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, 2016

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. Employer
incorporation or organization)	Identification Number)

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, 2016 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, 2016 and March 31, 2016	3
		Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2016 and 2015	4
		Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2016 and 2015	5
		Notes to Interim Condensed Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	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	19
	Item 3.	Defaults Upon Senior Securities	19
	Item 4.	Mine Safety Disclosures	19
	Item 5.	Other Information	19
	Item 6.	Exhibits	19
SIGNATURES			20

2

Part I. Financial Information

Item 1. Financial Statements:

e.Digital Corporation and subsidiary

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			March 31,
	2016			2016
	(Unaudited)			(Audited)
	$			$
ASSETS
Current
Cash and cash equivalents		485,938			701,481
Deposits and prepaid expenses		43,505			31,189
Total current assets		529,443			732,670
Property, equipment and intangibles, net of accumulated depreciation and amortization of $135,331 and $128,950, respectively		23,343			26,772
Total assets		552,786			759,442
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable, trade		330,064			120,744
Accrued and other liabilities		74,384			109,072
Total current liabilities		404,448			229,816
Commitments and contingencies  (Note 8)
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 issued and outstanding each period		293,678			293,678
Additional paid-in capital		83,050,385			83,018,638
Accumulated deficit		(83,195,725	)		(82,782,690	)
Total stockholders' equity		148,338			529,626
Total liabilities and stockholders' equity		552,786			759,442

See notes to interim condensed consolidated financial statements  

3

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,
	2016			2015			2016			2015
	$			$			$			$
Revenues:
Products and services		–			10,905			–			16,031
Patent licensing		–			153,500			593,366			693,500
		–			164,405			593,366			709,531
Operating costs and expenses:
Cost of revenues:
Products and services		–			4,308			–			8,256
Patent licensing and litigation costs		105,000			112,500			217,500			225,000
Contingent legal fees and expenses		2,545			56,573			222,502			286,895
Contingent royalties		–			–			15,025			–
Selling and administrative		188,153			260,158			380,503			481,183
Research and related expenditures		72,116			85,248			170,871			182,854
Total operating costs and expenses		367,814			518,787			1,006,401			1,184,188
Loss before provision for income taxes		(367,814	)		(354,382	)		(413,035	)		(474,657	)
Income tax benefit (expense)		–			–			–			–
Net loss for the period		(367,814	)		(354,382	)		(413,035	)		(474,657	)
Loss per common share - basic and diluted		(0.00	)		(0.00	)		(0.00	)		(0.00	)
Weighted average common shares outstanding Basic and Diluted		293,678,330			293,621,265			293,678,330			293,507,292

See notes to interim condensed consolidated financial statements

4

e.Digital Corporation and subsidiary

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the six months ended
	September 30,
	2016			2015
	$			$
OPERATING ACTIVITIES
Net loss for period		(413,035	)		(474,657	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		6,380			1,969
Stock-based compensation		31,747			60,821
Changes in assets and liabilities:
Accounts receivable		–			2,457
Deposits and prepaid expenses		(12,316	)		2,732
Accounts payable, trade		209,320			3,145
Accrued and other liabilities		(34,687	)		(49,759	)
Cash used in operating activities		(212,591	)		(453,292	)
INVESTING ACTIVITIES
Purchase of equipment and intangibles		(2,952	)		(25,157	)
Cash used in investing activities		(2,952	)		(25,157	)
FINANCING ACTIVITIES
Proceeds from sale of common stock		–			6,600
Cash provided by financing activities		–			6,600
Net decrease in cash and cash equivalents		(215,543	)		(471,849	)
Cash and cash equivalents, beginning of period		701,481			1,952,981
Cash and cash equivalents, end of period		485,938			1,481,132

See notes to interim condensed consolidated financial statements  

5

e.Digital Corporation and subsidiary

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. 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, 2016, 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, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2017. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended March 31, 2016 filed on Form 10-K.

Going Concern/ Liquidity

The Company has incurred significant losses and negative cash flow from operations and has an accumulated deficit of $83,195,725 at September 30, 2016. Other than cash on hand, the Company has no other sources of financing currently available as of September 30, 2016. 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.

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 in liquidity. The termination of eVU operations in the second quarter of fiscal 2016 and the loss of eVU revenues did not have a material impact on liquidity, results of operations or financial condition of the Company.

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 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, 2017 and interim periods within those annual periods. The Company is currently evaluating the new guidance to determine the impact it will have 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. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

6

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This new guidance requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. ASU 2015-17 is effective for fiscal periods beginning after December 15, 2016 and may be adopted either prospectively or retrospectively. Early adoption is permitted. The Company has not yet selected a transition method and is currently evaluating the impact that ASU 2015-17 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which changes the accounting for leases and requires expanded disclosures about leasing activities. This new guidance will require lessees to recognize a right of use asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018 and must be adopted using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation, which amends ASC Topic 718, Compensation — Stock Compensation. The new standard identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the potential impact that ASU 2016-09 may have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application for all periods presented. The Company is currently evaluating the impact that ASU 2016-15 will have on its consolidated financial statements.

Other Accounting Standards Updates not effective until after September 30, 2016 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 net 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 net loss 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 consist of stock options. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. At September 30, 2016 and 2015, stock options exercisable into 4,750,000 and 5,598,578 shares of common stock were outstanding, respectively. These securities were not included in the computation of diluted loss per share because they had no effect or were antidilutive, but they could potentially dilute earnings per share in future periods. There was no difference in basic and diluted loss per share or basic and diluted weighted average shares outstanding for the periods presented.

4. 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:

7

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	$		$		$		$
Research and development		2,752		5,159		5,534		10,488
Selling and administrative		15,825		24,653		26,213		50,333
Total stock-based compensation expense		18,577		29,812		31,747		60,821

As of September 30, 2016 total estimated compensation cost of stock options granted but not yet vested was $8,879 and is expected to be recognized over the weighted average period of 1.5 years.

The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the six-month period ended September 30, 2016 (annualized percentages). No options were granted during the six months ended September 30, 2015.

	September 30,
	2016
Volatility	107%
Risk-free interest rate	0.83%
Forfeiture rate	0.0%
Dividend yield	0.0%
Expected life in years	3.0
Weighted-average fair value of options granted	$0.05

The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the historical volatility of the common stock over the period commensurate with the expected life of the options. The Company has a small number of option grants and limited exercise history and accordingly has for all new option grants applied the simplified method prescribed by SEC Staff Accounting Bulletin 110, Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected Term, to estimate expected life (computed as vesting term plus contractual term divided by two). The expected forfeiture rate is estimated based on historical experience and is assumed at 0.0% for nonemployees/directors and certain long-term employees and 5.0% for other employees. Additional expense is recorded when the actual forfeiture rates are lower than estimated and a recovery of prior expense will be recorded if the actual forfeitures are higher than estimated.

See Note 5 for further information on outstanding stock options.

