e.Digital Corp. Surprises Markets, Files for Bankruptcy

e.Digital Corp. (OTCBB:EDIG), an intellectual property licensing company, surprised the markets when it filed for Chapter 7 bankruptcy protection. The company did not make the announcement on its corporate website or in a press release, rather, it announced the decision in an 8-K filing with the Securities and Exchange Commission.

As per the 8-K filing: “after considering all strategic alternatives, e.Digital Corporation, a Delaware Corporation, and its wholly-owned California subsidiary by the same name, ceased operations and filed a voluntary petition for relief under provisions of Chapter 7 of Title 11 of the United States Code, 11 U.S.C. §101 et seq. in the United States Bankruptcy Court for the District of Delaware and the State of California. A Chapter 7 trustee will be appointed by the Bankruptcy Court and will assume control. The assets of the Company will be liquidated and claims paid in accordance with applicable laws.”

Unlike Chapter 13, a Chapter 7 filing does not involve a plan to file a plan of repayment. Instead, the bankruptcy trustee will sell e.Digital Corp’s nonexempt assets and use the proceeds to pay creditors. On top of that, the Bankruptcy Code will allow the debtor to hold on to certain property; the debtor’s remaining assets will be liquidated by a trustee.

Because the trustee assumes control over the assets and liabilities of e.Digitial, the board of directors loses all authority.

As a result, effective July 6, 2017, Allen Cocumelli, Russell H. Packer, Donald S. Springer, and Renee Warden resigned from their positions as directors of the company. The resignations are not the result of any internal dispute, but because of the bankruptcy. The executive officers of the company ceased to be officers and employees of the Company, effective July 6, 2017.

Interestingly, as of Monday, July 10, the company’s web site still makes no mention of it declaring bankruptcy. The company’s shares were also still trading hands on the OTCBB web site, albeit at a significant discount from Friday.

The move to declare bankruptcy caught many off guard. For the third quarter ended December 31, 2016, the last period in which the company filed its quarterly results, e.Digital reported a net income of $73,365, compared to a net loss of $363,869 for the prior year’s third quarter. The company signed two patent licenses in the third quarter of fiscal 2017, with revenue of $151,000. This compares to no revenue for the third quarter of the prior year.

As recently as May 3, 2017, e.Digital was granted a new patent for interpersonal awareness and “Internet of Things” technologies.

“This is the tenth patent granted into the foundational Nunchi patent portfolio that we believe is poised to play a key role in the future of mobile communications and the Internet of Things,” said Fred Falk, president and chief executive officer of e.Digital. “We expect to leverage the additional strength of our recently granted patents, in our patent monetization activities moving forward.”

Sources:

“Form 8-K,” Securities and Exchange Commission, July 7, 2017.

“eDigital Reports Third Quarter Results,” e.Digital Corp., February 15, 2017.

“e.Digitial Granted New Patent For Interpersonal Awareness and the Internet of Things Technologies,” e.Digitial Corp., May 3, 2017.