AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 2012

REGISTRATION NO. 333-177248

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 4 TO
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

MPHASE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

New Jersey 7385 22-228-7503
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

587 Connecticut Avenue
Norwalk, Ct. 06854
203-831-2242
(Address and telephone number of principal executive offices)

Martin Smiley
587 Connecticut Avenue
Norwalk, Ct. 06854
203-831-2242
(Name, address and telephone number of agent for service)

Copies to:

Martin Smiley
587 Connecticut Avenue
Norwalk, Ct. 06854
203-831-2242

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

(COVER CONTINUES ON FOLLOWING PAGE)

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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

[   ] Large accelerated filer        [   ] Accelerated filer        [   ] Non-accelerated filer        [X] Smaller reporting company

CALCULATION OF REGISTRATION FEE


Title of each class of securities
to be registered
 
Amount
registered
 
  Proposed
maximum
offering
price
per share
(1)(2)
    Proposed
maximum
aggregate
offering price
(2)
   
Amount of
registration
fee
(3)
 
                           
Common Stock issuable upon conversion of Convertible Note, $0.001 par value per share   185,400,000   (1) $  0.005   $  927,000.00   $  106.23  
                           
Common Stock issuable upon Conversion of Warrant   3,676,471     $  0.005   $  18,382.36   $  2.11  
                           
Common Stock issued to cover Commitment and Transaction Fees of Equity Line of Credit   26,000,000     $  0.005   $  130,000.00   $  14.9  
                           
Common Stock issuable upon Put feature of Equity Line Of Credit, $0.001 par value per share   250,000,000   (4) $  0.005   $  1,250,000   $  143.25  
                           
Total   465,076,471     $  0.005   $ 2,325,382   $ 266.49  

(1)

The Registrant is registering, as required pursuant to that certain registration rights agreement dated as of September 13, 2011, with John Fife 185,400,000 shares of common stock “Convertible Shares”..

   
(2)

Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(c) under the Securities Act of 1933 based upon the average of the high and low sales prices of the registrant’s common stock on October 2, 2011, as traded on the over the counter bulletin board.

   
(3)

Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, based on the proposed maximum aggregate offering price of all securities listed.

   
(4)

The Registrant is also registering, as required pursuant to that certain investment agreement registration rights agreement each dated as of November 30, 2011 with Dutchess Opportunity Fund II, L.P a total of 250,000,000 shares of its common stock that the Company, may from time to time, Put to Dutchess in exchange for cash based upon a 6% discount from the lowest Variable Weight Average Price of the Company’s Common stock during a ten consecutive day trading period following the Company’s exercise of the Put.

In the event of stock splits, stock dividends, or similar transactions involving the Common Stock, the number of Common Shares registered shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

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The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

January 17, 2012

PROSPECTUS

You should read this Prospectus Summary together with the more detailed information contained in this prospectus, including the risk factors and financial statements. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that may cause such a difference include those discussed in the Risk Factors section and elsewhere in this prospectus.

mPhase Technologies, Inc.
465,076,471 Shares of Common Stock

This prospectus relates to the resale of up to 465,076,471 shares (the “Common Stock”) of Common Stock, par value $.01 per share, of mPhase Technologies, Inc. (“Company”), a New Jersey Corporation, by the selling stockholders including up to (a)185,400,000 of shares by John Fife, upon conversion from time to time of a convertible note described below, (b) 3,676,471 of shares to be sold by Jay Wright, upon exercise from time to time of a warrant (c) 250,000,000 shares of common stock that may be PUT by the Company to Dutchess Opportunity Fund II, LP (“Dutchess”) and resold from time to time under an arrangement known as an “ Equity Line.” pursuant to the terms of an investment agreement and (d) 26,000,000 of a commitment fee payable to Duchess by the Company for the Equity Line.

The selling stockholders may sell Common Stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions.

We will not receive any of the proceeds from the sale of Convertible Shares of Common Stock by the holder of the Convertible Note . We will receive up to $25,000 in proceeds if the Warrant is exercised in full. We will not receive any proceeds from the offer for sale of Common Stock by Dutchess under the Equity Line. We will, however, receive proceeds from the sale to Dutchess pursuant to the Equity Line. We will pay the expenses of registering all of the foregoing shares.

Investment in the Common Stock involves a high degree of risk. You should consider carefully the risk factors beginning on page 8 of this prospectus before purchasing any of the shares offered by this prospectus.

Our Common Stock is quoted on the Over-the-Counter Bulletin Board and trades under the symbol "XDSL". The last reported sale price of our Common Stock on the Over-the-Counter Bulletin Board on December 22, 2011, was approximately $.0033 per share.

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is January 17, 2012.

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mPhase Technologies, Inc.

TABLE OF CONTENTS

  Page
Prospectus Summary 5
Risk Factors 8
Forward-Looking Statements 17
Use of Proceeds 17
Determination of Offering Price 17
Dilution 17
Selling Security Holders 18
Plan of Distribution 19
Description of Securities to be Registered 20
Interests of Named Experts and Counsel 21
Description of Business 21
Description of Property 25
Legal Proceedings 25
Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Market Price of and Dividends on Registrant's Common Equity and Related Stockholder Matters 35
Changes in and Disagreements with Accountants 37
Quantitative and Qualitative Disclosures about Market Risk 37
Directors, Executive Officers, Promoters and Control Persons 37
Executive Compensation 39
Security Ownership of Certain Beneficial Owners and Management 41
Certain Relationships and Related Transactions, and Corporate Governance 42
Additional Information 46
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 47
Legal Matters 47
Experts 47
Audited Financial Statements 48
Other Expenses of Issuance and Distribution 99
Indemnification of Directors and Officers 99
Recent Sales of Unregistered Securities 99
Exhibits and Financial Statement Schedules 105

          You may only rely on the information contained in this prospectus or that we have referred you to. We have not authorized anyone to provide you with different information. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the Common Stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date.

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Prospectus Summary

          This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully; including the section entitled "Risk Factors" before deciding to invest in our Common Stock.

About Us

          mPhase Technologies, Inc., a New Jersey corporation (the “Company”, “mPhase”, “we”, “us”, or “our”) is a publicly-held New Jersey company founded in 1996 with approximately 23,000 shareholders and approximately 2,892,510,073 shares of Common Stock outstanding as of November 30, 2011. The Company's Common Stock is traded on the Over the Counter Bulletin Board under the ticker symbol XDSL. The Company has offices in Little Falls, New Jersey as well as Norwalk, Connecticut and is a development-stage company.

Historically we have had net operating losses each year since our inception

As of September 30, 2011, we have an accumulated deficit of ($200,823,117) and a stockholder’s deficit of ($5,049,816) and a net loss of $6,179,222 for the three months then ended. As of June 30, 2011, we have an accumulated deficit of ($194,643,955) and a stockholder’s deficit of ($5,591,774). We incurred net losses of $486,391 and $7,365,745 for the years ended June 30, 2011 and June 30, 2010 respectively. The auditors’ report for the fiscal year ended June 30, 2011 includes the statement that "there is substantial doubt of the Company's ability to continue as a going concern".

Business of the Company

Prior to February of 2004, the Company had been in the telecommunications industry focusing on hardware/software solutions for telephone service providers for the delivery of voice, digital television and high-speed internet, which businesses the Company discontinued in December of 2007.

In February of 2004 the Company engaged the Bell Labs division of Lucent Technologies, Inc. to develop a new type of power cell energy storage device. Taking advantage of a superhydrophobic effect or suspension of a liquid electrolyte on silicon, Bell Labs created for the Company a reserve battery product with a virtually unlimited shelf-life prior to initial activation. This result was achieved by causing the suspension, in droplet form, of liquid electrolyte on a “smart surface” or repellant such as silicon. The phenomenon is based upon the superhydrophobic effect similar to beads of raindrops forming on a leaf in nature. An electronic impulse is used to trigger the process of “electrowetting” or collapse of the droplet and the mixing of the electrolyte, thereby providing a low level source of energy.

The Company’s first product is its Smart NanoBattery, a reserve battery having significant potential military applications for providing low energy power-sources needed to power guidance systems on small munitions as well as reserve sources of power needed to back up computer-memory systems. The Smart Battery is only activated upon command by either a g force or magnetic pulse and therefore has a virtually unlimited shelf-life prior to initial activation as a reserve source of energy. The Company believes there is a significant need for energy storage products that can be activated on command and that are guaranteed to generate reserve sources of power for mission-critical activities.

The Company has also developed a second product line designed by and co-branded with Porsche Design Studio, a premiere world-class company specializing in high-end products for the luxury automotive manufacturer. The Company’s double barrel illuminator is an emergency flashlight designed primarily as an accessory product for automobiles. The designer flashlight utilizes the Company’s new mechanically-activated battery with a shelf life of up to 20 years serving as a backup source of power to its primary batteries. The Company has completed a pilot program of distribution of such flashlight over the internet and has received an initial order for 140 such flashlights to be sold through Porsche Design’s Studio’s stores located in approximately 100 cities globally. mPhase’s research and product development now focuses on developing “smart surfaces” using materials science engineering, nanotechnology science and the principles of microfluidics and microelectromechanical systems (MEMS). The Company develops products for both commercial and military applications. As noted above, the Company's first flagship product is its Smart NanoBattery providing Power On Command™. The new patent pending and patented battery technology, based on the phenomenon of electrowetting, offers a unique way to store energy and manage power. Features of the Smart NanoBattery include potentially infinite shelf life, environmentally friendly design, fast ramp to power, programmable control, and direct integration with microelectronic devices. The platform technology behind the Smart NanoBattery is a porous nanostructured material used to repel and precisely control the flow of liquids. The innovative material is a Smart Surface that can potentially be designed for other innovative products such as self-cleaning applications, water purification/desalination, liquid filtration/separation, and environmental cleanup.

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We have developed and maintain a portfolio of patents and patent applications that form the proprietary base for our research and development efforts in the area of “smart surfaces.” We believe that our intellectual property portfolio, which currently includes seven issued patents either directly owned or licensed by the Company and eight filed patent applications in various stages of review, is very strong. Our research and development over the years includes some of the world's leading institutions including Alcatel/Lucent Bell Labs. We believe our technology base, combined with our know-how, provides us with a strong competitive advantage and will facilitate future successful development and commercialization of additional products for use in a variety of potential military and commercial products. mPhase has recently completed work under a Phase II Small Business Technology Transfer Program (STTR) grant of approximately $750,000, as part of the Small Business Innovation Research (SBIR) program, from the U.S. Army. Under the grant the Company has continued development of its Smart NanoBattery as a reserve battery for critical mission computer memory. Such reserve battery can be activated by an electronic pulse.

Consistent with its strategy of developing cutting-edge energy products, the Company announced on July 28, 2011 that it has signed a letter of intent to acquired Energy Innovative Products, Inc. (EIP), a privately-held Nevada corporation. EIP is a developer of proprietary technology for reducing energy usage in refrigeration and cooling systems. The Company plans to acquire 81% of the outstanding shares of common stock of EIP in exchange for shares of common stock and warrants to purchase common stock in the Company.

About This Offering

Convertible Note

On September 13, 2011 the Company sold John Fife a convertible promissory note (the “Convertible Note”) in the initial principal amount of $357,500 and received proceeds of $300,000 in a first tranche of financing under the Convertible Note (representing an initial 29.50 % original issue discount). The Convertible Note provides for a second tranche of funding to the Company of $200,000 (thereby increasing the principal amount of such Convertible Note to $557,500) upon the filing of this Registration Statement with the Securities and Exchange Commission.

The Convertible Note bears interest at the rate of 8% per cent per annum and matures on August 31, 2012. . The Convertible Note is convertible into shares of common stock at a price of $.01 per share. Commencing on November 30, 2011the Company is required to repay the note in ten (10) monthly installments of $57,500 per month plus accrued interest. The Company may pay the monthly installments either in cash or in shares of Common Stock. If the Company chooses to pay in shares of common stock, it must make an irrevocable payment of shares 23 trading days prior to the installment payment date, and the value of the shares given shall equal 80% of the average of the three-lowest closing sales prices of our common stock during the 20 day trading period prior to payment of the installment amount. On the installment payment date an adjustment either upward or downward in shares of common stock shall be made. To the extent the Company owes additional shares on the installment payment date such shares shall be issued to the holder and to the extent the Company has issued the holder excess shares such shares shall be applied to the next installment payment. In order for the Company to be eligible to pay any installment in shares, the Company must have either an effective Registration Statement with respect to such shares effective or such shares must be eligible for sale pursuant to Rule 144 of the Securities Act of 1933 by the holder of the Convertible Note. If an event of default occurs under the Convertible Note, the Company is required to redeem the convertible note in cash at 135% of the unconverted principal amount of the note plus accrued interest. The conversion price of the Convertible Note is subject to adjustment in the case of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The holder may not convert the Convertible Note if as a result of such conversion the holder or any of its affiliates would own more than 4.9% of the Company’s common stock.

Warrant

On August 10, 2011 the Company sold as part of a $25,000 private placement of a convertible note, a Warrant to purchase 3,676,471 shares of common stock to Jay Wright. The Warrant is exercisable at a fixed price of $.0068 per share (subject to an adjustment downward for dilution by any warrants issued at a lower price by the Company) and may be exercised at any time during a 5 year period following the date of issuance.

Equity Line

This Prospectus also includes to the offer and resale of up to 276,000,000 shares of our common stock by Dutchess Opportunity Fund II LP or “ Dutchess” Dutchess has agreed to purchase up to 250,000,000 described in this offering of our common stock pursuant to an investment agreement between Dutchess and the Company dated as of November 30, 2011 (the “Investment Agreement”). Subject to the terms and conditions of the Investment Agreement, the Company has the right to PUT up to $10,000,000 of our common stock to Dutchess. This arrangement is sometimes referred to as an Equity Line. For more information on the selling stockholder, please see the section of this prospectus entitled “Selling Shareholders” We will not receive any proceeds from the resale of these shares of common stock offered by Dutchess. We will, however, receive proceeds from the sale of shares to Dutchess pursuant to the Equity Line. When the Company puts an amount of shares to Dutchess, the per share purchase price that Dutchess will pay to us in respect of such put will be determined in accordance with a formula set forth in the Investment Agreement. Generally, in respect of each put, Dutchess will pay us a per share purchase price of ninety-four per cent (94%) of the lowest daily volume weighted average price of our common stock during the ten (10) consecutive trading day period beginning on the trading day of the day of the put notice.

Dutchess may sell the shares of common stock from time to time at the prevailing market price on the Over-the Counter (OTC) Bulletin Board. Dutchess is deemed an “underwriter: within the meaning of the Securities Act of 1933, as amended in connection with the resale of our common stock under the Equity Line.

The Company currently has reduced its cash needs to approximately $125,000 per month. The Company is only permitted under the Equity Line to “Put” 20,000,000 shares during any period. At a current price of $.0031 per share the Company could raise $62,000 for a current Put. The Company believes that it will be able to exercise, based upon current market conditions, at least one Put per month to Dutchess and intends to supplement its other cash needs currently through its traditional sources of financing including private placements of its common stock and the issuance of additional convertible securities. The $10,000,000 equity line commitment is binding for three years from the effective date of this Registration Statement. Given the current price and volatility of the Company’s common stock, it is not possible to predict how much of the equity line will, in fact, be needed and accessed by the Company over the next three year period to supplement the Company’s other methods of raising capital.

Based upon our stock price of December 21, 2011 of $.0034 per share and the 6% discount Dutchess would have a conversion price of approximately $.0032 per share that would require the issuance of 3,125,000,000 additional shares of common stock by the Company. As of December 21, 2011 the Company has a total of 2,888,663,918 shares of common stock, 110,060,000 options and 19,323,974 warrants outstanding. In addition 525,412,408 and 228,255,988 shares are reserved for Convertible Securities currently outstanding, based upon the Company’s stock price of $.0034 on that date as well as for the convertible feature of Officers’ loans. This results in a fully diluted amount of 3,771,716,487 shares. Since the Company has 2,228,283,513 unissued shares out of 6 billion authorized shares, the Company, as of December 21, 2011, has only enough shares to draw approximately 71.2% or $7,121,594 of the Equity Line.

The likely hood of receiving the full $10,000,000 is based upon the Company’s stock price being at .004773 per share or greater during significant periods of time during the next three year period based upon the current capital structure of the Company. The Company has, in the past several years, had significant trading volume as compared to other stocks of comparable price. In addition the PUT option is within the control of the Company so that it can chose the most advantageous price and volume history for any given PUT option exercise to mitigate the risk of not being able to draw the full $10,000,000.

The full discounted price when adding the commitment fee number of 26,000,000 shares to 3,205,128,105 shares (representing the 6% discount) is 3,231,128,205 shares which equates to approximately $0031 per share. 

Estimated use of proceeds

This prospectus relates to shares of our Common Stock that may be offered and sold from time to time by the selling stockholders. We will not receive any of the proceeds resulting from the sale of Common Stock John. Fife as one of the Selling Stockholders. We will receive proceeds from the exercise of the Warrant by Jay Wright in the amount of $25,000 l. As noted above we will receive proceeds in connection with the sale of shares to Dutchess under the Equity Line. All proceeds received will be used by the Company as additional working capital.

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Summary of Shares offered by the Selling Shareholders.

The following is a summary of the Shares being offered by each of the Selling Shareholders:

Common Stock offered by the Convertible Noteholder: 185,400,000 shares that may be issued either upon (1) conversion of the Convertible Note at $.01 per share, (2) payment by the Company in shares of common stock of 10 monthly installments of $57,500 plus accrued interest at 8% on the principal balance then outstanding commencing on November 30, 2011 and each month thereafter through August 31, 2012 or (3) some combination of (1) and (2). The amount of shares calculated is equal to approximately 159,677,702 based upon the amount of shares necessary to amortize the full $557,500 principal amount of the Convertible Note plus accrued interest monthly assuming payment in shares by the Company at a 20% discount from the three lowest trading prices of the common stock for a twenty day period of time from the price of $.0046 per share on November 30, 2011. In addition a reasonable estimate of additional shares necessary are being registered to allow for expected future periodic downward market fluctuations in the price of the common stock. It should be noted that the Company as of the date hereof has no made payment of the $57,500 payment owed on November 30, 2011 under the Convertible Note either in cash or in shares of common stock. No event of default has been declared by the Noteholder and it is anticipated that the Company will make such payment is shares upon the effectiveness of this Registration Statement.

Common Stock offered by the Warrant Holder: 3,676,471 shares that may be issued upon exercise by the Warrant Holder of a Warrant given as part of a $25,000 financing to the Company that provides for exercise at $.0068 per share.

Common Stock to be offered by Equity Line Provider is up to 26,000,0000 shares issued by the Company as a Commitment Fee and 250,000,000 shares sold to Dutchess. Under the terms of the Investment Agreement dated as of November 30, 2011 with Dutchess the Company may put on a given PUT date up to 20 million shares of its common stock at a price equal to 94% of the lowest Variable Weighted Average Price (“VWAP”), of our common stock in the 10 consecutive trading days following exercise of the Put. Under the terms of the Investment Agreement the Company may not exercise another PUT until up to 15 days following the exercise of the Company exercising the immediately preceding Put.

Common Stock outstanding prior to the offering: 2,892,510,073 based upon the total amount of shares issued as of December 5, 2011.

Common Stock outstanding after the offering: 3,357,586,544 assuming the full conversion and or amortization of the Convertible Note in shares of common stock, exercise of the Warrant , payment of Commitment Shares and Exercise of the full Equity Line .

Use of Proceeds We will not receive any proceeds from conversion or payment in shares of amortization of the Convertible Note. The Company will receive $25,000 upon exercise, in full of the Warrant plus proceeds from the Put, from time to time of our common stock to Dutchess under the Equity Line. All proceeds will be used to provide additional working capital to the Company.

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RISK FACTORS

          An investment in the Company’s Common Stock involves a high degree of risk. You should carefully consider the risks described below as well as other information provided to you in this prospectus, including information in the section of this document entitled “Forward Looking Statements.” If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our Common Stock could decline, and you may lose all or part of your investment.

Risks Relating to the Company’s Early Stage of Development

           Our business is at an early stage of development and we may not develop products that can be commercialized.

          We have derived very limited revenues from a Phase I Army Grant of approximately $100,000 and a Phase II Army Grant of approximately $750,000 with respect to our Smart NanoBattery product from inception of development in February 2004 through March 30, 2011. We have derived revenues of only $ 38,819 from our Emergency Flashlight product from inception of sales in April of 2010 through September 30, 2011 and we have been forced to discontinue product development and marketing of our magnetometer product owing to limited financial resources.

           We have limited manufacturing, marketing, distribution and sales capabilities which may limit our ability to generate revenues.

          Due to the relatively early stage of our products, we have not yet invested significantly in manufacturing, marketing, distribution or product sales resources. We cannot assure you that we will be able to invest or develop any of these resources successfully or as expediently as necessary. The inability to do so may inhibit or harm our ability to generate revenues or operate profitably.

           We have a history of operating losses and we may not achieve future revenues or operating profits .

