E.Digital Corporation

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.

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.

Financial status

Throughout its over 22-year history, e.Digital / Norris Communications continuously lost money. The accumulated deficit at March 31, 2010 was $80 million. Although the company reported its first annual profit for its fiscal year ending March 31, 2009 due to settlements with six of eight defendants of its patent infringement lawsuits which resulted in one-time licensing fees totalling $10.1 million, the company returned to an unprofitable status in fiscal year 2010, posting a net loss of $985,000. Revenue for products totalled $205,000 with service revenue totalling $749,000. Patent infringement settlement income totalled $1,600,000 for total revenue of $2,554,000.

Growing 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: -

" 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:

"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."

Products

1988–1993 - No products. 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 renamed 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." 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.

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.

2006–2015: e.Digital's last product, its eVU portable media player offered to airlines for use as a portable in-flight entertainment device, was discontinued in 2015.

Services

Throughout most of its history, Norris Communications/e.Digital Corporation offered engineering services, MP3 player reference designs and custom prototype and product design. From 2006 until 2015, service offerings were exclusively 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. The company has made licensing of its patented "MicroOS" flash file system, originally called the "Norris Flash File System" or "NFFS," 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.

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.

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. 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. Despite the fact that Voice It also claimed to be the first to use removable memory in a digital recorder, 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. Vivitar responded by denying the infringement claims and filing counterclaims seeking declaratory relief/summary judgement that the patents are non-infringed 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. 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).

Settlements

On September 25, 2008, e.Digital announced the first settlement of its patent infringement lawsuits. A subsequent court 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.

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

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.

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 gross settlement fees from the 3 companies in the quarter ended March 31, 2009.

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

On December 10, 2009, e.Digital announced a settlement agreement with TIC Computer, Inc. (DBA as Wolverine Data) which included an undisclosed lump-sum payment and an undisclosed royalty for any on-going sales of products that practice e.Digital’s U.S. Patent 5,491,774. According to e.Digital's quarterly report, the lump-sum payment is not due to be paid until November 2010.

In March 2010, e.Digital announced a settlement agreement with Ikegami Electronics (USA) which provided an undisclosed on-going royalty as well as a settlement agreement with the two Roland entities which included an undisclosed one-time fee.

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 e.Digital had placed to fulfill a purchase order from its customer 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 $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 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. Because the agreement did not specify which State's laws should be applied, the court had to make the determination. The court decided that the agreement should be held to California State law, which disallows non-compete agreements. On September 10, 2009, the court ruled against digEcor on all remaining claims against e.Digital. No damages or injunctive relief were awarded to digEcor. On October 15, 2009, the court modified its previous summary judgement to reflect its award of $80,000 in favor of digEcor and against e.Digital for undelievered batteries. The companies later filed an agreement with the court to settle that claim for $60,000 to be paid by e.Digital to digEcor.

Shares outstanding

As of June 1, 2010, basic shares outstanding of e.Digital’s common stock totalled 286,050,900.

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, 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.

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. 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.

On September 29, 2010, e.Digital announced that its next annual meeting of the stockholders would be postponed until February 2011.

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.

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.

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 intra-day peak of $24.50 on January 24, 2000, fuelled primarily by speculation on multiple internet message boards, most prominently the RagingBull.com forum that the stock would become listed on the NASDAQ stock exchange. The share price quickly receded and NASDAQ eventually denied the listing. The price of its stock dropped back to a low of $0.025 and has traded between $0.025 - $0.125 from September 1, 2010 - September 1, 2011.