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 June 30, 2009

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	(I.R.S. Empl. Ident. No.)
incorporation or organization)
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).   ¨ Yes   ¨ No  (not required)

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 August 10, 2009 a total of 284,834,758 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):
		Consolidated Balance Sheets as of June 30, 2009
		and March 31, 2009	3
		Consolidated Statements of Operations for the three
		months ended June 30, 2009 and 2008	4
		Consolidated Statements of Cash Flows for the three
		months ended June 30, 2009 and 2008	5
		Notes to Interim Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations	14
	Item 4.	Controls and Procedures	18
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	19
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3.	Defaults Upon Senior Securities	20
	Item 4.	Submission of Matters to a Vote of Security Holders	20
	Item 5.	Other Information	20
	Item 6.	Exhibits	20
SIGNATURES			21

2

e.Digital Corporation and subsidiary

CONSOLIDATED BALANCE SHEETS

	June 30,
	2009			March 31,
	(Unaudited)			2009
	$				$
ASSETS
Current
Cash and cash equivalents		3,073,779			3,813,990
Accounts receivable		218,539			93,771
Inventory		519,327			517,163
Deposits and prepaid expenses		31,196			26,108
Total current assets		3,842,841			4,451,032
Property, equipment and intangibles, net of accumulated depreciation
and amortization of $170,506 and $165,449, respectively		21,581			26,638
Total assets		3,864,422			4,477,670
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable, trade		356,820			202,900
Accrued and other liabilities		385,958			589,814
Current maturity of convertible term note, net of $2,489 and $6,141 of debt discount		241,112			381,093
Total current liabilities		983,890			1,173,807
Deferred revenue - long term		8,000			24,000
Total long-term liabilities		8,000			24,000
Total liabilities		991,890			1,197,807
Commitments and Contingencies
Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized
Series AA Convertible Preferred stock, $0.001 par value, 100,000
shares designated: 75,000 and 75,000 issued and outstanding, respectively
Liquidation preference of $787,808 and $778,459, respectively		653,587			610,774
Common stock, $0.001 par value, authorized 350,000,000,
283,320,838 and 282,124,564 shares issued and outstanding, respectively		283,321			282,125
Additional paid-in capital		81,652,302			81,534,566
Accumulated deficit		(79,716,678	)		(79,147,602	)
Total stockholders' equity		2,872,532			3,279,863
Total liabilities and stockholders' equity		3,864,422			4,477,670

See notes to interim consolidated financial statements

3

e.Digital Corporation and subsidiary

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended
	June 30
	2009			2008
Revenues:	$				$
Products		14,075			234,298
Services		208,955			143,429
Patent license		-			-
		223,030			377,727
Cost of revenues:
Products		49,004			193,484
Services		71,974			70,186
Patent license		-			-
		120,978			263,670
Gross profit		102,052			114,057
Operating expenses:
Selling and administrative		576,672			538,895
Research and related expenditures		79,581			146,651
Total operating expenses		656,253			685,546
Operating loss		(554,201	)		(571,489	)
Other income (expense):
Interest and other income		-			5,055
Interest expense		(10,047	)		(48,594	)
Warrant and other finance expenses		(4,828	)		(54,179	)
Other expense		(14,875	)		(97,718	)
Loss before provision for income taxes		(569,076	)		(669,207	)
Provision for income taxes		-			-
Loss for the period		(569,076	)		(669,207	)
Accrued and deemed dividends on preferred stock		(42,813	)		(1,411	)
Loss attributable to common stockholders		(611,889	)		(670,618	)
Loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)
Weighted average common shares outstanding		282,507,374			274,497,647

See notes to interim consolidated financial statements

4

e.Digital Corporation and subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

[See Note 1 - Nature of Operations and Basis of Presentation]

