Quarterly Report (10-q)

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, 2015

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.)

	16870 West Bernardo Drive, Suite 120, 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 [_] (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 November 3, 2015 a total of 293,678,330 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):

	Condensed Consolidated Balance Sheets as of September 30, 2015 and March 31, 2015	3

	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2015 and 2014	4

	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2015 and 2014	5

	Notes to Interim Condensed 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 I. FINANCIAL 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.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
SIGNATURES		22

Part I. Financial Information

Item 1. Financial Statements

e.Digital Corporation and subsidiary

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,
	2015			March 31,
	(Unaudited)			2015
	$			$
ASSETS
Current
Cash and cash equivalents		1,481,132			1,952,981
Accounts receivable, net		8,761			11,218
Inventory - net		–			–
Deposits and prepaid expenses		39,806			42,538
Total current assets		1,529,699			2,006,737
Property, equipment and intangibles, net of accumulated depreciation and amortization of $161,753 and $166,529, respectively		30,403			7,215
Total assets		1,560,102			2,013,952
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable, trade		143,438			140,293
Accrued and other liabilities		107,000			156,759
Total current liabilities		250,438			297,052

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, 293,678,330 and 293,378,330 issued and outstanding, respectively		293,678			293,378
Additional paid-in capital		82,998,169			82,931,048
Accumulated deficit		(81,982,183	)		(81,507,526	)
Total stockholders' equity		1,309,664			1,716,900

Total liabilities and stockholders' equity		1,560,102			2,013,952

See notes to interim condensed 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,
	2015			2014			2015			2014
Revenues:		$			$			$			$
Products and services		10,905			54,468			16,031			104,716
Patent licensing		153,500			340,034			693,500			972,534
		164,405			394,502			709,531			1,077,250

Operating costs and expenses:
Cost of revenues:
Products and services		4,308			105,616			8,256			159,407
Patent licensing and litigation costs		112,500			113,089			225,000			225,589
Contingent legal fees and expenses		56,573			96,712			286,895			303,376
Selling and administrative		260,158			176,717			481,183			363,487
Research and related expenditures		85,248			75,224			182,854			167,808
Total operating costs and expenses		518,787			567,358			1,184,188			1,219,667

Operating loss before provision for income taxes		(354,382	)		(172,856	)		(474,657	)		(142,417	)
Provision for income taxes		–			–			–			–
Net loss for the period		(354,382	)		(172,856	)		(474,657	)		(142,417	)
Loss per common share - basic and diluted		(0.00	)		(0.00	)		(0.00	)		(0.00	)

Weighted average common shares outstanding
Basic and diluted		293,621,265			293,328,330			293,507,292			293,328,330

See notes to interim condensed consolidated financial statements

e.Digital Corporation and subsidiary

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the six months ended
	September 30,
	2015			2014
OPERATING ACTIVITIES		$			$
Net loss for period		(474,657	)		(142,417	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,969			2,584
Inventory market and reserve adjustment		–			51,956
Stock-based compensation		60,821			25,058
Changes in assets and liabilities:
Accounts receivable		2,457			176,892
Inventory		–			1,963
Deposits and prepaid expenses		2,732			16,510
Accounts payable, trade		3,145			37,037
Accrued and other liabilities		(49,759	)		(111,693	)
Cash provided by (used in) operating activities		(453,292	)		57,890

INVESTING ACTIVITIES
Purchase of equipment and intangibles		(25,157	)		–
Cash used in investing activities		(25,157	)		–

FINANCING ACTIVITIES
Proceeds from sale of common stock		6,600			–
Cash provided by financing activities		6,600			–
Net increase (decrease) in cash and cash equivalents		(471,849	)		57,890
Cash and cash equivalents, beginning of period		1,952,981			1,787,863
Cash and cash equivalents, end of period		1,481,132			1,845,753

See notes to interim condensed 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 is developing and marketing an intellectual property portfolio consisting of context and interpersonal awareness systems (“Nunchi®” technology), advanced data security technologies (“microSignet™” technology), secure communication technologies (“Synap™” technology) and other technologies.

