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 by September 30, 2009 we had licensed and settled the litigation with seven of the defendants and suspended the complaint against one defendant currently in bankruptcy. Subsequent to September 30, 2009 we filed a new patent infringement complaint against nineteen additional companies that manufacture devices using flash memory.

We believe the successful licensing of all seven active manufacturers from our first round of patent enforcement actions evidences strength of our fundamental intellectual property. And while we expect additional patent license revenues from the manufacturers in the new complaint and from others in future periods there can be no assurance of the timing or amounts of any related license revenue. A number of factors, many outside our control, affect the amount of each licensing arrangement and the timing of when parties elect to license our intellectual property. These factors include the number and nature of infringing products, estimates of past and future infringement, importance of the infringing technology to the total product, the legal environment surrounding a particular case, estimates of the cost, time and complexity of litigation through trial and possible appeals as well as other factors.

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 future patent licenses. We seek to expand and diversify our customer base both in the in-flight entertainment ("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 six months ended September 30, 2009 we recognized a net loss before income taxes of $14,440 compared to a net loss before income taxes of $434,040 for the comparable period of the prior fiscal year. Our revenues were $1.74 million for the first six months of fiscal 2010 compared to $2.15 million for the prior year's first six months. In the prior year's second quarter we recognized our first patent license revenue of $1.6 million and in our most recent second quarter we recognized $1.25 million of patent license revenue. We are in the early stages of licensing our patents and while we expect additional patent licenses in future periods there can be no assurance of the timing or amounts of any such license revenue. We reported reduced operating expenses of $1,033,743 in the six months ended September 30, 2009 compared to $1,442,142 in the comparable period prior primarily due to reduced staffing and reduced legal fees.

We expect our operating costs to be lower for the balance of fiscal 2010 compared to the prior year. Our monthly cash operating costs average approximately $150,000 per month, excluding litigation costs that should now decline substantially due to the favorable conclusion of business litigation (see Part II - Item 1 - Legal Proceedings below). 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 September 30, 2009 compared to the three months ended
September 30, 2008
                                          Three Months Ended September 30,
                                 2009                           2008
                                                % of                           % of                 Change
                                Dollars        Revenue         Dollars        Revenue        Dollars          %
Revenues:
Products                           43,440             3 %          1,683             0 %        41,757         2481 %
Services                          218,827            14 %        172,747            10 %        46,080           27 %
Patent license                  1,250,000            83 %      1,600,000            90 %      (350,000 )        (22 )%
                                1,512,267           100 %      1,774,430           100 %      (262,163 )        (15 )%
Gross Profit:
Product gross profit               15,651             1 %        (12,292 )          (1 )%       27,943         (227 )%
Service gross profit              113,993             8 %        130,725             7 %       (16,732 )        (13 )%
Patent license                    807,000            53 %      1,038,674            59 %      (231,674 )        (22 )%
                                  936,644            62 %      1,157,107            65 %      (220,463 )        (19 )%
Operating Expenses:
Selling and administrative        250,741            17 %        627,497            35 %      (376,756 )        (60 )%
Research and related              126,749             8 %        129,099             8 %        (2,350 )         (2 )%
                                  377,490            25 %        756,596            43 %      (379,106 )        (50 )%
Other expenses                     (4,518 )          (0 )%      (165,344 )          (9 )%      160,826          (97 )%
Income before provision for
income taxes                      554,636            37 %        235,167            13 %       319,469          136 %

Income before provision for income taxes We reported income before income taxes of $554,636 for the three months ended September 30, 2009 compared to net income before income taxes of $235,167 for the comparable period of the prior year. The $319,469 improvement was the result of reduced operating and other expenses that more than offset a slight decline in revenues and related gross profit.

Revenues
Revenues of $1,512,267 in the second quarter of fiscal 2010 compared to $1,774,430 for the comparable prior period. Our most recent quarter's revenues included $1,250,000 of one-time non-recurring patent license revenue compared to $1,600,000 in the prior comparable quarter. Our most recent quarter's revenues also included $43,440 of eVU product and $218,827 of service revenues. We recently filed a complaint against nineteen additional electronic manufacturers, and while we expect additional patent licenses from these and other companies in future periods, there can be no assurance of the timing or amounts of any future license revenue. 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 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 and the timing and amount of any patent licensing arrangements.

