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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JULY 23, 1999
REGISTRATION NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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E.DIGITAL CORPORATION
(Name of small business issuer in its charter)
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DELAWARE NONE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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13114 EVENING CREEK DRIVE SOUTH
SAN DIEGO, CALIFORNIA 92128
(858) 679-1504
(Address and telephone number of principal executive offices
and principal place of business)
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ALFRED H. FALK, PRESIDENT
E.DIGITAL CORPORATION
13114 EVENING CREEK DRIVE SOUTH
SAN DIEGO, CALIFORNIA 92128
(858) 679-1504
(Name, address and telephone number of agent for service)
Copy to:
CURT C. BARWICK, ESQ.
HIGHAM, MCCONNELL & DUNNING LLP
28202 CABOT ROAD, SUITE 450
LAGUNA NIGUEL, CALIFORNIA 92677
(949) 365-5515
COUNSEL FOR THE COMPANY
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF THE ONLY SECURITIES REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX: [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON
A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR INTEREST
REINVESTMENT PLANS, CHECK THE FOLLOWING BOX: [X]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE FEE
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Common Stock,$.001 par value 13,049,042 SHARES $2.26(1) $29,490,834.92(1) $8,198.45
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TOTAL REGISTRATION FEE $8,198.45
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TOTAL DUE $8,198.45
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(1) These figures are estimates made solely for the purpose of calculating the
registration fee pursuant to Rule 457(c). the average of the bid and asked
prices for the Common Stock on July 21, 1999, as reported by the OTC Bulletin
Board, was $2.26.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
13,049,042 SHARES
E.DIGITAL CORPORATION
COMMON STOCK
Selling stockholders identified in this prospectus are selling
13,049,042 shares of e.Digital Corporation common stock. e.Digital Corporation
will not receive any of the proceeds from the sale of shares by the selling
stockholders. Our common stock is listed in the over-the-counter market on the
National Association of Securities Dealers OTC Electronic Bulletin Board System
under the symbol "EDIG." The closing sale price of the common stock, as reported
on the National Association of Securities Dealers OTC Electronic Bulletin Board
System on July 21, 1999, was $2.27 per share.
The shares of common stock described in this prospectus are
issuable to the selling stockholders upon the conversion of shares of preferred
stock and the exercise of warrants. These securities had been acquired from us
previously in private transactions and are considered "restricted securities"
under the Securities Act of 1933. This prospectus registers the shares of
common stock under the Securities Act of 1933 and allows for future sales by the
selling stockholders to the public without restriction. We have agreed to pay
for the preparation and filing of the of the registration statement and this
prospectus.
The selling stockholders may sell the shares in public or private
transactions, on or off the National Association of Securities Dealers OTC
Electronic Bulletin Board System, at prevailing market prices, or at privately
negotiated prices. The selling stockholders may sell shares directly to
purchasers or through brokers or dealers. Brokers or dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders. The selling stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933. Any commissions
received by a broker or dealer in connection with resales of the shares may be
deemed to be underwriting commissions or discounts under the Securities Act.
More information is provided in the section entitled "Plan of Distribution."
Information contained in this prospectus is not complete and may be
changed. These securities may not be sold to you until the registration
statement filed with the Securities and Exchange Commission becomes effective.
This prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any State where the offer or sale
is not permitted.
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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS," BEGINNING ON
PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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July __, 1999
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WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy these reports, proxy statements and other
information at the public reference facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Securities and Exchange Commission: 75
Park Place, New York, New York 10007; and the Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621. You can request copies of
these documents by writing to the Securities and Exchange Commission and paying
a fee for the copying cost. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for more information about the operation of the public
reference rooms. In addition, such information may be accessed electronically at
the Securities and Exchange Commission's web site on the Internet at
www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" information that we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the Securities and Exchange Commission under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934:
- Annual Report on Form 10-KSB for the year ended March 31,
1999;
- The description of our common stock contained in the
registration statement on Form 10 filed with the Securities
and Exchange Commission on December 13, 1992 pursuant to
Section 12(g) of the Securities Exchange Act of 1934,
together with all amendments or reports filed for the
purpose of updating such description.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address or telephone number:
e.Digital Corporation
13114 Evening Creek Drive South
San Diego, California 92128
Attn: Alfred H. Falk, President
(858) 679-1504
THIS PROSPECTUS IS PART OF A LARGER REGISTRATION STATEMENT WE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD RELY ONLY ON THE
INFORMATION INCORPORATED BY REFERENCE OR PROVIDED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE DOCUMENT.