Unaudited Interim Financial Statements

These unaudited condensed 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 which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. These interim condensed 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, 2015, 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 six months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2016. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended March 31, 2015 filed on Form 10-K.

Liquidity / Going Concern

The Company has incurred significant historical losses and negative cash flow from operations and has an accumulated deficit of $81,982,183 at September 30, 2015. Other than cash on hand, the Company has no other sources of financing currently available as of September 30, 2015. The Company may incur additional losses in the future until licensing or other 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. There is no assurance that the Company will be successful in generating or raising funds, if necessary, to sustain its operations for twelve months or beyond. Should the Company be unable to generate funds or obtain required financing, it may have to curtail operations, which may have a material adverse effect on its financial position and results of operations. Uncertainty as to the outcome of these factors raises substantial doubt about the Company’s ability to continue as a going concern. 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 consolidated 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

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The new standard applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The amendment is effective for annual reporting periods beginning after December 15, 2014 and interim periods within those annual periods. The Company adopted this guidance effective April 1, 2015 and expects, as a result, that the discontinuation of eVU entertainment services is not a major strategic shift and does not have a significant impact on the Company's consolidated financial statements.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendment is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods. In response to stakeholders’ requests to defer the effective date, the Board issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public entities should apply guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the new standard.

In June 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could be Achieved after the Requisite Service Period. The guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. The guidance will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact of this guidance, if any, on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This ASU requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the ASU (1) provides a definition of the term substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management's plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This standard is effective for the fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. Since this guidance primarily addresses certain disclosures to the financial statements, we anticipate no impact on our financial position, results of operations or cash flows from adopting this standard. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statement disclosures.

In January 2015, the FASB issued ASU 2015-01, “Extraordinary and Unusual Items,” eliminating the concept of extraordinary items for presentation on the face of the income statement. Under the new standard, a material event or transaction that is unusual in nature, infrequent or both shall be reported as a separate component of income from continuing operations. Alternatively, it may be disclosed in the notes to financial statements. The new accounting guidance is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted if applied from the beginning of a fiscal year. As applicable, this standard may change the presentation of amounts in the income statements. The Company plans to adopt ASU 2015-01 effective April 1, 2016.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory.” Under this ASU, inventory will be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. The Company is currently evaluating this guidance, including the period to adopt and the impact, if any, on its consolidated financial statements.

Other Accounting Standards Updates not effective until after September 30, 2015 are not expected to have a material effect on the Company’s financial position or results of operations.

3. LOSS PER SHARE

Basic loss per common share is computed by dividing loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share is computed by dividing loss attributable 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. These securities were not included in the computation of diluted loss per share for the periods because they are antidilutive or of no effect, but they could potentially dilute earnings per share in future periods. There was no material difference in basic and diluted loss per share or basic and diluted weighted average shares outstanding for the periods presented.

4. LIQUIDITY

The Company has not identified any trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material increase or decrease of liquidity. During the third quarter of fiscal 2015 the Company ceased marketing eVU products and accessories, but provided service to one customer through September 30, 2015. The termination of eVU operations and the loss of eVU revenues did not have a material impact on liquidity, results of operations or financial condition of the Company.

5. INVENTORIES

Inventory is recorded at the lower of cost or net realizable value. The cost of substantially all the Company’s inventory is determined by the weighted average cost method. The Company reserves for inventory that is obsolete or determined to be slow-moving and classifies the slow moving portion of inventory as a long-term asset. The Company has ceased offering new eVU systems and accordingly has fully reserved inventory at September 30, 2015.

Inventories consisted of the following:

	September 30,			March 31,
	2015			2015
	$			$
Raw materials		50,297			37,559
Work in process		–			12,842
Finished goods		29,512			29,512
		79,809			79,913
Reserve for obsolescence		(79,809	)		(79,913	)
		–			–

The foregoing is net of an aggregate lower-of-cost-or-market inventory adjustment of $67,301 at September 30, 2015 and $70,858 at March 31, 2015. The Company has ceased offering new eVU systems and accordingly has fully reserved inventory at September 30, 2015.

