UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Q

COMMISSION FILE NO. 000-24969

mPhase Technologies, Inc.

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

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

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

YES

THE NUMBER OF SHARES OUTSTANDING OF
EACH OF THE REGISTRANTS CLASSES OF COMMON STOCK AS OF May 14, 2008 IS
417,505,700 SHARES, ALL OF ONE CLASS OF $.01 STATED VALUE COMMON STOCK.



1

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mPHASE TECHNOLOGIES, INC.
INDEX

|          |                                                                                                                                                               | PAGE 
|--------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----
|PART I    | Financial Information                                                                                                                                         |      
|ITEM 1    |                                                                                                                                                               |      
|          | Audited Consolidated Balance Sheets-June 30, 2007 and Unaudited March 31,
    2008                                                                            | 3    
|          |                                                                                                                                                               |      
|          | Unaudited Consolidated Statements of Operations-Three months ended March 31,
    2007 and 2008 and from October 2, 1996 (Date of Inception) to March 31, 2008 | 4    
|          |                                                                                                                                                               |      
|          | Unaudited Consolidated Statements of Operations-Nine Months ended March 31,
    2007 and 2008 and from October 2, 1996 (Date of Inception) to March 31, 2008  | 5    
|          |                                                                                                                                                               |      
|          | Unaudited Consolidated Statement of Changes in Shareholders Deficit Nine
    Months ended March 31, 2008                                                      | 6    
|          |                                                                                                                                                               |      
|          | Unaudited Consolidated Statement of Cash Flow-Nine Months Ended March 31,
    2007 and 2008 and from October 2, 1996 (Date of Inception) to March 31, 2008    | 7    
|          |                                                                                                                                                               |      
|          | Notes
    to Consolidated Financial Statements                                                                                                                | 8-12 
|          |                                                                                                                                                               |      
|ITEM 2    | Managements Discussion and Analysis of Financial Condition and Condition
    and Results of Operations                                                       | 13-22
|          |                                                                                                                                                               |      
|ITEM 3    | Quantitative and Qualitative Disclosures about market risk                                                                                                    | 23   
|ITEM 4    | Controls and Procedures                                                                                                                                       | 23   
|PART II   | Other
    Information                                                                                                                                         | 23   
|ITEM 1    | Legal
    Proceedings                                                                                                                                         | 23   
|ITEM 2    | Changes in Securities                                                                                                                                         | 23   
|ITEM 3    | Defaults Upon Senior Securities                                                                                                                               | 24   
|ITEM 4    | Submission of Matters to a Vote of Security Holders                                                                                                           | 24   
|ITEM 5    | Other
    Information                                                                                                                                         | 24   
|ITEM 6    | Exhibits and Reports on Form 8-K                                                                                                                              | 24   
|SIGNATURE |                                                                                                                                                               | 25   

2

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

|                                                                                              | June 30,      |  | March 31,    
|--------------------------------------------------------------------------------------------- | ------------- |  | -------------
|                                                                                              | 2007          |  | 2008         
|                                                                                              |               |  | Unaudited    
|ASSETS                                                                                        |               |  |              
|CURRENT ASSETS                                                                                |               |  |              
|Cash and cash equivalents                                                                     | $23,253       |  | $12,320      
|Accounts receivable                                                                           | 1,961         |  |              
|Subscriptions receivable                                                                      | 500,000       |  |              
|Inventories                                                                                   | 505,910       |  |              
|Prepaid and other current assets                                                              | 442,585       |  | 118,741      
|Total Current Assets                                                                          | 1,473,709     |  | 131,061      
|                                                                                              |               |  |              
|Property and equipment, net                                                                   | 282,801       |  | 195,413      
|Patents and licensing
      rights, net                                                       | 51,140        |  |              
|Note receivable                                                                               |               |  | 1,000,000    
|Deferred financing fees
      and Other assets                                                |               |  | 550,583      
|TOTAL ASSETS                                                                                  | $1,807,650    |  | $1,877,057   
|                                                                                              |               |  |              
|LIABILITIES AND
      STOCKHOLDERS' EQUITY                                                    |               |  |              
|CURRENT LIABILITIES                                                                           |               |  |              
|Accounts payable                                                                              | $2,355,250    |  | $2,559,921   
|Accrued expenses                                                                              | 933,145       |  | 483,806      
|Due to related parties                                                                        | 852,405       |  | 1,559,533    
|Notes payable, related parties                                                                | 321,000       |  | 426,138      
|Short term notes                                                                              | 76,640        |  | 250,821      
|Convertible debt                                                                              |               |  | 54,000       
|Deferred revenue                                                                              | 23,708        |  |              
|TOTAL CURRENT LIABILITIES                                                                     | $4,562,148    |  | $5,334,219   
|                                                                                              |               |  |              
|Convertible debt
      derivative liability - (Note 3)                                        |               |  | $3,330,390   
|Convertible debenture net of discount (Note
      3)                                          |               |  | $155,497     
|TOTAL LIABILITIES                                                                             | $4,562,148    |  | $8,820,106   
|                                                                                              |               |  |              
|COMMITMENTS AND CONTINGENCIES (Note 6 )                                                       | -             |  | -            
|                                                                                              |               |  |              
|STOCKHOLDERS' DEFICIT                                                                         |               |  |              
|Common stock, par value $.01, 900,000,000
      shares authorized                             |               |  |              
|387,846,008 and 401,356,200 shares issued
      and outstanding at June                       |               |  |              
|30, 2007 and March 31, 2008, respectively                                                     | $3,878,460    |  | $4,013,562   
|Additional paid in
      capital                                                              | 162,100,718   |  | 163,547,477  
|Deferred compensation                                                                         | (414,084)     |  |              
|Deficit accumulated
      during development stage                                            | (168,311,619) |  | (174,496,115)
|Less-Treasury stock, 13,750 shares at cost                                                    | (7,973)       |  | (7,973)      
|TOTAL STOCKHOLDERS'
      DEFICIT                                                             | ($2,754,498)  |  | ($6,943,049) 
|                                                                                              |               |  |              
|TOTAL LIABILITIES AND STOCKHOLDERS'
      DEFICIT                                             | $1,807,650    |  | $1,877,057   
|                                                                                              |               |  |              
|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

|                                                                                            |                          |  |              |  | Date of       
|------------------------------------------------------------------------------------------- | ------------------------ |  | ------------ |  | --------------
|                                                                                            | For the Three
    Months |  | Inception to
|                                                                                            | March 31,                |  | March 31,   
|                                                                                            | 2007                     |  | 2008         |  | 2008          
|                                                                                            |                          |  |              |  |               
|REVENUES                                                                                    | $15,155                  |  | $545         |  | $22,545,370   
|                                                                                            |                          |  |              |  |               
|COSTS AND EXPENSES                                                                          |                          |  |              |  |               
|Cost of Sales                                                                               | $2,817                   |  | $0           |  | $16,424,692   
|                                                                                            |                          |  |              |  |               
|Research and Development
    (including non-cash stock related                              |                          |  |              |  |               
|charges of $2,410,119
    inception to date)                                                | $1,250,680               |  | $275,565     |  | $59,588,026   
|                                                                                            |                          |  |              |  |               
|General and Administrative (including
    non-cash stock related                            |                          |  |              |  |               
|charges of $250,791, $1,750 and $62,185,500
    for three                                   |                          |  |              |  |               
|months ended March 31, 2007, 2008 and
    inception to date                                 |                          |  |              |  |               
|respectively)                                                                               | $1,644,894               |  | $576,473     |  | $108,498,073  
|Depreciation and
    Amortization                                                           | $22,676                  |  | $21,097      |  | $3,261,140    
|                                                                                            |                          |  |              |  |               
|TOTAL COSTS AND EXPENSES                                                                    | $2,921,067               |  | $873,135     |  | $187,771,931  
|                                                                                            |                          |  |              |  |               
|LOSS FROM OPERATIONS                                                                        | ($2,905,912)             |  | ($872,590)   |  | ($165,226,561)
|                                                                                            |                          |  |              |  |               
|OTHER INCOME (EXPENSE) net                                                                  |                          |  |              |  |               
|Interest Income (Expense),
    net                                                          | $1,218                   |  | ($144,966)   |  | ($364,475)    
|Reparation and Other (Expense) net                                                          | ($358,835)               |  | ($57,512)    |  | ($7,541,202)  
|Change in Derivative Value                                                                  | $0                       |  | ($2,430,101) |  | ($1,363,877)  
|TOTAL OTHER INCOME (EXPENSE)                                                                | ($357,617)               |  | ($2,632,579) |  | ($9,269,554)  
|                                                                                            |                          |  |              |  |               
|NET (LOSS)                                                                                  | ($3,263,529)             |  | ($3,505,169) |  | ($174,496,115)
|                                                                                            |                          |  |              |  |               
|LOSS PER COMMON SHARE, basic and diluted                                                    | ($0.01)                  |  | ($0.01)      |  |               
|                                                                                            |                          |  |              |  |               
|WEIGHTED AVERAGE COMMON
    SHARES                                                          |                          |  |              |  |               
|OUTSTANDING, basic and
    diluted                                                          | 327,195,047              |  | 397,367,531  |  |               
|                                                                                            |                          |  |              |  |               
|The accompanying notes are an
    integral part of these consolidated financial statements. |                          |  |              | 

