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Corporate history

The Company was incorporated under the Company Act in the Province of British Columbia, Canada on February 11, 1988 under the name 340520 B.C. Ltd. and changed its name to Norris Communications Corp. on April 7, 1988. On November 22, 1994 the Company changed its jurisdiction to the Yukon Territory. In August, 1996, jurisdiction was changed to the State of Wyoming.[2]

The company was reincorporated in the State of Delaware in September, 1996 as Norris Communications, Inc. In January, 1999 stockholders approved a name change to e.Digital Corporation.[3]

Financial status

Throughout its over 21-year history, e.Digital / Norris Communications continuously lost money. The accumulated deficit at June 30 2009 was $79.7 million.[4] The company reported its first annual profit for its fiscal year ending March 31, 2009 due to settlements with six of the eight defendants of its patent infringement lawsuits which resulted in one-time licensing fees totalling $10.1 million.[5] With product revenue of $369,079 and service revenue of $578,303, gross revenue for the fiscal year ending March 31, 2009 was $11,055,732. Net income was $2,803,666.[1] At March 31, 2009, net assets were $3,279,863.[1] According to the annual report, no future licensing fees are due from the 6 companies that settled.

Going concern warnings

e.Digital's accountants, Singer Lewak Greenbaum & Goldstein, LLP of Santa Ana, California, state the following in their opinion letter dated June 15, 2009 attached to the company's 10-K annual report for FY 2009:[1] -

" As discussed in Note 1 to the consolidated financial statements, the Company has historically suffered recurring losses from operations and has a substantial accumulated deficit. This raises substantial doubt about the Company’s ability to continue as a going concern.

In its 10-K annual statement filed on June 16, 2009, e.Digital made additional disclosures regarding doubt about the company's ability to continue as a going concern:[6]

"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."

Debt

• 7.5% Convertible Subordinated Term Note

On December 12, 2006 the Company issued a 7.5% Convertible Subordinated Term Note in the principal amount of $970,752 to Davric Corportation, which is 100% owned by Jerry Polis - father of e.Digital Board member Eric Polis - due November 30, 2009 in exchange for prior notes. The note provides for monthly principal and interest installment payments which may be made either in cash or in shares of e.Digital common stock.[7] As of November 19, 2009 the company claims this debt is satisfied.[8]

Access to capital

In January 2007, e.Digital issued a press release announcing a purported $8.5 million common stock purchase agreement with Fusion Capital Fund II, LLC (Fusion).[9] In actuality, the company issued 7,866,666 shares of its common stock in exchange for $500,000 plus the right to sell to Fusion an additional 15 million common shares at market-based prices until February 2009. The maximum total purchase price for the additional 15 million shares was $8.0 million, creating a theoretical agreement maximum of $8.5 million. However, in its SEC filings e.Digital discloses that to achieve the announced (maximum) amount, the average market-based purchase price of the additional 15 million shares would have to be $0.533 per share—a share price not seen since 2003.[10][11] The agreement expired in February 2009.[11]

Products

• 1988–1993 - Most income came from a manufacturing subsidiary of Norris called American Surface Mounted Devices.

• 1994–1996 - Norris Communications unveiled and marketed its Flashback, claimed to be the first portable digital voice recorder with removable flash memory. The device employed the then newly-developed Norris Flash File System (NFFS), later re-named MicroOS.

• 1997 – 2000 - e.Digital's sole paying customer was Lanier for which it developed and manufactured through Eltech Electronics, Inc., a portable digital dictation device and docking station named Cquence Mobile to interface with Lanier's existing Cquence digital dictation system for hospitals.

• 2001 – 2003 – The company sold rebranded Digitalway digital audio players as well as developing and marketing its own branded players, some of which included a speech recognition feature licensed from Lucent, which e.Digital trademarked as "VoiceNav."[12] The rebranded and e.Digital-developed products were not widely accepted and resulted in gross losses of over 100% of direct product costs. During this time e.Digital also operated a free music website at domain www.wedigmusic.com.[13]

• 2003–2006: e.Digital's only customer was APS/digEcor for which it provided custom product design and manufacturing oversight of the digEplayer 5500 originally through South Korean OEM Digitalway and subsequently South Korean OEM Maycom.

