E DIGITAL CORP - FORM 10-Q - November 10, 2011

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - E DIGITAL CORP	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - E DIGITAL CORP	v238342_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - E DIGITAL CORP	v238342_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - E DIGITAL CORP	v238342_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

Commission File Number 0-20734

e.Digital Corporation

(Exact name of registrant as specified in its charter)

Delaware	33-0591385
(State or other jurisdiction of incorporation or organization)	(I.R.S. Empl. Ident. No.)

16770 West Bernardo Drive, San Diego, California	92127
(Address of principal executive offices)	(Zip Code)

(858) 304-3016

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨	Accelerated filer ¨
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of October17, 2011 a total of 293,003,158 shares of the Registrant’s Common Stock, par value $0.001, were issued and outstanding.

e.DIGITAL CORPORATION

INDEX

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):	3

	Condensed Consolidated Balance Sheets as of September 30, 2011 and March 31, 2011	3

	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2011 and 2010	4

	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2011 and 2010	5

	Notes to Interim Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

Item 4.	Controls and Procedures	19

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	(Removed and Reserved)	20
Item 5.	Other Information	20
Item 6.	Exhibits	21

SIGNATURES		21

Part I. Financial Information

Item 1. Financial Statements:

e.Digital Corporation and subsidiary

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,
	2011			March 31,
	(Unaudited)			2011
	$			$
ASSETS
Current
Cash and cash equivalents		3,031,760			1,805,894
Accounts receivable		101,478			98,152
Inventory		216,495			256,458
Deposits and prepaid expenses		35,915			30,327
Total current assets		3,385,648			2,190,831
Property, equipment and intangibles, net of accumulated depreciation and amortization of $196,418 and $194,461, respectively		4,188			6,506
Total assets		3,389,836			2,197,337
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable, trade		230,357			24,466
Accrued and other liabilities		238,730			153,013
Total current liabilities		469,087			177,479

Commitments and Contingencies

Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized None issued and outstanding		-			-
Common stock, $0.001 par value, authorized 350,000,000, 293,003,158 shares issued and outstanding each period		293,003			293,003
Additional paid-in capital		82,773,312			82,767,088
Accumulated deficit		(80,145,566	)		(81,040,233	)
Total stockholders' equity		2,920,749			2,019,858

Total liabilities and stockholders' equity		3,389,836			2,197,337

See notes to interim consolidated financial statements

e.Digital Corporation and subsidiary

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended						For the six months ended
	September 30,						September 30,
	2011			2010			2011			2010
	$			$			$			$
Revenue:
Products		21,250			54,212			60,257			352,827
Services		116,903			183,883			234,711			372,402
Patent license		904,338			-			2,929,338			25,264
		1,042,491			238,095			3,224,306			750,493

Cost of revenues:
Products		24,514			34,996			61,676			276,681
Services		77,342			98,929			141,422			184,932
Patent license		341,670			15,158			1,252,874			25,264
		443,526			149,083			1,455,972			486,877
Gross profit		598,965			89,012			1,768,334			263,616

Operating expenses:
Selling and administrative		230,774			273,788			479,621			639,913
Research and related expenditures		103,736			87,413			293,021			246,084
Total operating expenses		334,510			361,201			772,642			885,997

Operating income (loss) before provision for income taxes		264,455			(272,189	)		995,692			(622,381	)
Income tax provision		(101,025	)		-			(101,025	)		-
Income (loss) for the period		163,430			(272,189	)		894,667			(622,381	)
Accrued and deemed dividends on preferred stock		-			-			-			(31,396	)
Income (loss) attributable to common stockholders		163,430			(272,189	)		894,667			(653,777	)
Income (loss) per common share - basic and diluted		0.00			(0.00	)		0.00			(0.00	)

Weighted average common shares outstanding Basic and diluted		293,003,158			293,003,158			293,003,158			289,993,565

See notes to interim consolidated financial statements

e.Digital Corporation and subsidiary

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the six months ended
	September 30,
	2011			2010
	$			$
OPERATING ACTIVITIES
Income (loss) for period		894,667			(622,381	)
Adjustments to reconcile income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		2,318			5,279
Warranty provision		(2,604	)		11,327
Stock-based compensation		6,224			100,164
Changes in assets and liabilities:
Accounts receivable		(3,326	)		(60,669	)
Inventory		39,963			48,933
Deposits and prepaid expenses		(5,588	)		13,504
Accounts payable, trade		205,891			55,362
Accrued and other liabilities		88,321			(224,239	)
Cash provided by (used in) operating activities		1,225,866			(672,720	)

INVESTING ACTIVITIES
Purchase of equipment		-			(1,103	)
Cash used in investing activities		-			(1,103	)
Net increase (decrease) in cash and cash equivalents		1,225,866			(673,823	)
Cash and cash equivalents, beginning of period		1,805,894			2,818,727
Cash and cash equivalents, end of period		3,031,760			2,144,904

Supplemental schedule of noncash investing and financing activities:
Common stock issued on conversion of preferred stock		-			605,226
Accrued and deemed dividends on preferred stock		-			31,396

See notes to interim consolidated financial statements

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

e.Digital Corporation is a holding company incorporated under the laws of Delaware that operates through a wholly-owned California subsidiary of the same name. The Company markets the eVU™ mobile entertainment system for the travel industry and licenses and enforces its Flash-R™ portfolio of patents related to the use of flash memory in portable devices.