4

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

|                                                                                            |                         |  |              |  | Date of       
|------------------------------------------------------------------------------------------- | ----------------------- |  | ------------ |  | --------------
|                                                                                            | For the Nine
    Months |  | Inception to
|                                                                                            | March 31,               |  | March 31,   
|                                                                                            | 2007                    |  | 2008         |  | 2008          
|                                                                                            |                         |  |              |  |               
|REVENUES                                                                                    | $135,743                |  | $96,259      |  | $22,545,370   
|                                                                                            |                         |  |              |  |               
|COSTS AND EXPENSES                                                                          |                         |  |              |  |               
|Cost of Sales                                                                               | 88,207                  |  | 949          |  | 16,424,692    
|                                                                                            |                         |  |              |  |               
|Research and Development (including non-cash
    stock                                      |                         |  |              |  |               
|related charges of $2,410,119 inception to
    date )                                       | 4,964,404               |  | 1,615,609    |  | 59,588,026    
|General and Administrative
    (including non-cash stock                                    |                         |  |              |  |               
|related charges of
    $1,124,647, $417,414 and $62,185,500                                 |                         |  |              |  |               
|for nine months ended March
    31, 2007, 2008 and                                          |                         |  |              |  |               
|inception to date
    respectively)                                                         | 5,012,073               |  | 3,057,928    |  | 108,498,073   
|Depreciation and Amortization                                                               | 66,314                  |  | 136,283      |  | 3,261,140     
|                                                                                            |                         |  |              |  |               
|TOTAL COSTS AND EXPENSES                                                                    | 10,130,998              |  | 4,810,769    |  | 187,771,931   
|                                                                                            |                         |  |              |  |               
|LOSS FROM OPERATIONS                                                                        | (9,995,255)             |  | (4,714,510)  |  | (165,226,561) 
|                                                                                            |                         |  |              |  |               
|OTHER INCOME (EXPENSE) net                                                                  |                         |  |              |  |               
|Interest Income (Expense), net                                                              | (10,930)                |  | (196,024)    |  | (364,475)     
|Reparation and Other
    (Expense) net                                                      | (1,054,187)             |  | 89,915       |  | (7,541,202)   
|Change in Derivative Value and Debt Discount                                                | 0                       |  | (1,363,877)  |  | (1,363,877)   
|TOTAL OTHER INCOME
    (EXPENSE)                                                            | (1,065,117)             |  | (1,469,986)  |  | (9,269,554)   
|                                                                                            |                         |  |              |  |               
|NET LOSS                                                                                    | ($11,060,372)           |  | ($6,184,496) |  | ($174,496,115)
|                                                                                            |                         |  |              |  |               
|LOSS PER COMMON SHARE,
    basic and diluted                                                | ($0.04)                 |  | ($0.02)      |  |               
|                                                                                            |                         |  |              |  |               
|WEIGHTED AVERAGE COMMON SHARES                                                              |                         |  |              |  |               
|OUTSTANDING, basic and diluted                                                              | 309,018,361             |  | 394,601,102  |  |               
|                                                                                            |                         |  |              |  |               
|The accompanying notes are an
    integral part of these consolidated financial statements. |                         |  |              | 

5

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

|                                                                                            |             |             |          |                 |              |                | Total       
|------------------------------------------------------------------------------------------- | ----------- | ----------- | -------- | --------------- | ------------ | -------------- | ------------
|                                                                                            |             |             |          | Additional Paid |              |                | Shareholders
|                                                                                            |             | $.01 Stated | Treasury | in              | Deferred     | Accumulated    | (Deficit)   
|                                                                                            | Shares      | Value       | Stock    | Capital         | Compensation | Deficit        | Equity      
|Balance June 30, 2007                                                                       | 387,846,004 | $3,878,460  | ($7,973) | $162,100,718    | ($414,084)   | ($168,311,619) | ($2,754,498)
|                                                                                            |             |             |          |                 |              |                |             
|Issuance of common stock in private
    placements                                          | 1,350,000   | $13,500     |          | $84,500         |              |                | $98,000     
|Common shares in settlement
    of accrued expenses                                         | 1,019,200   | $10,192     |          | $89,808         |              |                | $100,000    
|Issuance of additional shares effect
    repricing                                          | 3,163,400   | $31,637     |          | $225,260        |              |                | $256,897    
|Stock options awarded to
    employees and officers                                         |             |             |          | $3,329          |              |                | $3,329      
|Amortization of deferred stock compensation                                                 |             |             |          | $0              | $414,084     |                | $414,084    
|Investment in Granita                                                                       |             |             |          | $514,000        |              |                | $514,000    
|Conversion of debt                                                                          | 2,727,596   | $27,273     |          | $136,362        |              |                | $163,635    
|Shares issued relative to
    debt financing                                                | 5,250,000   | $52,500     |          | $393,500        |              |                | $446,000    
|Net Loss                                                                                    |             |             |          |                 |              | ($6,184,496)   | ($6,184,496)
|Balance March 31, 2008                                                                      | 401,356,200 | $4,013,562  | ($7,973) | $163,547,477    | $0           | ($174,496,115) | ($6,943,049)
|                                                                                            |             |             |          |                 |              |                |             
|The accompanying notes are an
    integral part of these consolidated financial statements. |             |             |          |                 |             

6

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

|                                                                                            |                   |  |                     |  | October 2, 1996
|------------------------------------------------------------------------------------------- | ----------------- |  | ------------------- |  | ---------------
|                                                                                            | Nine Months Ended |  | (Date of Inception)
|                                                                                            | March 31,         |  | To March 31,       
|                                                                                            | 2007              |  | 2008                |  | 2008           
|                                                                                            |                   |  |                     |  |                
|Cash Flow From Operating Activities:                                                        |                   |  |                     |  |                
|Net Loss                                                                                    | ($11,060,372)     |  | ($6,184,496)        |  | ($174,496,115) 
|Adjustments to reconcile net loss to net cash
    used in                                   |                   |  |                     |  |                
|operating activities:                                                                       |                   |  |                     |  |                
|Depreciation and
    amortization                                                           | 165,028           |  | 202,591             |  | $7,238,593     
|(Gain) loss on debt extinguishments                                                         |                   |  | 57,513              |  | ($714,703)     
|Loss on unconsolidated
    subsidiary                                                       |                   |  |                     |  | $1,466,467     
|Non-cash charges relating to issuance of
    common stock,                                  |                   |  |                     |  |                
|common stock options and warrants                                                           | 1,124,647         |  | 3,329               |  | $62,437,923    
|Reparation charges                                                                          | 1,202,730         |  | 256,897             |  | $7,661,421     
|Derivative Value and Debt Discount charges                                                  |                   |  | 1,497,422           |  | $1,497,422     
|Write off of Granita
    Inventory                                                          |                   |  | 505,910             |  | $505,910       
|Other non cash charges including amortization
    of deferred                               |                   |  |                     |  |                
|compensation                                                                                |                   |  | $414,084            |  | $1,015,065     
|Changes in assets and
    liabilities:                                                      |                   |  |                     |  |                
|Accounts receivable                                                                         | 103,467           |  | 1,961               |  | $427,876       
|Inventories                                                                                 | (315,264)         |  |                     |  | ($510,471)     
|Prepaid expenses and other current assets                                                   | (427,653)         |  | 323,844             |  | ($37,680)      
|Other                                                                                       |                   |  |                     |  | ($559,932)     
|                                                                                            |                   |  |                     |  |                
|Accounts payable, Accrued expenses, Deferred
    revenue                                    | 1,974,822         |  | (168,376)           |  | $8,612,878     
|Due to/from related parties                                                                 | 502,128           |  | 707,128             |  | $7,342,682     
|Net cash used in operating activities                                                       | ($6,730,467)      |  | ($2,382,193)        |  | ($78,112,664)  
|                                                                                            |                   |  |                     |  |                
|Cash Flow from Investing
    Activities:                                                    |                   |  |                     |  |                
|Payments related to patents and licensing
    rights                                        |                   |  |                     |  | ($450,780)     
|Purchase of fixed assets                                                                    | ($54,369)         |  | ($64,063)           |  | ($3,281,618)   
|Net Cash used in investing activities                                                       | ($54,369)         |  | ($64,063)           |  | ($3,732,398)   
|                                                                                            |                   |  |                     |  |                
|Cash Flow from Financing
    Activities:                                                    |                   |  |                     |  |                
|Proceeds from issuance of common stock,                                                     |                   |  |                     |  |                
|exercises warrants and finders fees .net                                                    | $5,795,386        |  | $598,000            |  | $80,290,605    
|Payments of short term
    notes                                                            | (216,420)         |  |                     |  | ($901,704)     
|Advances from Microphase                                                                    |                   |  |                     |  | $347,840       
|Issuance of Convertible
    Debentures                                                      |                   |  | 154,000             |  | $154,000       
|Proceeds from notes payable related parties                                                 | 161,000           |  | 169,323             |  | $460,614       
|Issuance of Long Term
    Convertible Debentures                                            |                   |  | 1,000,000           |  | $1,000,000     
|Sale of minority interest in subsidiary                                                     |                   |  | 514,000             |  | $514,000       
|Repurchase of treasury
    stock at cost                                                    |                   |  |                     |  | ($7,973)       
|                                                                                            |                   |  |                     |  |                
|Net cash provided by financing activities                                                   | $5,739,966        |  | $2,435,323          |  | $81,857,382    
|                                                                                            |                   |  |                     |  |                
|Net increase (decrease)
    in cash                                                         | ($1,044,870)      |  | ($10,933)           |  | $12,320        
|                                                                                            |                   |  |                     |  |                
|CASH AND CASH EQUIVALENTS, beginning of
    period                                          | $1,359,925        |  | $23,253             |  |                
|                                                                                            |                   |  |                     |  |                
|CASH AND CASH
    EQUIVALENTS, end of period                                                | $315,055          |  | $12,320             |  | $12,320        
|                                                                                            |                   |  |                     |  |                
|The accompanying notes are an
    integral part of these consolidated financial statements. |                   | 

