e. Digital Corporation is a public company based in San Diego, California and trades over-the-counter on the OTCBB under the ticker symbol "EDIG." Founded in 1988 as Norris Communicatons, it is one of the publicly traded companies started by inventor/entrepreneur Elwood "Woody" Norris.
The Company was incorporated
under the Company Act
in the Province of British Columbia
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
. 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.
Throughout its 20-year history, e.Digital / Norris Communications has never posted a profit. As of June 30 2008, the company reported an accumulated deficit
of $82.8 million as well as negative net worth
of -$1,791,648 and a working capital deficiency
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 17, 2008 attached to the company's 10-K annual report for FY 2008:
- "As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, and its total liabilities exceeds its total assets. This raises substantial doubt about the Company's ability to continue as a going concern.
In its 10-Q quarterly statement filed on August 14, 2008, e.Digital made additional disclosures regarding substantial doubt about the company's ability to continue as a going concern:
- "We have incurred significant operating losses and negative cash flow from operations in the current period and in each of the last three fiscal years and these losses have been material. We have an accumulated deficit of $82.8 million and a working capital deficit of $1,041,952 at June 30, 2008. Our operating plans require additional funds which may take the form of debt or equity financings. There can be no assurance that any additional funds will be available to our company on satisfactory terms and conditions, if at all. Our company’s ability to continue as a going concern is in substantial doubt and is dependent upon achieving a profitable level of operations and obtaining additional financing. "
- 18% Secured Promissory Note
- As of January 2, 2008 the Company stated it had for the second time, negotiated an extension of its 18% secured working capital note from ASI Technology Corporation. In this renegotiation, the principal amount was reduced to $450,000 and the renegotiated due date for the note is June 23, 2008. Additional financing fees were paid for the extension. This note is secured by substantially all of the assets of the company, including its intellectual property.
- 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, 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.
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
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.
As of August 14 2008, e.Digital had sold an additional 10,344,387 shares to Fusion leaving 4,655,613 shares available for sale under the agreement. Assuming an average purchase price of $0.09 per share (the closing sale price of the common stock on August 14, 2008), the maximum remaining capital that could be raised under the Fusion common stock purchase agreement is $419,005. If the market price of e.Digital common stock drops below $0.08, sales to Fusion are prohibited under the agreement.
- 1988–1993 - Most income came from a manufacturing subsidiary of Norris called American Surface Mounted Devices.
- 1993 – 1996 - Norris Communications unveiled and marketed its Flashback, claimed to be the first digital voice recorder with removable flash memory powered by its 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.
- 2000 – 2003 – The company sold rebranded digital audio players from Digitalway as well as developing and marketing its own branded digital audio players, some of which included a speech recognition feature licensed from Lucent, which e.Digital trademarked as "VoiceNav." The re-branded and e.Digital-branded 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.
- 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 Korean OEM Digitalway and subsequently Korean OEM Maycom.
- 2006–present: e Digital currently offers only one product - its eVU portable audio video player offered to airlines for use as a portable inflight entertainment device. In 2006 and 2007, the company claimed it had conducted successful trials of its eVU product in healthcare facilities and indicated pending orders which did not occur.
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 e.Digital's eVU, including warranty service, media content procurement/refreshing and hardware repair.
e.Digital owns 5 patents which it refers to as its Flash-R patent portfolio. The company has made licensing of its patented "MicroOS" flash file system
, originally called the "Norris Flash File Systerm" or "NFFS, a priority since 1997. Despite a lack of licensing success, 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. It engaged Pat Nunally, formerly of Patriot Scientific Corporation, as an Intellectual Property (IP) consultant in June 2006.
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." 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."
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. The contigency fee agreement also provides a lien resulting in e.Digital's patents being officially assigned to Duane Morris.
Michael C. Smith of Siebman, Reynolds, Burg, Phillips & Smith, LLP was added as counsel for e Digital in actions filed on March 4, 2008. According to the agreement with Duane Morris, e.Digital is responsible to pay all fees for such co-counsel without a reduction in the contingency fee to Duane Morris.
Patent infringement litigation
- The company filed its first lawsuit for infringement of its patents against Vivitar Corporation on September 7, 2007 in the Marshall Division, Eastern District of Texas. Vivitar responded by denying the infringement claims and filing counterclaims seeking declaratory relief / summary judgment that the patents are noninfringed and invalid.
- 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.
digEcor v. e.Digital Corporation
- Non-delivery of product by e.Digital
- In March 2006, digEplayer supplier e.Digital announced that its contract manufacturer, Maycom, was either unwilling or unable to fulfill a purchase order it had placed to fulfill an order from digEcor for 1,250 digEplayers and batteries.
- 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 $98,846 for the undelivered batteries. Trial is scheduled for January 2009.
- Breach of agreement not to compete by e.Digital
- digEcor is also seeking 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 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.
As of August 12, 2008 a total of 277,407,062 shares of e.Digital’s common stock
were issued and outstanding.
Annual meetings of shareholders
Despite that Delaware corporate law
, e.Digital's own corporate by-laws
and policies published on its website require the company to hold an annual meeting of shareholders to elect directors and officers and transact other business, e.Digital has not held a meeting of shareholders since August 2005. The meeting prior to that was held in December 2003 with the prior three meetings held in November 2002, 2001 and 2000.
On August 1, 2008 e.Digital released a definitive proxy statement announcing that it would hold "the Annual Meeting of Stockholders of e.Digital Corporation" on September 17, 2008 at the offices of the company.
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 rampant speculation on multiple internet message boards, most prominently the Raging Bull
forum. The price of its stock quickly receded and eventually dropped back to $0.07. It has traded between $0.08 and $0.16 in 2008. A group of loyal shareholders continues to gather online daily to discuss the value of the company as an investment.