464       |  
|Current portion, note receivable                                                                                                                                                        |   | 2,700,000    |   |   | 2,700,000     |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|TOTAL CURRENT ASSETS                                                                                                                                                                    | $ | 3,358,429    |   | $ | 3,246,794     |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|Property and equipment, net                                                                                                                                                             |   | 62,311       |   |   | 61,458        |  
|Notes receivable, net of contra reserve for utilization of
      corresponding Convertible Debenture agreement with La Jolla of $600,000
      and $900,000                             |   | 2,464,000    |   |   | 1,863,400     |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|TOTAL ASSETS                                                                                                                                                                            | $ | 5,884,740    |   | $ | 5,171,652     |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                   |   |              |   |   |               |  
|CURRENT LIABILITIES                                                                                                                                                                     |   |              |   |   |               |  
|Accounts payable                                                                                                                                                                        | $ | 539,444      |   | $ | 658,540       |  
|Accrued expenses                                                                                                                                                                        |   | 540,203      |   |   | 523,150       |  
|Due to related parties                                                                                                                                                                  |   | 19,214       |   |   | 17,242        |  
|Notes payable, related parties                                                                                                                                                          |   | 870,817      |   |   | 889,327       |  
|Short term notes                                                                                                                                                                        |   | 65,000       |   |   | 65,000        |  
|Accounts payable and accrued
      expenses-discontinued activities                                                                                                                     |   | 1,112,872    |   |   | 1,112,872     |  
|Current portion, long term debt                                                                                                                                                         |   | 10,352       |   |   | 10,650        |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                               | $ | 3,157,902    |   | $ | 3,276,781     |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|Long term portion Equipment loan                                                                                                                                                        |   | 27,703       |   |   | 24,949        |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|OTHER OBLIGATIONS CONVERTIBLE TO EQUITY- (Note 3 )                                                                                                                                      |   |              |   |   |               |  
|Convertible debt derivative liability                                                                                                                                                   |   | 5,966,149    |   |   | 2,680,371     |  
|Convertible debentures, net of discount of $2,628,739 and
      $2,068,746 on June 30, 2010 and Sept 30, 2010 respectively                                                              |   | 4,577,710    |   |   | 4,326,254     |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|COMMITMENTS AND CONTINGENCIES -(Note 4)                                                                                                                                                 |   |              |   |   |               |  
|                                                                                                                                                                                        |   |              |   |   |               |  
|STOCKHOLDERS' DEFICIT                                                                                                                                                                   |   |              |   |   |               |  
|Common stock, par value $.01, 2,000,000,000
      shares authorized 1,163,751,952 and 1,240,960,490 shares issued and
      outstanding at June 30, 2010 and Sept 30, 2010 respectively |   | 11,637,519   |   |   | 12,409,604    |  
|Additional paid in capital                                                                                                                                                              |   | 174,683,294  |   |   | 174,624,741   |  
|Deficit accumulated during development
      stage                                                                                                                                      |   | (194,157,564 | ) |   | (192,163,075  | )
|Less-Treasury stock, 13,750 shares at cost                                                                                                                                              |   | (7,973       | ) |   | (7,973        | )
|TOTAL STOCKHOLDERS' DEFICIT                                                                                                                                                             |   | ($7,844,724  | ) |   | ($5,136,703   | )
|                                                                                                                                                                                        |   |              |   |   |               |  
|TOTAL LIABILITIES AND STOCKHOLDERS'
      DEFICIT                                                                                                                                       | $ | 5,884,740    |   | $ | 5,171,652     |  

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

4

---

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

|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   | Date of       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------------------------------- | - | - | ------------- | - | - | ------------- | -
|                                                                                                                                                                                                                                                                                      |   | For the Three Months Ended September 30, |   |   | Inception to  |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   | September 30, |  
|                                                                                                                                                                                                                                                                                      |   | 2009                                     |   |   | 2010          |   |   | 2010          |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|REVENUES                                                                                                                                                                                                                                                                              | $ | 51,837                                   |   | $ | 28,808        |   | $ | 723,237       |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|COSTS AND EXPENSES                                                                                                                                                                                                                                                                    |   |                                          |   |   |               |   |   |               |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Cost of Sales                                                                                                                                                                                                                                                                         |   | -                                        |   |   | 9,467         |   |   | 75,171        |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Research and Development (including non-cash stock related
      charges of $0, $0 and $205,733 for three months Sept 30, 2009 & 2010
      and inception to date respectively)                                                                                                       |   | 514,326                                  |   |   | 193,780       |   |   | 11,825,925    |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|General and Administrative (including non-cash stock
      related charges of $0, $62,945 and $12,691,409 for three months Sept 30,
      2009 & 2010 and inception to date respectively)                                                                                             |   | 420,824                                  |   |   | 522,994       |   |   | 25,929,868    |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Depreciation and Amortization                                                                                                                                                                                                                                                         |   | 5,285                                    |   |   | 3,873         |   |   | 566,712       |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|TOTAL COSTS AND EXPENSES                                                                                                                                                                                                                                                              |   | 940,435                                  |   |   | 730,114       |   |   | 38,397,676    |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|OPERATING LOSS                                                                                                                                                                                                                                                                        | $ | (888,598                                 | ) | $ | (701,306      | ) | $ | (37,674,439   | )
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                |   |                                          |   |   |               |   |   |               |  
|Interest (Expense)                                                                                                                                                                                                                                                                    |   | (680,700                                 | ) |   | (29,940       | ) |   | (2,516,190    | )
|Net Reparation, Impairment and Other Income (Expense)                                                                                                                                                                                                                                 |   | 4,284                                    |   |   | -             |   |   | (6,593,027    | )
|Net Credits (Charges) related to
      Convertible Debt                                                                                                                                                                                                                               |   | 1,168,070                                |   |   | 2,725,735     |   |   | (591,110      | )
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|TOTAL OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                          | $ | 491,654                                  |   |   | 2,695,795     |   | $ | (9,700,327    | )
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Income (Loss) From Continuing Operations,
      before Income Taxes                                                                                                                                                                                                                   | $ | (396,944                                 | ) | $ | 1,994,489     |   | $ | (47,374,766   | )
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Income (Loss) From Discontinued Operations,                                                                                                                                                                                                                                           |   |                                          |   |   |               |   |   |               |  
|Net of Income Taxes of $0 in 2009 and 2010, offset by
      benefit from tax loss carryforwards of $0 in 2009 and 2010 (including
      non-cash stock related charges of $0, $0 and $ 57,515,718 for for three
      months Sept 30, 2009 & 2010 and inception to date respectively) |   | -                                        |   |   | -             |   |   | (144,788,309  | )
|Income Taxes                                                                                                                                                                                                                                                                          |   | -                                        |   |   | -             |   |   | -             |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Net Income (Loss)                                                                                                                                                                                                                                                                     | $ | (396,944                                 | ) | $ | 1,994,489     |   | $ | (192,163,075  | )
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Net Income (Loss) per share from:                                                                                                                                                                                                                                                     |   |                                          |   |   |               |   |   |               |  
|Continuing Operations-basic                                                                                                                                                                                                                                                           | $ | (0.00                                    | ) | $ | 0.00          |   |   |               |  
|Continuing Operations-diluted                                                                                                                                                                                                                                                         |   | N/A                                      |   | $ | 0.00          |   |   |               |  
|Discontinued Operations                                                                                                                                                                                                                                                               | $ | -                                        |   | $ | -             |   |   |               |  
|                                                                                                                                                                                                                                                                                      |   |                                          |   |   |               |   |   |               |  
|Weighted Average Number of Shares Outstanding:                                                                                                                                                                                                                                        |   |                                          |   |   |               |   |   |               |  
|Basic                                                                                                                                                                                                                                                                                 |   | 934,821,600                              |   |   | 1,189,554,845 |   |   |               |  
|Diluted                                                                                                                                                                                                                                                                               |   | N/A                                      |   |   | 1,713,140,738 |   |   |               |  

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

5

---

|(A Development Stage Company)       
|------------------------------------
|CONSOLIDATED STATEMENT OF CHANGES IN
|SHAREHOLDERS' EQUITY (DEFICIT)      
|FOR THE PERIOD FROM JULY 1, 2010    
|THROUGH SEPTEMBER 30, 2010          
|(Unaudited)                         

Common StockShares
    
    
    **$** **.01 Par Value**
    
    
    Treasury Stock
    
    
    Additional Paid in
    Capital
    
    
    Accumulated Deficit
    
    
    Shareholders' (Deficit)
    EquityBalance July 1, 2010
    
    1,163,751,952
    
    $
    11,637,519
    
    $
    (7,973
    )
    $
    174,683,294
    
    $
    (194,157,564
    )
    $
    (7,844,724
    )Conversions of Convertible Debentures plus
      accrued interest
    
    72,133,538
    
    
    721,335
    
    
    
    
    
    (70,748
    )
    
    
    
    
    650,587Issuance of Common Stock for Services
    
    5,075,000
    
    
    50,750
    
    
    
    
    
    12,195
    
    
    
    
    
    62,945Net Income for the Three Months Ended Sept
      30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,994,489
    
    
    1,994,489Balance September 30, 2010
    
    1,240,960,490
    
    $
    12,409,604
    
    $
    (7,973
    )
    $
    174,624,741
    
    $
    (192,163,075
    )
    $
    (5,136,703
    )


