THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING, "BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2009.

Cautionary Note on Forward Looking Statements

In addition to the other information in this report, the factors listed below should be considered in evaluating our business and prospects. This report contains a number of forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below and elsewhere herein, that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates," "believes," "expects," "intends," "future" and similar expressions identify forward-looking statements. Readers are cautioned to consider the specific factors described below and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof.

General
We are a holding company incorporated under the laws of Delaware that operates through a wholly-owned California subsidiary of the same name. We have innovated a proprietary secure digital video/audio technology platform ("DVAP") and market our eVU™ mobile entertainment device for the travel and recreational industries. We also own and are licensing our Flash-R™ portfolio of patents related to the use of flash memory in portable devices.

Our strategy is to market our eVU products and services to a growing base of U.S. and international companies for use in the airline, healthcare, and other travel and leisure industries. We employ direct sales and sales through value added resellers (VARs) that provide marketing, logistic and/or content services to corporate customers.

We are commercializing our Flash-R patent portfolio through licensing and we are aggressively pursuing enforcement by litigating against targeted parties who we believe may be infringing our patents. The international law firm of Duane Morris LLP is handling our patent enforcement matters on a contingent fee basis. In September 2007 and March 2008 we filed a first tranche of patent infringement litigation against eight defendants. In September 2008 we recorded our first patent license revenue and recognized additional license revenue through the fiscal year ended March 31, 2009. We recognized no patent revenue in the first quarter ended June 30, 2009. We anticipate bringing additional patent enforcement actions in the current fiscal year and while we expect additional patent licenses in future periods there can be no assurance of the timing or amounts of any related license revenue.

Our business is high risk in nature. There can be no assurance we can achieve sufficient eVU or patent license revenues to sustain profitability. We continue to be subject to the risks normally associated with any new business activity, including unforeseeable expenses, delays and complications. Accordingly, there is no guarantee that we can or will report operating profits in future periods.

Overall Performance and Trends
Until the fiscal year ended March 31, 2009 (fiscal 2009), we incurred significant losses and negative cash flow from operations. Our fiscal 2009 profitability resulted from one-time patent licensing revenues and there is no assurance of future licensing revenues from new licensees. Accordingly, we could incur losses in the future until product, service and/or licensing revenues are sufficient to sustain continued profitability. Our ability to continue as a going concern is in doubt and is dependent upon achieving a profitable level of operations and if necessary obtaining additional financing.

eVU sales activity has been slow due to airline industry economics and industry credit concerns resulting in airlines curtailing expansion and new projects. We are aggressively pursuing new business but our results will be dependent on the timing and quantity of eVU orders and any additional patent licenses. We seek to expand and diversify our customer base both in the IFE space and other markets. The failure to obtain additional patent license revenues or eVU orders or delays of orders or production delays could have a material adverse impact on our operations.

For the three months ended June 30, 2009 we recognized a net loss of $569,076 compared to a net loss of $669,207 for the comparable period of the prior fiscal year. Our revenues were $223,030 for the first three months of fiscal 2010 compared to $377,727 for the prior year's first three months. We recognized no patent license revenue in either period. We reported reduced operating expenses of $656,253 in the first quarter compared to $685,546 in the comparable period prior in spite of an increase of $157,000 in legal fees primarily related to litigation.

Exclusive of litigation costs our monthly cash operating costs average approximately $150,000 per month. However, we may increase expenditure levels in future periods to support and expand our revenue opportunities and continue advanced product and technology research and development.

Critical Accounting Policies
We have identified a number of accounting policies as critical to our business operations and the understanding of our results of operations. These are described in our consolidated financial statements located in Item 1 of Part I, "Financial Statements," and in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report of Form 10-K for the year ended March 31, 2009. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.