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TABLE OF CONTENTS
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The Company.......................................................................................4
Use of Proceeds...................................................................................4
Risk Factors......................................................................................4
Plan of Distribution.............................................................................10
Selling Stockholders.............................................................................12
Dividend Policy..................................................................................13
Legal Matters....................................................................................13
Experts..........................................................................................13
Disclosure of Commission Position on Indemnification for Securities Act Liabilities..............14
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THE COMPANY
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY. SEE "RISK FACTORS -
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS."
e.Digital Corporation is a holding company which operates through a
wholly owned California subsidiary of the same name. We provide innovative
product designs and technologies for the rapidly growing market for electronic
devices using portable storage media (flash memory and microdrive technologies).
e.Digital employs its patented MicroOS file management system as the
intelligence targeted for portable digital voice, music, audio, image, video and
data recording and storage devices that interface with computers and the
Internet.
e.Digital earns revenues from performing contract design and
development services for original equipment manufacturer customers in a broad
range of targeted digital processing markets. These markets include dictation
equipment, digital music, consumer electronics, digital image and video and
other portable product markets. We also seek to license our patented MicroOS
file management system and offer manufacturing services to our customers with
actual production contracted to third parties.
Currently e.Digital is developing and manufacturing digital
dictation products for Lanier Worldwide, Inc., an advanced digital recorder
reference design for Intel Corporation and strategically working with Lucent
Technologies, Inc. in the digital music field. e.Digital has provided initial
portable digital music player prototypes to Lucent. These prototypes are being
used in demonstrating the downloading of secure high-quality music from the
Internet to the computer and then to e.Digital's hand-held music player. We also
are developing portable solutions for the emerging mobile enterprise industry
that is implementing voice and voice processing in mobile corporate-wide
environments.
e.Digital was incorporated in the Province of British Columbia,
Canada on February 11, 1988 and on November 22, 1994 changed its domicile to the
Yukon Territory, Canada. On August 30, 1996, the Company continued its
jurisdiction to the State of Wyoming, then on September 4, 1996, to the State of
Delaware. On January 13, 1999, the stockholders approved a name change to
e.Digital Corporation. Our principal executive offices and primary operating
facilities are located at 13114 Evening Creek Drive South, San Diego, California
92128 and our telephone number is (858) 679-1504. Our Internet site is located
at WWW.EDIG.COM. Information contained in our Internet site is not part of this
prospectus.
USE OF PROCEEDS
e.Digital Corporation will not receive any proceeds from the sale
of the shares of common stock offered by the selling stockholders.
RISK FACTORS
An investment in the shares being offered hereby involves a high
degree of risk. In deciding whether to purchase shares of our common stock, you
should carefully consider the following risk factors, in addition to other
information contained in this prospectus, in our most recent Form 10-KSB and in
any other documents incorporated by reference into this prospectus from our
other filings with the Securities and Exchange Commission.
In addition to the other information in this prospectus, the
factors listed below should be considered in evaluating our business and
prospects. This prospectus contains a number of forward-looking statements which
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
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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.
COMPANY RISKS
We Have a History of Losses and May Incur Future Losses. We have
incurred significant operating losses in prior fiscal years and at March 31,
1999 had an accumulated deficit of $38,833,648. We had a net loss of
approximately $2.6 million in fiscal 1999. To date, we have not achieved
profitability and given the level of operating expenditures and the uncertainty
of revenues and margins, we may continue to incur losses and negative cash flows
in future periods. The failure to obtain sufficient revenues and margins to
support operating expenses could harm our business.
We Expect Our Operating Results May Fluctuate Significantly. Our
quarterly and annual operating results have fluctuated significantly in the past
and we expect that they will continue to fluctuate in the future. This
fluctuation is a result of a variety of factors, including the following:
- Unpredictable demand and pricing for our contract
development services;
- Market acceptance of original equipment manufacturer
products by end users;
- Uncertainties with respect to future customer original
equipment manufacturer product orders, their timing and the
margins to be received, if any;
- Fluctuations in operating costs;
- Changes in research and development costs; and
- Changes in general economic conditions.