	For the three months ended
	June 30
	2009			2008
	$				$
OPERATING ACTIVITIES
Loss for the period		(569,076	)		(669,207	)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation and amortization		5,057			4,280
Accretion related to promissory notes		3,652			13,016
Warrant modification and warrant derivative revaluation		-			50,759
Interest paid with common stock		6,367			14,155
Warranty provision		11,872			10,080
Stock-based compensation		11,745			14,721
Changes in assets and liabilities:
Accounts receivable, trade		(124,768	)		70,675
Inventories		(2,164	)		(56,663	)
Prepaid expenses and other		(5,088	)		(1,356	)
Accounts payable, trade		153,920			284,327
Accrued and other liabilities		(193,080	)		(48,721	)
Accrued employee benefits		(21,168	)		5,128
Warranty reserve		(9,889	)		(15,996	)
Deferred revenue		(7,591	)		(9,500	)
Cash used in operating activities		(740,211	)		(334,302	)
FINANCING ACTIVITIES
Proceeds from sale of common stock		-			340,000
Proceeds from sale of preferred stock		-			700,000
Payments on secured promissory note		-			(50,000	)
Proceeds from unsecured promissory note		-			40,000
Cash provided by financing activities		-			1,030,000
Net increase (decrease) in cash and cash equivalents		(740,211	)		695,698
Cash and cash equivalents, beginning of period		3,813,990			122,116
Cash and cash equivalents, end of period		3,073,779			817,814
Supplemental disclosures of cash flow information:
Cash paid for interest		28			20,250
Cash paid for taxes		160,000			-
Supplemental schedule of noncash investing and financing activities:
Accounts payable exchanged for preferred stock		-			50,000
Accrued and deemed dividends on preferred stock		42,813			1,411
Term note payments paid in common stock		150,000			90,000
Financing fees paid in common stock		-			4,800

See accompanying notes to consolidated financial statements

5

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 has innovated a proprietary secure digital video/audio technology platform ("DVAP") and markets the eVU™ mobile entertainment device for the travel and recreational industries. The Company also obtains revenue from licensing 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 June 30, 2009, 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 months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2010. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended March 31, 2009 filed on Form 10-K.

Going Concern

Until the fiscal year ended March 31, 2009 (fiscal 2009), the Company incurred significant losses and negative cash flow from operations and has an accumulated deficit of $79,716,678 at June 30, 2009. The Company’s profitability for the prior year resulted from one-time patent licensing revenues and there is no assurance of future licensing revenues from new licensees. Accordingly, the Company could continue to incur 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 which 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

In December 2007, the Financial Accounting Standards Board (“ FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R also establishes principles and requirements for how the acquirer: (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (b) improves the completeness of the information reported about a business combination by changing the requirements for recognizing assets acquired and liabilities assumed arising from contingencies; (c) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (d) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (for acquisitions closed on or after April 1, 2009 for the Company). Early application is not permitted. Since the Company is not contemplating any business combinations after its effective date it does not presently expect any impact of SFAS No. 141R on its consolidated financial statements.

6

In December 2007, the FASB issued SFAS No. 160, “Non-Controlling Interests in Consolidated Financial Statements an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new standards for the accounting for and reporting of non-controlling interests (formerly minority interests) and for the loss of control of partially owned and consolidated subsidiaries. SFAS 160 does not change the criteria for consolidating a partially owned entity. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The provisions of SFAS 160 are applied prospectively upon adoption except for the presentation and disclosure requirements which are applied retrospectively. The Company has no non-controlling interests and accordingly the adoption of SFAS 160 on April 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

On March 19, 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures discuss (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company currently has no derivatives or hedging activities and the adoption of SFAS 161on April 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In November 2007, the EITF issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property”. Companies may enter into arrangements with other companies to jointly develop, manufacture, distribute, and market a product. Often the activities associated with these arrangements are conducted by the collaborators without the creation of a separate legal entity (that is, the arrangement is operated as a “virtual joint venture”). The arrangements generally provide that the collaborators will share, based on contractually defined calculations, the profits or losses from the associated activities. Periodically, the collaborators share financial information related to product revenues generated (if any) and costs incurred that may trigger a sharing payment for the combined profits or losses. The consensus requires collaborators in such an arrangement to present the result of activities for which they act as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is effective for collaborative arrangements in place at the beginning of the annual period beginning after December 15, 2008. The Company does not have any such collaborative arrangements and the adoption of EITF Issue No. 07-1 on April 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB issued Emerging Issues Task Force No. 07-5 (“EITF 07-5”), “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”.  EITF 07-5 requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions.  Instruments not indexed to their own stock fail to meet the scope exception of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, paragraph 11(a), and should be classified as a liability and marked-to-market.  The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings.  The Company evaluated its various convertible securities and determined that no change in accounting was required related to this EITF at April 1, 2009 or for the period ended June 30, 2009.

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB staff position FAS No. 107-1, “Interim Disclosures About Fair Value of Financial Instruments” (“FSP SFAS No. 107-1”). FSP SFAS No. 107-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP SFAS No. 107-1 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in summarized financial information at interim reporting periods. This Statement became effective for interim and annual reporting periods ending after June 15, 2009. The implementation of this Statement did not have a material impact on the Company’s consolidated financial position, results of operation or cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 was effective for fiscal years and interim periods ending after June 15, 2009. The implementation of this standard did not have a material impact on the Company’s consolidated financial statements. (See Note 14).