7

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mPHASE TECHNOLOGIES, INC. 
(A DEVELOPMENT STAGE COMPANY) 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS - mPhase Technologies, Inc. (the
"Company") was organized on October 2, 1996 and is in the development stage, as
defined by Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." Since December
2007, the Company has focused its efforts and financial resources exclusively on
its "Smart" Nano Battery product with the goal of moving such product to
commercialization as quickly as possible. The Company has, in order to conserve
financial resources, temporarily suspended its development activities with
respect to its IPTV product and its nanotechnology Magnetometer product. The
Company is no longer involved in sales involving DSL component products. Since
mPhase is in the development stage, the accompanying consolidated financial
statements should not be regarded as typical for normal operating periods.
BASIS OF PRESENTATION - The accompanying unaudited
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
pursuant to the regulations of the Securities Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring nature)
considered necessary for a fair presentation have been included. Operating
results for the nine months ending March 31, 2008 are not necessarily indicative
of the results that may be expected for a full fiscal year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Companys Annual Report on Form 10-K for the year ended
June 30, 2007.
Through March 31, 2008, the Company had incurred cumulative
(a) development stage losses totaling ($174,496,115), (b) a stockholders
deficit of $6,943,049, and (c) negative cash flow from operations equal to
$78,112,664. At March 31, 2008, the Company had $12,320 of cash and cash
equivalents to fund short-term working capital requirements. The Companys
ability to continue as a going concern and its future success is dependent upon
its ability to raise capital in the near term to: (1) satisfy its current
obligations, (2) continue its research and development efforts, and (3) allow
the successful wide scale development, deployment and marketing of its products.
CONVERTIBLE DEBT and DERIVATIVE LIABILITY - The Company has
estimated the value of the derivative liability associated with its convertible
debt. Such estimate is based on a Black Sholes calculation at the time of the
debt was issued. Periodically, the value of this liability is marked to market
and adjusted accordingly. Such adjustments are included in Other Income
(Expense). In addition, the value of any common stock issued and related to such
agreements was established at the time of issuance and is being amortized into
expense over the term of the debenture.
RECLASSIFICATIONS - Certain reclassifications have been made
in the prior period consolidated financial statements to conform to the current
period presentation. The most substantial reclassification in these financial
statements is for charges for reparation expenses for equity issued to investors
for market value adjustments previously included in general and administrative
expenses which are now included in the other Income (Expense).
LOSS PER COMMON SHARE, BASIC AND DILUTED - The Company
accounts for net loss per common share in accordance with the provisions of SFAS
No. 128, "EARNINGS PER SHARE" ("EPS"). SFAS No. 128 requires the disclosure of
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Common equivalent shares have been excluded from the computation of diluted EPS
for all periods presented since their affect is anti dilutive.

8

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2. SUPPLEMENTAL CASH FLOW INFORMATION

For the nine months ended March, 31

|                                                          | 2007     | 2008      
|--------------------------------------------------------- | -------- | ----------
|                                                          |          |           
|Non Cash Investing and Financing Activities:              |          |           
|Common stock issued in settlement of accrued
    expenses |          | $100,000  
|Assumption of Sovereign note payable                      |          | $110,000  
|Conversion of vendor debt to equity                       | $909,294 |           
|Conversion of convertible debt                            |          | $106,123  
|Note receivable                                           |          | $1,000,000

RELATED PARTY TRANSACTIONS

MICROPHASE CORPORATION

mPhases President, Chief Operating Officer and Chairman of
the Board of the Company are also officers of Microphase and mPhases President
and Chairman of the Board are shareholders of Microphase. On May 1, 1997, the
Company entered into an agreement with Microphase, whereby it will use office
space as well as the administrative services of Microphase, including the use of
accounting personnel. This agreement was for $5,000 per month and was on a
month-to-month basis. In July 1998, the office space agreement was revised to
$10,000, in January 2000 to $11,050 per month, in July 2001 to $11,340 per
month, in July 2002 to $12,200 per month, in January 2003 to $10,000 per month,
and in July 2003 to $18,000 per month. Additionally, in July 1998, mPhase
entered into an agreement with Microphase, whereby mPhase reimburses Microphase
$40,000 per month for technical research and development. In January 2003 the
technical research and development agreement was revised to $20,000 per month,
and in July 2003 it was further revised to $5,000 per month for technical and
research development, $5,000 per month for administrative services and $5,000
per month under the office space agreement. Beginning July 1, 2006, billings for
all of the above services have been $5,000 per month. In addition, Microphase
also charges fees for specific projects on a project-by-project basis. During
nine months ended March 31, 2007 and 2008 and from inception (October 2, 1996)
to March 31, 2008, $243,099, $60,731 and $9,123,395 respectively, have been
charged to expense.

As a result of the foregoing transactions as of March 31,
2008, the Company had a $282,806 payable to Microphase.

JANIFAST LTD.

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

During the nine months ended March 31, 2007 and 2008 and the
period from inception (October 2, 1996) to March 31, 2008, $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.
During the nine months ended March 31, 2007, the Company charged Janifast
$31,607 in occupancy charges for a portion of its Little Falls, New Jersey
office.

As a result of the foregoing transactions as of March 31,
2008, the Company had $19,336 receivable from Janifast, which is netted against
Due to Related Parties on the Balance Sheet.

9

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OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by
our former investment-banking firm Lipper & Company .At year end June 30, 2007,
Mr. Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid
finders fees in the amount of $250,000. During the nine months ended March 31,
2008 a portion of such fees ($100,000) was paid through the issuance of common
stock and the remainder ($150,000) unpaid.
In addition to the above short term loans, $175,820 was
extended to Granita Media Inc from employee officers of that company. (See Note
re: Granita Media Inc)
In addition, at various points during the most recent nine
month period and at various points during the past fiscal year the Messrs,
Durando, Dotoli and Smiley provided bridge loans to the Company, evidenced by
individual promissory notes and deferred compensation so as to provide working
capital to the Company. All of the notes are payable on demand and carry a 12%
interest rate. The following is a summary of such activity during the nine
months ended, March 31, 2008.

|Summary of
    Transactions with Officers
|-----------------------------------------
|Nine Months
    Ended March 31, 2008     
|                                         
|                                         
|                                         
|NOTES PAYABLE OFFICERS                   
|BALANCE 6/30/07                          
|July 2007 Advances (Payments)            
|August 2007 Advances (Payments)          
|Sept 2007 Advances (Payments)            
|Assumption of Note Payable- Sovereign    
|Oct 2007 Advances (Payments)             
|Nov 2007 Advances (Payments)             
|Dec 2007 Advances (Payments)             
|Transferred to Deferred Comp             
|Jan 2008 Advances (Payments)             
|Feb 2008 Advances (Payments)             
|Mar 2008 Advances (Payments)             
|BALANCE Notes Payable Officers           
|                                         
|Deferred Compensation                    
|                                         
|Due To Officers                          
|BALANCE 6/30/07                          
|Consulting Fee Earned -1st Qtr           
|Consulting Fees Paid - 1st Qtr           
|Consulting Fee Earned - 2nd Qtr          
|Consulting Fees Paid - 2nd Qtr           
|Consulting Fee Earned - 3rd Qtr          
|Consulting Fees Paid - 3rd Qtr           
|Balance Due to Officers                  
|                                         
|Interest Payable                         
|Totals Payable to Officers               
|                                         
|COMPENSATION                             
|Consulting / Salary Earned               
|Interest Earned                          
|Stock Based Compensation                 
|Total Compensation Officers              

