---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

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

FOR THE QUARTER ENDED September 30, 2011

COMMISSION FILE NO. 000-30202

FORM 10-Q

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

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

**(203) 838-2741**ISSUERS TELEPHONE NUMBER

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

YES [ X
]          NO [   ]

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK AS OF NOVEMBER 4, 2011 IS 2,769,950,740 SHARES, ALL OF
ONE CLASS OF $.01 PAR VALUE COMMON STOCK.

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mPHASE TECHNOLOGIES, INC.

INDEX

|               |                                                                                                                                                                               | PAGE
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I         | FINANCIAL
      INFORMATION                                                                                                                                                   | 3   
|               |                                                                                                                                                                               |     
|Item 1         | Consolidated Balance
      Sheets June 30, 2011 (Audited) and September 30, 2011 (Unaudited)                                                                                  | 3   
|               | Unaudited Consolidated Statements of
      Operations-Three Months Ended September 30, 2010 and 2011 and from October
      2, 1996 (Date of Inception) to September 30, 2011 | 4   
|               | Unaudited
      Consolidated Statement of Changes in Stockholders' Equity (Deficit) Three
      Months Ended September 30, 2011                                               | 5   
|               | Unaudited Consolidated Statement of
      Cash Flow-Three Months Ended September 30, 2010 and 2011 and from October
      2, 1996 (Date of Inception) to September 30, 2011   | 6   
|               | Notes to
      Consolidated Financial Statements                                                                                                                              | 7   
|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                                                                                                                                                             |     
|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)                                                                                                                                                  |     
|Item 5.        | Other Information                                                                                                                                                             | 33  
|Item 6         | Exhibits and Reports
      on Form 8-K                                                                                                                                        | 33  
|Signature Page | 34                                                                                                                                                                           

---

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

|                                                                                                                                                                                               |   | June 30,     |   |   | September 30, |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------- | -
|                                                                                                                                                                                               |   | 2011         |   |   | 2011          |  
|                                                                                                                                                                                               |   |              |   |   | (unaudited)   |  
|ASSETS                                                                                                                                                                                         |   |              |   |   |               |  
|CURRENT ASSETS                                                                                                                                                                                 |   |              |   |   |               |  
|Cash                                                                                                                                                                                           | $ | 1,744        |   | $ | 87,297        |  
|Stock subscription receivable                                                                                                                                                                  |   | 50,000       |   |   | -             |  
|Inventory                                                                                                                                                                                      |   | 102,532      |   |   | 101,302       |  
|Prepaid and other current assets                                                                                                                                                               |   | 35,242       |   |   | 37,215        |  
|TOTAL CURRENT ASSETS                                                                                                                                                                           | $ | 189,518      |   | $ | 225,814       |  
|                                                                                                                                                                                               |   |              |   |   |               |  
|Property and equipment, net                                                                                                                                                                    |   | 45,114       |   |   | 46,936        |  
|TOTAL ASSETS                                                                                                                                                                                   | $ | 234,632      |   | $ | 272,750       |  
|                                                                                                                                                                                               |   |              |   |   |               |  
|LIABILITIES AND STOCKHOLDERS'
      DEFICIT                                                                                                                                                    |   |              |   |   |               |  
|CURRENT LIABILITIES                                                                                                                                                                            |   |              |   |   |               |  
|Accounts payable                                                                                                                                                                               | $ | 735,145      |   | $ | 754,526       |  
|Accrued expenses                                                                                                                                                                               |   | 162,038      |   |   | 199,416       |  
|Due to related parties                                                                                                                                                                         |   | 177,242      |   |   | 181,433       |  
|Notes payable, related
      parties                                                                                                                                                           |   | 875,724      |   |   | 924,846       |  
|Short term notes                                                                                                                                                                               |   | 65,000       |   |   | 65,000        |  
|Accounts Payable and Accrued
      Expenses-Discontinued Activities                                                                                                                            |   | 868,376      |   |   | 868,376       |  
|Current Portion, Long term debt                                                                                                                                                                |   | 11,486       |   |   | 11,816        |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                      | $ | 2,895,011    |   | $ | 3,005,413     |  
|                                                                                                                                                                                               |   |              |   |   |               |  
|Long term portion Equipment
      loan                                                                                                                                                         |   | 16,315       |   |   | 13,234        |  
|                                                                                                                                                                                               |   |              |   |   |               |  
|OTHER OBLIGATIONS CONVERTIBLE
      TO EQUITY- (Note 3 )                                                                                                                                       |   |              |   |   |               |  
|Convertible debt derivative liability                                                                                                                                                          |   | 1,664,575    |   |   | 953,218       |  
|Convertible debentures, net
      of discount of $300,000 and $258,598 on June 30, 2011 and September 30,
      2011, respectively                                                             |   | 1,250,505    |   |   | 1,350,701     |  
|                                                                                                                                                                                               |   |              |   |   |               |  
|COMMITMENTS AND CONTINGENCIES
      -(Note 4)                                                                                                                                                  |   |              |   |   |               |  
|                                                                                                                                                                                               |   |              |   |   |               |  
|STOCKHOLDERS' DEFICIT                                                                                                                                                                          |   |              |   |   |               |  
|Common stock, par value $.01, 6,000,000,000
      shares authorized, 1,628,502,264 and 2,710,250,740 shares issued and
      outstanding at June 30, 2011 and September 30, 2011, respectively |   | 16,285,022   |   |   | 27,102,507    |  
|Additional paid in capital                                                                                                                                                                     |   | 172,775,132  |   |   | 169,004,373   |  
|Deferred Compensation                                                                                                                                                                          |   | -            |   |   | (325,546      | )
|Deficit accumulated during
      development stage                                                                                                                                             |   | (194,643,955 | ) |   | (200,823,177  | )
|Less-Treasury stock, 13,750 shares at cost                                                                                                                                                     |   | (7,973       | ) |   | (7,973        | )
|TOTAL STOCKHOLDERS' DEFICIT                                                                                                                                                                    |   | ($5,591,774  | ) |   | ($5,049,816   | )
|TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                              | $ | 234,632      |   | $ | 272,750       |  

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

3

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

|                                                                                                                                                                                                                                                                                                      |   | For the Three Months
      Ended |   |   | Date of       |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------------- | - | - | ------------- | -
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|                                                                                                                                                                                                                                                                                                      |   | September 30,                    |   |   | September 30, |  
|                                                                                                                                                                                                                                                                                                      |   | 2010                             |   |   | 2011          |  
|                                                                                                                                                                                                                                                                                                      |   | (Unaudited)                      |   |   | (Unaudited)   |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|REVENUES                                                                                                                                                                                                                                                                                              | $ | 28,808                           |   | $ | 0             |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|COSTS AND EXPENSES                                                                                                                                                                                                                                                                                    |   |                                  |   |   |               |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Cost of Sales                                                                                                                                                                                                                                                                                         |   | 9,467                            |   |   | 571           |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Research and Development
      (including non-cash stock related charges of $0, $0 and $205,733 for the
      three months ended September 30, 2010 & 2011 and inception to date
      respectively)                                                                                                  |   | 193,780                          |   |   | 41,403        |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|General and Administrative
      (including non-cash stock related charges of $62,945, $6,520,500 and
      $19,274,854 for the three months ended September 30, 2010 & 2011 and
      inception to date respectively)                                                                                |   | 522,994                          |   |   | 6,888,462     |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Depreciation and Amortization                                                                                                                                                                                                                                                                         |   | 3,873                            |   |   | 3,681         |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|TOTAL COSTS AND EXPENSES                                                                                                                                                                                                                                                                              |   | 730,114                          |   |   | 6,934,117     |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|OPERATING LOSS                                                                                                                                                                                                                                                                                        | $ | (701,306                         | ) | $ | (6,934,117    | )
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                                |   |                                  |   |   |               |  
|Interest (Expense)                                                                                                                                                                                                                                                                                    |   | (29,940                          | ) |   | (70,690       | )
|Net Reparation, Impairment
      and Other Income (Expense)                                                                                                                                                                                                                                           |   | 0                                |   |   | 1,131         |  
|Net Credits (Charges) related to Convertible
      Debt                                                                                                                                                                                                                                               |   | 2,725,735                        |   |   | 824,454       |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|TOTAL OTHER INCOME (EXPENSE)                                                                                                                                                                                                                                                                          |   | 2,695,795                        |   |   | 754,895       |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Income (Loss) From Continuing Operations,
      before Income Taxes                                                                                                                                                                                                                                   | $ | 1,994,489                        |   | $ | (6,179,222    | )
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Income (Loss) From Discontinued Operations,                                                                                                                                                                                                                                                           |   |                                  |   |   |               |  
|Net of Income Taxes of $0 in
      2010 and 2011, offset by benefit from tax loss carryforwards of $0 in 2010
      and 2011 (including non-cash stock related charges of $0, $0 and
      $57,515,718 for the three months ended September 30, 2010 & 2011 and
      inception to date respectively) |   | -                                |   |   | -             |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Income Taxes                                                                                                                                                                                                                                                                                          |   | -                                |   |   | -             |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Net Income (Loss)                                                                                                                                                                                                                                                                                     | $ | 1,994,489                        |   | $ | (6,179,222    | )
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Net loss per share from:                                                                                                                                                                                                                                                                              |   |                                  |   |   |               |  
|Continuing Operations-Basic                                                                                                                                                                                                                                                                           | $ | 0.00                             |   | $ | (0.00         | )
|Discontinued
      Operations-Basic                                                                                                                                                                                                                                                                   | $ | -                                |   | $ | -             |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Continuing
      Operations-Diluted                                                                                                                                                                                                                                                                   | $ | 0.00                             |   |   | N/A           |  
|Discontinued Operations-Diluted                                                                                                                                                                                                                                                                       | $ | -                                |   |   | N/A           |  
|                                                                                                                                                                                                                                                                                                      |   |                                  |   |   |               |  
|Weighted Average Number of Shares
      Outstanding;                                                                                                                                                                                                                                                  |   |                                  |   |   |               |  
|Basic                                                                                                                                                                                                                                                                                                 |   | 1,189,554,845                    |   |   | 2,053,984,273 |  
|Diluted                                                                                                                                                                                                                                                                                               |   | 1,713,140,738                    |   |   | N/A           |  