Gross Profit
Gross profit for the second quarter of fiscal 2010 was $936,644 or 62% of revenues. The gross profit for the prior year's second quarter was $1,157,107 or 65% of revenues. 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 September 30, 2009, were $250,741 compared to $627,497 for the second quarter of the prior year. The significant $376,756 decrease included $42,700 of reduced staffing costs due to fewer personnel, a $72,000 reduction in shareholder related costs due do the timing of this year's annual meeting scheduled in the third quarter of the current year rather than the second quarter and $265,500 of reduced professional fees primarily due to reduced business litigation costs and the effect of a $100,000 reversal of a legal accrual related to such litigation as a result of the favorable litigation outcome. While we expect to incur costs related to our annual shareholder meeting in the third quarter of this fiscal year, we do not expect them to be as high as the prior year's second quarter costs primarily due to reduced mailing costs. We expect professional fees in the third and fourth quarter to be less than the prior year due to the conclusion of the business litigation.

Research and related expenditures for the three months ended September 30, 2009 were comparable to the prior year's second quarter.

Other Income (Expenses)
Net other expenses of $4,518 for the second quarter of fiscal 2010 included $5,787 of noncash interest expense offset by a foreign exchange gain of $1,269. Net other expenses for the second quarter of the prior year of $165,344 included a non-cash financing expense of $177,125 related to a charge for warrant modification, a non-cash $53,217 gain from warrant derivative revaluation reduced by $42,114 of interest expense including $15,471 of non-cash interest.

Provision for Income Taxes
Income tax expense of $206,250 consists of foreign taxes payable on patent license revenue.

Income Attributable to Common Stockholders The income attributable to common stockholders for the most recent second quarter included the net income after taxes of $348,386 reduced by accrued and deemed dividends on Series AA Stock of $55,888 for a net income attributable to common stockholders of $292,498. The net loss after tax for the prior comparable second quarter was $28,833 increased by accrued and deemed dividends of $43,283 for a net loss attributable to common stockholders of $72,116.

Six months ended September 30, 2009 compared to the six months ended September

30, 2008

                                           Six Months Ended September 30,
                                 2009                           2008
                                                % of                           % of                 Change
                                Dollars        Revenue         Dollars        Revenue        Dollars          %
Revenues:
Product revenues                   57,515             3 %        235,981            11 %      (178,466 )        (76 )%
Service revenues                  427,782            25 %        316,176            15 %       111,606           35 %
Patent license                  1,250,000            72 %      1,600,000            74 %      (350,000 )        (22 )%
                                1,735,297           100 %      2,152,157           100 %      (416,860 )        (19 )%
Gross Profit:
Product gross profit              (19,278 )          (1 )%        28,522             1 %       (47,800 )       (168 )%
Service gross profit              250,974            14 %        203,968            10 %        47,006           23 %
Patent license gross profit       807,000            47 %      1,038,674            48 %      (231,674 )        (22 )%
                                1,038,696            60 %      1,271,164            59 %      (232,468 )        (18 )%
Operating Expenses:
Selling and administrative        827,413            48 %      1,166,392            54 %      (338,979 )        (29 )%
Research and related              206,330            12 %        275,750            13 %       (69,420 )        (25 )%
                                1,033,743            60 %      1,442,142            67 %      (408,399 )        (28 )%
Other income (expenses)           (19,393 )          (1 )%      (263,062 )         (12 )%      243,669          (93 )%
Loss before income taxes          (14,440 )          (1 )%      (434,040 )         (20 )%      419,600          (97 )%

Loss before income taxes
We showed a loss before income taxes of $14,440 for the six months ended September 30, 2009 compared to a loss before income taxes of $434,040 for the comparable period of the prior year. The $419,600 improvement was primarily attributable to reduced operating and other expenses.

