The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto and 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 elsewhere in this Annual Report and under the sub-heading, "Risk Factors - Important Factors Related to Forward-Looking Statements and Associated Risks."

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.

With the inception of patent license revenue in September 2008, we determined that we have two operating segments: (1) products and services and (2) patent licensing. Our products and services revenue is derived from the sale of DVAP products and accessories to customers, warranty and technical support services and content integration fees and related services. Our patent licensing revenue consists of intellectual property revenues from our Flash-R patent portfolio.Our Flash-R patent portfolio revenues to date have consisted of fees from one-time license and settlement agreements requiring no future performance.

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 recognized additional license revenue through the fiscal year ended March 31, 2009. While we expect additional patent licenses in future periods there can be no assurance of the timing or amounts of any related license revenue.

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 recent profitability has 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.

For the year ended March 31, 2009:

� We recognized net income before income taxes of $3,355,486. This was before income tax expense of $421,500 for foreign and state income taxes. The resulting net income of $2,933,986 was an improvement from the net loss of $1,719,067 for the prior year. The improvement resulted primarily from new higher margin patent licensing revenue that offset a substantial decline in eVU product and service revenues.

� Our revenues were $11.1 million compared to $5.6 million for the prior year. Revenues in fiscal 2009 included $10.1 million of patent license revenue. Last year's fiscal 2008 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 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.

� Our gross profit for the year ended March 31, 2009 was $6.5 million or 59% of revenues compared to $1.5 million or 28% of revenues for the comparable prior year. 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 $2.8 million for fiscal 2009 compared to $3.0 million for the first nine months of fiscal 2008 with a reduction in research and development expenditures offset by increases in selling and administrative expenses resulting primarily from increased litigation expenses.

Management faces significant challenges in fiscal 2009 to execute its plan to grow product and service revenues, continue to monetize the Flash-R patent portfolio and obtain license fees, control costs and fund any future operating losses or other capital requirements.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. We may incur future losses until such time as we are able to realize recurring 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.Our ability to continue as a going concern is in substantial doubt and is dependent upon sustaining a profitable level of operations and if necessary obtaining additional financing.

Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including but not limited to those related to product returns, bad debts, inventory valuation, intangible assets, financing operations, warranty obligations, stock-based compensation, fair values, estimated costs to complete research contracts, contingencies and litigation. 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.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition
Our segments have the following revenue recognition policies:

Products and Services
We recognize product revenue upon shipment of a product to the customer, FOB shipping point, or upon acceptance by the customer depending on the specific contract terms, if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and there are no resulting obligations. Research and development contract revenues on short-term projects or service revenue is recognized once the services or product has been delivered, the fee is fixed and determinable, collection of the resulting receivable is probable and there are no resulting obligations. If all of the service or product has been delivered and there is one element that is more than perfunctory to the services or product that has not been delivered, revenue will be deferred and recognized evenly over the remaining term of the undelivered element.

Service revenues may include revenue from coding, encrypting and integrating content for periodic uploading to hardware players. Revenue is recognized upon acceptance of the content master file by the customer if the fee is fixed and determinable, collection of the resulting receivables is probable and there are no resulting obligations.

In accordance with Staff Accounting Bulletin ("SAB") No. 104 Revenue Recognition ("SAB 104") and Emerging Issues Task Force ("EITF") Issue 00-21 Revenue Arrangements with Multiple Deliverables ("EITF 00-21"), when an arrangement contains multiple elements with standalone value, such as hardware and content integration or other services, revenue is allocated based on the fair value of each element as evidenced by vendor specific objective evidence. Such evidence consists primarily of pricing of multiple elements as if sold as separate products or services. We defer revenue for any undelivered elements, and recognizes revenue when the product is delivered or over the period in which the service is performed, in accordance with our revenue recognition policy for such element. If we cannot objectively determine the fair value of any undelivered element included in a multiple-element arrangement, revenue is deferred until all elements are delivered and/or services have been performed, or until we can objectively determine the fair value of all remaining undelivered elements.

Revenue from separately priced extended warranty or product replacement arrangements is deferred and recognized to income on a straight-line basis over the contract period. We evaluate these arrangements to determine if there are excess costs greater than future revenues to be recorded as a loss.

Funds received in advance of meeting the criteria for revenue recognition are deferred and are recorded as revenue as they are earned. Any amounts related to periods beyond twelve months are considered long-term deferred revenue.