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

4

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mPHASE TECHNOLOGIES, INC.(A Development Stage
Company)CONSOLIDATED STATEMENT OF CHANGES INSHAREHOLDERS'
EQUITY (DEFICIT)FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2011

|                                                                                                  |  | Common Stock  |  |   |            |  |   |          |   |   |                |   |   |              |   |   |              |  
|------------------------------------------------------------------------------------------------- |  | ------------- |  | - | ---------- |  | - | -------- | - | - | -------------- | - | - | ------------ | - | - | ------------ | -
|                                                                                                  |  |               |  |   |            |  |   |          |   |   | **Additional** |   |   |              |   |   |              |  
|                                                                                                  |  |               |  | $ | .01 Par    |  |   | Treasury |   |   | **Paid in**    |   |   | Deferred     |   |   | Accumulated  |  
|                                                                                                  |  | Shares        |  |   | Value      |  |   | Stock    |   |   | Capital        |   |   | Compensation |   |   | Deficit      |  
|Balance June 30, 2011                                                                             |  | 1,628,502,264 |  | $ | 16,285,022 |  | $ | (7,973   | ) | $ | 172,775,132    |   | $ | -            |   | $ | (194,643,955 | )
|                                                                                                  |  |               |  |   |            |  |   |          |   |   |                |   |   |              |   |   |              |  
|Conversions of Convertible
      Debentures plus accrued interest                                 |  | 26,748,476    |  |   | 267,485    |  |   | -        |   |   | (155,279       | ) |   | -            |   |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |          |   |   |                |   |   |              |   |   |              |  
|Issuance of Common Stock for
      Services                                                       |  | 1,035,000,000 |  |   | 10,350,000 |  |   | -        |   |   | (3,829,500     | ) |   | -            |   |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |          |   |   |                |   |   |              |   |   |              |  
|Deferred stock compensation                                                                       |  | -             |  |   | -          |  |   | -        |   |   | 339,700        |   |   | (339,700     | ) |   | -            |  
|Beneficial Conversion feature of Notes
      Payable, including $2,320 on Officers' Notes Payable |  |               |  |   |            |  |   |          |   |   | 2,320          |   |   |              |   |   |              |  
|Issuance of Common Stock to
      accredited investors in private placement, net of $8,000 fees   |  | 20,000,000    |  |   | 200,000    |  |   | -        |   |   | (128,000       | ) |   |              |   |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |          |   |   |                |   |   |              |   |   |              |  
|Amortization of deferred
      stock compensation                                                 |  | -             |  |   | -          |  |   | -        |   |   | -              |   |   | 14,154       |   |   | -            |  
|                                                                                                  |  |               |  |   |            |  |   |          |   |   |                |   |   |              |   |   |              |  
|Net Loss for the Three Months
      Ended September 30, 2011                                      |  | -             |  |   | -          |  |   | -        |   |   | -              |   |   | -            |   |   | (6,179,222   | )
|Balance September 30, 2011                                                                        |  | 2,710,250,740 |  | $ | 27,102,507 |  | $ | (7,973   | ) | $ | 169,004,373    |   | $ | (325,546     | ) | $ | (200,823,177 | )

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

5

---

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

|                                                                                                                        |   |                    |   |   | 2-Oct-96            |  
|----------------------------------------------------------------------------------------------------------------------- | - | ------------------ | - | - | ------------------- | -
|                                                                                                                        |   | Three Months Ended |   |   | (Date of Inception) |  
|                                                                                                                        |   | September 30,      |   |   | September 30,       |  
|                                                                                                                        |   | 2010               |   |   | 2011                |  
|Cash Flow From Operating Activities:                                                                                    |   |                    |   |   |                     |  
|Net Income (Loss) From
      Continuing Operations                                                                      | $ | 1,994,489          |   |   | ($6,179,222         | )
|Net Income (Loss) From Disontinued Operations                                                                           | $ | 0                  |   | $ | 0                   |  
|Adjustments to reconcile net
      loss to net cash used in operating activities:                                       |   |                    |   |   |                     |  
|Depreciation and amortization                                                                                           |   | 6,786              |   |   | 4,176               |  
|(Gain) loss on debt
      extinguishments                                                                               |   | -                  |   |   | -                   |  
|Non-cash charges relating to issuance of
      common stock, common stock options and warrants                          |   | 62,945             |   |   | 6,520,500           |  
|Reparation charges                                                                                                      |   | -                  |   |   | -                   |  
|Derivative Value and Debt Discount charges                                                                              |   | (2,725,735         | ) |   | (824,454            | )
|Write off of Granita
      Inventory/ Sovereign Investment                                                              |   | -                  |   |   | -                   |  
|Other non cash charges including amortization
      of deferred compensation and beneficial conversion interest expense |   | -                  |   |   | 17,845              |  
|Changes in assets and
      liabilities:                                                                                |   |                    |   |   |                     |  
|Accounts receivable                                                                                                     |   | 33,253             |   |   | -                   |  
|Inventories                                                                                                             |   | (46,654            | ) |   | 1,230               |  
|Prepaid expenses and Other current assets                                                                               |   | (39,757            | ) |   | (1,214              | )
|Other                                                                                                                   |   | -                  |   |   | -                   |  
|Accounts payable, Accrued expenses, Deferred
      revenue                                                              |   | 259,641            |   |   | 84,381              |  
|Due to/from related parties
      Microphase / Janifast//Lintel                                                         |   | (1,972             | ) |   | 4,191               |  
|Officers and Other                                                                                                      |   | -                  |   |   | -                   |  
|Net cash used in operating
      activities                                                                             |   | ($457,004          | ) |   | ($372,567           | )
|Cash Flow from Investing Activities:                                                                                    |   |                    |   |   |                     |  
|Payments related to patents
      and licensing rights                                                                  |   | -                  |   |   | -                   |  
|Purchase of fixed assets                                                                                                |   | (5,933             | ) |   | (7,129              | )
|Investment in Sovereign                                                                                                 |   | -                  |   |   | -                   |  
|Net Cash (used) in investing
      activities                                                                           |   | ($5,933            | ) |   | ($7,129             | )
|Cash Flow from Financing
      Activities:                                                                              |   |                    |   |   |                     |  
|Proceeds from issuance of common stock,
      exercises of warrants, net of finders fees                                |   | -                  |   |   | 122,000             |  
|Payment of short term notes
      & equipment loans                                                                     |   | (2,456             | ) |   | (2,751              | )
|Advances from Microphase                                                                                                |   | -                  |   |   | -                   |  
|Issuance of Convertible
      Debentures                                                                                |   | -                  |   |   | 325,000             |  
|Net Proceeds (Repayment) from notes payable
      related parties                                                       |   | -                  |   |   | 21,000              |  
|Proceeds from the collection
      of Notes Receivable under securities purchase agreements                             |   | 300,600            |   |   | -                   |  
|Sale of minority interest in Granita
      subsidiary                                                                   |   | -                  |   |   | -                   |  
|Net cash provided by
      financing activities                                                                         |   | 298,144            |   |   | 465,249             |  
|                                                                                                                        |   |                    |   |   |                     |  
|Net increase (decrease) in
      cash                                                                                   |   | ($164,793          | ) | $ | 85,553              |  
|                                                                                                                        |   |                    |   |   |                     |  
|CASH AND CASH EQUIVALENTS,
      beginning of period                                                                    | $ | 228,437            |   | $ | 1,744               |  
|CASH AND CASH EQUIVALENTS, end of
      period                                                                          | $ | 63,644             |   | $ | 87,297              |  



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

6

---

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 nine months ending September 30, 2011 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, 2011.

Through September 30, 2011, the Company had incurred cumulative
(a) development stage losses totaling $(200,823,177), (b) stockholders' deficit
of ($5,049,816), and (c) negative cash flow from operations equal to
($87,885,311). At September 30, 2011, the Company had $87,297 of cash and $0 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, 2011, inventory
consisted primarily of Emergency Flashlights and their component parts and was
valued at $102,532. As of September 30, 2011, (unaudited) inventory consisted
primarily of Emergency Flashlights and was valued at $101,302. 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 and pending higher end models 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 19,323,974 shares of its common stock and options to purchase
110,085,000 shares of its common stock outstanding at September 30, 2011, as
well as convertible debentures and convertible notes plus accrued interest
thereon held by officers of the Company convertible into approximately407,966,329and 231,211,415 shares of the Company's common stock
based upon the conversion terms at September 30, 2011. In periods reporting a
loss the inclusion of 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.

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 as EITF 00-19). (SEE ALSO
NOTE 3 under the caption "Other Equity".)