Our Business is Changing and Developing and We Depend on New
Products and Services. The scale and scope of our business is changing.
Historically, a majority of our revenues were derived from our contract
manufacturing business. Our future growth is greatly dependent upon our original
equipment manufacturer relationship with Lanier and Intel and new relationships
yet to be established. Our performance will be dependent upon the risks that are
inherent in any business venture that is undergoing a major change in the scope
of its operations, future events and developments, and changes in our policies
and methods of operations in the future.
We May Experience Product Delays, Cost Overruns and Errors. We have
experienced development delays and cost overruns associated with contract
development services in the past. We may experience additional delays and cost
overruns on current projects or future projects. We have experienced delays in
bringing the Lanier products to production through our outside manufacturing
arrangement. Future delays and cost overruns could adversely affect our
financial results and could affect our ability to respond to technological
changes, evolving industry standards, competitive developments or customer
requirements. Our technology, the results of our contract services and the
products produced for original equipment manufacturer customers could contain
errors that could cause delays, order cancellations, contract terminations,
adverse publicity, reduced market acceptance of products, or lawsuits by
customers or their customers.
We May Need to Obtain Additional Financing. We believe that with
cash on hand and proceeds from existing development and production contracts
that we have sufficient proceeds to meet cash requirements for the next twelve
months. However, we may need to raise additional funds to:
- Finance unanticipated working capital requirements;
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- Pay for increased operating expenses or shortfalls in
anticipated revenues;
- Fund increases in research and development costs;
- Develop new technology, products or services;
- Respond to competitive pressures; and
- Support strategic and industry relationships.
We cannot assure you that additional financing will be available on
terms favorable to us, or at all. If adequate funds are not available to us then
we may not be able to continue operations or take advantage of opportunities. If
we raise additional equity funds, the percentage ownership of our stockholders
will be reduced.
We Rely on a Limited Number of Customers. A substantial portion of
our revenues have been derived primarily from a limited number of customers. For
the year ended March 31, 1999, the provision of contract development services to
Lanier accounted for approximately 57% of our revenues. We expect that the
production of Lanier products will account for a significant portion of fiscal
2000 revenues. The loss of the Lanier relationship, failure to produce products
under our contract or a decline in the economic prospects of Lanier or the
products we produce would have a material adverse effect on our operations.
We Have Limited Marketing Capability. We have limited marketing
capabilities and resources and are primarily dependent upon in-house executives
for the marketing of our original equipment manufacturer and licensing business.
Attracting new original equipment manufacturer customers requires ongoing
marketing and sales efforts and expenditure of funds to create awareness of and
demand for our technology. We cannot assure you that our marketing efforts will
be successful or result in future development contracts or other revenues.
We Depend On a Single Contract Manufacturer and a Limited Number of
Suppliers. We rely on Eltech Electronics for the manufacture and assembly of
products pursuant to our contract with Lanier. We depend on Eltech to (i)
allocate sufficient capacity to our manufacturing needs, (ii) produce acceptable
quality at agreed pricing and (iii) deliver on a timely basis. If Eltech is
unable to satisfy these requirements, our business, financial condition and
operating results could be materially and adversely affected. Under our supply
agreement with Eltech, we are obligated to provide six month rolling forecasts
for anticipated purchases and 90 days of purchase orders. The requirements of
the contract could result in shortages or excess product and adversely harm our
business. Any failure in performance by this manufacturer for any reason could
have a material adverse affect on our business. Production and pricing by Eltech
is subject to the risk of price fluctuations and periodic shortages of
components. We have no supply agreements with component suppliers and,
accordingly, we are dependent on the future ability of Eltech to purchase
components. Failure or delay by suppliers in supplying necessary components
could adversely affect our ability to deliver products on a timely and
competitive basis in the future.
Our Future Success Depends on Our Key Personnel. Our future success
depends to a significant extent on the continued service of our key technical,
sales and senior management personnel and their ability to execute our strategy.
The loss of the services of any of our senior level management, or certain other
key employees, could harm our business. Our future success also depends on our
ability to attract, retain and motivate highly skilled employees. Competition
for employees in our industry is intense. We may be unable to retain our key
employees or to attract, assimilate and retain other highly qualified employees
in the future. We have from time to time in the past experienced, and we expect
to continue to experience in the future, difficulty in hiring and retaining
highly skilled employees with appropriate qualifications.