6. 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				Six Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
		$		$		$		$
Research and development		5,159		2,547		10,488		5,094
Selling and administrative		24,653		9,982		50,333		19,964
Total stock-based compensation expense		29,812		12,529		60,821		25,058

No stock options were granted during the three or six-month periods ended September 30, 2015 and 2014.

As of September 30, 2015 total estimated compensation cost of stock options granted but not yet vested was $57,870 and is expected to be recognized over the weighted average period of 1.0 years.

See Note 7 for further information on outstanding stock options.

7. STOCKHOLDERS’ EQUITY

The following table summarizes stockholders’ equity transactions during the six-month period ended September 30, 2015:

	Common stock				Additional		Accumulated			Total stockholders'
	Shares		Amount		paid-in capital		deficit			equity
			$		$		$			$
Balance, April 1, 2015		293,378,330		293,378		82,931,048		(81,507,526	)		1,716,900
Stock-based compensation		–		–		60,821					60,821
Shares issued on exercise of stock options		300,000		300		6,300		–			6,600
Loss for the period		–		–		–		(474,657	)		(474,657	)
Balance, September 30, 2015		293,678,330		293,678		82,998,169		(81,982,183	)		1,309,664

Options

The following table summarizes stock option activity for the period:

				Weighted average		Aggregate
	Shares			exercise price		Intrinsic Value
	#			$		$
Outstanding April 1, 2015		5,948,578			0.0670
Granted		–			–
Exercised		(300,000	)		0.0220
Canceled/expired		(50,000	)		0.1100
Outstanding September 30, 2015		5,598,578			0.0687	$	22,799
Exercisable at September 30, 2015		4,578,578			0.0595	$	22,799

(1)

Options outstanding are exercisable at prices ranging from $0.022 to $0.11 and expire over the period from 2015 to 2019.

(2)

Aggregate intrinsic value is based on the closing price of our common stock on September 30, 2015 of $0.0435 and excludes the impact of options that were not in-the-money.

Share warrants

No warrants were outstanding at September 30, 2015 and September 30, 2014.

Since the Company has a net operating loss carryforward as of September 30, 2015, no excess tax benefit for the tax deductions related to stock-based awards was recognized for the quarter ended September 30, 2015. Additionally, no incremental tax benefits were recognized from stock options exercised during the quarter ended September 30, 2015 that would have resulted in a reclassification to reduce net cash provided by operating activities with an offsetting increase in net cash provided by financing activities.

8. FAIR VALUE MEASUREMENTS

Cash and cash equivalents are measured at fair value in the Company’s consolidated 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, 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) patent licensing and (2) products and services. Patent licensing consists of intellectual property revenues from the Flash-R patent portfolio and products and services consist of sales of the Company’s electronic eVU mobile entertainment device and related content services. During the third quarter of fiscal 2015 the Company ceased marketing eVU products and accessories but continued to provide services to one customer under an existing contract. The Company terminated providing eVU services after the existing contract terms were complete in September 2015.

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, 2015 and 2014 is as follows:

		For the three months ended		For the six months ended
		September 30,		September 30,
		2015	2014	2015	2014
		$	$	$	$
SEGMENT REVENUES:
Products and services		10,905	54,468	16,031	104,716
Patent licensing		153,500	340,034	693,500	972,534
	Total revenue	164,405	394,502	709,531	1,077,250

SEGMENT COST OF REVENUES:
Products and services		4,308	105,616	8,256	159,407
Patent licensing and litigation costs		112,500	113,089	225,000	225,589
Contingent legal fees and expenses		56,573	96,712	286,895	303,376
	Total cost of revenues	173,381	315,417	520,151	688,372

RECONCILIATION:
Segment income (loss) before corporate costs		(8,976)	79,085	189,380	388,878
Other corporate operating costs		345,406	251,941	664,037	531,295
	Operating (loss) before provision for income taxes	(354,382)	(172,856)	(474,657)	(142,417)