10

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3. EQUITY TRANSACTIONS , CONVERTIBLE DEBENTURES
Private Placements

During the quarter ended September 30, 2007, the Company
issued 500,000 shares of its common stock in private placements generating net
proceeds of $50,000 During the quarter ended December 31, 2007, the Company
issued 850,000 shares of its common stock in private placements generating net
proceeds of $48,000
Other Equity Transactions

During the nine months ended, March 31, 2008, the Company
issued 85,000 of options to purchase common stock valued at $3,329 to employees
and issued 3,163,957 shares of common stock valued at $256,897 to reflect
re-pricing agreements. In addition, 1,109,200 shares were issued to pay for
finders fees valued at $100,000. In the most recent quarter the company issued
5,250,000 shares of common stock valued at $446,000 in connection with debt
financing arrangement (see convertible debt below)
Investment in Granita Media inc

An investment of $514,000 was received by Granita Media, Inc,
a subsidiary formed July 1, 2007, to operate its IPTV business. Since the
company remains the controlling shareholder in Granita Media and such results
are consolidated, this investment is included in Additional Paid In Capital.
(See note 4)
Convertible Debt Short Term

In September, 2007, the Company received proceeds of $154,000
of convertible debt bearing interest at an annual rate of 15% and due September
1, 2008. Such debt may be converted into the Companys common shares at a price
equal to a 20% discount from the 20 day average bid and ask price. Such election
is at the option of the Company on September 1, 2008. In March 2008, $100,000 of
such debt was converted into 2,727,264 shares of common stock.
Convertible Debentures / Note Receivable / Debt Discount

In December, 2007, the Company received proceeds of $500,000
under a Securities Purchase Agreement. This transaction involves three related
agreements: 1) A Securities Purchase Agreement which may under certain
circumstances permit the Company to draw up to $6,000,000 of funds; 2) A
Convertible Debenture in the amount of $1.5 million, with an interest rate of 7
1⁄4% and a maturity date of December 11, 2010 and 3) A Secured Note Receivable in
the amount of $1.0 million, with an interest rate of 8 1⁄4 % and a maturity date
of February 1, 2011 due from the same parties who are the holders of the
Convertible Debentures
Conversion of outstanding debentures into common shares is at
the option of the holder. The number of shares into which this debenture can be
converted is equal to the dollar amount of the debenture divided by the lesser
of $.35 per share or 80% of the 3 lowest Volume Weighted Average Prices during a
20 day trading period. At the time of the transaction (December 11, 2007) the
derivative value of this security was calculated to be $1,678,471. On March 31,
2008, given the increase in the stock price, this value had increased to
$2,404,647 creating a non-cash charge to earning of $1,987,826, which was
recognized in the current quarter and fully offsetting the prior quarters credit
to earnings of $1,272,067. It
should also be noted that the holder has the right to offset unpaid principal
amount against the note receivable in the event of a default. No further draws
under this facility are anticipated until June 30, 2008.
In February 2008, the Company entered into a Convertible
Debenture transaction which involved the receipt of $500,000 cash, a note
payable of $550,000 and the issuance of 3,250,000 shares of stock valued at
$260,000. The terms of the debenture provide for a 7.5% interest rate, a due
date of February 2012 and allow similar conversion privileges equal to 80%. The
derivative value of such security was estimated to be $581,428 on the date of
issuance. On March 31, 2008, this value had increase to $925,743 creating a non
cash charge to earnings of $344,315. The cost of the shares issued is being
amortized to expense over the life of the debenture.
The above transactions resulted in note discounts which are
being amortized over the life of the loans and have resulted in a charge to
expense of $205,843 for the nine month period ended March 31, 2008.
4. GRANITA MEDIA

Effective July 1, 2007, the Company formed Granita Media,
Inc. to separate its IPTV business and facilitate the raising of capital.
Pursuant to an arrangement with 4 employees of mPhase, such employees were
terminated from mPhase as of July 1, 2007 and became employees of Granita Media
Inc and invested solely in the common stock of Granita Media Inc. Under the
arrangement, each of the 4 employees were required to invest $125,000 in
exchange for an aggregate 2% equity interest in Granitia Media, Inc with mPhase
continuing to own 98% of the Company. The 4 employees contributed a total of
$339,000 of the total $500,000 equity investment required from them and raised
from third party investors another $175,000 for a total of $514,000 Granita
Media has 19,000,000 shares of common stock outstanding of which 18,000,000 was
owned by mPhase Technology and 1,000,000 is being held for issuance the 4
employees and the third party investors pending an agreement among such persons
of the allocation of such shares.

11

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Under the terms of the arrangement between mPhase and the 4
employees, such employees were authorized to sell up to 7.99% of additional
equity in the Company for a total of not less than $2,000,000 of additional
capital by December 31, 2007. As noted above, the employees raised a total of
$175,000 of outside capital only and pursuant to the arrangement, such employees
either resigned or were terminated by mPhase together with several lower level
employees of Granita. A dispute has arisen between Granita Media and one of the
former employees with respect to a sum of approximately $168,000 included in
short term loans. It is the Companys position that such sums were voluntarily
advanced to fund operating expenses after July 1, 2007. Since the 4 employee /
officers of Granita Media were required to cover operating expenses of Granita
Media after July 1, 2007 through equity investments either directly or from
third parties, the Company has taken the position that such amount is not owed
to the employee. In addition, the Company has substantial rights of offset for
unpaid rent with respect to the portion of its Little Falls office occupied by
Granita Media after July 1, 2007.
During the nine month period ended March 31, 2008, Granita
Media Inc sustained losses estimated to be $762,000, had exhausted all cash
resources and was past due on payables to key vendors. In October, 2007,
Granita Media received notice that its test system being deployed at Comstar/Odessa,
a major telephone service provider in the Ukraine was being replaced by a system
of another vendor used by its parent company in Russia. This event, together
with the inability of the 4 employees to successfully arrange not less than $2
million of additional equity financing under their arrangement with the Company
to fund operating expenses of Granitia Media, Inc, prompted a suspension of
operations and the resignation by all of the 4 employees the termination and all
other technical employees . The Company is currently undergoing a review of
strategic alternatives including the licensing of technology developed for the
IPTV product and the potential of moving forward with its Targeted Advertising
addition to such product.
5. INVESTMENT IN SOVEREIGN TRACKING SYSTEMS

On August 21, 2007, the Company announced that it had
acquired from Mr. Durando, in exchange for a 12% demand promissory note in the
principal amount of $110,000, a 10% interest in Sovereign Tracking Systems, LLC,
a New Jersey limited liability company that holds the license for a patent for a
Real-Time Location System to track high value assets. Mr. Durando had previously
paid the amount of $110,000 to Mr. William A. Robinson, the owner of Sovereign
Tracking Systems, LLC.
6. COMMITMENTS AND CONTINGENCIES

The Company has a lease obligation for the rental of office
space in Little Falls, New Jersey until March 31, 2012. Annual obligations under
the lease require rent of $251,562 in each of the next fiscal years ending from
June 30, 2008 to June 30, 2011 and $188,672 up to March 31, 2012. In total such
obligations amount to $1,133,669. In addition, the Company has various disputes
involving legal action
with vendors formally involved in the IPTV business including Magpie. These
disputes are being negotiated and are not deemed to have
a material adverse impact.
7 SUBSEQUENT EVENTS AND OTHER MATTERS

In April, 2008 the Company received a total of $2,084,722 in
cash from the following sources:
$1,062,500 from
  the issuance of 21,250,000 shares of common stock
  $722,222 from the
  conversion of 11,111,113 warrants into common stock
  $300,000 related to convertible debt
  totaling $350,000 at 12% interest with a maturity of March 2011. Such debt
  allows the conversion into common stock at amount equal to 75% of the lowest
  trading price in the 20 trading days prior to conversion. On April 2, 2008,
  when this transaction became effective the derivative value of such security
  was approximately $600,000. Subsequently, this value has declined
  substantially as the market price of the Companys common stock has declined.
  

These funds were used in part to improve the Companys
Working Capital situation by significantly paying down past due payables and
setting aside funds for future operations. As of May 12, 2008, the Company had
in excess of $600,000 cash.