Unaudited Interim Financial Statements

These unaudited consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. These interim consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments considered necessary for a fair statement of the Company's financial position at September 30, 2011, and the results of its operations and cash flows for the periods presented, consisting only of normal and recurring adjustments. All significant intercompany transactions have been eliminated in consolidation. Operating results for the three and six months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2012. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended March 31, 2011 filed on Form 10-K.

Going Concern

The Company has incurred significant historical losses and negative cash flow from operations and has an accumulated deficit of $80,145,566 at September 30, 2011. Although the Company reported a profit in the first six months of the current fiscal year it could incur additional losses in the future until product, service and/or licensing revenues are sufficient to sustain continued profitability. Until the Company can demonstrate sustained profitability its ability to continue as a going concern is in doubt and may be dependent upon obtaining additional financing in the future. These consolidated financial statements do not give effect to any adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. RECENT ACCOUNTING PRONOUNCEMENTS

There have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended September 30, 2011 that are of significance, or potential significance to the Company’s financial statements.

3. INCOME (LOSS) PER SHARE

Basic earnings (loss) per common share is computed by dividing income (loss) attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income (loss) attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities included outstanding stock options and warrants. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. These securities were not included in the computation of diluted loss per share for the periods because they are antidilutive, but they could potentially dilute earnings per share in future periods. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended					Six Months Ended
	September 30,					September 30,
	2011		2010			2011		2010
Basic and diluted (1)
Income (loss) attributable to common stockholders	$	163,430	$	(272,189	)	$	894,667	$	(653,777	)
Weighted average common shares outstanding (basic and diluted)		293,003,158		293,003,158			293,003,158		289,993,565
Basic and diluted income (loss) per common share	$	0.00	$	(0.00	)	$	0.00	$	(0.00	)

Potentially dilutive securities outstanding at period end excluded from diluted computation as they were antidilutive		5,510,000		14,465,500			5,510,000		14,465,500

(1) There was no difference in basic and diluted income (loss) or in basic and diluted weighted-average shares outstanding for the respective periods. Options and warrants are not included as the effect would be anti-dilutive.

4. INVENTORIES

Inventory is recorded at the lower of cost and net realizable value. The cost of substantially all the Company’s inventory is determined by the weighted average cost method.

Inventories consisted of the following:

	September 30,		March 31,
	2011		2011
	$		$
Raw materials		60,483		70,835
Work in process		15,992		19,027
Finished goods		140,020		166,596
		216,495		256,458

5. STOCK-BASED COMPENSATION COSTS

The Company accounts for stock-based compensation under the provisions of ASC 718, Share-Based Payment and ASC 505-50, Equity-Based Payments to Non-Employees. ASC 718 requires measurement of all employee stock-based awards using a fair-value method and recording of related compensation expense in the consolidated financial statements over the requisite service period. Further, as required under ASC 718, the Company estimates forfeitures for stock-based awards that are not expected to vest. The Company recorded stock-based compensation in its consolidated statements of operations for the relevant periods as follows:

	Three Months Ended				Three Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	$		$		$		$
Research and development		2,174		4,330		5,865		22,364
Selling and administrative		326		2,068		359		77,800
Total stock-based compensation expense		2,500		6,398		6,224		100,164

As of September 30, 2011 total estimated compensation cost of stock options granted but not yet vested was $1,582 and is expected to be recognized over the weighted average period of 0.7 years.

The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the six-month period ended September 30, 2011 and 2010 (annualized percentages).

	Six Months Ended
	September 30,
	2011*		2010
Volatility		n/a		76	%
Risk-free interest rate		n/a		0.43	%
Forfeiture rate		n/a		0.0	%
Dividend yield		n/a		0.0	%
Expected life in years		n/a		2.0
Weighted-average fair value of options granted		n/a	$	0.04

* No options granted during the period.

The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the historical volatility of the common stock over the period commensurate with the expected life of the options. The Company has a small number of option grants and limited exercise history and accordingly has for all new option grants applied the simplified method prescribed by SEC Staff Accounting Bulletin 110, Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected Term, to estimate expected life (computed as vesting term plus contractual term divided by two). The expected forfeiture rate is estimated based on historical and expected experience for determined option groups and is zero for options vesting on grant. Additional expense is recorded when the actual forfeiture rates are lower than estimated and a recovery of prior expense will be recorded if the actual forfeitures are higher than estimated.

See Note 7 for further information on outstanding stock options.

