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. SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2010.

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 market our eVU mobile entertainment system for the travel and recreational industries and license and enforce our Flash-R portfolio of flash memory patents for use in portable devices produced by electronic product manufacturers.

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 and enforcement. Our products and services revenue is derived from the sale of eVU products and accessories to customers, warranty and technical support services and content integration fees and related services. Our patent licensing and enforcement revenue consists of intellectual property revenues from our Flash-R patent portfolio.

Our strategy is to market our eVU products and services to U.S. and international companies for use in the airline 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 that we believe are infringing our patents. The international law firm of Duane Morris LLP is handling our patent enforcement matters on a contingent fee basis. During the period commencing September 2007 through March 2008, we filed complaints against eight electronic product manufacturers and subsequently licensed and settled the litigation with seven of the manufacturers and suspended the complaint against one defendant that filed for bankruptcy. In November 2009, we filed an additional patent infringement complaint against nineteen companies and we have subsequently licensed and settled with three companies. While we expect to file future complaints against additional companies and license additional companies 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
We focused significant efforts on developing, licensing and enforcing our patent portfolio during the first six months and during the fiscal years ended March 31, 2010 and 2009. We successfully completed our first round of enforcement litigation in September 2009 when we licensed the last of the remaining original defendants. In November 2009 we filed additional enforcement actions against nineteen defendants, licensed our first customer from the second round in December 2009 and by March 31, 2010 had licensed a total of three licensees from the second round. There is a reluctance of patent infringers to negotiate and ultimately take a patent license without at least the threat of legal action. However, the majority of patent infringement contentions settle out of court, based on the strength of the patent claims, validity, and persuasive evidence and clarity that the patent is being infringed. We believe we are building a track record of demonstrating the strength, validity and clarity of our patent claims that could result in significant future revenues from our patent portfolio.

Our eVU in-flight entertainment ("IFE") business has remained slow due to airline economics. While we are seeing increased activity, we are unable to predict future sales levels in this market as orders are sporadic from both existing and new customers. We continue to pursue business in the airline and other markets for our eVU product line.

Management faces challenges for the remainder of fiscal 2011 to execute its plan to grow product and service revenues and increase Flash-R patent portfolio license fees. We are in the early stages of licensing our patents and only recently filed additional infringement claims as described above and in Part II, Item 1 "Legal Proceedings" below. While we expect additional patent licenses in future periods there can be no assurance of the timing or amounts of any such license revenue. 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 patent licensing business is subject to significant uncertainties as to the timing and amount of future license revenues, if any. We may also face unanticipated technical or manufacturing obstacles as well as warranty and other risks in our business.

For the six months ended September 30, 2010 we recognized a net loss before income taxes of $622,381 compared to a net loss before income taxes of $14,440 for the comparable period of the prior fiscal year. Our revenues were $750,493 for the first six months of fiscal 2011 with $25,264 of patent license revenue. This compares to $1,735,297 for the prior year's first six months with $1,250,000 of patent license revenue reported. We reported reduced operating expenses totaling $885,997 in the six months ended September 30, 2010 compared to $1,033,743 in the comparable period prior primarily due to reduced legal fees for litigation concluded in the prior year.

Our monthly cash operating costs average approximately $125,000 per month. 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. Our quarterly results are highly dependent on the timing and amount of licensing fees and accordingly quarterly results can vary dramatically from period to period. As a result of this and other factors, past results and expenditure levels may not be indicative of future quarters. We have incurred losses and negative cash flow from operations during fiscal 2010 and the first half of fiscal 2011. We expect to 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.

Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon 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, 2010. The preparation of these financial statements prepared in accordance with accounting principles generally accepted in the United States 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 revenue recognition, bad debts, inventory valuation, intangible assets, financing operations, warranty obligations, stock-based compensation, fair values, derivatives, income taxes, 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 that, of the significant accounting policies discussed in our consolidated financial statements, the following accounting policies require our most difficult, subjective or complex judgments:

� revenue recognition;

� estimates and allowances (primarily doubtful accounts and inventory obsolescence);

� stock-based compensation expense; and

� income taxes.

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. There were no significant changes or modification of our critical accounting policies and estimates involving management valuation adjustments affecting our results for the six months ended September 30, 2010. For further information on our critical accounting policies, refer to Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended March 31, 2010.