          We have generated modest revenue to date from our operations. Historically we have had net operating losses each year since our inception. As of September 30, 2011, we have an accumulated deficit of $(200,823,117) and a stockholders’ deficit of $(5,049,816) and incurred a net loss of $6,179,122. We incurred net losses of $486,391 and $7,365,745 for the years ended June 30, 2011 and June 30, 2010, respectively. The Company does not generate significant revenue outside of STTR grants and minor sales of its emergency illuminator product. Additionally, even if we are able to commercialize our technologies or any products or services related to our technologies it is not certain that they will result in revenue or profitability.

           We have a limited operating history on which investors may evaluate our operations and prospects for profitable operations.

          If we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their entire investment. Our prospects must be considered speculative in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly in light of the uncertainties relating to the new, competitive and rapidly evolving markets in which we anticipate we will operate. To attempt to address these risks, we must, among other things, further develop our technologies, products and services, successfully implement our research, development, marketing and commercialization strategies, respond to competitive developments and attract, retain and motivate qualified personnel. A substantial risk is involved in investing in us because, as an early stage company we have fewer resources than an established company, our management may be more likely to make mistakes at such an early stage, and we may be more vulnerable operationally and financially to any mistakes that may be made, as well as to external factors beyond our control.

Risks Relating to Technology

           We are dependent on new and unproven technologies.

          Our risks as an early stage company are compounded by our heavy dependence on emerging and sometimes unproven technologies. If these technologies do not produce satisfactory results, our business may be harmed.

           We may not be able to commercially develop our technologies and proposed product lines, which, in turn, would significantly harm our ability to earn revenues and result in a loss of investment.

          Our ability to commercially develop our technologies will be dictated in large part by forces outside our control which cannot be predicted, including, but not limited to, general economic conditions, the success of our research and field testing, the availability of collaborative partners to finance our work in pursuing applications of “smart surfaces” using materials science engineering, nanotechnology science and the principles of microfluidics and MEMS and technological or other developments in the field which, due to efficiencies or technological breakthroughs may render one or more areas of commercialization more attractive, obsolete or competitively unattractive. It is possible that one or more areas of commercialization will not be pursued at all if a collaborative partner or entity willing to fund research and development cannot be located. Our decisions regarding the ultimate products and/or services we pursue could have a significant adverse affect on our ability to earn revenue if we misinterpret trends, underestimate development costs and/or pursue wrong products or services. Any of these factors either alone or in concert could materially harm our ability to earn revenues or could result in a loss of any investment in us.

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           If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.

          We are engaged in activities in the nanotechnology and microfluidics field, which is characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. We cannot assure you that research and discoveries by other companies will not render our technologies or potential products or services uneconomical or result in products superior to those we develop or that any technologies, products or services we develop will be preferred to any existing or newly-developed technologies, products or services.

Risks Related to Intellectual Property

           Certain aspects of our technology are not protectable by patent.

          Certain parts of our know-how and technology are not patentable. To protect our proprietary position in such know-how and technology, we require all employees, consultants, advisors and collaborators with access to our technology to enter into confidentiality and invention ownership agreements with us. We cannot assure you; however, that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, in the absence of patent protection, competitors who independently develop substantially equivalent technology may harm our business.

           Patent litigation presents an ongoing threat to our business with respect to both outcomes and costs.

          It is possible that litigation over patent matters with one or more competitors could arise. We could incur substantial litigation or interference costs in defending ourselves against suits brought against us or in suits in which we may assert our patents against others. If the outcome of any such litigation is unfavorable, our business could be materially adversely affected. To determine the priority of inventions, we may also have to participate in interference proceedings declared by the United States Patent and Trademark Office, which could result in substantial cost to us. Without additional capital, we may not have the resources to adequately defend or pursue this litigation.

           We may not be able to protect our proprietary technology, which could harm our ability to operate profitably.

          Patent and trade secret protection is critical for the new technologies we utilize, nanotechnology and microfluidics, as well as the products and processes derived through them. Our success will depend, to a substantial degree, on our ability to obtain and enforce patent protection for our products, preserve any trade secrets and operate without infringing the proprietary rights of others. We cannot assure you that:

  -

we will succeed in obtaining any patents in a timely manner or at all, or that the breadth or degree of protection of any such patents will protect our interests,

     
  -

the use of our technology will not infringe on the proprietary rights of others,

     
  -

patent applications relating to our potential products or technologies will result in the issuance of any patents or that, if issued, such patents will afford adequate protection to us or not be challenged, invalidated or infringed, and

     
  -

patents will not issue to other parties, which may be infringed by our potential products or technologies.

     
  -

we will continue to have the financial resources necessary to prosecute our existing patent applications, pay maintenance fees on patents and patent applications, or file patent applications on new inventions.

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          The fields in which we operate have been characterized by significant efforts by competitors to establish dominant or blocking patent rights to gain a competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors' purported patent rights and the technologies they actually utilize in their businesses.

           Patents obtained by other persons may result in infringement claims against us that are costly to defend and which may limit our ability to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential products.

          If third party patents or patent applications contain claims infringed by either our technology or other technology required to make and use our potential products and such claims are ultimately determined to be valid, there can be no assurance that we would be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology. If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some products commercially. We may be required to defend ourselves in court against allegations of infringement of third party patents. Patent litigation is very expensive and could consume substantial resources and create significant uncertainties. Any adverse outcome in such a suit could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease using such technology.

           We may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.

          Considerable research in the areas of micro fluid dynamics is being performed in countries outside of the United States, and a number of potential competitors are located in these countries. The laws protecting intellectual property in some of those countries may not provide adequate protection to prevent our competitors from misappropriating our intellectual property. Several of these potential competitors may be further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop obsolete.

           Our products may not be accepted in the marketplace .

          The degree of market acceptance of those products will depend on many factors, including:

  -

Our ability to manufacture or obtain from third party manufacturers sufficient quantities of our product candidates with acceptable quality and at an acceptable cost to meet demand, and

   

  -

Marketing and distribution support for our products.

          We cannot predict or guarantee that either military or commercial entities, in general, will accept or utilize any of our product candidates. Failure to achieve market acceptance would limit our ability to generate revenue and would have a material adverse effect on our business. In addition, if any of our product candidates achieve market acceptance, we may not be able to maintain that market acceptance over time if competing products or technologies are introduced that are received more favorably or are more cost-effective.

Financial Risks

           We may not be able to raise the required capital to conduct our operations and develop and commercialize our products. We require substantial additional capital resources in order to conduct our operations and develop and commercialize our products and run our facilities. We will need significant additional funds or collaborative partners, or both, to finance the research and development activities of our potential products. Accordingly, we are continuing to pursue additional sources of financing. Our future capital requirements will depend upon many factors, including:

  - The continued progress and cost of our research and development programs,
     
  - The costs in preparing, filing, prosecuting, maintaining and enforcing patent claims,
     
  - The costs of developing sales, marketing and distribution channels and our ability to sell the products if developed,
     
  - The costs involved in establishing manufacturing capabilities for commercial quantities of our proposed products,
     
  - Competing technological and market developments,
     
  - Market acceptance of our proposed products,
     
  - The costs for recruiting and retaining employees and consultants.

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          Additional financing through strategic collaborations, public or private equity financings or other financing sources may not be available on acceptable terms, or at all. Additional equity financing could result in significant dilution to our shareholders. Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise seek to develop and commercialize on our own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our programs or potential products, any of which could have a material adverse effect on our financial condition or business prospects.

Risks Relating to Our Debt Financings

           If we are required for any reason to repay our outstanding convertible debt we would be required to deplete our working capital, if available, or raise additional funds. Our failure to repay the convertible debentures, if required, could result in legal action against us, which could require the sale of substantial assets.

          We had outstanding, as of September 30, 2011, $ 1,733,637 aggregate principal amount plus accrued interest of convertible debt.

           There are a large number of shares underlying our convertible debt in full. The sale of these shares may depress the market price of our Common Stock .

          As of September 30, 2011, on an aggregated basis our convertible debt financings may result in conversions into 438,813,632 shares of our Common Stock, and warrants and options that may be converted into approximately 129,418,974 shares of our Common Stock.

          Sales of a substantial number of shares of our Common Stock in the public market could adversely affect the market price for our Common Stock and make it more difficult for you to sell shares of our Common Stock at times and prices that you feel are appropriate.

           The issuance of shares upon conversion of the convertible debt will cause immediate and substantial dilution to our existing stockholders.

          The issuance of shares upon conversion of the convertible debt will result in substantial dilution to the interests of other stockholders since the selling security holders may ultimately convert and sell the full amount issuable on conversion. Although no single selling security holder may convert its convertible debentures and/or exercise its warrants if such conversion or exercise would cause it to own more than 4.99% of our outstanding Common Stock, this restriction does not prevent each selling security holder from converting some of its holdings and then converting the rest of its holdings. In this way, each selling security holder could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued, which will have the effect of further diluting the proportionate equity interest and voting power of holders of our Common Stock.

           The Company could face certain regulatory challenges with respect to its reliance on Rule 144 of the Securities Act of 1933, as amended, with respect to certain of its convertible debenture financings entered into with JMJ Financial (“JMJ”) that could result in a significant negative economic impact on the Company.

          The Company believes that any sales of Common Stock by JMJ are in full compliance with Rule 144 of the Securities Act of 1933, as amended, and has obtained an opinion of outside counsel regarding such compliance. Nevertheless, it is possible such compliance could be challenged in the future by either regulatory agencies or shareholders. In particular, questions regarding the economic risk of JMJ with respect to the collateral required under the secured note delivered by JMJ in payment of the purchase price for the Company's convertible notes could be raised since the secured notes each contain a prepayment provision allowing JMJ to prepay such note, in full, by returning the convertible note. If a court of law determines that any offer or sale of Common Stock of the Company received in a conversion by JMJ was not in compliance with Rule 144 then JMJ could be deemed to be an underwriter. The result would be that the Company would have been engaged in a primary offering of Common Stock through an underwriter in violation of the registration requirements of the Securities Act of 1933, as amended. The Securities Act of 1933, as amended, requires that any claim for rescission be brought within one year of the violation. The time periods within which claims for rescission must be brought under state securities laws vary and may be two years or more from the date of the violation. At September 30, 2011, approximately 395 million shares of our outstanding Common Stock issued in respect of our convertible note transactions with JMJ could be subject to rescission with a potential liability approximating $4.18 million, including a liability of approximately $550,000_ for interest at 10% per annum.

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Risks Related to Third Party Reliance

           We depend on third parties to assist us in the development of new products extensively, and any failure of those parties to fulfill their obligations could result in costs and delays and prevent us from successfully commercializing our product candidates on a timely basis, if at all.

          We engage consultants and contract research organizations to help design, and to develop our products. The consultants and contract research organizations we engage provide us critical skills and resources that we do not have within our own company. As a result, we depend on these consultants and contract research organizations to perform the necessary research and development to create new products. We may face delays in developing and bringing new products to market if these parties do not perform their obligations in a timely or competent fashion or if we are forced to change service providers.

           We depend on our collaborators to help us develop and test our proposed products, and our ability to develop and commercialize products may be impaired or delayed if collaborations are unsuccessful.

          Our strategy for the development, testing and commercialization of our proposed products requires that we enter into collaborations with corporate partners, licensors, licensees and others. We are dependent upon the subsequent success of these other parties in performing their respective responsibilities and the continued cooperation of our partners. Under agreements with collaborators, we may rely significantly on such collaborators to, among other things:

  - Fund research and development activities with us;
     
  - Pay us fees upon the achievement of milestones under STIR and SBIR programs; and
     
  - Market with us any commercial products that result from our collaborations.

          Our collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to our research and development activities related to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us.

           The development and commercialization of potential products will be delayed if collaborators fail to conduct these activities in a timely manner, or at all.

          If various outside vendors and collaborators do not achieve milestones set forth in our agreements, or if our collaborators breach or terminate their collaborative agreements with us, our business may be materially harmed.

           Our reliance on the activities of our non-employee consultants, research institutions, and scientific contractors, whose activities are not wholly within our control, may lead to delays in development of our proposed products .

          We rely extensively upon and have relationships with outside consultants and companies having specialized skills to conduct research. These consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We have limited control over the activities of these consultants and, except as otherwise required by our collaboration and consulting agreements to the extent they exist, can expect only limited amounts of their time to be dedicated to our activities. These research facilities may have commitments to other commercial and non-commercial entities. We have limited control over the operations of these collaborators and can expect only limited amounts of time to be dedicated to our research and product development goals.

Product Development Risks

           We have limited resources to manage development activities.

          Our limited resources in conducting and managing development activities might prevent us from successfully designing or implementing new products. If we do not succeed in conducting and managing our development activities, we might not be able to commercialize our product candidates, or might be significantly delayed in doing so, which will materially harm our business.

          Our ability to generate revenues from any of our product candidates will depend on a number of factors, including our ability to successfully complete and implement our commercialization strategy. In addition, even if we are successful in bringing one or more product candidates to market, we will be subject to the risk that the marketplace will not accept those products. We may, and anticipate that we will need to, transition from a company with a research and development focus to a company capable of supporting commercial activities and we may not succeed in such a transition.

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           Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable.

          Our failure to successfully commercialize our product candidates or to become and remain profitable could depress the market price of our Common Stock and impair our ability to raise capital, expand our business, diversify our product offerings and continue our operations.

Risks Related to Competition

           The market for energy storage products is highly competitive.

          We expect that our most significant competitors will be large more established companies. These companies are developing products that compete with ours and they have significantly greater capital resources in research and development, manufacturing, testing, obtaining regulatory approvals, and marketing capabilities. Many of these potential competitors are further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent recognition and filings.

           Our industry is characterized by rapidly evolving technology and intense competition. Our competitors include major multinational energy-storage device and battery companies as well as nanotechnology companies that specialize in micro fluid dynamics and smart surfaces.

          Many of these companies are well-established and possess technical, research and development, financial and sales and marketing resources significantly greater than ours. In addition, certain smaller nanotechnology companies have formed strategic collaborations, partnerships and other types of joint ventures with larger, well established industry competitors that afford these companies' potential research and development and commercialization advantages. Academic institutions, governmental agencies and other public and private research organizations are also conducting and financing research activities which may produce products directly competitive to those we are developing. Moreover, many of these competitors may be able to obtain patent protection, obtain regulatory approvals and begin commercial sales of their products before we do.

           In the general area of energy storage and micro fluid dynamics, we compete with a variety of companies, including Duracell, Eveready and Ultralife.

          Each of these companies is well-established and has substantial technical and financial resources compared to us. Many smaller companies may also be developing products in the rapidly changing area of energy storage and advanced micro fluid dynamics. These smaller companies may become significant competitors through rapid evolution of new technologies. Any of these companies could substantially strengthen their competitive position through strategic alliances or collaborative arrangements with larger companies.

           Our competition includes both public and private organizations and collaborations among academic institutions and large companies, most of which have significantly greater experience and financial resources than we do.

          Private and public academic and research institutions also compete with us in the research and development of nanotechnology products based on micro-fluid dynamics. In the past several years, the nanotechnology industry has selectively entered into collaborations with both public and private organizations to explore the development of new products evolving out of research in micro-fluid dynamics.

           The energy storage device and battery business are each characterized by intense competition. We compete against numerous companies, both domestic and foreign, many of which have substantially greater experience and financial and other resources than we have.

          Companies such as Duracell, Eveready and Ultralife, as well as others, many of which have substantially greater resources and experience in our fields than we do, are well situated to effectively compete with us. Any of the world's largest battery companies represents a significant actual or potential competitor with vastly greater resources than ours. These and other competitive enterprises have devoted, and will continue to devote, substantial resources to the development of technologies and products in competition with us.

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RISKS RELATED TO OUR TARGETED MARKETS

           The sale of new high technology products often has a long lead-time and a multiplicity of risks.

Commercialization of new technology products often has very long lead time since it is not possible to predict when major companies will license such technology for sale to their customers. The science of nanotechnology and microfluidics used to develop our Smart NanoBattery is in its very early stages and acceptance and demand for such products can often be a long evolutionary process.

The science of nanotechnology is at a very early stage as a discipline and is subject to great uncertainty and swift changes in technology .

Microfluid dynamics and the manipulation of materials of nano size and dimensions is a very new science and the creation of new products is dependent upon new and different properties of such materials created that will result in many uncertain applications and rapid change. The evolution of nanotechnology as a new science adds greater uncertainty to new applications and new and improvedproduct introductions is unpredictable.

We may not be able to create new products from our intellectual property using microfluidics that will be acceptable in water purification, oil separation from water and other environment markets.

The market for "green" products and solutions is characterized by changing regulatory standards, new and improved product introductions, and changing customer demands.

Large companies such as General Electric with great resources are currently focusing significant monies for new solutions.

Our future success will depend upon our ability to achieve compelling technology innovations that are economic and practical to produce in large quantities. Success in new technology, products and services is a complex and uncertain process requiring high levels of innovation, highly-skilled engineering and development personnel, and the accurate anticipation of technological and market trends. We may not be able to identify, develop, market or support new or enhanced technology, products, or services on a timely basis, if at all, owing to our size and limited financial resources.

The commercialization of many applications of our technologies will depend on our ability to establish strategic relationships with commercial partners.

We are seeking commercial partners with established lines of business and greater financial resources than our own. Such partners may not place the priority that we do on joint projects because the success or failure of such projects is not as material to other existing well developed lines of business.

Our Smart Battery and our potential applications of our technology are components of end products and therefore our products are tied to the success of such end products.

The compelling need for critical mission batteries and other applications of our nanotechnology will depend upon both military and commercial needs going forward and the demand for our products as components. Thus the success of our Smart Battery and other applications of our technology will depend upon the continuing need for the end user products and market demand.

General Risks Relating to Our Business

           Our products are likely to be expensive to manufacture, and they may not be profitable if we are unable to control the costs to manufacture them.

          Our products are likely to be significantly more expensive to manufacture than most other more developed currently on the market today. Our present manufacturing processes produce modest quantities of product intended for use in our ongoing research activities, and we have not developed processes, procedures and capability to produce commercial volumes of product. We hope to substantially reduce manufacturing costs through process improvements, development of new science, increases in manufacturing scale and outsourcing to experienced manufacturers. If we are not able to make these or other improvements, and depending on the pricing of the product, our profit margins may be significantly less than that of our competitors. In addition, we may not be able to charge a high enough price for any products we develop to make a profit. If we are unable to realize significant profits from our potential product candidates, our business would be materially harmed.

14


           Our current very limited revenue depends on our ability to continue to obtain SBIR, STTR and other Government Grants for Research and Development.

          We have completed a Phase II STTR Army Research grant in the amount of $750,000. Although we are actively applying for new SBIR, STTR and other government grants and funding we are unable to predict whether we will be successful in obtaining such grants.

           We depend on key personnel for our continued operations and future success, and a loss of certain key personnel could significantly hinder our ability to move forward with our business plan.

          Because of the specialized nature of our business, we are highly dependent on our ability to identify, hire, train and retain highly qualified scientific and technical personnel for the research and development activities we conduct or sponsor. The loss of one or more certain key executive officers, or scientists, would be significantly detrimental to us. In addition, recruiting and retaining qualified scientific personnel to perform research and development work is critical to our success. Our anticipated growth and expansion into areas and activities requiring additional expertise, such as new applications for “smart surfaces”, manufacturing and marketing, will require the addition of new management personnel and the development of additional expertise by existing management personnel. Despite the current economic conditions and job market there is significant competition for qualified personnel in the areas of our present and planned activities, and there can be no assurance that we will be able to continue to attract and retain the qualified personnel necessary for the development of our business. The failure to attract and retain such personnel or to develop such expertise would adversely affect our business.

           Our insurance policies may be inadequate and potentially expose us to unrecoverable risks.

          We do not carry director and officer insurance and have limited commercial insurance policies. Any significant insurance claims would have a material adverse effect on our business, financial condition and results of operations. Insurance availability, coverage terms and pricing continue to vary with market conditions. We endeavor to obtain appropriate insurance coverage for insurable risks that we identify, however, we may fail to correctly anticipate or quantify insurable risks, we may not be able to obtain appropriate insurance coverage, and insurers may not respond as we intend to cover insurable events that may occur. We have observed rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance. Such conditions have resulted in higher premium costs, higher policy deductibles, and lower coverage limits. For some risks, we may not have or maintain insurance coverage because of cost or availability.

           We have no product liability insurance, which may leave us vulnerable to future claims we will be unable to satisfy.

          The testing, manufacturing, marketing and sale of consumer products entail an inherent risk of product liability claims, and we cannot assure you that substantial product liability claims will not be asserted against us. We have no product liability insurance. In the event we are forced to expend significant funds on defending product liability actions, and in the event those funds come from operating capital, we will be required to reduce our business activities, which could lead to significant losses.

          We cannot assure you that adequate insurance coverage will be available in the future on acceptable terms, if at all, or that, if available, we will be able to maintain any such insurance at sufficient levels of coverage or that any such insurance will provide adequate protection against potential liabilities. Whether or not a product liability insurance policy is obtained or maintained in the future, any product liability claim could harm our business or financial condition.

           We presently have members of management and other key employees located in various locations throughout the country which adds complexities to the operation of the business.

          Presently, we have members of management and other key employees located in both Connecticut and New Jersey, which adds complexities to the operation of our business.

           We face risks related to compliance with corporate governance laws and financial reporting standards.

          The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, referred to as Section 404, have materially increased our legal and financial compliance costs and made some activities more time-consuming and more burdensome.