6. WARRANTY RESERVE

Details of the estimated warranty liability included in accrued and other liabilities are as follows:

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	$			$			$			$
Beginning balance		3,205			13,607			4,589			5,262
Warranty provision		(1,271	)		2,982			(2,604	)		11,327
Warranty deductions		-			(6,466	)		(51	)		(6,466	)
Ending balance		1,934			10,123			1,934			10,123

7. STOCKHOLDERS’ EQUITY

The following table summarizes stockholders’ equity transactions during the six-month period ended September 30, 2011:

	Common stock				Additional		Accumulated			Total stockholders'
	Shares		Amount		paid-in capital		deficit			equity
			$		$		$			$
Balance, April 1, 2011		293,003,158		293,003		82,767,088		(81,040,233	)		2,019,858
Stock-based compensation		-		-		6,224		-			6,224
Income for the period		-		-		-		894,667			894,667
Balance, September 30, 2011		293,003,158		293,003		82,773,312		(80,145,566	)		2,920,749

Options

The following table summarizes stock option activity for the period:

				Weighted average		Aggregate
	Shares			exercise price		Intrinsic Value
	#			$		$
Outstanding April 1, 2011		6,022,500			0.15
Granted		-			-
Exercised		-			-
Canceled/expired		(512,500	)		0.18
Outstanding September 30, 2011		5,510,000			0.11	$	-
Exercisable at September 30, 2011		5,130,000			0.11	$	-

(1)

Options outstanding are exercisable at prices ranging from $0.09 to $0.155 and expire over the period from 2013 to 2015.

(2)

Aggregate intrinsic value is based on the closing price of our common stock on September 30, 2011 of $0.037 and excludes the impact of options that were not in-the-money.

Share warrants

A total of 7,500,000 share warrants exercisable at $0.10 per share expired on June 30, 2011 and no warrants were outstanding at September 30, 2011.

8. FAIR VALUE MEASUREMENTS

Cash and cash equivalents are measured at fair value in the Company’s financial statements. Accounts receivable are financial assets with carrying values that approximate fair value due to the short-term nature of these assets. Accounts payable, deferred revenue and accrued and other liabilities are financial liabilities with carrying values that approximate fair value due to the short-term nature of these liabilities. Effective April 1, 2008 the Company adopted and follows ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) which established a fair value hierarchy that requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company’s cash and cash equivalents are valued using unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs under ASC 820).

9. SEGMENT INFORMATION

ASC 280 Segment Reporting provides annual and interim reporting standards for an enterprise’s business segments and related disclosures about its products, services, geographical areas and major customers. The Company has two operating segments: (1) products and services and (2) patent licensing. Products and services consist of sales of the Company’s electronic eVU mobile entertainment device and related content services and patent licensing consists of intellectual property revenues from the Flash-R patent portfolio.

Accounting policies for each of the operating segments are the same as on a consolidated basis.

Reportable segment information for the three and six months ended September 30, 2011 and 2010 is as follows:

	For the three months ended						For the six months ended
	September 30,						September 30,
	2011			2010			2011			2010
	$			$			$			$
REVENUES:
Products and services		138,153			238,095			294,968			725,229
Patent licensing		904,338			-			2,929,338			25,264
Total revenue		1,042,491			238,095			3,224,306			750,493

GROSS PROFIT:
Products and services		36,297			104,170			91,870			263,616
Patent licensing		562,668			(15,158	)		1,676,464			-
Total gross profit		598,965			89,012			1,768,334			263,616

RECONCILIATION:
Total segment gross profit		598,965			89,012			1,768,334			263,616
Operating expenses		(334,510	)		(361,201	)		(772,642	)		(885,997	)
Other income (expense)		-			-			-			-
Income (loss) before income taxes		264,455			(272,189	)		995,692			(622,381	)

The Company does not have significant assets employed in the patent license segment and does not track capital expenditures or assets by reportable segment. Consequently it is not practical to show this information.

Revenue by geographic region is determined based on the location of the Company’s direct customers or distributors for product sales and services. Patent license revenue is considered United States revenue as payments are for licenses for United States operations irrespective of the location of the licensee’s home domicile.

	For the three months ended				For the six months ended
	September 30,				September 30,
	2011		2010		2011		2010
	$		$		$		$
United States		904,338		-		2,929,338		25,264
International		138,153		238,095		294,968		725,229
Total revenue		1,042,491		238,095		3,224,306		750,493

Revenues from three licensees comprised 32%, 31% and 15% of revenue for the six months ended September 30, 2011, with no other licensee or customer accounting for more than 10% of revenues. Revenues from three customers comprised 31%, 27% and 12% of revenue for the six months ended September 30, 2010, with no other customer accounting for more than 10% of revenues. Accounts receivable from three customers comprised 28%, 25% and 22% of net accounts receivable at September 30, 2011.

10. COMMITMENTS AND CONTINGENCIES

Legal Matters

Intellectual Property Litigation

In September 2007 through March 2008, the Company filed complaints against eight electronic product manufacturers in the U.S. District Court for the Eastern District of Texas asserting that products made by the companies infringe four of the Company's U.S. patents covering the use of flash memory technology. These patents are part of the Company’s Flash-R patent portfolio. By September 30, 2009 the Company had licensed and settled the litigation with seven of the manufacturers and suspended the complaint against one defendant in bankruptcy.

In November 2009 the Company filed an additional patent infringement complaint in the United States District Court for the District of Colorado against nineteen companies that manufacture devices using flash memory. By September 30, 2011 the Company had licensed and settled the litigation with ten of the defendants, suspended the complaint against one defendant, and dismissed with prejudice, two additional defendants. Subsequent to September 30, 2011, the Company entered into two licensing and settlement agreements related to the Flash-R portfolio. The remaining four defendants were dismissed with prejudice, thereby ending the Colorado patent litigation case.

Although most fees, costs and expenses of intellectual property litigation are covered under the Company’s arrangement with Duane Morris LLP as described below, the Company may incur support and related expenses for future litigation that may become material.