Some of Our Management are Part-Time and Have Certain Conflicts of
Interest. Our Chairman, Elwood G. Norris, is also a director of American
Technology Corporation and Chairman and Director of Patriot Scientific
Corporation. He is the owner of approximately 26% of the shares of American
Technology Corporation and 10% of
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Patriot Scientific Corporation. Our Secretary, Robert Putnam, is also a Vice
President, Investor Relations of American Technology Corporation and Secretary
of Patriot Scientific Corporation. Mr. Putnam is the owner of approximately 4%
of the issued and outstanding shares of American Technology Corporation. Our
controller, Renee Warden, is also Chief Accounting Officer, Treasurer and
Assistant Secretary of American Technology Corporation. As a result of their
ownership and involvement with American Technology Corporation and Patriot
Scientific Corporation, Mr. Norris, Mr. Putnam and Ms. Warden have in the past,
and are expected in the future to devote a substantial portion of their time to
their other endeavors and only part-time services to e.Digital. Certain
conflicts of interest now exist and will continue to exist between e.Digital and
certain of its officers and directors due to the fact that they have other
employment or business interests to which they devote some attention and they
are expected to continue to do so. It is conceivable that the respective areas
of interest of e.Digital, Patriot Scientific Corporation and American Technology
Corporation could overlap or conflict. Mr. Norris is a professional inventor and
is only obligated to assign inventions made at the direction of e.Digital or
which relate to digital voice technology products. e.Digital has no rights to
any other inventions, designs, improvements or discoveries made by Mr. Norris.
It is possible that these factors could harm e.Digital which does not have the
benefit of a full-time executive team devoted to executing our strategies.
INDUSTRY RISKS
The Electronic Products Market in Which We Compete is Highly
Competitive. We compete in the market for electronics products which is
intensely competitive and subject to rapid technological change. The market is
also impacted by evolving industry standards, rapid price changes and rapid
product obsolescence. Our competitors include a number of large foreign
companies with U.S. operations and a number of domestic companies, many of which
have substantially greater financial, marketing, personnel and other resources.
Our current competitors or new market entrants could introduce new or enhanced
technologies or products with features which render the Company's technology or
products obsolete or less marketable, or could develop means of producing
competitive products at a lower cost. Our ability to compete successfully will
depend in large measure on our ability to maintain our capabilities in
connection with upgrading products and quality control procedures and to adapt
to technological changes and advances in the industry. Competition could result
in price reductions, reduced margins, and loss of contracts, any of which could
harm our business. There can be no assurance that we will be able to keep pace
with the technological demands of the marketplace or successfully enhance our
products or develop new products which are compatible with the products of the
electronics industry.
We Cannot Predict Product Acceptance in the Market. Our sales and
marketing strategy contemplates sales of developed products to the electronics
and computer software markets, by our original equipment manufacturer customers.
The failure of our original equipment manufacturer customers to penetrate their
projected markets would have a material adverse effect upon our operations and
prospects. Market acceptance of our customer's products will depend in part upon
our ability to demonstrate and maintain the advantages of our technology over
competing products.
We Depend on the Development of the Digital Music Market to Create
a Market for Consumer Devices. We believe the market for portable consumer
devices to play digital music will not develop significantly until consumers are
able to download popular digital recordings from the Internet. We believe the
availability of popular recordings will depend on the adoption of one or more
formats to limit the unauthorized reproduction and distribution of music, called
"pirated" copies. Piracy is a significant concern of record companies and
artists. The failure of the industry to adopt a standard format or formats for
protecting from piracy will delay or have an adverse impact on the growth of
this market. This failure could harm our business. We have designed our digital
music prototype to include piracy protection and to be adaptable to different
music industry and technology standards. Numerous standards in the marketplace,
however, could cause confusion as to whether our designs and services are
compatible. If a competitor were to establish products for original equipment
manufacturer customers with a dominant industry standard unavailable to us, our
business would be harmed.
