e.Digital Corporation

From Wikipedia, the free encyclopedia

e.Digital Corporation
Type Public (OTCBB: EDIG)
Founded 1988
Founder Woody Norris
Headquarters San Diego, California, U.S.
Key people William Blakely (President and CTO)

Robert Putnam (Senior VP of Investor relations and Interim CFO) Alfred H. “Fred” Falk (Former CEO, now VP of Sales)
Alex Diaz (Board Chairman)
Alan Cocumelli (Board member)

Renee Warden (Board member)
Revenue $1,815,014 (FY 2007).[1]
Operating income -$2,068,272 (FY 2007)[1]
Net income -$3,252,146 (FY 2007)[1]
Employees 17 (5/2007)[1]
Website www.edigital.com

e. Digital Corporation (OTCBB: EDIG) 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.

Contents

[edit] 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.[1]

[edit] Financial status

Throughout its 20-year history, e.Digital / Norris Communications has never posted a profit. As of December 31, 2007, the company reported an accumulated deficit of $81.5 million as well as negative net worth of -$1,613,236 and a working capital deficiency of -$1,057,026.[1]

[edit] 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 11, 2007 attached to the company's 10-K annual report for FY 2007:

"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.[1]

In its 10-Q quarterly statement filed on February 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 $81.5 million and a working capital deficit of $1,057,026 at December 31, 2007. 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. " [3]

[edit] Debt

  • 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.[4]
  • 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.[4]

[edit] 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 (Fusion).[5]

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.[6][7]

As of September 30, 2007, e.Digital reported an additional sale of 3,579,716 common shares to Fusion for cash of $640,000 (an average of $0.179/share) leaving 11,420,284 shares available for sale under the agreement.[8]Subsequent to December 31, 2007 the Company says it sold 1,327,803 additional common shares to Fusion under the agreement for cash of $160,000 (an average of $0.120/share) leaving 10,092,481 shares available for sale under the agreement.[3]

Assuming an average purchase price of $0.121 per share (the closing sale price of the common stock on December 31, 2007), the maximum remaining capital that could be raised under the Fusion common stock purchase agreement is $1,221,190.

If the market price of e.Digital common stock drops below $0.08, sales to Fusion are prohibited under the agreement.

[edit] Products

  • 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.
  • 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.

[edit] Services

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.

[edit] Intellectual Property

e.Digital owns 5 patents which it refers to as its Flash-R patent portfolio.[9] The company has made licensing of its patented "MicroOS" flash file system, originally called the "Norris Flash File Systerm" or "NFFS,"[10][11][12] 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.[13] It engaged Pat Nunally, formerly of Patriot Scientific Corporation, as an Intellectual Property (IP) consultant in June 2006.[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]

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.

[edit] 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.[19][20] 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.[21]

[edit] Legal disputes

[edit] 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.[22]
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[23] 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.[24]

[edit] Investor information

[edit] Annual meeting of shareholders

Despite that Delaware corporate law, e.Digital's own corporate by-laws and other published policies require 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 prior meetings in November 2002, 2001 and 2000.

[edit] 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 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.[25] [26] The price of its stock quickly receded and eventually dropped back to $0.07. It has traded between $0.07 and $0.29 in 2006 and 2007.[27] A group of loyal shareholders continues to gather online daily to discuss the value of the company as an investment.[28]

[edit] References

  1. ^ a b c d e f g eDigital Corporation Annual Report (10-K), 6/29/2007
  2. ^ NORRIS COMMUNICATIONS CORP FORM 10-KSB DATED MARCH 31, 1996
  3. ^ a b e.Digital Form 10-Q (quarterly report) for the period ended December 31, 2007
  4. ^ a b e.Digital Form 8-K, 1/2/2008
  5. ^ e.DIGITAL CORPORATION ENTERS INTO $8.5 MILLION COMMON STOCK PURCHASE AGREEMENT WITH FUSION CAPITAL, e.Digital press release, 1/8/2007
  6. ^ e.Digital Form 8-K, 1/8/2007
  7. ^ Fusion Capital Common Stock Purchase Agreement, 1/2/2007
  8. ^ e.Digital Form 10-Q (quarterly report) for the period ended September 30, 2007
  9. ^ * e. Digital-owned patents (found under inventor Daberko, Norbert). US Patent & Trademark Office.
  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. ^ e.DIGITAL CORPORATION AND IP VETERAN PAT NUNALLY TEAM TO PURSUE MONETIZING COMPANY’S FLASH MEMORY-RELATED PATENT PORTFOLIO - e.Digital press release, June 27, 2006
  15. ^ SHAREHOLDER ALERT - 12/21/06
  16. ^ e.DIGITAL ON PACE FOR RECORD FISCAL YEAR REVENUES - Company Expects to Report Approximately $5 Million in Revenues Through Fiscal Q3, December 20, 2007
  17. ^ Contingent fee agreement between Duane Morris and e.Digital dated March 23, 2007 - Attachment to Company 8-K, 3/28/2007
  18. ^ US Patents Assigned to Duane Morris LLP
  19. ^ e.Digital vs Vivitar
  20. ^ "Recent patent/copyright infringement cases filed in U.S. District Court". 
  21. ^ E.Digital Corporation v. Casio America, Inc. et al
  22. ^ SHAREHOLDER ALERT, 03/23/06
  23. ^ Nondisclosure Agreement between e.Digital and Bill Boyer, Jr.
  24. ^ ‘Sky's the limit for a baggage handler's in-flight entertainment system” Seattle PI, September 10, 2003
  25. ^ "The Cavalier Daily, November 20, 2000". 
  26. ^ "Positive Publicity, Negative Returns". 
  27. ^ Historical prices of e.Digital stock
  28. ^ e.Digital discussion forum at agoracom.com

[edit] External links