5. STOCKHOLDERS’ EQUITY

The following table summarizes stockholders’ equity transactions during the six-month period ended September 30, 2016:

	Common stock				Additional paid-in		Accumulated			Total stockholders'
	Shares		Amount		capital		deficit			equity
			$		$		$			$
Balance, April 1, 2016		293,678,330		293,678		83,018,638		(82,782,690	)		529,626
Stock-based compensation		–		–		31,747		–			31,747
Loss for the period		–		–		–		(413,035	)		(413,035	)
Balance, September 30, 2016		293,678,330		293,678		83,050,385		(83,195,725	)		148,338

8

Options

The following table summarizes stock option activity for the period:

			Weighted average		Aggregate
	Shares		exercise price		Intrinsic Value
	#		$		$
Outstanding April 1, 2016		4,500,000		0.0799
Granted		250,000		0.075
Exercised		–		–
Canceled/expired		–		–
Outstanding September 30, 2016		4,750,000		0.0797	$	47,970
Exercisable at September 30, 2016		4,562,500		0.0799	$	47,970

(1) Options outstanding are exercisable at prices ranging from $0.055 to $0.11 and expire over the period from 2018 to 2020.

(2) Aggregate intrinsic value is based on the closing price of our common stock on September 30, 2016 of $0.0745 and excludes the impact of options that were not in-the-money.

Since the Company has a net operating loss carryforward as of September 30, 2016, no excess tax benefit for the tax deductions related to stock-based awards was recognized for the six months ended September 30, 2016.

6. 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).

7. SEGMENT INFORMATION

Through September 30, 2015, the Company had two operating segments: (1) patent licensing and (2) products and services. Patent licensing consists of intellectual property revenues from the Company’s patent portfolio. Products and services consisted of sales of the Company’s eVU products and related services. The Company ceased providing eVU services at September 30, 2015, effectively ending this segment’s operations.

Reportable segment information for the three and six months ended September 30, 2016 and 2015 is as follows:

	For the three months ended						For the six months ended
	September 30,						September 30,
	(unaudited)						(unaudited)
	2016			2015			2016			2015
	$			$			$			$
SEGMENT REVENUES:
Products and services		–			10,905			–			16,031
Patent licensing		–			153,500			593,366			693,500
Total revenue		–			164,405			593,366			709,531
SEGMENT COST OF REVENUES:
Products and services		–			4,308			–			8,256
Patent licensing and litigation costs		105,000			112,500			217,500			225,000
Contingent legal fees and expenses		2,545			56,573			222,502			286,895
Contingent royalties		–			–			15,025			–
Total cost of revenues		107,545			173,381			455,027			520,151
RECONCILIATION:
Segment income (loss) before corporate costs		(107,545	)		(8,976	)		138,339			189,380
Other corporate operating costs		260,269			345,406			551,374			664,037
Operating loss before provision for income taxes		(367,814	)		(354,382	)		(413,035	)		(474,657	)

9

The Company did not have significant assets employed in the product and services segment during the periods 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,
	2016		2015		2016		2015
	$		$		$		$
United States		–		153,500		593,366		693,500
International		–		10,905		–		16,031
Total revenue		–		164,405		593,366		709,531

Revenues from two licensees comprised 84% and 15% of revenue for the six months ended September 30, 2016, with no other licensee or customer accounting for more than 10% of revenues. Revenues from three licensees comprised 25%, 21% and 14% of revenue for the six months ended September 30, 2015, with no other licensee accounting for more than 10% of revenues. There were no accounts receivable at September 30, 2016. Accounts receivable from one licensee comprised 100% of net accounts receivable at September 30, 2015.

8. COMMITMENTS AND CONTINGENCIES

Legal Matters

Intellectual Property Litigation

As of September 30, 2015, the Company had settled or dismissed all complaints with respect to its Flash-R patent portfolio.

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

The Company did not enter into any new license agreements during the second quarter of fiscal 2017. During the first quarter of fiscal 2017, the Company entered into two new Nunchi license agreements covering three defendants, and received a royalty payment related to a royalty-based agreement executed in the prior fiscal year.

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 patent portfolio. From September 2012 through August 2016, pursuant to a partial contingent fee arrangement, the Company paid a monthly retainer fee of $30,000 to Handal creditable against future contingency recoveries and a fee ranging from 33% to 40% of license fees. A new agreement, which supersedes and replaces all previous agreements, was executed effective September 1, 2016, reducing the monthly retainer fee to $22,500 so long as Handal is simultaneously litigating ten or fewer cases. Parties agreed to meet and discuss an increase in the amount of the monthly retainer should the number of cases exceed ten. Monthly retainers paid are creditable against future contingency recoveries. The Company has agreed to reimburse Handal for pre-approved expenditures advanced on behalf of the Company and to pay Handal a fee of 40% of any net license fee or settlement.

Commitment Related to Intellectual Property Royalties

The Company is obligated for inventor royalties of 4% of net Nunchi license revenues for the term of related patents, currently 2030.

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 $7,157 excluding utilities and costs. Future lease commitments at September 30, 2016 total $64,409. The Company recognizes rent expense by the straight-line method over the lease term. As of September 30, 2016, deferred rent totaled $10,978.

10

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, 2016 was approximately $270,000. 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.

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, 2016, the Company made matching contributions totaling $4,908.

9. INCOME TAXES

There is no provision for income taxes for the six months ended September 30, 2016 and 2015 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, 2016 and 2015, 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, 2016, the Company has no liabilities for uncertain tax positions.

11

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, 2016.

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 ceased providing eVU® mobile entertainment services to our travel industry customers in the third quarter of fiscal 2015 (December 31, 2014), with related contract eVU services ending as of September 30, 2015.

Through September 30, 2015 we had 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 consisted of the sale of eVU products and accessories to customers, warranty and technical support services, and content integration fees and related services. At September 30, 2015 we terminated providing eVU services, effectively ending this segment’s operations.

Licensing and Patent Enforcement Activities

We commenced legal enforcement actions in 2007 related to our Flash-R flash memory patent portfolio, now expired. We successfully obtained license terms from 83 companies and related distributors through September 30, 2015. We believe our success created both awareness and recognition of our intellectual property among household named companies and their counsel. Since September 2012, the law firm of Handal and Associates has been handling our patent enforcement matters on a partial contingent fee basis.

Our current licensing and enforcement activity consists of the following:

Nunchi Technology Enforcement - We commenced legal action with regards to our Nunchi portfolio of patents in July 2014. To date we have filed patent infringement litigation and sought licenses from eleven companies and related distributors, resulting in one royalty bearing license and settlement agreement with one defendant, and two license and settlement agreements covering three defendants. We currently have three active complaints in the U.S. District Court for the Northern District of California and four active complaints in the U.S. District for the Southern District of California. We expect to file future complaints against additional companies. We are in early negotiations with other defendants, and are confident regarding the prospects for future license revenues from the Nunchi portfolio.

