GENERAL

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OUR OPERATIONS SHOULD BE READ IN CONJUNCTION WITH FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS REFLECTING OUR CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF EVENTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THESE FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE DISCUSSED UNDER BUSINESS- RISK FACTORS NOTED IN OUR FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2009 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

OVERVIEW

We provide Internet and mobile based products and services that are built upon patented content targeting and consumer centric content delivery technologies. Historically, we have packaged our technology within products and services that enable Internet television (IPTV), Internet radio broadcasting and advertising with the added ability to target, control and monetize interactive content, thus more effectively monetizing such content, enabling the delivery of intelligent relevant content direct to consumers on any Internet connected device.

With the appointment in April of Mark Severini as our new Chief Executive Officer and the Company's subsequent (July 14, 2009) acquisition of Augme Mobile, described below and in Note 3 ("Acquisition of New Aug, LLC") to the Consolidated Financial Statements, we have begun deploying our products, services and technology within the mobile advertising marketplace. This is part of our overall strategy to expand our ability to commercialize and monetize our technological assets within the advertising and marketing industries.

Augme Mobile, now operating as a fully integrated division of Modavox, offers a comprehensive Web-based marketing platform that is intended to provide marketers, brands and advertising agencies the ability to create, deliver, manage and track interactive marketing campaigns targeting mobile consumers (users of mobile phones and portable digital devices) through traditional print advertising channels. Augme Mobile's AD LIFE™ mobile marketing platform facilitates the delivery by advertisers and brands of relevant interactive mobile content. Augme Mobile's AD LIFE™ platform, along with the brand and channel relationships, will enhance our ability to create, promote and distribute unique mobile destinations with patented targeting capability. This presence in the mobile consumer market complements our current efforts with online targeting advertising, bringing together a comprehensive strategy that fully leverages our core technologies.

During the three months ended August 31, 2009, we provided our services through three operating divisions: Augme Mobile (described above), Network Broadcasting, and Interactive Products.

Through the Network Broadcasting division, Modavox has been producing global Internet Radio since 1997. BoomBox® Radio was the original Internet broadcasting offering that included targeted advertising and supported a 64 channel Internet Radio network. That was followed by a business operation shift from music to Internet Talk Radio that the Company began broadcasting in 2001 from www.voiceamerica.com. The Company's network operation has moved into video and our new BoomBox Video® platform has been combined with our BoomBox Radio® platform. This allows us to provide a turn-key solution for Modavox customers and Modavox powered destinations that are focused on delivering Internet Television and Internet Radio broadcasting solutions.

The Following Networks Are Currently Owned & Operated By Modavox:

MODAVOX O&O NETWORKS      INTERNET DESTINATION

VOICEAMERICA              http://www.modavox.com/voiceamerica/

VOICEAMERICA HEALTH &
WELLNESS                  http://www.health.voiceamerica.com/

VOICEAMERICA BUSINESS     http://www.modavox.com/VoiceAmericaBusiness/

VOICEAMERICA SPORTS       http://www.modavox.com/sports/

VOICEAMERICA GREEN
NETWORK                   http://www.voiceamerica.com/thegreentalknetwork/

SMALLCAP CONFIDENTIAL     http://www.modavox.com/smallcap/

BOOMBOX® COMEDY CHANNEL   http://www.wickedpissers.com

WORLD TALK RADIO          http://www.worldtalkradio.com

The 7th WAVE NETWORK      http://www.modavox.com/7thwavenetwork/

SAMPLE AFFILIATE NETWORKS INTERNET DESTINATION

UNITY FM - CHRISTIAN TALK
RADIO                     http://www.unity.fm

PRO BODY BUILDING WEEKLY  http://www.probodybuildingweekly.com/

POWERUP MOTORSPORTS
NETWORK                   http://va.radiopilot.net/voiceamerica/vchannel.aspx?cid=261

Each show produced by Modavox is one-hour in length, and broadcasts live commercial content between six to eight minutes allocated by each show. There is also visual real estate created by each new show with Modavox destination sites for banner, multimedia and interactive advertising sales. We create an archive that is available for On-Demand access and is indexed for contextual search and universally compatible playback. Each delivery of archived content is tracked and also distributes advertising inventory both audio, at the breaks in the Talk Radio content, and within the visual environment.