Commitment Related to Intellectual Property Legal Services

On March 23, 2007, the Company entered into an agreement for legal services and a contingent fee arrangement with Duane Morris LLP. The agreement provides that Duane Morris is the Company’s legal counsel in connection with the assertion of the Company’s flash memory related patents against infringers (“Patent Enforcement Matters”).

Duane Morris has agreed to handle the Company’s Patent Enforcement Matters and certain related appeals on a contingent fee basis. Duane Morris also has agreed to advance certain costs and expenses including travel expenses, court costs and expert fees. The Company has agreed to pay Duane Morris a fee equal to 40% of any license or litigation recovery related to Patent Enforcement Matters, after recovery of expenses, and 50% of recovery if appeal is necessary.

In the event the Company is acquired or sold or elects to sell the covered patents or upon certain other corporate events or in the event the Company terminates the agreement for any reason, then Duane Morris shall be entitled to collect accrued costs and a fee equal to three times overall time and expenses accrued in connection with the agreement and a fee of 15% of a good faith estimate of the overall value of the covered patents. Any such corporate event or termination fee will only be recorded if and when such applicable event becomes probable. The Company has provided Duane Morris a lien and a security interest in the covered patents to secure its obligations under the agreement.

Facility Lease

In March 2006 the Company entered into a sixty-two month lease, commencing June 1, 2006 and expiring July 31, 2011, for approximately 4,800 square feet. In May 2011 the Company entered into a lease extension through April 2012 at the same monthly rate of $6,534 excluding utilities and costs. Future lease commitments aggregated $45,740 at September 30, 2011.

Concentration of Credit Risk and Sources of Supply

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade receivables. The Company at September 30, 2011 had substantially all of its cash and cash equivalents at one financial institution in a non-interest bearing account, which pursuant to current rules is insured in full by the Federal Deposit Insurance Corporation through December 31, 2012. The Company does not believe that it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships. The Company performs periodic evaluations of the relative credit standing of these financial institutions. The Company has not experienced any significant losses on its cash equivalents.

Concentrations of credit risk with respect to trade accounts receivable are limited due to the number and nature of customers comprising the Company’s customer base and their geographic dispersion. The Company has not incurred any significant credit related losses.

The Company relies on one third-party contract manufacturer to produce its eVU mobile entertainment product and generally relies on single suppliers for batteries, charging stations and other components. The Company also relies on one legal firm to represent it in patent licensing and enforcement matters.

Guarantees and Indemnifications

The Company enters into standard indemnification agreements in the ordinary course of business. Some of the Company’s product sales and services agreements include a limited indemnification provision for claims from third parties relating to the Company’s intellectual property. Such indemnification provisions are accounted for in accordance with ASC 450, Contingencies. The indemnification is generally limited to the amount paid by the customer. To date, there have been no claims under such indemnification provisions.

The Company provides a one-year limited warranty for most of its products.

11. INCOME TAXES

The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated tax rate changes, a cumulative adjustment is made. For the six months ended September 30, 2011, the provision for income taxes included $57,025 of foreign withholding taxes on payments in connection with a patent license agreement. Excluding the impact of foreign withholding taxes, the 2012 annual effective tax rate is estimated to be lower than the 35% U.S. federal statutory rate due primarily to the anticipated utilization of available net operating loss (“NOL”) carryforwards to reduce U.S. taxable income. For the six months ended September 30, 2011, the provision for income taxes related primarily to a California state tax liability due to a California extension of the suspension of the net operating loss (“NOL”) carryforwards to the Company’s 2011 tax year.

At September 30, 2011, the Company had deferred tax assets associated with federal net operating losses (“NOLs”), related state NOLs, foreign tax credits and certain Federal and California research and development tax credits, but recorded a corresponding full valuation allowance as it is more likely than not that some portion or all of the deferred tax assets will not be realized.

12. SUBSEQUENT EVENTS

See Note 10 for information on subsequent licensing and litigation information.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW. SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2011.

Cautionary Note on Forward Looking Statements

In addition to the other information in this report, the factors listed below should be considered in evaluating our business and prospects. This report contains a number of forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below and elsewhere herein, that could cause actual results to differ materially from historical results or those anticipated. In this report, the words “anticipates,” “believes,” “expects,” “intends,” “future” and similar expressions identify forward-looking statements. Readers are cautioned to consider the specific factors described below and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof.

General

We are a holding company incorporated under the laws of Delaware that operates through a wholly-owned California subsidiary of the same name. We market our eVU mobile entertainment system for the travel industry and license and enforce our Flash-R portfolio of flash memory patents for use in portable devices produced by electronic product manufacturers. We also seek to expand our licensable intellectual property portfolio and in fiscal 2011 filed seven new U.S. patent applications for technologies related to communication networks and digital data distribution.

We have two operating segments: (1) products and services and (2) patent licensing and enforcement. Our products and services revenue is derived from the sale of eVU products and accessories to customers, warranty and technical support services and content integration fees and related services. Our patent licensing and enforcement revenue consists of intellectual property revenues from our Flash-R patent portfolio.

Our strategy is to market our eVU products and services to a growing base of U.S. and international companies for use in the airline and other travel industries. We employ direct sales and sales through value added resellers (VARs) that provide marketing, logistic and/or content services to corporate customers.