7

In June 2009, the FASB confirmed that the FASB Accounting Standards Codification (the "Codification") will become the single official source of authoritative US GAAP (other than guidance issued by the SEC), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force ("EITF"), and related literature. After that date, only one level of authoritative US GAAP will exist. All other literature will be considered non-authoritative. The Codification does not change US GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification becomes effective for interim and annual periods ending on or after September 15, 2009. The Company will apply the Codification beginning in the second quarter of fiscal 2010.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission are not expected by management to have a material impact on future consolidated financial statements.

3. LOSS PER SHARE

Stock options, warrants and convertible preferred stock and debt exercisable into 26,572,157 shares and 29,975,052 of common stock were outstanding as at June 30, 2009 and 2008, respectively. These securities were not included in the computation of diluted loss per share because they are antidilutive, but they could potentially dilute earnings per share in future periods.

4. INVENTORIES

Inventories are stated at the lower of cost, which approximates actual costs on a first in, first out cost basis, or market.

Inventories consisted of the following:

	June 30,		March 31,
	2009		2009
	$		$
Raw materials		45,504		35,330
Work in process		313,800		316,734
Finished goods		160,023		165,099
		519,327		517,163

5. STOCK-BASED COMPENSATION COSTS

The Company accounts for stock-based compensation under the provisions of SFAS No. 123(R) “Share-Based Payment”(“SFAS 123R”). SFAS 123R 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 SFAS 123R, the Company estimates forfeitures for stock-based awards that are not expected to vest. The Company recorded stock-based compensation of $11,745 and $14,721 as selling and administrative costs during the three months ended June 30, 2009 and 2008, respectively.

As of June 30, 2009 total estimated compensation cost of stock options granted but not yet vested was $27,547 and is expected to be recognized over the weighted average period of 1.3 years.

The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the three-month periods ended June 30, 2009 and 2008 (annualized percentages). No options were granted for the most recent period.

8

	Three Months Ended
	June 30,
	2009		2008
Volatility		-		70.5	%
Risk-free interest rate		-		2.5	%
Forfeiture rate		-		0.0	%
Dividend yield		-		0.0	%
Expected life in years		-		3.5
Weighted-average fair value of options granted		-	$	0.06

See Note 8 for further information on outstanding stock options.

6. WARRANTY RESERVE

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

Three Months Ended June 30,	2009			2008
		$			$
Beginning balance		14,155			109,138
Warranty provision		11,872			10,080
Warranty deductions		(9,889	)		(15,996	)
Ending balance		16,138			103,222

7. PROMISSORY NOTE

The Company has the option, subject to certain limitations, to elect to make monthly $50,000 installment payments on the 7.5% Convertible Subordinated Term Note either in cash or in shares of common stock (“Monthly Installment Shares”). Monthly Installment Shares are valued at the arithmetic average of the closing prices for the last five trading days of the applicable month without discount. Payments must be paid in cash if the computed average price is less than $0.10 per share. During the three months ended June 30, 2009 the Company made the three monthly installment payments aggregating $150,000 through the issuance of 1,196,274 shares of common stock. Subsequent to June 30, 2009 the Company made the July 2009 note payment through the issuance of 458,715 shares of common stock.

8. STOCKHOLDERS’ EQUITY

The following table summarizes stockholders’ equity transactions during the three-month period ended June 30, 2009:

	Preferred stock		Common stock				Additional			Accumulated
	Amount		Shares		Amount		paid-in capital			deficit			Total
Balance, March 31, 2009		610,774		282,124,564		282,125		81,534,566			(79,147,602	)		3,279,863
Dividends on Series AA preferred stock		9,349		-		-		(9,349	)		-			-
Accretion of discount on Series AA preferred stock		33,464		-		-		(33,464	)		-			-
Shares issued for term debt payments		-		1,196,274		1,196		148,804			-			150,000
Stock-based compensation		-		-		-		11,745			-			11,745
Loss and comprehensive loss		-		-		-		-			(569,076	)		(569,076	)
Balance, June 30, 2009		653,587		283,320,838		283,321		81,652,302			(79,716,678	)		2,872,532

9

Options

The following table summarizes stock option activity for the period:

			Weighted average		Aggregate
	Shares		exercise price		Intrinsic Value
		#		$		$
Outstanding March 31, 2009		8,050,500		0.16
Granted		-
Exercised		-
Canceled/expired		-
Outstanding June 30, 2009		8,050,500		0.16		4,000
Exercisable at June 30, 2009		6,829,665		0.16		1,333

(1) Options outstanding are exercisable at prices ranging from $0.09 to $0.28 and expire over the period from 2009 to 2013.