7

---

|2. | SUPPLEMENTAL CASH FLOW
  INFORMATION
|-- | ------------------------------------

|                                                                                  |  
|--------------------------------------------------------------------------------- | -
|                                                                                  |  
|                                                                                  |  
|                                                                                  |  
|                                                                                  |  
|                                                                                  |  
|Interest Received from Notes Receivable                                           | $
|Interest Accrued Unpaid                                                           | $
|                                                                                  |  
|Non Cash Investing and Financing Activities:                                      |  
|                                                                                  |  
|Conversion of Convertible Debt and Accrued Interest                               | $
|Beneficial Conversion of Officers Notes
      and Conversion of Accounts Payable | $
|Convertible Debt Issued for Notes Receivable                                      | $

|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. 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 6 billion shares,
respectively. The latest increase in the number of authorized shares of common
stock to 6 billion was approved at a Special Meeting of Shareholders of the
Company held on June 29, 2011, so that as of September 30, 2010 the Company has
6 billion authorized shares of common stock.

Private Placements

During the three months ended September 30, 2011, the Company
issued 20 million shares of its common stock in connection with private
placements pursuant to Rule 506 of Regulation D of the Securities Act of 1933,
as amended, raising gross proceeds of $80,000 and paying finders fees in the
amount of $8,000. The proceeds were used by the Company as working capital.

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

Stock Based Compensation

During the three months ended September 30, 2011, the Company
issued 1,035,000,000 shares of common stock to officers and directors, valued at
$ 6,520,500, the entire amount of which is included general and administrative
expenses in the Consolidated Statements of Operations for that period. Also
during the three months ended September 30, 2011, the Company issued no shares
of its common stock to consultants and the Board of Directors revised the
exercise price of options to purchase up to 98,000,000 shares of common stock
previously granted to officers in September, 2008 (originally exercisable
for 5 years with an exercise price of 5 cents per share). The exercise price of
options to purchase up to 98,000,000 shares was revised to $.0040; the
incremental cost of $339,700 was recorded as deferred compensation which will be
amortized to expense through September 18, 2013.

During the three months ended September 30, 2010, the Company
did not issue any stock-based compensation, warrants or options to officers or
employees and issued 5,075,000 shares of its common stock to consultants valued
at $62,945, the entire amount of which is included general and administrative
expenses in the Consolidated Statements of Operations for that period.

Conversion of Debt Securities

During the three months ended September 30, 2011, $112,206 of
convertible debt and accrued interest thereon was converted into 26,748,476
shares of common stock.

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.

8

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Long Term Convertible Debentures / Notes Receivable / Debt
Discount

The Company had 7 separate convertible debt arrangements with
independent investors active during the quarter ended September 30, 2011.

During the three months ended September 30, 2011, $112,206 of
these convertible debt arrangements and accrued interest thereon was converted
into 26,748,476 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 an
interest rate of 7 1/4% and a maturity date of September 30, 2011, and 3) a
secured note receivable in the amount of $1,800,000 with an interest rate of 8
1/4% and maturity date of September 30, 2011 due from the 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 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, 2011, the derivative value of this
security was calculated to be $3,468.

On March 16, 2011, the holder and the Company entered into a
termination agreement whereby $1,800,000 of the principal of both the note
receivable and the convertible debenture, plus $90,291 in accrued interest
receivable and $84,175 in accrued interest payable, was cancelled. Additionally
in connection with the termination, the Company paid the holder $17,000 and
assigned to a consultant engaged by the Company the unconverted portion of the
convertible debenture in the amount of $10,000, which had been fully funded in
cash and which was converted in full together with accrued interest of $500 for
2,560,976 shares of common stock during the quarter ended September 30, 2011 and
as of September 30, 2011, this convertible note has been satisfied in full.

Arrangement #2 (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 payable 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
receivable 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 JMJ
Financial. 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. As of June 30, 2011, this value was calculated to be
$472,773. During the year ended June 30, 2011 the holder converted $33,750 of
principal into 10,000,000 shares of common stock and amortization of debt
discount amounted to $412,332, reducing the debt discount balance to $100,000.
On September 30, 2011, given the changes in the Companys stock price during the
20 day look-back period for September 30, 2011, this estimated liability had
decreased to $235,517, a decrease this period of $237,206, creating a non-cash
credit to earnings for the three months ended September 30, 2011 of that amount.
During the three month period ended September 30, 2011, the Company reduced the
note payable and debt discount by $42,000 in proportion with the amount funded
to the total original funding commitment and amortization of debt discount
amounted to $11,600 reducing the balance to $43,400. Also during the three
months ended September 30, 2011 $54,456 of principle was converted into
14,187,500 shares of common stock. As of September 30, 2011, this convertible
note has $609,294 outstanding.

Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 222,142,857 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated. Based upon the price of the
Companys common stock on September 30, 2011 of $.0047 per share the holder
could convert the remaining principal amount plus interest of this convertible
note into approximately 277,948,500 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is
calculated.

The Company and the holder negotiated amendments to this
agreement, and funding and conversions did not occur between April, 2011 and
September, 2011, when the agreement was revised to have a floor conversion price
of $.0040. For accounting purposes the note receivable has been fully reserved,
and the liability is recorded, when netted against the debt discount and
cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 115,380,952 shares of common stock. Based upon
the price of the Companys common stock on September 30, 2011, the net liability
of this note is convertible into approximately 152,323,500 shares of common
stock.

9

---

Arrangement #3 (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 receivable 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 JMJ Financial. 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.
To date the Company has received a total of $300,000 cash and has issued no
shares of common stock to the holder upon conversions.

At the time of the transaction, the derivative value of the
embedded conversion feature of this security was calculated to be $542,714. As
of June 30, 2011, this value was calculated to be $607,994. During the year
ended June 30, 2011 amortization of debt discount amounted to $418,552, reducing
the debt discount balance to $100,000. On September 30, 2011, given the changes
in the Companys stock price during the 20 day look-back period for September
30, 2011, this estimated liability had decreased to $317,753, a decrease this
period of $290,241, creating a non-cash credit to earnings for the three months
ended September 30, 2011 of that amount. During the three month period ended
September 30, 2011, the Company reduced the note payable and debt discount by
$79,000 in proportion with the amount funded to the total original funding
commitment and amortization of debt discount amounted to $3,600 reducing the
balance to $17,400. As of September 30, 2011, this convertible note has $321,000
outstanding.

Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 285,714,286 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated. Based upon the price of the
Companys common stock on September 30, 2011 of $.0047 per share the holder
could convert the remaining principal amount plus interest of this convertible
note into approximately 375,000,000 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is
calculated.

The Company and the holder negotiated amendments to this
agreement, and funding and conversions did not occur between April, 2011 and
September, 2011, when the agreement was revised to have a floor conversion price
of $.0040. For accounting purposes the note receivable has been fully reserved,
and the liability is recorded, when netted against the debt discount and
cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 38,095,238 shares of common stock. Based upon the
price of the Companys common stock on September 30, 2011, the net liability of
this note is convertible into approximately 80,250,000 shares of common stock.

Arrangement #4 (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 receivable from JMJ Financial in the amount of
$1,100,000 plus a one-time interest rate factor of 13.2% ($144,000) 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. To date the Company has received a total of $100,000 cash and has
issued no shares of common stock to the holder upon conversions.

At the time of the transaction, the derivative value of the
embedded conversion feature of this security was calculated to be $421,891 and
at June 30, 2011, the estimated liability was calculated to be $486,795. During
the year ended June 30, 2011 amortization of debt discount amounted to $378,761,
reducing the debt discount balance to $100,000. On September 30, 2011, given the
changes in the Companys stock price during the 20 day look-back period for
September 30, 2011, this estimated liability had decreased to $254,203, a
decrease this period of $232,592, creating a non-cash credit to earnings for the
three months ended September 30, 2011 of that amount. During the three month
period ended September 30, 2011, the Company reduced the note payable and debt
discount by $91,000 in proportion with the amount funded to the total original
funding commitment and amortization of debt discount amounted to $1,543 reducing
the balance to $7,457. As of September 30, 2011, this convertible note has
$109,000 outstanding.

Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 228,571,429 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated. Based upon the price of the
Companys common stock on September 30, 2011 of $.0047 per share the holder
could convert the remaining principal amount plus interest of this convertible
note into approximately 300,000,000 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is
calculated.

The Company and the holder negotiated amendments to this
agreement, and funding and conversions did not occur between April, 2011 and
September, 2011, when the agreement was revised to have a floor conversion price
of $.0040. For accounting purposes the note receivable has been fully reserved,
and the liability is recorded, when netted against the debt discount and
cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 19,047,619 shares of common stock. Based upon the
price of the Companys common stock on September 30, 2011, the net liability of
this note is convertible into approximately 27,250,000 shares of common stock.

10

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Arrangement #5 (J. Fife)

On March 3, 2010, the Company entered into a financing
agreement with J. Fife that consisted 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 by 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 conversion feature
of this security was calculated to be $193,767 and the loan discount totaled
$243,767 and at June 30, 2011, the estimated liability was calculated to be
$78,065 and the debt discount had been amortized to $0. Also during the year
ended June 30, 2011 approximately $30,000 of additional interest and $28,000 of
intervention fees were added to the note balance for exceeding the first
anniversary and the curtailment of conversions in April, 2011. On September 30,
2011, given the changes in the Companys stock price during the 20 day look-back
period for September 30, 2011 and conversions during the period this estimated
liability had decreased to $28,069, a decrease this period of $49,996, creating
a non-cash credit to earnings for the three months ended September 30, 2011 of
that amount.