We are commercializing our Flash-R patent portfolio through licensing and aggressively pursue enforcement by litigating against targeted parties that we believe are infringing our patents. The international law firm of Duane Morris LLP is handling our patent enforcement matters on a contingent fee basis. During the period commencing September 2007 through March 2008, we filed complaints against eight electronic product manufacturers and subsequently licensed and settled the litigation with seven of the manufacturers and suspended the complaint against one defendant that filed for bankruptcy. In November 2009 we filed an additional patent infringement complaint in the United States District Court for the District of Colorado (the “Court”) against nineteen companies that manufacture devices using flash memory. On June 28, 2011, the Court issued an Opinion and Order Regarding Claim Construction following a January 28, 2011 Markman hearing (a proceeding under U.S. patent law where both sides present to the Court their arguments on how they believe patent terms should be construed). The Opinion construed claim terms in United States Patent 5,491,774, one of the Company’s Flash-R patents, more narrowly than we had proposed. On July 28, 2011 the parties to the litigation filed a Joint Statement in Response to June 28, 2011 Order Regarding Claim Construction (the “Statement”) as required by the Opinion. The Statement proposed a plan to take future discovery and requested that the Court construe a claim term from a second Flash-R patent in the litigation.

As of September 30, 2011 we had licensed and settled with ten defendants, suspended the complaint against one defendant, and dismissed with prejudice, two additional defendants. Subsequent to September 30, 2011, we entered into two licensing and settlement agreements related to the Flash-R portfolio. The remaining four defendants were dismissed with prejudice, thereby ending the Colorado patent litigation case.

Additionally, in October 2011 we entered into a Flash-R licensing agreement with a manufacturing company outside of the above litigation rounds. While we continue to evaluate future licensing and enforcement actions, the Order and the Statement, described above, could negatively affect future licensing prospects.

Two of our patents are in the process of being reexamined by the United States Patent and Trademark Office (USPTO). Favorable determinations from the reexamination could bolster our licensing and unfavorable determination could adversely affect our ability to monetize our patent portfolio. We expect the reexamination process to be complete in approximately six months.

While we expect to file future complaints against additional companies and license additional companies there can be no assurance of the timing or amounts of any related license revenue. We also are developing new intellectual property for possible licensing in the areas of communication networks and digital data distribution.

Our business is high risk in nature. There can be no assurance we can achieve sufficient eVU or patent license revenues to sustain profitability. We continue to be subject to the risks normally associated with introducing new products, services and technologies, including unforeseeable expenses, delays and complications. Accordingly, there is no guarantee that we can or will report operating profits in future periods.

Overall Performance and Trends

We focused significant efforts on developing, licensing and enforcing our patent portfolio during the first six months and during the fiscal years ended March 31, 2011 and 2010. While we have completed two rounds of litigation to date, there is a reluctance of patent infringers to negotiate and ultimately take a patent license without at least the threat of legal action. However, the majority of patent infringement contentions settle out of court, based on the strength of the patent claims, validity, and persuasive evidence and clarity that the patent is being infringed. Although we believe we have been successful in early licensing by demonstrating the strength, validity and clarity of our patent claims, future events including court rulings and patent reexamination results could have a significant positive or negative impact on future licensing activity. The recent Markman ruling in particular could negatively affect future licensing prospects.

Our eVU IFE business remained slow during the first six months primarily due to airline economics. We are unable to predict future sales levels in this market as eVU player orders have been and are expected to continue to be sporadic from both existing and new customers. We continue to pursue business in the airline and other travel markets for our eVU product line.

While we reported a profit for the six months ended September 30, 2011 (fiscal 2012), in the two years just completed (fiscal 2011 and 2010) we have incurred losses and negative cash flow from operations. We expect to 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 sustained profitability and if necessary obtaining additional financing.

Management faces challenges for the remainder of fiscal 2012 to execute its plan to grow product and service revenues, license new intellectual property currently in development, and realize additional Flash-R patent portfolio license fees. The recent Markman ruling could negatively affect future licensing prospects and future rulings from reexamination of certain Flash-R patent claims by the USPTO could have a significant positive or negative impact on future licensing activity in 2012 and beyond. The failure to obtain additional patent license revenues or eVU orders or delays of orders or production delays could have a material adverse impact on our operations. Our patent licensing business is subject to significant uncertainties as to the timing and amount of future license revenues, if any. We may also face unanticipated technical or manufacturing obstacles and face warranty and other risks in our business.

For the six months ended September 30, 2011 we recognized net income before income taxes of $995,692 compared to a loss before income taxes of $622,381 for the comparable period of the prior fiscal year. Our revenues were $3,224,306 for the first six months of fiscal 2012 with $2,929,338 of patent license revenue. This compares to $750,493 for the prior year’s first six months with $25,264 of patent license revenue reported. We reported reduced operating expenses totaling $772,642 in the six months ended September 30, 2011 compared to $885,997 in the comparable period prior primarily due to reduced staffing costs and non-cash stock compensation expenses.