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

We believe that our licensing and/or enforcement activities with respect to our Nunchi, MicroSignet, and Synap patent portfolios will result in licensing revenue, and continue to develop additional intellectual property in the areas of context and interpersonal awareness systems and explore new technologies for possible development or licensing. Our legal action to enforce our Nunchi portfolio of patents has resulted in $593,366 revenue to date and there can be no assurance that such legal action or future action against additional companies will be successful or result in licensing revenue. 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, 2016.

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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 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.

We reported losses for the first six months of fiscal 2017. Revenues and profits have been sporadic in prior periods and we have incurred significant historical losses and negative cash flow from operations. We expect to incur losses in the future until licensing or other 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.

For the six months ended September 30, 2016:

· We recognized a net loss of $413,035 compared to a net loss before income taxes of $474,657 for the comparable six month period of the prior fiscal year. The difference in results was attributable to decreased license revenues due to the timing and amount of individual license agreements and decreased operating costs in the current year.

· We recognized patent license revenues of $593,366 as compared to $693,500 for the comparable period of the prior fiscal year.

· Operating costs and expenses decreased to $1,006,401 in the six months ended September 30, 2016 compared to $1,184,188 in the comparable period prior primarily due decreased patent legal and related fees in the current year.

Management faces challenges for the remainder of fiscal 2017 to generate license revenues from 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 $117,000 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. 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.

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, 2016. 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, 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.

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

· revenue recognition;

· stock-based compensation expense; and

· income taxes  

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. There were no significant changes or modification of our critical accounting policies and estimates involving management valuation adjustments affecting our results for the six months ended September 30, 2016. 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, 2016.

Results of Operations

Three months ended September 30, 2016 compared to the three months ended September 30, 2015 (Unaudited)

	Three Months Ended September 30,
	2016					2015
				% of					% of	Change
	Dollars			Revenue		Dollars			Revenue	Dollars			%
Revenues:
Products and services		–			–		10,905		7%		(10,905	)	(100%)
Patent licensing		–			–		153,500		93%		(153,500	)	(100%)
		–			–		164,405		100%		(164,405	)	(100%)
Operating costs and expenses:
Cost of revenues:
Products and services		–			–		4,308		3%		(4,308	)	(100%)
Patent licensing and litigation costs		105,000			–		112,500		68%		(7,500	)	(7%)
Contingent legal fees and expenses		2,545			–		56,573		34%		(54,028	)	(96%)
Contingent royalties		–			–		–		0%		–		–
Selling and administrative		188,153			–		260,158		158%		(72,005	)	(28%)
Research and development		72,116			–		85,248		52%		(13,132	)	(15%)
		367,814			–		518,787		317%		(150,973	)	(29%)
Operating loss before provision for income taxes		(367,814	)		–		(354,382	)	(216%)		(13,432	)	4%

Loss Before Income Taxes

We reported a net loss before income taxes of $367,814 for the three months ended September 30, 2016 which is comparable to the net loss before income taxes of $354,382 for the same period of the prior year.

Revenues

Revenues decreased during the second fiscal quarter of 2017 compared to the same quarter of the prior fiscal year due to due to the timing and amount of individual license agreements.

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.

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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, 2016, operating costs and expenses decreased by $150,973 compared to the same period in the prior year.

There were no costs of revenues associated with products and services in the current year as compared to $4,308 in the prior year’s second quarter due to the Company’s decision to exit the eVU business in the third quarter of fiscal 2015.

Patent licensing and litigation costs related to patent enforcement were $105,000 for the three months ended September 30, 2016 as compared to $112,500 for 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 $2,545 for the three months ended September 30, 2016 and $56,573 for the three months ended September 30, 2015.

Selling and administrative costs for the three months ended September 30, 2016 decreased by $72,005 compared to the same period in the year prior. The prior period includes $54,687 for annual meeting costs with no comparable expense in the same period of the current year. The current year’s second quarter included $15,825 for noncash stock-based compensation expense as compared to $24,653 in the same period of the prior year.

Research and related expenses decreased by $13,132 primarily due to reduced patent legal fees of $2,878 in the current year as compared to $13,610 for the same period in the prior year. The current year’s second quarter included $2,752 for noncash stock-based compensation expense as compared to $5,159 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.

Net Loss

Net loss for the three months ended September 30, 2016 was $367,814. The net loss for the prior comparable second quarter was $354,382.

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Six months ended September 30, 2016 compared to the six months ended September 30, 2015 (Unaudited)

	Six Months Ended September 30,
	2016						2015
				% of						% of	Change
	Dollars			Revenue			Dollars			Revenue	Dollars			%
Revenues:
Product and services		–			0%			16,031		2%		(16,031	)	(100%)
Patent licensing		593,366			100%			693,500		98%		(100,134	)	(14%)
		593,366			100%			709,531		100%		(116,165	)	(16%)
Operating costs and expenses:
Products and services		–			0%			8,256		1%		(8,256	)	(100%)
Patent licensing and litigation costs		217,500			37%			225,000		32%		(7,500	)	(3%)
Contingent legal fees and expenses		222,502			37%			286,895		40%		(64,393	)	(22%)
Contingent royalties		15,025			3%			–		0%		15,025		–
Selling and administrative		380,503			64%			481,183		68%		(100,680	)	(21%)
Research and related		170,871			29%			182,854		26%		(11,983	)	(7%)
		1,006,401			170%			1,184,188		167%		(177,787	)	(15%)
Operating loss before provision for income taxes		(413,035	)		(70%	)		(474,657	)	(67%)		61,622		(13%)

Loss Before Income Taxes

We reported a net loss before income taxes of $413,035 for the six months ended September 30, 2016 compared to a net loss before income taxes of $474,657 for the comparable period of the prior year primarily due to reduced operating costs and expenses in the current year.

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 $693,500 to $593,366. There were no product and service revenues in the current year 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, 2016, operating costs and expenses decreased by $177,787 compared to the same period in the prior year.

Patent licensing and litigation costs related to patent enforcement were $217,500 for the six months ended September 30, 2016 which is consistent with 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.

Contingent royalties for the six months ended September 30, 2016 were $15,025 with no comparable expense in the same period of the prior year.

Selling and administrative costs for the six months ended September 30, 2016 decreased by $100,680 compared to the same period in the year prior. The prior period includes $54,687 for annual meeting costs with no comparable expense in the same period of the current year. The current period includes $26,213 in noncash stock-based compensation expense, compared to $50,333 in the same period of the prior year.

Research and related expenses for the six months ended September 30, 2016 decreased by $11,983 compared to the same period in the prior year. The current period includes $5,534 in noncash stock-based compensation expense, compared to $10,488 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.

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Liquidity and Capital Resources

At September 30, 2016, we had working capital of $124,995 as compared to working capital of $502,854 at March 31, 2016. At September 30, 2016 we had cash on hand of $485,938.