On October 22, 2010 the Company entered into a Forbearance
Agreement with holder J. Fife in which J. Fife agreed not to convert any
additional amounts under the convertible notes until January 15, 2011 in
exchange for increasing the original principal amount of those notes by 10% from
$550,000 to $605,000. This increase in the convertible notes is also convertible
into common stock of the Company at the option of the holder at a price equal to
the dollar amount of the note being converted divided by 75% of the three lowest
volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion.

At the time of the transaction, the embedded conversion feature
of this security for this incremental liability and loan discount was calculated
to be $20,005 and at June 30, 2011, the estimated liability was calculated to be
$15,556 and the debt discount had been amortized to $0. On September 30, 2011,
given the changes in the Companys stock price during the 20 day look-back
period for September 30, 2011, this estimated liability decreased to $11,651, a
decrease for the period from October 22, 2010 through September 30, 2011 of
$3,905 creating a non-cash charge to earnings for the quarter ended September
30, 2011 of that amount.

On September 13, 2011 the Company entered into a second
Forbearance Agreements with John Fife restructuring the investment. Under the
terms of the Forbearance Agreement the agreed principal and accrued interest
amount of the Convertible Note outstanding was $328,000 and the two additional
promissory notes were cancelled. The Convertible Note which originally scheduled
to mature March 4, 2011was extended until June 30, 2012 and a floor of $.0040
was put in the conversion price feature. Increases in the principal amount of
the convertible note are also be convertible into common stock of the Company at
the option of the holder at a price equal to the dollar amount of the note being
converted divided by 75% of the three lowest volume weighted average prices
during the 20 day trading period immediately preceding the date of conversion.
During the three months ended September 30, 2011 $47,250 of principle was
converted into 10,000,000 shares of common stock.

As of September 30, 2011, this convertible note has a total of
$187,505 of principle and $93,245 of accrued interest outstanding, convertible
into 46,876,218 shares of common stock.

Arrangement #6 (J. Wright)

On August 11, 2011 the Company issued to Jay Wright a
Convertible Note plus a Warrant in a Private Placement pursuant to Section 4(2)
of the Securities Act of 1933 and received $25,000 in gross proceeds. The
instrument is in the principal amount of $25,000 and matures on February 11,
2011. Interest only is payable at the rate of 1% per month by the Company to the
holder until maturity. The Convertible Note may be converted into common stock
of the Company at $.0068 per share, provided, however, such price may be
adjusted downward if the Company issues any common stock below such price. The
Warrant gives the holder the right for a period of 5 years to purchase up to
3,676,471 shares of the Companys common stock also at $.0068 per share subject
also to a downward adjustment to provide anti-dilution protection.

All proceeds received in connection with the above financing
have been used by the Company as working capital.

At the time of the transaction, the embedded conversion feature
of this security and the warrant was calculated to be $4,660 and the loan
discount totaled the same. On September 30, 2011, given the changes in the
Companys stock price during the 20 day look-back period for September 30, 2011
and conversions during the period this estimated liability had increased to
$8,411, an increase this period of $3,751, creating a non-cash charge to
earnings for the three months ended September 30, 2011 of that amount. During
the three month period ended September 30, 2011 amortization of debt discount
amounted to $1,306 reducing the balance to $3,354.

As of September 30, 2011, this convertible note has $25,000 of
principle and $400 of accrued interest outstanding, convertible into 6,250,000
shares of common stock.

11

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Arrangement #7 (St. George Investments)

On September 13, 2011 the Company issued a second Convertible
Note to John Fife in a Private Placement pursuant to Section 4(2) of the
Securities Act of 1933. The initial principal amount of the first funded tranche
of the Convertible Note was $357,500 and the Company received cash proceeds of
$300,000. A second tranche of the Convertible Note in the amount of $200,000
cash is funded upon the filing by the Company of a Registration Statement on
Form S-1 with the Securities and Exchange Commission providing for the
registration of 185,400,000 shares of common stock that may be converted into
from time to time by the holder of the Convertible Note. The instrument is
convertible into the Companys common stock at 75% of the volume weight average
price of the stock based upon the average of the three lowest trading days in
the 20 day trading period immediately preceding such conversion. Absent an
effective Registration Statement, the holder of the Convertible Note may not
sell any common stock prior to 6 months from the date of funding of each of the
respective tranches of such instrument under Rule 144 of the Securities Act of
1933.

All proceeds received in connection with the above financing
have been used by the Company as working capital.

At the time of the transaction, the embedded conversion feature
of this security and the warrant was calculated to be $137,481 and the loan
discount totaled 194,981. On September 30, 2011, given the changes in the
Companys stock price during the 20 day look-back period for September 30, 2011
and conversions during the period this estimated liability had decreased to
$97,614, a decrease this period of $39,868, creating a non-cash credit to
earnings for the three months ended September 30, 2011 of that amount. During
the three month period ended September 30, 2011 amortization of debt discount
amounted to $10,993 reducing the balance to $183,987.

As of September 30, 2011, this convertible note has $357,500 of
principle and $1,250 of accrued interest outstanding, convertible into
95,016,611 shares of common stock.

The following table summarizes notes payable under convertible
debt and debenture agreements as of June 30, 2011 and September 30, 2011
(unaudited):

| |                                                                  |   | June 30, 2011 |   |   | September 30, 2011 |  
| | ---------------------------------------------------------------- | - | ------------- | - | - | ------------------ | -
| |                                                                  |   |               |   |   | (unaudited)        |  
| |                                                                  |   | Amount        |   |   | Amount             |  
| | Arrangement #1- LaJolla Cove Investors,
      Inc. (1)          | $ | 10,000        |   | $ | -                  |  
| | less: reserve for utilization
      -LaJolla Cove Investors, Inc | $ | -             |   | $ | -                  |  
| | Arrangement #2 - JMJ Financial, Inc                              | $ | 705,750       |   | $ | 609,294            |  
| | Arrangement #3 - JMJ Financial, Inc                              | $ | 400,000       |   | $ | 321,000            |  
| | Arrangement #4 - JMJ Financial, Inc                              | $ | 200,000       |   | $ | 109,000            |  
| | Arrangement #5 - J. Fife                                         | $ | 234,755       |   | $ | 187,505            |  
| | Arrangement #6 - Jay Wright                                      | $ | -             |   | $ | 25,000             |  
| | Arrangement #7 - St. George Investments                          | $ | -             |   | $ | 357,500            |  
| | total
      notes payable                                        | $ | 1,550,505     |   | $ | 1,350,701          |  
| |                                                                  |   |               |   |   |                    |  
| | less: unamortized debt discount                                  | $ | (300,000      | ) | $ | (258,598           | )
| |                                                                  |   |               |   |   |                    |  
| | Convertible Notes
      payable-long term portion                | $ | 1,250,505     |   | $ | 1,092,103          |  

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).

12

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Other Equity

During the years ended June 30, 2009 , the Company reevaluated
warrants contracts to purchase 13,104,168 shares at fixed prices ranging from
$.05 to $.15 per share originally issued during fiscal year ended June 30, 2008
pursuant to FASB Standards Codification Topic 815 (previously known as EITF
00-19), which 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.

The evaluation was performed on a contract by contract basis to
equity instruments subject to FASB Standards Codification Topic 815 (previously
known as EITF 00-19), namely warrants discussed above and the convertible
debenture and convertible note agreements. The Company utilized a sequencing
method prescribed by FASB Standards Codification Topic 815 (previously known as
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, which
estimated value was based upon the contractual life of the free standing
warrants, using the Black Scholes pricing model, based on the following weighted
average assumptions: annual expected return of 0%, an average life of 5 years,
annual volatility of 81% and a risk-free interest rate of 2.25% . At the
issuance date of the free standing warrants, which warrants were issued during
the fourth quarter of fiscal June 30, 2008, the estimated value approximated
$1,006,200 and, as recalculated on the quarterly measurement dates, at June 30,
2008 the estimated value approximated $433,300. During the fiscal year ended
2009, the estimated value was determined to no longer be material. The net
change in the contingent liability was credited to the change in derivative
value in the Consolidated Statement of Operations for the fiscal years ended
June 30, 2008 and 2009 in the amounts of $572,900 and $433,300, respectively,
for each of these periods in accordance FASB Standards Codification Topic 815
(previously known as EITF 00-19).

Subsequent to September 30, 2009, the Company had not entered
into any contracts for warrants or other equity instruments subject to
reclassification to liabilities as prescribed by FASB Standards Codification
Topic 815 (previously known as EITF 00-19) until August 10, 2011 when it entered
into a Convertible Note for $25,000 which concurrently provided the note holder
a warrant and recorded an additional derivative liability for the warrant.

|4. | COMMITMENTS AND
CONTINGENCIES
|-- | -----------------------------

The Company has offered and sold convertible notes to JMJ
Financial in the aggregate principal amount plus accrued interest of $10,270,400
through September 30, 2011. Such convertible notes provide cash funding to the
Company of up to $9,500,600. Through September 30, 2011, approximately
$6,472,000 of cash has been received by the Company, $5,990,606 of which has
been converted by JMJ Financial into a substantial number of shares of common
stock without registration under the Securities Act of 1933, as amended, or
qualification under state securities laws. The Company believes that any sales
of common stock by JMJ are in full compliance with Rule 144 of the Securities
Act of 1933, as amended, and has obtained an opinion of outside counsel
regarding such compliance.

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

The Securities Act of 1933, as amended, requires that any claim
for rescission is brought within one year of the violation. The time periods
within which claims for rescission must be brought under state securities laws
vary and may be two years or more from the date of the violation. At September
30, 2011, approximately 395 million shares of our outstanding common stock
issued in respect of our convertible note transactions with JMJ Financial could
be subject to rescission with a potential liability approximating $4.171
million, including a liability of approximately $538,800 for interest at 10% per
annum.