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

6

---

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

|                                                                                                                              |       |                    |   |       |                     |   |       | 2-Oct-96     |  
|----------------------------------------------------------------------------------------------------------------------------- | ----- | ------------------ | - | ----- | ------------------- | - | ----- | ------------ | -
|                                                                                                                              |       | Three Months Ended |   |       | (Date of Inception) |  
|                                                                                                                              |       | Sept 30,           |   |       | To Sept 30,         |  
|                                                                                                                              |       | 2009               |   |       | 2010                |   |       | 2010         |  
|Cash Flow From Operating Activities:                                                                                          |       |                    |   |       |                     |   |       |              |  
|Net Income (Loss) From Continuing Operations                                                                                  | $     | (396,944           | ) | $     | 1,994,489           |   | $     | (47,374,766  | )
|Net Income (Loss) From Disontinued
      Operations                                                                           |       | -                  |   |       | -                   |   | $     | (144,788,309 | )
|Adjustments to reconcile net loss to net cash used in
      operating activities:                                             |       |                    |   |       |                     |   |       |              |  
|Depreciation and amortization                                                                                                 |       | 8,198              |   |       | 6,786               |   |       | 7,444,442    |  
|(Gain) loss on debt extinguishments                                                                                           |       | -                  |   |       | -                   |   |       | (1,084,608   | )
|Non-cash charges relating to issuance of
      common stock, common stock options and warrants                                |       | - -                |   |       | - 62,945            |   |       | 70,314,689   |  
|Reparation charges                                                                                                            |       | -                  |   |       | -                   |   |       | 8,264,264    |  
|Derivative Value and Debt Discount charges                                                                                    |       | (1,168,070         | ) |       | (2,725,735          | ) |       | 1,241,261    |  
|Write off of Granita Inventory/ Sovereign Investment                                                                          |       | -                  |   |       | -                   |   |       | 615,910      |  
|Other non cash charges including
      amortization of deferred compensation and beneficial conversion interest
      expense |       | 669,276            |   |       | -                   |   |       | 2,712,901    |  
|Changes in assets and liabilities:                                                                                            |       |                    |   |       | -                   |   |       |              |  
|Accounts receivable                                                                                                           |       | 22,872             |   |       | 33,253              |   |       | 338,651      |  
|Inventories                                                                                                                   |       | -                  |   |       | (46,654             | ) |       | (655,932     | )
|Prepaid expenses and Other current assets                                                                                     |       | 5,489              |   |       | (39,757             | ) |       | (167,403     | )
|Other                                                                                                                         |       |                    |   |       |                     |   |       | 906,535      |  
|Accounts payable, Accrued expenses,
      Deferred revenue                                                                    |       | (99,733            | ) |       | 259,641             |   |       | 8,825,965    |  
|Due to/from related parties                                                                                                   |       |                    |   |       |                     |   |       |              |  
|Microphase / Janifast//Lintel                                                                                                 |       | (118,045           | ) |       | (1,972              | ) |       | 5,490,801    |  
|Officers and Other                                                                                                            |       | 179,114            |   |       | -                   |   |       | 1,711,357    |  
|Net cash used in operating
      activities                                                                                   | **$** | (897,843           | ) | **$** | (457,004            | ) | **$** | (86,204,242  | )
|                                                                                                                              |       |                    |   |       |                     |   |       |              |  
|Cash Flow from Investing Activities:                                                                                          |       |                    |   |       |                     |   |       |              |  
|Payments related to patents and licensing rights                                                                              |       | -                  |   |       | -                   |   |       | (450,780     | )
|Purchase of fixed assets                                                                                                      |       | (15,000            | ) |       | (5,933              | ) |       | (3,308,493   | )
|Investment in Sovereign                                                                                                       |       | -                  |   |       | -                   |   |       | (110,000     | )
|Net Cash (used) in investing
      activities                                                                                 | **$** | (15,000            | ) | **$** | (5,933              | ) | **$** | (3,869,273   | )
|                                                                                                                              |       |                    |   |       |                     |   |       |              |  
|Cash Flow from Financing Activities:                                                                                          |       |                    |   |       |                     |   |       |              |  
|Proceeds from issuance of common stock, exercises of
      warrants, net of finders fees                                      |       | 180,000            |   |       | -                   |   |       | 82,923,879   |  
|Payment of short term notes & equipment
      loans                                                                           |       | -                  |   |       | (2,456              | ) |       | (1,291,001   | )
|Advances from Microphase                                                                                                      |       | -                  |   |       | -                   |   |       | 347,840      |  
|Issuance of Convertible Debentures                                                                                            |       | -                  |   |       | -                   |   |       | 766,500      |  
|Net Proceeds (Repayment) from notes payable related parties                                                                   |       | -                  |   |       | -                   |   |       | (360,659     | )
|Proceeds from the collection of Notes
      Receivable under securities purchase agreements                                   |       | 1,500,000          |   |       | 300,600             |   |       | 7,236,600    |  
|Sale of minority interest in Granita subsidiary                                                                               |       | -                  |   |       | -                   |   |       | 514,000      |  
|Net cash provided by financing
      activities                                                                               | $     | 1,680,000          |   | $     | 298,144             |   | $     | 90,137,159   |  
|                                                                                                                              |       |                    |   |       |                     |   |       |              |  
|Net increase (decrease) in cash                                                                                               | $     | 767,157            |   | **$** | (164,793            | ) | $     | 63,644       |  
|                                                                                                                              |       |                    |   |       |                     |   |       |              |  
|CASH AND CASH EQUIVALENTS, beginning of
      period                                                                          |       | 100,138            |   |       | 228,437             |   |       | -            |  
|CASH AND CASH EQUIVALENTS, end of period                                                                                      | $     | 867,295            |   | $     | 63,644              |   | $     | 63,644       |  

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

7

---

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 Accounting Standards Codification ("ASC") 915-10-20,
"Accounting and Reporting by Development Stage Enterprises." The Company's
present activities are focused on microfluidics, microelectromechanical systems
(MEMS) and nanotechnology. Since mPhase is in the development stage, the
accompanying consolidated financial statements should not be regarded as typical
for normal operating periods.

BASIS OF PRESENTATION - The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
regulations of the Securities Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three months ending September 30, 2010
are not necessarily indicative of the results that may be expected for a full
fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K, as amended, for the year ended June 30, 2010.

Through September 30, 2010, the Company had incurred cumulative
(a) development stage losses totaling $192,163,075 (b) stockholders' deficit of
$5,136,703, and (c) negative cash flow from operations equal to $86,204,242. At
September 30, 2010, the Company had $63,644 of cash and $89,225 of trade
receivables to fund short-term working capital requirements. In addition, the
Company relies on the continuation of funding under certain convertible
securities agreements (See Note 3) 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.

The Company uses the First In First Out method (FIFO) to
account for inventory which is carried at cost. As of June 30, 2010 inventory
consisted primarily of component parts related to the Emergency Flashlight and
was valued at $98,807. As of September 30, 2010 (unaudited) inventory consisted
primarily of component parts related to the Emergency Flashlight and was valued
at $145,461. Appropriate reserves have been taken to assure that the cost of
such inventory does not exceed the expected resale value of each configuration
of the component parts as specified for the current model and pending higher end
model of the Emergency Flashlight line. 
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.

LOSS PER COMMON SHARE, BASIC AND DILUTED 

Basic loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed by dividing net loss adjusted for income
or loss that would result from the assumed conversion of potential common shares
from contracts that may be settled in stock or cash by the weighted average
number of shares of common stock, common stock equivalents and potentially
dilutive securities outstanding during each period. The Company had warrants to
purchase 98,323,502 shares of its common stock and options to purchase
137,518,000 shares of its common stock outstanding at September 30, 2010 as well
as convertible debentures and convertible notes plus accrued interest thereon
held by officers of the Company convertible into approximately 169,167,458 and
118,576,933 shares of the Company's common stock based upon the conversion terms
at June 30, 2010. The inclusion of the warrants and potential common shares to
be issued in connection with convertible debt have an anti-dilutive effect on
diluted loss per share and have been omitted in such computation in periods
reporting a loss.

The Company uses the First In First Out method (FIFO) to
account for inventory which is carried at cost. As of June 30, 2010 inventory
consisted primarily of component parts related to the Emergency Flashlight and
was valued at $98,807. As of September 30, 2010 (unaudited) inventory consisted
primarily of component parts related to the Emergency Flashlight and was valued
at $145,461. Appropriate reserves have been taken to assure that the cost of
such inventory does not exceed the expected resale value of each configuration
of the component parts as specified for the current model and pending higher end
model of the Emergency Flashlight line.

8

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MATERIAL EQUITY INSTRUMENTS

The Company has material equity instruments including
Convertible Debentures and Convertible Notes that are accounted for as
Derivative liabilities (SEE BELOW) and options and warrants that are evaluated
quarterly for potential reclassification as liabilities pursuant to by FASB
Standards Codification Topic 815 (previously known EITF 00-19) (SEE ALSO NOTE 3
under the caption "Other Equity

2. SUPPLEMENTAL CASH FLOW INFORMATION

For the three months ended September 30,

|                                                                                                                                  |   | 2009      |  |   | 2010    | 
|--------------------------------------------------------------------------------------------------------------------------------- | - | --------- |  | - | ------- | 
|                                                                                                                                  |   |           |  |   |         | 
|Interest Received From Notes Receivable                                                                                           | $ | 137,500   |  | $ | 74,400  | 
|Interest Accrued Unpaid                                                                                                           | $ | 39,972    |  | $ | 60,028  | 
|Non Cash Investing and Financing
      Activities: Stock issued in settlement of     
      accounts payable and accrued expenses | $ | 200,000   |  | $ | -       | 
|Conversion of convertible debt and accrued interest                                                                               | $ | 1,277,500 |  | $ | 650,587 | 
|Beneficial Conversion of Officer's Notes
      and Conversion of Accounts Payable                                                 | $ | 669,276   |  | $ | -0-     | 
|Convertible Debt issued for Notes Receivable                                                                                      | $ | 2,800,000 |  | $ | -0-     | 

9

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3. EQUITY TRANSACTIONS AND CONVERTIBLE DEBT

mPhase initially authorized capital of 50,000,000 shares of
common stock with no par value. On February 23, 2000, the Board of Directors
proposed, and on May 22, 2000 the shareholders approved, an increase in the
authorized capital to 150,000,000 shares of common stock. On June 15, 2004, a
Special Meeting of Shareholders of the Company approved a proposal by the
Company to amend the Company's Certificate of Incorporation under New Jersey law
to increase the authorized shares of common stock from 150 million to 250
million shares and change the par value of all shares of common stock from no
par to $0.01 par stock.. Effective June 2005, June 2006, and June 2008, the
Company received authorization to increase the number of authorized shares to
500 million, 900 million and 2 billion, respectively. As of September 30, 2010
the Company has 2 billion authorized shares of common stock. 
On April 25, 2009, July 15, 2010, and again on November 1, 2010, the Board of
Directors approved motions to further increase, subject to shareholder approval,
the authorized shares of common stock to 3 billion shares, 4 billion shares and
5 billion shares, respectively. Private Placements

During the quarter ended September 30, 2010, the Company did
not issue any shares of its common stock in connection with private placements.