12

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ITEM 2. MANAGEMENTS DISCUSSION OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following is managements discussion and analysis of
certain significant factors, which have affected mPhases financial position and
should be read in conjunction with the accompanying financial statements,
financial data, and the related notes.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF
THE PRIVATE LITIGATION REFORM ACT OF 1995:

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

mPhase, a New Jersey corporation founded in 1996, is a
publicly-held company with over 18,000 shareholders and approximately 400
million shares of common stock outstanding. The Companys common stock is traded
on the Over the Counter Bulletin Board under the ticker symbol XDSL.
The Company has recently shifted its primary business focus
to the development of battery technology and using the science of nanotechnology
has developed a battery that has a significantly longer shelf life prior to
activation than conventional batteries. In addition, such battery product,
unlike conventional batteries, is capable of being disposed of after use without
harm to the environment. The Company believes that such battery will have the
following additional advantages over conventional batteries:
1.
Easy to miniaturize
2.
Quick ramp up to full power.
3.
Compatible with Semiconductor Processing
4.
High Power and Energy Density
5.
Wide range of chemistries can be used
6.
Inexpensive to mass produce
We are headquartered in Norwalk, Connecticut with offices in
Little Falls, NJ and New York, N.Y. mPhase shares common office space with
Microphase Corporation, a privately held company. Microphase is a leader in the
field of radio frequency and filtering technologies within the defense and
telecommunications industry. It has been in operation for over 50 years has
supported mPhase with both engineering and administrative and financial
resources.
Description of Operations
Nanotechnology

The Company's is currently focused upon development and
commercialization of its "Always Ready" battery product developed using the
science of nanotechnology. The Company believes that such battery has a much
longer shelf life than conventional batteries and will have significant
commercial and military applications. The Company has temporarily suspended, to
conserve financial resources, development of its magnetometer sensor devices
also developed using the science of nanotechnology.
History of Nanotechnology Operations
Nano Battery:

mPhase Technologies along with Alcatel/Lucent/Bell Labs,
jointly conducted research from February 2004 through April of 2007 that
demonstrated control and manipulation of fluids on superhydrophobic surfaces to
create power cells by controlling wetting behavior of electrolyte on nano
structured electrode surfaces. The scientific research conducted set the ground
work for continued exploration in the development of intelligent nanotechnology
power cells (nano-batteries), 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 more commercially based lithium based chemistry that
can be manufactured.

13

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In June of 2005, the battery project was expanded to include
a joint technical development effort through December 2005 between mPhase and
Rutgers University to potentially incorporate a Lithium based design. This work
program has initially started as a modest technology effort to help characterize
and test the nano battery design using Lithium chemistry to determine if the
current design is capable of supporting the lithium based chemistry.
The Company decided in September of 2007 to transfer its
development toward commercialization from Alcatel/Lucent Bell Labs in order to
broaden its development efforts beyond zinc based batteries. The Company rapidly
and cost-effectively developed the battery into a commercial product. The
Company had previously established a significant working relationship with
Rutgers University to broaden its battery development to include lithium
chemistries.
In July of 2007, the Company announced that it had received
from the U.S. Army a Phase I small business transfer grant to develop its
battery product. In March of 2008, the Company announced that it had been
invited to submit a proposal for a Phase II small business transfer grant based
upon the work it had performed on the Phase I grant. The phase II grant is in
the amount of $750,000 and the Company is expected to be informed by the Army on
or about June 15, 2008 whether it will be awarded such Phase II grant. During
the summer of 2007, the Company formed a new wholly-owned subsidiary, Always
Ready, Inc., to focus on the development of its nanotechnology products. The
Company has recently used such subsidiary as a division of the Company in order
to develop increasing brand recognition of its battery product.
In February of 2008, the Company announced that a prototype
of its smart reserve nano battery 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 g force in excess of 45,000 but was also successfully activated
by such g force.
In March of 2008, the Company announced the successful
transfer to a commercial foundry of certain processes critical to the
manufacturing of its nanotechnology smart battery enabling the creation of
multiple cells of electro-wetting structures in a single battery. The Company
successfully manufactured nano-structured separators critical to commercial
production of the battery at the foundry. By achieving a series of delayed
activations, the shelf life of such battery is increased to a potentially
infinite period of time.
In April of 2008, the Company announced that it had
successfully achieved remote activation of its nano battery product. Such remote
activation is necessary in potential applications of such batteries for use in
RFID tags.
In April of 2008, the Company announced that it had
successfully produced a lithium based nano battery with a soft or "pouch"
packaging that provides power on command. The Company believes that it is a
significant milestone in moving from a low density zinc based battery to a high
density lithium based battery towards proving that an on command nano battery
will eventually be economically and commercially viable.
IPTV

Historically, the Company since its inception has focused
upon developing innovative solutions for the delivery of Broadcast Television as
part of a "triple play" of services that includes voice and high-speed internet
for telephone service providers globally. Beginning in fiscal year 2004, the
Company began developing Broadcast television delivery solutions through
software/middleware designed to enable telephone service providers to deliver
video data using internet protocol. The Companys middleware/software is highly
scalable, potentially saving telephone service providers significant hardware
deployment costs for routers and servers required for the carrier class delivery
of broadcast television using internet protocol. Such solution potentially
expands the content of available information from the internet into broadcast
quality television. The Companys middleware is capable of delivering over
copper, fiber, coax or any infrastructure representing a combination of the
foregoing that is used by a telecommunications service provider. The Company has
not to date been able to derive any significant revenue from our TV+ solution.
Accordingly, the Company has for the present suspended development of its IPTV
to conserve financial resources pending a reevaluation of strategy. All
inventory has been written off and all strategic alternatives relative to this
business segment including the valuation and sale of assets and licensing of the
technology are being evaluated.
Other Nanotechnology Products

On March 10, 2005 the Company announced an agreement with
the Bell Labs research and development arm of Lucent Technologies, Inc. to co
develop using the science of nanotechnology and commercialize uncooled magnetic
ultra-sensitive sensors for a host of defense and civilian applications. The
sensors, technically referred to as magnetometers, are based upon Micro Electro
Mechanical Systems (MEMS) using designs based upon fundamental breakthroughs
made in the past few years at Bell Labs as part of the New Jersey Nanotechnology
Consortium. Initial tests of theses MEMS magnetometers indicate sensitivities
1000 times those achieved in presently available uncooled magnetometers. Such
devices are designed to create a new generation of ultra sensitive magnetic
field sensors that will enable military combatants to detect with greater
accuracy and range hostile military forces.

14

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Commercial applications may include inexpensive navigational
components for mobile phones to sensing devices for identification used in
homeland security products, as well as sensors used in diagnostic systems for
detection of metal fatigue for numerous industrial applications. The Company
currently has suspended development of the magnetometer to conserve financial
resources.
The Company is unable, at this time, to predict when
significant commercialization and material revenues will be derived from its
entry into the NanoTechnology business.
Magnetometer:

In February 2005, mPhase and Lucent Technologies' Bell
Laboratories entered into a joint effort to develop an extremely sensitive
magnetometer. Magnetometers can be used in a wide range of applications that
include military surveillance, securing the retail environment, automotive
sensors and actuators, industrial processing, medical imaging, scientific
measurements, detection of mineral deposits and even air and space exploration.
In sensor networks ultra-sensitive magnetometers can be used, for example, to
detect and accurately pinpoint battlefield objects or they might also be used to
study the workings of the human brain.
Magnetometers work by sensing changes in magnetic fields due
to the motion of magnetic objects or changes in electrical currents generated by
those objects. The magnetometer detects these objects by measuring time-varying
magnetic signals that are superimposed on the combination of earth's background
field (used to orient compasses) and static magnetic fields due to near by
magnetic objects. In March of 2007, the Company ceased development with
Alcatel/Bell Labs of its Magnetometer product in order to conserve financial
resources. The following describes certain characteristics
Highly Sensitive Magnetometers - The enhanced sensitivity
of these devices results from two scientific advances recently made by
researchers at Alcatel Lucent Bell Labs. Presently, the highest sensitivity
magnetometers commercially available require cooling to cryogenic temperatures.
Called SQUIDs (for Superconducting Quantum Interference Devices) these devices
only work at the temperature where liquid helium boils, -455 degrees below zero
Fahrenheit, making such magnetometers expensive and bulky and therefore
ill-suited for remote-sensing applications. Room temperature magnetometers, on
the other hand, are less sensitive, and use technology that was developed in
World War II for detecting submarines.
The new technology developed employs a number of different
designs based on Micro-Mechanical Systems (MEMS). These designs use the very
high "Quality Factor (Q)" of the mechanical resonance in single crystals of
silicon. A resonance is similar to the fundamental frequency of a tuning fork.
When tapped, a tuning fork will vibrate for a length of time inversely
proportional to the internal friction of vibration within the metal of the
tuning fork. A comparable tuning fork made from single crystal silicon, which
has less internal friction than the hardest metal, will vibrate almost a
thousand times longer. Based on this principal, a device employing a high Q
resonator will have enhanced amplitude of vibration at the resonance frequency,
and hence will display a greater sensitivity to external perturbations that
affect its resonance frequency. By coupling the mechanical motion of a bar or a
paddle constructed from silicon to the ambient magnetic field, this high
mechanical sensitivity can be converted to high magnetic field sensitivity. The
technical approach that the team is developing can be achieved either statically
with an integrated magnetic film, or dynamically through motion of the silicon
bar or paddle.
The Benefits of MEMS- Commercial magnetometers using
purely electronic detection, such as Hall, magneto-resistance or flux-gate
devices, have sensitivities limited by their electronic Q-factor. This Q-factor
depends on the natural electrical resistance, or electronic friction, of the
metal in the circuit. For room-temperature operations it is therefore difficult
to reduce the electrical Q-factor. Mechanical resonators made from
semiconductor-grade silicon, on the other hand, exhibit mechanical Q-factors,
approaching 100,000 at room temperature. In all, these new, smaller and less
costly magnetometers should be100-1000 times more sensitive than existing
commercial devices, thus enabling a new class of sensor systems that mPhase
plans on commercializing.
The mPhase magnetometer team has successfully reached an
early milestone in intellectual property by having produced a number of MEM
based sensor samples from the clean room facilities and are working on
integrating them into the surrounding electronic circuitry so that measurement,
characterization and sensitivity testing can be conducted.
Since the expiration, in March of 2007, of its Development
Agreement with Alcatel Lucent, the Company, has in order to conserve financial
resources temporarily suspended development of its magnetometer products.