Patent Licensing
We apply the guidance of SEC Staff Accounting Bulletin Topic 13.A.3(f), Nonrefundable Up-Front Fees, to our patent license and settlement agreements using the specific performance method analogous to the sale of an asset in such literature as Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 13, Accounting for Leases and AICPA Statement of Position 00-2, Accounting by Producers and Distributors of Films. Accordingly, we recognize 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 we enter into a contract and provide the customer with the licensed technology we have performed all of our obligations under contract, the rights to our technology have been transferred and no significant performance obligations remain. License revenue to date consists of one-time license and settlement agreements requiring no future performance. We have no licenses that do not include settlement and covenants not to sue.

While the consideration to dismiss any patent litigation and the perpetual license may be considered two deliverables under EITF 00-21: Revenue Arrangements with Multiple Deliverables,we treat the deliverables as one unit of accounting as the delivered items do not have value to customers on a stand alone basis,there are no undelivered elements and there is no general right of return relative to the delivered perpetual license. While license agreements to date have not provided for unit royalties or payments for fixed past or future term periods, we evaluate each license agreement for revenue recognition in accordance with applicable literature.

We value nonexclusive cross licenses received only if directly used in operations. To date we have not valued any cross licenses received as they were considered part of the customer's overall license and settlement strategy and are not used in our products.

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

Estimates and Allowances
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We also review deposits with manufacturers and others for impairment.

We establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. Factors affecting warranty reserve levels include the number of units sold and anticipated cost of warranty repairs and anticipated rates of warranty claims. We evaluate the adequacy of the provision for warranty costs each reporting period.

Income Taxes
We account for income taxes using the asset and liability method described in SFAS No. 109, Accounting For Income Taxes ("SFAS 109"), the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized. We provide a full valuation reserve related to our net deferred tax assets. In the future, if sufficient evidence of an ability to generate sufficient future taxable income in certain tax jurisdictions becomes apparent, we may be required to reduce the valuation allowances, resulting in income tax benefits in the consolidated statement of operations. We evaluate the realizability of our deferred tax assets and assesses the need for valuation allowance quarterly. The utilization of the net operating loss carry forwards could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership. We have experienced various ownership changes as a result of past financings and could experience future ownership changes.

We adopted the provisions of FASB interpretation No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation of SFAS 109 on April 1, 2007. As a result of the implementation of FIN 48, we recognized no adjustment for uncertain tax provisions and the total amount of unrecognized tax benefits as of April 1, 2007 was $-0-. At the adoption date of April 1, 2007, deferred tax assets were fully reserved by a valuation allowance to reduce the deferred tax assets to zero, the amount that more likely than not is expected to be realized. For the year ended March 31, 2008, we removed our net operating loss ("NOL") carryforwards from our deferred tax asset accounts as well as the related full valuation reserve because an analysis of Section 382 of the Internal Revenue Code ("IRC") of 1986 ownership changes had not been completed. Based on a preliminary analysis of ownership changes performed in fiscal 2009 we determined that that no Section 382 ownership changes occurred since March 31, 2000 but have not yet determined how much, if any, the use of the approximately $31.4 million of prior period losses will be limited until their expiration. Accordingly, NOL carryforwards generated during the 2001 through 2008 fiscal years are generally not subject to Section 382 limitations and we will be able to utilize such NOLs and any documented research and development ("R&D") carryforwards provided the Company generates sufficient future earnings. Accordingly at March 31, 2009, we re-established deferred tax assets associated with such federal NOLs, related state NOLs, and certain California research and development tax credits and recorded a corresponding increase to our valuation allowance.

Stock-Based Compensation
We adopted SFAS No. 123(R), Share Based Payment, effective April 1, 2006 using a modified prospective application. We record the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award-the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments is estimated using a Black-Scholes option-pricing model. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award, if any, over the fair value of the original award.

Options or stock awards issued to non-employees who are not directors are recorded at their estimated fair value at the measurement date in accordance with SFAS No. 123(R) and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services, and are periodically revalued as the options vest and are recognized as expense over the related service period on a graded vesting method. Stock options issued to consultants with performance conditions are measured and recognized when the performance is complete.