The methods, estimates and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the United States, have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations

Three months ended June 30, 2009 compared to the three months ended June 30,
2008

                                      Three Months Ended June 30,
                           2009                           2008
                                          % of                           % of                  Change
                         Dollars        Revenue         Dollars        Revenue         Dollars           %
Revenues:
Products                    14,075              6 %       234,298             62 %      (220,223 )         (94 )%
Services                   208,955             94 %       143,429             38 %        65,526            46 %
Patent license                   -              0 %             -              0 %             -
                           223,030            100 %       377,727            100 %      (154,697 )         (41 )%
Gross Profit:
Product gross profit       (34,929 )          (16 )%       40,814             11 %       (75,743 )        (186 )%
Service gross profit       136,981             61 %        73,243             19 %        63,738            87 %
Patent license                   -              0 %             -              0 %             -
                           102,052             46 %       114,057             30 %       (12,005 )         (11 )%
Operating Expenses:
Selling and
administrative             576,672            259 %       538,895            143 %        37,777             7 %
Research and related        79,581             36 %       146,651             39 %       (67,070 )         (46 )%
                           656,253            294 %       685,546            181 %       (29,293 )          (4 )%
Other expenses             (14,875 )           (7 )%      (97,718 )          (26 )%       82,843           (85 )%

Loss before provision
for income taxes          (569,076 )         (255 )%     (669,207 )         (177 )%      100,131           (15 )%

Loss before provision for income taxes
We reported a net loss before income taxes of $569,076 for the three months ended June 30, 2009 compared to a net loss of $669,207 for the comparable period of the prior year. The $100,131 improvement was the result of reduced operating and other expenses that offset a decline in eVU product and service revenues and related gross profit.

Revenues
Revenues of $223,030 in the first quarter of fiscal 2010 compared to $377,727 for the comparable prior period. The revenue mix was significantly different each period. During the prior year's first quarter revenues consisted of $234,298 from selling eVU players and related equipment for use by airline customers and $143,429 from service revenues for content and support services. Recent eVU product sales activity has been slow due to airline industry economics and industry credit concerns resulting in airlines curtailing expansion and new projects. Our most recent quarter's revenues consisted of $14,075 of eVU product and $208,955 of service revenues. Our service revenues have grown as result of prior year customer additions but as service arrangements and terms vary with each customer there is no assurance in the current airline environment that our service revenues will continue at comparable levels for the balance of the fiscal year. We are pursuing new business but our results will continue to be dependent on the timing and quantity of eVU orders or the timing of any patent licensing arrangements.

Gross Profit
Gross profit for the first quarter of fiscal 2010 was $102,052 or 46% of revenues. The gross profit for the prior year's first quarter was $114,057 or 30% of revenues. The improved gross profit percentage resulted from higher margin service revenues partially offset by a loss on very limited product revenues due to related overhead absorption. Gross profit margins are highly dependent on revenue mix, prices charged, volume of orders, and for patent licensing the amounts of contingency legal fees and costs.

Operating Expenses
Selling and administrative costs for the three months ended June 30, 2009, were $576,672 compared to $538,895 for the first quarter of the prior year. While most cost categories were comparable we have experienced an increase in litigation related legal expenses of $157,000, offset by a $78,000 reduction in staffing costs due to reduced personnel.

Research and related expenditures for the three months ended June 30, 2009 were $79,581, compared to $146,651 for the three months ended June 30, 2008. The decrease resulted from reduced personnel costs of $48,000 and outside engineering costs of $15,000.

Other Income (Expenses)
Net other expenses of $14,875 for the first quarter of fiscal 2010 included $10,047 of interest expense ($10,019 of noncash interest). Net other expenses for the first quarter of the prior year of $97,718 included other income of $5,055 primarily from foreign exchange gains and other expenses including interest of $48,594 ($28,344 was non-cash interest) and $50,759 from revaluation of a warrant derivative liability.

Provision for Income Taxes
There was no income tax provision or benefit for the first quarter of fiscal 2010 or 2009 due to net losses.

Loss Attributable to Common Stockholders The loss attributable to common stockholders for the most recent first quarter included the net loss after taxes of $569,076 increased by accrued and deemed dividends on convertible preferred stock of $42,813 or a net loss attributable to common stockholders of $611,889. The net loss after tax for the prior comparable first quarter was $669,207 increased by accrued and deemed dividends of $1,411 for a net loss attributable to common stockholders of $670,618.