(2) Aggregate intrinsic value is based on the closing price of our common stock on June 30, 2009 of $0.115 and excludes the impact of options that were not in-the-money.

Share warrants

No warrants were issued and none were cancelled, expired or exercised during the three months ended June 30, 2009. The Company has outstanding share warrants as of June 30, 2009, as follows:

	Number of	Exercise Price
Description	Common Shares	Per Share $	Expiration Date
Warrants	2,331,572	0.15	August 31, 2009
Warrants	7,500,000	0.10	June 30, 2011
	9,831,572

9. PREFERRED STOCK

On June 27, 2008 the Company issued 75,000 shares of 5% Series AA Convertible Preferred Stock (the “Series AA Stock”) with a stated value of $10 per share. Dividends of 5% per annum are payable in shares of common stock or at the Company’s election additional shares of Series AA Stock or under certain circumstances in cash. The Series AA Stock has voting rights of ten votes per share and a liquidation preference equal to $10.00 per share plus accrued and unpaid dividends. The stated value plus accrued dividends on Series AA Stock is convertible into common stock at $0.10 per common share with automatic conversion on June 30, 2010 subject to certain limitations. The Company may call the Series AA Stock for conversion if the common stock market price is at least $0.25 per share for ten consecutive trading days.

The loss attributable to common stockholders was increased by accrued and deemed dividends on the Series AA Stock  during the three months ended June 30, 2009 and 2008 of $42,813 and $1,411, respectively.

Subsequent to June 30, 2009 the Company issued 1,055,205 shares of common stock upon the conversion of 10,000 shares of Series AA Stock.

10. FAIR VALUE MEASUREMENTS

The carrying amounts of cash and cash equivalents, accounts receivables, accounts payable, accrued liabilities and convertible term debt approximate their fair values due to the short-term maturities of these instruments.

On April 1, 2008, the Company adopted SFAS No. 157 which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.

10

SFAS No. 157 establishes a three-level valuation hierarchy of valuation techniques that is based on observable and unobservable inputs. Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The first two inputs are considered observable and the last unobservable, that may be used to measure fair value and include the following:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of June 30, 2009, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis, including its cash and cash equivalents. The fair value of these assets and liabilities was determined using the following inputs in accordance with SFAS 157 at June 30, 2009:

	Fair Value Measurement as of June 30, 2009
	Total		Level 1		Level 2		Level 3
Description		$		$		$		$
Cash and cash equivalents (1)		3,073,779		3,073,779		-		-

(1) Included in cash and cash equivalents on the accompanying consolidated balance sheet.

11. SEGMENT INFORMATION

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” (“SFAS No. 131”) provides annual and interim reporting standards for an enterprise’s business segments and related disclosures about its products, services, geographical areas and major customers. With the inception of patent license revenue in the current year, the Company determined that it 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. The Company had no licensing revenues or expenses for the three months ended June 30, 2009 or 2008.

Our reportable segment information for the three months ended June 30, 2009 and 2008 is as follows:

Three months ended June 30,	2009			2008
		$			$
REVENUES:
Products and services		223,030			377,727
Patent licensing		-			-
Total revenue		223,030			377,727
GROSS PROFIT:
Products and services		102,052			114,057
Patent licensing		-			-
Total gross profit		102,052			114,057
RECONCILIATION:
Total segment gross profit		102,052			114,057
Operating expenses		(656,253	)		(685,546	)
Other income (expense)		(14,875	)		(97,718	)
Income (loss) before provision for income taxes		(569,076	)		(669,207	)

11

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. All revenues were international revenues for the three months ended June 30, 2009 and 2008. Revenues from three customers comprised 35%, 24% and 12% of revenue for the three months ended June 30, 2009. Sales to three customer comprised 52%, 16% and 11% of revenue for the three months ended June 30, 2008.

12. COMMITMENTS AND CONTINGENCIES

Legal Matters

Business Litigation

In May 2006, the Company announced that a complaint had been filed against it and certain of its officers and employees by digEcor, Inc. in the Third Judicial District Court of Utah, County of Salt Lake. The complaint alleged breaches of contract, unjust enrichment, breaches of good faith and fair dealing, fraud, negligent misrepresentation, and interference with prospective economic relations. digEcor sought, among other things, an injunction to prevent our Company from selling or licensing certain digital rights management technology and "from engaging in any competition with digEcor until after 2009." digEcor also sought "actual damages" of $793,750 and "consequential damages...not less than an additional $1,000,000." This action was related to a purchase order the Company placed for this customer in the normal course of business on November 11, 2005 for 1,250 digEplayers with its contract manufacturer, Maycom Co., Ltd.. Maycom was paid in full for the order by both e.Digital and digEcor by March 2006, but Maycom failed to timely deliver the order. In October 2006 the Company received delivery from Maycom of the delayed 1,250-unit digEplayer order and delivered the order to digEcor. The Company answered digEcor's complaint and pursued certain counterclaims and each party subsequently supplemented their various claims.