Operating Activities

Cash used in operating activities was $212,591 for the six months ended September 30, 2016. Cash used in operating activities included the net loss of $413,035 decreased by net non-cash expenses of $38,127 primarily consisting of stock based compensation of $31,747. A major component increasing operating cash was an increase in accounts payable of $209,320 and the major component reducing operating cash was a decrease of $34,687 in accrued and other liabilities.

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.

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, and payable balances. Accordingly operating cash requirements vary significantly from period to period.

Investing Activities

We invested $2,952 and $25,157 in computer and equipment and website costs for the six months ended September 30, 2016 and 2015. 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, 2016.

Debt and Other Commitments

We currently have no debt outstanding other than trade payables and accruals. At September 30, 2016 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 patent portfolio. Pursuant to a partial contingent fee arrangement, we are paying a monthly retainer fee of $22,500 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 of 40% of Net Recovery or settlement related to patent enforcement matters, less prior retainers. Net Recovery is defined as the gross amount paid by a licensee/defendant less the amount of expenses paid and or advanced by e.Digital to Handal or third parties. We may terminate the representation at any time but would be obligated to pay fees and advances.

We are obligated for inventor royalties of 4% of net Nunchi license revenues for the term of related patents, currently 2030.

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 $117,000 per month. Assuming no new license revenues and current expenditure levels we would require approximately $918,000 of additional resources to fund operations for the next twelve months. We believe we may be able to obtain additional funds from future licensing arrangements or other financing sources but the timing thereof is subject to many factors and risks, many outside our control. Our operating plans may require additional funds in future periods and should additional funds not be available, we may be required to curtail or scale back operations. Potential sources of such funds include exercise of outstanding options, or debt financing or new equity offerings. However, there is no assurance that options will be exercised or that debt or equity financing will be available if and when needed. Any future financing may be dilutive to existing stockholders.

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Since we have not demonstrated sustainable profitability, our ability to continue as a going concern is in doubt and is dependent upon achieving sustained profitability and if necessary obtaining additional financing. 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, 2016, 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, 2016 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company engages in litigation from time to time as part of its patent portfolio licensing and enforcement activities. The Company commenced legal action with regards to its Nunchi portfolio of patents in July 2014 and currently has three active complaints in the U.S. District Court for the Northern District of California and four 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 10.3.3 – Nonstatutory Stock Option Agreement dated September 15, 2016 between e.Digital Corporation and Russell Packer.

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*

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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

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 10, 2016

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EX-10.3.3

Exhibit 10.3.3

E.DIGITAL CORPORATION

NONSTATUTORY STOCK OPTION AGREEMENT

September 15, 2016

Russell Packer

#### ##### ########

Carlsbad, CA #####

Re:       Grant of Stock Option

Dear Russell:

In consideration of your agreement to serve on the board of directors (the “Board”) of e.Digital Corporation (the “Company”) and for other good and valuable consideration, the parties hereto, intending to be legally bound, agree as follows:

1.       Grant of Option. Subject to the conditions set forth below, the Company hereby grants to you, effective as of September 15, 2016 (“Grant Date”), as a matter of separate inducement and not in lieu of any salary or other compensation for your services, the right and option to purchase (the “Option”), in accordance with the terms and conditions set forth herein, an aggregate of 250,000 shares of Stock of the Company (the “Option Shares”), at the Exercise Price (as hereinafter defined). As used herein, the term “Exercise Price” shall mean a price equal to $0.075 per share, subject to the adjustments and limitations set forth herein. In no event shall the exercise price be less than the greater of (a) the par value per share of a Share of Stock or (b) the Fair Market Value of a share of Stock as of the Grant Date. The Option granted hereunder is intended to constitute an Option which is not designed pursuant to section 422 of the Internal Revenue Code of 1986, as amended; however, you should consult with your tax advisor concerning the proper reporting of any federal or state tax liability that may arise as a result of the grant or exercise of the Option.

2.       Exercise.

(a)       For purposes of this Option Agreement, the Option Shares shall be deemed “Nonvested Shares” unless and until they have become “Vested Shares.” The Option shall in all events terminate at the close of business on the fourth (4th) anniversary of the date of this Option Agreement. Subject to other terms and conditions set forth herein, the Option may be exercised in cumulative installments as follows:

On or After Each of the Following Vesting Dates	Cumulative Percentage of Shares as to Which Option is Exercisable
Upon Grant Date	25%
Six months after Grant Date	50%
Twelve months after Grant Date	75%
Eighteen months after Grant Date	100%

1

Option Shares shall constitute Vested Shares once they are exercisable.

(b)       Subject to the relevant provisions and limitations contained herein, you may exercise the Option to purchase all or a portion of the applicable number of Vested Shares at any time prior to the termination of the Option pursuant to this Option Agreement. In no event shall you be entitled to exercise the Option for any Nonvested Shares or for a fraction of a Vested Share.

(c)       Any exercise by you of the Option shall be in writing addressed to the Secretary of the Company at its principal place of business (a copy of the form of exercise to be used will be available upon written request to the Secretary), and shall be accompanied by a certified or bank check payable to the order of the Company in the full amount of the Exercise Price of the shares so purchased, or in such other manner as approved by the Board.

3.       Termination of Service. Except as provided below in this Section 3 upon the termination of your service on the Board, any and all Options held by you that are not then exercisable will become null and void upon the date of such termination and you may, until the earlier of (x) ninety (90) days from the date of such termination or (y) the expiration of the Option in accordance with its terms, exercise the Option with respect to all or any part of the Vested Shares which you were entitled to purchase immediately prior to such termination and, thereafter, the Option shall, to the extent not previously exercised, automatically terminate and become null and void.

4.       Transferability. Any rights or interests herein will be assignable or transferable by you only by will or the laws of descent and distribution.

5.       Withholding Taxes. The Board may, in its discretion, require you to pay to the Company (or the Company’s Subsidiary if you are an employee of a Subsidiary of the Company), at the time of the exercise of an Option or thereafter, the amount that the Board deems necessary to satisfy the Company’s or its Subsidiary’s current or future obligation to withhold federal, state or local income or other taxes that you incur by exercising an Option. In connection with the exercise of an Option requiring tax withholding, you may (a) direct the Company to withhold from the shares of Stock to be issued to you the number of shares necessary to satisfy the Company’s obligation to withhold taxes, that determination to be based on the shares’ Fair Market Value as of the date of exercise; (b) deliver to the Company sufficient shares of Stock (based upon the Fair Market Value as of the date of such delivery) to satisfy the Company’s tax withholding obligation, which tax withholding obligation is based on the shares’ Fair Market Value as of the later of the date of exercise or the date as of which the shares of Stock issued in connection with such exercise become includable in your income; or (c) deliver sufficient cash to the Company to satisfy its tax withholding obligations. If you elect to use such a Stock withholding feature you must make the election at the time and in the manner that the Board prescribes. The Board may, at its sole option, deny your request to satisfy withholding obligations through Stock instead of cash. In the event the Board subsequently determines that the aggregate Fair Market Value (as determined above) of any shares of Stock withheld or delivered as payment of any tax withholding obligation is insufficient to discharge that tax withholding obligation, then you shall pay to the Company, immediately upon the Board’s request, the amount of that deficiency in the form of payment requested by the Board.

