On December 5, 2012, e.Digital Corporation filed a lawsuit against us in the United States District Court for the Southern District of California which alleges infringement of United States Patent No. 5,742,737, or the ‘737 patent, entitled “Method for recording voice messages on flash memory in a hand held recorder,” by certain of our cameras. We answered the complaint on February 4, 2013, denying infringement and validity, and asserting counterclaims for declaratory judgment of non-infringement and invalidity. e.Digital filed an amended complaint on June 4, 2013, adding allegations that we infringe U.S. Patent No. 5,491,774, or the ’774 patent, entitled “Handheld Record and Playback Device with Flash Memory.” We answered the amended complaint on June 18, 2013, again denying infringement and validity, and asserting counterclaims for declaratory judgment of non-infringement and invalidity. e.Digital also sued a number of additional parties unrelated to us and our products asserting claims regarding the patents asserted against us and in some cases, two other patents.

We, along with a number of other defendants sued by e.Digital, moved to limit the scope of the ’774 patent based on collateral estoppel resulting from an unfavorable claim construction ruling e.Digital received in an earlier action. On August 22, 2013, the court granted defendants’ motion and held that e.Digital was collaterally estopped from re-litigating the claim construction of the ’774 patent. In light of that ruling, e.Digital agreed to stipulate to non-infringement of the ’774 patent. The parties entered into a partial stipulated judgment of non-infringement as to the ’774 patent, which was subsequently amended as a Federal Rule of Civil Procedure 54(b) judgment to allow an immediate appeal to the U.S. Court of Appeals for the Federal Circuit as to the Court’s collateral estoppel ruling. The remainder of the case has been stayed pending the appeal. Under the stay, the case against us will not proceed until the appeal is completed. If the district court’s collateral estoppel ruling is reversed on appeal, the case against us will proceed only as to the ’737 patent. e.Digital filed its appeal on January 15, 2014. On March 10, 2014, the U.S. Court of Appeals for the Federal Circuit consolidated the appeal with several other pending appeals involving other defendants. e.Digital filed its opening brief on April 9, 2014. Our responsive brief is due May 22, 2014.

We are currently and in the future may continue to be subject to litigation, claims and assertions incidental to our business, including patent infringement litigation and product liability claims, as well as other litigation of a non-material nature in the ordinary course of business.