Revenues
Revenues of $1,735,297 for the first six months of fiscal 2009 compared to $2,152,157 for the same period of the prior year. The 19% reduction in revenues included reduced product revenues and patent license revenues and increased service revenues. Fiscal 2010 six-month revenues included eVU products and service revenue of $485,297 and patent license revenue of $1,250,000. We recently filed a complaint against nineteen additional electronic manufacturers, and while we expect additional patent licenses from these and other companies in future periods, there can be no assurance of the timing or amounts of any future license revenue. 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 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 and the timing and amount of any patent licensing arrangements.

Gross Profit
Gross profit for the first six months of fiscal 2010 was $1,038,696 or 60% of revenues. The gross profit for the prior year's first six months was $1,271,164 or 59% of revenues. The amount and percentage of gross profit margins are highly dependent on revenue mix, prices charged, volume of orders and costs.

Operating Expenses
Selling and administrative costs for the six months ended September 30, 2009, were $827,413 compared to $1,166,392 for the first six months of fiscal 2008. The $338,979 decrease included $119,000 of reduced staffing costs due to fewer personnel, a $72,000 reduction in shareholder related costs due do the timing of this year's annual meeting scheduled for the third quarter rather than the second quarter and $105,000 of reduced professional fees primarily due to reduced business litigation costs and a $100,000 reversal of a legal accrual related to such litigation as a result of the favorable litigation outcome. While we expect to incur costs related to our annual shareholder meeting in the third quarter of this fiscal year, we do not expect them to be as high as the prior year's second quarter costs primarily due to reduced mailing costs.

Research and related expenditures for the six months ended September 30, 2009 were $206,330, compared to $275,750 for the six months ended September 30, 2008. The decrease included $31,000 primarily from reduced staffing and $38,000 from reduced outside engineering services due to reduced internally funded research projects.

Other Income (Expenses)
Net other expenses of $19,393 for the six months ended September 30, 2009 included interest expense of $15,834 (including $15,806 of noncash interest expense) and foreign exchange loss of $1,059. Net other expense was $263,062 for the six months ended September 30, 2008 included a non-cash financing expense of $177,125 related to a charge for warrant modification and $90,708 of interest expense including $43,815 of non-cash interest.

Provision for Income Taxes
Income tax expense of $206,250 consists of foreign taxes payable on patent license revenue.

Loss Attributable to Common Stockholders The loss attributable to common stockholders for the six months ended September 30, 2009 included the loss after taxes of $220,690 reduced by accrued and deemed dividends on Series AA Stock of $98,701 or a net loss of $319,391. The loss attributable to common stockholders for the prior comparable six months included the loss after taxes of $698,040 reduced by accrued and deemed dividends on convertible preferred stock of $44,694 or a net loss of $742,734.

Liquidity and Capital Resources
At September 30, 2009, we had working capital of $3,360,263 compared to a working capital of $3,277,225 at March 31, 2009. At September 30, 2009 we had cash on hand of $2,616,717.

Operating Activities
Cash used in operating activities was $1,197,273 for the six months ended September 30, 2009. Cash used in operating activities included the net loss of $220,690 reduced by net non-cash expenses of $52,000. Major components also providing operating cash was an increase of $48,750 in accrued foreign income taxes and $306,470 in accrued and other liabilities that included a $408,000 increase in accrued legal and professional fees offset by a $100,000 reduction in an accrual for litigation. Major components using operating cash included an increase of $1,342,942 in accounts receivable.

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 six months ended September 30, 2008 was $1,149,177 resulting from the $698,040 net loss reduced by net non-cash expenses of $225,209. Major components providing operating cash was an increase of $794,356 in accounts payable and $264,000 in accrued income taxes payable. Major components using operating cash included an increase of $1,584,784 in accounts receivable.

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 six months ended September 30, 2009 we had no financing activities. For the six months ended September 30, 2008, cash provided by financing activities was $1,164,401. This included $500,000 from the sale of common stock and $700,000 cash from the sale of Series AA Stock. We reduced our secured note balance by $50,000, reduced our term note balance by $25,599 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 $97,258. 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 $98,165 with the October payment of $50,000 paid in shares of common stock rather than cash.

At September 30, 2009 we were committed to approximately $106,000 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 September 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.