During the quarter ended September 30, 2009, the Company issued
26,666,667 shares of its common stock at $.0075 per share in private placements
generating net proceeds of $180,000, after placement costs of $20,000.

Stock Based Compensation

During the three months ended September 30, 2010, the Company
did not issue any stock-based compensation, warrants or options to officers,
employees and issued 5,075,000 shares of its common stock to consultants valued
at $62,945.

During the three months ended September 30, 2009, the Company
did not issue any stock based compensation, warrants or options to officers,
employees or consultants.

Conversion of debt securities and Strategic vendor payables

During the three months ended September 30, 2010, $650,587 of
convertible debt and accrued interest thereon was converted into 72,133,538
shares of Common stock.

During the three months ended September 30, 2009, $1,277,750 of
convertible debt and accrued interest thereon was converted into 82,531,821
shares of Common stock.

During the three months ended September 30, 2009, $200,000 of
accounts payable to Microphase Corporation was converted into 26,666,667 shares
of Common stock. The Company recorded $586,667 interest expense on the
beneficial conversion feature.

Long Term Convertible Debentures / Note Receivable / Debt
Discount

The Company currently had 7 separate convertible debt
arrangements with independent investors active during the quarter ended June 30,
2010. During the three months ended September 30, 2010, $650,587 of these
convertible debt arrangements and accrued interest thereon was converted into
72,133,538 shares of Common stock.These transactions are intended to
provide liquidity and capital to the Company and are summarized below.

Arrangement #1(La Jolla Cove Investors, Inc.)

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

Conversion of outstanding debentures into common shares is at
the option of the holder at a price equal to the dollar amount of the debenture
divided by the lesser of $.35 per share or 80% of the three lowest volume
weighted average price during a 20 day trading period. At the time of the
transaction (September 11, 2008) the derivative value of this security was
calculated to be $1,176,471.On June 30, 2010 the derivative value of this
security was calculated to be $1,080,475. On September 30, 2010, given the
changes in the Companys stock price during the 20 day look-back period for
September 30, 2010, this value had decreased to $488,351, a $692,124 decrease
this quarter creating a non-cash credit to earnings for the quarter ended
September 30, 2010 of that amount. During the three month period ended Sept 30,
2010, amortization of debt discount amounted to $56,555 reducing the balance to
$226,219.

10

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On September 24, 2010 the Company received a letter notice of
default from the holder which the Company has denied in a reply to the holder in
writing. The Company believes that it is in compliance with the terms of the
arrangement and that no default in exists.

Arrangement #2 (JMJ Financial, Inc.)

On August 19, 2009, the Company received proceeds of $250,000
in connection with a third agreement with JMJ Financial. This transaction
involves 1) a convertible note in the amount of $1,870,000, plus a one- time
interest factor of 12% ($224,400) and a maturity date of August 10, 2012 and 2)
a secured note receivable in the amount of $1,700,000 plus a one- time interest
factor of 13.2% ($224,400) and a maturity date of August 10, 2012 due from the
the holder of the convertible note.

Conversion of outstanding into common shares is at the option
of the holder. The number of shares into which this note can be converted is
equal to the dollar amount of the note divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion.At the commitment
date the embedded conversion feature of such security was $1,054,395 and the
debt discount valued at $1,224,395 and at June 30, 2010 this estimated liability
was calculated to be $271,339.On September 30, 2009, given the fact
that the convertible note had been fully converted this value had decreased to
$0, a $271,339 decrease this quarter creating a non-cash credit to earnings for
the quarter ended September 30, 2010 of that amount. During the three month
period ended Sept 30, 2010, amortization of debt discount amounted to $222, 081
reducing the balance to $0.

Arrangement#3 (JMJ Financial, Inc.)

On September 30, 2009, the Company received a total of $150,000
of proceeds in connection with another agreement with JMJ Financial. This
transaction involves 1) a convertible note in the amount of $1,200,000 plus a
one- time interest factor of 12% ($144,000) and a maturity date of September 23,
2012 and (2) a secured note in the amount of $1,100,000 plus a one- time
interest rate factor of 13.2% ($144,000 each) and a maturity date of September
23, 2012 due from the holder of the convertible note.

Conversion of outstanding into common shares is at the option
of the holder. The number of shares into which this note can be converted is
equal to the dollar amount of the note divided by 75% of the lowest trade price
during the 20 day trading period prior to conversion. In addition, the Company
received a commitment from JMJ Financial to enter into an identical financing
not later than 60 days from September 23, 2009. At the commitment date the
embedded conversion feature of such security was $480,000 and the debt discount
valued at $580,000 and at June 30, 2010 this estimated liability was calculated
to be $938,843.On September 30, 2010, given the changes in the Companys
stock price during the 20 day look-back period for the quarter ended September
30, 2010, this value had decreased to $484,713 a decrease of $454,130 this
quarter creating a non-cash credit to earnings for the quarter ended September
30, 2010 of that amount. During the three month period ended Sept 30, 2010,
amortization of debt discount amounted to $42,963 reducing the balance to
$343,705.

Arrangement #4 (JMJ Financial, Inc.)

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

At the commitment date, the derivative value of the embedded
conversion feature of such security was $536,000 and the debt discount was
valued at $636,000 and at June 30, 2010 this estimated liability was calculated
to be $938,843. On September 30, 2010, given the changes in the Companys stock
price during the 20 day look-back period for September 30, 2010, this value had decreased to
$484,713 a decrease this quarter of $454,130 creating a non-cash credit to earnings for the quarter ended September 30, 2010 of that
amount. During the three month period ended Sept 30, 2010, amortization of debt
discount amounted to $59,926 reducing the balance to $455,406.

11

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Arrangement #5 (JMJ Financial, Inc.)

On December 15, 2009 the Company entered into a new financing
agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the amount of $1,500,000 plus a one-time interest
factor of 12% ($180,000) and a maturity date of December15, 2012 and (2) a
secured promissory note in the amount of $1,400,000 plus a one-time interest
rate factor of 13.2% ($180,000 ) and a maturity date of December 15, 2012 due
from the holder of the convertible note. The number of shares into which this
convertible note can be converted is equal to the dollar amount of the note
divided by 75% of the lowest trade price during the 20 day trading period prior
to conversion.

At the time of the transaction, the derivative value of the
embedded conversion feature of this security was calculated to be $542,714 and
at June 30, 2010 this estimate liability was calculated to be $1,173,555. On
September 30, 2010, given the changes in the Companys stock price during the 20
day look-back period for September 30, 2010 this value had decreased to $605,891,
a decrease this quarter of $567,664 creating a non-cash credit to earnings for the quarter
ended September 30, 2010 of that amount. During the three month period ended
Sept 30, 2010, amortization of debt discount amounted to $48,285 reducing the
balance to $470,267.

Arrangement #6 (JMJ Financial, Inc.)

On April 5, 2010, the Company entered into a new financing
agreement with JMJ Financial that consists of the following: 1) a convertible
note issued by the Company in the principal amount of $1,200,000 plus a one-
time interest factor of 12% ($144,000) and a maturity date of December 15, 2012,
and (2) a secured promissory note from the holder of the convertible note in the
amount of $1,100,000 plus a one-time interest rate factor of 13.2% ($144,000
each) and a maturity date of December 15, 2012.

The number of shares into which this convertible note can be
converted is equal to the dollar amount of the note divided by 75% of the lowest
trade price during the 20 day trading period prior to conversion. At the time of
the transaction, the derivative value of the embedded conversion feature of this
security was calculated to be $421,891and at June 30, 2010 the estimated
liability was calculated to be $938,843. On September 30, 2010, given the
changes in the Companys stock price during the 20 day look-back period for
September 30, 2010 this value had decreased to $484,713, a decrease of $454,130
this quarter creating a non-cash credit to earnings for the quarter ended
September 30, 2010 of that amount. During the three month period ended Sept 30,
2010, amortization of debt discount amounted to $47,876 reducing the balance to
$430,885.

Arrangement #7 ( J. Fife)

On March 3, 2010, the Company entered into an new financing
agreement with J. Fife that consists of a convertible note issued by the Company
in the principal amount of $550,000 bearing interest at 7.5% per annum in which
the Company received $495,000 cash up front. The convertible note has a maturity
date of 4 years from the date of issuance. In addition, the Company has
committed to issue in the future 2 additional promissory notes each in the
principal amount of $275,000, each with an interest rate of 7.5% and each upon
the receipt of $250,000 of cash funding in exchange for such notes. The issuance
of each of such notes is expected to take place upon the full conversion of the
holder of its previous note into common stock of the Company. Conversion of each
of the convertible notes into common stock of the Company is at the option of
the holder at a price equal to the dollar amount of the note being converted
divided by 75% of the three lowest volume weighted average prices during the 20
day trading period immediately preceding the date of conversion.

At the time of the transaction, the embedded feature of this
security was calculated to be $193,767 at  June 30, 2010 the estimated
liability was calculated to be $418,478. On September 30, 2010, given the
changes in the Companys stock price during the 20 day look-back period for
September 30, 2010 the value had decreased to $131,989, a decrease this quarter
of $286,489 creating a non-cash credit to
earnings for the quarter ended September 30, 2010 of that amount. During the
three month period ended Sept 30, 2010, amortization of debt discount amounted
to $85,390 reducing the balance to $142,263.