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 practicable 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,
	2015		2014		2015		2014
		$		$		$		$
United States		153,500		340,034		693,500		972,534
International		10,905		54,468		16,031		104,716
Total revenue		164,405		394,502		709,531		1,077,250

Revenues from three licensees comprised 25%, 21% and 14% of revenue for the six months ended September 30, 2015, with no other licensee or customer accounting for more than 10% of revenues. Revenues from two licensees comprised 13%, and 12% of revenue for the six months ended September 30, 2014, with no other licensee accounting for more than 10% of revenues. Accounts receivable from one customer comprised 100% of net accounts receivable at September 30, 2015. Accounts receivable from three customers comprised 56%, 30% and 10% of net accounts receivable at September 30, 2014.

10. COMMITMENTS AND CONTINGENCIES

Legal Matters

Intellectual Property Litigation

Beginning in fiscal year 2013 the Company commenced new rounds of enforcement action with respect to its Flash-R patent portfolio, and as of September 30, 2015, had settled or dismissed all complaints.

The Company commenced legal action with regard to its Nunchi portfolio of patents in July 2014 and currently has two active complaints in the U.S. District Court for the Northern District of California and one in the U.S. District Court for the Southern District of California.

Commitment Related to Intellectual Property Legal Services

In September 2012 the Company engaged Handal and Associates (“Handal”) to provide IP legal services in connection with licensing and prosecuting claims of infringement of the Company’s flash memory patent portfolio. Pursuant to a partial contingent fee arrangement, the Company is paying a monthly retainer fee of $30,000 to Handal creditable against future contingency recoveries. Handal has agreed to advance related expenses excluding experts and prior art search firms. The Company has agreed to pay Handal a fee ranging from 33-40% of any license fee or settlement related to patent enforcement matters, less prior retainers and expenses. The Company may terminate the representation at any time but would be obligated to pay fees and advances.

The Company remains obligated to pay contingency fees on certain future Flash-R™ royalty payments from previous matters handled by Duane Morris LLP.

Facility Lease

In January 2012, the Company entered into a sixty-two month facility lease for its corporate office location, commencing May 1, 2012, for approximately 3,253 square feet at 16870 West Bernardo Drive, Suite 120, San Diego, California. The aggregate monthly payment is $6,831 excluding utilities and costs. The aggregate payments adjust annually with maximum payments increasing to $7,157 in the forty-ninth through sixty-second months. Future lease commitments at September 30, 2015 total $148,012. The Company recognizes rent expense by the straight-line method over the lease term. As of September 30, 2015, deferred rent totaled $23,339.

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 maintains cash and cash equivalent accounts with Federal Deposit Insurance Corporation (“FDIC”) insured financial institutions. Certain of the Company’s accounts are each insured up to $250,000 by the FDIC. The Company’s exposure for amounts in excess of FDIC insured limits at September 30, 2015 was approximately $1.24 million. The Company has not experienced any losses in such accounts. 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 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.

Employee Benefit – 401K Plan

In September 2012, the Company adopted a defined contribution plan (401(k)) covering its employees. Matching contributions are made on behalf of all participants, according to the Safe Harbor provision. The Company matches 100% (dollar for dollar) on deferrals of up to 4% of employee compensation deferred. During the six months ended September 30, 2015, the Company made matching contributions totaling $5,049.

11. INCOME TAXES

There is no provision for income taxes for the six months ended September 30, 2015 and 2014 as the Company currently estimates its effective tax rate to be zero due to uncertainty of income in future interim quarters of the current year and due to net operating loss carryforwards.

At September 30, 2015 and 2014, 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.

The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. At September 30, 2015, the Company has no liabilities for uncertain tax positions.

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, 2015.

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 are developing and marketing intellectual property consisting of context and interpersonal awareness systems (“Nunchi” technology), advanced data security technologies (“microSignet” technology), secure communications technologies (“Synap” technology), and other technologies. We previously also provided eVU® mobile entertainment services to our travel industry customers, however we ceased eVU services in the third quarter of fiscal 2015 with the exception of one remaining contract, completed in September 2015.