6.       Adjustments. The terms of an Option shall be subject to adjustment from time to time, in accordance with the following provisions:

(a)       If at any time, or from time to time, the Company shall subdivide as a whole (by reclassification, by a Stock split, by the issuance of a distribution on Stock payable in Stock or otherwise) the number of shares of Stock then outstanding into a greater number of shares of Stock, then (i) the number of shares of Stock (or other kind of securities) that may be acquired under the Option shall be increased proportionately and (ii) the price (including Exercise Price) for each share of Stock (or other kind of shares or securities) subject to the then outstanding Option shall be reduced proportionately, without changing the aggregate purchase price or value of the outstanding Option.

2

(b)       If at any time, or from time to time, the Company shall consolidate as a whole (by reclassification, reverse Stock split or otherwise) the number of shares of Stock then outstanding into a lesser number of shares of Stock, (i) the number of shares of Stock (or other kind of shares or securities) that may be acquired under the Option shall be decreased proportionately; and (ii) the price (including Exercise Price) for each share of Stock (or other kind of shares or securities) subject to the Option shall be increased proportionately, without changing the aggregate purchase price or value of the outstanding Option.

(c)       Whenever the number of shares of Stock subject to the Option and the price for each share of Stock subject to the Option are required to be adjusted as provided in this Section 6, the Board shall promptly prepare a notice setting forth, in reasonable detail, the event requiring adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the change in price and the number of shares of Stock, other securities, cash, or property purchasable subject to the Option after giving effect to the adjustments. The Board shall promptly give you such a notice.

(d)       Adjustments under this Section 6 shall be made by the Board, and its determination as to what adjustments shall be made and the extent thereof shall be final, binding, and conclusive. No fractional interest shall be issued on account of any such adjustments.

7.       Notice. All notices required or permitted under this Option Agreement must be in writing and personally delivered or sent by mail and shall be deemed to be delivered on the date on which it is actually received by the person to whom it is properly addressed. A notice shall be effective when actually received by the Company in writing and in conformance with this Option Agreement. Until changed in accordance herewith, the Company and the optionee specify their respective addresses as set forth below:

Company: e.Digital Corporation
16870 W. Bernardo Drive, Suite 120 San Diego, CA 92127 Attention: MarDee Haring-Layton

Optionee: Russell Packer
#### ##### ########
Carlsbad, CA #####

8.       Information Confidential. As partial consideration for the granting of this Option, you agree that you will keep confidential all information and knowledge that you have relating to the manner and amount of your Option; provided, however, that such information may be disclosed as required by law and may be given in confidence to your spouse, tax and financial advisors, or a financial institution to the extent that such information is necessary to obtain a loan.

9.       Furnish Information. You agree to furnish to the Company all information requested by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation.

10.       Company Records. Records of the Company or its Subsidiaries regarding your period of service on the Board, termination of that service and the reason therefor, and other matters shall be conclusive for all purposes hereunder.

3

11.       Successors. This Agreement shall be binding upon you, your legal representatives, heirs, legatees and distributees, and upon the Company, its successors and assigns.

12.       Headings. The titles and headings of paragraphs are included for convenience of reference only and are not to be considered in construction of the provisions hereof.

13.       Governing Law. All questions arising with respect to the provisions of this Agreement shall be determined by application of the laws of the State of Delaware except to the extent Delaware law is preempted by federal law. The obligation of the Company to sell and deliver Stock hereunder is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock.

14.       Word Usage. Words used in the masculine shall apply to the feminine where applicable, and wherever the context of this Agreement dictates, the plural shall be read as the singular and the singular as the plural.

15.       No Other Agreements. This Option Agreement is not a contract of employment and the terms of your service on the Board shall not be affected by, or construed to be affected by, this Option Agreement, except to the extent specifically provided herein. Nothing herein shall impose, or be construed as imposing, any obligation (i) on the part of the Company or any Subsidiary to continue your service on the Board, or (ii) on your part to remain in as a director of the Company or any Subsidiary.

[Remainder of page intentionally left blank]

4

Please indicate your acceptance of all the terms and conditions of the Option by signing and returning a copy of this Option Agreement.

 

e.Digital Corporation

By:       /s/ Alfred Falk               

Name:     Alfred Falk

Title:       President & CEO

ACCEPTED:

/s/ Russell H. Packer                

Signature of Optionee

Russell H. Packer                      

Name of Optionee (Please Print)

Date: September 26, 2016

5

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Alfred H. Falk, certify that:

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

2. 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;

3. 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;

4. 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:

a) 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;

b) 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;

c) 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

d) 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

5. 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):

a) 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

b) 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 10, 2016

/s/ ALFRED H. FALK          

Alfred H. Falk

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, MarDee Haring-Layton, certify that:

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

2. 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;

3. 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;

4. 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:

a) 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;

b) 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;

c) 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

d) 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

5. 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):

a) 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

b) 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 10, 2016

/s/ MARDEE HARING-LAYTON          

MarDee Haring-Layton

Chief Financial Officer

(Principal Accounting Officer)

EX-32.1

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, 2016, 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 10, 2016

/s/ ALFRED H. FALK       

Alfred H. Falk,

President and Chief Executive Officer

(Principal Executive Officer)

Date: November 10, 2016

/s/ MARDEE HARING-LAYTON       

MarDee Haring-Layton

Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Sep. 30, 2016	Nov. 03, 2016
Products And Services [Member] [Default Label]
Entity Registrant Name	E DIGITAL CORP
Entity Central Index Key	0000886328
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		293,678,330
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2017

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Sep. 30, 2016	Mar. 31, 2016
Current
Cash and cash equivalents	$ 485,938	$ 701,481
Deposits and prepaid expenses	43,505	31,189
Total current assets	529,443	732,670
Property, equipment and intangibles, net of accumulated depreciation and amortization of $135,331 and $128,950, respectively	23,343	26,772
Total assets	552,786	759,442
Current
Accounts payable, trade	330,064	120,744
Accrued and other liabilities	74,384	109,072
Total current liabilities	404,448	229,816
Commitments and Contingencies (Note 8)
Stockholders' equity
Preferred stock, $0.001 par value; 5,000,000 shares authorized None issued and outstanding	0	0
Common stock, $0.001 par value, authorized 350,000,000, 293,678,330 issued and outstanding each period	293,678	293,678
Additional paid-in capital	83,050,385	83,018,638
Accumulated deficit	(83,195,725)	(82,782,690)
Total stockholders' equity	148,338	529,626
Total liabilities and stockholders' equity	$ 552,786	$ 759,442

