The Company reported it improved its financial position during the quarter ended December 31, 2006 through:

·        The conversion of the $1.30 million balance of 12% Subordinated Convertible Promissory Notes previously due December 31, 2006 into equity. At December 31, 2006 no such notes remained outstanding.

·        The exchange of two 15% Unsecured Promissory Notes previously due December 31, 2006 for $970,752 in a 7.5% Convertible Subordinated Three Year Term Note, payable monthly, due November 30, 2009.  The Company issued 500,000 shares of restricted common stock to extend the term and reduce the interest rate on the debt.

·        The conversion of a customer deposit obligation of $713,000 into revenue upon delivery of related digEplayer products.