Results of Operations

Three months ended September 30, 2010 compared to the three months ended
September 30, 2009

                                         Three Months Ended September 30,
                                 2010                          2009
                                               % of                           % of                  Change
                               Dollars        Revenue         Dollars        Revenue         Dollars           %
Revenues:
Products                          54,212            23 %         43,440             3 %          10,772           25 %
Services                         183,883            77 %        218,827            14 %         (34,944 )        (16 )%
Patent license                         -             0 %      1,250,000            83 %      (1,250,000 )
                                 238,095           100 %      1,512,267           100 %      (1,274,172 )        (84 )%
Gross Profit:
Product gross profit (loss)       19,216             8 %         15,651             1 %           3,565           23 %
Service gross profit              84,954            36 %        113,993             8 %         (29,039 )        (25 )%
Patent license                   (15,158 )          (6 )%       807,000            53 %        (822,158 )
                                  89,012            37 %        936,644            62 %        (847,632 )        (90 )%
Operating Expenses:
Selling and administrative       273,788           115 %        250,741            17 %          23,047            9 %
Research and related              87,413            37 %        126,749             9 %         (39,336 )        (31 )%
                                 361,201           152 %        377,490            25 %         (16,289 )         (4 )%
Other expense                          -             0 %         (4,518 )          (0 )%          4,518         (100 )%
Income (loss) before income
taxes                           (272,189 )        (114 )%       554,636            37 %        (826,825 )       (149 )%

Income (Loss) Before Income Taxes
The loss before income taxes resulted primarily from no patent license revenue in the most recent quarter and product sales and margins insufficient to cover reduced operating expenses compared to the comparable quarter of the prior year.

Revenues
Revenues decreased during the most recent fiscal quarter (Q2 of fiscal 2011) compared to the second quarter of the prior year due to no patent license revenue. While product and service revenues were comparable to the prior year, Q2 of the prior year included $1,250,000 of patent license revenue. eVU product sales activity has been slow and sporadic due to airline industry economics, with airlines curtailing expansion and new projects. Our product sales in the second quarter are not necessarily indicative of future orders and we had no significant product backlog at September 30, 2010. Our service arrangements and terms vary with each customer and 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 or in future periods.

We have an outstanding complaint against sixteen additional electronics 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 future patent license revenue. We are pursuing new eVU and other technology 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 2011 was $89,012 or 37% of revenues. The gross profit for the prior year's first quarter was $936,644 or 62% of revenues due to $807,000 of margin from patent licensing. Our margin on service declined from 52% to 46% due to repair and content mix. Gross profit margins are highly dependent on revenue mix, prices charged, volume of orders, and for periods with patent licensing revenues the amounts of contingency legal fees and costs.

Operating Expenses
Selling and administrative costs for the three months ended September 30, 2010 declined by $23,047 compared to the same period in the year prior. The current period included a $2,068 expense for noncash stock-based compensation expense compared to $5,544 for the prior year's second quarter. Reduced current period selling and administrative expenses included $34,000 of reduced compensation costs due to reduced staffing. The prior year Q2 included the benefit of $100,000 litigation accrual reversal as a result of a favorable litigation outcome.

Research and related expenses in the most recent quarter included $4,330 of noncash stock-based compensation costs compared to $1,037 in the prior year Q2. Research and related expenses decreased $39,336 due to reduced staffing costs and more allocation of dual use personnel to service revenue work. Research and related expenses can vary significantly from quarter to quarter based on the allocation of time spent by personnel who work on both revenue producing service and repair projects and on internal research projects. Such expenses also vary based on decisions made regarding outside engineering and consulting.

Other Income (Expense)
We had no other income or expenses in the current period compared to $4,518 of net other expenses for the prior year's second quarter.

Income Taxes
There was no income tax expense or benefit for the current period and the prior year Q2 included a foreign tax provision of $206,250.

Loss Attributable to Common Stockholders The loss attributable to common stockholders equaled the net loss after taxes of $272,189. The net income after tax for the prior comparable second quarter was $348,386 decreased by accrued and deemed dividends of $55,888 for net income attributable to common stockholders of $292,498. Since all shares of Series AA Stock were converted into common at June 30, 2010 we had no Series AA dividends or accretion in Q2 and will have no further dividends or accretion in future quarters.

Six months ended September 30, 2010 compared to the six months ended September

30, 2009

                                          Six Months Ended September 30,
                                 2010                          2009
                                               % of                           % of                  Change
                               Dollars        Revenue         Dollars        Revenue         Dollars           %
Revenues:
Product revenues                 352,827            47 %         57,515             3 %         295,312          513 %
Service revenues                 372,402            50 %        427,782            25 %         (55,380 )        (13 )%
Patent license                    25,264             3 %      1,250,000            72 %      (1,224,736 )        (98 )%
                                 750,493           100 %      1,735,297           100 %        (984,804 )        (57 )%
Gross Profit:
Product gross profit              76,146            10 %        (19,278 )          -1 %          95,424         (495 )%
Service gross profit             187,470            25 %        250,974            15 %         (63,504 )        (25 )%
Patent license gross profit            -             0 %        807,000            47 %        (807,000 )       (100 )%
                                 263,616            35 %      1,038,696            60 %        (775,080 )        (75 )%
Operating Expenses:
Selling and administrative       639,913            85 %        827,413            48 %        (187,500 )        (23 )%
Research and related             246,084            33 %        206,330            12 %          39,754           19 %
                                 885,997           118 %      1,033,743            60 %        (147,746 )        (14 )%
Other expense                          -             0 %        (19,393 )          (1 )%         19,393         (100 )%
Loss before income taxes        (622,381 )         (83 )%       (14,440 )          (1 )%       (607,941 )       4210 %

Loss Before Income Taxes
The loss before income taxes of $622,381 resulted primarily from no patent license revenue in the most recent quarter and product sales and margins insufficient to cover reduced operating expenses compared to the comparable six months of the prior year which included $1,250,000 of patent license revenue.