15

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FINANCIAL OVERVIEW
Revenues. Prior to the most recent nine month period all
material revenues had been generated from sales of component products related
its telecommunication business. Operations from this business line have been
suspended pending a review of strategic alternatives. It is unclear weather any
future revenue will be derived from this business segment. During the most
recent nine month period, revenue has primarily been attributable to testing
arrangements involving its nanotechnology products
Cost of revenues. Historically, the costs necessary to
generate revenues from the sale of POTS Splitter Shelves and other related DSL
component products include direct material, labor and manufacturing. mPhase paid
these costs to Janifast Ltd., which has facilities in the People's Republic of
China and is owned by and managed by certain senior executives of the Company.
The cost of revenues also includes certain royalties paid to Microphase
Corporation, a privately held corporation organized in 1955, which shares
certain common management with the Company and is majority-owned by a director
of mPhase.
Research and development. Research and development
expenses have consisted principally of direct labor and payments made to
Microphase, Lucent and other third party vendor involved in the development of
the TV+ IPTV solution and nanotechnology products. All research and development
costs are expensed as incurred. The Company has shifted its commercial
development of its nanotechnology battery products from Lucent Technologies to
certain foundries capable of providing critical out sourcing assistance.
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 and mPhase leases its principal office in Norwalk, Connecticut from
Microphase.
Non-Cash compensation charges. The Company makes
extensive use of stock options and warrants as a form of compensation to
employees, directors and outside consultants. We incurred non-cash compensation
charges totaling $62,437,923 from inception (October 2, 1996) through March 31,
2008.
Other Expense. Included in Other Expense is a non
recurring charge in the amount of $1,497,422 largely 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.
Cumulative losses, net worth and capital needs

The Company has incurred cumulative development stage losses
of $174,496,115, and negative cash flow from operations of $78,112,664. The
auditors report for the fiscal year ended June 30, 2007 includes the statement
that "there is substantial doubt of the Company's ability to continue as a going
concern". Management estimates that the Company needs to raise approximately $5
million during the next 12 months to continue its present level of operations.
Such operations will be directed toward the development of the nanotechnology
product line. As of March 31, 2008, the Company had a negative net worth of
($6,943,049) compared to a negative net worth of ($2,754,498) as of June 30,
2007 as a result of continuing net losses.
In April, 2008 the Company received a total of $2,084,722 in
cash from the following sources:
$1,062,500 from
  the issuance of 21,250,000 shares of common stock
  $722,222 from the
  conversion of 11,111,113 warrants into common stock
  $300,000 related to convertible debt
  totaling $350,000 at 12% interest with a maturity of March 2011. Such debt
  allows the conversion into common stock at amount equal to 75% of the lowest
  trading price in the 20 trading days prior to conversion. On April 2, 2008,
  when this transaction became effective the derivative value of such security
  was approximately $600,000. Subsequently, this value has declined
  substantially as the market price of the Companys common stock has declined.
  

These funds were used in part to improve the Companys
Working Capital situation by significantly paying down past due payables and
setting aside funds for future operations. As of May 12, 2008, the Company had
in excess of $600,000 cash.

16

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THREE MONTHS ENDED March 31, 2008 VS. March 31, 2007
REVENUE

Total revenues were $545 for the three months ended March 31,
2008 compared to $15,155 for the three months ended March 31, 2007. All revenue
is related to research projects involving the nanobattery product line.
RESEARCH AND DEVELOPMENT

Research and development expenses were $275,565 for the three
months ended March 31, 2008, as compared to $1,250,680 during the comparable
period in 2007 or a decrease of $975,115. Spending levels have declined
significantly as expenses related to development and testing of the TV+ product
have been curtailed. In addition, the Company has reduced activity relative to
research projects involving its nanotechnology product line. Our nanotechnology
contracts with Alcatel Lucent have expired and product development cost
transferred to a less expensive foundry.
The Company expects to continue and expand research and
development efforts throughout fiscal year 2008 as the Company continues its
development Nanotechnology product lines. The Company plans to continue its
development efforts with third party contractors, such as Rutgers University, to
commercialize the use of nano power cell technology. Development is continuing
for mPhase micro-power source arrays fabricated using nanotextured, super
hydrophobic materials. Such activities will give mPhase the opportunity to
develop and offer breakthrough battery technology applications, initially to
government market segments including defense and homeland security, and
ultimately to the commercial market. The initial applications for the nano power
cell technology will address the need to supply emergency and reserved power to
a wide range of electronic devices for the defense department.
GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $576,473 for the
three months ending March 31, 2008 down from $1,644,894 or a decrease of
$1,068,421 from the comparable period in 2007. The decrease is comprised
primarily of a decrease in stock based compensation of approximately $250,000, a
decline in payroll resulting from the termination of approximately 75% of staff,
lower levels of travel and entertainment associated with the IPTV business and
its suspension and the amortization of deferred stock compensation expense of
$207,000.
OTHER INCOME AND (EXPENSE)

Other Income and (Expense) amounted to an expense of
($2,632,579) for the three months ended March 31, 2008 compared to a net expense
of ($357,617) for the comparable period ended 2007. The increase is primarily a
result of an increase in the market value of Derivative Securities and
associated debt discount in the amount of $2,430,100 and the amortization of
debt discount into interest expense of $130,000. The former amount should not be
deemed to be recurring. This increase is offset in part by a decline in
reparation expense of approximately $100,000.
NET LOSS

The Company recorded a net loss of $3,505,169 for the three
months ended March 31, 2008 as compared to a loss of $3,263,529 for the three
months ended March 31, 2007. This loss is a result of the aforementioned change
in the value of derivative securities and ongoing operating cost without
significant revenue. Earnings per share for the three month period ended March
31, 2008 was $.01 as compared to a loss per common share of $.01 for the three
months ending March 31, 2007; based upon weighted average common shares
outstanding of 397,367,531 and 327,195,047 during the periods ending March 31,
2008 and 2007, respectively. Exclusive of the change in derivative value reduced
losses are a result of the scale down of research activities, the suspension of
development of the IPTV business segment, a significant reduction in personnel
and an increase in Other Income.