• 2006–present: e Digital currently has one product - its eVU portable media player offered to airlines for use as a portable inflight entertainment device. In late 2006, the company stated it had conducted successful trials of its eVU product in healthcare facilities and indicated substantial pending orders in 2007 which did not occur.[14]

Services

Throughout most of its history, Norris Communications/e.Digital Corporation offered engineering services, custom prototype and product design as well as licensing of its patents and product reference designs.

From 2006 forward, service offerings have been tied to the eVU product, including warranty service, media content procurement/refreshing and hardware repair.

Intellectual property

e.Digital owns five patents which it refers to as its Flash-R patent portfolio.[15] The company has made licensing of its patented "MicroOS" flash file system, originally called the "Norris Flash File Systerm" or "NFFS,"[16][17][18] a priority since 1997. The company says it believes that its patent holdings relating to flash memory are "fundamental and valuable, particularly in the areas of content file management, optimal flash memory management, and in removable flash applications."

In February 2006, e.Digital announced that it was pursuing "monetization" of its patent portfolio.[19] It engaged Pat Nunally, formerly of Patriot Scientific Corporation, as an Intellectual Property (IP) consultant in June 2006.[20]

On December 21, 2006 the company stated to shareholders that it had "identified 174 companies with 1,372 products that appear to employ our patent portfolio."[21] On December 20, 2007 it further expanded its claim by stating: “To date, we have identified annual U.S. revenues of more than $20 billion from what we believe are infringing products from such companies."[22]

In March 2007 the company engaged the law firm of Duane Morris LLP to pursue patent infringement claims on a contingent fee basis. The agreement grants Duane Morris 40 - 50% of all settlements and awards after full reimbursement for expenses incurred.[23] The contigency fee agreement also provides a lien resulting in e.Digital's patents being officially assigned to Duane Morris.[24]

Patent infringement litigation

• The company filed its first lawsuit for infringement of its patents on August 1, 1996 in the U.S. District Court for the Southern District of California for infringement of patent number 5,491,774. Defendants were Taiwanese corporations Simate Corp. and Leading Accessories Inc. and their North American distributors James H. Rochel and J.T.L. Enterprises Inc.[25] Outcome of that lawsuit is unknown.

• On December 6, 1996, the company announced a letter of intent to create a strategic and tactical alliance with competing company Voice It Worldwide Inc.[26] Despite the fact that the Voice It also claimed to be the first to use removable memory in a digital recorder,[27] the company did not sue for infringement of its patent.

• On September 7, 2007, e.Digital filed its second lawsuit for patent infringement against Vivitar Corporation this time in the Marshall Division, Eastern District of Texas on 4 of its 5 patents.[28][29] Vivitar responded by denying the infringement claims and filing counterclaims seeking declaratory relief/summary judgment that the patents are noninfringed and invalid. In March 2009, the court administratively closed the case due to Vivitar's bankruptcy.

• On March 4, 2008, e.Digital filed an almost identical lawsuit, also in the Marshall Division, Eastern District of Texas against Casio America, Inc., Avid Technology Inc., LG Electronics USA, Inc., Nikon, Incorporated, Olympus America, Inc., Samsung Electronics America, Inc. and Sanyo North America Corporation.[30][31] As of March 31, 2009, settlements had been reached with 6 defendants, leaving Samsung as the sole remaining defendant. On April 2, 2009 e.Digital dismissed all claims for 2 of the 4 patents it had alleged Samsung infringed. e.Digital and Samsung executed a settlement agreement in September, 2009.

• On November 2, 2009, e.Digital filed a lawsuit alleging infringement of patent number 5,491,774 in the Federal District Court for Colorado against Pentax of America, Inc., Hoya Corporation, Hoya Corporation USA, Canon USA, Inc., Canon Inc., Coby Electronics Corporation, DXG Technology (U.S.A.), Inc., DXG Technology, Inc., HTC America, Inc., HTC Corporation, Ikegami Electronics (USA), Inc., Imation Corporation, Kyocera Communications, Inc., Kyocera Wireless, Inc., Kyocera International, Inc., Kyocera Corporation, Leica Camera, Inc., Leica Camera AG, Marantz America, Inc., D&M Holdings U.S. Inc., D&M Holdings, Inc., Nokia, Inc., Nokia Corporation, Panasonic Corporation of North America, Panasonic Corporation, Summit Global Group, LLC, Roland Systems Group U.S., Roland Corporation, Sakar International, Inc., Samson Technologies Corp., Teac America, Inc., VTech Electronics North America, LLC and TIC Computer, Inc. (DBA Wolverine Data).[32]