Legal Proceedings

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

13

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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 820-10-20 defines fair
value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. 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 reconciliation for liabilities
measured at fair value on a recurring basis at September 30, 2010 and September
30, 2011:

|                                 |   | Fair Value Measurements       |  
|-------------------------------- | - | ----------------------------- | -
|                                 |   | Using Significant             |  
|                                 |   | Unobservable Inputs (Level 3) |  
|                                 |   | Derivative Liability          |  
|                                 |   | September 30,                 |  
|                                 |   | 2010                          |  
|Balance at July 1                | $ | 5,966,149                     |  
|                                 |   |                               |  
|Decrease in Derivative Liability |   | (3,285,778                    | )
|                                 |   |                               |  
|Debt Discounts                   |   | -                             |  
|Balance at September 30          | $ | 2,680,271                     |  

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, 2011, the carrying value of the notes payable and accrued interest
for convertible agreements and officers notes was approximately $2.276 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.

|6. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

MICROPHASE CORPORATION

MPhases President, Chief Operating Officer and Chairman of the
Board are also officers of Microphase and mPhase's President and Chairman of the
Board are also shareholders of Microphase. On May 1, 1997, the Company entered
into an agreement with Microphase whereby it would use office space as well as
the administrative services of Microphase, including the use of accounting
personnel. This agreement 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. As of July 1, 2011, the fees have increased to
$3,630 per month. In addition, Microphase also charges fees for specific
projects on a project-by-project basis. During the three months ended September
30, 2010 and September 30, 2011 and from inception (October 2, 1996), $10,529,
$13,191 and $9,491,152 respectively, have been charged to expense. As a result
of the foregoing transactions, as of September 30, 2011, the Company had a
$31,433 payable to Microphase.

14

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JANIFAST LTD.

The Company historically has purchased products and incurred
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 former telecommunications business
that was discontinued. 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 cancellation in loan obligations of $181,901 to Mr. Durando
in connection with the plan of its liquidation.

During the three months ended September 30, 2010 and 2011 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 in Discontinued
Operations.

OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by
our former investment-banking firm Lipper & Company. On September 30, 2011,
Mr. Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid
finders fees in the amount of $150,000 which is included in due to related
parties.

During the three months ended September 30, 2011, the Company
issued 0 shares to consultants who are not considered related parties.

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. 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, 2011                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Consulting/Salary                                                                                                                                   
|Interest                                                                                                                                            
|Rent                                                                                                                                                
|G&A                                                                                                                                                 
|R&D                                                                                                                                                 
|Finders Fees                                                                                                                                        
|Stock based compensation (shares issued)*                                                                                                           
|Stock based
    compensation (previously issued options repriced)**                                                                                 
|Total compensation                                                                                                                                  
|                                                                                                                                                    
|                                                                                                                                                    
|Common stock issued August 25, 2011*                                                                                                                
|                                                                                                                                                    
|Options issued (5years @ 5 cents in September, 2008 repriced @ $.0040; the
    incremental cost of $339,700 to amortized through September 18, 2013)
|                                                                                                                                                    

|Summary of compensation to related parties for the Three Months Ended
    September 30, 2010
|--------------------------------------------------------------------------------------------
|                                                                                            
|                                                                                            
|Consulting/Salary                                                                           
|Interest                                                                                    
|Rent                                                                                        
|G&A                                                                                         
|R&D                                                                                         
|Finders Fees                                                                                
|Total compensation                                                                          
|                                                                                            

15

---

|                                                                      |   |         |  |       |             |  |       |             |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|--------------------------------------------------------------------- | - | ------- |  | ----- | ----------- |  | ----- | ----------- |  | - | ----------- |  | - | -------- |  | - | ---------- |  | ----- | ------------- | 
|Summary of payables to related parties as of September
      30, 2011 |   | Durando |  |       | Dotoli      |  |       | Smiley      |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                         | $ | 270,479 |  | $     | 155,306     |  | $     | 118,030     |  | $ | 543,815     |  |   |          |  |   |            |  | $     | 543,815       | 
|Due to Officers / Affiliates                                          |   |         |  |       |             |  |       |             |  |   |             |  | $ | 150,000  |  | $ | 31,433     |  | $     | 181,433       | 
|Interest Payable                                                      | $ | 164,791 |  | $     | 129,177     |  | $     | 87,062      |  | $ | 381,030     |  |   |          |  |   |            |  | $     | 381,030       | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|Total Payable to Officers /
      Affiliates                          | $ | 435,270 |  | **$** | **284,483** |  | **$** | **205,092** |  | $ | 924,845     |  | $ | 150,000  |  | $ | 31,433     |  | $     | 1,106,278     | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|                                                                      |   |         |  |       |             |  |       |             |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|Summary of payables to related parties as of June 30,
      2011      |   | Durando |  |       | Dotoli      |  |       | Smiley      |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                         | $ | 263,479 |  | $     | 148,306     |  | $     | 111,030     |  | $ | 522,815     |  |   |          |  |   |            |  | $     | 522,815       | 
|Due to Officers / Affiliates                                          |   |         |  |       |             |  |       |             |  |   |             |  | $ | 150,000  |  | $ | 27,242     |  | $     | 177,242       | 
|Interest Payable                                                      | $ | 151,685 |  | $     | 120,498     |  | $     | 80,725      |  | $ | 352,909     |  |   |          |  |   |            |  | $     | 352,909       | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|Total Payable to Officers /
      Affiliates                          | $ | 415,164 |  | **$** | **268,804** |  | **$** | **191,755** |  | $ | 875,724     |  | $ | 150,000  |  | $ | 27,242     |  | $     | 1,052,966     | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|Summary of payables to related parties
      as of September 30, 2010 |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|                                                                      |   |         |  |       |             |  |       |             |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|                                                                      |   | Durando |  |       | Dotoli      |  |       | Smiley      |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                         | $ | 301,479 |  | $     | 166,306     |  | $     | 119,030     |  | $ | 586,815     |  |   |          |  |   |            |  | $     | 586,815       | 
|Due to Officers / Affiliates                                          | $ | 0       |  | $     | 0           |  | $     | 0           |  | $ | 0           |  | $ | 150,000  |  | $ | 29,742     |  | $     | 179,742       | 
|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     |  | $ | 150,000  |  | $ | 29,742     |  | **$** | **1,069,069** | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 

|7. | SUBSEQUENT EVENTS
|-- | -----------------

From October 1, through November 4, 2011, the Company issued
59,700,000 shares of its common stock in connection with the conversion of
$238,800 of the convertible debt arrangements and accrued interest thereon.

On July 28, 2011, the Company announced that it entered into a
letter of intent (LOI) to acquire Energy Innovative Products, Inc. (EIP), a
developer of proprietary technologies for reducing energy usage in refrigeration
and cooling systems, as well as equipment utilizing AC induction motors. EIP,
based in Fairfield, NJ, uses patented and patent pending solutions to offer a
series of products that control voltage and current used by compressor systems,
including those in refrigeration decks, HVAC wall units, commercial
refrigeration systems, and consumer equipment.

The Company has revised its estimate date to execute the terms
of the deal include the issuance of common shares and warrants for an 81% stake
in EIP. The transaction is expected to become a Definitive Agreement by the end
of November 2011 and close by December 2011.

16

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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 SECURITIES LITIGATION REFORM ACT OF 1995:

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

RESULTS OF OPERATIONS OVERVIEW

mPhase, a New Jersey corporation founded in 1996, is a
publicly-held company with over 19,000 shareholders and approximately 1.5
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 stage company specializing in
microfluidics, microelectromechanical systems (MEMS) and nanotechnology. mPhase
is in the process of commercializing its first nanotechnology-enabled product
for military and commercial applications - The Smart NanoBattery providing Power
On CommandTM. 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 a Smart 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, with 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.

17

---

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 hydrophilic
state, the water spreads out or is absorbed by the surface. The ability to
electronically control the wetting characteristics of a surface at the nanometer
scale forms the basis of mPhase's nanotechnology operations and intellectual
property portfolio.

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

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

18

---

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 enabled fabrication of the porous membranes for the
multi-cell, micro-array reserve battery mentioned above. The Company
successfully manufactured nanostructured membranes at the foundry that are
essential to commercial production of the battery. By achieving a series of
delayed activations, the shelf-life and continuous run-time of such battery is
increased to a period of time in excess of twenty years. In April of 2008, the
Company announced that it had successfully activated its first Smart NanoBattery
prototype by electrowetting using a hard-wired configuration and a
remotely-activated device. Remote activation plays a key role in providing power
to wireless sensors systems and RFID tags.

Also, in April of 2008, the Company announced that it had
successfully produced its first lithium-based reserve battery with a soft or
pouch package and breakable separator (in place of the electrowettable membrane)
that relies on mechanical rather than electrical activation to provide Power On
Command. The Company believes that it is a significant milestone in moving from
a low energy density zinc-based battery to a higher energy density lithium-based
battery towards proving that the Smart NanoBattery will eventually be
economically and commercially viable.