Our Business Depends on Emerging Markets and New Products. In order
for demand for our technology, services and products to grow, the markets for
portable digital devices, such as digital recorders and digital music players
and other portable consumer devices, must develop and grow. If sales for these
products do not grow, our revenues could
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decline. To remain competitive, we intend to develop new applications for our
technology and develop new technology and products. If new applications or
target markets fail to develop, or if our technology, services and products are
not accepted by the market, our business, financial condition and results of
operations could suffer.
Our Technology May Become Obsolete. The electronics, contract
manufacturing and computer software markets are characterized by extensive
research and development and rapid technological change resulting in very short
product life cycles. Development of new or improved products, processes or
technologies may render our technology and developed products obsolete or less
competitive. We will be required to devote substantial efforts and financial
resources to enhance our existing products and methods of manufacture and to
develop new products and methods. There can be no assurance we will succeed with
these efforts. Moreover, there can be no assurance that other products will not
be developed which would render our technology and products obsolete.
We Face Year 2000 Risks. Many existing computer programs cannot
distinguish between a year beginning with "20" and a year beginning with "19"
because they use only the last two digits to refer to a year. For example, these
programs cannot tell the difference between the year 2000 and the year 1900. As
a result, these programs may malfunction or fail completely. If we or any third
parties with whom we have a material relationship fail to achieve year 2000
readiness, our business may be seriously harmed. In particular, year 2000
problems could temporarily prevent us from offering our goods and services. See
"Management's Discussion and Analysis or Plan of Operations -- Year 2000
Readiness Disclosure."
We Depend on Proprietary Rights to Develop and Protect Our
Technology. Our success and ability to compete substantially depends on our
internally developed software, technologies and trademarks, which we protect
through a combination of patent, copyright, trade secret and trademark laws.
Patent applications or trademark registrations may not be approved. Even when
they are approved, our patents or trademarks may be successfully challenged by
others or invalidated. If our trademark registrations are not approved because
third parties own such trademarks, our use of these trademarks would be
restricted unless we enter into arrangements with the third-party owners, which
may not be possible on commercially reasonable terms or at all. We generally
enter into confidentiality or license agreements with our employees, consultants
and strategic and industry partners, and generally control access to and
distribution of our software, technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. The steps we have taken may not prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States. We have licensed, and we
may license in the future, certain proprietary rights to third parties. While we
attempt to ensure that the quality of our brand is maintained by our business
partners, they may take actions that could impair the value of our proprietary
rights or our reputation. In addition, these business partners may not take the
same steps we have taken to prevent misappropriation of our solutions or
technologies.
We May Face Intellectual Property Infringement Claims That May Be
Costly To Resolve. Although we do not believe we infringe the proprietary rights
of any third parties, we cannot assure you that third parties will not assert
such claims against us in the future or that such claims will not be successful.
We could incur substantial costs and diversion of management resources to defend
any claims relating to proprietary rights, which could harm our business. In
addition, we are obligated under certain agreements to indemnify the other party
for claims that we infringe on the proprietary rights of third parties. If we
are required to indemnify parties under these agreements, our business could be
harmed. If someone asserts a claim relating to proprietary technology or
information against us, we may seek licenses to this intellectual property. We
may not be able to obtain licenses on commercially reasonable terms, or at all.
The failure to obtain the necessary licenses or other rights may harm our
business.
Risks Related To Government Regulation, Content And Intellectual
Property Government Regulation May Require Us To Change The Way We Do Business.
Our business is subject to rapidly changing laws and regulations. Although our
operations are currently based in California, the United States government and
the governments of other states and foreign countries have attempted to regulate
activities on the Internet. Evolving areas of law that are relevant to our
business include privacy law, proposed encryption laws, content regulation and
import/export regulations. Because
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of this rapidly evolving and uncertain regulatory environment, we cannot predict
how these laws and regulations might affect our business. In addition, these
uncertainties make it difficult to ensure compliance with the laws and
regulations governing the Internet. These laws and regulations could harm us by
subjecting us to liability or forcing us to change how we do business.
INVESTMENT RISKS
Our Stock Price May Continue to be Volatile. The trading price of
our Common Stock has been subject to significant fluctuations to date, and will
likely be subject to wide fluctuations in the future due to:
- quarter-to-quarter variations in operating results
- announcements of technological innovations by us, our
customers or competitors
- new products or significant original equipment manufacturer
design wins by e.Digital or its competitors
- general conditions in the markets for our products or in the
electronics industry
- the price and availability of products and components
- changes in operating factors including delays of shipments,
orders or cancellations
- general financial market conditions
- market conditions for technology stocks
- litigation or changes in operating results or estimates by
analysts or others
- other events or factors.