15


Risks Relating to Our Common Stock

S tock prices for development-stage technology companies have historically tended to be very volatile.

          Stock prices and trading volumes for many small development-stage technology companies fluctuate widely for a number of reasons, including but not limited to the following factors, some of which may be unrelated to their businesses or results of operations:

  -

The amount of cash resources and ability to obtain additional funding,

     
  -

Announcements of research activities, business developments, technological innovations or new products by companies or their competitors,

     
  -

Entering into or terminating strategic relationships,

     
  -

Disputes concerning patents or proprietary rights,

     
  -

Changes in revenues or expense levels,

     
  -

Reports by securities analysts,

     
  -

Activities of various interest groups or organizations,

     
  -

Media coverage, and

     
  -

Status of the investment markets.

          This market volatility, as well as general domestic or international economic, market and political conditions, could materially and adversely affect the market price of our Common Stock and the return on your investment.

           A significant number of shares of our Common Stock have become available for sale and their sale could depress the price of our Common Stock.

          In addition to the shares underlying our convertible debt as described above, we may sell a substantial number of additional shares of our Common Stock in connection with a private placement or public offering of shares of our Common Stock (or other series or class of capital stock to be designated in the future). The terms of any such private placement would likely require us to register the resale of any shares of capital stock issued or issuable in the transaction. We have also issued Common Stock to certain parties, such as vendors and service providers, as payment for products and services. Under these arrangements, we may agree to register the shares for resale soon after their issuance. We may also continue to pay for certain goods and services with equity, which would dilute your interest in the company.

          Sales of a substantial number of shares of our Common Stock under any of the circumstances described above could adversely affect the market price for our Common Stock and make it more difficult for you to sell shares of our Common Stock at times and prices that you feel are appropriate.

           We do not intend to pay cash dividends on our Common Stock in the foreseeable future.

          Any payment of cash dividends will depend upon our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. We do not anticipate paying cash dividends on our Common Stock in the foreseeable future. Furthermore, we may incur additional indebtedness that may severely restrict or prohibit the payment of dividends.

           Our Common Stock is subject to "penny stock" regulations and restrictions on initial and secondary broker-dealer sales .

          The Securities and Exchange Commission (SEC) has adopted regulations which generally define "penny stock" to be any listed, trading equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Penny stocks are subject to certain additional oversight and regulatory requirements. Brokers and dealers affecting transactions in our Common Stock in many circumstances must obtain the written consent of a customer prior to purchasing our Common Stock, must obtain information from the customer and must provide disclosures to the customer. These requirements may restrict the ability of broker-dealers to sell our Common Stock and may affect your ability to sell your shares of our Common Stock in the secondary market.

16


           As an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward looking statements does not apply to us.

          Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, the Company will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

Risks Related to This Offering

There are substantial risks associated with the Investment Agreement, which could contribute to the decline of the price of our common stock and have a dilutive impact on our existing stockholders.

          In order to have access to capital when needed, we entered into the Investment Agreement with Dutchess. The terms of the Investment Agreement are described under the section captioned “Selling Stockholder.” The sale of our common stock pursuant to the terms of the Investment Agreement will have a dilutive impact on our existing stockholders. Dutchess is not restricted in its ability to resell the shares we issue to them, and any such resale could cause the market price of our common stock to decline. Following any decline in the market price of our common stock, any subsequent advances would require us to issue a greater number of shares of common stock in exchange for each dollar advanced.  Although Dutchess is limited to owning 4.99% of our common stock at any point in time it can sell a portion of its holding during any point in time and receive additional shares. Under these circumstances our existing stockholders would experience greater dilution. The sale of our common stock under the Investment Agreement could encourage short sales by third parties, which could contribute to the further decline of our stock price.

Dutchess intends to engage in certain hedging transactions that may cause the market price of our common stock to decline.

          In connection with the distribution of our common stock or otherwise, including upon receipt of any put notice from us, Dutchess intends to enter into certain hedging transactions with broker-dealers or other financial institutions, pursuant to which such broker-dealers or other financial institutions will engage in sales of our shares in the course of hedging the positions they assume with Dutchess. If there is an imbalance on the sell side of the market in our common stock, the price of our common stock will decline. Dutchess has no intention of, and is contractually prohibited from, entering into any short sales during the term of the Investment Agreement.

Pursuant to the terms of the Investment Agreement, Dutchess will pay less than the then-prevailing market price for our common stock.

          The common stock to be issued to Dutchess pursuant to the Investment Agreement will be purchased at 94 % of the lowest daily trading price of our common stock during the ten consecutive trading days after the date we request the advance. Dutchess has a financial incentive to sell our common stock upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Dutchess sells the shares, the price of our common stock could decrease.

We may not be able to access sufficient funds pursuant to the terms of the Investment Agreement.

          Our ability to put shares to Dutchess and obtain funds pursuant to the terms of the Investment Agreement is limited, including restrictions on when we may exercise our put rights, restrictions on the amount we may put to Dutchess at any one time, which is determined in part by the trading price of our common stock, and a limitation on Dutchess’ obligation to purchase if such purchase would result in Dutchess beneficially owning more than 4.99% of our common stock. Accordingly, we may not be able to access sufficient funds when needed.” 

We would have to increase our authorized shares of common stock to 6,980,000,000 shares from the current 6 billion shares to have enough shares to exercise the full equity line

          In order to exercise the entire equity line of $10 million, the Company would be required to issue 3,223,806,432 additional shares of its common stock to Dutchess as of December 21, 2011. This would equal approximately 111% of our common stock currently outstanding of approximately 2.8 billion shares.

Our stock price is currently too low to allow us full use of the equity line

Based upon the current capital structure of the Company there are 2,228,283,513 shares of common stock available for issuance  as of December 21, 2011. This will enable the Company to access up to $7,121,594 of the $10 million equity line. In order for the Company to access the full $10 million of the equity line over the next three years the price of the Common Stock would need to equal $.004773 or greater for substantial periods of time during such period. In addition the liquidity or trading volume of the Company’s common stock would have to be sufficient to accommodate the sale in the open market of shares purchased by Dutchess.

There Are further conditions to the equity line that the Company may not be able to  meet

In addition, in order for the Company to draw monies under the Equity Line it must satisfy the following conditions set forth in Section  2D of the Investment Agreement.

Notwithstanding anything to the contrary in this Agreement, the Company shall not be entitled to deliver a      Put Notice and the Investor shall not be obligated to purchase any Shares at a Closing unless each of the following conditions are satisfied:

(1)      a Registration Statement shall have been declared effective and shall remain effective and      available for the resale of all the Registrable Securities (as defined in the Registration Rights       Agreement) at all times until the Closing with respect to the subject Put Notice;

(2)      at all times during the period beginning on the related Put Notice Date and ending on and    including the related Closing Date, the Common Stock shall have been listed on the Principal Market and shall not have been suspended from trading thereon for a period of two (2) consecutive Trading Days during the Open Period and the Company shall not have been notified of any pending or threatened proceeding or other action to suspend the trading of the Common Stock;

(3)      the Company has complied with its obligations and is otherwise not in breach of or in default under this Agreement, the Registration Rights Agreement or any other agreement executed in connection herewith which has not been cured prior to delivery of the Put Notice;

(4)      no injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the Securities; and

(5)      the issuance of the Securities pursuant to this Agreement will not violate any shareholder    approval requirements of the Principal Market.”

If any of the events described in clauses (1) through (5) above occurs during a Pricing Period, then     the Investor shall have no obligation to purchase the Common Stock subject to the applicable Put    Notice. 

The equity line, if accessed by the Company will cause significant dilution to existing shareholders as illustrated by the following table.

FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as “may,” “assumes,” “forecasts,” “positions,” “predicts,” “strategy,” “will,” “expects,” “estimates,” “anticipates,” “believes,” “projects,” “intends,” “plans,” “budgets,” “potential,” “continue” and variations thereof, and other statements contained in this prospectus, regarding matters that are not historical facts and are forward-looking statements. Because these statements involve risks and uncertainties, as well as certain assumptions, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to risks inherent in: our early stage of development, including a lack of operating history, lack of profitable operations and the need for additional capital; the development and commercialization of largely novel and unproven technologies and products; our ability to protect, maintain and defend our intellectual property rights; uncertainties regarding our ability to obtain the capital resources needed to continue research and development operations and to conduct research; uncertainty regarding our overall ability to compete effectively in a highly complex, rapidly developing, capital intensive and competitive industry. See “Risk Factors” set forth herein for a more complete discussion of these factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

          Forward-looking statements include our plans and objectives for future operations, including plans and objectives relating to our products and our future economic performance. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, we cannot assure you that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of any such statement should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

USE OF PROCEEDS

          We will receive no proceeds from the sale of shares of Common Stock offered by the selling stockholders. . We will receive $25,000 of proceeds upon exercise of the Warrant and proceeds from time to time upon exercise by the Company of the Put under the Equity Line . All proceeds received will be used by the Company as working capital.

DETERMINATION OF OFFERING PRICE

The selling stockholders may sell their shares in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to the prevailing market price, or at negotiated prices.

DILUTION

“Dilution” represents the difference between the offering price per share and the net tangible book value per share of our Common Stock immediately after completion of this offering. Net tangible book value per share represents our net tangible assets (our total assets less our total liabilities), divided by the number of shares of Common Stock outstanding at the time of this offering. Our net tangible book value as of September 30, 2011 was -$0.0021. Please refer to the following table presenting the number of shares issued and the corresponding price per share paid before this Offering. Following is a table illustrating the pro forma dilution as of June 30 2011, to investors if 100%, 75%, 50%, or 10% of the Offering is sold.

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SELLING SECURITY HOLDERS

          The following table details the name of each selling stockholder, the number of shares owned by that selling stockholder, and the number of shares that may be offered by each selling stockholder for resale under this prospectus. The selling stockholders may sell up to 465,076,471 shares of our Common Stock from time to time in one or more offerings under this prospectus. Because each selling stockholder may offer all, some or none of the shares it holds, and because, based upon information provided to us, there are currently no agreements, arrangements, or understandings with respect to the sale of any of the shares, no definitive estimate as to the number of shares that will be held by each selling stockholder after the offering can be provided. The following table has been prepared on the assumption that all shares offered under this prospectus will be sold to parties unaffiliated with the selling stockholders.

Security Holder Relationship to Issuer Amount Owned Prior to Offering Amount Offered Amount Owned After Offering
John Fife None 57,236,500                                  185,400,000 0
Jay Wright None 3,676,471                                        3,676,471 0
Dutchess Opportunity Fund II, LP - Commitment and Transaction fees None 26,000,000 26,000,000 0
Dutchess Opportunity Fund II, LP - Put feature of Equity Line None 0 250,000,000 0

* Less than 1%.

(1) The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership includes any shares as to which the selling stockholders has sole or shared voting power or investment power and also any shares, which the selling stockholders has the right to acquire within 60 days. As of November 30, 2011, the Company had 2,892,510,073 shares of Common Stock issued and outstanding.

(2) Assumes the sale of all shares included in this prospectus.

(3) John Fife has the right to convert a maximum of $557,500 of principal plus a maximum of $14,865 of accrued interest at $.01 per share into 57,236,500 shares of common stock of the Company during the next 60 days under the terms of the Convertible Note. In the alternative the Company must make payments under the Convertible Note in either cash or its common stock as follows: 10 payments of principal of $55,700 per month plus accrued interest at 8% on the unpaid balance in 10 monthly payments from November 30, 2011 through and including August 30, 2012 .The price of the common stock of the Company closed at $.0046 per share on December 2, 2011. If the Company elects to make payments on a timely basis to amortize principal and interest in its common stock the holder will receive approximately a 20% discount from the current market value of the stock. Such a discount based upon a stock price of $.0046 per share would result in the holder receiving approximately 30,374,871 shares of common stock valued at $.0039 per share to cover principal and interest payments for the 60 day period following November 30, 2011. If the Company made timely payments solely in its common stock the 10 monthly payments of principal plus accrued interest from November 30, 2011 through August 30, 2012 the holder would receive a total of approximately 151,556,682shares of common stock assuming the market price continue throughout such period at $.0046 per share. Certain additional shares equal to 33,433,318 are being registered as required under the terms of the Registration Rights Agreement dated as of September 13, 2011 to provide for additional shares, if required, if the market value of the Company’s common stock declines.

(4) The Company has failed to make the payment owed on November 30, 2011 of $57,500 plus accrued interest at 8% equal to $8,375 from September 13, 2011 in either cash or shares of its common stock. As of the date hereof the holder has not declared an event of default or elected to exercise any remedies under the Convertible Note. It is anticipated that upon effectiveness of this Registration Statement the Company will pay such amount in stock of the Company. Such amount would be payable at a 20% discount and at the market value of the stock of $.0046 on December 2, 2011 would result in the payment of approximately 16,891,025 shares of common stock payable to the holder valued at $.0039 per share.

(5) Dutchess Opportunity Fund II, LP will not beneficially own any shares of common stock other than shares issued to the Company to cover commitment fees and transaction costs unless and until the Company exercises a put under the Equity Line. Dutchess Opportunity Fund II, LP is managed by its Senior Partners,  Dutchess Capital Management II, LLC which Douglas Leighton and Michael A. Movelli have deportive power.

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PLAN OF DISTRIBUTION

Each selling stockholder and any of its pledges, assignees and successors-in-interest may, from time to time, sell any or all of its shares of Common Stock on the Over-the-Counter Bulletin Board or any other stock exchange, market or trading facility on which our shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A selling stockholder may use any one or more of the following methods when selling shares:

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          The selling stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus.

          A selling stockholder or its pledges, donates, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of Common Stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. A selling stockholder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the selling stockholder. The selling stockholders and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, may be deemed to be "underwriters" as that term is defined under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

          We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the selling stockholder, but excluding brokerage commissions or underwriter discounts.

          The selling stockholders, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter. No selling stockholder has entered into any agreement with a prospective underwriter and there is no assurance that any such agreement will be entered into.

          A selling stockholder may pledge its shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The selling stockholder and any other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations under such act, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the selling stockholder or any other such person. In the event that the selling stockholder is deemed affiliated with purchasers or distribution participants within the meaning of Regulation M, then the selling stockholder will not be permitted to engage in short sales of Common Stock. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. Not only is the selling stockholder contractually restricted from engaging in short sales but in the event any such short sale is deemed to be a stabilizing activity, then the selling stockholder will not be permitted to engage in a short sale of our Common Stock. All of these limitations may affect the marketability of the shares.

          If the selling stockholder notifies us that it has a material arrangement with a broker-dealer for the resale of the Common Stock, then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the selling stockholder and the broker-dealer.

DESCRIPTION OF SECURITIES TO BE REGISTERED

          This prospectus includes 465,076,471 shares of our Common Stock offered by the selling stockholders which constitutes approximately 16% of out currently outstanding Common Stock. The following description of our Common Stock is only a summary. You should also refer to our certificate of incorporation and bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part.

          We are authorized to issue 6,000,000,000 shares of Common Stock having a par value of $0.001 per share. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive proportionately any dividends as may be declared by our board of directors. Our outstanding shares of Common Stock are fully paid and non-assessable. Holders of shares of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the Common Stock.

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INTERESTS OF NAMED EXPERTS AND COUNSEL

          The validity of the shares offered hereby will be passed upon for us by Martin Smiley, Esq., EVP, CFO and General Counsel of the Company. With this exception, no expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the Company. Nor was any such person connected with the Company as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.

DESCRIPTION OF BUSINESS

Overview

mPhase, a New Jersey corporation founded in 1996, is a publicly-held company with over 23,000 shareholders and 2,892,510,073 shares of Common Stock outstanding as of November 30, 2011. The Company's Common Stock is traded on the Over the Counter Bulletin Board under the ticker symbol XDSL. We are headquartered in Norwalk, Connecticut and also have corporate offices in Little Falls, NJ. mPhase shares office space with Microphase Corporation, a privately held company. Microphase is a leader in the field of radio frequency and filtering technologies within the defense and telecommunications industry. It has been in operation for over 50 years and supports mPhase with both engineering and administrative and financial resources as needed. mPhase is a development stage company specializing in microfluidics, microelectromechanical systems (MEMS) and nanotechnology. mPhase is commercializing its first nanotechnology-enabled product for military and commercial applications - The Smart NanoBattery providing Power On Command™. The new patented and patent pending battery technology, based on the phenomenon of electrowetting, offers a unique way to store energy and manage power. Features of the Smart NanoBattery include potentially infinite shelf life, environmentally friendly design, fast ramp to power, programmable control, and direct integration with microelectronic devices.

The platform technology behind the Smart NanoBattery is a porous nanostructured material used to repel and precisely control the flow of liquids. The material has a Smart Surface that can potentially be designed for self-cleaning applications, water purification/desalination, liquid filtration/separation, and environmental cleanup. mPhase has completed a Phase II Small Business Technology Transfer Program (STTR) grant, part of the Small Business Innovation Research (SBIR) program, from the U.S. Army for continued development of a reserve Smart NanoBattery for a critical computer memory application.

Since our inception in 1996, we have been a development-stage company and operating activities have related primarily to research and development, establishing third-party manufacturing relationships and developing product brand recognition. In December of 2007 the Company ceased further activities with respect to its prior telecommunications equipment products which have been treated as a Discontinued Business effective June 30, 2010. Since January of 2008, the Company has focused primarily upon development of our smart reserve battery, and other battery and illuminator products as well as establishing a patent portfolio of intellectual property for “smart surfaces” in the field of nanotechnology.

Description of Operations

Microfluidics, MEMS, and Nanotechnology

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

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

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

History of Nanotechnology Operations

Smart NanoBattery

mPhase Technologies along with Bell Labs jointly conducted research from February 2004 through April of 2007 that demonstrated control and manipulation of fluids on superhydrophobic and superlyophobic surfaces to create a new type of battery or energy storage device with power management features obtained by controlling the wetting behavior of a liquid electrolyte on a solid surface. The scientific research conducted set the ground work for continued development of the Smart NanoBattery and formed a path to commercialization of the technology for a broad range of market opportunities. During 2005 and 2006, the battery team tested modifications and enhancements to the internal design of the battery to optimize its power and energy density characteristics, as well as making engineering improvements that were essential in moving the battery from a zinc-based chemistry to a commercial lithium-based chemistry that can be manufactured on a large scale. The Company began its efforts by entering into a $1.2 million 12 month Development Agreement with the Bell Labs division of Alcatel/Lucent for exploratory research of control and manipulation of fluids on superhydrophobic surfaces to create power cells ( batteries) by controlling wetting behavior of an electrolyte on nanostructured electrode surfaces. The goal was to develop a major breakthrough in battery technology creating batteries with longer shelf lives as the result of no direct electrode contact (meaning no power drain prior to activation). The Company extended its development effort twice for an additional two years ending in March of 2007 and for two additional periods thereafter through July 31, 2007. During this time, the technical focus shifted from trying to separate the liquid electrolyte from nanostructured electrodes to developing a nanostructured membrane that could physically separate the liquid electrolyte from the solid electrodes. mPhase also began working with the Rutgers University Energy Storage Research Group (ESRG) in July of 2005 to conduct contract research in advanced battery chemistries involving lithium.

This work involved characterizing and testing materials that could be used in the mPhase battery. In July of 2007, the relationship shifted to a collaboration focused on developing a memory backup battery needed by the U.S. Army. The work was funded through a Phase I Small Business Transfer grant.

The Company decided in September of 2007 to transfer its development work out of Bell Labs (Alcatel/Lucent) in order to broaden its nanotechnology product commercialization efforts. Prior to such time mPhase was limited to development using zinc-based batteries since Bell Labs did not have facilities to handle lithium chemistry. mPhase continued to work with Rutgers ESRG that has facilities capable of handing lithium battery development and also engaged in work with other companies to supply essential components, fabricate prototypes, and plan manufacturing approaches. These companies included a well-respected silicon foundry and battery manufacturer.

In February of 2008, the Company announced that a prototype of its Smart NanoBattery was successfully deployed in a gun-fired test at the Aberdeen Proving Ground at Maryland. The test was conducted by the U.S. Army Armament Research and Development and Engineering Center (ARDEC) of Picatinny, New Jersey. The battery not only survived the harsh conditions of deployment at a gravitational force in excess of 45,000 g, but was also flawlessly activated in the process.

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In March of 2008, mPhase announced that it had been invited to submit a proposal for a Phase II STTR grant based upon the successful work it had performed on the Phase I grant to develop a version of the Smart NanoBattey referred to as the multi-cell, micro-array reserve battery for a critical U.S. Army memory backup application. The Phase II grant in the gross amount of $750,000 (net $500,000) was granted to the Company in the middle of September of 2008. In March of 2008, the Company also announced the successful transfer to a commercial foundry of certain processes critical to the manufacturing of its Smart NanoBattery. This enabled fabrication of the porous membranes for the multi-cell, micro-array reserve battery mentioned above. The Company successfully manufactured nanostructured membranes at the foundry that are essential to commercial production of the battery. By achieving a series of delayed activations, the shelf-life and continuous run-time of such battery is increased to a period of time in excess of twenty years. In April of 2008, the Company announced that it had successfully activated its first Smart NanoBattery prototype by electrowetting using a hard-wired configuration and a remotely-activated device. Remote activation plays a key role in providing power to wireless sensors systems and RFID tags.