We report two operating segments: (1) patent licensing and enforcement and (2) products and services. Our patent licensing and enforcement revenue consists of intellectual property revenues from our patent portfolio. Our products and services revenue has been derived from the sale of eVU products and accessories to customers, warranty and technical support services and content integration fees and related services. During the third quarter of fiscal 2015 we ceased marketing eVU products and accessories but continued to provide services to one customer under an existing contract, ending in September 2015. We have now terminated providing eVU services, effectively ending this segment’s operations.

Licensing and Patent Enforcement Activities

We are commercializing our patent portfolios through licensing and we are aggressively pursuing enforcement by litigating against targeted parties that we believe are infringing our patents. We commenced legal enforcement actions in 2007 and since September 2012, the law firm of Handal and Associates has been handling our Patent Enforcement Matters on a partial contingent fee basis.

Beginning in fiscal 2013 we commenced new rounds of enforcement actions with respect to our patent portfolios by filing complaints in the U.S. District Court for the Southern District of California, asserting that products made and sold by the defendant companies infringe our U.S. patents. Currently, we have active lawsuits filed against parties believed to infringe patents covering the use of our Nunchi technologies.

Flash-R Technology Licensing – Flash-R litigation created awareness of the Company’s intellectual property among household named companies. The Company sought licenses through patent enforcement actions from 109 companies and related distributors, with 81 agreeing to license terms through September 30, 2015. Three of the patents in the Flash-R portfolio expired in 2014, and the remaining two patents expire in March 2016. As of November 1, 2015, we are not pursuing additional enforcement and no open cases remain.

Nunchi Technology Enforcement - We commenced legal action with regards to our Nunchi portfolio of patents in July 2014. We currently have two active complaints in the U.S. District Court for the Northern District of California and one active complaint in the U.S. District for the Southern District of California. We expect to file future complaints against additional companies.

MicroSignet Technology - We are seeking to license our MicroSignet technology and to date have not commenced any legal actions, but may do so in the future.

Synap Technology – Synap technology enables applications to achieve the highest levels of security; protecting user communications, user data, online transactions, and physical security. Using sensor technology, it allows separate devices to independently construct large volumes of the same secure data internally, without ever having to exchange secure data between the devices. We are seeking to license our Synap technology and to date have not commenced any legal actions, but may do so in the future.

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 continue to develop additional intellectual property in the areas of context and interpersonal awareness systems, advanced data security, and secure communications technologies, as well as explore new technologies for possible development or licensing. For further information on our technologies and our patent portfolio and related licensing activities, refer to “Item 1 – Business” of our Annual Report on Form 10-K for the year ended March 31, 2015.

Our business is high risk in nature. There can be no assurance we can achieve sufficient patent license or other revenues to sustain profitability. We continue to be subject to the risks normally associated with introducing new 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 last two fiscal years and during our current fiscal year.

We have successfully completed three rounds of enforcement litigation and are in the process of additional enforcement actions. 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. We believe we are building a track record of demonstrating the strength, validity and clarity of our patent claims that can result in significant future revenues from our patent portfolio.

Our eVU IFE business continued to decline in the fiscal year ended March 31, 2015 (fiscal 2015) primarily due to increased competition from personal devices. During the third quarter of fiscal 2015 (December 31, 2014), we ceased marketing eVU products and accessories, but continued to provide services to one customer until the contract terminated September 30, 2015.

We reported a loss for the second quarter of fiscal 2016. Revenues and profits have been sporadic in prior periods and we have incurred significant historical losses and negative cash flow from operations. We may incur losses in the future unless or until licensing or other revenues are sufficient to sustain continued profitability.

For the six months ended September 30, 2015:

We recognized a net loss of $474,657 compared to a net loss before income taxes of $142,417 for the comparable six month period of the prior fiscal year. The difference in results was attributable to decreased license revenues due a reduced number of new license agreements.

Our revenues from products and services were $16,031 for the first half of fiscal 2016 with $693,500 patent license revenue. This compares to $104,716 product and service revenue for the prior year’s first half and $972,534 patent license revenue.

