Inserted below are excerpts from the previous annual report issued a year ago that pertain to the PDS business and audit. While the audited statement may contain an unqualified opinion as to the financial position of PDS on a given date, as it does in this instance, an audit will not necessarily reveal the 'whole story', at least in our special situation vis-a-vis the all-important commercialization agreement. An audit could easily render a clean opinion of the PDS records and financial position, but it would not automatically lead to an affirmation that one or more of the entities that are party to the commercialization agreement are indeed living up to the spirit of that agreement. So while PDS's records are audited and, in and of themselves may appear to be accurate, that does not at all mean the spirit of the commercialization agreement is being lived up to. Of potential interest though, you will note below from the Accountant's Report that an "audit of its [PDS] internal control over financial reporting" was NOT performed. I assume such decision was arrived at by a majority of the PDS management committee, but I obviously do not know for certain.

In the end, what concerns us all is whether our equitable share of the revenues and expenses of the licensing efforts with respect to the commercialization agreement are reflected in and through PDS. The greatest risk in my opinion, is whether MMP revenues are being artificially reduced in favor of higher non-MMP revenues that only accrue to TPL, and for which only they would benefit, and only their eyes would see. This notion is enhanced when we learn of TPL's principal meeting with a top executive of a potential infringer, as if to play Let's-Make-a-Deal on a package of licensing portfolios, with the potential for those license fees to be allocated any way that TPL/Alliance arranges them, and all prior to our guy being presented with just our amount for our MMP license. Similarly certain expenses could also be aggregated and allocated, packaged up, and submitted to PDS for reimbursement and it would be hard to refute their validity without knowing the greater context from which they arrived. This is my theorizing and opining of course, but as an accountant it is important to figure out how something unsavory could occur, and where the weak seams are that might allow for it. To me, the bigger risk is what you don't see, which is the potential for our license fees to be lower than they should be, as opposed to what you do see, which could be inflated cost-of-licensing fees and expenses.

Only by peeling back the cloak of cover on TPL's books, and engaging as witnesses those involved in negotiating the licesnse fee amounts/allocations, would one be able to discern and assemble a complete picture. But it is indeed a complete picture that we need in order to find out whether the commercialization agreement is being upheld faithfully by all parties. The audit of PDS is not the complete picture, because its purpose is limited and its intent is otherwise.

I might also add that I think the Notes to the PDS statements (see prior years' below) will likely have some significantly different wording this year; will watch for that later today.

Best

http://www.sec.gov/Archives/edgar/data/836564/000101968709002922/ptsc_10k-053109.htm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members

Phoenix Digital Solutions, LLC

We have audited the accompanying balance sheets of Phoenix Digital Solutions, LLC (the "Company") as of May 31, 2009 and 2008, and the related statements of income, members' equity and cash flows for each of the three years in the period ended May 31, 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 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 audits 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 audits 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 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 provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in all material respects, the financial position of Phoenix Digital Solutions, LLC as of May 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

/s/ KMJ Corbin & Company LLP

Costa Mesa, California

August 14, 2009

F-50

Phoenix Digital Solutions, LLC

Notes to Financial Statements

1. Organization and Business

Phoenix Digital Solutions, LLC (the “Company”) is a Delaware limited liability company organized on June 7, 2005. Through a commercialization agreement dated June 7, 2005, the Company holds the rights to certain patents of its members. The Company receives license fees from license agreements entered into between licensees and a member of the Company and distributes license fee proceeds to its members.

Liquidity Risks and Management’s Plans

During the years ended May 31, 2008 and 2009, the Company has experienced a decline in license revenues. At August 12, 2009, the Company’s cash and cash equivalents balance was $581,756. The ability of PDS to continue as a going concern is dependent on its ability to generate or obtain sufficient cash to meet its obligations on a timely basis. The Company will need to generate proceeds from new license agreements or obtain equity or debt financing to fund its planned operating expenses and working capital requirements for the foreseeable future. Currently, the Company has no commitments to obtain additional capital from sources outside of that which may be contributed by the members, and there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all.

Because of the uncertain nature of the negotiations that lead to license revenues, pending litigation with companies which the members believe have infringed on their patent portfolio, the possibility of legislative action regarding patent rights, petitions with the USPTO to re-examine certain of the patents, and the possible effect of new judicial interpretations of patent laws, there is no assurance that the Company will receive any future revenues from license agreements, or if it does, that such license revenues in the future will be consistent with amounts received in the past.

Management is currently in active discussion and negotiation with prospective licensees and believes it will be successful in generating new license agreements. In the event the Company is unable to successfully generate proceeds from license agreements at historical levels or obtain additional capital, it is unlikely that the Company will have sufficient cash flows and liquidity to finance its business operations as currently contemplated. Accordingly, in the event new financing is not obtained, the Company will likely reduce general and administrative expenses, including legal fees, litigation activity and other licensing costs, until it is able to obtain sufficient financing to do so."