Settlements

• On September 25, 2008, e.Digital announced the first settlement of its patent infringement lawsuits. A subsequent lawsuit filing releasing LG Electronics USA, Inc. as a defendant identified it as the settling party. The gross settlement amount reported in form 10-Q was $1.6 million.[33]

• On December 2, 2008, e.Digital announced a settlement and cross licensing agreement with Casio.[34] The gross settlement fee as calculated from data in the quarterly report was $1.65 million.[35]

• On December 17, 2008, e.Digital and Nikon Inc. filed a joint motion with the Court stating they had reached a settlement of their dispute. The gross settlement fee as calculated from data in the quarterly report was $2.0 million.[35]

• In February 2009, e.Digital reached settlements with Avid Technology, Olympus America Inc. and Sanyo North America according to court filings. Financial terms were not disclosed but e.Digital booked $4,865,350 in settlement licensing fees from the 3 companies in the quarter ended March 31, 2009.[1]

• In September 2009, e.Digital executed a settlement agreement with Samsung according to court filings. The gross settlement amount reported in the 10-Q for the period ending September 30,2009 was $1.25 million.[36]

• On December 10, 2009, e.Digital announced a settlement agreement with TIC Computer, Inc. (DBA as Wolverine Data). Financial terms were not disclosed but included a lump-sum payment and a royalty for any on-going sales of products that practice e.Digital’s U.S. Patent 5,491,774.[37]

Legal disputes

digEcor v. e.Digital Corporation

In March 2006, e.Digital announced that its contract manufacturer, Maycom, was either unwilling or unable to fulfill a purchase order it had placed to fulfill a purchase order from its customer digEcor for 1,250 digEplayers and batteries.[38] In May 2006, digEcor, filed a lawsuit against e.Digital regarding the non-delivery of its pre-paid purchase order placed in November, 2005. digEcor sought, among other things, actual damages of $793,750, consequential damages of not less than $1,000,000. e.Digital eventually delivered the players to digEcor without batteries in October 2006 and the parties entered into a partial settlement agreement reducing the actual damages claim to $80,000 for the undelivered batteries. digEcor also sought an injunction barring e.Digital from engaging in any competition with digEcor until after 2009, alleging violation by e.Digital of an April 2002 agreement[39] not to compete with digEcor for a period of 7 years it entered into with Bill Boyer Jr., original owner of digEcor (then named APS) and conceiver of the product and business model.[40] On September 10, 2009, the court ruled against digEcor and dismissed all remaining claims against e.Digital. No damages or or injunctive relief were awarded to digEcor.[41] On October 15, 2009, the court modified its previous summary judgement to reflect the court’s award of $80,000 in favor of digEcor and against e.Digital for undelievered batteries.[42] The companies later filed an agreement to settle the claim for $60,000.

• Decisions and orders to date
  • January 2007
  • October 2007
  • March 2008
  • March 2009 - Includes case summary
  • September 2009 - Final Ruling

• General reference for section: eDigital Corporation Annual Report (10-K), 6/29/2007

Investor information

Shares outstanding

As of June 5, 2009 shares outstanding of e.Digital’s common stock totalled 282,871,198.[1]

Annual meetings of shareholders

Despite that Delaware General Corporation Law and e.Digital's own corporate by-laws require the company to hold an annual meeting of shareholders to elect directors and officers and transact other business,[43] the company did not hold a meeting of shareholders between August 2005 and September 2008. The five prior meetings were held in December 2003, November 2002, 2001 and 2000 and January 1999.[44]

On September 17, 2008 e.Digital held an annual meeting of the stockholders and approved an increase in the number of authorized common stock shares from 300,000,000 to 350,000,000.[45] e.Digital held its 2009 annual meeting on November 19, 2009 at the company's office. The company's directors were reelected and accountants were ratified.[46]

Key people

• Woody Norris, Founder

• Alfred H. Falk, President/CEO: Falk was promoted and re-appointed President and CEO of the company on January 20, 2009. He formerly served as President and a member of the Board from January 1997 (and from July 1998 as CEO) until July 2004 when he resigned to again become e.Digital's Vice President (VP) of Corporate Development. From March 1995 to January 1997, he served as VP of Corporate Development and VP of OEM and International Sales. Previously Falk worked for Resources Internationale as director of U.S. sales from 1993 to 1995 and from 1988 to 1993, he was the manager of OEM sales and technology licensing for Personal Computer Products, Inc. From 1978 to 1988, he held several positions at DH Technology. Falk attended two California community colleges, Palomar College in San Marcos and Foothill College in Los Altos but did not achieve a degree.

