Patent License Revenue Recognition
The Company has only recently commenced receiving patent license revenue. The Company recognizes revenue from patent license agreements when (i) the patent license agreement is executed, (ii) the amounts due are fixed, determinable, and billable, (iii) the customer has been provided rights to the licensed technology and (iv) collection of the resulting receivable, if any, is probable. At the time the Company enters into a contract and provides the customer with the licensed technology the Company has performed all of its obligations under contract, the rights to the Company's technology have been transferred and no significant performance obligations remain. License revenue to date consists of one-time fully paid-up licenses requiring no future performance. The Company will value nonexclusive cross licenses received only if directly used in operations.

Patent license costs of revenues include contingency legal and other direct costs associated with patent licensing.

Results of Operations

Three months ended September 30, 2008 compared to the three months ended
September 30, 2007

                                      Three Months Ended September 30,
                               2008                        2007
                                             % of                        % of                Change
                              Dollars      Revenue        Dollars      Revenue        Dollars          %
Revenues:
Product revenues                  1,683          0.1 %    2,108,082         91.0 %    (2,106,399 )
Service revenues                172,747          9.7 %      207,699          9.0 %       (34,952 )
Patent license                1,600,000         90.2 %            -          0.0 %     1,600,000
                              1,774,430        100.0 %    2,315,781        100.0 %      (541,351 )     (23.4 %)
Gross Profit:
Product gross profit            (12,292 )                   423,403                     (435,695 )
Service gross profit            130,725                     173,995                      (43,270 )
Patent license gross
profit                        1,038,674                           -                    1,038,674
                              1,157,107         65.2 %      597,398         25.8 %       559,709        93.7 %
Operating Expenses:
Selling and
administrative                  627,497         35.4 %      471,995         20.4 %       155,502        32.9 %
Research and related            129,099          7.3 %      215,935          9.3 %       (86,836 )     (40.2 %)
                                756,596         42.6 %      687,930         29.7 %        68,666        10.0 %
Other income (expenses)        (165,344 )       (9.3 %)     (67,208 )       (2.9 %)      (98,136 )     146.0 %

Income (loss) before
income taxes                    235,167         13.3 %     (157,740 )       (6.8 %)      392,907      (249.1 %)

Income (loss) before income taxes
We showed income before income taxes of $235,167 for the three months ended September 30, 2008 compared to a loss of $157,740 for the comparable period of the prior year. The $392,907 improvement was the result of higher margin patent license revenues.

Revenues
Revenues of $1,774,430 in the second quarter of fiscal 2009 compared to $2,315,781 for the comparable prior period. The revenue mix was significantly different each period. During the prior year's second quarter revenues consisted of $2,108,082 from selling eVU players and related equipment for use by airline customers and $207,699 from service revenues for content and support services. In the prior year's second quarter we deferred $120,000 of revenue from a multiple element arrangement related to the provision of future content services over thirty months. 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 primarily of $1,600,000 of one-time non-recurring patent license revenue and $172,747 of service revenues. 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 patent licensing arrangements.

Gross Profit
Gross profit for the second quarter of fiscal 2009 was $1,157,107 or 65.2% of revenues. The gross profit for the prior year's second quarter was $597,398 or 25.8% of revenues. The improved gross profit percentage resulted from higher margin patent license revenue. Gross profit margins are highly dependent on revenue mix, prices charged, volume of orders and costs.

Operating Expenses
Selling and administrative costs for the three months ended September 30, 2008, were $627,497 compared to $471,995 for the second quarter of fiscal 2008. The $155,502 increase included an increase in legal expenses of $188,000 and an increase of $69,000 in shareholder costs primarily from holding the September shareholders meeting offset by a $52,000 reduction in sales commissions and a $37,000 reduction in other sales related costs both resulting from reduced product sales.

Research and related expenditures for the three months ended September 30, 2008 were $129,099, compared to $215,935 for the three months ended September 30, 2007. The decrease resulted primarily from reassigning engineers and technicians to customer support and service roles in the current year.

Other Income (Expenses)
Net other expenses were $165,344 for the second quarter of fiscal 2009 compared to net expenses of $67,208 for the second quarter of the prior year. The most recent quarter 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.

For the second quarter of fiscal 2008 other income consisted of $20,000 from the sale of trademark rights and interest income of $5,940. Other expenses included interest of $62,996, of which $32,729 was non-cash interest from the amortization of debt discount, and $29,200 of financing royalties.

Provision for Income Taxes
Income tax expense of $264,000 consists of foreign taxes payable on patent license revenue.

Loss Attributable to Common Stockholders The loss attributable to common stockholders for the most recent second quarter included the loss after taxes of $28,833 reduced by accrued and deemed dividends on convertible preferred stock of $43,283 or a net loss of $72,116. The net loss after tax for the prior comparable second quarter was $157,740 reduced by accrued and deemed dividends of $27,525 for a net loss attributable to common stockholders of $185,265.