Liquidity and Capital Resources
At June 30, 2009, we had working capital of $2,858,951 compared to a working capital of $3,277,225 at March 31, 2009. At June 30, 2009 we had cash on hand of $3,073,779.

Operating Activities
Cash used in operating activities was $740,211 for the three months ended June 30, 2009. Cash used in operating activities included the net loss of $569,076 reduced by net non-cash expenses of $38,693. Major components also providing operating cash was an increase of $153,920 in accounts payable. Major components using operating cash included an increase of $124,768 in accounts receivable and a $193,080 reduction in accrued and other liabilities. This reduction included payment of $157,500 accrued at March 31, 2009 for California state income taxes due to the suspension of state NOLs.

Our terms to customers vary but we often require payment prior to shipment of product and any such payments are recorded as deposits. Patent license payments are normally due at signing of the license or within 30-45 days.

Cash used in operating activities during the three months ended June 30, 2008 was $334,302 resulting from the $669,207 net loss offset by a $284,327 increase in accounts payable. Individual working capital components can change dramatically from period to period due to timing of sales and shipments and corresponding receivable, inventory and payable balances. Accordingly operating cash requirements vary significantly from period to period.

Investing Activities
The Company's efforts are primarily on operations and currently we have no significant investing capital needs. We have no commitments requiring investment capital.

Financing Activities
For the three months ended June 30, 2009 we had no financing activities. For the three months ended June 30, 2008, cash provided by financing activities was $1,030,000. This included $340,000 from the sale of common stock and $700,000 cash from the sale of preferred stock. We reduced our secured note balance by $50,000 and obtained $40,000 in July 2008 from a new one-year note.

Debt and Other Commitments
We currently have unsecured convertible term debt with a principal amount of $243,601. Our plans are to make future principal and interest payments with shares of common stock, subject to maintaining the $0.10 minimum share price and other covenants of the term loan. Aggregate principal and interest payments due to mature in November 2009 are $248,165 with the July and August 2009 payments of $50,000 each paid in shares of common stock rather than cash.

At June 30, 2009 we were committed to approximately $158,000 as purchase commitments for product and components. These orders are generally subject to modification as to timing, quantities and scheduling and in certain instances may be cancelable without penalty.

We are also committed for our office lease as more fully described in our interim consolidated financial statements.

Our legal firm Duane Morris is handling Patent Enforcement Matters and certain related appeals on our Flash-R patent portfolio on a contingent fee basis. Duane Morris also has agreed to advance certain costs and expenses including travel expenses, court costs and expert fees. We have agreed to pay Duane Morris a fee equal to 40% of any license or litigation recovery related to Patent Enforcement Matters, after recovery of expenses, and 50% of recovery if appeal is necessary.

In the event we are acquired or sold or elect to sell the covered patents or upon certain other corporate events or in the event we terminate the agreement for any reason, then Duane Morris shall be entitled to collect accrued costs and a fee equal to three times overall time and expenses accrued in connection with the agreement and a fee of 15% of a good faith estimate of the overall value of the covered patents. Duane Morris has a lien and a security interest in the covered patents to secure its obligations under the agreement.

Cash Requirements
Other than cash on hand and accounts receivable, we have no material unused sources of liquidity at this time. Based on our cash position at June 30, 2009 and (a) current planned expenditures and level of operation, and (b) no cash debt service (assuming convertible term debt payments are made in shares of common stock) we believe we have sufficient capital resources for the next twelve months. Actual results could differ significantly from management plans. We believe we may be able to obtain additional funds from future patent licensing and eVU product sales and services but the timing of licenses and shipments and the amount and quantities of shipments, orders and reorders are subject to many factors and risks, many outside our control.

Since we have not demonstrated sustainable profitability, our company's ability to continue as a going concern is in doubt and is dependent upon achieving sustained profitability and if necessary obtaining additional financing. We currently have no plans, arrangements or understandings regarding any acquisitions.