Operating costs and expenses decreased to $1,184,188 in the six months ended September 30, 2015 compared to $1,219,667 in the comparable period prior primarily due to decreased patent license and litigation costs.

Management faces challenges and risks for the remainder of fiscal 2016 to execute our plan to monetize our technologies. These challenges include, but are not limited to, successful execution of our legal and licensing enforcement strategy in an uncertain and changing legal and regulatory environment related to patent infringement. The failure to obtain additional patent license revenues could have a material adverse impact on our operations. Our patent licensing business is subject to significant risks discussed herein and in our Annual Report on Form 10-K and is subject to uncertainties as to the timing and amount of future license revenues, if any.

Our monthly cash operating costs average approximately $131,000 per month. However, we may increase expenditure levels in future periods to support and expand our revenue opportunities and continue advanced technology research and development. Our quarterly results are highly dependent on the timing and amount of licensing fees 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. Our ability to continue as a going concern is in doubt and is dependent upon achieving a profitable level of operations 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 on Form 10-K for the year ended March 31, 2015. 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;
		·		income taxes; and
		·		inventory reserve

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, 2015. 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, 2015.

Results of Operations

Three months ended September 30, 2015 compared to the three months ended September 30, 2014

	Three Months Ended September 30,
	2015			% of			2014			% of			Change
		Dollars			Revenue			Dollars			Revenue			Dollars		%
Revenues:
Products and services		10,905			7%			54,468			14%			(43,563	)	(80%	)
Patent licensing		153,500			93%			340,034			86%			(186,534	)	(55%	)
		164,405			100%			394,502			100%			(230,097	)	(58%	)
Operating costs and expenses:
Cost of revenues:
Products and services		4,308			3%			105,616			27%			(101,308	)	(96%	)
Patent licensing and litigation costs		112,500			68%			113,089			29%			(589	)	(1%	)
Contingent legal fees and expenses		56,573			34%			96,712			25%			(40,139	)	(42%	)
Selling and administrative		260,158			158%			176,717			45%			83,441		47%
Research and development		85,248			52%			75,224			19%			10,024		13%
		518,787			315%			567,358			145%			(48,571	)	(9%	)
Operating (loss) before provision for income taxes		(354,382	)		(216%	)		(172,856	)		(44%	)		(181,526	)	105%

Loss Before Income Taxes

We reported a net loss before income taxes of $354,382 for the three months ended September 30, 2015 compared to a net loss before income taxes of $172,856 for the comparable period of the prior year due primarily to decreased patent license settlements in the current period.

Revenues

Revenues decreased during the second fiscal quarter of 2016 compared to the same quarter of the prior fiscal year due to a reduced number of new license arrangements. We experienced reduced product and service revenues due to exiting the eVU business.

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:

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 targeting new patent licensees and our results will continue to be dependent on the timing and amount of future patent licensing arrangements, if any.

Operating Costs and Expenses

Operating costs and expenses include cost of revenues associated with products and services, and costs associated with our patent licensing and enforcement activities including contingent and non-contingent litigation costs and related enforcement support costs. For the three months ended September 30, 2015, operating costs and expenses decreased by $48,571 compared to the same period in the prior year.

Patent licensing legal costs related to patent enforcement were $112,500 for the three months ended September 30, 2015 which is consistent with the prior year’s second quarter. Non-contingent licensing and litigation costs and related enforcement support costs may be incurred without any directly related revenues in a respective period. Generally contingent costs relate to revenues during a respective period but can vary depending on our share of certain costs and expenses.

Contingent legal fees and expenses related to patent enforcement were $56,573 for the three months ended September 30, 2015 and $96,712 for the three months ended September 30, 2014.

Cost of revenues associated with products and services decreased from $105,616 in the prior year’s second quarter to $4,308 in the current year due to the Company’s decision to exit the eVU business in the third quarter of fiscal 2015.

Selling and administrative costs for the three months ended September 30, 2015 increased by $83,441 compared to the same period in the year prior. The current period includes $54,687 for annual meeting costs with no comparable expense in the same period of the prior year. The current year’s second quarter included $24,653 for noncash stock-based compensation expense as compared to $9,982 in the same period of the prior year.