After the production costs have been recovered by a host, the Company typically receives 60% of the advertising revenue through host fees. Customers or third parties are provided incentives to develop advertising and sponsorship revenues and will work with the Company to maximize the yield.

Ecommerce host fee opportunities exist within shows marketing a product or service that is purchased over the Internet. Modavox receives a commission of the product or service's value upon conversion of a listener to an ecommerce customer.

The Network Broadcasting division has consistently accounted for a majority of the Company's revenues.

The Interactive Products division contains all of the non-network based broadcasting business and consists of two products; Modavox Enterprise™ Platform and Stream Syndicate™ Advertising Platform. The Modavox Enterprise™ Platform has been developed for Fortune 1,000 clientele in a series of packaged services and technology products created by the Company. Through the utilization of our BoomBox® Radio and BoomBox® Video products, the user may create and manage complete targeted Internet TV & Radio Networks, "Box Office" Pay-Per-View, and advanced E-Learning applications. The Modavox Enterprise™ Platform features exclusive targeting and customization technologies based upon our proprietary technology.

The proprietary targeted advertising platform developed for the BoomBox® Radio, BoomBox® Video, and Enterprise™ Platform Internet destinations has become a powerful stand-alone product when coupled with highly trafficked websites. Stream Syndicate™ has been deployed to deliver targeted advertising on Internet destinations operated by ABC O&O, NBC, CBS, Gannett, as well as several other leading Internet destination sites.

General

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company's significant accounting policies are disclosed in the Company's Annual Report on Form 10-K for the year ended February 28, 2009. The Company has not materially changed its significant accounting policies.

Accounting for Derivative Instruments

In June 2008, the FASB ratified EITF Issue 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock" ("EITF 07-5"). Paragraph 11(a) of Statement of Financial Accounting Standard No 133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133") specifies that a contract that would otherwise meet the definition of a derivative, but is both
(a) indexed to its own stock and (b) classified in stockholders' equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock, including evaluating the instrument's contingent exercise and settlement provisions, and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. It also clarifies the impact of foreign-currency-denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 will be effective for the first annual reporting period beginning after December 15, 2008, and early adoption is prohibited. Initially, Modavox evaluated all of its financial instruments and determined that the warrants associated with tow July 2004 financings qualified for treatment under EITF 07-5 and adjusted its financial statements to reflect the adoption of the EITF 07-5 as of March 1, 2009. The fair value of these warrants were reclassified as of March 1, 2009 in the amount of $536,449 from additional paid in capital to derivative liability and the cumulative effect of the change in accounting principle in the amount of $467,651 was recognized as an adjustment to the opening balance of retained earnings. During the six months ended August 31, 2009, 198,534of these warrants were exercised for common stock, which resulted in a loss since March 1, 2009 on these warrants of $273,526 and a reduction of the derivative liability of $551,770 as of the settlement date. The impact of EITF 07-5 for the year to date period ending August 31, 2009 for the remaining 183,825 warrants resulted in an increase in the derivative liability of $274,926 with a corresponding loss on derivative instruments.

Measuring Fair Value

In September 2006, the FASB issued SFAS 157 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 were effective January 1, 2008. The FASB has also issued Staff Position (FSP) SFAS 157-2 (FSP No. 157-2), which delays the effective date of SFAS 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008.

As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy defined by SFAS 157 are as follows:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

Results of Operations

The discussion of the results of operations compares the quarter ended August 31, 2009 with the quarter ended August 31, 2008, and is not necessarily indicative of the result which may be expected for any subsequent period. Our prospects should be considered in light of the risks, expenses and difficulties encountered by companies in similar positions. We may not be successful in addressing these risks and difficulties.