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)	Sep. 30, 2016	Mar. 31, 2016
ASSETS
Accumulated depreciation	$ 135,331	$ 128,950
Stockholders' equity
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ .001	$ 0.001
Common stock, shares authorized	350,000,000	350,000,000
Common stock, shares issued	293,678,330	293,678,330
Common stock, shares outstanding	293,678,330	293,678,330

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Products and services	$ 0	$ 10,905	$ 0	$ 16,031
Patent licensing	0	153,500	593,366	693,500
Total Revenues	0	164,405	593,366	709,531
Cost of revenues:
Products and services	0	4,308	0	8,256
Patent licensing and litigation costs	105,000	112,500	217,500	225,000
Contingent legal fees and expenses	2,545	56,573	222,502	286,895
Contingent royalties	0	0	15,025	0
Selling and administrative	188,153	260,158	380,503	481,183
Research and related expenditures	72,116	85,248	170,871	182,854
Total operating costs and expenses	367,814	518,787	1,006,401	1,184,188
Loss before provision for income taxes	(367,814)	(354,382)	(413,035)	(474,657)
Income tax benefit (expense)	0	0	0	0
Net loss for the period	$ (367,814)	$ (354,382)	$ (413,035)	$ (474,657)
Loss per common share - basic and diluted	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Weighted average common shares outstanding - Basic and Diluted	293,678,330	293,621,265	293,678,330	293,507,292

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
OPERATING ACTIVITIES
Net loss for period	$ (413,035)	$ (474,657)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,380	1,969
Stock-based compensation	31,747	60,821
Changes in assets and liabilities:
Accounts receivable	0	2,457
Deposits and prepaid expenses	(12,316)	2,732
Accounts payable, trade	209,320	3,145
Accrued and other liabilities	(34,687)	(49,759)
Cash used in operating activities	(212,591)	(453,292)
INVESTING ACTIVITIES
Purchase of equipment and intangibles	(2,952)	(25,157)
Cash used in investing activities	(2,952)	(25,157)
FINANCING ACTIVITIES
Proceeds from sale of common stock	0	6,600
Cash provided by financing activities	0	6,600
Net decrease in cash and cash equivalents	(215,543)	(471,849)
Cash and cash equivalents, beginning of period	701,481	1,952,981
Cash and cash equivalents, end of period	$ 485,938	$ 1,481,132

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1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

6 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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. 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, 2016, 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, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2017. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended March 31, 2016 filed on Form 10-K.

Going Concern/ Liquidity

The Company has incurred significant losses and negative cash flow from operations and has an accumulated deficit of $83,195,725 at September 30, 2016. Other than cash on hand, the Company has no other sources of financing currently available as of September 30, 2016. 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.

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 in liquidity. The termination of eVU operations in the second quarter of fiscal 2016 and the loss of eVU revenues did not have a material impact on liquidity, results of operations or financial condition of the Company.

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.

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2. RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Sep. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

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, 2017 and interim periods within those annual periods. The Company is currently evaluating the new guidance to determine the impact it will have 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. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. This new guidance requires all deferred tax assets and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. ASU 2015-17 is effective for fiscal periods beginning after December 15, 2016 and may be adopted either prospectively or retrospectively. Early adoption is permitted. The Company has not yet selected a transition method and is currently evaluating the impact that ASU 2015-17 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which changes the accounting for leases and requires expanded disclosures about leasing activities. This new guidance will require lessees to recognize a right of use asset and a lease liability at the commencement date for all leases with terms greater than twelve months. Accounting by lessors is largely unchanged. ASU 2016-02 is effective for fiscal periods beginning after December 15, 2018 and must be adopted using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation, which amends ASC Topic 718, Compensation — Stock Compensation. The new standard identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the potential impact that ASU 2016-09 may have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application for all periods presented. The Company is currently evaluating the impact that ASU 2016-15 will have on its consolidated financial statements.

Other Accounting Standards Updates not effective until after September 30, 2016 are not expected to have a material effect on the Company’s financial position or results of operations.

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3. LOSS PER SHARE

6 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

LOSS PER SHARE

Basic loss per common share is computed by dividing net 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 net loss 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 consist of stock options. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. At September 30, 2016 and 2015, stock options exercisable into 4,750,000 and 5,598,578 shares of common stock were outstanding, respectively. These securities were not included in the computation of diluted loss per share because they had no effect or were antidilutive, but they could potentially dilute earnings per share in future periods. There was no difference in basic and diluted loss per share or basic and diluted weighted average shares outstanding for the periods presented.

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4. STOCK-BASED COMPENSATION COSTS

6 Months Ended

Sep. 30, 2016

Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]

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,
	2016		2015		2016		2015
	$		$		$		$
Research and development		2,752		5,159		5,534		10,488
Selling and administrative		15,825		24,653		26,213		50,333
Total stock-based compensation expense		18,577		29,812		31,747		60,821

As of September 30, 2016 total estimated compensation cost of stock options granted but not yet vested was $8,879 and is expected to be recognized over the weighted average period of 1.5 years.

The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the six-month period ended September 30, 2016 (annualized percentages). No options were granted during the six months ended September 30, 2015.

	September 30,
	2016
Volatility	107%
Risk-free interest rate	0.83%
Forfeiture rate	0.0%
Dividend yield	0.0%
Expected life in years	3.0
Weighted-average fair value of options granted	$0.05

The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the historical volatility of the common stock over the period commensurate with the expected life of the options. The Company has a small number of option grants and limited exercise history and accordingly has for all new option grants applied the simplified method prescribed by SEC Staff Accounting Bulletin 110, Share-Based Payment: Certain Assumptions Used in Valuation Methods - Expected Term, to estimate expected life (computed as vesting term plus contractual term divided by two). The expected forfeiture rate is estimated based on historical experience and is assumed at 0.0% for nonemployees/directors and certain long-term employees and 5.0% for other employees. Additional expense is recorded when the actual forfeiture rates are lower than estimated and a recovery of prior expense will be recorded if the actual forfeitures are higher than estimated.

See Note 5 for further information on outstanding stock options.

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5. STOCKHOLDERS' EQUITY

6 Months Ended

Sep. 30, 2016

Stockholders' equity

STOCKHOLDERS' EQUITY

The following table summarizes stockholders’ equity transactions during the six-month period ended September 30, 2016:

	Common stock				Additional paid-in		Accumulated			Total stockholders'
	Shares		Amount		capital		deficit			equity
			$		$		$			$
Balance, April 1, 2016		293,678,330		293,678		83,018,638		(82,782,690	)		529,626
Stock-based compensation		–		–		31,747		–			31,747
Loss for the period		–		–		–		(413,035	)		(413,035	)
Balance, September 30, 2016		293,678,330		293,678		83,050,385		(83,195,725	)		148,338

Options

The following table summarizes stock option activity for the period:

			Weighted average		Aggregate
	Shares		exercise price		Intrinsic Value
	#		$		$
Outstanding April 1, 2016		4,500,000		0.0799
Granted		250,000		0.075
Exercised		–		–
Canceled/expired		–		–
Outstanding September 30, 2016		4,750,000		0.0797	$	47,970
Exercisable at September 30, 2016		4,562,500		0.0799	$	47,970

(1) Options outstanding are exercisable at prices ranging from $0.055 to $0.11 and expire over the period from 2018 to 2020.