In January 2007, March 2009 and April 2009 the Court ruled on certain motions of the parties substantially limiting the issues for trial and each party has voluntarily dismissed additional claims and specific defendants.  In its rulings, the Court has dismissed digEcor's unjust enrichment, fraud, negligent misrepresentation, tortious interference, non-competition, punitive damage and certain unfair competition claims. The Court has further acknowledged the delivery of the 1,250-unit order and a partial settlement between the parties reducing digEcor's claim for purchase-price or actual damages from $793,750 to $94,846 with such amount still being disputed by the Company.

The bulk of the bench trial related to digEcor’s claims for breaches of three contracts and associated damages, and one claim for injunctive relief was completed in May 2009 followed by the parties filing Proposed Findings of Fact and Conclusions of Law and final arguments in July 2009. The Company presented multiple substantive defenses at trial and is awaiting the final findings and decision by the Court. There can be no assurance the Company will prevail. The Court’s prior rulings and final verdict may also be subject to appeal by either party. The Company is unable to determine at this time the impact this complaint and matter may have on its financial position or results of operations. The Company has an accrual of $80,000 related to a deposit made by digEcor and at March 31, 2009 accrued an additional $100,000 as an estimate of its obligation related to the remaining general damage claim based on a settlement offer made by the Company. The Company intends to seek restitution from Maycom for any damages it may incur. Recovery from Maycom is not assured.

Intellectual Property Litigation

In September 2007 and 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 March 31, 2009 the Company had licensed and settled the litigation with six of the manufacturers and suspended the complaint against one defendant currently in bankruptcy. Litigation is still pending against one remaining defendant. The Company intends to pursue its claims vigorously. Although most fees, costs and expenses of the litigation are covered under the Company’s arrangement with Duane Morris LLP as described below, the Company may incur support and related expenses for this litigation that may become material.

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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. The Company has provided Duane Morris a lien and a security interest in the covered patents to secure its obligations under the agreement.

Contract Manufacturers and Suppliers

At June 30, 2009 the Company had outstanding unfilled purchase orders and was committed to a contract manufacturer and component suppliers for approximately $158,000 of future deliveries.

Facility Lease

In March 2006 the Company entered into a sixty-two month lease, commencing June 1, 2006, for approximately 4,800 square feet with an aggregate payment of $6,159 per month excluding utilities and costs. The aggregate payments adjust annually with maximum aggregate payments totaling $6,535 in the fifty-first through the sixty-second month. Future lease commitments aggregated $160,700 at June 30, 2009.

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 June 30, 2009 had substantially all of its cash and cash equivalents at one financial institution in a non-interest bearing account. Effective October 14, 2008, Federal Deposit Insurance Corporation deposit insurance was changed to provide full deposit insurance coverage for non-interest bearing deposit transaction accounts through December 31, 2009.

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 currently relies on one legal firm to represent it in patent licensing matters.

13. INCOME TAXES

There is no income tax provision for the three months ended June 30, 2009 or 2008 due to net operating losses for which there is no benefit currently available.

At June 30, 2009, 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. In spite of state NOLs the Company may be subject to California state taxes during fiscal 2010 if it generates sufficient taxable income due to the California suspension of the net operating loss (“NOL”) carryforwards to the 2008 and 2009 tax years.

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14. SUBSEQUENT EVENTS

The subsequent events have been evaluated through August 13, 2009, which was the date the Financial Statements were issued (see notes 7, 9 and 12).

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 AND UNDER THE SUB-HEADING, "BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2009.

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 have innovated a proprietary secure digital video/audio technology platform (“DVAP”) and market our eVU™ mobile entertainment device for the travel and recreational industries. We also own and are licensing our Flash-R™ portfolio of patents related to the use of flash memory in portable devices.

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, healthcare, and other travel and leisure 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 we are aggressively pursuing enforcement by litigating against targeted parties who we believe may be infringing our patents. The international law firm of Duane Morris LLP is handling our patent enforcement matters on a contingent fee basis. In September 2007 and March 2008 we filed a first tranche of patent infringement litigation against eight defendants. In September 2008 we recorded our first patent license revenue and recognized additional license revenue through the fiscal year ended March 31, 2009. We recognized no patent revenue in the first quarter ended June 30, 2009. We anticipate bringing additional patent enforcement actions in the current fiscal year and while we expect additional patent licenses in future periods there can be no assurance of the timing or amounts of any related license revenue.