12

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The following table summarizes notes recievable under
convertible debt and debenture agreements as of June 30, 2010 and September 30,
2010 (unaudited):

|                                                                 |   | June 30, 2010 |   |   | September 30, 2010 |  
|---------------------------------------------------------------- | - | ------------- | - | - | ------------------ | -
|                                                                 |   |               |   |   | (unaudited)        |  
|                                                                 |   | Amount        |   |   | Amount             |  
|Arrangement #1- LaJolla Cove Investors,
      Inc.               | $ | 1,800,000     |   | $ | 1,800,000          |  
|less: reserve for utilization -LaJolla Cove
      Investors, Inc | $ | (600,000      | ) | $ | (900,000           | )
|Arrangement #3 - JMJ Financial, Inc                              | $ | 950,000       |   | $ | 649,400            |  
|Arrangement #4 - JMJ Financial, Inc                              | $ | 914,000       |   | $ | 914,000            |  
|Arrangement #5 - JMJ Financial, Inc                              | $ | 1,100,000     |   | $ | 1,100,000          |  
|Arrangement #6 - JMJ Financial, Inc                              | $ | 1,000,000     |   | $ | 1,000,000          |  
|total notes
      recievable                                     | $ | 5,164,000     |   | $ | 4,563,400          |  
|                                                                 |   |               |   |   |                    |  
|less: Current
      Portion; expected to be drawn within a year  | $ | (2,700,000    | ) | $ | (2,700,000         | )
|                                                                 |   |               |   |   |                    |  
|Notes recievable-Long term portion                               | $ | 2,464,000     |   | $ | 1,863,400          |  

The following table summarizes notes payable under convertible
debt and debenture agreements as of June 30, 2010 and September 30, 2010
(unaudited):

|                                                                 |   | June 30, 2010 |   |   | September 30, 2010 |  
|---------------------------------------------------------------- | - | ------------- | - | - | ------------------ | -
|                                                                 |   |               |   |   | (unaudited)        |  
|                                                                 |   | Amount        |   |   | Amount             |  
|Arrangement #1- LaJolla Cove Investors,
      Inc.               | $ | 1,810,000     |   | $ | 1,810,000          |  
|less: reserve for utilization -LaJolla Cove
      Investors, Inc | $ | (600,000      | ) | $ | (900,000           | )
|Arrangement #2 - JMJ Financial, Inc                              | $ | 346,500       |   | $ | -                  |  
|Arrangement #3 - JMJ Financial, Inc                              | $ | 1,200,000     |   | $ | 1,200,000          |  
|Arrangement #4 - JMJ Financial, Inc                              | $ | 1,200,000     |   | $ | 1,200,000          |  
|Arrangement #5 - JMJ Financial, Inc                              | $ | 1,500,000     |   | $ | 1,500,000          |  
|Arrangement #6 - JMJ Financial, Inc                              | $ | 1,200,000     |   | $ | 1,200,000          |  
|Arrangement #7 - J. Fife                                         | $ | 550,000       |   | $ | 385,000            |  
|total notes
      payable                                        | $ | 7,206,500     |   | $ | 6,395,000          |  
|                                                                 |   |               |   |   |                    |  
|less:unamortized
      debt discount                             | $ | (2,628,790    | ) | $ | (2,068,746         | )
|                                                                 |   |               |   |   |                    |  
|Convertible Notes payable-Long term portion                      | $ | 4,577,710     |   | $ | 4,326,254          |  

DERIVATIVE LIABILITY

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

Other Equity

During the years ended June 30, 2008 and 2009 the Company
reevaluated warrants contracts to purchase 13,104,168 shares at fixed prices
ranging from $.05 to $.15 per share originally issued during Fiscal Year Ended
June 30, 2008 pursuant to by FASB Standards Codification Topic 815 (previously
known EITF 00-19), such reevaluation was to review if the Company should record
an additional Derivative Liability which would be recordable if the other
convertible instruments the Company has outstanding; primarily the Convertible
Debentures and Notes discussed above; would limit or prevent the Company from honoring the
conversion of these fixed price warrants during their contract term.

13

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The evaluation was performed on a contract by contract basis to
equity instruments subject to by FASB Standards Codification Topic 815
(previously known EITF 00-19); namely warrants discussed above and the
Convertible Debenture and Convertible Note agreements. The Company utilized a
sequencing method prescribed by by FASB Standards Codification Topic 815
(previously known EITF 00-19), based upon applying shares available to contracts
with the earliest inception date first.

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

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

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

4. COMMITMENTS AND CONTINGENCIES

mPhase has entered into various royalty agreements with respect
to product in its former telecommunications business that was recently
discontinued.

Legal Proceedings

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

14

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5. FAIR VALUE MEASUREMENTS

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

The table below presents a reconciliation for liabilities
measured at fair value on a recurring basis at September 30, 2009 and September
30, 2010:

|                                 |   | Fair Value Measurements       |  
|-------------------------------- | - | ----------------------------- | -
|                                 |   | Using Significant             |  
|                                 |   | Unobservable Inputs (Level 3) |  
|                                 |   | Derivative Liability          |  
|                                 |   | September                     |  
|                                 |   | 30,
      2009                |  
|                                 |   |                               |  
|                                 | $ | 2,380,816                     |  
|Balance at July 1                |   |                               |  
|                                 |   |                               |  
|Decrease in Derivative Liability |   | (1,953,841                    | )
|                                 |   |                               |  
|Debt discounts                   |   | 1,534,395                     |  
|                                 |   |                               |  
|Balance at September 30          | $ | 1,961,370                     |  

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

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

We have determined that it is not practical to estimate the
fair value of our notes payable because of their unique nature and the costs
that would be incurred to obtain an independent valuation. We do not have
comparable outstanding debt on which to base an estimated current borrowing rate
or other discount rate for purposes of estimating the fair value of the notes
payable and we have not been able to develop a valuation model that can be
applied consistently in a cost efficient manner. These factors all contribute to
the impracticability of estimating the fair value of the notes payable. At
September 30, 2010, the carrying value of the notes payable and accrued interest
was approximately $4.6 million. The JMJ Convertible Notes, which are due at
various times through December 2012, yield an interest rate of 12%. Refer to
Note 3 of these financial statements for more information about the Companys
notes payable.

15

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6. 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 would reimburse
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 and in July,
2008, such fees were reduced to $3,000 per month. In addition, Microphase also
charges fees for specific projects on a project-by-project basis.

During the three months ended September 30, 2009, $200,000 of
accounts payable to Microphase Corporation was converted into 26,666,667 shares
of common stock at a conversion price of $.0075, which was comparable to private
placements during that quarter. During the quarter ended September 30, 2009, the
company recorded $586,667 interest expense for this beneficial conversion
feature.

During the three months ended September 30, 2009 and September
30, 2010 and from inception (October 2, 1996), $126,846, $10,529 and $9,385,908
respectively, have been charged to expense. As a result of the foregoing
transactions as of September 30, 2010, the Company had a $29,742 payable to
Microphase $12,500 of which is included in Accounts Payable.

JANIFAST LTD.

The Company historically has purchased products and incured
certain research and development expenses with Janifast Ltd that had offices in
Hong Kong and a manufacturing operation in the Peoples Republic of China in
connection with products associated with its form telecommunications business
that was recently discontinued as a business. Janifast Ltd was owned by a
company in which two directors and one former director of mPhase were
significant shareholders. In March of 2009 Janifast Ltd ceased operations owing
to financial distress and adverse global financial and credit conditions.

Janifast Limited had been a significant shareholder of the
Company until September 19, 2009, when it transferred to Mr. Durando 11,735,584
shares, representing all the shares of the Company held by Janifast, in
consideration of the partial cancellation of loan obligations to Mr. Durando in
connection with the plan of its liquidation.

During the three months ended September 30, 2009 and 2010 and
the period from inception (October 2, 1996), $0, $0 and $16,031,811
respectively, have been charged by Janifast to inventory or is included in
operating expenses in the accompanying statements of operations.

OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by
our former investment-banking firm Lipper & Company. On Sept.30, 2010, Mr.
Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid finders
fees in the amount of $150,000.

During the three months ended September 30, 2010, the Company
issued 5,075,000 shares to consultants who are not considered related parties.

16

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Transactions with Officers

At various points during past fiscal years the Messrs, Durando,
Dotoli and Smiley provided bridge loans to the Company evidenced by individual
promissory notes and deferred compensation so as to provide working capital to
the Company. All of the notes are payable on demand. During the three months
ended September 30, 2010 and 2009 the Company did not issue any shares or
options to employees. During the fourth quarter of the fiscal year ended June
30, 2009, the Board of Directors authorized a conversion feature on these notes
into shares of commons stock at the discretion of the holder provided such
shares are authorized and available at a conversion price of $.0075 per share,
which was comparable to private placements done during that quarter. During the
quarter ended September 30, 2009, the Company recorded $82,609 interest expense
on the accrued interest for this beneficial conversion feature. Total
compensation (including the value of stock awards) to related parties and
payables to officers and Microphase are summarized as follows:

Summary of compensation to related parties for the three
months ended September 30, 2010

Durando
    
    
    Dotoli
    
    
    Smiley
    
    
    Biderman
    
    
    Microphase
    
    
    TotalConsulting / Salary
    $
    40,000
    
    $
    36,000
    
    $
    35,000
    
    
    
    
    
    
    
    $
    111,000Interest
    $
    9,044
    
    $
    4,989
    
    $
    4,477
    
    
    
    
    
    
    
    $
    18,510Rent
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,000
    
    $
    9,000G&A
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,529
    
    $
    1,529R&D
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0
    
    $
    0Finders Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0Total compensation
    $
    49,044
    
    $
    40,989
    
    $
    39,477
    
    $
    0
    
    $
    10,529
    
    $
    140,039


Summary of payables to related parties as of September 30,
2010

Total notespayable &Durando
    
    
    Dotoli
    
    
    Smiley
    
    
    accrued interest
    
    
    **Microphase**
    
    
    TotalNotes payable
    $
    301,479
    
    $
    166,306
    
    $
    119,030
    
    $
    586,815
    
    
    
    
    $
    586,815Due to Officers / Affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29,742
    
    $
    29,742Interest Payable
    $
    127,001
    
    $
    106,877
    
    $
    68,634
    
    $
    302,512
    
    
    
    
    $
    302,512Total Payable to Officers /
      Affiliates
    $
    428,480
    
    $
    273,183
    
    $
    187,664
    
    $
    889,327
    
    $
    29,742
    
    $
    919,069


Summary of compensation to related parties for the three
months ended September 30, 2009

