ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED January 31, 2009

Product revenues for the six months ended January 31, 2009 totaled $945,640 representing an increase of 81% from the $522,727 reported for the same six month period last year. Product revenues for the three months ended January 31, 2009 totaled $488,959, representing an increase of 45% from $338,174 for the same three month period last year. The Company attributes this to increased order releases from utilities.

Product Cost (Material and Direct Labor) for the three months ended January 31, 2009 and 2008 totaled $130,331 and $93,453. Product Cost (Material and Direct Labor) for the six months ended January 31, 2009 and January 31, 2008 totaled $234,363 (25% of Product revenues) and $196,602 (38% of Product revenues
[excluding $100,000 inventory write down]) respectively. This reflects a net reduction of 13 % in Product Cost. The Company attributes this improvement to Product Costs to the standardizing of costs to build our new PDR-2000 systems; the outsourcing of assemblies and continued use of assembly standards under ISO-9000.

Gross Profit for the six months ended January 31, 2009 and January 31, 2008 amounted to $711,277 or 75% and $226,125 or 43% respectively, the increase is a direct result of the increase in sales deliveries as of January 31, 2009.

Selling, general and administrative expenses for the six months ended January 31, 2009 amounted to $1,133,547, a reduction of $1,055,443 from the same period last year. Selling, general and administrative expenses for the three months ended January 31, 2009 amounted to $614,129, a reduction of $702,475 for the same period last year..

Non-cash non-operating expenses for the six-month period totaled $543,459 and included expenses related to the induced conversion cost of $205,911; $101,524 for amortization of deferred debenture discount and $236,024 for amortization of deferred debenture costs.

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As a result of the foregoing, the Company reported a net loss from operations of ($665,924) or ($.21) per share compared to a loss of ($4,177,068) or ($3.36) per share for the six months ended January 31, 2009 and 2008, respectively.

LIQUIDITY AND FINANCIAL CONDITION

Inventories from the Company's product segment increased from $850,507 at July 31, 2008 to $1,087,055 for the six months ended January 31, 2009, an increase of $236,548. This additional inventory is required to satisfy the Company's current backlog of over $300,000 in purchase orders and expected orders for the remainder of the 3nd quarter of fiscal year 2009 of $400,000.

Accounts Receivable-trade decreased to $298,261 for the six months ended January 31, 2009 from $360,846 as of July 31, 2008.

The Company expects to meet its cash requirements for the next 12 months through existing cash balances.

STATEMENT REGARDING PRESENT OPERATIONS

There were no material changes in the nature of the operations of the Registrant during the six months ended January 31, 2009. Detailed information is contained in the Registrant's annual report on Form 10-K for the fiscal year ended July 31, 2008.

FORWARD LOOKING STATEMENTS

This quarterly report contains certain "forward-looking statements" within the meaning of Section 27A of The Securities Act of 1933, as amended and section 21E of The Securities Act of 1934, as amended. Such Statements are subject to certain risks and uncertainties, including, among other things, significant variations in recognizing revenue due to customer-caused delays, and intense competition from more well known companies, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above, among other factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically declines any obligations, to publicly release the results of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of unanticipated events.