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

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

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

Emergency Flashlight

On December 5, 2008, mPhase Technologies, Inc. signed a contract with Porsche Design Gesellschaft m.b.H. in Austria (“Porsche Design Studio”) to design a premium version of the AlwaysReady Emergency Flashlight. A pilot program that began in March of 2010 has resulted in the sale of approximately 56 emergency flashlights. The flashlight sold in the pilot program contained mPhase’s proprietary mechanically-activated lithium reserve battery. The battery contains a breakable barrier that separates the solid electrodes from the liquid electrolyte until the battery is manually activated. Unlike traditional batteries, the mPhase battery remains in an inert state with no leakage or self-discharge until activation. The mPhase battery is designed to have an almost infinite shelf life making it ideal for emergency lighting applications. The premium flashlight will be marketed as an accessory for automobile roadside emergency kits.

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

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

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

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

Magnetometer

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

Patents and Trademarks

Our Intellectual Property

Various aspects of the mPhase technology are protected by patents either owned directly by the Company or with respect to which the Company has full sub-licensing rights. The Company’s current battery related patent portfolio consists of seven issued patents, of which one is jointly owned with Rutgers University, two are jointly owned with Lucent Technologies and four are licensed from Lucent Technologies. These cover such aspects of the technology as the ability to use electrowetting to create a moveable liquid lens, methodology and apparatus for reducing friction between a fluid and a body, methodology for etching planar silicon substrates to develop a reserve battery device, methodology and apparatus for controlling the flow resistance of a fluid on nanostructured or microstructured surfaces, methodology for creating a structured membrane with controllable permeability, methodology for a nanostructured battery with end of life cells, and methodology for making a multi-cell battery system with multiple chemistries in each individual cell of the battery pack. Some of these patents are specific to the development of a battery device while others are more generalized. The Company also has four patent applications related to the Smart Surfaces technology that have been filed with the United States Patent Office and other foreign patent offices and that are in various stages of examiner review, as well as four additional patent applications related to other Smart Surfaces technologies under review.

The Company has obtained trademark protection for its mPower Emergency Illuminator and mPower on Command, and it currently has one additional trademark application pending.

Employees

          As of November 30, 2011, we had six full-time employees. One employee is directly involved in research and development activities and five are engaged in business development and administration. We also use the services of numerous outside consultants in business and scientific matters. We believe that we have good relations with our employees and consultants.

Competition

          The nanotechnology and battery industries are characterized by rapidly evolving technology and intense competition. Our competitors include major multinational companies, specialty nanotechnology companies and energy storage products companies. Many of these companies are well-established and possess technical, research and development, financial and sales and marketing resources significantly greater than ours. In addition, certain smaller nanotechnology companies have formed strategic collaborations, partnerships and other types of joint ventures with larger, well established industry competitors that afford these companies' potential research and development and commercialization advantages. Academic institutions, governmental agencies and other public and private research organizations are also conducting and financing research activities which may produce products directly competitive to those we are developing. Moreover, many of these competitors may be able to obtain patent protection and begin commercial sales of their products before we do.

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Research and Development

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

          For the quarters ended September 30, 2011, 2011 and from inception through September 30, 2011 we incurred $41,403, $193,780 and $ 12,298,965 respectively, on research and development.

DESCRIPTION OF PROPERTY

          Our headquarters are located in Norwalk, Connecticut where we lease office space from Microphase Corporation. As of July 1,2011, The lease for this office is month to month at a monthly cost of $3,630 ($43,560 annually). The Company also leases corporate office space in Little Falls, New Jersey. The monthly rent for this property is $2,347 per month ($28,164 annually) and the lease term is likewise month to month.

LEGAL PROCEEDINGS

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

          This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as “may,” “assumes,” “forecasts,” “positions,” “predicts,” “strategy,” “will,” “expects,” “estimates,” “anticipates,” “believes,” “projects,” “intends,” “plans,” “budgets,” “potential,” “continue” and variations thereof, and other statements contained in this prospectus, regarding matters that are not historical facts and are forward-looking statements. Because these statements involve risks and uncertainties, as well as certain assumptions, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to risks inherent in: our early stage of development, including a lack of operating history, lack of profitable operations and the need for additional capital; the development and commercialization of largely novel and unproven technologies and products; our ability to protect, maintain and defend our intellectual property rights; uncertainties regarding our ability to obtain the capital resources needed to continue research and development operations; uncertainty regarding our overall ability to compete effectively in a highly complex, rapidly developing, [capital intensive] and competitive industry. See “Risk Factors” set forth herein for a more complete discussion of these factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date that they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

          Forward-looking statements include our plans and objectives for future operations, including plans and objectives relating to our products and our future economic performance. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of those assumptions could prove inaccurate and, therefore, we cannot assure you that the results contemplated in any of the forward-looking statements contained herein will be realized. Based on the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of any such statement should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

OVERVIEW

          The following discussion should be read in conjunction with the financial statements and notes thereto included in this prospectus.

          We are a nanotechnology company focused on developing and commercializing reserve batteries and other products with “smart surfaces” in the emerging fields of micro fluid dynamics and nanotechnology. We also develop commercial products with Porsche Design Studio as luxury consumer products and accessories that are targeted for affluent consumers and automobile enthusiasts.

Plan of Operations

While we continue to pursue research and development in connection with our work on smart surfaces, we are increasingly focused on the identification and development of product candidates utilizing our technology in both commercial and military arenas. We do not, however, expect to generate revenue sufficient to cover our expenses for the foreseeable future and expect to continue to fund our operations primarily from outside capital investment, convertible debt financings and private placements . The potential acquisition of EIP may result in the Company achieving an accelerated path to revenues and profitability since it is anticipated, subject to further due diligence, that the energy savings products of EIP will have a shorter time to commercialization and sales.

Strategy

The Company is seeking to identify strategic partners with significant financial resources through the current valuation of its patent portfolio. The Company believes that its patents as well as its development efforts in the scientific area of microfluidics and “smart surfaces” may provide compelling solutions as part of products and strategies of other companies in the area of energy storage and conservation. The Company intends to cost-reduce its emergency flashlight and sell it in volumes greater than that of the luxury goods product that was designed by Porsche Design Studio for the Company and which is currently being distributed through Porsche Design stores worldwide. In addition, the Company is developing a second automotive product with Porsche Design Studio soon to be announced to the public which is also an automotive energy-related product. Finally the Company intends to continue to pursue acquisitions of privately-held companies that have innovative products that are synergistic with the Company’s strategy of introducing new high-growth products to the market that will enhance and accelerate the Company’s growth of revenues.

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Critical Accounting Policies

RESEARCH AND DEVELOPMENT

Researchand 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."

OPTIONS, WARRANTS AND OTHER CONVERTIBLE EQUITY INSTRUMENTS

STOCK BASED COMPENSATION

On July 1, 2005, the Company adopted the provisions of Financial Accounting Standards Board Statement "Accounting for Stock Based Compensation". The currently promulgated standards require companies to measure and recognize compensation expense for all employee stock-based payments at fair value over the service period underlying the arrangement. Therefore, the Company is now required to record the grant-date fair value of its stock-based payments (i.e., stock options and other equity-based compensation) in the statement of operations. The fair value of options granted in fiscal year ended June 30, 2009 was estimated as of the date of grant using the Black-Scholes stock option pricing model, based on the following weighted average assumptions: annual expected return of 0%, an average life of 5 years, annual volatility of 80.3% and a risk-free interest rate 3.0% .

MATERIAL EQUITY INSTRUMENTS

The Company has material equity instruments including convertible debentures and convertible notes that are accounted for as derivative liabilities (SEE BELOW) and options and warrants that are evaluated quarterly for potential reclassification as liabilities pursuant to FASB codification topic 815 previously known as EITF 00-19 (SEE ALSO NOTE 8 "Stockholders Equity" under the caption "Other Equity"). The Company utilized a sequencing method prescribed by EITF 00-19, based upon applying shares available to contracts with the earliest inception date first. During the fiscal year ended June 30, 2008, the Company reclassified contracts for warrants to purchase 12,604,168 shares at fixed prices ranging from $.13 to $.15 per share to liabilities.

The liability was recorded at the fair market value, which estimated value, as restated, was based upon the contractual life of the free standing warrants, using the Black-Sholes pricing model, based on the following weighted average assumptions: annual expected return of 0%, an average life of 5 years, annual volatility 81% and a risk-free interest rate 2.25% . At the issuance date of the free standing warrants, which warrants were issued during the fourth quarter of fiscal June 30, 2008; the estimated value approximated $1,006,200 and as recalculated on the quarterly measurement dates, at June 30, 2008 the estimated value approximated $433,300. During fiscal year ended 2009, the estimated value was determined to no longer be material. The net change in the liability was credited to the change in derivative value in the Consolidated Statement of Operations for the fiscal years ended June 30, 2008 and 2009 for $572,900 and $433,300, respectively, for each of these periods in accordance FASB Standards Codification Topic 815 (previously known EITF 00-19). Effective May, 2009, warrants to purchase 11,111,112 shares, and effective September, 2009, warrants to purchase 1,493,056 shares; representing all of the contracts for warrants to purchase 12,604,168 shares that were reclassified to liabilities during the fiscal year ended June 30, 2008, were reclassified to permanent equity. Subsequent to September 30, 2009 the Company has not entered into, and presently the Company does not have, any contracts for warrants or other equity instruments subject to reclassification to liabilities as prescribed by FASB Standards Codification Topic 815 (previously known as EITF 00-19).

DERIVATIVE FINANCIAL INSTRUMENTS

Presently promulgated accounting literature requires all derivatives to be recorded on the balance sheet at fair value. The conversion features of the convertible debentures are embedded derivatives and are separately valued and accounted for on our balance sheet with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use for determining fair value of our derivatives is the Black-Scholes Pricing Model with a 20 day life for the look-back period of each conversion feature using volatility of 100%. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management's judgment and may impact net income.

REPARATION EXPENSE

As an incentive for additional equity contributions, the Company will, from time to time, adjust the cost of past private purchases of common stock through the issuance of additional shares in such magnitude as to reduce an investor's cost to an average price that more closely approximates current market value. The market value of additional shares issued without cash investment is charged to Reparation Expense, which is included in Other Expenses.

27


Results of Operations

Comparison of Three Months Ended September 30, 2011 and 2010

    3 Months Ended September 30,     3 Months Ended September 30,  
    2011     2010  
    Amount     Amount  
Revenue $  0   $  28,808  
Cost of Revenue   571     9,467  
Gross profit   (571 )   19,341  
Research and development expenses   41,403     193,780  
             
General and administrative expenses   6,888,462     522,994  
             
Non-operating income (expense)   754,895     2,695,795  
             
Net Income (loss) $  (6,179,222 ) $  1,994,489  

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

REVENUE

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

RESEARCH AND DEVELOPMENT

Research and development expenses were $41,403 for the three months ended September 30, 2011 as compared to $193,780 during the comparable period in 2010 or a decrease of $152,377. This decrease in spending is a result of completion of its smart nano battery prototype and its emergency flashlight using its mechanically-activated reserve battery as brought to market in its pilot program Subject to available funds, the Company expects to increase its research and development efforts throughout fiscal years 2011 and 2012. Such research is expected to focus on other applications for “smart surfaces” including the Smart Nano Battery. The initial applications for the nano power cell technology will address the need to supply emergency and reserved power to a wide range of electronic devices for both commercial and defense applications.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative (G&A) expenses were $6,888,462 for the three months ending September 30, 2011, up from $522,994 or an increase of $6,365,468 from the comparable period in 2010. Recurring administrative expenses were held in check as the Company has made a concentrated effort to freeze or otherwise reduce administrative costs while it seeks to commercialize its smartnanobattery product capabilities and secure more substantial research funding for possible applications of its “smart surfaces” technology. The increase was due primarily to the award of stock to the officers and directors on August 25, 2011, generating a non-cash charge of $6,520,500. Additionally, there was a non-cash charge of $14,154 for the amortization of deferred compensation from the re-pricing of options on the same date.

OTHER (EXPENSE) AND INCOME

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

NET INCOME AND (LOSS)

The Company recorded a net loss of $6,179,222 for the three months ended September 30, 2011 as compared to net income of $1,994,489 for the three months ended September 30, 2010. This represents a net loss per common share of $0.00 and net income per share (basic and diluted) of $0.00 for the three month periods ended September 30, 2011 and 2010 respectively. The net loss recorded in the current period as compared to the net income reported for the same period last year is directly attributable to the magnitude of the net gain from derivative liabilities associated with the Company’s convertible debt recorded for the three months ended September 30, 2010 and is not indicative of operating results.

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TWELVE MONTHS ENDED JUNE 30, 2011 VS. JUNE 30, 2010

Revenues . Total revenues for the year ended June 30, 2011 decreased from $ 354,157 in 2010 to $49,210 in 2011. The revenue for the current fiscal year was derived primarily from payments received by the Company under the Phase II STTR grant from the United States Army and from sales of the mPower emergency illuminator.

Cost of sales . Cost of sales decreased $15,744 for the year ended June 30, 2011 to $50, 260. In addition, grants and fees received in connection with our Nanotechnology power cell have relatively low associated cost of sales.

Research and Development . Research and development expenses were $625,417 for the year ended June 30, 2011 as compared to $2,203,383 in the year ended June 30, 2010, a decrease of $1,577,966. Such decrease is attributable to the Company’s completion of both a mechanically-activated reserve battery and emergency flashlight in addition to substantial completion of research on its Smart NanoBattery product.

We expect that research and development expenses will continue to increase in the foreseeable future as we add personnel and expand our research for new products. The amount of these increases is difficult to predict due to the uncertainty inherent in the timing and extent of progress in our research programs, and initiation of new products using “smart surfaces”. As our research efforts mature, we will continue to review the direction of our research based on an assessment of the value of possible commercial applications emerging from these efforts. Based on this continuing review, we expect to establish discrete research programs and evaluate the cost and potential for cash inflows from commercializing products, partnering with others or licensing the technologies associated with these programs to third parties.

We believe that it is not possible at this stage to provide a meaningful estimate of the total cost to complete our ongoing projects and bring any proposed products to market. Costs to complete could vary substantially depending upon the products selected for development. It is possible that the completion of these products could be delayed for a variety of reasons, including delays in developing prototypes and manufacturing. Any delay in completion of a product would increase the cost of that product, which would harm our results of operations. Due to these uncertainties, we cannot reasonably estimate the size, nature or timing of the costs to complete, or the amount or timing of the net cash inflows from our current activities. Until we obtain information that enables us to further determine the scope, breadth and number of products that are actually developed using “smart surfaces”, we will not be able to estimate our future expenses related to these products or when, if ever, and to what extent we will receive material cash inflows from resulting products.

General and Administrative Expenses . Selling, general and administrative expenses were $1,823,178 for the year ended June 30, 2011, down from $1,844,776 for the comparable period in 2010, a decrease of $21,598. During fiscal year ended June 30, 2011, the Company incurred non-cash charges amounting to $62,945 for stock based compensation awarded to officers, employees and consultants. During fiscal year ended June 30, 2010, such charges amounted to $34,313, an increase of $28,632 in fiscal year ended June 30, 2011. This increase was offset by the reduction of salaries of employees in fiscal year ended June 30, 2011 resulting in lower payroll by approximately $189,000 as compared to the payroll for fiscal year ended June 30, 2010. Expenses were reduced across the board, including a reduction in legal expense of $52,000 and marketing expense of $211,000.

Other Income and Expense. The current FYE 2011 reflects non-cash charges of $0 for reparations, and net settlement income of $8,915. During the prior FYE 2010, reparation expense amounted to $35,530 and net settlement income was $203,940. In addition during FYE 2011, the Company realized a non-cash net gain of approximately $1,866,669 compared to a non-cash net loss of $2,961,939 in FYE 2010 resulting from the issuance and the changes in the derivative liability values relative to convertible debt. The current FYE 2011 includes a gain resulting from the change in derivative value of $3,836,158 offset in part by amortization of debt discount, stock issuance costs and other charges including a $55,000 extension and forbearance fee and a $28,000 intervention fee amounting to $2,319,318. This compares to a gain resulting from the change in derivative value of $356,566 offset in part by amortization of debt discount, stock issuance cost and other charges amounting to $3,318,505 in FYE 2010. During FYE 2011, the Company recorded a $244,496 gain from the settlement of liabilities from discontinued operations.

Net loss . mPhase recorded a net loss of $486,391 for the year ended June 30, 2011 as compared to a loss of $7,365,765 for the same period ended June 30, 2010. During FYE 2011, the Company recorded a net loss from continuing operations of $730,887 and net income from discontinued operations of $244,496. This represents a loss per common share of ($.00 ) in 2011 as compared to $(.01) in 2010, based upon weighted average common shares outstanding of 1,402,130,735 and 1,041,685,519 during the periods ending June 30, 2011 and June 30, 2010 respectively.

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Comparison of Twelve Months Ended June 30, 2011 and 2010

    12 Months Ended June 30,     12 Months Ended June 30,  
    2011     2010  
          % of           % of  
    Amount     Revenue     Amount     Revenue  
Revenue $  49,210     100.0%   $  354,157     100%  
Cost of Revenue   50,260     -102.0%     66,044     19%  
Gross profit   (1,050 )   -.02%     288,153     81%  
Research and development expenses and   625,417     1,263%     2,203,383     622 %  
                         
General and administrative expenses   1,823,178     3,705%     1,884,776     532%  
                         
Non-operating income (expense)   1,734,249     3,524%     (3,580,335 )   -1,011%  
Net loss $  (486,891 )   -989.0%   $  (7,365,745 )   -2,080%  

LIQUIDITY AND CAPITAL RESOURCES

The following tables sets forth a summary of our cash flows for the periods indicated below:

Cash Flows

    Quarter ended September 30,  
    2011     2010  
Net cash used in operating activities $  372,567   $  457,004  
Net cash used in investing activities   7,129     5,993  
Net cash provided by financing activities   465,249     298,114  
Net increase (decrease) in cash and cash equivalents   85,553     (164,793 )
Cash and cash equivalents at the end of the period $  87,297   $  63,644  

    Fiscal Year ended June 30,  
    2011     2010  
Net cash used in operating activities $  1,765,506   $  3,765,533  
Net cash used in investing activities   5,933     15,000  
Net cash provided by financing activities   1,544,746     3,908,832  
Net increase (decrease) in cash and cash equivalents   (226,693 )   128,229  
Cash and cash equivalents at the end of the period $  1,744   $  228,437  

Through September 30, 2011, the Company had incurred development stage losses totaling approximately $200,823,117 and had cash and cash equivalents of $87,297. At September 30, 2011, mPhase had working capital of ($2,779,599) as compared to working capital of ($29,987) as of September 30, 2010.

The Company has convertible debentures and notes outstanding that enable the Company to raise $100,000-$200,000 per month for a portion of the fiscal year ended June 30, 2011. However conversions into common stock have been very limited since April of 2011 primarily owing to the continuing decline in the share price of the Company’s common stock and negative liquidity conditions in the capital markets. Such conditions have resulted in a significant “overhang” of approximately monies funded to the Company together with accrued interest totaling $1,733,637 and not converted into common stock as of September 30, 2011. At the current stock price such convertible debentures and notes are convertible into 438,813,632 shares of the Company’s common stock. Until such amount is successfully converted into common stock and sold by the holders of such convertible instruments, the Company will have limited access to future financing through additional issuances of convertible securities.

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In addition, on June 23, 2011, the common stock of the Company ceased to be eligible for fast –trading by investors by the Depository Trust Company that handles the clearance of all securities in the United States. As a result the liquidity of the Company’s common stock has contracted and financing the Company exclusively through such instruments may be limited in the future. The Company believes that it may have expanded opportunities for supplemental private placements of equity as a result of its prospective acquisition of EIP since such acquisition may well enhance and accelerate its opportunities for revenue from sales of an additional product line that will enable it to satisfy short-term liquidity. Owing to recent cost-reductions achieved by the Company in payroll and other administrative expenses the Company believes that its short-term liquidity requirements are between $100,000-$125,000 per month.

In the longer term, we estimate that the Company will need to raise approximately $5-10 million of additional capital above the funds anticipated from the monthly funding’s and conversions by holders of revised or replacement convertible securities, to meet longer term liquidity needs through June 30, 2012. Such monies will be necessary primarily to fund future operating expenditures as well as marketing, cost-reductions and commercialization of its Smart NanoBattery, Emergency Flashlight, and a second product being developed for the Company by Porsche Design Studio. Finally, depending upon sales and margins in fiscal year 2012, additional capital may be required to fund a portion of any growth necessary in operations.

31


Cash used in operating activities was $1,765,506 during the twelve months ended June 30, 2011. During such period, the cash used by operating activities consisted principally of the net loss ($486,391) plus non-cash credits related to convertible debt issued and associated changes in derivative value ($2,116,064) reduced by an increase of accounts payable and accrued expenses of $412,144. These amounts are offset in part by non-cash charges related to issuance of common stock and options for services of $126,945.

During the twelve-month period ended June 30, 2011, the Company raised capital through private placements with accredited investors, whereby the Company issued 67,500,000 shares of the Company's common stock, generating net proceeds to the Company of $265,500.