Our base recurring monthly cash operating costs average approximately $135,000. However, during the current fiscal year we have incurred and may continue to incur increased non-recurring advanced product and technology research and development costs, patent re-examination related costs and other legal costs. We may also increase expenditure levels in future periods to support and expand our revenue opportunities. Our quarterly results are highly dependent on the timing and amount of licensing fees and elections regarding non-recurring expenditures and accordingly quarterly results can vary dramatically from period to period. As a result of this and other factors, past results and expenditure levels may not be indicative of future quarters. We expect to 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 sustained profitability and if necessary, obtaining additional financing.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements located in Item 1 of Part I, “Financial Statements,” and in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report of Form 10-K for the year ended March 31, 2011. The preparation of these financial statements prepared in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including but not limited to those related to revenue recognition, bad debts, inventory valuation, intangible assets, financing operations, stock-based compensation, fair values, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that, of the significant accounting policies discussed in our consolidated financial statements, the following accounting policies require our most difficult, subjective or complex judgments:

revenue recognition;

stock-based compensation expense; and

income taxes.

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. There were no significant changes or modification of our critical accounting policies and estimates involving management valuation adjustments affecting our results for the six months ended September 30, 2011. For further information on our critical accounting policies, refer to Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended March 31, 2011.

Results of Operations

Three months ended September 30, 2011 compared to the three months ended September 30, 2010

	Three Months Ended September 30,
	2011						2010
				% of						% of			Change
	Dollars			Revenue			Dollars			Revenue			Dollars			%
Revenues:
Products		21,250			2	%		54,212			23	%		(32,962	)		(61	)%
Services		116,903			11	%		183,883			77	%		(66,980	)		(36	)%
Patent license		904,338			87	%		-			0	%		904,338
		1,042,491			100	%		238,095			100	%		804,396			338	%
Gross Profit:
Product gross profit (loss)		(3,264	)		(0	)%		19,216			8	%		(22,480	)		(117	)%
Service gross profit		39,561			4	%		84,954			36	%		(45,393	)		(53	)%
Patent license		562,668			54	%		(15,158	)		-6	%		577,826			(3812	)%
		598,965			57	%		89,012			37	%		509,953			573	%
Operating Expenses:
Selling and administrative		230,774			22	%		273,788			115	%		(43,014	)		(16	)%
Research and related		103,736			10	%		87,413			37	%		16,323			19	%
		334,510			32	%		361,201			152	%		(26,691	)		(7	)%
Income (loss) before income taxes		264,455			25	%		(272,189	)		(114	)%		536,644			(197	)%

Income (Loss) Before Income Taxes

The income before income taxes in the second quarter of fiscal 2012 resulted primarily from three new license arrangements and related margins.

Revenues

Revenues increased during the most recent fiscal quarter (Q2 of fiscal 2012) compared to the same quarter of the prior fiscal year due to three new license arrangements. We experienced reduced product and service revenues due to no significant new customers or product sales and reduced service revenues from ongoing customers. Our product revenues have been sporadic in part as a result of airline industry economics resulting in reduced IFE activity. Our service revenues declined and vary depending on repair and content services provided to a changing customer mix.

License fee revenues recognized fluctuate significantly from period to period primarily based on the following factors:

the dollar amount of agreements executed each period, which is primarily driven by the magnitude of infringement associated with a specific licensee;

the specific terms and conditions of agreements executed each period and the periods of infringement contemplated by the respective payments; and

fluctuations in the number of agreements executed.

In the future the following additional factors could also impact revenue variability:

the effect of court and USPTO rulings and decisions;

fluctuations in the sales results or other royalty per unit activities of our licensees that impact the calculation of license fees due;

the timing of the receipt of periodic license fee payments and/or reports from licensees.

We are pursuing new eVU business and targeting new patent licensees but our results will continue to be dependent on the timing and quantity of eVU orders and the timing and amount of future patent licensing arrangements, if any.

Gross Profit

Gross profit for the second quarter of fiscal 2012 was $598,965 or 57% of revenues. The gross profit on product and service revenues was 26% of related revenues and the gross profit on patent licensing fees was 62% of license revenues. The gross profit for the prior year’s second quarter was $89,012 or 37% of revenues. Gross profit margins are highly dependent on revenue mix, prices charged, volume of orders, and for periods with patent licensing revenues the amounts of contingency legal fees and costs.

Operating Expenses

Selling and administrative costs for the three months ended September 30, 2011 declined by $26,691 compared to the same period in the year prior. The current period included a $326 expense for noncash stock-based compensation expense compared to $2,068 for the prior year’s second quarter as a result of granting immediately vested stock options. Reduced current period selling and administrative expenses included $59,990 of reduced staffing costs offset by annual meeting costs of $18,690.

Research and related expenses in the most recent quarter included $2,174 of noncash stock-based compensation costs compared to $4,330 in the prior year’s second quarter. Research and related expenses increased by $16,321 due primarily to $20,382 of increased patent related costs. Research and related expenses can vary significantly from quarter to quarter based on the allocation of time spent by personnel who work on both revenue producing service and repair projects, on patent related costs and on internal research projects. Such expenses also vary based on decisions made regarding outside engineering and consulting.

Income Taxes

Income tax expense for the three months ended September 30, 2011 was $101,025 consisting of $57,025 foreign tax expense and $44,000 as a provision for California state taxes. There was no income tax expense or benefit for the same period in the prior year.

Income (Loss) Attributable to Common Stockholders

The net income attributable to common stockholders was $163,430. The net loss attributable to common stockholders for the prior comparable second quarter was $272,189.

