e.Digital Corporation

e.Digital Corporation
Public (OTCQB: EDIG)
Industry Patent monetization and Inflight entertainment
Founded 1988
Founder Woody Norris
Headquarters San Diego, California, U.S.
Key people

Alfred H. “Fred” Falk(President and CEO) Allen Cocumelli (Board Chairman)
Eric M. Polis (Board member)

Renee Warden (Board member)
Products eVU portable media player
Revenue $2,553,869 (FY 2010)[1]
($878,586) (FY 2010)[1]
($984,589) (FY 2010)[1]
Number of employees
12 (6/2010)[1]
Website www.edigital.com

e. Digital Corporation is a public company based in San Diego, California. Founded in 1988 as Norris Communications, it is one of the publicly traded companies started by inventor/entrepreneur Elwood "Woody" Norris. Its stock trades over-the-counter on the OTCBB under the ticker symbol "EDIG."

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 22-year history, e.Digital / Norris Communications continuously lost money. The accumulated deficit at March 31, 2010 was $80 million.[1] 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,[4] 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.[1]

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:[5] -

" 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."

Products

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 forward, service offerings have been 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.[10] The company has made licensing of its patented "MicroOS" flash file system, originally called the "Norris Flash File System" or "NFFS,"[11][12][13] 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.[14]

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."[15] 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."[16]

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.[17] The contigency fee agreement also provides a lien resulting in e.Digital's patents being officially assigned to Duane Morris.[18]

Patent infringement litigation

Settlements

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.[36]
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[37] 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.[38] 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.[39] 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.[40] The companies later filed an agreement with the court to settle that claim for $60,000 to be paid by e.Digital to digEcor.

Investor information

Shares outstanding

As of June 1, 2010, basic shares outstanding of e.Digital’s common stock totalled 286,050,900.[41]

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,[42] 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.[43]

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.[44] 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.[45]

On September 29, 2010, e.Digital announced that its next annual meeting of the stockholders would be postponed until February 2011.[46]

Key people

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 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 eventually denied the listing.[53] 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.[54]

References

  1. 1 2 3 4 5 6 e.Digital Corporation FY 2010 Annual Report (10-K), Filed 6/10/2010
  2. NORRIS COMMUNICATIONS CORP FORM 10-KSB DATED MARCH 31, 1996
  3. eDigital Corporation FY 2008 Annual Report (10-K), Filed 6/17/2008
  4. e.DIGITAL ANNOUNCES RECORD REVENUES AND PROFITABLE RESULTS FOR FISCAL YEAR 2009, e.Digital Press Release, 6/16/09
  5. e.Digital 10-K FY 2009
  6. e.Digital Annual Report Management Summary
  7. e.Digital Releases MicroDrive MP3 Player You Talk To, By Robert Menta, MP3Newswire.net, 11/02/01
  8. e.Digital launch WeDigMusic download site, AllBusiness.com, 10/1/2002
  9. e.DIGITAL CORPORATION PROVIDES BUSINESS UPDATE ON eVU BUSINESS AND EFFORTS TO MONETIZE FLASH MEMORY-RELATED PATENT PORTFOLIO, Company Press Release, 12/21/2006
  10. Presentation that mentions NFFS - 9/24/2007
  11. Article that mentions NFFS - 2005 USENIX Annual Conference
  12. Study that mentions NFFS - 8/10/2005
  13. e. Digital Corporation Reports Q3 Fiscal 2006 Results; Company Amends Q2 Fiscal 2006 Filing, Begins eVU(TM) Trial Deliveries, Initiates Intellectual Property Partnering Efforts - 2/14/2006
  14. "SHAREHOLDER ALERT - 12/21/06". Archived from the original on 2007-05-13.
  15. e.DIGITAL ON PACE FOR RECORD FISCAL YEAR REVENUES - Company Expects to Report Approximately $5 Million in Revenues Through Fiscal Q3, December 20, 2007
  16. Contingent fee agreement between Duane Morris and e.Digital dated March 23, 2007 - Attachment to Company 8-K, 3/28/2007
  17. US Patents Assigned to Duane Morris LLP
  18. Norris files patent infringement suit against Simate, Business Wire, August 6, 1996
  19. NCI signs letter of intent with Voice It, Business Wire, December 6, 1996
  20. VXI CORPORATION BUYS ASSETS OF VOICE IT WORLDWIDE, INC., DEVELOPERS OF THE VOICE IT¨ LINE OF DIGITAL, HAND-HELD RECORDER PLAYERS, VXI press release, March 20, 2000
  21. e.Digital vs Vivitar
  22. "Recent patent/copyright infringement cases filed in U.S. District Court".
  23. E.Digital Corporation v. Casio America, Inc. et al.
  24. In-flight device maker sues everyone seeking flash memory bonanza, The Register, June 27, 2008
  25. e.Digital Corporation v. Pentax of America, Inc. et al, justia.com
  26. Form 10-Q (quarterly report) for the period ended December 30, 2008
  27. e.DIGITAL ANNOUNCES SETTLEMENT AND CROSS-LICENSING AGREEMENT WITH CASIO, e.Digital Press Release, 12/2/08
  28. 1 2 Form 10-Q (quarterly report) for the period ended December 30, 2008
  29. e.Digital Corporation FY 2009 Annual Report (10-K), Filed 6/18/2009
  30. Form 10-Q for quarter ending September 30,2009
  31. e.Digital press release, December 10, 2009
  32. - - e.Digital Corporation 10Q Quarterly Report (10-Q), Filed 8/13/2009
  33. e.Digital press release, March 1, 2010
  34. e.Digital press release, March 9, 2010
  35. SHAREHOLDER ALERT, 03/23/06
  36. Non-disclosure Agreement between e.Digital and Bill Boyer, Jr.
  37. ‘Sky's the limit for a baggage handler's in-flight entertainment system” Seattle PI, September 10, 2003
  38. digEcor v. e.Digital final ruling, September 10, 2009
  39. Subset of legal filings in digEcor case and patent infringement litigation, digEcor v. e.Digital, docket #404, 10/15/09
  40. e.Digital Corporation FY 2010 Annual Report (10-K), Filed 6/10/2010
  41. Delaware General Corporation Law, Chapter 1, Subchapter VII. Meetings, Elections, Voting and Notice
  42. e.Digital SEC DEF 14A forms, 1997–present
  43. e.Digital Corporation 8-K, 9/18/08
  44. PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE - SECURITIES EXCHANGE ACT OF 1934, October 5, 2009
  45. e.Digital press release, September 29, 2010
  46. Broadcast.com to buy SimpleNet, CNET News, November 17, 1998
  47. California Bar Association, Allen Cocumelli
  48. News or Noise? Internet Message Board Activity and Stock Prices", Robert Tumarkan (Mezzacappa Management) and Robert F. Whitelaw (New York University)
  49. Durante, Matt (2000-11-20). "Penny stocks reap serious change". Cavalier Daily. Archived from the original on 2007-10-12.
  50. "Positive Publicity, Negative Returns". Archived from the original on 2007-11-17.
  51. e.Digital Corp. Applies for Nasdaq Listing Businesswire, February 3, 2000
  52. Nasdaq Spurns Local Firm's Listing Application San Diego Business Journal, Nov 13, 2000
  53. Historical prices of e.Digital stock

External links

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