During the twelve-month period ended June 30, 2010, the Company raised capital through private placements with accredited investors, whereby the Company issued 30,667,000 shares of the Company's common stock, generating net proceeds to the Company of $225,000.

We believe that it is not possible at this stage to provide a meaningful estimate of the total cost to complete our ongoing projects and bring any proposed products to market. The development of new products using the science of nanotechnology and the discipline of microfluidics is an emerging area and the time for development of future new products is unknown. Costs to complete could vary substantially depending upon the products selected for development. It is possible that the completion and commercialization of these new products could be delayed for a variety of reasons, including difficulties in developing prototypes, delays in manufacturing and the development of new sources of product distribution. Any delay in completion of a product would increase the cost of that product, which would harm our results of operations. Due to these uncertainties, we cannot reasonably estimate the size, nature nor timing of the costs to complete, or the amount or timing of the net cash inflows from our current activities. Until we have developed a larger number of products, we will not be able to estimate our future expenses related to these programs or when, if ever, and to what extent we will receive cash inflows from resulting products.

Contractual Obligations

          At September 30, 2011, our significant contractual obligations were as follows:

  Less than one year Greater than one year Total
Convertible Noes-JMJ Financial $1,069,035 $0 $1,069,035
Convertible Notes-John Fife $638,250 $0 $638,250
Convertible Note-Jay Wright $25,150 $0 $25,150
Equipment Loan $11,816 $13,234 $25,050
Total $1,744,251 $1,3,234 $1,757,485

          We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.

SELECTED FINANCIAL DATA

(in thousands except per share data)

The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and notes included in this annual report. The statement of operations data from October 2, 1996 (date of inception) to June 30, 1997 and for the year ended June 30, 1998, and the balance sheet data as of June 30, 1997 and 1998, are derived from financial statements that have been audited by Schuhalter, Coughlin & Suozzo, LLC, independent auditors, and are included in this document. The statement of operations data for the years ended June 30, 1999, 2000, and 2001 and the balance sheet data as of June 30, 1999, 2000, and 2001 are derived from financial statements that have been audited by Arthur Andersen LLP., independent auditors. The statement of operations data for each year ended June 30, 2002 through June 30, 2009 and the balance sheet data as of June 30, 2002 through June 30, 2009 are derived from financial statements that have been audited by Rosenberg Rich Baker Berman & Company. The statement of operations data for the year ended June 30, 2010 and the balance sheet data as of June 30, 2010 are derived from financial statements that have been audited by Demetrius & Company, L.L.C. The statement of operations for the year ended June 30, 2011 and the balance sheet data as of June 30, 2011 have been audited by Demetrius & Company, L.L.C., independent auditors, and are included in this document.

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SUMMARY OPERATING DATA
Year Ended June 30,
(in thousands except per share data)

                                  from  
                                  inception  
          Fiscal Years Ended June                 October 2,  
          30                 1996 to  
                                  June 30,  
    2007     2008     2009     2010     2011     2011  

Total revenues

$  44   $  108   $  187   $  354   $  49   $  744  

Cost of sales

  0     0     0     66     50     116  

Research and development

  2,505     988     1,256     2,203     626     12,258  

General and administrative

  3,402     4,021     9,554     1,845     1,823     27,230  

Depreciation and amortization

  94     145     34     25     15     578  

Operating loss

  (5,957 )   (5,046 )   ( 10,637 )   (3,785 )   (2,465 ) $  (39,438 )

Other income (expense), net

  (1,726 )   2,379 )   (3,118 )   (118 )   1,875   $  (8,035 )

Interest income (expense)

  (18 )   (215 )   (1,321 )   (3,463 )   (141 ) $  (2,628 )

Discontinued Operations

  (9,151 )   (501 )         -     245     (144,544 )

Net Loss

$  (16,852 ) $  (3,383 ) $  (15,096 ) $  (7,366 ) $  (486 ) $  (194,644 )

Basic and diluted net loss per share - continuing

$  (0.02 ) $  (0.01 ) $  (0.03 ) $  (.01 ) $  (.00 )    

Basic and diluted net loss per share- discontinued

$  (0.02 ) $  (0.00 ) $  (0.00 ) $  0.00   $  (.00 )    

Shares used in basic and diluted net loss per share

  310,395,562     405,032,339     592,455,950     1,041,685,519     1,402,130,735      

BALANCE SHEET DATA
in $000's

    2007     2008     2009     2010     2011  
Cash and cash equivalents $  23   $  16   $  100   $  228   $  2  
Working capital (deficit) $  (3,088 ) $  (3,853 ) $  (3,991 ) $  201   $  (2,705 )
Total assets $  1,808   $  2,351   $  3,489   $  5,844   $  235  
Long-term obligations, net of current portion $  0   $  1,595   $  4,433   $  28   $  16  
Total stockholders' (deficit) $  (2,754 ) $  (3,238 ) $  (5,234 ) $  (7,884 ) $  (5,592 )

Selected Quarterly Financial Information

The statement of operations data as of the quarterly periods indicated below are derived from unaudited financial statements on Form 10Q filings, and include all adjustments (consisting of normal recurring items) that management considers necessary for a fair presentation of the financial statements.

FISCAL 2012 QUARTERLY   Three Months Ended  
STATEMENT OF OPERATIONS   September 30,  
DATA:      
  (in thousands, except share amounts)  
Total revenues $  0  
Costs and Expenses:      
Cost of sales   1  
Research and development   41  
General and administrative   6,888  
Depreciation and amortization   4  
Operating loss   (6,934 )
Interest expense, Net   (71 )
Other Income (expense)   826  
Discontinued operations      
Net ( Loss) Income $  (6,179 )
Basic net (loss) gain per share- Continuing operations $  0  
Discontinued operations $  0  
Diluted net (loss) gain per share- Continuing operations $  0  
Discontinued operations $  0  
Shares used in basic net loss per share   2,053,984,273  
Shares used in diluted net loss per share   N/A  

FISCAL 2011 QUARTERLY         Three Months Ended        
STATEMENT OF OPERATIONS   September 30,     December 31,     March 31,     June 30,  
DATA:                        
    (in thousands, except share amounts)                 
Total revenues $  29   $  1   $  18   $  1  
Costs and Expenses:                        
Cost of sales   9     5     37     (1 )
Research and development   193     141     111     180  
General and administrative   523     446     455     398  
Depreciation and amortization   3     4     4     4  
Operating loss   (701 )   (595 )   (589 )   (580 )
Interest expense, Net   (30 )   (25 )   (26 )   (60 )
Other Income (expense)   2,725     (100 )   (709 )   (41 )
Discontinued operations                     245  
Net ( Loss) Income $  1,994   $  (720 )   (1,324 )   (436 )
Basic net (loss) gain per share-                        
Continuing operations $  0   $  0   $  0   $  0  
Discontinued operations $  0   $  0   $  0   $  0  
Diluted net (loss) gain per share-                        
Continuing operations $  0   $  0   $  0   $  0  
Discontinued operations $  0   $  N/A   $  N/A   $  N/A  
Shares used in basic net loss per share   1,189,554,845     1,226,037,125     1,456,690,423     1,602,502,264  
Shares used in diluted net loss per share   1,713,140,738     N/A     N/A     N/A  

33



FISCAL 2010 QUARTERLY         Three Months Ended        
STATEMENT OF OPERATIONS   September 30,     December 31,     March 31,     June 30,  
DATA:                        
    (in thousands, except share amounts)              
Total revenues $  52   $  34   $  142   $  126  
Costs and Expenses:                        
Cost of sales   0     0     2     63  
Research and development   515     579     712     397  
General and administrative   421     489     453     482  
Depreciation and amortization   5     7     7     7  
Operating loss   (889 )   (1041 )   (1032 )   (823 )
Interest expense, Net   (681 )   (42 )   (33 )   (31 )
Other Income (expense)   1173     (2417 )   1959     (3508 )
Discontinued operations   0     0     0     0  
Net ( Loss) Income $  (397 ) $  (3,500 ) $  894   $  (4,362 )
Basic net (loss) gain per share-                        
Continuing operations $  (0.01 ) $  (0.01 ) $  0.00   $  (0.01 )
Discontinued operations $  -   $  -   $  -   $  -  
Diluted net (loss) gain per share-                        
Continuing operations $  (0.01 ) $  (0.01 ) $  0.00   $  (0.01 )
Discontinued operations $  -   $  -   $  -   $  -  
Shares used in basic net loss per share   934,821,600     934,821,600     1,057,751,508     1,084,251,619  
Shares used in diluted net loss per share   934,821,600     934,821,600     1,534,563,992     1,084,251,619  

Includes certain reclassification from previous reported amounts

FISCAL 2009 QUARTERLY         Three Months Ended        
STATEMENT OF OPERATIONS DATA:   September     31-Dec     March     June 30,  
    30,           31,        
  (in thousands, except share amounts)                 
Total revenues $  6   $  45   $  44   $  92  
Costs and Expenses:                        
Cost of sales   -     -     -     -  
Research and development   388     216     265     386  
General and administrative   6,239     499     430     2,387  
Depreciation and amortization   13     13     4     4  
Operating loss   (6,634 )   (683 )   (655 )   (2,685 )
Interest expense, Net   (39 )   (61 )   (74 )   (1,146 )
Other Income (expense)   355     (1,845 )   73     (1,702 )
Discontinued Operations   -     -     -     -  
Net Loss   (6,318 ) $  (2,589 ) $  (656 ) $  (5,533 )
Basic and diluted net (loss) gain per share-                        
Continuing Operations   (0.01 ) $  (0.01 ) $  -   $  (0.01 )
Discontinued Operations $  -   $  -   $  -   $  -  
Shares used in basic and diluted net loss per share   452,895,360     452,895,360     671,278,600     786,484,581  

FISCAL 2008 QUARTERLY         Three Months Ended        
                      June  
    September           March     30,  
STATEMENT OF OPERATIONS DATA:   30,     December 31,     31,     (As Restated)  
  (in thousands, except share amounts)                 
Total revenues $  35   $  61   $  1   $  10  
Costs and Expenses:                        
Cost of sales   0     1     0     0  
Research and development   560     285     277     (134 )
General and administrative   1,497     985     576     974  
Depreciation and amortization   34     81     21     9  
Operating loss   (2,056 )   (1,291 )   (873 )   (833 )
Interest expense, Net   (12 )   (38 )   (145 )   (20  
Other Income (expense)   (718 )   1,436     (2,487 )   3,653  
Discontinued Operations   -     -     -     (5 )
Net (Loss) Income $  (2,786 ) $  107   $  (3,505 ) $  2,801  
Basic and diluted net (loss) gain per share                        
Continuing operations $  (0.01 ) $  0   $  (0.01 ) $  0  
Discontinued operations $  -   $  -   $  -   $  -  
Shares used in basic and diluted net loss per share   389,791,154     392,557,583     397,367,531     418,881,266  
Includes certain reclassification from previous reported amounts                

34



FISCAL 2007 QUARTERLY         Three months ended        
STATEMENT OF OPERATIONS   30-Sep     31-Dec     31-Mar     30-Jun  
    (in thousands, except share amounts)              
Total revenues $  30   $  4   $  4   $  5  
Costs and Expenses:                        
Cost of sales   0     0     0     0  
Research and development   776     672     488     557  
General and administrative   765     548     642     1,432  
Depreciation and amortization   22     22     23     28  
Operating loss   (1,534 )   (1,238 )   (1,148 ) $  (1,238 )
Interest expense, Net   (4 )   (8 )   1   $  (7 )
Other Income (expense)   187     (1,505 )   (175 )   (2,035 )
Discontinued Operations   (2,607 )   (1,088 )   (1,942 )   (2,511 )
Net Loss $  (3,958 ) $  (3,839 ) $  (3,264 ) $  (5,791 )
Basic and diluted net loss per share                        
    Continuing operations $  -   $  (0.01 ) $  -   $  (0.01 )
    Discontinued operations $  (0.01 ) $  -   $  (0.01 ) $  (0.01 )
Shares used in basic and diluted net   282,306,237     300,483,022     327,195,047     363,823,271  

MARKET PRICE OF AND DIVIDENDS ON REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(A) MARKET PRICES OF COMMON STOCK. The primary market for mPhase's common stock is the NASDAQ OTC Bulletin Board, where it trades under the symbol "XDSL." The Company became publicly traded through a merger with Lightpaths TP Technologies, formerly known as Tecma Laboratories, Inc. pursuant to an agreement dated February 17, 1997. The following table sets forth the high and low closing prices for the shares for the periods indicated as provided by the NASDAQ's OTCBB System. The quotations shown reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions. These figures have been adjusted to reflect a 1 for 10 reverse stock split on March 1, 1997.

YEAR/QUARTER   HIGH     LOW  
Fiscal year ended June 30, 2004            
First Quarter $  .42   $  .29  
Second Quarter   .61     .29  
Third Quarter   .69     .38  
Fourth Quarter   .46     .29  
Fiscal year ended June 30, 2005            
First Quarter $  .31   $  .21  
Second Quarter   .35     .23  
Third Quarter   .60     .30  
Fourth Quarter   .41     .25  
Fiscal year ended June 30, 2006            
First Quarter $  .29   $  .21  
Second Quarter   .32     .15  
Third Quarter   .45     .19  
Fourth Quarter   .34     .18  
Fiscal year ended June 30, 2007            
First Quarter $  .21   $  .16  
Second Quarter   .20     .15  
Third Quarter   .24     .15  
Fourth Quarter   .19     .09  
Fiscal year ended June 30, 2008            
First Quarter $  .13   $  .07  
Second Quarter   .09     .05  
Third Quarter   .14     .05  
Fourth Quarter   .13     .07  

35



YEAR/QUARTER   HIGH     LOW  
First Quarter $  .08   $  .03  
Second Quarter   .05     .01  
Third Quarter   .04     .01  
Fourth Quarter   .05     .01  
Fiscal year ended June 30, 2010            
First Quarter $  .03   $  .02  
Second Quarter   .02     .01  
Third Quarter   .03     .02  
Fourth Quarter   .02     .01  
Fiscal year ended June 30, 2011            
First Quarter $  .0189   $  .0100  
Second Quarter   .0147     .0080  
Third Quarter   .0105     .0045  
Fourth Quarter   .0032     .0123  
Fiscal year ended June 30, 2012            
First Quarter $  .0189   $  .0100  
Second Quarter   .0147     .0080  
             
             

Penny Stock Rules

          Our shares of Common Stock are subject to the "penny stock" rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms, "penny stock" is defined as any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and traded on a national securities exchange meeting specified criteria set by the SEC, authorized for quotation from the NASDAQ stock market, issued by a registered investment company, and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer's net tangible assets or revenues. In the last case, the issuer's net tangible assets must exceed $3,000,000 if in continuous operation for at least three years or $5,000,000 if in operation for less than three years or the issuer's average revenues for each of the past three years must exceed $6,000,000.

          Trading in shares of penny stock is subject to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules may restrict the ability of broker-dealers to trade or maintain a market in our Common Stock, to the extent it is penny stock, and may affect the ability of shareholders to sell their shares.

Dividends

          We never paid cash dividends and have no plans to do so in the foreseeable future. Our future dividend policy will be determined by our board of directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences, and the restrictions that applicable laws, our current preferred stock instruments, and our future credit arrangements may then impose.

          Currently under New Jersey law, unless further restricted in its certificate of incorporation, a corporation may declare and pay dividends out of surplus, or if no surplus exists, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year (provided that the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets).

36


Securities Authorized for Issuance Under Equity Compensation Plan

          The following table shows information with respect to each equity compensation plan under which the Company's Common Stock is authorized for issuance as of the fiscal year ended June 31, 2011.

EQUITY COMPENSATION PLAN INFORMATION

    Number of              
    securities     Weighted     Number of  
    to be issued     average     securities  
    upon     exercise     remaining  
    exercise of     price of     available for  
    outstanding     outstanding     issuance  
    options,     options,     under equity  
    warrants     warrants     compensation  
Plan Category   and rights     and rights     plans  
    (a)(1)     (b)     (c)(2)  
Equity compensation plans approved by security holders   110,085,000   $  .0267     -0-  
Equity compensation plans not approved by security holders   -0-     -0-     -0-  
                   
Total   110,085,000   $  .0267     -0-  

(1) Includes 98,000,000 options re-priced to $.0040 on August 25, 2011

(2)(excluding securities reflected in column (a))

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because a significant portion of our investments are in short term debt securities issued by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve principal. Due to the nature of our marketable securities, we believe that we are not exposed to any material market risk. We do not have any derivative financial instruments or foreign currency instruments. If interest rates had varied by 10% in the three months ended March 31, 2011, it would not have had a material effect on our results of operations or cash flows for that period.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Our directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. No family relationships exist between any of the executive officers or directors.

On October 19, 2007, in connection with the settlement and dismissal of a civil law suit originally filed on November 16, 2005 by the Securities and Exchange Commission in the Federal District Court in the District of Connecticut, the SEC issued a Cease and Desist Order and certain remedial sanctions against two officers of mPhase Technologies, Inc. (the "Company"). The civil suit was filed against Packport.com, Inc. a Nevada corporation, Microphase Corporation, a Connecticut corporation, a company that provides administrative services to the Company and shares common management with the Company, and others. The two officers of the Company were Mr. Ronald A. Durando, President and Chief Executive Officer and Mr. Gustave T. Dotoli, the Chief Operating Officer. The Civil suit by the SEC named as respondents Mr. Durando, Mr. Dotoli and others in connection with their activities as officers and directors of Packetport.com. The cease and desist order from the SEC found that (1) Mr. Durando had violated Section 5 of the Securities Act of 1933, as amended, by making unregistered sales of common stock of Packetport.com.(2) Mr. Durando and Mr. Dotoli had violated Section 16(a) of the Securities Exchange Act of 1934, as amended, and Rule 16(a) thereunder by failing to timely disclose the acquisition of their holdings on Form 3’s and (3) Mr. Durando had violated Section 13(d) of the Securities Exchange Act of 1934, as amended, for failing to disclose the acquisition of more than five percent of the stock of Packetport.com.

37


Under the order Mr. Durando was required to disgorge $150,000 and Mr. Dotoli was required to disgorge $100,000. The Company was not named as a party to the civil suit. More information regarding the detailed terms of the settlement can be found in SEC release No 8858 dated October 18, 2007 promulgated under the Securities Act of 1933 and SEC Release No. 56672 dated October 18,2007 promulgated pursuant to the Securities Exchange Act of 1934.

Mr. Durando and Mr. Dotoli have continued to serve as officers and directors of the Company. Mr Durando and Mr. Dotoli together with Microphase corporation and others, without admitting or denying the findings of the SEC, except as to jurisdiction and subject matter, have consented to the entry of the Order Instituting Cease and Desist Proceedings, Making findings and Imposing a Cease and Desist Order and Remedial Sanctions pursuant to Section 8A of the Securities Exchange Act of 1933 and Section 21C of the Securities Exchange Act of 1934.

The following table sets forth certain information with respect to each person who is an executive officer or director. mPhase's executive officers and directors as of September 30, 2010 are as follows:

NAME   AGE   POSITION(S)
Ronald A. Durando   54   Chief Executive Officer and Director
Gustave T. Dotoli (2)   75   Chief Operating Officer and Director
Martin Smiley   64   Chief Financial Officer
OUTSIDE DIRECTORS        
Anthony H. Guerino (1)(2)   66   Director
Abraham Biderman (1)(2)   65   Director
Dr. Victor Lawrence   63   Director

(1)

Member of the Audit Committee

   
(2)

Member of the Compensation Committee

RONALD A. DURANDO is a co-founder of mPhase and has served as the Company's President, Chief Executive Officer and Director since its inception in October 1996. Since 1994, Mr. Durando has been an Officer of Microphase Corporation. Mr. Durando is a Director of Microphase Corporation. From 1986-1994, Mr. Durando was President and Chief Executive Officer of Nutley Securities, Inc., a registered broker-dealer. Mr. Durando also served as president of PacketPort until his resignation in February, 2008, when PacketPort merged with Wyndstorm Corporation.

GUSTAVE T. DOTOLI has served as mPhase's Chief Operating Officer as well as a Director since October 1996. Prior to joining the Company, Mr. Dotoli was President and CEO of State Industrial Safety, Inc. from 1986-1996. In addition, Mr. Dotoli currently serves as the Vice President of Corporate Development of Microphase Corporation. Mr. Dotoli was also a Director and Vice President of Packet Port. He was formerly the President and Chief Executive Officer of the following corporations: Imperial Electro- Plating, Inc., World Imports USA, Industrial Chemical Supply, Inc., SISCO Beverage, Inc., and Met Pack, Inc. Mr. Dotoli received a B.S. in Industrial Engineering from Fairleigh Dickenson University in 1959.

ANTHONY H. GUERINO has been a member of the Board since February 23, 2000. Since December 1997, Mr. Guerino has been an attorney in private practice in New Jersey. Prior thereto, Mr. Guerino served as a judge of the Newark Municipal Courts for over twenty (20) years, periodically sitting in the Essex County Central Judicial Processing Court at the Essex County Courthouse. Mr. Guerino has been a chairperson for and member of several judicial committees and associations in New Jersey, and has been an instructor for the Seton Hall School of Law's Trial Moot Court Program.