Six months ended September 30, 2011 compared to the six months ended September 30, 2010

	Six Months Ended September 30,
	2011						2010
				% of						% of			Change
	Dollars			Revenue			Dollars			Revenue			Dollars			%
Revenues:
Product revenues		60,257			2	%		352,827			47	%		(292,570	)		(83	)%
Service revenues		234,711			7	%		372,402			50	%		(137,691	)		(37	)%
Patent license		2,929,338			91	%		25,264			3	%		2,904,074			11495	%
		3,224,306			100	%		750,493			100	%		2,473,813			330	%
Gross Profit:
Product gross profit (loss)		(1,419	)		(0	)%		76,146			10	%		(77,565	)		(102	)%
Service gross profit		93,289			3	%		187,470			25	%		(94,181	)		(50	)%
Patent license gross profit		1,676,464			52	%		-			0	%		1,676,464
		1,768,334			55	%		263,616			35	%		1,504,718			571	%
Operating Expenses:
Selling and administrative		479,621			15	%		639,913			85	%		(160,292	)		(25	)%
Research and related		293,021			9	%		246,084			33	%		46,937			19	%
		772,642			24	%		885,997			118	%		(113,355	)		(13	)%
Income (loss) before income taxes		995,692			31	%		(622,381	)		(83	)%		1,618,073			(260	)%

Income (Loss) Before Income Taxes

The income before income taxes of $995,692 for the six months ended September 30, 2011 resulted primarily from five new license arrangements and related margins.

Revenues

Revenues increased during the most recent six months compared to the same period of the prior fiscal year due to the increase in patent license revenue from $25,264 to $2,929,338. We currently have one licensee reporting periodic royalties. One such payment was recognized in Q2 of the current year and one in the same period of the prior year. All other royalties have been one-time fully paid up royalties. Service revenues vary depending on repair and content services provided to a changing customer mix. eVU product sales activity have been slow and sporadic due to airline industry economics, with airlines curtailing expansion and new projects. Our product sales for the first six months are not necessarily indicative of future orders and we had no significant product backlog at September 30, 2011. Our service agreements and terms vary with each customer and there is no assurance in the current airline environment that our service revenues will continue at comparable levels for the balance of the fiscal year or in future periods.

While we expect additional patent licenses in future periods, there can be no assurance of the timing or amounts of future license revenues. We are pursuing new eVU and other technology business but our results will continue to be dependent on the timing and quantity of eVU orders and timing and amount of any patent licensing arrangements.

Gross Profit

Gross profit for the six months ended September 30, 2011 was $1,768,334 or 55% of revenues. The gross profit on product and service revenues was 31% of related revenues and the gross profit on patent licensing fees was 57% of license revenues. The gross profit for the prior year’s first six months was $263,616 or 35% of revenues. Gross profit margins are highly dependent on revenue mix, prices charged, volume of orders, and for periods with patent licensing revenues the amounts of contingency legal fees and costs.

Operating Expenses

Selling and administrative costs for the six months ended September 30, 2011 declined by $113,355 compared to the same period in the year prior. The current period included a $359 expense for noncash stock-based compensation expense compared to $77,800 for the prior year’s first six months. Reduced current period selling and administrative expenses were due primarily to a $223,000 reduction in staffing costs offset by annual meeting costs of $62,000 and consulting fees of $18,000.

Research and related expenses in the most recent six months included $5,865 of noncash stock-based compensation costs compared to $22,364 for the same period in the prior year. Research and related expenses increased by $46,937 due primarily to $108,748 of increased patent related costs offset by reduced salaries expense of $59,776. Research and related expenses can vary significantly from quarter to quarter based on the allocation of time spent by personnel who work on both revenue producing service and repair projects, on patent related costs and on internal research projects. Such expenses also vary based on decisions made regarding outside engineering and consulting.

Income Taxes

Income (Loss) Attributable to Common Stockholders

The net income attributable to common stockholders was $894,667 for the six months ended September 30, 2011. The net loss attributable to common stockholders for the prior comparable six month period was $622,381.

Liquidity and Capital Resources

At September 30, 2011, we had working capital of $2,916,561 compared to working capital of $2,013,352 at March 31, 2011. At September 30, 2011 we had cash on hand of $3,031,760.

Operating Activities

Cash provided by operating activities was $1,225,866 for the six months ended September 30, 2011. Cash provided by operating activities included the net income of $894,667 increased by net non-cash expenses of $6,224. Major components also providing operating cash was a decrease of $39,963 in inventory and an increase of $205,891 in accounts payable and $88,321 of accrued and other liabilities. Major components reducing operating cash included a $3,326 increase in accounts receivable and a $5,588 increase in deposits and prepaid expenses.

Cash used in operating activities was $672,720 for the six months ended September 30, 2010. The usage was primarily the result of the net loss and a reduction in accrued and other liabilities and increases in accounts receivable.

Our terms to customers vary but we often require payment prior to shipment of product and any such payments are recorded as deposits. Patent license payments are normally due at signing of the license or within 30-45 days of settlement or end of royalty reporting period.

Individual working capital components can change dramatically from period to period due to timing of licensing, sales and shipments and corresponding receivable, inventory and payable balances. Accordingly operating cash requirements vary significantly from period to period.

Investing Activities

The Company’s efforts are primarily on operations and currently we have no significant investing capital needs. We have no commitments requiring investment capital.