Durando
    
    
    Dotoli
    
    
    Smiley
    
    
    Biderman
    
    
    Microphase
    
    
    TotalConsulting / Salary
    $
    50,000
    
    $
    45,000
    
    $
    43,750
    
    
    
    
    
    
    
    $
    138,750Interest
    $
    18,523
    
    $
    13,523
    
    $
    7,927
    
    
    
    
    
    
    
    $
    39,973Rent
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,000
    
    $
    9,000G&A
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,846
    
    $
    1,846R&D
    
    
    
    
    
    
    
    
    
    
    
    
    $
    125,000
    
    $
    125,000Finders Fees
    
    
    
    
    
    
    
    
    
    $
    20,000
    
    
    
    
    $
    20,000Total compensation
    $
    68,523
    
    $
    58,523
    
    $
    51,677
    
    $
    20,000
    
    $
    135,846
    
    $
    334,569


Summary of payables to related parties as September 30,
2009

Total notespayable &Durando
    
    
    Dotoli
    
    
    Smiley
    
    
    accrued interest
    
    
    **Microphase**
    
    
    TotalNotes payable
    $
    617,420
    
    $
    450,756
    
    $
    264,224
    
    $
    1,332,400
    
    
    
    
    $
    1,332,400Due to Officers / Affiliates
    
    
    
    $
    5,550
    
    
    
    
    
    
    
    $
    76,875
    
    $
    82,425Interest Payable
    $
    79,995
    
    $
    76,037
    
    $
    14,890
    
    $
    170,922
    
    
    
    
    $
    170,922Total Payable to Officers /
      Affiliates
    $
    697,415
    
    $
    532,343
    
    $
    279,114
    
    $
    1,508,872
    
    $
    76,875
    
    $
    1,585,747


17

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7. SUBSEQUENT EVENTS

From October 1, 2010 through November 5, 2010, the Company
issued 19,972,223 shares of its common stock in connection with the conversion
of $133,313 of the convertible debt arrangements and accrued interest thereon.

On October 22, 2010, the Company entered into a Forbearance
Agreement with John Fife in which the lender agreed not to convert any
additional amounts under the terms of the $550,000 convertible note until
January 15, 2011 in exchange for increasing the original principal amount of the
Convertible Note and two subsequent notes to be issued by 10%.

18

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ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

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

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

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

RESULTS OF OPERATIONS

OVERVIEW

mPhase, a New Jersey corporation, founded in 1996 is a
publicly-held company with over 19,000 shareholders and approximately 1.265
billion shares of common stock outstanding. The Company's common stock is traded
on the Over the Counter Bulletin Board under the ticker symbol XDSL. We are
headquartered in Norwalk, Connecticut with offices in Little Falls, NJ. mPhase
shares common office space with Microphase Corporation, a privately held
company. Microphase is a leader in the field of radio frequency and filtering
technologies within the defense and telecommunications industry. It has been in
operation for over 50 years and supports mPhase with both engineering and
administrative and financial resources as needed.

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

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

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

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, and since
July 1, 2007 we have focused primarily upon development of our smart reserve
battery, and other battery, and illuminator products

19

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Description of Operations

Microfluidics, MEMS, and Nanotechnology

In February of 2004, mPhase entered the business of developing
new products based on materials whose properties and behavior are controlled at
the micrometer and nanometer scales. (For reference, a micrometer or micron is
equal one millionth (10 -6 ) of a meter and a nanometer is one
billionth (10 -9 ) of a meter  the scale of atoms and molecules. A
human hair is approximately 50 microns in diameter, or 50,000 nanometers thick.)
The Company has expertise and capabilities in microfluidics,
microelectromechanical systems (MEMS), and nanotechnology. Microfluidics refers
to the behavior, precise control and manipulation of fluids that are
geometrically constrained to a small, typically micrometer scale. MEMS is the
integration of mechanical elements, sensors, actuators, and electronics on a
common silicon substrate through microfabrication technology. Nanotechnology is
the creation of functional materials, devices and systems through control of
matter (atoms and molecules) on the nanometer length scale (1-100 nanometers),
and exploitation of novel phenomena and properties (physical, chemical,
biological, mechanical, electrical) at that length scale. In its Smart
NanoBattery, mPhase exploits the physical phenomenon of electrowetting by which
a voltage is used to change the wetting properties of a liquid/solid interface
at the nanometer scale. Consider water as the liquid. Through electrowetting,
mPhase can change a surface from what is referred to as a hydrophobic ("water
fearing") state to a hydrophilic ("water loving") state. In the hydrophobic
state, the water beads up or is repelled by the surface. In the hydrophillc
state, the water spreads out or is absorbed by the surface. The ability to
electronically control the wetting characteristics of a surface at the nanometer
scale forms the basis of mPhase's nanotechnology operations and intellectual
property portfolio.

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

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

History of Nanotechnology Operations

Smart NanoBattery

mPhase Technologies along with Bell Labs, jointly conducted
research from February 2004 through April of 2007 that demonstratedcontrol and
manipulation of fluids on superhydrophobic and superlyophobic surfaces to create
a new type of battery or energy storagedevice with power management features
obtained by controlling the wetting behavior of a liquid electrolyte on a solid
surface. The scientific research conducted set the ground work for continued
development of the Smart NanoBattery and formed a path to commercialization of
the technology for a broad range of market opportunities. During 2005 and 2006,
the battery team tested modifications and enhancements to the internal design of
the battery to optimize its power and energy density characteristics, as well as
making engineering improvements that were essential in moving the battery from a
zinc-based chemistry to a commercial lithium-based chemistry that can be
manufactured on a large scale. The Company began its efforts by entering into a
$1.2 million 12 month Development Agreement with the Bell Labs division of
Alcatel/Lucent for exploratory research of control and manipulation of fluids on
superhydrophobic surfaces to create power cells ( batteries) by controlling
wetting behavior of an electrolyte on nanostructured electrode surfaces. The
goal was to develop a major breakthrough in battery technology creating
batteries with longer shelf lives as the result of no direct electrode

20

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contact (meaning no power drain prior to activation). The Company extended its
development effort twice for an additional 2 year ending in March of 2007 and
for two additional periods thereafter through July 31, 2007. During this time,
the technical focus shifted from trying to separate the liquid electrolyte from
nanostructured electrodes to developing a nanostructured membrane that could
physically separate the liquid electrolyte from the solid electrodes. 
mPhase also began working with the Rutgers University Energy Storage Research
Group (ESRG) in July of 2005 to conduct contract research in advanced battery
chemistries involving lithium. This work involved characterizing and testing
materials that could be used in the mPhase battery. In July of 2007, the
relationship shifted to a collaboration focused on developing a memory backup
battery needed by the U.S. Army. The work was funded through a Phase I Small
Business Technology Transfer Program (STTR) grant. 
In July of 2007, mPhase formed a new wholly-owned subsidiary, Always Ready,
Inc., to focus on the development of its nanotechnology products. The Company
has used this subsidiary as a division of the Company in order to develop
increasing brand recognition of its battery product. The Company decided in
September of 2007 to transfer its development work out of Bell Labs
(Alcatel/Lucent) in order to broaden its nanotechnology product
commercialization efforts. Prior to such time mPhase was limited to development
using zinc-based batteries since Bell Labs did not have facilities to handle
lithium chemistry. mPhase continued to work with Rutgers ESRG that has
facilities capable of handing lithium battery development and also engaged in
work with other companies to supply essential components, fabricate prototypes,
and plan manufacturing approaches. These companies included a well-respected
silicon foundry and battery manufacturer. 
In February of 2008, the Company announced that a prototype of its Smart
NanoBattery was successfully deployed in a gun-fired test at the Aberdeen
Proving Ground at Maryland. The test was conducted by the U.S. Army Armament
Research and Development and Engineering Center (ARDEC) of Picatinny, New
Jersey. The battery not only survived the harsh conditions of deployment at a
gravitational force in excess of 45,000 g , but was also flawlessly activated in
the process . 
In March of 2008, mPhase announced that it had been invited to submit a proposal
for a Phase II STTR grant, based upon the successful work it had performed on
the Phase I grant to develop a version of the Smart NanoBattey referred to as
the multi-cell, micro-array reserve battery for a critical U.S. Army memory
backup application. The Phase II grant in the gross amount of $750,000 (net
$500,000) was granted to the Company in the middle of September of 2008 .In
March of 2008, the Company also announced the successful transfer to a
commercial foundry of certain processes critical to the manufacturing of its
Smart NanoBattery. This will enable fabrication of the porous membranes for the
multi-cell, micro-array reserve battery mentioned above. The Company
successfully manufactured nanostructured membranes at the foundry that are
essential to commercial production of the battery. By achieving a series of
delayed activations, the shelf-life and continuous run-time of such battery is
increased to a period of time in excess of twenty years. In April of 2008, the
Company announced that it had successfully activated it's first Smart
NanoBattery prototype by electrowetting using a hard-wired configuration and a
remotely-activated device. Remote activation plays a key role in providing power
to wireless sensors systems and RFID tags. 
Also, in April of 2008, the Company announced that it had successfully produced
its first lithium-based reserve battery with a soft or pouchpackage and
breakable separator (in place of the electrowettable membrane) that relies on
mechanical rather than electrical activation to provide Power On Command. The
Company believes that it is a significant milestone in moving from a low energy
density zinc-based battery to a higher energy density lithium-based battery
towards proving that the Smart NanoBattery will eventually be economically and
commercially viable. 
In fiscal years ended June 30, 2009 and June 30, 2010 the Company focused upon
further development of its Smart Nano Battery under a Phase II STTR grant from
the U.S. Army as a potential reserve battery for a back-up computer memory
application for a weapons system. The Company has recently completed such Phase
II Army grant. On November 12, of 2010, the Company announced that it had
successfully triggered and activated its first functional multi-cell smat nano
battery. Triggering and activation of the cells of the battery were achieved by
using the technique of electrowetting or programmable triggering. Triggering was
accomplished by applying a pulse of electrical energy to a porous, smart surface
membrane, located inside each cell in the battery causing the electrolyte to
come in contact with the cells electrodes crating the chemical reaction to
produce voltage inside of the multi-cell battery. The multi-cell battery
consists of a matrix of 12 individual cells populated with an electrode stack
consisting of lithium and carbon monofluoride materials with each rated at 3.0
volts. Using a custom designed circuit board for testing, each of the cells in
the battery were independently triggered and activated without affecting any of
the non-activated cells in the multi-cell configuration. Each cell in the
battery has a very long shelf-life prior to triggering. Emergency Flashlight
On December 5, 2008 mPhase Technologies, Inc. signed a contract with Porsche
Design Gesellschaft m.b.H., Flugplatzstrasse 29, A,S700 Zell am See. Austrla
[Porsche Design Studio], to design a premium version of the AlwaysReady
Emergency Flashlight. A pilot program that began in March of 2010 has resulted
in the sale of approximately 56 emergency flashlights. The flashlight sold in
the pilot program contained mPhases proprietary mechanically-activated lithium
reserve battery. The battery contains a breakable barrier that separates the
solid electrodes from the liquid electrolyte until the battery is manually
activated. Unlike traditional batteries, the mPhase battery remains in an inert
state with no leakage or self-discharge until activation. The mPhase battery is
designed to have an almost infinite shelf life making it ideal for emergency
lighting applications. The premium flashlight will be marketed as an accessory
for automobile roadside emergency kits.