(2) Aggregate intrinsic value is based on the closing price of our common stock on September 30, 2016 of $0.0745 and excludes the impact of options that were not in-the-money.

Since the Company has a net operating loss carryforward as of September 30, 2016, no excess tax benefit for the tax deductions related to stock-based awards was recognized for the six months ended September 30, 2016.

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6. FAIR VALUE MEASUREMENTS

6 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

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).

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7. SEGMENT INFORMATION

6 Months Ended

Sep. 30, 2016

Segment Reporting, Measurement Disclosures [Abstract]

SEGMENT INFORMATION

Through September 30, 2015, the Company had two operating segments: (1) patent licensing and (2) products and services. Patent licensing consists of intellectual property revenues from the Company’s patent portfolio. Products and services consisted of sales of the Company’s eVU products and related services. The Company ceased providing eVU services at September 30, 2015, effectively ending this segment’s operations.

Reportable segment information for the three and six months ended September 30, 2016 and 2015 is as follows:

	For the three months ended						For the six months ended
	September 30,						September 30,
	(unaudited)						(unaudited)
	2016			2015			2016			2015
	$			$			$			$
SEGMENT REVENUES:
Products and services		–			10,905			–			16,031
Patent licensing		–			153,500			593,366			693,500
Total revenue		–			164,405			593,366			709,531
SEGMENT COST OF REVENUES:
Products and services		–			4,308			–			8,256
Patent licensing and litigation costs		105,000			112,500			217,500			225,000
Contingent legal fees and expenses		2,545			56,573			222,502			286,895
Contingent royalties		–			–			15,025			–
Total cost of revenues		107,545			173,381			455,027			520,151
RECONCILIATION:
Segment income (loss) before corporate costs		(107,545	)		(8,976	)		138,339			189,380
Other corporate operating costs		260,269			345,406			551,374			664,037
Operating loss before provision for income taxes		(367,814	)		(354,382	)		(413,035	)		(474,657	)

The Company did not have significant assets employed in the product and services segment during the periods 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,
	2016		2015		2016		2015
	$		$		$		$
United States		–		153,500		593,366		693,500
International		–		10,905		–		16,031
Total revenue		–		164,405		593,366		709,531

Revenues from two licensees comprised 84% and 15% of revenue for the six months ended September 30, 2016, with no other licensee or customer accounting for more than 10% of revenues. Revenues from three licensees comprised 25%, 21% and 14% of revenue for the six months ended September 30, 2015, with no other licensee accounting for more than 10% of revenues. There were no accounts receivable at September 30, 2016. Accounts receivable from one licensee comprised 100% of net accounts receivable at September 30, 2015.

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8. COMMITMENTS AND CONTINGENCIES

6 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Legal Matters

Intellectual Property Litigation

As of September 30, 2015, the Company had settled or dismissed all complaints with respect to its Flash-R patent portfolio.

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

The Company did not enter into any new license agreements during the second quarter of fiscal 2017. During the first quarter of fiscal 2017, the Company entered into two new Nunchi license agreements covering three defendants, and received a royalty payment related to a royalty-based agreement executed in the prior fiscal year.

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 patent portfolio. From September 2012 through August 2016, pursuant to a partial contingent fee arrangement, the Company paid a monthly retainer fee of $30,000 to Handal creditable against future contingency recoveries and a fee ranging from 33% to 40% of license fees. A new agreement, which supersedes and replaces all previous agreements, was executed effective September 1, 2016, reducing the monthly retainer fee to $22,500 so long as Handal is simultaneously litigating ten or fewer cases. Parties agreed to meet and discuss an increase in the amount of the monthly retainer should the number of cases exceed ten. Monthly retainers paid are creditable against future contingency recoveries. The Company has agreed to reimburse Handal for pre-approved expenditures advanced on behalf of the Company and to pay Handal a fee of 40% of any net license fee or settlement.

Commitment Related to Intellectual Property Royalties

The Company is obligated for inventor royalties of 4% of net Nunchi license revenues for the term of related patents, currently 2030.

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 $7,157 excluding utilities and costs. Future lease commitments at September 30, 2016 total $64,409. The Company recognizes rent expense by the straight-line method over the lease term. As of September 30, 2016, deferred rent totaled $10,978.

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, 2016 was approximately $270,000. 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.

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, 2016, the Company made matching contributions totaling $4,908.

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9. INCOME TAXES

6 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

There is no provision for income taxes for the six months ended September 30, 2016 and 2015 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, 2016 and 2015, 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, 2016, the Company has no liabilities for uncertain tax positions.

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1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Policies)

6 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Unaudited Interim Financial Statements

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. 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, 2016, 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, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2017. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended March 31, 2016 filed on Form 10-K.

Going Concern/Liquidity

Going Concern/ Liquidity

The Company has incurred significant losses and negative cash flow from operations and has an accumulated deficit of $83,195,725 at September 30, 2016. Other than cash on hand, the Company has no other sources of financing currently available as of September 30, 2016. 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.

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 in liquidity. The termination of eVU operations in the second quarter of fiscal 2016 and the loss of eVU revenues did not have a material impact on liquidity, results of operations or financial condition of the Company.

Estimates

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.

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4. STOCK-BASED COMPENSATION COSTS (Tables)

6 Months Ended

Sep. 30, 2016

Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]

Stock-based compensation cost allocation table

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	$		$		$		$
Research and development		2,752		5,159		5,534		10,488
Selling and administrative		15,825		24,653		26,213		50,333
Total stock-based compensation expense		18,577		29,812		31,747		60,821

Assumptions

	September 30,
	2016
Volatility	107%
Risk-free interest rate	0.83%
Forfeiture rate	0.0%
Dividend yield	0.0%
Expected life in years	3.0
Weighted-average fair value of options granted	$0.05

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5. STOCKHOLDERS' EQUITY (Tables)

6 Months Ended

Sep. 30, 2016

Stockholders' equity

Summary of stockholders' equity transactions

	Common stock				Additional paid-in		Accumulated			Total stockholders'
	Shares		Amount		capital		deficit			equity
			$		$		$			$
Balance, April 1, 2016		293,678,330		293,678		83,018,638		(82,782,690	)		529,626
Stock-based compensation		–		–		31,747		–			31,747
Loss for the period		–		–		–		(413,035	)		(413,035	)
Balance, September 30, 2016		293,678,330		293,678		83,050,385		(83,195,725	)		148,338

Stock option activity table

			Weighted average		Aggregate
	Shares		exercise price		Intrinsic Value
	#		$		$
Outstanding April 1, 2016		4,500,000		0.0799
Granted		250,000		0.075
Exercised		–		–
Canceled/expired		–		–
Outstanding September 30, 2016		4,750,000		0.0797	$	47,970
Exercisable at September 30, 2016		4,562,500		0.0799	$	47,970