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 any new business activity, 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

Until the fiscal year ended March 31, 2009 (fiscal 2009), we incurred significant losses and negative cash flow from operations. Our fiscal 2009 profitability resulted from one-time patent licensing revenues and there is no assurance of future licensing revenues from new licensees. Accordingly, we could incur losses in the future until product, service and/or licensing revenues are sufficient to sustain continued profitability. Our ability to continue as a going concern is in doubt and is dependent upon achieving a profitable level of operations and if necessary obtaining additional financing.

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eVU sales activity has been slow due to airline industry economics and industry credit concerns resulting in airlines curtailing expansion and new projects. We are aggressively pursuing new business but our results will be dependent on the timing and quantity of eVU orders and any additional patent licenses. We seek to expand and diversify our customer base both in the IFE space and other markets. 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.

For the three months ended June 30, 2009 we recognized a net loss of $569,076 compared to a net loss of $669,207 for the comparable period of the prior fiscal year. Our revenues were $223,030 for the first three months of fiscal 2010 compared to $377,727 for the prior year’s first three months. We recognized no patent license revenue in either period. We reported reduced operating expenses of $656,253 in the first quarter compared to $685,546 in the comparable period prior in spite of an increase of $157,000 in legal fees primarily related to litigation.

Exclusive of litigation costs our monthly cash operating costs average approximately $150,000 per month. However, we may increase expenditure levels in future periods to support and expand our revenue opportunities and continue advanced product and technology research and development.

Critical Accounting Policies

We have identified a number of accounting policies as critical to our business operations and the understanding of our results of operations. These are described in 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, 2009. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.

The methods, estimates and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the United States, have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

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Results of Operations

Three months ended June 30, 2009 compared to the three months ended June 30, 2008

	Three Months Ended June 30,
	2009						2008
				% of						% of			Change
	Dollars			Revenue			Dollars			Revenue			Dollars			%
Revenues:
Products		14,075			6	%		234,298			62	%		(220,223	)		(94	)%
Services		208,955			94	%		143,429			38	%		65,526			46	%
Patent license		-			0	%		-			0	%		-
		223,030			100	%		377,727			100	%		(154,697	)		(41	)%
Gross Profit:
Product gross profit		(34,929	)		(16	)%		40,814			11	%		(75,743	)		(186	)%
Service gross profit		136,981			61	%		73,243			19	%		63,738			87	%
Patent license		-			0	%		-			0	%		-
		102,052			46	%		114,057			30	%		(12,005	)		(11	)%
Operating Expenses:
Selling and administrative		576,672			259	%		538,895			143	%		37,777			7	%
Research and related		79,581			36	%		146,651			39	%		(67,070	)		(46	)%
		656,253			294	%		685,546			181	%		(29,293	)		(4	)%
Other expenses		(14,875	)		(7	)%		(97,718	)		(26	)%		82,843			(85	)%
Loss before provision for income taxes		(569,076	)		(255	)%		(669,207	)		(177	)%		100,131			(15	)%

Loss before provision for income taxes

We reported a net loss before income taxes of $569,076 for the three months ended June 30, 2009 compared to a net loss of $669,207 for the comparable period of the prior year. The $100,131 improvement was the result of reduced operating and other expenses that offset a decline in eVU product and service revenues and related gross profit.

Revenues

Revenues of $223,030 in the first quarter of fiscal 2010 compared to $377,727 for the comparable prior period. The revenue mix was significantly different each period. During the prior year’s first quarter revenues consisted of $234,298 from selling eVU players and related equipment for use by airline customers and $143,429 from service revenues for content and support services. Recent eVU product sales activity has been slow due to airline industry economics and industry credit concerns resulting in airlines curtailing expansion and new projects. Our most recent quarter’s revenues consisted of $14,075 of eVU product and $208,955 of service revenues. Our service revenues have grown as result of prior year customer additions but as service arrangements and terms vary with each customer 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. We are pursuing new business but our results will continue to be dependent on the timing and quantity of eVU orders or the timing of any patent licensing arrangements.

Gross Profit

Gross profit for the first quarter of fiscal 2010 was $102,052 or 46% of revenues.  The gross profit for the prior year’s first quarter was $114,057 or 30% of revenues. The improved gross profit percentage resulted from higher margin service revenues partially offset by a loss on very limited product revenues due to related overhead absorption. Gross profit margins are highly dependent on revenue mix, prices charged, volume of orders, and for patent licensing the amounts of contingency legal fees and costs.