We do not endorse and accept no responsibility for the estimates
or recommendations issued by stock research analysts or others from time to time
or comments on any electronic chat boards. The public stock markets in general,
and technology stocks in particular, have experienced extreme price and trading
volume volatility. This volatility has significantly affected the market prices
of securities of many high technology companies for reasons frequently unrelated
to the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of the our common stock in
the future.
Stocks Traded on the OTC Bulletin Board are Subject to Special
Regulations. Our shares of common stock are traded on the OTC Bulletin Board, an
electronic, screen-based trading system operated by the National Association of
Securities Dealers, Inc. Securities traded on the OTC Bulletin Board are, for
the most part, thinly traded and are subject to special regulations not imposed
on securities listed or traded on the NASDAQ system or on a national securities
exchange. As a result, an investor may find it difficult to dispose of, or to
obtain accurate quotations as to the price of, our common stock. Sales of
substantial amounts of our outstanding Common Stock in the public market could
materially adversely affect the market price of our common stock. To date, the
price of our common stock has been extremely volatile with the sale price
fluctuating from a low of $0.05 to a high of $3.735 in the last twelve months.
Our Number of Common Shares has Increased Dramatically and May
Affect Future Stock Prices. Our outstanding shares of common stock have
increased from 57,171,119 shares at March 31, 1998 to 97,321,297 shares at March
31, 1999 and to 110,694,711 shares at July 12, 1999. This dramatic increase of
shares has resulted primarily from
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the conversion of notes, preferred shares and warrants at low prices in
comparison to recent trading prices. Accordingly, there may be significant
shares in the public float acquired by holders at significantly lower prices.
Additional shares may also be issued in the future from existing dilutive
securities outstanding or from the issuance of new equity securities in the
future. These factors could increase the volatility of our stock price in the
future.
Important Factors Related to Forward-Looking Statements and
Associated Risks. This prospectus contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934 and we intend that such forward-looking
statements be subject to the safe harbors created thereby. These forward-looking
statements include our plans and objectives of management for future operations,
including plans and objectives relating to the products and our future economic
performance. The forward-looking statements included herein are based upon
current expectations that involve a number of risks and uncertainties. These
forward-looking statements are based upon assumptions that we will design,
manufacture, market and ship new products on a timely basis, that competitive
conditions within the computer and electronic markets will not change materially
or adversely, that the computer and electronic markets will continue to
experience growth, that demand for the our products will increase, that we will
obtain and/or retain existing development partners and key management personnel,
that future inventory risks due to shifts in market demand will be minimized,
that our forecasts will accurately anticipate market demand and that there will
be no material adverse change in our operations or business. Assumptions
relating to the foregoing involve judgments with respect, among other things, to
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking information will be realized. In
addition, as disclosed above, our business and operations are subject to
substantial risks which increase the uncertainty inherent in such
forward-looking statements. Any of the other factors disclosed above could cause
our net sales or net income (or loss), or our growth in net sales or net income
(or loss), to differ materially from prior results. Growth in absolute amounts
of costs of sales and selling and administrative expenses or the occurrence of
extraordinary events could cause actual results to vary materially from the
results contemplated in the forward-looking statements. Budgeting and other
management decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our marketing, capital
expenditure or other budgets, which may in turn affect our results of
operations. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our
objectives or plans will be achieved.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
- ordinary brokerage transactions in which the broker-dealer
solicits purchasers;
- block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
10
<PAGE> 13
- short sales;
- broker-dealers may agree with the selling stockholders to
sell a specified number of such shares at a stipulated price
per share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling stockholders also may sell shares under Rule 144 of the
Securities Act of 1933, if available, rather than under this prospectus.
The selling stockholders also may engage in short sales against the
box, puts and calls and other transactions in securities of e.Digital or its
derivative securities and may sell or deliver shares in connection with these
trades. The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act in connection with such sales. In
such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
e.Digital Corporation is required to pay all fees and expenses
incident to the registration of the shares, including fees and disbursements of
counsel to the selling stockholders in an amount not to exceed $7,500.00. We
also have agreed to indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities Act.