21

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

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

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

Owing to cost considerations the Company has decided to utilize a cost reduced active-reserve battery in its current version of its emergency flashlight product for potential sales after the pilot program. Such active reserve battery also has a very
long shelf life and enables the Company to significantly reduce the selling price of the Emergency Flashlight. The Company is currently seeking a high-end products distributor to establish a licensing or distribution agreement with in order to
maximize potential revenue associated with the product.

Magnetometer

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

22

---

FINANCIAL OVERVIEW

Revenues. Since July 1,2007 and inclusive of the most current quarter, revenue has primarily been attributable to grants from the United States Army and testing arrangements involving its nanotechnology products. The Company also derived
minor revenues in connection with sales of its emergency flashlight product under an initial pilot program that commenced in March of 2010.

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

Research and development. Research and development expenses have consisted principally of direct labor and payments made to MKE manufacturing (an approved vendor of Porsche) , Porsche Design Studio and Microphase Corporation in connection
with the Company’s Emergency Illuminator product and Cylex, a foundry located in Sweden , as well as other third party vendors involved in the development of the solution and nanotechnology products. All research and development costs are
expensed as incurred.

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

Non-Cash compensation charges. The Company makes extensive use of stock, stock options and warrants as a form of compensation to employees, directors and outside consultants. We incurred non-cash compensation charges totaling $70,314,689
from inception (October 2, 1996) through September 30, 2010.

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

Cumulative losses, net worth and capital needs

The Company has incurred cumulative development stage losses of $192,163,075 and negative cash flow from operations of $86,204,242 from inception through September 30, 2010. The auditors report for the fiscal year ended June 30, 2010
includes the statement that "there is substantial doubt of the Company's ability to continue as a going concern". As of September 30, 2010, the Company had a negative net worth of ($5,136,703) compared to a negative net worth of ($7,844,724)
as of June 30, 2010 as a result of continuing net losses. The Company has convertible notes funded with JMJ Financial, Inc that should enable the Company to raise significant working capital for the next fiscal year. Draws under this facility in the
current fiscal quarter ended Sept, 30, 2010 amounted to $300,600 (accounted for as a pay-down of notes receivable) and also the collection of $74,400 of accrued interest (included in the statement of operations).

The Company expects to be able to receive approximately $200,000 -$250,000 per month through August of 2011 under its current convertible notes with JMJ Financial, Inc. While the Company believes these facilities will fund short term capital needs it may
from time to time need to supplement such funding.. In the longer term, we estimate that the Company will need to raise approximately $5-15 million of additional capital above the funds through June 30, 2011 in order to fund commercialization of
its products. The Company does not expect to derive any material revenue from its Nanotechnology product development during the current fiscal year. The Company estimates that material revenues from its SmartNanoBattery could occur in 18 months
depending upon adoption and custom tailoring of such product as a reserve battery to a computer memory or other function for a specific weapons system. Additional revenues may be derived as early as the third quarter of fiscal year 2011 from further
sales of the Company’s emergency flashlight product depending upon the establishment of a successful licensing arrangement with a major high-end product distributor.

23

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THREE MONTHS ENDED September 30, 2010 VS. September 30, 2009

REVENUE

Total revenues were $28,808 for the three months ended September 30, 2010 compared to $51,837 for the three months ended September 30, 2009. Revenues derived in the current quarter consisted of payments received under a Phase II U.S. Army
Grant of 26,493 as part of a $750,000 STTR award (shared between the Company and Rutgers University) which began September 2008.

RESEARCH AND DEVELOPMENT

Research and development expenses were $193,780 for the three months ended September 30, 2010 as compared to $514,326 during the comparable period in 2009 or a decrease of $320,546. This decrease in spending is a result of completion of
its smart nano battery prototype and its emergency flashlight using its mechanically-activated reserve battery as brought to market in its pilot program

Subject to available funds, the Company expects to increase its research and development efforts throughout fiscal year 2011. Such research is expected to focus on other applications for “smart surfaces” including the Smart Nano Battery.
The initial applications for the nano power cell technology will address the need to supply emergency and reserved power to a wide range of electronic devices for both commercial and defense applications.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative (G&A) expenses were $522,994 for the three months ending September 30, 2010 up from $420,824 or an increase of $102,170 from the comparable period in 2009. The increase in G&A expense is primarily the
result of stock issued for investor relations services of $62,945 and approximately $30,000 for the Company preparing its preliminary proxy in an effort to hold a special meeting of shareholders in lieu of annual meetings for the preceding
fiscal years ended June 30, 2008 and June 30, 2009.. Otherwise administrative expenses were held in check as the Company has made a concentrated effort to freeze or otherwise reduce administrative costs while it seeks to commercialize its
smartnanobattery product capabilities and secure more substantial research funding for possible applications of its “smart surfaces” technology.

OTHER (EXPENSE) AND INCOME

Included in this category are non-cash gains and costs associated with convertible debt that include a non-cash credit for the change in derivative value of $3,285,778 offset by amortization of debt discount costs of $560,043, resulting in a
net gain of $2,725,735 from derivative liabilities associated with the Company’s convertible debt and is not indicative of operating results. Additionally, net interest expense of $29,940 in the current period brought total other
income down to $2,695,795. For the same period in the prior fiscal year net other income totaled $491,654, consisting primarily of net gains of $1,168,070 from derivative liabilities, reduced by interest expense of $680,700. The
interest expense for the prior period included interest non-recurring charges of $586,667 recorded on beneficial conversions features for Microphase Corporation in connection with the conversion of $200,000 of accounts payable, and
$82,609 recorded on such features for officer’s loans and accrued interest as discusses in Note 6-“Related Party Transactions”.

NET INCOME AND (LOSS)

The Company recorded net income of $1,994,489 for the three months ended September 30, 2010 as compared to a loss of $396,944 for the three months ended September 30, 2009. This represents a net income per common share of $.00 and loss
per share of $.00 for the three month periods ended September 30, 2010 and 2009 respectively. The net income recorded in the current period as compared to the net loss reported for the same period last year is directly attributable to the
magnitude of the net gain from derivative liabilities associated with the Company’s convertible debt recorded for the three months ended September 30, 2010 and is not indicative of operating results.

24

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CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION

As required, mPhase has adopted ASC 605-10-525 "Revenue Recognition in Financial Statements", which provides guidelines on applying generally accepted accounting principals to revenue recognition based upon the interpretations and practices of the
SEC.

RESEARCH AND DEVELOPMENT

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

MATERIAL EQUITY INSTRUMENTS

The Company has material equity instruments including Convertible Debentures and Convertible Notes that are accounted for as Derivative liabilities (SEE BELOW) and options and warrants that are evaluated quarterly for potential reclassification as
liabilities pursuant to by FASB Standards Codification Topic 815 (previously known EITF 00-19) (SEE ALSO NOTE 3 under the caption "Other Equity"). The Company utilized a sequencing method prescribed by EITF 00-19, based upon applying shares
available to contracts with the earliest inception date first. During the fiscal year ended June 30, 2008 the Company reclassified contracts for warrants to purchase 12,604,168 shares at fixed prices ranging from $.13 to $.15 per share to
liabilities.

The liability was recorded at the fair market value, such estimated value was based upon the contractual life of the free standing warrants, using the Black Sholes pricing model, based on the following weighted average assumptions:
annual expected return of 0%, an average life of 5 years, annual volatility 81% and a risk-free interest rate 2.25% . At the issuance date of the free standing warrants, such warrants were issued during the fourth quarter of fiscal June 30, 2008;
the estimated value approximated $1,006,200 and as recalculated on the quarterly measurement dates, at June 30, 2008 the estimated value approximated $433,300. During fiscal year ended 2009, the estimated value was reduced to zero. The net
change in the liability was credited to the change in derivative value in the Consolidated Statement of Operations for the Fiscal years ended June 30, 2008 and 2009 for $572,900 and $433,300, respectively, for each of these periods in
accordance FASB Standards Codification Topic 815 (previously known EITF 00-19). Effective May, 2009, warrants to purchase 11,111,112 shares, and effective September, 2009, warrants to purchase 1,493,056 shares; representing all of the contracts for
warrants to purchase 12,604,168 shares that were reclassified to liabilities during the fiscal year ended June 30, 2008, were reclassified to permanent equity.

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

DERIVATIVE LIABILITY

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

STOCK-BASED COMPENSATION

On July 1, 2005, the Company adopted the provisions of ASC 718 "Compensation - Stock Compensation"which requires companies to measure and recognizes 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
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.

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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 would reimburse 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 and in July, 2008, such fees were reduced to $3,000 per month. In addition, Microphase also charges fees for specific projects on a
project-by-project basis.

During the three months ended September 30, 2009, $200,000 of accounts payable to Microphase Corporation was converted into 26,666,667 shares of common stock at a conversion price of $.0075, which was comparable to private placements during
that quarter. During the quarter ended September 30, 2009, the company recorded $586,667 interest expense for this beneficial conversion feature.

