Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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, 2008.

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 prospectus 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 our 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 revenue is derived from the sale of DVAP products and accessories to customers, warranty and technical support services and content fees and related services. We also obtain patent license revenue from our Flash-R patent portfolio.

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

We are commercializing our Flash-R patent portfolio through licensing and we are aggressively pursuing enforcement by litigating against those who may be infringing our patents. Our international legal firm Duane Morris LLP is handling our patent enforcement matters on a contingent fee basis. In September 2007 and March 2008 we filed our first tranche of patent infringement litigation against eight defendants. In September 2008 we recorded initial patent license revenue from a settlement with one of the defendants. We expect additional patent license revenues in future periods.

Our business is high risk in nature. There can be no assurance we can achieve sufficient eVU or patent license revenues to become profitable. 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 the future.

Overall Performance and Trends
We have incurred significant operating losses and negative cash flow from operations in the current six-month period and in each of the last three fiscal years and these losses have been material. We have an accumulated deficit of $82.8 million and a working capital deficit of $707,573 at September 30, 2008. Our operating plans may require additional funds that may take the form of debt or equity financings. There can be no assurance that any additional funds will be available to our company on satisfactory terms and conditions, if at all. Our company's ability to continue as a going concern is in doubt and is dependent upon obtaining additional financing or achieving a profitable level of operations.

Management has undertaken steps as part of a plan to improve operations with the goal of sustaining operations for the next twelve months and beyond. These steps include (a) monetizing our Flash-R patent portfolio through licensing and enforcement; (b) expanding product sales and marketing to new customers and new markets; (c) controlling overhead and expenses; and (d) raising additional capital and/or obtaining financing.

For the three and six months ended September 30, 2008:

? We recognized net income before income taxes of $235,167 for the second fiscal quarter ended September 30, 2008. This was before income tax expense of $264,000 for foreign taxes. This resulted primarily from our first patent licensing revenue in September 2008.

? We obtained $750,000 from the sale of convertible preferred stock and $500,000 from the sale of common stock during the six month period. We expect that we may need additional financial resources during the next twelve months to finance our eVU business and support our Flash-R patent enforcement and licensing activities.

? Our revenues were $2.2 million for the first six months compared to $3.6 million for the prior year's six months. Revenues in the first six months included $1.6 million of patent license revenue. Last year's first six months revenues included product sales to new European IFE customers. Recent 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 for the balance of the fiscal year but our results will be dependent on the timing and quantity of additional patent licenses and eVU orders. 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.

? Our gross profit for the first six months was $1.3 million or 59% of revenues compared to $0.8 million or 23% of revenues for the prior year's first six months. Results benefited from higher patent licensing gross profit percentages as compared to product sales. Gross profit margins are highly dependent on revenue and product mix, prices charged, volume of orders and costs.

? Operating expenses were $1.4 million for the first six months of fiscal 2009 (year ending March 31, 2009) and 2008. Our operating loss was $171,000 for the six months ended September 30, 2008 and a significant improvement compared to the operating loss of $596,000 for the first six months of the prior year. This resulted from initial and higher margin patent license revenues.

? Our net loss for the first six months of fiscal 2009 was $698,000 (including tax expense of $264,000) compared to $751,000 for the comparable period prior. The net loss attributable to common stockholders was $743,000 and $806,000 respectively. The reduced loss was primarily the result of higher margin patent license revenues.

Our monthly cash operating costs have been on average approximately $225,000 per month for the period ending September 30, 2008. 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. Accordingly, our losses are expected to continue until such time as we are able to realize revenues and margins sufficient to cover our costs of operations. We may also face unanticipated technical or manufacturing obstacles and face warranty and other risks in our business.