Derivative Instruments and Preferred Stock We value derivative instruments in accordance with the interpretative guidance of SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, EITF 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock, Accounting Principles Board Opinion No. 14 Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, EITF 98-5 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments and associated pronouncements related to the classification and measurement of warrants and instruments with embedded conversion features. We make certain assumptions and estimates to value our derivative liabilities. Factors affecting these liabilities and values include changes in the stock price and other assumptions.

We accounted for preferred stock issued in fiscal 2009 that was subject to provisions for redemption outside of our control as mezzanine equity in accordance with SFAS 150 Accounting for Certain Financial Instruments with Characteristics of Both Debt and Equity, EITF Topic D-98 Classification and Measurement of Redeemable Securities and SEC Accounting Series Release (ASR) No. 268 Redeemable Preferred Stocks, and recorded the values net of discounts for warrant values and beneficial conversion features. These securities were recorded at fair value at the date of issue and related discounts are being accreted over the term of the securities. The securities were reclassified to permanent equity when the provisions for redemption were terminated. We accounted for the related warrants as a derivative instrument as defined in SFAS 133 and treated the warrants as a liability due to the lack of sufficient authorized shares of common stock. Upon the authorization and reservation of shares of common stock for exercise of the warrants we determined the warrants were no longer a derivative liability and we reclassified the value at that date to paid-in capital. We also determined that the termination of certain warrant redemption rights was an effective modification of the warrant term and calculated the fair value of the warrants immediately prior to the modification compared to the value immediately after the modification and recorded the difference in warrant value in other finance expenses.

Fair Value of Financial Instruments
On April 1, 2008, we adopted certain provisions of SFAS No. 157, Fair Value Measurements, which establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. The provisions of SFAS 157 relate to financial assets and liabilities as well as other assets and liabilities carried at fair value on a recurring basis and did not have a material impact on the our consolidated financial statements. The provisions of SFAS 157 related to other nonfinancial assets and liabilities will be effective for us on April 1, 2009, and will be applied prospectively. We are currently evaluating the impact that these additional SFAS 157 provisions will have on our consolidated financial statements.

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We have certain financial assets and liabilities recorded at fair value (principally cash equivalents) that have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in SFAS 157. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability. Our cash and money market funds have been classified as Level 1 because their fair values are based on quoted market prices.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. Under SFAS No. 159, companies may elect to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We adopted SFAS No. 159 for fiscal 2009. However we did not elect to apply the fair value option to any financial instruments or other items upon adoption of SFAS No. 159 or during the year ended March 31, 2009. Therefore, the adoption of SFAS No. 159 did not impact our consolidated financial position, results of operations or cash flows.

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable, and accrued expenses and other current liabilities approximate fair values due to their short-term maturities.

Indemnities and Litigation
We enter into standard indemnification agreements in the ordinary course of business. Some of our product sales and services agreements include a limited indemnification provision for claims from third parties relating to our intellectual property. Such indemnification provisions are accounted for in accordance with SFAS No. 5, Accounting for Contingencies. The indemnification is generally limited to the amount paid by the customer. To date, there have been no claims under such indemnification provisions.

We are currently involved in certain legal proceedings. For any legal proceedings we are involved in, we estimate the range of liability relating to pending litigation, where the amount and range of loss can be estimated. We record our best estimate of a loss when a loss is considered probable. As additional information becomes available, we assess the potential liability related to pending litigation and revise our estimates.

Our law 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 are not obligated to pay these costs except out of future proceeds or as provided in the following paragraph. 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. We have not recorded any liability for this contingent obligation.

Other
We do not have off-balance sheet transactions, arrangements or obligations. Inflation has not had any significant impact on our business.

Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS No. 141R"). SFAS No. 141R retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R also establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) improves the completeness of the information reported about a business combination by changing the requirements for recognizing assets acquired and liabilities assumed arising from contingencies; (c) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (d) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (for acquisitions closed on or after April 1, 2009 for the Company). Early application is not permitted. Since we are not contemplating any business combinations after its effective date we do not presently expect any impact of SFAS No. 141R on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Non-Controlling Interests in Consolidated Financial Statements an amendment of ARB No. 51 ("SFAS 160"). SFAS 160 establishes new standards for the accounting for and reporting of non-controlling interests (formerly minority interests) and for the loss of control of partially owned and consolidated subsidiaries. SFAS 160 does not change the criteria for consolidating a partially owned entity. SFAS 160 is . . .