During the three months ended September 30, 2009 and September 30, 2010 and from inception (October 2, 1996), $126,846, $10,529 and $9,385,908 respectively, have been charged to expense. As a result of the foregoing transactions as of
September 30, 2010, the Company had a $29,742 payable to Microphase $12,500 of which is included in Accounts Payable.

JANIFAST LTD.

The Company historically has purchased products and incured certain research and development expenses with Janifast Ltd that had offices in Hong Kong and a manufacturing operation in the Peoples Republic of China in connection with products
associated with its form telecommunications business that was recently discontinued as a business. Janifast Ltd was owned by a company in which two directors and one former director of mPhase were significant shareholders. In March of 2009 Janifast
Ltd ceased operations owing to financial distress and adverse global financial and credit conditions.

Janifast Limited had been a significant shareholder of the Company until September 19, 2009, when it transferred to Mr. Durando 11,735,584 shares, representing all the shares of the Company held by Janifast, in consideration of the partial
cancellation of loan obligations to Mr. Durando in connection with the plan of its liquidation.

During the three months ended September 30, 2009 and 2010 and the period from inception (October 2, 1996), $0, $0 and $16,031,811 respectively, have been charged by Janifast to inventory or is included in operating expenses in the
accompanying statements of operations.

OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by our former investment-banking firm Lipper & Company. On Sept.30, 2010, Mr. Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid finders fees in the amount of
$150,000.

During the three months ended September 30, 2010, the Company issued 5,075,000 shares to consultants who are not considered related parties.

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Transactions with Officers

At various points during past fiscal years the Messrs, Durando,
Dotoli and Smiley provided bridge loans to the Company evidenced by individual
promissory notes and deferred compensation so as to provide working capital to
the Company. All of the notes are payable on demand. During the three months
ended September 30, 2010 and 2009 the Company did not issue any shares or
options to employees. During the fourth quarter of the fiscal year ended June
30, 2009, the Board of Directors authorized a conversion feature on these notes
into shares of commons stock at the discretion of the holder provided such
shares are authorized and available at a conversion price of $.0075 per share,
which was comparable to private placements done during that quarter. During the
quarter ended September 30, 2009, the Company recorded $82,609 interest expense
on the accrued interest for this beneficial conversion feature.

Total compensation (including the value of stock awards) to
related parties and payables to officers and Microphase are summarized as
follows:

Summary of compensation to related parties for the three
months ended September 30, 2010

|                                                                                                     |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Biderman          |  |   | Microphase     |  |   | Total     | 
|---------------------------------------------------------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ----------------- |  | - | -------------- |  | - | --------- | 
|Consulting / Salary                                                                                  | $ | 40,000  |  | $ | 36,000  |  | $ | 35,000  |  |   |                   |  |   |                |  | $ | 111,000   | 
|Interest                                                                                             | $ | 9,044   |  | $ | 4,989   |  | $ | 4,477   |  |   |                   |  |   |                |  | $ | 18,510    | 
|Rent                                                                                                 |   |         |  |   |         |  |   |         |  |   |                   |  | $ | 9,000          |  | $ | 9,000     | 
|G&A                                                                                                  |   |         |  |   |         |  |   |         |  |   |                   |  | $ | 1,529          |  | $ | 1,529     | 
|R&D                                                                                                  |   |         |  |   |         |  |   |         |  |   |                   |  | $ | 0              |  | $ | 0         | 
|Finders Fees                                                                                         |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  | $ | 0         | 
|Total
      compensation                                                                             | $ | 49,044  |  | $ | 40,989  |  | $ | 39,477  |  | $ | 0                 |  | $ | 10,529         |  | $ | 140,039   | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|Summary of payables to related
      parties as of September 30, 2010                                |  
|                                                                                                     |   |         |  |   |         |  |   |         |  |   | Total
      notes |  |   |                |  |   |           | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   | payable &         |  |   |                |  |   |           | 
|                                                                                                     |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | accrued interest  |  |   | **Microphase** |  |   | Total     | 
|Notes payable                                                                                        | $ | 301,479 |  | $ | 166,306 |  | $ | 119,030 |  | $ | 586,815           |  |   |                |  | $ | 586,815   | 
|Due to Officers /
      Affiliates                                                                   |   |         |  |   |         |  |   |         |  |   |                   |  | $ | 29,742         |  | $ | 29,742    | 
|Interest Payable                                                                                     | $ | 127,001 |  | $ | 106,877 |  | $ | 68,634  |  | $ | 302,512           |  |   |                |  | $ | 302,512   | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|Total Payable to Officers /
      Affiliates                                                         | $ | 428,480 |  | $ | 273,183 |  | $ | 187,664 |  | $ | 889,327           |  | $ | 29,742         |  | $ | 919,069   | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|Summary of
      compensation to related parties for the three months ended September 30,
      2009 |  
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|                                                                                                     |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | Biderman          |  |   | Microphase     |  |   | Total     | 
|Consulting / Salary                                                                                  | $ | 50,000  |  | $ | 45,000  |  | $ | 43,750  |  |   |                   |  |   |                |  | $ | 138,750   | 
|Interest                                                                                             | $ | 18,523  |  | $ | 13,523  |  | $ | 7,927   |  |   |                   |  |   |                |  | $ | 39,973    | 
|Rent                                                                                                 |   |         |  |   |         |  |   |         |  |   |                   |  | $ | 9,000          |  | $ | 9,000     | 
|G&A                                                                                                  |   |         |  |   |         |  |   |         |  |   |                   |  | $ | 1,846          |  | $ | 1,846     | 
|R&D                                                                                                  |   |         |  |   |         |  |   |         |  |   |                   |  | $ | 125,000        |  | $ | 125,000   | 
|Finders Fees                                                                                         |   |         |  |   |         |  |   |         |  | $ | 20,000            |  |   |                |  | $ | 20,000    | 
|Total compensation                                                                                   | $ | 68,523  |  | $ | 58,523  |  | $ | 51,677  |  | $ | 20,000            |  | $ | 135,846        |  | $ | 334,569   | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|Summary of
      payables to related parties as September 30, 2009                                   |  
|                                                                                                     |   |         |  |   |         |  |   |         |  |   | Total notes       |  |   |                |  |   |           | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   | payable
      &   |  |   |                |  |   |           | 
|                                                                                                     |   | Durando |  |   | Dotoli  |  |   | Smiley  |  |   | accrued interest  |  |   | **Microphase** |  |   | Total     | 
|Notes payable                                                                                        | $ | 617,420 |  | $ | 450,756 |  | $ | 264,224 |  | $ | 1,332,400         |  |   |                |  | $ | 1,332,400 | 
|Due to Officers / Affiliates                                                                         |   |         |  | $ | 5,550   |  |   |         |  |   |                   |  | $ | 76,875         |  | $ | 82,425    | 
|Interest Payable                                                                                     | $ | 79,995  |  | $ | 76,037  |  | $ | 14,890  |  | $ | 170,922           |  |   |                |  | $ | 170,922   | 
|                                                                                                     |   |         |  |   |         |  |   |         |  |   |                   |  |   |                |  |   |           | 
|Total Payable to
      Officers / Affiliates                                                         | $ | 697,415 |  | $ | 532,343 |  | $ | 279,114 |  | $ | 1,508,872         |  | $ | 76,875         |  | $ | 1,585,747 | 

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LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred cumulative development stage losses of $192,163,075, and negative cash flow from operations of $86,204,242. The auditors report for the fiscal year ended June 30, 2010 includes the statement that "there is
substantial doubt of the Company's ability to continue as a going concern". As of September 30, 2010, the Company had a negative net worth of ($5,136,703) compared to a negative net worth of ($7,844,724) as of June 30, 2010 as a result of
continuing net losses. The Company received $300,600 from notes receivable in connection with
convertible notes for the three month period that ended September 30, 2010 and $74,400 of accrued interest. In
addition, the Company has several convertible notes with JMJ Financial, Inc. through which the Company expects to fund approximately $200,000 -$250,000 per month through June 30, 2011. While the Company believes these facilities will fund
short term capital needs it may from time to time need to supplement such funding. In the longer term, we estimate that the Company will need to raise approximately $5-15 million of additional capital above the funds anticipated from the monthly
conversion JMJ, to meet longer term liquidity needs through June 30, 2011. Such monies would be necessary primarily to fund expenditures for commercialization and distribution of its emergency flashlight product which includes the Company’s
active reserve battery contained therein. The Company does not expect to derive any material revenue from its nanotechnology product development until a deployment and custom tailoring of its smartnanobattery takes place by the Army which the
Company currently estimates could occur during the next 18 months. In addition, the Company is making efforts to establish a licensing agreement with a major distribution partner to expand revenues received from its pilot program of its emergency
flashlight product.

MANAGEMENT'S PLANS

The Company has shifted its focus to the development of its “smart surfaces” using the science of nanotechnology. The Company does not expect to derive any material revenue from its nanotechnology product development during the next 18
months. In addition, the Company relies on the continuation of funding under certain convertible securities agreements (See Note 3) 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.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not exposed to changes in interest rates as the Company has no debt arrangements and no investments in certain held-to-maturity securities. Under our current policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of any financial instruments at September 30, 2010.

ITEM 4.     CONTROLS AND PROCEDURES

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

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

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PART II OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

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

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITEIS AND USE OF PROCEEDS.

All proceeds received from the following financings were used by the Company for working capital needs.

Private Placements

During the quarter ended September 30, 2010, the Company did not enter into any equity Private Placements.

Stock Based Compensation

During the quarter ended September 30, 2010, the Company did not issue any stock-based compensation, warrants or options to officers, employees and issued 5,075,000 shares of its common stock to consultants valued at $62,945.

Conversion of debt securities and Strategic vendor payables

During the three months ended September 30, 2010, $650,587 of convertible debt and accrued interest thereon was converted into 72,133,538 shares of Common stock. Subsequently, through November 5, 2010 the Company issued 19,972,223 shares of its
common stock in connection with the conversion of $133,313 of the convertible debt arrangements and accrued interest thereon.