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NINE MONTHS ENDED March 31, 2008 VS. March 31, 2007
REVENUE

Total revenues were $96,259 for the nine months ended March
31, 2008, compared to $135,743 for the nine months ended March 31, 2007. The
decrease was attributable primarily to the phasing out of the Companys IPTV
telecommunications products. This decrease is partially offset by increase in
revenue associated with testing of its nanotechnology battery.
RESEARCH AND DEVELOPMENT

Research and development expenses were $1,615,609 for the
nine months ended March 31, 2008, as compared to $4,964,404 during the
comparable period in 2007, or a decrease of $3,348,795. The Company had incurred
most of its research and development expenses with vendors for the IPTV product
including, Microphase, Magpie Insiders, Inc., Espial, Velankani and other
strategic vendors. In the nine month period ended March 31, 2008, such
relationships were curtailed and (or) being reevaluated resulting in
dramatically lower expenses. During the nine month period ended March 31, 2008,
$927,213 and $688,396 of research and development was associated with the
Nanotechnology and IPTV product lines respectively. Included in the IPTV amount
is $495,000 of expenses related to the first quarter write off of inventory
associated with Comstar/Odessa, a telecommunications provider in the Ukraine,
trial that was terminated in October, 2007.
GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $3,057,928
for the nine months ended March 31, 2008, down from $5,012,073, or a decrease of
$1,954,145 from the comparable period in 2007. This decrease is a result of
non-cash charges relating to the issuance of common stock and options to
employees and consultants, which declined by $1,121,318 and a decline in the
number of employees primarily associated with the suspension of IPTV business
and administrative activities.
OTHER INCOME AND (EXPENSE)

Other Income and (Expense) amounted to net expense of
($1,469,986) for the nine months ended March 31, 2008, compared to a net expense
of ($1,065,117) for the comparable period ended nine months ended March 31,
2007. This change is primarily due to a decline in reparation expense of
$945,829, an adjustment of $400,000 to reflect a reduction of accrued
obligations due under contractual work performed for the magnetometer offset by
increased expenses associated with the changes in the Derivative Value of debt
securities which amounted to $1,497,422.
NET LOSS

The Company recorded a net loss of $6,184,496 for the nine
months ended March 31, 2008, as compared to a loss of $11,060,372 for the nine
months ended March 31, 2007. This represents a loss per common share of $.02 for
the nine month period ended March 31, 2008, as compared to a loss per common
share of $.04 for the nine months ending March 31, 2007, based upon weighted
average common shares outstanding of 394,601,102 and 309,018,361 respectively.
Overall, the reduced losses are a result of the scale down of research
activities, the suspension of development of the IPTV business segment and the
magnetometer, a significant reduction in personnel and the aforementioned
variations included in Other Income. This is offset in part by the
aforementioned cost of $495,000 associated with the write off of IPTV inventory

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CRITICAL ACCOUNTING POLICIES

REVENUE RECOGNITION
As required, mPhase has adopted the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements", which provides guidelines on applying
generally accepted accounting principals to revenue recognition based upon the
interpretations and practices of the SEC.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as
incurred in accordance with Statement of Financial Accounting Standards ("SFAS"),
No.2, "Accounting for Research and Development Cost."
INCOME TAXES
mPhase accounts for income taxes using the asset and
liability method in accordance with SFAS No.109 "Accounting for Income Taxes."
Under this method, deferred tax assets and liabilities are measured using
currently enacted tax rates. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in results of operations in the period
that includes the enactment date. Because of the uncertainty as to their future
realizability, net deferred tax assets, consisting primarily of net operating
loss carry forwards, have been fully reserved for. Accordingly, no income tax
benefit for the net operating loss has been recorded in the accompanying
financial statements.
Utilization of net operating losses generated through March
31, 2008 may be limited due to "changes in control" of our common stock that
occurred.
DERIVATIVE LIABILITY
The Company has estimated the value of the derivative
liability associated with its convertible debt. Such estimate is based on a
Black Sholes calculation at the time the debt was issued. Periodically, the
value of this liability is marked to market and adjusted accordingly. Such
adjustments are included in Other Income (Expense)
STOCK-BASED COMPENSATION
On July 1, 2005, the Company adopted the provisions of
Financial Accounting Standards Board Statement No. 123R,"Share-Based
Payment" (SFAS 123R). SFAS 123R revised SFAS 123, "Accounting for Stock
Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees." SFAS 123R requires companies to measure and recognize
compensation expense for all employee stock-based payments at fair value over
the service period underlying the arrangement. Therefore, the Company is now
required to record the grant-date fair value of its stock-based payments (i.e.,
stock options and other equity-based compensation) in the statement of
operations. The Company adopted FAS 123R using the "modified prospective"
method, whereby fair value of all previously-granted employee stock-based
arrangements that remained unvested at July 1, 2005 and all grants made on or
after July 1, 2005 have been included in the Companys determination of
stock-based compensation expense for the three and nine months ended March 31,
2008 and March 31, 2007.

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MATERIAL RELATED PARTY TRANSACTIONS
MICROPHASE CORPORATION

mPhases President, Chief Operating Officer and Chairman of
the Board of the Company are also officers of Microphase and mPhases President
and Chairman of the Board are shareholders of Microphase. On May 1, 1997, the
Company entered into an agreement with Microphase, whereby it will use office
space as well as the administrative services of Microphase, including the use of
accounting personnel. This agreement was for $5,000 per month and was on a
month-to-month basis. In July 1998, the office space agreement was revised to
$10,000, in January 2000 to $11,050 per month, in July 2001 to $11,340 per
month, in July 2002 to $12,200 per month, in January 2003 to $10,000 per month,
and in July 2003 to $18,000 per month. Additionally, in July 1998, mPhase
entered into an agreement with Microphase, whereby mPhase reimburses Microphase
$40,000 per month for technical research and development. In January 2003 the
technical research and development agreement was revised to $20,000 per month,
and in July 2003 it was further revised to $5,000 per month for technical and
research development, $5,000 per month for administrative services and $5,000
per month under the office space agreement. Beginning July 1, 2006, billings for
all of the above services have been $5,000 per month. In addition, Microphase
also charges fees for specific projects on a project-by-project basis. During
nine months ended March 31, 2007 and 2008 and from inception (October 2, 1996)
to March 31, 2008, $243,099, $60,731 and $9,123,395 respectively, has been
charged to expense.
As a result of the foregoing transactions as of March 31,
2008, the Company had a $282,806 payable to Microphase.
JANIFAST LTD.
The Company has historically purchased products manufactured
by Janifast Ltd, which is owned by Janifast Holdings, a Company in which two
directors of mPhase are significant shareholders and one is an officer. The
Company previously sold DSL products produced by Janifast Ltd. but has recently
refocused its operations exclusively on its nanotechnology battery product and
is not expected to make significant purchases from Janifast Ltd. or engage
actively in the business of telecommunications component products.
During the nine months ended March 31, 2007 and 2008 and the
period from inception (October 2, 1996) to March 31, 2008, $0, $0 and
$16,031,811 respectively had been charged by Janifast to inventory or is
included in operating expenses in the accompanying statements of operations.
During the nine months ended March 31, 2007, the Company charged Janifast
$31,607 in occupancy charges for a portion of its Little Falls, New Jersey
office.
As a result of the foregoing transactions as of March 31,
2008, the Company had $19,336 receivable from Janifast, which is netted against
Due to Related Parties on the Balance Sheet.
OTHER RELATED PARTIES

Mr. Abraham Biderman was employed until September 30, 2003 by
our former investment-banking firm Lipper & Company .At year end June 30, 2007,
Mr. Biderman's affiliated firm of Palladium Capital Advisors was owed unpaid
finders fees in the amount of $250,000. During the nine months ended March 31,
2008 a portion of such fees ($100,000) was paid through the issuance of common
stock and the remainder ($150,000) unpaid.
In addition to the above short term loans, $175,820 was
extended to Granita Media Inc from employee officers of that company. (See Note
re: Granita Media Inc)

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In addition, at various points during the most recent nine
month period and at various points during the past fiscal year the Messrs,
Durando, Dotoli and Smiley provided bridge loans to the Company, evidenced by
individual promissory notes and deferred compensation so as to provide working
capital to the Company. All of the notes are payable on demand and carry a 12%
interest rate. The following is a summary of such activity during the nine
months ended, March 31, 2008.

|Summary of
    Transactions with Officers
|-----------------------------------------
|Nine Months
    Ended March 31, 2008     
|                                         
|                                         
|                                         
|NOTES PAYABLE OFFICERS                   
|BALANCE 6/30/07                          
|July 2007 Advances (Payments)            
|August 2007 Advances (Payments)          
|Sept 2007 Advances (Payments)            
|Assumption of Note Payable- Sovereign    
|Oct 2007 Advances (Payments)             
|Nov 2007 Advances (Payments)             
|Dec 2007 Advances (Payments)             
|Transferred to Deferred Comp             
|Jan 2008 Advances (Payments)             
|Feb 2008 Advances (Payments)             
|Mar 2008 Advances (Payments)             
|BALANCE Notes Payable Officers           
|                                         
|Deferred Compensation                    
|                                         
|Due To Officers                          
|BALANCE 6/30/07                          
|Consulting Fee Earned -1st Qtr           
|Consulting Fees Paid - 1st Qtr           
|Consulting Fee Earned - 2nd Qtr          
|Consulting Fees Paid - 2nd Qtr           
|Consulting Fee Earned - 3rd Qtr          
|Consulting Fees Paid - 3rd Qtr           
|Balance Due to Officers                  
|                                         
|Interest Payable                         
|Totals Payable to Officers               
|                                         
|COMPENSATION                             
|Consulting / Salary Earned               
|Interest Earned                          
|Stock Based Compensation                 
|Total Compensation Officers              