Three Months Ended August 31, 2009 vs. 2008

For the quarter ended August 31, 2009, revenues were $711,365 compared to $985,826 for the quarter ended August 31, 2008, a decrease of 28%. The decrease in overall revenues is partially due to the current economic environment and the refocusing of our products within the Interactive Products division. Revenues for the quarter ended August 31, 2009 included $24,089 from the Interactive Products Division compared to $322,277 for the quarter ended August 31, 2008, and $671,756 from the Network Broadcasting Division compared to 475,940 for the quarter ending August 31, 2008. We also recorded revenues of $15,520 from the Augme division, which was a result of the July 14, 2009 acquisition of New Aug, LLC.

Production and service delivery costs were $255,593 for the August 31, 2009 quarter compared to $154,613 for the quarter ended August 31, 2008 reflecting higher overall costs related to telecommunications and the cost of hosting our content as well as higher personnel costs associated with increased staffing and compensation levels.

Selling, general, and administrative expenses were $1,579,734 for the quarter ended August 31, 2009 compared with $939,426 for the quarter ended August 31, 2008, an increase of 68%. The increased expenses primarily consisted of; approximately $193,000 of increased noncash stock option expense, approximately $69,000 due to increased staffing and employee benefits and outside contracting costs associated with an increased level of product development, approximately $264,000 related to increased staffing and compensation levels in sales and general management, and approximately $114,000 of overall increased other expenses, including investor relations, accounting, bad debt expense, consulting fees and various other expenses. Approximately $337,000 of the total selling, general, and administrative expenses for the quarter ended August 31, 2009, were noncash in nature and consisted of the fair value accounting for stock options and certain expenses that were paid with shares of common stock of the Company.

Depreciation and amortization expense was $289,044 for the quarter ended August 31, 2009 compared with $216,928 in the quarter ended August 31, 2008. Amortization expense increased to $203,438 for the quarter ended August 31, 2009 compared to $144,102 for the quarter ended August 31, 2008. Depreciation expense for the quarter ended August 31, 2009 increased to $85,606 compared to $72,826 for the quarter ended August 31, 2008. The increase in depreciation and amortization relates to the increased capitalization of internal software and for the accounting related to the New Aug, LLC, WorldTalk Radio, and Kino Interactive acquisitions.

Interest expense was $574 for the three months ended August 31, 2009 vs. interest income of $2,951 for the quarter ended August 31, 2008.

Gain (loss) on derivative instruments was a loss of $63,682 for the three months ended August 31, 2009. This loss is non-cash in nature and is a result of the realized loss on the settlement of derivative liabilities during the quarter and the net unrealized change in the fair value of our derivative instrument liabilities related to warrants associated with a July 2004 financing which has been accounted for under EITF 07-5.

During the quarter ended August 31, 2009, the Company incurred a net loss of $1,477,262 compared to a net loss of $322,190 in the prior year quarter. The $1,155,072 increase in the net loss is a result of decreased revenues and the increased expenses, including non-cash expenses, as described above.

For the six months ended August 31, 2009, revenues were $1,232,690 compared to $1,846,461 for the six months ended August 31, 2008, a decrease of 33%. The decrease in overall revenues is partially due to the current economic environment and the refocusing of our products within the Interactive Products division. Revenues for the six months ended August 31, 2009 included $69,474 from the Interactive Products Division compared to $453,481 for the six months ended August 31, 2008, and $1,147,966 from the Network Broadcasting Division compared to 1,392,980 for the six months ended August 31, 2008. We also recorded revenues of $15,520 from the Augme division during the six months ended August 31, 2009, which was a result of the July 14, 2009 acquisition of New Aug, LLC.

Production and service delivery costs were $441,621 for the six months ended August 31, 2009 compared to $323,380 during the six months ended August 31, 2008 reflecting higher overall costs related to telecommunications and the cost of hosting our content as well as higher personnel costs associated with increased staffing and compensation levels.