Revenues
Revenues decreased during the most recent six months compared to the comparable period of the prior year due to the decrease in patent license revenue from $1,250,000 to $25,264. We currently have two licensees reporting periodic royalties with one such payment recognized in Q1, all other royalties including the $1,250,000 in the prior year Q2 have been one time fully paid up royalties. Product revenues increased $295,312 due to increased Q1 product sales. Service revenues vary depending on repair and content services provided to a changing customer mix. eVU product sales activity has been slow and sporadic due to airline industry economics with airlines curtailing expansion and new projects. Our product sales for the first six months are not necessarily indicative of future orders and we had no significant product backlog at September 30, 2010. Our service arrangements and terms vary with each customer and 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 or in future periods.

We have an outstanding complaint against sixteen additional electronics 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 future patent license revenue. We are pursuing new eVU and other technology 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 six months ended September 30, 2010 was $263,616 or 35% of revenues. The gross profit for the prior year's first six months was $1,038,696 or 60% of revenues including $807,000 of margin from patent licensing. While our margin on service declined from 58% to 50% due to repair and content mix, our product gross margin was positive compared to the prior year. Gross profit margins are highly dependent on revenue mix, prices charged, volume of orders, and for periods with patent licensing revenues the amounts of contingency legal fees and costs.

Operating Expenses
Selling and administrative costs for the six months ended September 30, 2010 declined by $187,500 compared to the same period in the year prior. The current period included a $77,800 expense for noncash stock-based compensation expense compared to $17,289 for the prior year's first six months. Reduced current period selling and administrative expenses included $209,000 of reduced professional fees primarily due to reduced business litigation costs as a result of the favorable outcome of the digEcor litigation reported last year.

Research and related expenses in the most recent six month period ended September 30, 2010 included $22,364 of noncash stock-based compensation costs compared to $1,037 in the prior year. Increased research and related expenses included $46,500 of increased staffing and consulting costs primarily associated with new projects. Research and related expenses can vary significantly from quarter to quarter based on the allocation of time spent by personnel who work on both revenue producing service and repair projects and on internal research projects. Such expenses also vary based on decisions made regarding outside engineering and consulting.

Other Income (Expense)
We had no other income or expenses in the current six month period ended September 30, 2011 compared to $19,393 of net other expenses for the prior year's first six months consisting primarily of interest expense.

Income Taxes
There was no income tax expense or benefit for the current six month period and the prior year included a foreign tax provision of $206,250 on patent license revenues.

Loss Attributable to Common Stockholders The loss attributable to common stockholders equaled the net loss after taxes of $622,381. The net loss after tax for the prior comparable six month period was $220,690 decreased by accrued and deemed dividends of $98,701 for net loss attributable to common stockholders of $319,391. Since all shares of Series AA Stock were converted into common stock at June 30, 2010 we will not have further Series AA dividends or accretion in future quarters.

Liquidity and Capital Resources
At September 30, 2010, we had working capital of $2,447,640 compared to a working capital of $2,965,681 at March 31, 2010. At September 30, 2010 we had cash on hand of $2,144,904.

Operating Activities
Cash used in operating activities was $672,720 for the six months ended September 30, 2010. Cash used in operating activities included the net loss of $622,381 reduced by net non-cash expenses of $116,770. Major components also providing operating cash was a decrease of $48,933 in inventory and an increase of $55,362 in accounts payable. Major components using operating cash included an increase of $60,669 in accounts receivable and a $224,239 reduction in accrued and other liabilities including a reduction of $153,743 reduction in deferred revenue and customer deposits at March 31, 2010 that converted into revenue during the six months ended September 30, 2010.

Cash used in operating activities during the six months ended September 30, 2009 was $1,197,273 with the larger usage caused by a $1,342,942 increase in accounts receivable from patent license activity. 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 of settlement or end of royalty reporting period.

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
There were no cash financing activities during the six months ended September 30, 2010 or 2009. On June 30, 2010 $605,226 of preferred stock automatically converted to common stock with no cash impact.

Debt and Other Commitments
We currently have no debt outstanding other than trade payables and accruals. At September 30, 2010 we were committed to approximately $19,000 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, 2010 and current planned expenditures and level of operation, 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.