Long Term Convertible Debentures and Convertible Notes / Note Receivable / Debt Discount

The Company currently has 7 separate convertible debt arrangements with independent investors. During the three months ended September 30, 2010, $650,587 of these convertible debt arrangements and accrued interest thereon was converted
into72,133,538 shares of Common stock.These transactions are intended to provide liquidity and capital to the Company and are summarized below.

Arrangement #1 (La Jolla Cove Investors, Inc.)

On Sept 11, 2008, the Company received proceeds of $200,000 under a Securities Purchase Agreement from La Jolla Cove Investors, Inc. This transaction involves three related agreements: 1) A Securities Purchase Agreement which may under certain
circumstances permit the Company to draw up to $2,000,000 of funds; 2) A Convertible Debenture totaling $2,000,000, with a interest rate of 7 1/4% and a maturity date of September 30, 2011 and 3) A Secured Note Receivable in the amount of
$1,800,000, with a interest rate of 8 1/4% and maturity dates of September 30,2011 due from the same parties who are the holders of the Convertible Debentures. Conversion of outstanding debentures into common shares is at the option of the
holder at a price equal to the dollar amount of the debenture divided by the lesser of $.35 per share or 80% of the three lowest Volume Weighted Average Prices during a 20 day trading period. At the time of the transaction (September 11, 2008)
the derivative value of this security was calculated to be $1,176,471.On June 30, 2009 the derivative value of this security was calculated to be $1,080,343. On September 30, 2009, given the changes in the stock price, this value had
decreased to $519,044, a $561,299 decrease this quarter creating a non-cash credit to earnings for the quarter ended September 30, 2009 of that amount. During the three month period ended Sept 30, 2009, amortization of debt discount amounted
to $71,646 reducing the balance to $502,790.

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Arrangement #2 (JMJ Financial, Inc.)

On August 19, 2009, the Company received proceeds of $250,000 in connection with a third agreement with JMJ Financial. This transaction involves 1) a convertible note in the amount of $1,870,000, plus a one-time interest factor of 12%
($224,400) and a maturity date of August 10, 2012 and 2) a sSecured note receivable in the amount of $1,700,000 plus a one-time interest factor of 13.2% ($224,400) and a maturity date of August 10, 2012 due from the holder of the
Convertible Note.

Conversion of principal into common shares is at the option of the holder. The number of shares into which this debenture can be converted is equal to the dollar amount of the note divided by 75% of the lowest trade price during the 20 day trading
period prior to conversion.At the commitment date the embedded conversion feature of such security was $1,054,395 and the debt discount valued at $1,224,395 and at June 30, 2010 this estimated liability was calculated to be $271,
339.On September 30, 2009, given the fact that the Convertible Note had been fully converted this value had decreased to $0, a $271,339 decrease this quarter creating a non-cash credit to earnings for the quarter ended September 30,
2010 of that amount. During the three month period ended Sept 30, 2010, amortization of debt discount amounted to $222, 081 reducing the balance to $0.

Arrangement#3 (JMJ Financial, Inc.)

On September 30, 2009, the Company received a total of $150,000 of proceeds in connection with another agreement with JMJ Financial. This transaction involves 1) a convertible note in the amount of $1,200,000 plus a one- time interest factor
of 12% ($144,000) and a maturity date of September 23, 2012 and (2) a secured note in the amount of $1,100,000 plus a one- time interest rate factor of 13.2% ($144,000 each) and a maturity date of September 23, 2012 due from the holder
of the convertible note.

Conversion of principal into common shares is at the option of the holder. The number of shares into which this note can be converted is equal to the dollar amount of the debenture divided by 75% of the lowest trade price during the 20 day trading
period prior to conversion. In addition, the Company received a commitment from JMJ Financial to enter into an identical financing not later than 60 days from September 23, 2009. At the commitment date the embedded conversion feature of such
security was $480,000 and the debt discount valued at $580,000 and at June 30, 2010 this estimated liability was calculated to be $938,843.On September 30, 2010, given the changes in the Company’s stock price during the 20
day look-back period for the quarter ended September 30, 2010, this value had decreased to $484,713, a decrease of $454,130 this quarter creating a non-cash credit to earnings for the quarter ended September 30, 2010 of that amount. During
the three month period ended Sept 30, 2010, amortization of debt discount amounted to $42,963 reducing the balance to $343,705.

Arrangement #4 (JMJ Financial, Inc.)

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

At the commitment date, the derivative value of the embedded conversion feature of such security was $536,000 and the debt discount was valued at $636,000 and at June 30, 2010 this estimated liability was calculated to be $938,843. On
September 30, 2010, given the changes in the Company’s stock price during the 20 day look-back period for September 30, 2010,
this value had decreased to $484,713, a decrease this quarter of $454,130 creating a non-cash credit to earnings for the
quarter ended September 30, 2010 of that amount. During the three month period ended Sept 30, 2010, amortization of debt discount amounted to $59,926 reducing the balance to $455,406.

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Arrangement #5 (JMJ Financial, Inc.)

On December 15, 2009 the Company entered into a new financing agreement with JMJ Financial that consists of the following: 1) a convertible note issued by the Company in the amount of $1,500,000 plus a one-time interest factor of 12%
($180,000) and a maturity date of December15, 2012 and (2) a secured promissory note in the amount of $1,400,000 plus a one-time interest rate factor of 13.2% ($180,000 ) and a maturity date of December 15, 2012 due from the holder of
the convertible note. Conversion of principal into shares is at the option of the
holder. The number of shares into which this convertible note can be converted is equal to the dollar amount of the note divided by 75% of the lowest trade price during
the 20 day trading period prior to conversion.

At the time of the transaction, the derivative value of the embedded conversion feature of this security was calculated to be $542,714 and at June 30, 2010 this estimate liability was calculated to be $173,555. On September 30, 2010, given
the changes in the Company’s stock price during the 20 day look-back period for September 30, 2010 this value had decreased to $605,891, a decrease this quarter
of $567,664 creating a non-cash credit to earnings for the quarter ended September 30, 2010
of that amount. During the three month period ended Sept 30, 2010, amortization of debt discount amounted to $48,285 reducing the balance to $470,267.

Arrangement #6 (JMJ Financial, Inc.)

On April 5, 2010, the Company entered into a new financing agreement with JMJ Financial that consists of the following: 1) a convertible note issued by the Company in the principal amount of $1,200,000 plus a one- time interest factor of 12%
($144,000) and a maturity date of December 15, 2012, and (2) a secured promissory note from the holder of the convertible note in the amount of $1,100,000 plus a one-time interest rate factor of 13.2% ($144,000 each) and a maturity date
of December 15, 2012.

Conversion of principal into shares is at the option of the holder.The number of shares into which this convertible note can be converted is equal to the dollar amount of the note divided by 75% of the lowest trade price during the 20 day trading
period prior to conversion. At the time of the transaction, the derivative value of the embedded conversion feature of this security was calculated to be $421,891and at June 30, 2010 the estimated liability was calculated to be $938,843.On
September 30, 2010, given the changes in the Company’s stock price during the 20 day look-back period for September 30, 2010 this value had decreased to $484,713, a decrease of $454,130 this quarter creating a non-cash credit to
earnings for the quarter ended September 30, 2010 of that amount. During the three month period ended Sept 30, 2010, amortization of debt discount amounted to $47,876 reducing the balance to $430,885.

Arrangement #7 ( J. Fife)

On March 3, 2010, the Company entered into an new financing agreement with J. Fife that consists of a convertible note issued by the Company in the principal amount of $550,000 bearing interest at 7.5% per annum in which the Company received
$495,000 cash up front. The convertible note has a maturity date of 4 years from the date of issuance. In addition, the Company has committed to issue in the future 2 additional promissory notes each in the principal amount of $275,000, each
with an interest rate of 7.5% and each upon the receipt of $250,000 of cash funding in exchange for such notes. The issuance of each of such notes is expected to take place upon the full conversion of the holder of its previous note into common
stock of the Company. Conversion of each of the convertible notes into common stock of the Company is at the option of the holder at a price equal to the dollar amount of the note being converted divided by 75% of the three lowest volume weighted
average prices during the 20 day trading period immediately preceding the date of conversion.

At the time of the transaction, the embedded feature of this security was calculated to be $193,767 at June 30, 2010 the estimated liability was calculated to be $418,478. On September 30, 2010, given the changes in the Company’s
stock price during the 20 day look-back period for September 30, 2010 the value had decreased to $131,989, a decrease this quarter
of $286,489 creating a non-cash credit to earnings for the quarter ended September 30, 2010 of that amount. During the three
month period ended Sept 30, 2010, amortization of debt discount amounted to $85,390 reducing the balance to $142,263.

32

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ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.     (REMOVED AND RESERVED)

ITEM 5.     OTHER INFORMATION

None.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

|1. | Form 8K dated July 23, 2010 announcing a change in the
      Companys outside auditors                               
|-- | ----------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                       
|2. | Form 8K dated October 22, 2010 announcing a forbearance
      agreement with the holder of a $550,000 Convertible
Note
|   |                                                                                                                       

|EXHIBITS |  | DESCRIPTION                                                                                                 | 
|-------- |  | ----------------------------------------------------------------------------------------------------------- | 
|31.1     |  | Certification of Chief Executive Officer pursuant to
      Section 302 of the Sarbanes - Oxley Act of 2002. | 
|         |  |                                                                                                             | 
|31.2     |  | Certification of Chief Financial Officer pursuant to
      Section 302 of the Sarbanes - Oxley Act of 2002. | 
|         |  |                                                                                                             | 
|32.1     |  | Certification of Chief Executive Officer pursuant to
      Section 906 of the Sarbanes - Oxley Act of 2002. | 
|         |  |                                                                                                             | 
|32.2     |  | Certification of Chief Financial Officer pursuant to
      Section 906 of the Sarbanes - Oxley Act of 2002. | 

33

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SIGNATURES

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

|                         | mPHASE TECHNOLOGIES, INC.  
|------------------------ | ---------------------------
|                         |                            
|Dated: November 15, 2010 | By:/s/ Martin S. Smiley    
|                         | Martin S. Smiley           
|                         | Executive Vice President   
|                         | Chief Financial Officer and
|                         | General Counsel            

34

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