Research and related expenses increased by $10,024 primarily due to a $23,134 increase in patent related legal fees, offset by a $17,002 decrease in salaries and related benefits expenses in the current year as compared to the same period in the prior year. The current year’s second quarter included $5,159 for noncash stock-based compensation expense as compared to $2,547 in the prior period. 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 (Loss)

Net loss for the three months ended September 30, 2015 was $354,382. The net loss for the prior comparable first quarter was $172,856.

Six months ended September 30, 2015 compared to the six months ended September 30, 2014

	Six Months Ended September 30,
	2015			% of			2014			% of			Change
		Dollars			Revenue			Dollars			Revenue			Dollars		%
Revenues:
Product and services		16,031			2%			104,716			10%			(88,685	)	(85%	)
Patent licensing		693,500			98%			972,534			90%			(279,034	)	(29%	)
		709,531			100%			1,077,250			100%			(367,719	)	(34%	)
Operating costs and expenses:
Products and services		8,256			1%			159,407			15%			(151,151	)	(95%	)
Patent licensing and litigation costs		225,000			32%			225,589			21%			(589	)	(0%	)
Contingent legal fees and expenses		286,895			40%			303,376			28%			(16,481	)	(5%	)
Selling and administrative		481,183			68%			363,487			34%			117,696		32%
Research and related		182,854			26%			167,808			16%			15,046		9%
		1,184,188			167%			1,219,667			114%			(35,479	)	(3%	)
Operating (loss) before provision for income taxes		(474,657	)		(67%	)		(142,417	)		(13%	)		(332,240	)	233%

Loss Before Income Taxes

The loss before income taxes of $474,657 for the six months ended September 30, 2015 was primarily the result of decreased patent licensing revenues and decreased revenue from products and services.

Revenues

Revenues decreased during the most recent six months compared to the same period of the prior fiscal year due to the decrease in patent license revenue from $972,534 to $693,500. Product and service revenues decreased due to exiting the eVU business.

While we expect additional patent licenses in future periods, there can be no assurance of the timing or amounts of future license revenues.

Operating Costs and Expenses

Operating costs and expenses include cost of revenues associated with products and services, and costs associated with our patent licensing and enforcement activities including contingent and non-contingent litigation costs and related enforcement support costs. For the six months ended September 30, 2015, operating costs and expenses decreased by $35,479 compared to the same period in the prior year primarily due to a $151,151 decrease in products and services costs, offset by a $117,696 increase in selling and administrative costs.

Patent licensing legal costs related to patent enforcement were $225,000 for the six months ended September 30, 2015, comparable to the amount for the same period in the prior year. Non-contingent licensing and litigation costs and related enforcement support costs may be incurred without any directly related revenues in a respective period. Generally contingent costs relate to revenues during a respective period but can vary depending on our share of certain costs and expenses.

Selling and administrative costs for the six months ended September 30, 2015 increased by $117,696 compared to the same period in the year prior. The current prior period includes $54,687 for annual meeting costs with no comparable expense in the same period of the prior year. The current period includes $50,333 in noncash stock-based compensation expense, compared to $19,964 in the same period of the prior year.

Research and related expenses for the six months ended September 30, 2015 increased by $15,046 compared to the same period in the prior year. The increase is primarily due to a $30,511 increase in patent related legal fees, offset by a $21,786 decrease in salaries and related benefits in the current period as compared to the same period of the prior year. The current period includes $10,488 in noncash stock-based compensation expense, compared to $5,094 for the same period of the prior year. 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.

Liquidity and Capital Resources

At September 30, 2015, we had working capital of $1,279,261 compared to working capital of $1,709,685 at March 31, 2015. At September 30, 2015 we had cash on hand of $1,481,132.

Operating Activities

Cash used in operating activities was $453,292 for the six months ended September 30, 2015. Cash used in operating activities included the net loss of $474,657 decreased by net non-cash expenses of $62,790 primarily consisting of stock based compensation of $60,821. A major component reducing operating cash was a decrease of $49,759 in accrued and other liabilities.