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7. SEGMENT INFORMATION (Tables)

6 Months Ended

Sep. 30, 2016

Segment Reporting, Measurement Disclosures [Abstract]

Reportable segment information

	For the three months ended						For the six months ended
	September 30,						September 30,
	(unaudited)						(unaudited)
	2016			2015			2016			2015
	$			$			$			$
SEGMENT REVENUES:
Products and services		–			10,905			–			16,031
Patent licensing		–			153,500			593,366			693,500
Total revenue		–			164,405			593,366			709,531
SEGMENT COST OF REVENUES:
Products and services		–			4,308			–			8,256
Patent licensing and litigation costs		105,000			112,500			217,500			225,000
Contingent legal fees and expenses		2,545			56,573			222,502			286,895
Contingent royalties		–			–			15,025			–
Total cost of revenues		107,545			173,381			455,027			520,151
RECONCILIATION:
Segment income (loss) before corporate costs		(107,545	)		(8,976	)		138,339			189,380
Other corporate operating costs		260,269			345,406			551,374			664,037
Operating loss before provision for income taxes		(367,814	)		(354,382	)		(413,035	)		(474,657	)

Revenue by geographic region

	For the three months ended				For the six months ended
	September 30,				September 30,
	2016		2015		2016		2015
	$		$		$		$
United States		–		153,500		593,366		693,500
International		–		10,905		–		16,031
Total revenue		–		164,405		593,366		709,531

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1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Details Narrative) - USD ($)	Sep. 30, 2016	Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accumulated deficit	$ (83,195,725)	$ (82,782,690)

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3. LOSS PER SHARE (Details Narrative) - shares	6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Potentially dilutive securities outstanding at period end excluded from diluted computation as they were antidilutive	4,750,000	5,598,578

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4. STOCK-BASED COMPENSATION COSTS (Details - Stock-based Compensation) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Total stock-based compensation expense	$ 18,577	$ 29,812	$ 31,747	$ 60,821
Research and Development Expense [Member]
Total stock-based compensation expense	2,752	5,159	5,534	10,488
Selling and Administrative Expenses [Member]
Total stock-based compensation expense	$ 15,825	$ 24,653	$ 26,213	$ 50,333

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4. STOCK-BASED COMPENSATION COSTS (Details - Assumptions)	6 Months Ended
	Sep. 30, 2016 $ / shares
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Volatility	107.00%
Risk-free interest rate	0.83%
Forfeiture rate	0.00%
Dividend yield	0.00%
Expected life in years	3 years
Weighted-average fair value of options granted	$ 0.05

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4. STOCK-BASED COMPENSATION COSTS (Details Narrative)	6 Months Ended
	Sep. 30, 2016 USD ($)
Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]
Compensation cost of options granted but not yet vested	$ 8,879
Nonvested weighted average period	1 year 6 months

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5. STOCKHOLDERS EQUITY (Details) - USD ($)	3 Months Ended	6 Months Ended
	Sep. 30, 2016	Sep. 30, 2016
Additional Paid-In Capital
Beginning balance, value		$ 83,018,638
Stock-based compensation		31,747
Ending balance, value	$ 83,050,385	83,050,385
Accumulated Deficit
Beginning balance, value		(82,782,690)
Loss for the period		(413,035)
Ending balance, value	(83,195,725)	(83,195,725)
Beginning balance, value		529,626
Stock-based compensation		31,747
Loss for the period	(367,814)	(413,035)
Ending balance, value	$ 148,338	$ 148,338

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5. STOCKHOLDERS' EQUITY (Details-Stock Option Activity)	6 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Shares
Options Outstanding, beginning balance | shares	4,500,000
Granted | shares	250,000
Exercised | shares	0
Canceled/expired | shares	0
Outstanding, ending balance | shares	4,750,000
Exercisable | shares	4,562,500
Weighted average exercise price
Options Outstanding, beginning balance | $ / shares	$ .0799
Granted | $ / shares	0.075
Exercised | $ / shares
Canceled/expired | $ / shares
Outstanding, ending balance | $ / shares	0.0797
Exercisable | $ / shares	$ 0.0799
Aggregate Intrinsic Value
Outstanding, ending balance | $	$ 47,970
Exercisable | $	$ 47,970

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5. STOCKHOLDERS' EQUITY (Details Narrative)	6 Months Ended
	Sep. 30, 2016 $ / shares
Stockholders' equity
Options outstanding exercisable at prices range Minimum	$ .055
Options outstanding exercisable at prices range Maximum	$ 0.11
Weighted average contractual life of options exercisable	2 years
Aggregate intrinsic value	$ 0.0745

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7. SEGMENT INFORMATION (Details - Segment info) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Total revenue	$ 0	$ 164,405	$ 593,366	$ 709,531
Total cost of revenues	107,545	173,381	455,027	520,151
Segment income (loss) before corporate costs	(107,545)	(8,976)	138,339	189,380
Other corporate operating costs	260,269	345,406	551,374	664,037
Loss before provision for income taxes	(367,814)	(354,382)	(413,035)	(474,657)
Products And Services [Member]
Total revenue	0	10,905	0	16,031
Total cost of revenues	0	4,308	0	8,256
Patent Licensing
Total revenue	0	153,500	593,366	693,500
Patent licensing and litigation costs
Total cost of revenues	105,000	112,500	217,500	225,000
Contingent Legal Fees [Member]
Total cost of revenues	2,545	56,573	222,502	286,895
Contingent Royalties [Member]
Total cost of revenues	$ 0	$ 0	$ 15,025	$ 0

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7. SEGMENT INFORMATION (Details - Revenue by Geographic Region) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Total revenue	$ 0	$ 164,405	$ 593,366	$ 709,531
UNITED STATES
Total revenue	0	153,500	593,366	693,500
International
Total revenue	$ 0	$ 10,905	$ 0	$ 16,031

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7. SEGMENT INFORMATION (Details Narrative)	6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Revenue | Customer1
Concentration percentage	84.00%	25.00%
Revenue | Customer2
Concentration percentage	15.00%	21.00%
Revenue | Customer 3 [Member]
Concentration percentage		14.00%
Accounts Receivable | Customer1
Concentration percentage		100.00%

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8. COMMITMENTS AND CONTINGENCIES (Details Narrative)	6 Months Ended
	Sep. 30, 2016 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Monthly retainer fee against future contingency recoveries	$ 22,500
Settlement percentage related to patent enforcement matters	40%
Inventor royalty percentage fee	4.00%
Future lease commitments	$ 64,409
Deferred rent	10,978
Cash in excess of FDIC insured limits	270,000
Company matching contributions to 401K Plan	$ 4,908

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9. INCOME TAXES (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 0	$ 0	$ 0	$ 0
Effective tax rate			0.00%
Liabilities for uncertain tax positions	$ 0		$ 0