Six months ended September 30, 2008 compared to the six months ended September

30, 2007

                                         Six Months Ended September 30,
                                 2008                        2007
                                               % of                        % of                Change
                                Dollars      Revenue        Dollars      Revenue        Dollars          %
Revenues:
Product revenues                  235,981         11.0 %    3,297,712         91.1 %    (3,061,731 )
Service revenues                  316,176         14.7 %      322,703          8.9 %        (6,527 )
Patent license                  1,600,000         74.3 %            -          0.0 %     1,600,000
                                2,152,157        100.0 %    3,620,415        100.0 %    (1,468,258 )     (40.6 %)
Gross Profit:
Product gross profit               28,522                     591,183                     (562,661 )
Service gross profit              203,968                     252,330                      (48,362 )
Patent license gross profit     1,038,674                           -                    1,038,674
                                1,271,164         59.1 %      843,513         23.3 %       427,651        50.7 %
Operating Expenses:
Selling and administrative      1,166,392         54.2 %      943,092         26.0 %       223,300        23.7 %
Research and related              275,750         12.8 %      496,247         13.7 %      (220,497 )     (44.4 %)
                                1,442,142         67.0 %    1,439,339         39.8 %         2,803         0.2 %
Other income (expenses)          (263,062 )      (12.2 %)    (155,320 )       (4.3 %)     (107,742 )      69.4 %

Loss before income taxes         (434,040 )      (20.2 %)    (751,146 )      (20.7 %)      317,106       (42.2 %)

Loss before income taxes
We showed a loss before income taxes of $434,040 for the six months ended September 30, 2008 compared to a loss of $751,146 for the comparable period of the prior year. The $317,106 improvement was the result of higher margin patent license revenues.

Revenues
Revenues of $2,152,157 for the first six months of fiscal 2009 compared to $3,620,415 for the same period of the prior year. The revenue mix was different in the most recent six month period due to initial patent license revenue. Fiscal 2009 six-month revenues included eVU products and service revenue of $552,157 and patent license revenue of $1,600,000. We are reliant on a limited number of customers with two customers accounting for 74% and 10% of our first six-month revenues. During the prior year's first six months revenues consisted of $3,620,415 from selling eVU players and related 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. 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 patent licensing arrangements.

Gross Profit
Gross profit for the first six months of fiscal 2009 was $1,271,164 or 59.1% of revenues. The gross profit for the prior year's first six months was $843,513 or 23.3% of revenues. The improved gross profit percentage resulted from higher margin patent license revenue. 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, 2008, were $1,166,392 compared to $943,092 for the first six months of fiscal 2008. The $223,300 increase included an increase in legal expenses of $258,000 and an increase of $76,000 of shareholder costs primarily related to holding the September shareholders meeting offset by a $103,000 reduction in sales commissions from reduced product sales.

Research and related expenditures for the six months ended September 30, 2008 were $275,750, compared to $496,247 for the six months ended September 30, 2007. The decrease resulted primarily from reassigning engineers and technicians to customer support and service roles in the current year.

Other Income (Expenses)
Net other expense was $263,062 for the six months ended September 30, 2008 compared to net expenses of $155,320 for the six months ended September 30, 2007. The most recent period 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.

For the first six months of fiscal 2008 other income consisted of $20,000 from the sale of trademark rights and $6,099 of interest and foreign exchange income. Other expenses included interest expense of $131,668, of which $67,162 was non-cash interest from the amortization of debt discount, and $47,980 of financing royalties..

Provision for Income Taxes
Income tax expense of $264,000 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, 2008 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. The net loss after tax for the prior comparable six months was $751,146 reduced by accrued and deemed dividends of $54,750 for a net loss attributable to common stockholders of $805,896.

Liquidity and Capital Resources
At September 30, 2008, we had a working capital deficit of $707,573 compared to a working capital deficit of $1.3 million at March 31, 2008. At September 30, 2008 we had cash on hand of $137,340.

Operating Activities
Cash used in operating activities of $1,149,177 for the six months period ended September 30, 2008 included the $698,040 loss decreased by non-cash expenses of $225,209. Major components providing operating cash was an increase of $794,356 in accounts payable and an increase of $264,000 for accrued income taxes. Major components using operating cash included an increase of $1,584,784 in accounts receivable and a $62,324 increase in inventory. We have negotiated terms with our contract suppliers reducing advance production payments required prior to product delivery. 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 days or less. Receivables associated with patent licensing of $1,600,000 were paid in October 2008. No future payments are due under the license.

Cash used in operating activities during the six months ended September 30, 2007 was $812,749. 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, 2008, cash provided by financing activities was $1,164,401. This included $500,000 from the sale of common stock to Fusion Capital Fund II, LLC ("Fusion") pursuant to a purchase agreement and $700,000 cash from the sale of preferred stock. We reduced our secured note balance by $50,000, made term principal payments of $25,599 and obtained $40,000 in July 2008 from a new one year note. During the first six months of the prior year we obtained $640,000 from the sale of common stock to Fusion and made a secured note payment of $100,000.

We may have access to up to $527,000 of additional funding until January 2009 pursuant to the Fusion agreement (or a maximum of $6.5 million at significantly higher stock prices). Future availability under the Fusion agreement is subject to many conditions, some of which are predicated on events that are not within the Company's control. There can be no assurance this capital resource will be available or be sufficient.