Selling, general, and administrative expenses were $2,936,839 for the six months ended August 31, 2009 compared with $1,776,155 for the six months ended August 31, 2008, an increase of $1,160,684, or 65%. The increased expenses primarily consisted of; approximately $367,000 of increased noncash stock option expense, approximately $115,000 due to increased staffing and employee benefits and outside contracting costs associated with an increased level of product development, approximately $318,000 related to increased staffing and compensation levels in sales and general management, and approximately $361,000 net increase in professional fees related to investor relations, accounting, legal, and other consulting fees and other expenses. Approximately $844,000 of the total selling, general, and administrative expenses for the six months ended August 31, 2009, were noncash in nature and consisted of the fair value accounting for stock options and certain expenses that were paid with shares of common stock of the Company.

Depreciation and amortization expense was $526,170 for the six months ended August 31, 2009 compared with $403,135 in the comparable 2008 period. Amortization expense increased to $356,750 for the six months ended August 31, 2009 compared to $272,232 for the comparable 2008 period. Depreciation expense for the six months ended August 31, 2009 increased to $169,420 compared to $130,903 for the six months ended August 31, 2008. The increase in depreciation and amortization relates to the increased capitalization of internal software and for the accounting related to the New Aug, LLC; WorldTalk Radio; and Kino Interactive acquisitions.

Interest expense was $390 for the six months ended August 31, 2009 vs. interest income of $6,876 for the six months ended August 31, 2008.

Gain (loss) on derivative instruments was a loss of $548,452 for the six months ended August 31, 2009. This loss is non-cash in nature and is a result of the realized loss on the settlement of derivative liabilities during the six months ended August 31, 2009 and the net unrealized change in the fair value of our derivative instrument liabilities related to warrants associated with a July 2004 financing which has been accounted for under EITF 07-5.

During the six months ended August 31, 2009, the Company incurred a net loss of $3,220,782 compared to a net loss of $649,332 in the comparable prior year period. The $2,571,450 increase in the net loss is a result of decreased revenues and the increased expenses, including non-cash expenses, as described above.

During the quarter six months ended August 31, 2009, we raised $2,035,575 of capital through the sale of shares of common stock and the issuance of common stock in connection with the exercise of options and warrants by the holders of those securities.

Working capital, which is defined as current assets less current liabilities, decreased by $5,483 from a working capital deficit of $1,307,954 as of August 31, 2009 compared to a working capital deficit of $1,302,471 as of February 28, 2009. In addition to cash receipts from accounts receivable, we have funded our working capital deficit through periodic sales of the Company's stock and through the proceeds from the exercise of warrants and stock options.

As of August 31, 2009, we had a cash balance of $535,997 and we used cash of $1,382,414 to fund our operating activities during the six months ended August 31, 2009. We do not believe that our current liquidity is adequate to fund our current operations and we will need to raise additional funds from the sale of shares of our common stock. Due to the sustained and substantial progress in the procurement of the necessary funding required to meet our operating and overall corporate expenditures, and the resolution of multiple cost intensive legacy legal related matters, we believe that we will have enough cash flow from operations and financing activities to support our business for the next twelve months. We have had substantive discussions with existing warrant holders and/or prospective financing sources, which leads us to believe that we will have the capital necessary to not only maintain current operations, but also to develop and implement a growth strategy in our core businesses and ensure a vigorous effort in protecting our intellectual property. However, current market conditions for raising capital are difficult and volatile, and no assurances can be made that we will be successful in raising additional financing on terms that are acceptable to the Company or at all.

Forward Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by management. Words such as "anticipate," "expect," "intend", "plans," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and actual actions or results may differ materially. These statements are subject to certain risks, uncertainties and assumptions that are difficult to predict, including those noted in the documents incorporated herein by reference. Particular attention should also be paid to the cautionary language appearing elsewhere in this report. We undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise, unless required by law. Readers should, however, carefully review the risk factors included in other reports or documents we file from time to time with the Securities and Exchange Commission, including in our Annual Report Form 10-K for our fiscal year ended February 28, 2009.