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Operating Expenses

Selling and administrative costs for the three months ended June 30, 2009, were $576,672 compared to $538,895 for the first quarter of the prior year. While most cost categories were comparable we have experienced an increase in litigation related legal expenses of $157,000, offset by a $78,000 reduction in staffing costs due to reduced personnel.

Research and related expenditures for the three months ended June 30, 2009 were $79,581, compared to $146,651 for the three months ended June 30, 2008. The decrease resulted from reduced personnel costs of $48,000 and outside engineering costs of $15,000.

Other Income (Expenses)

Net other expenses of $14,875 for the first quarter of fiscal 2010 included $10,047 of interest expense ($10,019 of noncash interest). Net other expenses for the first quarter of the prior year of $97,718 included other income of $5,055 primarily from foreign exchange gains and other expenses including interest of $48,594 ($28,344 was non-cash interest) and $50,759 from revaluation of a warrant derivative liability.

Provision for Income Taxes

There was no income tax provision or benefit for the first quarter of fiscal 2010 or 2009 due to net losses.

Loss Attributable to Common Stockholders

The loss attributable to common stockholders for the most recent first quarter included the net loss after taxes of $569,076 increased by accrued  and deemed dividends on convertible preferred stock of $42,813 or a net loss attributable to common stockholders of $611,889. The net loss after tax for the prior comparable first quarter was $669,207 increased by accrued and deemed dividends of $1,411 for a net loss attributable to common stockholders of $670,618.

Liquidity and Capital Resources

At June 30, 2009, we had working capital of $2,858,951 compared to a working capital of $3,277,225 at March 31, 2009. At June 30, 2009 we had cash on hand of $3,073,779.

Operating Activities

Cash used in operating activities was $740,211 for the three months ended June 30, 2009. Cash used in operating activities included the net loss of $569,076 reduced by net non-cash expenses of $38,693. Major components also providing operating cash was an increase of $153,920 in accounts payable. Major components using operating cash included an increase of $124,768 in accounts receivable and a $193,080 reduction in accrued and other liabilities. This reduction included payment of $157,500 accrued at March 31, 2009 for California state income taxes due to the suspension of state NOLs.

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.

Cash used in operating activities during the three months ended June 30, 2008 was $334,302 resulting from the $669,207 net loss offset by a $284,327 increase in accounts payable. Individual working capital components can change dramatically from period to period due to timing of 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

For the three months ended June 30, 2009 we had no financing activities. For the three months ended June 30, 2008, cash provided by financing activities was $1,030,000. This included $340,000 from the sale of common stock and $700,000 cash from the sale of preferred stock. We reduced our secured note balance by $50,000 and obtained $40,000 in July 2008 from a new one-year note.

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Debt and Other Commitments

We currently have unsecured convertible term debt with a principal amount of $243,601. Our plans are to make future principal and interest payments with shares of common stock, subject to maintaining the $0.10 minimum share price and other covenants of the term loan. Aggregate principal and interest payments due to mature in November 2009 are $248,165 with the July and August 2009 payments of $50,000 each paid in shares of common stock rather than cash.

At June 30, 2009 we were committed to approximately $158,000 as purchase commitments for product and components. These orders are generally subject to modification as to timing, quantities and scheduling and in certain instances may be cancelable without penalty.

We are also 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.

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 June 30, 2009 and (a) current planned expenditures and level of operation, and (b) no cash debt service (assuming convertible term debt payments are made in shares of common stock) 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

Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of June 30, 2009, our President and CEO (“Principal Executive Officer” or “PEO”) and Interim Chief Accounting Officer (“Principal Financial Officer” or “PFO”) have concluded that our disclosure controls and procedures were not effective 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.

In connection with the preparation of our annual financial statements, our management performed an assessment of the effectiveness of internal control over financial reporting as of March 31, 2009. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, management determined that, as of March 31, 2009, there was a material weakness in our internal control over financial reporting: the lack of independent oversight by an audit committee of independent members of the Board of Directors. In light of this material weakness, management concluded that, as of March 31, 2009, we did not maintain effective internal control over financial reporting. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has concluded that with certain management oversight controls that are in place, the risks associated with the lack of independent audit committee oversight is not sufficient to justify the costs of adding additional directors and independent audit committee members at this time. Management will periodically reevaluate this situation. If we secure sufficient capital or sustain our improved operating results it is our intention to change the composition and/or size of the Board of Directors with emphasis on recruiting qualified independent audit committee members.