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LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2008, mPhase had working capital deficit of
$5,203,158 as compared to working capital deficit of $3,088,439 at June 30,
2007. Through March 31, 2008, the Company had incurred development stage losses
totaling $174,496,115.
Historically, mPhase has funded its operations and capital
expenditures primarily through private placements of common stock. Management
expects that its ongoing financial needs will continue to be provided by such
financing activities and believes that the commercialization and potential
military grants for the "Always Ready" battery will provide some offset to cash
flow used in operations, although there can be no assurance of such events. At
March 31, 2008, the Company had cash and cash equivalents of $12,320 compared to
$23,253 at June 30, 2007.
Cash used in operating activities was $2,382,193 during the
nine months ending March 31, 2008. The cash used in operating activities
consists principally of the net loss offset in part by non-cash charges of
$202,591, $256,897, $414,084, and $495,283 for depreciation and amortization,
reparation expenses, deferred compensation and inventory write-offs
respectively. In addition, the change in the market value of derivative
securities amounted to a non-cash charge of $1,497,422. This is offset in part
by a decrease in accounts of payable $168,376.
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.
In April, 2008 the Company received a total of $2,084,722 in
cash from the following sources:
$1,062,500 from
  the issuance of 21,250,000 shares of common stock
  $722,222 from the
  conversion of 11,111,113 warrants into common stock
  $300,000 related to convertible debt
  totaling $350,000 at 12% interest with a maturity of March 2011. Such debt
  allows the conversion into common stock at amount equal to 75% of the lowest
  trading price in the 20 trading days prior to conversion. On April 2, 2008,
  when this transaction became effective the derivative value of such security
  was approximately $600,000. Subsequently, this value has declined
  substantially as the market price of the Companys common stock has declined.

These funds were used in part to improve the Companys
Working Capital situation by significantly paying down past due payables and
setting aside funds for future operations. As of May 12, 2008, the Company had
in excess of $600,000 cash.
LOSSES DURING THE DEVELOPMENT STAGE AND MANAGEMENTS PLANS

From inception (October 2, 1996) through March 31, 2008 the
Company has incurred development stage losses and has an accumulated deficit of
$174,496,115 and a stockholders deficit of $6,943,049. The report of the
Companys outside auditors, Rosenberg, Rich, Baker, Berman and Company with
respect to its latest audited 10K for the fiscal year ended June 30, 2007,
stated that "there is substantial doubt of the Companys ability to continue as
a going concern".
We continue our efforts to raise additional funds through
private placements of our common stock and strategic alliances, the proceeds of
which are required to fund continuing expenditures associated with the
nanotechnology business. However, there can be no assurance that mPhase will
generate sufficient revenues to provide positive cash flows from operations or
that sufficient capital will be available, when needed, or at terms that we deem
to be reasonable.
During the next 12 months, Company anticipates that it will
need to raise, at a minimum, approximately $5 million, primarily in private
placement of its common stock with accredited investors. In addition, we will
need to focus on and control certain expenses.
Should these cash flows not be available to us, we believe we
would have the ability to revise our operating plan and make certain further
reductions in expenses, so that our resources which were available at March 31,
2008, plus financing to be secured during the balance of fiscal year 2008, will
be sufficient to meet our obligations through the end of fiscal year 2009. We
have continued to experience operating losses and negative cash flows. To date,
we have funded our operations with a combination of component sales, debt
conversions with related parties and strategic vendors, and private equity
offerings. Management believes that we will be able to secure the necessary
financing in the short-term to fund our operations into our next fiscal year.
However, failure to raise additional funds, or generate significant cash flows
through revenues, could have a material adverse effect on our ability to achieve
our intended business objectives.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

The Company is not exposed to changes in interest rates as
the Company has no debt arrangements and no investments in certain
held-to-maturity securities. Under our current policies, we do not use interest
rate derivative instruments to manage exposure to interest rate changes. A
hypothetical 100 basis point adverse move in interest rates along the entire
interest rate yield curve would not materially affect the fair value of any
financial instruments at March 31, 2008.
ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of
management including the Chief Executive Officer and Chief Financial Officer, we
have evaluated the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14c and of the end of
the period covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures are effective. There were no changes in our internal
control over financial reporting during the quarter ended March 31, 2008 that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
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. CHANGES IN SECURITIES
Private Placements

During the quarter ended September 30, 2007, the Company
issued 500,000 shares of its common stock in private placements generating net
proceeds of $50,000 During the quarter ended December 31, 2007, the Company
issued 850,000 shares of its common stock in private placements generating net
proceeds of $48,000
Other Equity Transactions

During the nine months ended, March 31, 2008, the Company
issued 85,000 of options to purchase common stock valued at $3,329 to employees
and issued 3,163,957 shares of common stock valued at $256,897 to reflect
re-pricing agreements. In addition, 1,109,200 shares were issued to pay for
finders fees valued at $100,000. In the most recent quarter the company issued
5,250,000 shares of common stock valued at $446,000 in connection with debt
financing arrangement (see convertible debt below)
Investment in Granita Media inc

An investment of $514,000 was received by Granita Media, Inc,
a subsidiary formed July 1, 2007, to operate its IPTV business. Since the
company remains the controlling shareholder in Granita Media and such results
are consolidated, this investment is included in Additional Paid In Capital.
(See note 4)
Convertible Debt Short Term

In September, 2007, the Company received proceeds of $154,000
of convertible debt bearing interest at an annual rate of 15% and due September
1, 2008. Such debt may be converted into the Companys common shares at a price
equal to a 20% discount from the 20 day average bid and ask price. Such election
is at the option of the Company on September 1, 2008. In March 2008, $100,000 of
such debt was converted into 2,727,264 shares of common stock.
Convertible Debentures / Note Receivable / Debt Discount

In December, 2007, the Company received proceeds of $500,000
under a Securities Purchase Agreement. This transaction involves three related
agreements: 1) A Securities Purchase Agreement which may under certain
circumstances permit the Company to draw up to $6,000,000 of funds; 2) A
Convertible Debenture in the amount of $1.5 million, with an interest rate of 7
1⁄4% and a maturity date of December 11, 2010 and 3) A Secured Note Receivable in
the amount of $1.0 million, with an interest rate of 8 1⁄4 % and a maturity date
of February 1, 2011 due from the same parties who are the holders of the
Convertible Debentures
Conversion of outstanding debentures into common shares is at
the option of the holder. The number of shares into which this debenture can be
converted is equal to the dollar amount of the debenture divided by the lesser
of $.35 per share or 80% of the 3 lowest Volume Weighted Average Prices during a
20 day trading period. At the time of the transaction (December 11, 2007) the
derivative value of this security was calculated to be $1,678,471. On March 31,
2008, given the increase in the stock price, this value had increased to
$2,404,647 creating a non-cash charge to earning of $1,987,826, which was
recognized in the current quarter and fully offsetting the prior quarters credit
to earnings of $1,272,067. In addition, the transaction resulted in a note
discount which is being amortized as expense over the life of the loan. It
should also be noted that the holder has the right to offset unpaid principal
amount against the note receivable in the event of a default. No further draws
under this facility are anticipated until June 30, 2008.

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In February 2008, the Company entered into a Convertible
Debenture transaction which involved the receipt of $500,000 cash, a note
payable of $550,000 and the issuance of 3,250,000 shares of stock valued at
$260,000. The terms of the debenture provide for a 7.5% interest rate, a due
date of February 2012 and allow similar conversion privileges equal to 80%. The
derivative value of such security was estimated to be $581,428 on the date of
issuance. On March 31, 2008, this value had increase to $925,743 creating a non
cash charge to earnings of $344,315. The cost of the shares issued is being
amortized to expense over the life of the debenture. Management cautions that
the income effect of such transactions is highly volatile and should be deemed
to be non-recurring and not the results of operations.
Subsequent Event
In April, 2008 the Company received a total of $2,084,722 in
cash from the following sources:
$1,062,500 from
  the issuance of 21,250,000 shares of common stock
  $722,222 from the
  conversion of 11,111,113 warrants into common stock
  $300,000 related to convertible debt
  totaling $350,000 at 12% interest with a maturity of March 2011. Such debt
  allows the conversion into common stock at amount equal to 75% of the lowest
  trading price in the 20 trading days prior to conversion. On April 2, 2008,
  when this transaction became effective the derivative value of such security
  was approximately $600,000. Subsequently, this value has declined
  substantially as the market price of the Companys common stock has declined.
  

These funds were used in part to improve the Companys
Working Capital situation by significantly paying down past due payables and
setting aside funds for future operations. As of May 12, 2008, the Company had
in excess of $600,000 cash.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

None.
ITEM 5. OTHER INFORMATION

None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Form 8K dated March 6, 2008 announcing the Private Placement
of a $550,000, 71/4 % convertible note.
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 906of the Sarbanes -Oxley Act of 2002.

24

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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.
|------------------- | -----------------------------
|                    |                              
|                    | By: /s/ Martin S. Smiley     
|Dated: May 14, 2008 | Martin S. Smiley             
|                    | Executive Vice President     
|                    | Chief Financial Officer and  
|                    | General Counsel, Director    





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