e.DIGITAL CORPORATION ENTERS INTO $8.5 MILLION

COMMON STOCK PURCHASE AGREEMENT WITH FUSION CAPITAL

(SAN DIEGO, CA – January 8, 2007) - e.Digital Corporation (OTC: EDIG) a leading innovator of proprietary secure digital video technology and products, and patented technology in the utilization of flash memory in portable devices, announced today that it has signed an $8.5 million common stock purchase agreement with Fusion Capital Fund II, LLC, a Chicago-based institutional investor.  Under the agreement, the Company sold to Fusion Capital $250,000 of its common stock at a purchase price of $0.12 per share and has agreed to sell to Fusion Capital an additional $250,000 of its common stock at a purchase price of $0.12 per share on the date that a registration statement related to the transaction is filed with the Securities and Exchange Commission (SEC).   The Company may sell an additional $8.0 million of common stock to Fusion Capital from time to time over a 25-month period after the SEC has declared effective the registration statement related to the transaction.  The proceeds will be used to expand its eVU™ mobile entertainment system business, accelerate licensing efforts of its flash memory-related patent portfolio and for general working capital.

Under the agreement, the Company has the right to sell shares of common stock to Fusion Capital from time to time in amounts between $80,000 and $1 million, depending on certain conditions, for up to $8.0 million of additional funds.  The purchase price of the shares will be based on the prevailing market prices of the Company’s shares at the time of sales without any fixed discount, and the Company will control the timing and amount of any sales of shares to Fusion Capital.  A more detailed description of the transaction, as well as copies of the material agreements, is set forth in the Company’s Form 8-K filed today with the SEC.

Commenting on the Fusion agreement, Will Blakeley, e.Digital’s president and chief technology officer said, “This agreement with Fusion Capital comes at an opportune time by providing us with the flexible financial backing to help us grow our business, fulfill volume eVU orders, and increase eVU backlog in the healthcare, travel and entertainment industries. We also expect to focus resources on licensing our flash memory patent portfolio to the 174 companies we have identified to date in the cell phone, PDA/Pocket PC, portable A/V recorder, digital camera, camcorder and other portable device industries, that appear to employ our portfolio.”