ABRAHAM BIDERMAN has been a member of the Board since August 3, 2000. He currently is the Managing Director of Eagle Advisers, Inc, a small investment banking firm. From 1990 through September 30, 2003, Mr. Biderman had been employed by Lipper & Co. as Executive Vice President; Executive Vice President, Secretary and Treasurer of the Lipper Funds; and Co-Manager of Lipper Convertibles, L.P. Prior to joining Lipper & Co. in 1990, Mr. Biderman was Commissioner of the New York City Department of Housing, Preservation and Development from 1988 to 1989 and Commissioner of the New York City Department of Finance from 1986 to 1987. He was Chairman of the New York City Retirement System from 1986 to 1989. Mr. Biderman was Special Advisor to former Mayor Edward I. Koch from 1985 to 1986 and assistant to former Deputy Mayor Kenneth Lipper from 1983 to 1985. Mr. Biderman is a Director of the Municipal Assistance Corporation for the City of New York. Mr. Biderman graduated from Brooklyn College and is a certified public accountant.

38


MARTIN SMILEY was elected on June 28, 2006 to the Board of Directors. He joined mPhase as Executive Vice President, Chief Financial Officer and General Counsel in August 2000. Mr. Smiley has over twenty years experience as a corporate finance and securities attorney and as an investment banker. Prior to joining the company, Mr. Smiley served as a Principal at Morrison & Kibbey, Ltd., a mergers and acquisitions and investment banking firm, from 1998 to 2000, and as a Managing Director for CIBC Oppenheimer Securities from 1994 to 1998. He served as a Vice President of Investment Banking at Chase Manhattan Bank from 1989 to 1994 and as a Vice President and Associate General Counsel for Chrysler Capital Corporation from 1984 to 1989. Mr. Smiley graduated with a B.A. in Mathematics from the University of Pennsylvania and earned his law degree from the University of Virginia School Of Law.

DR VICTOR LAWRENCE is Bachelor Chair Professor of Electrical Engineering and Associate Dean for Special Programs in the Charles V Schafer, Jr. School of Engineering, at Stevens Institute of Technology. Dr. Victor Lawrence is a member of the National Academy of Engineering and has worked in the information technology and communications field for over thirty years. He is an industry leader in digital communications R&D and services, an entrepreneur, an active member of engineering professional organizations, an author, and a teacher who has extensive international experience. Prior to joining Stevens Institute of Technology,

Dr. Lawrence was Vice President, Advanced Communications Technology, Bell Laboratories, Lucent Technologies. He led the development of technologies that go into the most innovative, reliable, and cost-effective communications networks for leading telecommunications service providers. Earlier, he was Director, Advanced Multimedia Communications at Bell Labs, where he was responsible for systems engineering, exploratory development of multimedia signal processing, transmission, and switching, including speech and audio coding, modems, broadband transmission, ATM switching and protocols, and wireless communication and signal processing. He held a variety of leadership positions in data communications research, digital techniques, and information systems. Dr. Lawrence played a significant role in the development of major international voiceband modem standards, making high-speed data communication over international networks possible and led the development of high-speed modem/fax chip sets that are used in data terminals, computers, and voice terminals for secure communications worldwide. His work on high-speed transceivers for local loop and for premises applications led to the development of a variety of DSL technologies, many of which are deployed today for broadband services. As an entrepreneur, Dr. Lawrence spun off several ventures internal and external to Lucent to maximize the impact of technology developed in his organization.

At each annual meeting of stockholders, the newly elected directors' terms begin on the date of election and qualification, and continue through the next annual meeting following election. Terms may differ in the event a director resigns or is removed from office, or continues until a successor director is elected and qualified.

EXECUTIVE COMPENSATION

The following table sets forth, for the fiscal year ended June 30, 2011 and the two previous fiscal years, the compensation earned by mPhase's chief executive officer and the other executive officers whose compensation was greater than $100,000 for services rendered in all capacities to the Company for the year ended June 30, 2011.

SUMMARY                                                      
EXECUTIVE                                                      
COMPENSATION                                                      
NAME&                                 NON-                    
PRINCIPAL                     STOCK     OPTION     EQUITY     PENSION              
POSITION   YEAR     SALARY     BONUS     AWARDS     AWARDS     INCENTIVE     VALUE     OTHER        TOTAL  
Ronald   2011   $  160,000   $  0   $  0   $ 0     N/A     N/A   $ 33,728 (1) $ 193,728  
Durando   2010   $  200,000   $  0   $  0   $ 0     N/A     N/A   $ 56,486 (1) $ 256,486  
Chief Executive   2009   $  275,718   $  0   $  1,541,700 (2) $ 1,944,912 (3)   N/A     N/A   $ 61,473 (1) $ 3,823,803  
Officer                                                      
Gustave   2011   $  144,000   $  0   $  0   $ 0     N/A     N/A   $ 18,610 (1) $ 162,610  
Dotoli   2010   $  180,000   $  0   $  0   $ 0     N/A     N/A   $ 39,375 (1) $ 219,375  
Chief Operating   2009   $  229,000   $  0   $  913,600 (2) $ 1,166,947 (3)   N/A     N/A   $ 62,514 (1) $ 2,372,061  
Officer                                                      
Martin   2011   $  140,000   $  0   $  0   $ 0     N/A     N/A   $ 16,569   $ 156,569  
Smiley   2010   $  175,000   $  0   $  0   $ 0     N/A     N/A   $ 24,536 (1) $ 199,356  
CFO and General   2009   $  182,292   $  0   $  571,000 (2) $ 700,168 (3)   N/A     N/A    $ 21,048 (1) $ 1,474,508  
Counsel                                                      

FOOTNOTES

(1)

Interest on loans to the Company.

(2)

Share grants are valued at the share price on the date the grant was authorized by the board of directors. The shares under the 2009 grant to officers are restricted from resale through August, 2012.

(3)

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

39


OUTSTANDING EQUITY AWARDS at FISCAL YEAR END JUNE 30, 2011

    Number of     Equity                 Number of              
    Securities     Incentive                 shares of              
    underlying     Plan                 stock that     Market        
    Unexercised     awards     Option         Option     has not     Value of        
Number of Securities underlying   Options     Number of       Exercise       Expiration     been     Shares not     Equity  
Unexercised Options (Exercisable)   (Unexercisable)     Securities     Price     Date     vested     vested     Incentive  
Ronald Durando   0     0   $             0     0     0  
President CEO   0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
Gustave Dotoli   0     0   $             0     0     0  
COO   0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  
Martin Smiley   0     0   $             0     0     0  
Executive VP   0     0   $             0     0     0  
CFO Chief Legal   0     0   $             0     0     0  
Council   0     0   $             0     0     0  
    0     0   $             0     0     0  
    0     0   $             0     0     0  

40


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during fiscal 2011 were Mr. Dotoli, Biderman and Guerino. Neither Messrs. Biderman nor Mr. Guerino has been an officer or employee of mPhase. None of the Company's directors or executive officers served as a member of the Compensation Committee (or other board committee performing equivalent functions or, in the absence of such committee, the entire Board of Directors) of another entity during fiscal 2011 that has a director or executive officer serving also as a director on mPhase's Board of Directors. Mr. Dotoli, together with Mr. Durando and Mr. Ergul, were collectively controlling shareholders and Directors of Janifast Ltd. In March of 2009, Janifast Ltd. terminated operations.

Employment Agreements

None

Director Compensation Arrangements

None

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of November 14, 2011 certain information regarding the beneficial ownership of our shares:

1

by each person who is known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock;

   
2

each of our directors;

   
3

by each executive officer named in the Summary Compensation Table; and

   
4

by all of our directors and executive officers as a group.


AFFILIATES (1 & 2)   Shares     Warrants     Options     TOTAL     %  
                               
Victor Lawrence   10,100,000         200,000     10,300,000     0.37%  
Anthony Guerino           260,000     260,000     0.01%  
Abraham Biderman   45,226,890         2,160,000     47,386,890     1.71%  
Gustave Dotoli (3)   318,107,805     71,120,800     30,000,000     419,228,605     14.60%  
Ron Durando (3)   452,241,922     108,817,598     50,000,000     611,059,520     20.86%  
Ned Ergul   2,850,000         450,000     3,300,000     0.12%  
Martin Smiley (3)   313,760,629     51,273,018     18,000,000     383,033,647     13.49%  
Microphase Corporation(4) (5)   42,726,686             42,726,686     1.54%  
                               
Total Affiliates   1,185,013,932     231,211,415     101,070,000     1,517,295,347     52.71%  

(1) Unless otherwise indicated, the address of each beneficial owner is 587 Connecticut Avenue, Norwalk, Connecticut 06854–1711.

(2) Unless otherwise indicated, mPhase believes that all persons named in the table have sole voting and investment power with respect to all shares of the Company beneficially owned by them. The percentage for each beneficial owner listed above is based on 2,769,950,740 shares outstanding on November 14, 2011, and, with respect to each person holding options or warrants to purchase shares that are exercisable within 60 days after November 14, 2011, the number of options and warrants are deemed to be outstanding and beneficially owned by the person for the purpose of computing such person's percentage ownership, but are not deemed to be outstanding for the purpose of computing the percentage ownershi p of any other person.

(3) Includes as warrants 108,817,598 shares, 71,120,800 shares and 58,132,124 shares issuable for unpaid compensation and loans plus accrued interest, if converted, for Messrs. Durando, Dotoli and Smiley respectively. Such conversions are subject to availability of authorized shares. On April 27, 2009, and amended as of August 25, 2011; the board of directors consolidated all amounts outstanding for all obligations to the officers, including unpaid compensation, and authorized the issuance of new notes with a term of five years, an interest rate of 12% and a conversion feature at a price of $.0040 on amounts outstanding plus accrued interest thereon. During the fiscal years ended June 30, 2009 , June 30, 2010 and in the three months ended September 30, 2011, the Company recorded $914,060 , $82,609 and $2,360, respectively, of beneficial interest expense with respect to the conversion feature.

(4) Messrs. Ergul and Durando and certain members of their families may be deemed to exercise shared majority voting and dispositive power for Microphase Corporation through their indirect ownership interests in Microphase Holding Company, LLC which owns 88.4% of Microphase common stock. The holding company is owned 43.9% by the Ergul Family Limited Partnership, which is wholly owned by Mr. Ergul, his wife and daughters, and 50% by Edson Realty Inc. which is 83% owned by Mr. Durando, 12% by Mr. Ergul and 5% by three unrelated shareholders. Mr. Durando owns an additional 1.6% of Microphase common stock in his individual name.

(5) Includes 26,666,667 shares issued in June 2009 in connection with which the Company, during the quarter ended September 30, 2009, recorded $586,667 in beneficial interest expense in respect of the conversion of $200,000 of accounts payable.

 41


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND CORPORATE GOVERNANCE

Material Related Party Transactions

The Company has material related party transactions. The Company incurs costs for engineering, design and production of prototypes and certain administrative functions from Microphase Corporation. Prior to March, 2008, it had purchased finished goods, primarily consisting of DSL splitter shelves and filters, from Janifast Limited. The Company also incurred costs in the past for obtaining transmission rights for a product it had planned to develop within its incorporated joint venture, mPhase Television. Net, in which the Company owned a 56.5% interest. This line of business has been discontinued.

Mr. Durando, President and CEO of mPhase, owns a controlling interest and is a director and President of Janifast Limited. Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited prior to its discontinuing operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director and shareholder of Janifast Limited. Microphase Corporation and Janifast Ltd. are significant shareholders of mPhase.

Mr. Abraham Biderman is a Managing Director of Eagle Advisers, Inc., a firm that performs investment banking services for the Company and was employed until September 30, 2003, by our former investment banking firm Lipper & Company.

Management believes the amounts charged to the Company by Microphase, Janifast Ltd., mPhase Television. Net and Hart Telephone are commensurate with amounts that would be incurred if outside parties were used. The Company believes Microphase Corporation has the ability to fulfill its obligations to the Company without further support from the Company.

Directors that were significant shareholders of Janifast Limited prior to its ceasing operations in March of 2009 included Messrs. Durando and Dotoli.

Summary of compensation to related parties for the Three Months Ended September 30, 2011

    Durando     Dotoli     Smiley     Biderman     Lawrence     Microphase     Total  

Consulting / Salary

$ 37,500   $ 34,167   $ 33,333                     $ 105,000  

Interest

$ 13,116   $ 8,679   $ 6,337                     $ 28,132  

Rent

                              $ 10,890   $ 10,890  

G&A

                              $ 2,301   $ 2,301  

R&D

                                    $ 0  

Finders Fees

                  $ 8,000               $ 8,000  

Stock based compensation (shares issued)*

$ 2,488,500   $ 1,858,500   $ 1,858,500   $ 252,000   $ 63,000         $ 6,520,500  

Stock based compensation (previously issued options repriced)**

$ 173,316   $ 103,990   $ 62,394                     $ 339,700  

Total compensation

$ 2,712,432   $ 2,005,336   $ 1,960,564   $ 260,000   $ 63,000   $ 13,191   $ 7,014,523  

Common stock issued August 25, 2011*
Options issued (5years @ 5 cents in September, 2008 repriced @ $.0040; the incremental cost of $339,700 to amortized through September 18, 2013)

Summary of compensation to related parties for the Three Months Ended September 30, 2010

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

42


Summary of compensation to related parties for the Twelve Months Ended June 30, 2011

    Durando     Dotoli     Smiley     Biderman     Microphase     Total  
Consulting / Salary $  160,000   $ 144,000   $ 140,000               $ 444,000  
Interest $  33,728   $  18,610   $  16,569               $  68,907  
Rent                   $     $  36,000   $  36,000  
G&A                   $     $  9,356   $  9,356  
R&D                               $  0  
Finder’s Fees                   $  24,500         $  24,500  
Total compensation $  193,728   $ 162,610   $ 156,569     24,500   $  45,356 $   $ 582,763  

Summary of compensation to related parties for the Twelve Months Ended June 30, 2010

    Durando     Dotoli     Smiley     Biderman     Microphase     Total  
Consulting / Salary $  200,000   $ 180,000   $ 175,000               $  555,000  
Interest $  56,483   $  39,375   $  24,356               $  120,214  
Rent                         $  36,000   $  36,000  
G&A                         $  9,936   $  9,936  
R&D                         $  337,500   $  337,500  
Finder’s Fees                   $  25,000         $  25,000  
Total compensation $  256,483   $ 219,375   $ 199,356   $  25,000   $  383,436   $ 1,083,650  

                      Total Notes                    
Summary of payables to related parties as of September 30, 2011   Durando     Dotoli     Smiley     Payable     Biderman     Microphase     Total  
Notes payable $ 270,479   $ 155,306   $ 118,030   $ 543,815               $ 543,815  
Due to Officers / Affiliates                         $ 150,000   $ 31,433   $ 181,433  
Interest Payable $ 164,791   $ 129,177   $ 87,062   $ 381,030               $ 381,030  
                                           
Total Payable to Officers / Affiliates $ 435,270   $ 284,483   $ 205,092   $ 924,845   $ 150,000   $ 31,433   $ 1,106,278  

Summary of payables to related parties as of June 30, 2011

    Durando     Dotoli     Smiley     Payable     Biderman     Microphase     Total  
Notes payable $  263,479   $  148,306   $  111,030   $  522,815   $           $  522,815  
Due to Officers / Affiliates                           150,000   $  27,242   $  177,242  
Interest Payable $  151,685   $  120,498   $  80,725   $ $352,909   $           $  352,909  
Total Payable to Officers / Affiliates $   415,164   $   268,804   $   191,755   $ $875,724   $   150,000   $   27,242   $ 1,052,966  

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

                      Total                    
                      Notes                    
    Durando     Dotoli     Smiley     Payable     Biderman     Microphase     Total  
Notes payable $  301,479   $  166,306   $  119,030   $  586,815               $  586,815  
Due to Officers / Affiliates $  0   $  0   $  0   $  0         $  19,214   $  19,214  
Interest Payable $  117,957   $  101,888   $  64,157   $  284,002   $  150,000         $  434,002  
Total Payable to Officers / Affiliates $  419,436   $  268,194   $  183,187   $  870,817   $  150,000   $  19,214   $  1,040,031  

In July of 2009, Microphase Corporation converted $200,000 of Accounts Payable owed by the Company into common stock valued at $.0075 per share (26,666,667 shares). Such price was determined based upon the price of private placements of equity by the Company during such period.

On October 7, 2009, the Company paid Messrs. Durando, Dotoli and Smiley $45,000, $45,000 and $25,000 respectively in reduction of amounts owed to them by the Company for unpaid compensation and bridge loans.

43


During the twelve months ended June 30, 2010, the Company incurred finders’ fees of $25,000 with Mr. Biderman’s affiliated firm of Palladium Capital Advisors. Mr. Biderman was employed until September 30, 2003, by our former investment banking firm, Lipper & Company. As of June 30, 2010, the Company owed Palladium Capital Advisors $25,000 in unpaid finders’ fees.

During the twelve months ended June 30, 2011, the Company incurred additional finders’ fees of $24,500 with Mr. Biderman’s firm Eagle Strategic Advisers.

During the twelve months ended June 30, 2007, Mr. Biderman, through his affiliated firm of Palladium Capital Advisors, earned finder's fees of $520,000 in connection with the raising of approximately $5 million in various equity transactions during the year.

In addition, at various points during fiscal year ended June 30, 2007, Messrs. Durando, Dotoli and Smiley provided $650,000 in bridge loans to the Company which was evidenced by individual promissory notes. During December 2006, Messrs. Durando and Dotoli agreed to convert their notes, in the amounts of $130,000 and $200,000 respectively, to a deferred compensation arrangement, the repayment terms of which have not been specified. Mr. Smiley has extended bridge loans to the Company of $160,000, evidenced by promissory notes for $101,000 and a $60,000 note with a 12% rate of interest. In summary as of June 30, 2007, bridge loans outstanding were $85,000, $75,000 and $161,000 to the Messrs. Durando, Dotoli and Smiley, respectively. All of the foregoing promissory notes were payable on demand and only the $161,000 payable to Mr. Smiley remained outstanding in June 2008. As of June 30, 2010, only $110,030 payable to Mr. Smiley remained outstanding.

During the 12 month period ended June 30, 2006, Eagle Advisers, an investment banking firm founded by Mr. Biderman earned fees and reimbursement expenses of approximately $782,568 in connection with services in regard to private placements of the Company's common stock and warrants and raised a total of $5,820,652 net of such fees for the Company.

During the fiscal year ended June 30, 2006, Mr. Edward Suozzo, a consultant of the Company, converted $50,000 of accounts payable owed by the Company into 331,864 shares of common stock plus a 5 year warrant to purchase 277,778 shares of common stock at $.18 per share. During fiscal year ended June 30, 2005, Mr. Suozzo converted $20,000 of accounts payable owed by the Company into 100,000 shares of common stock plus a 5 year warrant to purchase 100,000 shares of common stock at $.25 per share.

During fiscal year ended June 30, 2006, Microphase Corporation and Janifast Corp., both related parties, respectively converted $369,000 and $171,000 of accounts payable owed by the Company into 2,050,000 and 950,000 shares of common stock plus a 5 year warrant to purchase 2,050,000 and 950,000 shares of common stock at $.18 per share.

Effective June 30, 2004, the Company was $473,787 in arrears with respect to a promissory note issued to Piper Rudnick LLP plus other legal fees of $118,773.36. It should be noted that Piper & Rudnick, the Company’s outside counsel, received such promissory note in March of 2002 plus two warrants that expired in March 8, 2007 in exchange for cancellation of certain payables. Such warrants had conversion rights into our common stock for a total of 2,233,490 shares that had been registered under a Form S-1 Registration Statement, and were cashless. On September 3, 2003, in exchange for reducing the total payable to $550,000, the Company paid $10,000 in cash to Piper and issued an additional cashless warrant for $150,000 worth of the Company's common stock valued at $.25 per share. The remaining $300,000 payable had the following future payment schedule: payments of $25,000 each on December 1, 2004, March 1, 2005, June 1, 2005, September 1, 2005, March 1, 2006, June 1, 2006 and September 1, 2006, a payment of $50,000 on December 1, 2005, and a payment of $75,000 due on December 1, 2006. On August 30, 2004, the Company paid $100,000 to Piper & Rudnick, LLP in connection with the renegotiation of a Payment Agreement effective June 30, 2004. Under the terms of the renegotiated Payment Agreement, the Company agreed to payments of $25,000 each on December 1, 2004, March 1, 2005, June 1, 2005 and September 1, 2005 and a payment of $50,000 on December 1, 2006 plus $25,000 payments on March 1, 2006, June 1, 2006, September 1, 2006 and a final payment of $75,000 payment on December 1, 2007. In addition, Piper & Rudnick LLP agreed to convert $150,000 of such payable into a 5 year cashless warrant to purchase the Company's common stock at $.25 per share. The Company has made all of the above payments except for $65,000 of the $75,000 due December 1, 2006, that is presently in arrears.

44


Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli are executive officers and shareholders of Microphase and Ronald Durando and Gustave T. Dotoli served as president and vice- president of PacketPort.com., respectively until Packetport.com merged with Wyndstorm Corporation in February of 2008, at which time Mr. Durando and Mr. Dotoli resigned from their respective positions..