Cash provided by operating activities was $57,890 for the six months ended September 30, 2014. The net loss of $142,417 decreased by net non-cash expenses of $79,957 used operating cash. Major components providing operating cash were a decrease of $176,892 in accounts receivable, a decrease of $53,919 in inventory including reserve adjustments of $51,596, and an increase of $37,037 in accounts payable. A major component reducing operating cash was a decrease of $111,693 in accrued and other liabilities.

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 and services and corresponding receivable, inventory and payable balances. Accordingly operating cash requirements vary significantly from period to period.

Investing Activities

We invested $25,157 in computer equipment and website costs. 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

We received $6,600 of proceeds from stock option exercises during the six months ended September 30, 2015. There were no cash financing activities during the six months ended September 30, 2014.

Debt and Other Commitments

We currently have no debt outstanding other than trade payables and accruals. At September 30, 2015 we had no significant purchase commitments for product and components.

We have future lease commitments on our current facility as more fully described in our accompanying interim condensed consolidated financial statements.

Our legal firm, Handal and Associates, provides IP legal services in connection with licensing and prosecuting claims of infringement of our flash memory patent portfolio. Pursuant to a partial contingent fee arrangement, we are paying a monthly retainer fee of $30,000 to Handal creditable against future contingency recoveries. Handal has agreed to advance related expenses excluding experts and prior art search firms. We have agreed to pay Handal a fee ranging from 33% to 40% of any license fee or settlement related to Patent Enforcement Matters, less prior retainers and expenses. We may terminate the representation at any time but would be obligated to pay fees and advances.

The Company remains obligated to pay contingency fees on certain future Flash-R™ royalty payments from previous matters handled by Duane Morris LLP.

Cash Requirements

Other than cash on hand and accounts receivable, we have no material unused sources of liquidity at this time. Our monthly cash operating costs average approximately $131,000 per month. Assuming no new license revenues and current expenditure levels we would require approximately $1.57M to fund operations for the next twelve months. We believe we may be able to obtain additional funds from future patent licensing but the timing of licenses are subject to many factors and risks, many outside our control. We may also increase expenditure levels in future periods to support and expand our revenue opportunities and continue advanced technology research and development. Actual results could differ significantly from past results and management plans.

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 Chief Financial 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 Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial 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, 2015 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

The Company engages in litigation from time to time as part of our patent portfolio licensing and enforcement activities. In fiscal 2013 we commenced new enforcement actions with respect to our Flash-R patent portfolio by filing complaints in the U.S. District Court for the Southern District of California, asserting that products made and sold by the defendant companies infringe our U.S. patents. As of September 30, 2015, all cases have been settled or dismissed.

We commenced legal action with regard to our Nunchi portfolio of patents in July 2014 and we currently have two active complaints in the U.S. District Court for the Northern District of California and one active complaint in the U.S. District Court for the Southern District of California.

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. Mine Safety Disclosures

NONE

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 (Chief Financial 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 (Chief Financial 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*

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, Chief Financial Officer

Date: November 12, 2015

Exhibit 31.1

CERTIFICATION

I, Alfred H. Falk, certify that:

I have reviewed this quarterly report on Form 10-Q of e.Digital Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2015

/s/ ALFRED H. FALK
Alfred H. Falk
President and Chief Executive Officer
(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, MarDee Haring-Layton, certify that:

I have reviewed this quarterly report on Form 10-Q of e.Digital Corporation;

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2015

/s/ MARDEE HARING-LAYTON
MarDee Haring-Layton
Chief Financial Officer
(Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his or her capacity as an officer of e.Digital Corporation (the "Company"), that, to his or her knowledge, the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2015, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: November 12, 2015

	/s/ ALFRED H. FALK
	Alfred H. Falk,
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: November 12, 2015

	/s/ MARDEE HARING-LAYTON
	MarDee Haring-Layton
	Chief Financial Officer
	(Principal Financial Officer)

Boards:

Quotes:

Boards

News

Market Data

Markets

Discover

Your Recent History