• Robert Putnam, Senior Vice President (SVP), Investor Relations, Interim Chief Accounting Officer and Corporate Secretary: Putnam, who has been with the company since its inception in 1988, was appointed SVP in April 1993 and a Director in 1995. In May 2005, he assumed additional responsibilities as Interim Chief Accounting Officer and Corporate Secretary. The company's U.S. Securities and Exchange Commission (SEC) filings disclose a conflict of interest as Putnam devotes only part-time services to e.Digital of approximately twenty hours per week as he also serves as SVP of Investor Relations and a Director of American Technology Corporation. Additionally, he was Secretary/Treasurer of Patriot Scientific Corporation (“Patriot”) from 1989 to 2000 and from 1989 to 1998 was a Director of Patriot during the same time he was an executive officer of e.Digital/Norris Communications. All three corporations where Putnam has served as an officer and director were founded by Woody Norris. Putnam obtained a B.A. degree in mass communications/advertising from Brigham Young University in 1983.

• Allen Cocumelli, Chairman of the Board: Cocumelli has served on e.Digital's Board of Directors since 1999. He was re-appointed Chairman in October 2008 upon the resignation of Chairman Alex Diaz, having previously served as Chairman from April 2000 to November 2002. He has been Corporate Secretary and General Counsel of SimpleNet, Inc. since 2004. He was previously General Counsel of Simplenet Network Communications Inc. from 1996 and Chief Operating Officer from November 1997 until its 1998 buyout by Broadcast.com[47], when he became Director of Website Services from 2000 to 2004. Prior to joining Simplenet Network Communications, he was in the private practice of law. From 1978 to 1986 he was a manager in the Components Manufacturing Group and later Director of Corporate Training and Development at Intel Corporation. He obtained a B.S. degree in Industrial Psychology from the University of California, Los Angeles in 1972 and a J.D. from the Thomas Jefferson School of Law[48] in 1991.

• Renee Warden, Director: Warden joined e.Digital’s Board of Directors in 2005, where she currently heads the company’s audit committee. She has been a financial manager for Verifone since July 2009. She was Director of Accounting for Revolution Money, Inc. from April 2007 to July 2009 and was previously Manager of Special Projects/SOX for Global Signal, Inc. She was a Vice President and Controller for Kintera, Inc. from May 2005 to May 2006. Prior to joining Kintera, she was an executive officer of e.Digital. She joined e.Digital in 1991 as Accounting Manager and in 1997 was appointed Controller and Corporate Secretary. In 2003 she was promoted to Chief Accounting Officer and Corporate Secretary until May 2005. From 1993 to 2003, Warden also held the positions of Chief Accounting Officer, Secretary and Director of Human Resources for American Technology Corporation. She obtained a B.S. degree in business accounting from the University of Phoenix in 1999.

• Eric M. Polis, Director: Polis was appointed effective October 8, 2008 to the Company’s board of directors to fill the vacancy caused by the resignation of former Chairman, Alex Diaz. He has been Secretary, Treasurer and a Director of ASI Technology Corporation, a publicly traded specialty finance company, since July 2000. He has also been employed as an asset manager for privately held Davric Corporation since 1997. Polis obtained a B.S. in Business Administration from the University of Arizona in 1993.

Notoriety

e.Digital is perhaps best known for a phenomenal rise in the price of its stock during the dot-com bubble from a low of $0.06 in January 1999 to an intraday peak of $24.50 on January 24, 2000, fueled primarily by speculation on multiple internet message boards, most prominently the Raging Bull forum[49] that the stock would become listed on the NASDAQ stock exchange.[50][51][52] The share price quickly receded and NASDAQ denied the listing.[53] The price of its stock eventually dropped back to $0.07. It has traded between $0.08 and $0.225 in 2009.[54] A group of loyal shareholders continues to gather online daily in a censored[55] forum to discuss the value of the company as an investment.