On November 26, 1999, PacketPort, Inc., a company owned 100% by Mr. Durando, acquired a controlling interest in Linkon Corp., which subsequently changed its name to PacketPort.com, Inc. In connection with this transaction, Mr. Durando transferred 350,000 shares of our common stock to PacketPort, Inc.

Transactions with Microphase Corporation

mPhase's President and Chairman of the Board of the Company are also employees of Microphase. On May 1, 1997, the Company entered into an agreement with Microphase whereby it would use office space as well as the administrative services of Microphase, including the use of accounting personnel. This agreement for fiscal year 2011 required mPhase to pay Microphase $3,000 per month. Microphase also charges fees for specific projects on a project-by-project basis. During the year ended June 30, 2011 and for the period of time from mPhase's inception (October 2, 1996) to June 30, 2011, $45,356 and $9,477,961, respectively, have been charged to expense or inventory under these Agreements and is included in “discontinued operations” in the accompanying consolidated statements of operations. Management believes that amounts charged to the Company by Microphase are commensurate with amounts that would be incurred if outside third parties were used. The Company is obligated to pay a 3% royalty to Microphase on revenues from its proprietary Traverser Digital Video and Data Delivery System and DSL component products.

Mr. Durando, President and CEO of mPhase, owns a controlling interest and is a director and President of Janifast Limited. Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited prior to its discontinuing operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director and shareholder of Janifast Limited. Microphase Corporation is a significant shareholder of the Company. Janifast Limited had been a significant shareholder of the Company until September 17, 2009, when it transferred to Mr. Durando 11,735,584 shares, representing all the shares of the Company held by Janifast, in partial consideration of the cancellation of loan obligations to Mr. Durando in connection with the plan of its liquidation.

Transactions with Janifast

Janifast Ltd., a Hong Kong corporation manufacturer, had produced components for our now discontinued Traverser_ DVDDS product. Necdet F. Ergul, Ronald A. Durando and Gustave T. Dotoli are controlling shareholders of Janifast Ltd. with an aggregate ownership interest of greater than 75% of Janifast Ltd. Mr. Durando is Chairman of the Board of Directors and Mr. Ergul is a Director of Janifast. Janifast Ltd. ceased operations in March, 2009, and the Company has had no transactions with Janifast during or since its fiscal year ended June 30, 2010.

Reparation Shares issued to related parties

During the fiscal year ended June 30, 2006, the Company issued 3,931,382 shares valued at $728,434 and 4,504,542 shares valued at $834,633 for reparation of investments of $200,000 for 1,000,000 shares and $250,000 for 1,250,000 shares made during fiscal year ended June 30, 2005 by Janifast and Microphase, respectively, concurrently on the same terms reparations were issued to other investors of the same private placements.

During the fiscal year ended June 30, 2007, Janifast was issued 769,231 shares valued at $138,462 for reparation of an investment of $171,000 for 950,000 shares issued for an investment made in fiscal year ended June 30, 2006, concurrently on the same terms reparations were issued to other investors of the same private placement.

Transactions with Other Related Parties

In March 2000, mPhase acquired a 50% interest in mPhaseTelevision.Net (formerly Telco Television Network, Inc.), an incorporated joint venture. This percentage was increased to approximately 57% in fiscal year 2001. Alpha Star International, Inc. currently owns the remaining joint venture interest. The joint venture has been inactive for a period of five years and is in the process of being dissolved.

45


Mr. Durando, President and CEO of mPhase, owned a controlling interest and was a director and President of Janifast Limited. Mr. Durando and Mr. Dotoli are officers of Microphase Corporation. Mr. Dotoli was also a shareholder of Janifast Limited prior to its discontinuing operations in March of 2009. Mr. Ergul owns a controlling interest and is a director of Microphase Corporation and is a director and shareholder of Janifast Limited.

Microphase Corporation is a significant shareholder of the Company. Janifast Limited had been a significant shareholder of the Company until September 17, 2009, when it transferred to Mr. Durando 11,735,584 shares, representing all the shares of the Company held by Janifast, in partial consideration of the cancellation of loan obligations to Mr. Durando in connection with the plan of its liquidation.

Director Independence

The Company complies with the standards of "independence" prescribed by rules set forth by the National Association of Securities Dealers ("NASD"). Accordingly, a director will only qualify as an "independent director" if, in the opinion of our Board of Directors, that person does not have a material relationship with our company which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. A director who is, or at any time during the past three years, was employed by the Company or by any parent or subsidiary of the Company, shall not be considered independent. Accordingly, Anthony Guerino and Victor Lawrence meet the definition of "independent director" under Rule 4200(A)(15) of the NASD Manual; Abraham Biderman, Ronald A. Durando, Gustave T. Dotoli and Martin Smiley do not.

ADDITIONAL INFORMATION

          Federal securities laws require us to file information with the Commission concerning our business and operations. Accordingly, we file annual, quarterly, and special reports, and other information with the Commission. You can inspect and copy this information at the public reference facility maintained by the Commission at 100 F Street, NE, Washington, D.C. 20549.

          You can get additional information about the operation of the Commission's public reference facilities by calling the Commission at 1-800-SEC-0330. The Commission also maintains a web site (http://www.sec.gov) at which you can read or download our reports and other information.

          We have filed with the Commission a registration statement on Form S-1 under the Securities Act of 1933 with respect to the Common Stock being offered hereby. As permitted by the rules and regulations of the Commission, this prospectus does not contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information with respect to mPhase and the Common Stock offered hereby, reference is made to the registration statement, and such exhibits and schedules. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission at the addresses set forth above, and copies of all or any part of the registration statement may be obtained from such offices upon payment of the fees prescribed by the Commission. In addition, the registration statement may be accessed at the Commission’s web site.

46


DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

          Our directors and officers are indemnified by our bylaws against amounts actually and necessarily incurred by them in connection with the defense of any action, suit or proceeding in which they are a party by reason of being or having been directors or officers of the Company. Our certificate of incorporation provides that none of our directors or officers shall be personally liable for damages for breach of any fiduciary duty as a director or officer involving any act or omission of any such director or officer. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to such directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

          In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by such director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

LEGAL MATTERS

          The validity of the shares offered hereby will be passed upon for us by Martin Smiley, Esq., EVP, CFO and General Counsel of the Company.

EXPERTS

          The consolidated financial statements of mPhase Technologies, Inc. as of June 30, 2011 and June 30, 2010 have been audited by Demetrius & Company, L.L.C. and the financial statements for the fiscal year ended June 30, 2009, included in this registration statement on Form S-1, have been audited by Rosenberg, Rich, Baker & Berhman, independent auditors, as stated in their reports appearing with the financial statements. These financial statements are included in reliance upon the reports of each of Demetrius & Company, L.L.C. and Rosenberg, Rich Baker and Berhman given upon the authority of said firms as experts in accounting and auditing.

47


F INANCIAL STATEMENT SCHEDULES

(a)       The following documents are filed as part of this Form S-1 Consolidated Financial Statements

  PAGE
Report of Demetrius & Company LLC 49
Report of Rosenberg Rich Baker Berman & Company 50
Report of Arthur Andersen LLP 51
Report of Schuhalter, Coughlin & Suozzo, PC 52
Consolidated Balance Sheets as of June 30, 2011 and 2010 53
Consolidated Statements of Operations for the years ended June 30, 2010 and 2011 and for the period from inception (October 2, 1996) through June 30, 2011 54
Consolidated Statements of Operations for the three months ended September 30, 2010 and 2011 and for the period from inception (October 2, 1996) through September 30, 2011(unaudited) 55
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the period from inception (October 2, 1996) to June 30, 1997 and for each of the fourteen years in the period ended June 30, 2011 56-65
Consolidated Statements of Changes in Stockholders' Equity (Deficit) From July 1, 2011 to September 30, 2011 (unaudited) 66
Consolidated Statements of Cash Flows for the years ended June 30, 2010 and 2011 and for the period from inception (October 2, 1996) through June 30, 2011, as restated 67
Consolidated Statements of Cash Flows for the three months ended September 30, 2010 and 2011 and for the period from inception (October 2, 1996) through September 30, 2011(unaudited) 68
Notes to Consolidated Financial Statements 69

(2)      Financial Statement Schedules
           None.

48


Report of Independent Registered Public Accounting Firm
To The Board of Directors and
Shareholders of mPhase Technologies, Inc.

We have audited the accompanying consolidated balance sheets of mPhase Technologies, Inc. (a New Jersey corporation in the development stage) and its subsidiaries as of June 30, 2010 and 2011 and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of mPhase Technologies, Inc. for the period from inception to June 30, 2009. Those statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to amounts for the period from inception to June 30, 2009, included in the cumulative totals, is based solely upon the report of the other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of mPhase Technologies, Inc. and subsidiaries as of June 30, 2010 and 2011 and the results of their operations and their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that mPhase Technologies, Inc. and subsidiaries will continue as a going concern. As shown in the financial statements, the Company has experienced significant losses and negative operating cash flows resulting in a working capital deficiency and shareholders’ deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are more fully described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Demetrius & Company, L.L.C.
Wayne, New Jersey
September 12, 2011

49


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of mPhase Technologies, Inc.

We have audited the accompanying consolidated balance sheet of mPhase Technologies, Inc. (a New Jersey corporation and is in the development stage) and subsidiaries as of June 30, 2009, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year then ended, for the period from July 1, 2001 to June 30, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of mPhase Technologies, Inc. for the period from inception to June 30, 2001. Those statements were audited by other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of mPhase Technologies, Inc. and subsidiaries as of June 30, 2009, and the results of its operations and its cash flows for the year then ended and for the period from July 1, 2001 to June 30, 2009, in conformity with accounting principles generally accepted in the United States of America.

Rosenberg Rich Baker Berman & Company

Somerset, New Jersey

September 25, 2009, (April 20, 2010 as to “Other Equity” included in Note 8)

50


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of mPhase Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of mPhase Technologies, Inc. (a New Jersey corporation in the development stage) and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2001 and for the period from inception (October 2, 1996) to June 30, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of mPhase Technologies, Inc. for the period from inception to June 30, 1998. Such amounts are included in the cumulative from inception to June 30, 2001 totals of the statements of operations, changes in stockholders’ equity and cash flows and reflect total net loss of 6 percent of the related cumulative totals. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to amounts for the period from inception to June 30, 1998, included in the cumulative totals, is based solely upon the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of mPhase Technologies, Inc. and subsidiaries as of June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2001 and for the period from inception to June 30, 2001, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and is in a working capital deficit position that raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Arthur Andersen LLP
Stamford, Connecticut
October 12, 2001

PURSUANT TO SEC RELEASE NO. 33-8070 AND RULE 437A UNDER THE SECURITIES ACT OF 1933, AS AMENDED, mPHASE TECHNOLOGIES, INC. HAS NOT RECEIVED WRITTEN CONSENT AFTER REASONABLE EFFORT TO USE THIS REPORT. THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP REPORT. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. WITH RESPECT TO THIS INSTANT 10K/A, YOU WILL NOT BE ABLE TO RECOVER AGAINST ARTHUR ANDERSEN LLP UNDER SECTION 11 OF THE SECURITIES ACT FOR ANY UNTRUE STATEMENTS OF A MATERIAL FACT CONTAINED IN THE FINANCIAL STATEMENTS AUDITED BY ARTHUR ANDERSEN LLP OR ANY OMISSIONS TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN.

51


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of mPhase Technologies, Inc.:

We have audited the statements of operations, changes in stockholders’ equity, and cash flows for the period October 2, 1996 (date of inception) through June 30, 1998 of mPhase Technologies, Inc. (a development stage company). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the results of its operations and its cash flows for the period of October 2, 1996 (date of inception) through June 30, 1998 in conformity with generally accepted accounting principles.

Schuhalter, Coughlin & Suozzo, PC
Raritan, New Jersey

January 28, 1999

52


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

    June 30,     June 30,     September 30,  
    2010     2011     2011  

 

              (unaudited)  

ASSETS

                 

CURRENT ASSETS

                 

Cash

$ 228,437   $ 1,744   $ 87,297  
Accounts Receivable   122,478              

Stock subscription receivable

  -     50,000     -  

Inventory

  98,807     102,532     101,302  

Prepaid and other current assets

  208,707     35,242     37,215  

Current Portion, Notes receivable- (Note 8 )

  2,700,000     -     -  

TOTAL CURRENT ASSETS

$ 3,358,429   $ 189,518   $ 225,814  

 

                 

Property and equipment, net

  62,311     45,114     46,936  

Notes receivable, net of contra reserve for utilization of corresponding Convertible Debenture agreement with La Jolla of $600,000 at June 30, 2010 - (Note 8 )

  2,464,000     -     -  

TOTAL ASSETS

$ 5,884,740   $ 234,632   $ 272,750  

 

                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

                 

CURRENT LIABILITIES

                 

Accounts payable

$ 539,444   $ 735,145   $ 754,526  

Accrued expenses

  390,203     162,038     199,416  

Due to related parties

  169,214     177,242     181,433  

Notes payable, related parties

  870,817     875,724     924,846  

Short term notes

  65,000     65,000     65,000  

Accounts Payable and Accrued Expenses-Discontinued Activities

  1,112,872     868,376     868,376  

Current Portion, Long term debt

  10,352     11,486     11,816  

TOTAL CURRENT LIABILITIES

$ 3,157,902   $ 2,895,011   $ 3,005,413  

 

                 

Long term portion Equipment loan

  27,703     16,315     13,234  

 

                 

OTHER OBLIGATIONS CONVERTIBLE TO EQUITY- (Note 8 )

                 

Convertible debt derivative liability

  5,966,149     1,664,575     953,218  

Convertible debentures, net of discount of $2,628,739, $300,000 and $258,598 on June 30, 2010 & 2011 and September 30, 2011, respectively

  4,577,710     1,250,505     1,350,701  

 

                 

COMMITMENTS AND CONTINGENCIES -(Note 11)

                 

 

                 

STOCKHOLDERS' DEFICIT

                 

Common stock, par value $.01, 2,000,000,000, 6,000,000,000 and 6,000,000,000 shares authorized, 1,163,751,952 , 1,628,502,264 and 2,710,250,740 shares issued and outstanding at June 30, 2010 & 2011 and September 30, 2011, respectively

  11,637,519     16,285,022     27,102,507  

Additional paid in capital

  174,683,294     172,775,132     169,004,373  

Deferred Compensation

  -     -     (325,546 )

Deficit accumulated during development stage

  (194,157,564 )   (194,643,955 )   (200,823,177 )

Less-Treasury stock, 13,750 shares at cost

  (7,973 )   (7,973 )   (7,973 )

TOTAL STOCKHOLDERS' DEFICIT

  ($7,844,724 )   ($5,591,774 )   ($5,049,816 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$ 5,884,740   $ 234,632   $ 272,750  

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

53


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

                Date of  
    For the FYE June 30,     Inception to  
                June 30,  
    2010     2011     2011  
                   

REVENUES

$  354,157   $  49,210   $  743,639  

COSTS AND EXPENSES

                 

Cost of Sales

  65,704     50,260     115,964  

 

                 

Research and Development (including non-cash stock related charges of $0, $0 and $205,733 for FYE 2010 & 2011 and inception to date respectively)

  2,203,383     625,417     12,257,562  

 

                 

General and Administrative (including non-cash stock related charges of $34,313, $62,945 and $12,754,354 for FYE 2010 & 2011 and inception to date respectively)

  1,844,776     1,823,178     27,230,052  

Depreciation and Amortization

  25,704     15,491     578,330  

 

                 

TOTAL COSTS AND EXPENSES

  4,139,567     2,514,346     40,181,908  

OPERATING LOSS

$  (3,785,410 ) $  (2,465,136 ) $  (39,438,269 )

OTHER INCOME (EXPENSE)

                 

Interest (Expense)

  (786,805 )   (141,335 )   (2,627,585 )

Net Reparation, Impairment and Other Income (Expense)

  168,409     8,915     (6,584,112 )

Net Charges related to Convertible Debt

  (2,961,939 )   1,866,669     (1,450,176 )

TOTAL OTHER INCOME (EXPENSE)

  (3,580,335 )   1,734,249   $  (10,661,873 )

Loss From Continuing Operations, before Income Taxes

$  (7,365,745 ) $  (730,887 ) $  (50,100,142 )

Income (Loss) From Discontinued Operations,

                 

Net of Income Taxes of $0 in 2010 and 2011, offset by benefit from tax loss carry forwards of $0 in 2010 and 2011 (including non-cash stock related charges of $0, $0 and $57,515,718 for FYE 2010 & 2011 and inception to date respectively)

  -     244,496     (144,543,813 )

Income Taxes

  -     -     -  

Net Loss

$  (7,365,745 ) $  (486,391 ) $  (194,643,955 )

Net loss per share from:

                 

Continuing Operations

$  (0.01 ) $  (0.00 )      

Discontinued Operations

$  -   $  -        

Weighted Average Number of Shares Outstanding;

                 

Basic and Diluted

  1,041,685,519     1,402,130,735        

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

54


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

 

  For the Three Months Ended     Date of  

 

              Inception to  

 

  September 30,     September 30,     September 30,  

 

  2010     2011     2011  

 

  (Unaudited)     (Unaudited)     (Unaudited)  

 

                 

REVENUES

$  28,808   $  0   $  743,639  

 

                 

COSTS AND EXPENSES

                 

 

                 

Cost of Sales

  9,467     571     116,535  

 

                 

Research and Development (including non-cash stock related charges of $0, $0 and $205,733 for the three months ended September 30, 2010 & 2011 and inception to date respectively)

  193,780     41,403     12,298,965  

 

                 

General and Administrative (including non-cash stock related charges of $62,945, $6,520,500 and $19,274,854 for the three months ended September 30, 2010 & 2011 and inception to date respectively)

  522,994     6,888,462     34,118,514  

 

                 

Depreciation and Amortization

  3,873     3,681     582,011  

 

                 

TOTAL COSTS AND EXPENSES

  730,114     6,934,117     47,116,025  

 

                 

OPERATING LOSS

$  (701,306 ) $  (6,934,117 ) $  (46,372,386 )

 

                 

OTHER INCOME (EXPENSE)

                 

Interest (Expense)

  (29,940 )   (70,690 )   (2,698,275 )

Net Reparation, Impairment and Other Income (Expense)

  0     1,131     (6,582,981 )

Net Credits (Charges) related to Convertible Debt

  2,725,735     824,454     (625,722 )

 

                 

TOTAL OTHER INCOME (EXPENSE)

  2,695,795     754,895     (9,906,978 )

 

                 

Income (Loss) From Continuing Operations, before Income Taxes

$  1,994,489   $  (6,179,222 ) $  (56,279,364 )

 

                 

Income (Loss) From Discontinued Operations,

                 

    Net of Income Taxes of $0 in 2010 and 2011,
    offset by benefit from tax loss carryforwards of $0 in 2010 and 2011
    (including non-cash stock related charges of $0, $0 and $57,515,718 for the
    three months ended September 30, 2010 & 2011 and inception to date respectively)

  -     -     (144,543,813 )

 

                 

Income Taxes

  -     -     -  

 

                 

Net Income (Loss)

$  1,994,489   $  (6,179,222 ) $  (200,823,177 )

 

                 

Net loss per share from:

                 

 Continuing Operations-Basic

$  0.00   $  (0.00 )      

 Discontinued Operations-Basic

$  -   $  -        

 

                 

 Continuing Operations-Diluted

$  0.00     N/A        

 Discontinued Operations-Diluted

$  -     N/A        

 

                 

Weighted Average Number of Shares Outstanding;

                 

 Basic

  1,189,554,845     2,053,984,273        

 Diluted

  1,713,140,738     N/A        

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

55


mPHASE TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS
IN THE PERIOD ENDED JUNE 30, 2011

    Common              
    Stock           Additional  
          Par Value     Treasury     Paid-In  
    Shares     0.01     Stock     Capital  

Balance, October 2, 1996 (date of inception).

  1,140,427   $  11,404         $  459,753  

Issuance of common stock of Tecma Laboratories, Inc., for 100% of the Company.

  6,600,000     66,000         (537,157 )

Issuance of common stock, in private placement, net of offering costs of $138,931

  594,270     5,943         752,531  

Net loss

                       

Balance, June 30, 1997

  8,334,697   $  83,347         $  675,127  

Issuance of common stock with warrants, in private placement, net of offering costs of $84,065

  999,502     9,995         791,874  

Issuance of common stock for services

  300,000     3,000           147,000  

Issuance of common stock in connection with investment in unconsolidated subsidiary

  250,000     2,500         122,500  

Repurchase of 13,750 shares of common stock

              (7,973 )      

Issuance of common stock with warrants in private placement, net of offering costs of $121,138

  1,095,512     10,955         659,191  

Issuance of common stock for financing services

  100,000     1,000           (1,000 )

Issuance of common stock in consideration for 100% of the common stock of Microphase Telecommunications, Inc.

  2,500,000     25,000         1,685,000  

Net loss

                       

Balance, June 30, 1998

  13,579,711   $  135,797   $  (7,973 ) $  4,079,692  

The accompanying notes are an integral part of these Consolidated Financial Statements.