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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.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal controls over financial reporting that could significantly affect internal controls over financial reporting during the quarter ended June 30, 2009.

PART II.       OTHER INFORMATION

Item 1. Legal Proceedings

Business Litigation

In May 2006, we announced that a complaint had been filed against the Company and certain of our officers and employees by digEcor, Inc. in the Third Judicial District Court of Utah, County of Salt Lake. The complaint alleged breaches of contract, unjust enrichment, breaches of good faith and fair dealing, fraud, negligent misrepresentation, and interference with prospective economic relations. digEcor sought, among other things, an injunction to prevent us from selling or licensing certain digital rights management technology and "from engaging in any competition with digEcor until after 2009." digEcor also sought "actual damages" of $793,750 and "consequential damages...not less than an additional $1,000,000." This action was related to a purchase order we placed for this customer in the normal course of business on November 11, 2005 for 1,250 digEplayers with our contract manufacturer, Maycom Co., Ltd.. Maycom was paid in full for the order by both e.Digital and digEcor by March 2006, but Maycom failed to timely deliver the order. In October 2006 we received delivery from Maycom of the delayed 1,250-unit digEplayer order and delivered the order to digEcor. We answered digEcor's complaint and pursued certain counterclaims and each party subsequently supplemented their various claims.

In January 2007, March 2009 and April 2009 the Court ruled on certain motions of the parties substantially limiting the issues for trial and each party has voluntarily dismissed additional claims and specific defendants.  In its rulings, the Court has dismissed digEcor's unjust enrichment, fraud, negligent misrepresentation, tortious interference, non-competition, punitive damage and certain unfair competition claims. The Court has further acknowledged the delivery of the 1,250-unit order and a partial settlement between the parties reducing digEcor's claim for purchase-price or actual damages from $793,750 to $94,846 with such amount still being disputed by us.

The bulk of the bench trial related to digEcor’s claims for breaches of three contracts and associated damages, and one claim for injunctive relief was completed in May 2009 followed by the parties filing Proposed Findings of Fact and Conclusions of Law and final arguments in July 2009. We presented multiple substantive defenses at trial and are awaiting the final findings and decision by the Court. There can be no assurance we will prevail. The Court’s prior rulings and final verdict may also be subject to appeal by either party. We are unable to determine at this time the impact this complaint and matter may have on our financial position or results of operations. We have an accrual of $80,000 related to a deposit made by digEcor and at March 31, 2009 accrued an additional $100,000 as an estimate of our obligation related to the remaining general damage claim based on a settlement offer made by us. We intend to seek restitution from Maycom for any damages we may incur. Recovery from Maycom is not assured.

Intellectual Property Litigation

In September 2007 and 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 March 31, 2009 we had licensed and settled the litigation with six of the manufacturers and suspended the complaint against one defendant currently in bankruptcy. Litigation is still pending against one remaining defendant. We intend to pursue our claims vigorously. Although most fees, costs and expenses of the litigation are covered under our arrangement with Duane Morris LLP, we may incur support and related expenses for this litigation that may become material.

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

(a) The following common shares were issued during the fiscal quarter and not previously reported in a Quarterly Report on Form 10-Q or Current Report on Form 8-K:

· On April 30, 2009 the Company issued 377,358 shares of common stock to Davric Corporation in consideration of a $50,000 monthly payment on its 7.5% term note. The shares were sold upon the exemption provided by Section 4(2) under the Securities Act of 1933, no commissions were paid and a restrictive legend was placed on the shares issued.

· On May 29, 2009 the Company issued 369,276 shares of common stock to Davric Corporation in consideration of a $50,000 monthly payment on its 7.5% term note. The shares were sold upon the exemption provided by Section 4(2) under the Securities Act of 1933, no commissions were paid and a restrictive legend was placed on the shares issued.

· On June 30, 2009 the Company issued 449,640 shares of common stock to Davric Corporation in consideration of a $50,000 monthly payment on its 7.5% term note. The shares were sold upon the exemption provided by Section 4(2) under the Securities Act of 1933, no commissions were paid and a restrictive legend was placed on the shares issued.

(b) NONE

(c) NONE

Item 3. Defaults Upon Senior Securities

NONE

Item 4. Submission of Matters to a Vote of Security Holders

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 Robert Putnam, Interim Accounting Officer (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 Robert Putnam, Interim Accounting Officer (Principal Accounting Officer).

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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
Date:    August 13, 2009	By:	/s/ ROBERT PUTNAM
		Robert Putnam, Interim Chief Accounting Officer
		(Principal Accounting and Financial Officer and duly authorized to sign on behalf of the Registrant)

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