In fiscal years ended June 30, 2009 and June 30, 2011, the
Company focused upon further development of its Smart Nano Battery under a Phase
II STTR grant from the U.S. Army as a potential reserve battery for a back-up
computer memory application for a weapons system. The Company has recently
completed such Phase II Army grant. On November 12, of 2010, the Company
announced that it had successfully triggered and activated its first functional
multi-cell smart nano battery. Triggering and activation of the cells of the
battery were achieved by using the technique of electrowetting or programmable
triggering. Triggering was accomplished by applying a pulse of electrical energy
to a porous, smart surface membrane located inside each cell in the battery
causing the electrolyte to come in contact with the cells electrodes, creating
the chemical reaction to produce voltage inside of the multi-cell battery. The
multi-cell battery consists of a matrix of 12 individual cells populated with an
electrode stack consisting of lithium and carbon monofluoride materials with
each rated at 3.0 volts. Using a custom designed circuit board for testing, each
of the cells in the battery were independently triggered and activated without
affecting any of the non-activated cells in the multi-cell configuration. Each
cell in the battery has a very long shelf-life prior to triggering.

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

19

---

Emergency Flashlight

On December 5, 2008, mPhase Technologies, Inc. signed a
contract with Porsche Design Gesellschaft m.b.H. in Austria (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.

On January 29, 2009, the Company announced that it had
contracted with EaglePicher Technologies to design and manufacture, in small
quantities, its mechanically-activated battery that were used in the pilot
program of sales of the Companys new Emergency Flashlight. EaglePicher was
selected for the 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, along with EaglePicher Company,
is a world leader in custom and standardized power solutions for the extreme
environments of aerospace and military applications as well as medical and
commercial applications. The company specializes in design and manufacture of
battery cells, battery packaging, battery management systems (BMS), analysis,
environmental testing, and energetic devices. Active in battery development and
testing since 1922, EaglePicher Technologies has the most experience and
broadest capability in battery electrochemistry of any battery supplier.

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

Magnetometer

In March of 2005, the Company entered into a second Development
Agreement for 12 months at a cost of $1.2 million 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.

20

---

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 revenues Cost 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 to Silex, a foundry located in Sweden, as well as other third party
vendors involved in the development of the 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 $70,378,689 from inception (October 2, 1996) through September
30, 2011.

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 $200,823,177 and negative cash flow from operations of $87,885,311 from
inception through September 30, 2011. The auditors report for the fiscal year
ended June 30, 2011 includes the statement that "there is substantial doubt of
the Company's ability to continue as a going concern". As of September 30, 2011,
the Company had a negative net worth of ($5,049,816) compared to a negative net
worth of ($5,591,774) as of June 30, 2011 as a result of continuing net losses,
reduced in the current three months primarily by conversions of convertible
notes and accrued interest in excess of the net loss for the current period.

The Company has convertible notes funded with JMJ Financia.
Draws under this facility for the three months ended September 30, 2011 amounted
to $0 (accounted for as a pay-down of notes receivable) and also the collection
of $0 of accrued interest (included in the statement of operations). The Company
has significant overhang from funded and unconverted portion of these
convertible notes in excess of $1 million. The Company anticipates it will need
to establish new and additional funding sources for fiscal year 2012. The
Company raised $72,000 from private placements of 20 million shares of its
common stock during the three months ended September 30, 2011. The Company
supplemented this funding with a new convertible note arrangement with St.
George Investments which provided $300,000 of funding in September, 2011 and
$200,000 in October, 2011.

While the Company believes it will be abler to fund short
term capital needs, it will from time to time need to supplement such funding.
In the longer term, we estimate that the Company will need to raise
approximately $1-5 million of additional capital above these 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 the
Companys ability to secure federal funding in the form of SBIR grants and
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 2012 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.

21

---

THREE MONTHS ENDED September 30, 2011 VS. September 30,
2010

REVENUE

Total revenues were $0 for the three months ended September 30,
2011 compared to $28,808 for the three months ended September 30, 2010.

RESEARCH AND DEVELOPMENT

Research and development expenses were $41,403 for the three
months ended September 30, 2011 as compared to $193,780 during the comparable
period in 2010 or a decrease of $152,377. 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 years 2011 and 2012. 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 $6,888,462
for the three months ending September 30, 2011, up from $522,994 or an increase
of $6,365,468 from the comparable period in 2010. Recurring 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. The
increase was due primarily to the award of stock to the officers and directors
on August 25, 2011, generating a non-cash charge of $6,520,500. Additionally,
there was a non-cash charge of $14,154 for the amortization of deferred
compensation from the re-pricing of options on the same date.

OTHER (EXPENSE) AND INCOME

Included in this category for the current quarter are non-cash
gains and costs associated with convertible debt that include a non-cash gain
for the change in derivative value of $853,496, which when combined with
amortization of debt discount costs of $29,042, resulted in a net gain of
$824,454 from derivative liabilities associated with the Companys convertible
debt and is not indicative of operating results. Additionally, net interest
expense of $70,690 and other income of $1,131 in the current period brought
total other income to $771,997. For the same period in the prior fiscal year net
other income totaled $2,695,795, consisting primarily of net gains of $2,725,735
from derivative liabilities, reduced by interest expense of $29,940.

NET INCOME AND (LOSS)

The Company recorded a net loss of $6,179,222 for the three
months ended September 30, 2011 as compared to net income of $1,994,489 for the
three months ended September 30, 2010. This represents a net loss per common
share of $0.00 and net income per share (basic and diluted) of $0.00 for the
three month periods ended September 30, 2011 and 2010 respectively. The net loss
recorded in the current period as compared to the net income 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.

22

---

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 principles 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 FASB
Standards Codification Topic 815 (previously known as 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, which
estimated value was based upon the contractual life of the free standing
warrants, using the Black Scholes pricing model, based on the following weighted
average assumptions: annual expected return of 0%, an average life of 5 years,
annual volatility of 81% and a risk-free interest rate of 2.25% . At the
issuance date of the free standing warrants, which warrants were issued during
the fourth quarter of fiscal June 30, 2008, the estimated value approximated
$1,006,200 and, as recalculated on the quarterly measurement dates, at June 30,
2008 the estimated value approximated $433,300. During fiscal year ended 2009,
the estimated value was 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 with FASB
Standards Codification Topic 815 (previously known as EITF 00-19). Effective
May, 2009, warrants to purchase 11,111,112 shares, and effective September,
2009, warrants to purchase 1,493,056 shares, representing all of the contracts
for warrants to purchase 12,604,168 shares that were reclassified to liabilities
during the fiscal year ended June 30, 2008, were reclassified to permanent
equity.

Subsequent to September 30, 2009 the Company has not entered
into, and presently the Company does not have, any contracts for warrants or
other equity instruments subject to reclassification to liabilities as
prescribed by FASB Standards Codification Topic 815 (previously known as EITF
00-19) until August 10, 2011 when it entered into a Convertible Note for $25,000
which concurrently provided the note holder a warrant and recorded an additional
derivative liability for the warrant.

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 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.

23

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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 would 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. As of July 1, 2011, the fees
have increased to $3,630 per month. In addition, Microphase also charges fees
for specific projects on a project-by-project basis.

During the three months ended September 30, 2010 and September
30, 2011 and from inception (October 2, 1996), $10,529, $13,191 and $9,491,152
respectively, have been charged to expense. As a result of the foregoing
transactions as of September 30, 2011, the Company had a $31,433 payable to
Microphase.

JANIFAST LTD.

The Company historically has purchased products and incurred
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 former 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 cancellation of loan obligations of $181,901.57 to Mr.
Durando in connection with the plan of its liquidation.

During the three months ended September 30, 2010 and 2011 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 September 30, 2011,
Mr. Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid
finders fees in the amount of $150,000, which is included in due to related
parties.

During the three months ended September 30, 2011, the Company
issued 0 shares to consultants who are not considered related parties.

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 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.

24

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Total compensation and payables to related parties and to
officers is summarized below:

|Summary of compensation to related parties for
    the Three Months Ended September 30, 2011                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Consulting/Salary                                                                                                                                   
|Interest                                                                                                                                            
|Rent                                                                                                                                                
|G&A                                                                                                                                                 
|R&D                                                                                                                                                 
|Finders Fees                                                                                                                                        
|Stock based compensation (shares issued)*                                                                                                           
|Stock based
    compensation (previously issued options repriced)**                                                                                 
|Total compensation                                                                                                                                  
|                                                                                                                                                    
|                                                                                                                                                    
|Common stock issued August 25, 2011*                                                                                                                
|                                                                                                                                                    
|Options issued (5years @ 5 cents in September, 2008 repriced @ $.0040; the
    incremental cost of $339,700 to amortized through September 18, 2013)
|                                                                                                                                                    

|Summary of compensation to related parties for the Three Months Ended
    September 30, 2010
|--------------------------------------------------------------------------------------------
|                                                                                            
|                                                                                            
|Consulting/Salary                                                                           
|Interest                                                                                    
|Rent                                                                                        
|G&A                                                                                         
|R&D                                                                                         
|Finders Fees                                                                                
|Total compensation                                                                          
|                                                                                            