Financing Activities

There were no cash financing activities during the six months ended September 30, 2011.

Debt and Other Commitments

We currently have no debt outstanding other than trade payables and accruals. At September 30, 2011 we had no significant purchase commitments for product and components.

We are committed for our office lease as more fully described in our interim consolidated financial statements.

Our legal firm Duane Morris is handling patent enforcement matters and certain related appeals on our Flash-R patent portfolio on a contingent fee basis. Duane Morris also has agreed to advance certain costs and expenses including travel expenses, court costs and expert fees. We have agreed to pay Duane Morris a fee equal to 40% of any license or litigation recovery related to patent enforcement matters, after recovery of expenses, and 50% of recovery if appeal is necessary.

In the event we are acquired or sold or elect to sell the covered patents or upon certain other corporate events or in the event we terminate the agreement for any reason, then Duane Morris shall be entitled to collect accrued costs and a fee equal to three times overall time and expenses accrued in connection with the agreement and a fee of 15% of a good faith estimate of the overall value of the covered patents. Duane Morris has a lien and a security interest in the covered patents to secure its obligations under the agreement.

The costs of the USPTO reexamination of certain claims of the Flash-R patents is not covered under our arrangement with Duane Morris and we have engaged separate counsel and will be required to pay such patent related costs which could continue to be significant.

Cash Requirements

Other than cash on hand and accounts receivable, we have no material unused sources of liquidity at this time. Based on our cash position at September 30, 2011 and current planned expenditures and level of operation, we believe we have sufficient capital resources for the next twelve months. Actual results could differ significantly from management plans. We believe we may be able to obtain additional funds from future patent licensing and eVU product sales and services but the timing of licenses and shipments and the amount and quantities of shipments, orders and reorders are subject to many factors and risks, many outside our control.

Since we have not demonstrated sustainable profitability, our company’s ability to continue as a going concern is in doubt and is dependent upon achieving sustained profitability and if necessary obtaining additional financing. We currently have no plans, arrangements or understandings regarding any acquisitions.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the relationship between the benefit of desired controls and procedures and the cost of implementing new controls and procedures.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Principal Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011, the end of the period covered by this report. Based on that evaluation , our Chief Executive Officer and Principal Accounting Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting during our fiscal quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Intellectual Property Litigation

In September 2007 through March 2008, we filed complaints against eight electronic product manufacturers in the U.S. District Court for the Eastern District of Texas asserting that products made by the companies infringe four of our U.S. patents covering the use of flash memory technology. These patents are part of our Flash-R patent portfolio. By September 30, 2009 we had licensed and settled the litigation with seven of the manufacturers and suspended the complaint against one defendant in bankruptcy.

In November 2009 we filed an additional patent infringement complaint in the United States District Court for the District of Colorado (the “Court”) against nineteen companies that manufacture devices using flash memory. On June 28, 2011, the Court issued an Opinion and Order Regarding Claim Construction (the “Opinion”) following a January 28, 2011 Markman hearing (a proceeding under U.S. patent law where both sides present to the Court their arguments on how they believe patent terms should be construed). The Opinion construed claim terms in United States Patent 5,491,774, one of the Company’s Flash-R patents, more narrowly than proposed by the Company. On July 28, 2011 the parties to the litigation filed a Joint Statement in Response to June 28, 2011 Order Regarding Claim Construction (the “Statement”) as required by the Opinion. The Statement proposed a plan to take future discovery and requested that the Court construe a claim term from a second Flash-R patent in the litigation. By September 30, 2011 we had licensed and settled the litigation with ten of the defendants, suspended the complaint against one defendant and dismissed with prejudice, two additional defendants. Subsequent to September 30, 2011, we entered into two licensing and settlement agreements related to the Flash-R portfolio. The remaining four defendants were dismissed with prejudice, thereby ending the Colorado patent litigation case.

While the Company continues to evaluate future licensing and enforcement actions, the Order and the Statement could negatively affect future licensing prospects.

Although most fees, costs and expenses of intellectual property litigation are covered under our arrangement with Duane Morris LLP, we may incur support and related expenses for this litigation that may become material. In particular, the costs of the USPTO reexamination of certain claims of the Flash-R patents is not covered under our arrangement with Duane Morris LLP and we have engaged separate counsel and will be required to pay such patent related costs which could continue to be significant.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

NONE

(b)

NONE

(c)

NONE

Item 3. Defaults Upon Senior Securities

NONE

Item 4. (Removed and Reserved)

Item 5. Other Information

(a) NONE

(b) NONE

Item 6. Exhibits

Exhibit 31.1 – Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Alfred H. Falk, President and CEO (Principal Executive Officer).

Exhibit 31.2 – Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by MarDee Haring-Layton (Principal Accounting Officer).

Exhibit 32.1 – Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Alfred H. Falk, President and CEO (Principal Executive Officer) and MarDee Haring-Layton (Principal Accounting Officer).

	Extensible Business Reporting Language (XBRL) Exhibits*
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

e.DIGITAL CORPORATION

By:	/s/ ALFRED H. FALK
	Alfred H. Falk, President and Chief Executive Officer

By:	/s/ MARDEE HARING-LAYTON
	MarDee Haring-Layton, Principal Accounting Officer

Date: November 10, 2011

Attached files

E DIGITAL CORP Reports

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