56


mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS
IN THE PERIOD ENDED JUNE 30, 2011

                                        Total  
                      Additional                 Stockholders  
    Common     Par     Treasury     Paid-In     Deferred     Accumulated     Equity  
          Value                                
    Stock     0.01     Stock     Capital     Compensation     Deficit     (Deficit)  
    Shares                                      

Balance, June 30, 1998

  13,579,711   $  135,797   $   (7,973 ) $ 4,079,692   $  0   $   (5,122,305 ) $ (914,789 )

Issuance of common stock with warrants in private placements, net of offering

  3,120,000     31,200         2,981,800             3,013,000  

Issuance of common stock for services

  1,599,332     15,993         8,744,873             8,760,866  

Issuance of common stock with warrants in private placement, net of offering

  642,000     6,420         1,553,227             1,559,647  

Issuance of common stock in private placement, net of offering costs of $679,311

  4,426,698     44,267         10,343,167             10,387,434  

Issuance of stock options for services

              7,129,890             7,129,890  

Issuance of warrants for services

                    16,302                 16,302  

Deferred employee stock option compensation

                  (140,000 )       (140,000 )

Net loss

                                (22,838,344 )   (22,838,344 )

Balance, June 30, 1999

  23,367,741   $  233,677   $ (7,973 ) $  34,848,951      $  (140,000 ) $ (27,960,649 ) $ 6,974,006  

Issuance of common stock and options in settlement

  75,000     750         971,711             972,461  

Issuance of common stock upon exercise of warrants and options

  4,632,084     46,321         5,406,938             5,453,259  

Issuance of common stock in private placement, net of cash offering costs of $200,000

  1,000,000     10,000         3,790,000             3,800,000  

Issuance of common stock in private placement, net of cash offering costs of $466,480

  1,165,500     11,655         9,654,951             9,666,606  

Issuance of common stock for services

  1,164,215     11,642         8,612,265             8,623,907  

Issuance of options for services

                    9,448,100                 9,448,100  

Deferred employee stock option compensation

              1,637,375     (1,637,375 )        

Amortization of deferred employee stock option compensation

                  551,707         551,707  

Net loss

                                (38,161,542 )   (38,161,542 )

Balance, June 30, 2000

  31,404,540   $  314,045     (7,973 ) $  74,370,291      $  (1,225,668 ) $    (66,122,191 ) $ 7,328,504  

The accompanying notes are an integral part of these Consolidated Financial Statements.

57


mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS
IN THE PERIOD ENDED JUNE 30, 2011

                                        Total  
    Common                 Additional                 Stockholders  
    Stock     Par Value     Treasury     Paid-In     Deferred     Accumulated     Equity  
    Shares     0.01     Stock     Capital     Compensation     Deficit     (Deficit)  

Balance, June 30, 2000

  31,404,540   $  314,045   $  (7,973 ) $ 74,370,291   $ (1,225,668 ) $   (66,122,191 ) $ 7,328,504  

 

                                         

Issuance of common stock upon exercise of options

  320,000     3,200         324,300             327,500  

Issuance of common stock with warrants in private placements, net of cash offering costs of $512,195

  4,329,850     43,298         7,766,547             7,809,845  

Issuance of common stock for services

  450,000     4,500         1,003,125             1,007,625  

Issuance of options and warrants for services

              5,849,585             5,849,585  

Deferred employee stock option compensation

              607,885     (607,885 )        

Amortization of deferred employee stock option compensation

                  1,120,278         1,120,278  

Issuance of common stock in settlement of debt to directors and related parties

  4,840,077     48,402         2,371,637             2,420,039  

Net Loss

                                (23,998,734 )   (23,998,734 )

 

                                         

Balance June 30, 2001

  41,344,467   $  413,445   $  (7,973 ) $ 92,293,370   $ (713,275 ) $   (90,120,925 ) $ 1,864,642  

 

                                         

Issuance of Common stock with warrants in private placement

  6,980,643     69,807         1,903,943             1,973,750  

Issuance of Common stock for services

  2,976,068     29,760         1,169,241             1,199,001  

Issuance of options and warrants for services

              1,877,937             1,877,937  

Cancellation of unearned options to former employees

              (140,802 )   140,802          

Amortization of deferred employee stock option compensation

                  548,550         548,550  

Issuance of common stock and warrants in settlement of debt to related parties and strategic vendors

  7,492,996     74,930         2,663,728             2,738,658  

Sale of Common stock to certain Officers and Directors in private placement

  2,000,000     20,000         980,000             1,000,000  

Issuance of Common stock upon exercise of options

  13,334     133         3,867     4,000          

Net Loss

                                (11,249,387 )   (11,249,387 )

Balance, June 30, 2002

  60,807,508   $  608,075   $  (7,973 ) $  100,751,284      $   (23,923 ) $  (101,370,312 ) $ (42,849 )

The accompanying notes are an integral part of these Consolidated Financial Statements.

58


mPHASE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS
IN THE PERIOD ENDED JUNE 30, 2011

                                        Total  
    Common     Par           Additional                 Stockholders  
    Stock     Value     Treasury     Paid-In     Deferred     Accumulated     Equity  

 

  Shares     0.01     Stock     Capital     Compensation     Deficit     (Deficit)  

Balance, June 30, 2002

  60,807,508   $  608,075   $  (7,973 ) $  100,751,284   $ (23,923 ) $  (101,370,312 )   $ (42,849 )

Issuance of Common stock with warrants in private placement, net of Cash offering costs of $124,687

  4,296,680     42,967         1,121,351             1,164,318  

Issuance of Common stock for services

  426,000     4,260         107,985             112,245  

Issuance of options and warrants for services

              274,100             274,100  

Amortization of deferred employee stock option compensations

                  23,923         23,923  

Issuance of common stock and warrants in settlement of debt to related parties and strategic vendors

  5,923,333     59,233         1,826,329             1,885,562  

Net Loss

                                (6,646,185 )   (6,646,185 )

Balance, June 30, 2003

  71,453,521   $  714,535   $  (7,973 ) $  104,081,049   $ 0   $  (108,016,497   $ (3,228,886 )

Issuance of common stock with warrants in private placement, net of cash offering costs of $313,200

  15,177,973     151,779         4,322,934             4,474,713  

Issuance of common stock for services

  924,667     9,247         238,153             247,400  

Issuance of options and warrants for services

              1,067,393             1,067,393  

Issuance of common stock pursuant to exercise of warrants

  1,233,334     12,333         304,467             316,800  

Issuance of common stock and warrants in settlement of debt to related parties and strategic vendors

  110,467     1,105         1,962,099             1,963,204  

Net Loss

                                (7,758,586 )   (7,758,586 )

Balance, June 30, 2004

  88,899,962   $  888,999   $  (7,973 ) $  111,976,095   $ 0   $  (115,775,083 ) $ (2,917,962 )

The accompanying notes are an integral part of these Consolidated Financial Statements.

59


mPHASE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS IN THE PERIOD ENDED JUNE 30, 2011

                      Additional           Total  
    Common     Par Value     Treasury     Paid-In     Accumulated     Stockholders  
    Stock     0.01     Stock     Capital     Deficit     Equity  
    Shares                             (Deficit)  

Balance, June 30, 2004

  88,899,962   $  888,999   $  (7,973 ) $  111,976,095   $  (115,775,083 ) $  (2,917,962 )

Issuance of Shares in Private Placement

  39,853,661     398,535         6,888,553         7,287,088  

Issuance of in connection with exercise of warrants

  3,637,954     36,380         644,229         680,609  

Conversion of Debt to Common stock and warrants

  3,895,171     38,952         1,174,134         1,213,086  

Options Awarded to Consultants

                    2,191,043           2,191,043  

Options Awarded to Officers

                    625,290           625,290  

Issuance of shares to Officers and consultants for services

  1,151,000     11,510         322,500         334,010  

Exercise of cashless warrants

  4,949,684     49,499           (49,499 )            

Exercise of warrants by officers

  1,770,400     17,704                       17,704  

Reparation of Private Placement Offering

  891,000     8,910         176,811         185,721  

Net Loss

                          (11,234,324 )   (11,234,324 )

Balance June 30, 2005

  145,048,832   $  1,450,489   $  (7,973 ) $  123.949,156   $  (127,009,407 ) $  (1,617,735 )

Issuance of common stock pursuant to the exercise of warrants, net of cash expenses of $108,000

  15,720,120     157,201         2,850,523         3,007,724  

Issuance of common stock with warrants in private placements, net of cash expenses of $674,567

  72,786,897     727,868           9,329,781           10,057,649  

Issuance of common stock for services

  11,500,000     115,000         2,324,000         2,439,000  

Conversion of related party and strategic vendor debts to common stock and warrants

  3,331,864     33,319         556,681         590,000  

Stock options awarded to consultants, employees and officers

              3,837,423         3,837,423  

Issuance of additional shares and warrants to effect revised pricing on previous private offering charged to expense

  29,848,271     298,483         5,232,021         5,530,504  

Net loss

                          (24,450,650 )   (24,450,650 )

Balance, June 30, 2006

  278,235,984   $  2,782,360   $  (7,973 ) $  148,079,585   $  (151,460,057 ) $  (606,085 )

The accompanying notes are an integral part of these Consolidated Financial Statements.

60


mPHASE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS
IN THE PERIOD ENDED JUNE 30, 2011

                                        Total  
                      Additional                 Shareholders  
        $ .01 Stated     Treasury     Paid in     Deferred     Accumulated     (Deficit)  
    Shares     Value     Stock     Capital     Compensation     Deficit     Equity  

Balance June 30, 2006

  278,235,984   $  2,782,360   $  (7,973 ) $ 148,079,585       $  (151,460,057 $ (606,085 )

Issuance of common stock pursuant to the exercise of warrants (net of cash expenses of $150,000)

  14,740,669   $  147,406   $     $ 1,922,261           $ 2,069,667  

Issuance of common stock in private placements, (net of cash expenses of $216,134)

  47,958,060   $  479,581   $     $ 5,711,788           $ 6,191,369  

Issuance of common stock for services

  18,172,983   $  181,730   $     $  2,486,885   $ (627,250 )     $ 2,041,365  

Conversion of related party and strategic vendor debt to common stock

  6,073,728   $  60,737   $     $ 930,972           $ 991,709  

Issuance of additional shares and warrants to effect repricing

  22,664,580   $  226,646   $     $ 1,647,374           $ 1,874,020  

Stock options awarded to employees and officers

        $     $ 1,321,853           $ 1,321,853  

Deferred stock compensation

                        213,166       $ 213,166  

Net Loss

                            $ (16,851,562 ) $ (16,851,562 )

Balance June 30, 2007

  387,846,004   $  3,878,460   $  (7,973 ) $ 162,100,718   $ (414,084 ) $  (168,311,619 ) $ (2,754,498 )

61


mPHASE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT
OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS IN THE PERIOD ENDED JUNE 30, 2011

                      Additional                 Total  
                      Paid                 Shareholder  
          $.01 Par     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 net of $116,253 offering cost

  24,600,000   $  246,000       $ 898,247       $       1,144,247  

Exercise of Warrants net of Offering Cost $72,222

  11,111,113   $  111,111       $ 538,889       $       650,000  

Contingent liability recorded on warrant exercise above

  1,019,200   $  10,192         (1,006,200 )           (1,006,200 )

Common shares in settlement of accrued expenses

            $ 89,808       $       100,000  

Issuance of additional shares effect repricing

  4,663,741   $  46,637       $ 345,401       $       392,038  

Stock options/ warrants awarded to employees and investors

            $ 85,682       $       85,682  

Stock based compensation

  1,000,000     10,000       $ 90,192         $       100,192  

Amortization of deferred stock compensation

                  414,084   $       414,084  

Investment in Granita

                $ 514,000         $       514,000  

Conversion of debt

  4,904,942   $  49,050       $ 192,073         $       241,123  

Cost related to convertible debt financing

  5,250,000   $  52,500       $ 212,500       $       265,000  

Net Loss

                              $  (3,383,821 ) $ (3,383,821 )

Balance June 30, 2008

  440,395,000   $  4,403,950   $ (7,973 ) $ 164,061,310       0   $  (171,695,440 ) $ (3,238,153 )

The accompanying notes are an integral part of these Consolidated Financial Statements.

62


mPHASE TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND FOR EACH OF THE FOURTEEN YEARS IN THE PERIOD ENDED JUNE 30, 2011

                                  Total  
                      Additional           Shareholders  
          $01 Par     Treasury     Paid in     Accumulated     (Deficit)  
    Shares     Value     Stock     Capital     Deficit     Equity  

Balance June 30, 2008

  440,395,000   $  4,403,950   $  (7,973 ) $  164,061,310   $  (171,695,440 ) $  (3,238,153 )

Issuance of common stock in private placements net of offering cost ($80,000)

  72,333,333   $  723,333       $  (3,333 )     $  720,000  

Issuance of additional shares effect repricing

  19,522,000   $  195,220       $  236,952       $  432,172  

Stock options/ warrants awarded to employees and investors

            $  4,071,348       $  4,071,348  

Stock based compensation

  61,750,000   $  617,500         $  2,908,115         $  3,525,615  

Vendor settlements

  (1,926,470 )   ($19,265 )       $  19,265         $  0  

Beneficial Conversion feature of Notes Payable, including $914,060 on Officers' Notes Payable

            $  1,028,560       $  1,028,560  

Forgiveness of related party debt

                  $  19,336         $  19,336  

Conversion of debt securities and interest

  278,346,019   $  2,783,459       $  519,874       $  3,303,333  

Net Loss

                        $  (15,096,379 ) $  (15,096,379 )

Balance June 30, 2009

  870,419,882   $  8,704,197   $  (7,973 ) $  172,861,427   $  (186,791,817 ) $  (5,234,168 )

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

63


mPHASE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFECIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND EACH OF THE FOURTEEN YEARS IN THE PERIOD ENDED JUNE 30, 2011

 

    Common Stock           Additional             Total  
        $.01 Par     Treasury     Paid in     Accumulated     Shareholders  

 

  Shares     Value     Stock     Capital     Deficit     (Deficit)  

Balance June 30, 2009

  870,419,882   $  8,704,197   $  (7,973 ) $  172,861,427   $  (186,791,819 ) $  (5,234,168 )

Conversions of Convertible

                                   

Debentures plus accrued interest

  232,723,736     2,327,238     -     1,088,012     -     3,415,250  

Conversions of Accounts Payable

  26,666,667     266,667     -     (66,667     -     200,000  

Issuance of common stock in private placements net of offering cost ($25,000)

  30,666,667     306,667     -     (81,667     -     225,000  

Issuance of Common Stock for Services

  1,575,000     15,750         18,563         34,313  

Issuance of Common Stock for Reparations

  1,700,000     17,000         18,530         35,530  

Beneficial Conversion feature of Officers' Notes Payable and conversion of accounts payable

  -     -     -     669,276     -     669,276  

Cancellation of Capital Notes in Subsidiary issued in connection with equity

              175,820         175,820  

Net Loss for the Year Ended June 30, 2010

  -     -     -     -     (7,365,745     (7,365,745 )

Balance June 30, 2010

  1,163,751,952   $  11,637,519   $  (7,973 ) $  174,683,294   $  (194,157,564 ) $  (7,844,724 )

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

64


mPHASE TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 1996)
TO JUNE 30, 1997 AND EACH OF THE FOURTEEN YEARS IN THE PERIOD ENDED JUNE 30, 2011

    Common Stock                          
                      Additional           Shareholders'  
          $ .01 Par     Treasury     Paid in     Accumulated     (Deficit)  
    Shares     Value     Stock     Capital     Deficit     Equity  

 

                                   

Balance July 1, 2010

  1,163,751,952   $  11,637,519   $  (7,973 ) $ 174,683,294   $  (194,157,564 ) $ (7,844,724 )

 

                                   

Conversions of Convertible Debentures plus accrued interest

  382,175,312     3,821,753         (1,474,857 )       2,346,896  

 

                                   

Issuance of Common Stock for Services

  15,075,000     150,750         (23,805 )       126,945  

 

                                   

Issuance of Common Stock to accredited investors in private placement, net of $29,500 fees

  67,500,000     675,000         (409,500 )       265,500  

 

                                   

Net Loss for the Year Ended June 30, 2011

                  (486,391 )   (486,391 )

 

                                   

Balance June 30, 2011

  1,628,502,264     16,285,022     (7,973 )   172,775,132   $  (194,643,955 )   (5,591,774 )

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

65


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

    Common Stock                                
                                        Shareholders'  
          $.01 Par     Treasury     Additional Paid in        Deferred     Accumulated     (Deficit)  
    Shares     Value     Stock     Capital     Compensation     Deficit     Equity  

Balance June 30, 2011

  1,628,502,264   $  16,285,022   $  (7,973 ) $  172,775,132   $  -   $  (194,643,955 ) $  (5,591,774 )

 

                                         

Conversions of Convertible Debentures plus accrued interest

  26,748,476     267,485     -     (155,279 )   -     -     112,206  

 

                                         

Issuance of Common Stock for Services

  1,035,000,000     10,350,000     -     (3,829,500 )   -     -     6,520,500  

 

                                         

Deferred stock compensation

  -     -     -     339,700     (339,700 )   -     -  

Beneficial Conversion feature of Notes Payable, including $2,320 on Officers' Notes Payable

              2,320             2,320  

Issuance of Common Stock to accredited investors in private placement, net of $8,000 fees

  20,000,000     200,000     -     (128,000 )       -     72,000  

 

                                         

Amortization of deferred stock compensation

  -     -     -     -     14,154     -     14,154  

 

                                         

Net Loss for the Three Months Ended September 30, 2011

  -     -     -     -     -     (6,179,222 )   (6,179,222 )

Balance September 30, 2011

  2,710,250,740   $  27,102,507   $  (7,973 ) $  169,004,373   $  (325,546 ) $  (200,823,177 ) $  (5,049,816 )

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

66


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

                2-Oct-96  
    Fiscal Year Ended     (Date of  

 

              Inception)  

 

  June 30,     June 30,     To June 30,  

 

  2010     2011     2011  

Cash Flow From Operating Activities:

                 

Net Income (Loss) From Continuing Operations

  ($7,365,745 )   ($730,887 )   ($50,100,142 )

Net Income (Loss) From Discontinued Operations

$  0   $  244,496     ($144,543,813 )

Adjustments to reconcile net loss to net cash used in operating activities:

                 

Depreciation and amortization

  37,356     23,130     7,460,786  

(Gain) loss on debt extinguishments

  (147,238 )   (257,911 )   (1,342,519 )

Non-cash charges relating to issuance of common stock, common stock options and warrants

  34,313     126,945     70,378,689  

Reparation charges

  35,530     -     8,264,264  

Derivative Value and Debt Discount charges

  2,961,939     (1,883,669 )   2,083,327  

Write off of Granita Inventory/ Sovereign Investment

        -     615,910  

Other non cash charges including amortization of deferred compensation and beneficial conversion interest expense

  669,276     -     2,712,901  

Changes in assets and liabilities:

                 

Accounts receivable

  (76,413 )   122,478     427,876  

Inventories

  (98,807 )   (3,725 )   (613,003 )

Prepaid expenses and Other current assets

  (55,071 )   173,465     45,819  

Other

              906,535  

Accounts payable, Accrued expenses, Deferred revenue

  256,441     412,144     8,978,468  

Due to/from related parties

                 

Microphase / Janifast//Lintel

  (17,114 )   8,028     5,500,801  

Officers and Other

  -     -     1,711,357  

Net cash used in operating activities

  ($3,765,533 )   ($1,765,506 )   ($87,512,744 )

Cash Flow from Investing Activities:

                 

Payments related to patents and licensing rights

  -     -     (450,780 )

Purchase of fixed assets

  (15,000 )   (5,933 )   (3,308,493 )

Investment in Sovereign

  -     -     (110,000 )

Net Cash (used) in investing activities

  ($15,000 )   ($5,933 )   (3,869,273 )

Cash Flow from Financing Activities:

                 

Proceeds from issuance of common stock, exercises of warrants, net of finder’s fees

  225,000     215,500     83,139,379  

Payment of short term notes & equipment loans

  (6,993 )   (10,254 )   (1,298,799 )

Advances from Microphase

  -     -     347,840  

Issuance of Convertible Debentures

  500,000     -     766,500  

Net Proceeds (Repayment) from notes payable related parties

  (595,175 )   (64,000 )   (424,659 )

Proceeds from the collection of Notes Receivable under securities purchase agreements

  3,786,000     1,403,500     8,339,500  

Sale of minority interest in Granita subsidiary

  -     -     514,000  

Net cash provided by financing activities

  3,908,832     1,544,746     91,383,761  

 

                 

Net increase (decrease) in cash

$  128,299     ($226,693 ) $  1,744  

CASH AND CASH EQUIVALENTS, beginning of period

$  100,138   $  228,437   $  0  

CASH AND CASH EQUIVALENTS, end of period

$  228,437   $  1,744     1,744  

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

67


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

                2-Oct-96  
    Three Months Ended     (Date of Inception)  
    September 30,     September 30,     To September 30,  
    2010     2011     2011  

Cash Flow From Operating Activities:

                 

Net Income (Loss) From Continuing Operations

$ 1,994,489     ($6,179,222 )   ($56,279,364 )

Net Income (Loss) From Disontinued Operations

$ 0   $ 0     ($144,543,813 )

Adjustments to reconcile net loss to net cash used in operating activities:

           

Depreciation and amortization

  6,786     4,176   $ 7,220,466  

(Gain) loss on debt extinguishments

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