|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|--------------------------------------------------------------------- | - | ------- |  | ----- | ----------- |  | ----- | ----------- |  | - | ----------- |  | - | -------- |  | - | ---------- |  | ----- | ------------- | 
|                                                                      |   |         |  |       |             |  |       |             |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|Summary of payables to related parties as of September
      30, 2011 |   | Durando |  |       | Dotoli      |  |       | Smiley      |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                         | $ | 270,479 |  | $     | 155,306     |  | $     | 118,030     |  | $ | 543,815     |  |   |          |  |   |            |  | $     | 543,815       | 
|Due to Officers / Affiliates                                          |   |         |  |       |             |  |       |             |  |   |             |  | $ | 150,000  |  | $ | 31,433     |  | $     | 181,433       | 
|Interest Payable                                                      | $ | 164,791 |  | $     | 129,177     |  | $     | 87,062      |  | $ | 381,030     |  |   |          |  |   |            |  | $     | 381,030       | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|Total Payable to Officers /
      Affiliates                          | $ | 435,270 |  | **$** | **284,483** |  | **$** | **205,092** |  | $ | 924,845     |  | $ | 150,000  |  | $ | 31,433     |  | $     | 1,106,278     | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|                                                                      |   |         |  |       |             |  |       |             |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|Summary of payables to related parties as of June 30,
      2011      |   | Durando |  |       | Dotoli      |  |       | Smiley      |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                         | $ | 263,479 |  | $     | 148,306     |  | $     | 111,030     |  | $ | 522,815     |  |   |          |  |   |            |  | $     | 522,815       | 
|Due to Officers / Affiliates                                          |   |         |  |       |             |  |       |             |  |   |             |  | $ | 150,000  |  | $ | 27,242     |  | $     | 177,242       | 
|Interest Payable                                                      | $ | 151,685 |  | $     | 120,498     |  | $     | 80,725      |  | $ | 352,909     |  |   |          |  |   |            |  | $     | 352,909       | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|Total Payable to Officers /
      Affiliates                          | $ | 415,164 |  | **$** | **268,804** |  | **$** | **191,755** |  | $ | 875,724     |  | $ | 150,000  |  | $ | 27,242     |  | $     | 1,052,966     | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|Summary of payables to related parties
      as of September 30, 2010 |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 
|                                                                      |   |         |  |       |             |  |       |             |  |   | Total Notes |  |   |          |  |   |            |  |       |               | 
|                                                                      |   | Durando |  |       | Dotoli      |  |       | Smiley      |  |   | Payable     |  |   | Biderman |  |   | Microphase |  |       | Total         | 
|Notes payable                                                         | $ | 301,479 |  | $     | 166,306     |  | $     | 119,030     |  | $ | 586,815     |  |   |          |  |   |            |  | $     | 586,815       | 
|Due to Officers / Affiliates                                          | $ | 0       |  | $     | 0           |  | $     | 0           |  | $ | 0           |  | $ | 150,000  |  | $ | 29,742     |  | $     | 179,742       | 
|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     |  | $ | 150,000  |  | $ | 29,742     |  | **$** | **1,069,069** | 
|                                                                      |   |         |  |       |             |  |       |             |  |   |             |  |   |          |  |   |            |  |       |               | 



25

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LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred cumulative development stage losses of
$200,823,177, and negative cash flow from operations of $87,885,311 as of
September 30, 2011. The auditors report for the fiscal year ended June 30, 2011
includes the statement that "there is substantial doubt of the Company's ability
to continue as a going concern". As of September 30, 2011, the Company had a
negative net worth of ($5,049,816) compared to a negative net worth of
($5,591,774) as of June 30, 2011 as a result of continuing net losses, reduced
in the current three months primarily by conversions of convertible notes and
accrued interest in excess of the net loss for the current period.

The Company raised $72,000 from private placements of 20
million shares of its common stock during the three months ended September 30,
2011. The Company supplemented this funding with a new convertible note
arrangement with St. George Investments which provided $300,000 of funding in
September, 2011 and $200,000 in October, 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
$1-5 million of additional capital above the funds anticipated from the monthly
payments by JMJ to meet longer term liquidity needs through June 30, 2012. 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
after a deployment and custom tailoring of its Smart Nanobattery takes place by
the Army which the Company currently estimates could occur during the next 18
months. The Company has been seeking high-end products distributors with which
to establish licensing or distribution agreements in order to maximize potential
revenue associated with the product. In March 2011, the Company received an
initial order from Porsche Design Group in Germany for mPhases Porsche design
branded mPower Emergency Illuminators to be sold in Porsche Design stores in
Germany, Great Britain and the United States and it began shipments of the
Emergency Illuminators in April of 2011.

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.

|**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, 2011.

|**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 September 30, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

26

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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 SECURITIES AND
      USE OF PROCEEDS.
|------- | ------------------------------------------------------------------

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

Private Placements

During the three months ended September 30, 2011, the Company
issued 20 million shares of its common stock in connection with private
placements pursuant to Rule 506 of Regulation D of the Securities Act of 1933,
as amended, raising gross proceeds of $80,000 and paying finders fees in the
amount of $8,000. The proceeds were used by the Company as working capital

During the three months ended September 30, 2010, the Company
issued 30,666,667 shares of its common stock in connection with private
placements pursuant to Rule 506 of Regulation D of the Securities Act of 1933,
as amended, raising gross proceeds of $250,000 and paying finders fees in the
amount of $25,000. The proceeds were used by the Company as working capital

Stock Based Compensation

During the three months ended September 30, 2011, the Company
issued 1,035,000,000 shares of common stock to officers and directors, valued at
$ 6,520,500, the entire amount of which is included general and administrative
expenses in the Consolidated Statements of Operations for that period. Also
during the three months ended September 30, 2011, the Company issued no shares
of its common stock to consultants and the Board of Directors revised the
exercise price of options to purchase up to 98,000,000 shares of common stock
previously granted to officers in September, 2008 (originally exercisable
for 5 years with an exercise price of 5 cents per share). The exercise price of
options to purchase up to 98,000,000 shares was revised to $.0040; the
incremental cost of $339,700 was recorded as deferred compensation which will be
amortized to expense through September 18, 2013.

During the three months ended September 30, 2010, the Company
issued 2,050,000 shares of common stock to employees and consultants valued at
$43,050.

Conversion of Debt Securities

During the three months ended September 30, 2011, $112,206 of
convertible debt and accrued interest thereon was converted into 26,748,476
shares of common stock.

During the three months ended September 30, 2010, $2,749,250 of
convertible debt and accrued interest thereon was converted into 117,696,672
shares of common stock.

Long Term Convertible Debentures / Notes Receivable / Debt
Discount

The Company had 7 separate convertible debt arrangements with
independent investors active during the quarter ended June 30, 2011.

During the three months ended September 30, 2011, $112,206 of
these convertible debt arrangements and accrued interest thereon was converted
into 26,748,476 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 an
interest rate of 7 1/4% and a maturity date of September 30, 2011, and 3) a
secured note receivable in the amount of $1,800,000 with an interest rate of 8
1/4% and maturity date of September 30, 2011 due from the 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 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, 2011, the derivative value of this
security was calculated to be $3,468.

27

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On March 16, 2011, the holder and the Company entered into a
termination agreement whereby $1,800,000 of the principal of both the note
receivable and the convertible debenture, plus $90,291 in accrued interest
receivable and $84,175 in accrued interest payable, was cancelled. Additionally
in connection with the termination, the Company paid the holder $17,000 and
assigned to a consultant engaged by the Company the unconverted portion of the
convertible debenture in the amount of $10,000, which had been fully funded in
cash and which was converted in full together with accrued interest of $500 for
2,560,976 shares of common stock during the quarter ended September 30, 2011 and
as of September 30, 2011, this convertible note has been satisfied in full.

Arrangement #2 (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 payable 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
receivable 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 JMJ
Financial. 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. As of June 30, 2011, this value was calculated to be
$472,773. During the year ended June 30, 2011 the holder converted $33,750 of
principal into 10,000,000 shares of common stock and amortization of debt
discount amounted to $412,332, reducing the debt discount balance to $100,000.
On September 30, 2011, given the changes in the Companys stock price during the
20 day look-back period for September 30, 2011, this estimated liability had
decreased to $235,517, a decrease this period of $237,206, creating a non-cash
credit to earnings for the three months ended September 30, 2011 of that amount.
During the three month period ended September 30, 2011, the Company reduced the
note payable and debt discount by $42,000 in proportion with the amount funded
to the total original funding commitment and amortization of debt discount
amounted to $11,600 reducing the balance to $43,400. Also during the three
months ended September 30, 2011 $54,456 of principle was converted into
14,187,500 shares of common stock. As of September 30, 2011, this convertible
note has $609,294 outstanding.

Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 222,142,857 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated. Based upon the price of the
Companys common stock on September 30, 2011 of $.0047 per share the holder
could convert the remaining principal amount plus interest of this convertible
note into approximately 277,948,500 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is
calculated.

The Company and the holder negotiated amendments to this
agreement, and funding and conversions did not occur between April, 2011 and
September, 2011, when the agreement was revised to have a floor conversion price
of $.0040. For accounting purposes the note receivable has been fully reserved,
and the liability is recorded, when netted against the debt discount and
cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 115,380,952 shares of common stock. Based upon
the price of the Companys common stock on September 30, 2011, the net liability
of this note is convertible into approximately 152,323,500 shares of common
stock.

Arrangement #3 (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 receivable 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 JMJ Financial. 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.
To date the Company has received a total of $300,000 cash and has issued no
shares of common stock to the holder upon conversions.

At the time of the transaction, the derivative value of the
embedded conversion feature of this security was calculated to be $542,714. As
of June 30, 2011, this value was calculated to be $607,994. During the year
ended June 30, 2011 amortization of debt discount amounted to $418,552, reducing
the debt discount balance to $100,000. On September 30, 2011, given the changes
in the Companys stock price during the 20 day look-back period for September
30, 2011, this estimated liability had decreased to $317,753, a decrease this
period of $290,241, creating a non-cash credit to earnings for the three months
ended September 30, 2011 of that amount. During the three month period ended
September 30, 2011, the Company reduced the note payable and debt discount by
$79,000 in proportion with the amount funded to the total original funding
commitment and amortization of debt discount amounted to $3,600 reducing the
balance to $17,400. As of September 30, 2011, this convertible note has $321,000
outstanding.

Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 285,714,286 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated. Based upon the price of the
Companys common stock on September 30, 2011 of $.0047 per share the holder
could convert the remaining principal amount plus interest of this convertible
note into approximately 375,000,000 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is
calculated.

28

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The Company and the holder negotiated amendments to this
agreement, and funding and conversions did not occur between April, 2011 and
September, 2011, when the agreement was revised to have a floor conversion price
of $.0040. For accounting purposes the note receivable has been fully reserved,
and the liability is recorded, when netted against the debt discount and
cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 38,095,238 shares of common stock. Based upon the
price of the Companys common stock on September 30, 2011, the net liability of
this note is convertible into approximately 80,250,000 shares of common stock.

Arrangement #4 (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 receivable from JMJ Financial in the amount of
$1,100,000 plus a one-time interest rate factor of 13.2% ($144,000) 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. To date the Company has received a total of $100,000 cash and has
issued no shares of common stock to the holder upon conversions.

At the time of the transaction, the derivative value of the
embedded conversion feature of this security was calculated to be $421,891 and
at June 30, 2011, the estimated liability was calculated to be $486,795. During
the year ended June 30, 2011 amortization of debt discount amounted to $378,761,
reducing the debt discount balance to $100,000. On September 30, 2011, given the
changes in the Companys stock price during the 20 day look-back period for
September 30, 2011, this estimated liability had decreased to $254,203, a
decrease this period of $232,592, creating a non-cash credit to earnings for the
three months ended September 30, 2011 of that amount. During the three month
period ended September 30, 2011, the Company reduced the note payable and debt
discount by $91,000 in proportion with the amount funded to the total original
funding commitment and amortization of debt discount amounted to $1,543 reducing
the balance to $7,457. As of September 30, 2011, this convertible note has
$109,000 outstanding.

Based upon the price of the Companys common stock on June 30,
2011 of $.0073 per share the holder could convert the remaining principal amount
plus interest of this convertible note into approximately 228,571,429 shares of
common stock at the full contract value; of which the derivative liability
associated with this arrangement is calculated. Based upon the price of the
Companys common stock on September 30, 2011 of $.0047 per share the holder
could convert the remaining principal amount plus interest of this convertible
note into approximately 300,000,000 shares of common stock at the full contract
value; of which the derivative liability associated with this arrangement is
calculated.

The Company and the holder negotiated amendments to this
agreement, and funding and conversions did not occur between April, 2011 and
September, 2011, when the agreement was revised to have a floor conversion price
of $.0040. For accounting purposes the note receivable has been fully reserved,
and the liability is recorded, when netted against the debt discount and
cumulative conversions, at the amount funded. Based upon the price of the
Companys common stock on June 30, 2011, the net liability of this note is
convertible into approximately 19,047,619 shares of common stock. Based upon the
price of the Companys common stock on September 30, 2011, the net liability of
this note is convertible into approximately 27,250,000 shares of common stock.

Arrangement #5 (J. Fife)

On March 3, 2010, the Company entered into a financing
agreement with J. Fife that consisted 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 by 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 conversion feature
of this security was calculated to be $193,767 and the loan discount totaled
$243,767 and at June 30, 2011, the estimated liability was calculated to be
$78,065 and the debt discount had been amortized to $0. Also during the year
ended June 30, 2011 approximately $30,000 of additional interest and $28,000 of
intervention fees were added to the note balance for exceeding the first
anniversary and the curtailment of conversions in April, 2011. On September 30,
2011, given the changes in the Companys stock price during the 20 day look-back
period for September 30, 2011 and conversions during the period this estimated
liability had decreased to $28,069, a decrease this period of $49,996, creating
a non-cash credit to earnings for the three months ended September 30, 2011 of
that amount.

On October 22, 2010 the Company entered into a Forbearance
Agreement with holder J. Fife in which J. Fife agreed not to convert any
additional amounts under the convertible notes until January 15, 2011 in
exchange for increasing the original principal amount of those notes by 10% from
$550,000 to $605,000. This increase in the convertible notes is also convertible
into common stock of the Company at the option of the holder at a price equal to
the dollar amount of the note being converted divided by 75% of the three lowest
volume weighted average prices during the 20 day trading period immediately
preceding the date of conversion.

29

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At the time of the transaction, the embedded conversion feature
of this security for this incremental liability and loan discount was calculated
to be $20,005 and at June 30, 2011, the estimated liability was calculated to be
$15,556 and the debt discount had been amortized to $0. On September 30, 2011,
given the changes in the Companys stock price during the 20 day look-back
period for September 30, 2011, this estimated liability decreased to $11,651, a
decrease for the period from October 22, 2010 through September 30, 2011 of
$3,905 creating a non-cash charge to earnings for the quarter ended September
30, 2011 of that amount.

On September 13, 2011 the Company entered into a second
Forbearance Agreements with John Fife restructuring the investment. Under the
terms of the Forbearance Agreement the agreed principal and accrued interest
amount of the Convertible Note outstanding was $328,000 and the two additional
promissory notes were cancelled. The Convertible Note which originally scheduled
to mature March 4, 2011was extended until June 30, 2012 and a floor of $.0040
was put in the conversion price feature. Increases in the principal amount of
the convertible note are also be convertible into common stock of the Company at
the option of the holder at a price equal to the dollar amount of the note being
converted divided by 75% of the three lowest volume weighted average prices
during the 20 day trading period immediately preceding the date of conversion.
During the three months ended September 30, 2011 $47,250 of principle was
converted into 10,000,000 shares of common stock.

As of September 30, 2011, this convertible note has a total of
$187,505 of principle and $93,245 of accrued interest outstanding, convertible
into 46,876,218 shares of common stock.

Arrangement #6 (J. Wright)

On August 11, 2011 the Company issued to Jay Wright a
Convertible Note plus a Warrant in a Private Placement pursuant to Section 4(2)
of the Securities Act of 1933 and received $25,000 in gross proceeds. The
instrument is in the principal amount of $25,000 and matures on February 11,
2011. Interest only is payable at the rate of 1% per month by the Company to the
holder until maturity. The Convertible Note may be converted into common stock
of the Company at $.0068 per share, provided, however, such price may be
adjusted downward if the Company issues any common stock below such price. The
Warrant gives the holder the right for a period of 5 years to purchase up to
3,676,471 shares of the Companys common stock also at $.0068 per share subject
also to a downward adjustment to provide anti-dilution protection.

All proceeds received in connection with the above financing
have been used by the Company as working capital.

At the time of the transaction, the embedded conversion feature
of this security and the warrant was calculated to be $4,660 and the loan
discount totaled the same. On September 30, 2011, given the changes in the
Companys stock price during the 20 day look-back period for September 30, 2011
and conversions during the period this estimated liability had increased to
$8,411, an increase this period of $3,751, creating a non-cash charge to
earnings for the three months ended September 30, 2011 of that amount. During
the three month period ended September 30, 2011 amortization of debt discount
amounted to $1,306 reducing the balance to $3,354.

As of September 30, 2011, this convertible note has $25,000 of
principle and $400 of accrued interest outstanding, convertible into 6,250,000
shares of common stock.

Arrangement #7 (St. George Investments)

On September 13, 2011 the Company issued a second Convertible
Note to John Fife in a Private Placement pursuant to Section 4(2) of the
Securities Act of 1933. The initial principal amount of the first funded tranche
of the Convertible Note was $357,500 and the Company received cash proceeds of
$300,000. A second tranche of the Convertible Note in the amount of $200,000
cash is funded upon the filing by the Company of a Registration Statement on
Form S-1 with the Securities and Exchange Commission providing for the
registration of 185,400,000 shares of common stock that may be converted into
from time to time by the holder of the Convertible Note. The instrument is
convertible into the Companys common stock at 75% of the volume weight average
price of the stock based upon the average of the three lowest trading days in
the 20 day trading period immediately preceding such conversion. Absent an
effective Registration Statement, the holder of the Convertible Note may not
sell any common stock prior to 6 months from the date of funding of each of the
respective tranches of such instrument under Rule 144 of the Securities Act of
1933.

All proceeds received in connection with the above financing
have been used by the Company as working capital.

At the time of the transaction, the embedded conversion feature
of this security and the warrant was calculated to be $137,481 and the loan
discount totaled 194,981. On September 30, 2011, given the changes in the
Companys stock price during the 20 day look-back period for September 30, 2011
and conversions during the period this estimated liability had decreased to
$97,614, a decrease this period of $39,868, creating a non-cash credit to
earnings for the three months ended September 30, 2011 of that amount. During
the three month period ended September 30, 2011 amortization of debt discount
amounted to $10,993 reducing the balance to $183,987.

As of September 30, 2011, this convertible note has $357,500 of
principle and $1,250 of accrued interest outstanding, convertible into
95,016,611 shares of common stock.

30

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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 29, 2011 announcing Letter of
    Intent to acquire Energy Innovative Partners.
|        |                                                                                                   
|2.      | Form 8K dated August 30, 2011 announcing Officer
    and Director stock compensation.             
|        |                                                                                                   
|3.      | Form 8K dated September 12, 2011 announcing
    amendment of JMJ Financial Convertible Notes.     
|        |                                                                                                   
|4.      | Form 8K dated September 16, 2011 announcing
    amendment to Convertible Note with J. Fife.       
|        |                                                                                                   

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

31

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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 14, 2011 | By:/s/
      Martin S. Smiley                                              | 
|                         | Martin S. Smiley                                                           | 
|                         | Executive Vice President Chief
      Financial Officer and General Counsel

32

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