Under applicable rules and regulations under the Securities
Exchange Act of 1934, any person engaged in a distribution of the shares may not
bid for or purchase shares of common stock during a period which commences one
business day (five business days, if our public float is less than $25 million
or its average daily trading volume is less than $100,000) prior to such
person's participation in the distribution, subject to exceptions for certain
passive market making activities. In addition, each selling stockholder will be
subject to applicable provisions of the Securities Exchange Act of 1934 and the
rules and regulations thereunder, including, without limitation, Regulation M
which provisions may limit the timing of purchase and sales of shares of our
common stock by such selling stockholder.
11
<PAGE> 14
SELLING STOCKHOLDERS
The following table sets forth the selling stockholders, and the
number of shares of common stock owned beneficially by them as of July 12, 1999
which may be offered pursuant to this prospectus. This information is based upon
information provided to us by either the named selling stockholder or our
transfer agent. Because the selling stockholders may offer all, some or none of
their respective shares of common stock, no definitive estimate as to the number
of shares thereof that will be held by the selling stockholders after such
offering can be provided. The term "selling stockholder" includes the
stockholders listed below and their transferees, pledgees, donees or other
successors. Except as set forth below, none of the selling stockholders is
currently an affiliate of e.Digital, and none of them has had a material
relationship with e.Digital during the past three years.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Before Offering Number of After Offering
-------------------------- Shares -------------------------
Selling Stockholders (1) Number Percent (2) Being Offered (3) Number Percent
- ------------------------ --------- ----------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Canusa Trading Ltd. 1,618,502 1.4% 964,285 654,217 *
CCL Pacific Ltd. 142,857 * 142,857 0 *
Charles Ziegler 125,000 * 125,000 0 *
Jerry E. Polis Family Trust 500,000 * 500,000 0 *
Eric M. Polis 750,000 * 750,000 0 *
Davric Corporation 3,250,000 2.9% 3,250,000 0 *
Elwood G. Norris (4) 3,859,838 3.4% 1,500,000 2,359,838 2.1%
James & Josephine Zolin 418,000 * 200,000 218,000 *
Jesup & Lamont
Securities Corp. 137,615(5) * 137,615(5) 0(8) *
JNC Opportunity Fund Ltd. 1,695,000(6) 1.53% 2,615,000(7) 0(8) *
Neo Optics Ltd. 1,475,645 1.3% 821,428 654,217 *
Pomerado Property L.P. 100,000 * 100,000 0 *
R. Kirk Avery 469,280 * 142,857 326,423 *
Richard & Mary Daniels 229,072 * 228,572 500 *
Robert Putnam (4) 1,165,000 1.0% 500,000 665,000 *
Sunrise Capital, Inc. 500,000 * 500,000 0 *
ZZYZX Technology Ltd. 571,428 * 571,428 0 *
</TABLE>
- ----------
* Less than 1%
(1) To our knowledge, the selling stockholders have sole voting and investment
power with respect to all common stock shown as beneficially owned by them,
subject to community property laws where applicable. Except as otherwise set
forth herein, the table includes shares of common stock that the selling
stockholders have the right to acquire pursuant to the exercise of warrants and
options exercisable within 60 days and shares of common stock issuable to the
selling stockholders upon the conversion of preferred stock held by them.
(2) Percentage ownership is based on 110,694,711 shares of common stock
outstanding as of July 12, 1999 and, except as otherwise set forth herein, in
each case assumes exercise and/or conversion of warrants, options and preferred
stock.
(3) Includes warrants exercisable into 10,629,042 shares of common stock.
(4) Executive officers and directors of e.Digital Corporation.
12
<PAGE> 15
(5) Represents shares of common stock issuable upon the exercise of the warrant
issued to Jesup & Lamont for the purchase of 137,615 shares of common stock.
(6) The certificate of designation governing the Series B preferred stock and
the warrant issued to JNC Opportunity Fund Ltd. each prohibit the holder thereof
from converting shares of Series B preferred stock or exercising the warrant to
the extent that such conversion or exercise, as the case may be, would result in
the holder, together with any affiliate thereof, beneficially owning in excess
of 4.999% of the outstanding shares of common stock following such conversion or
exercise, as the case may be. Such restrictions may be waived by the holder of
the Series B preferred stock and the warrant as to itself upon not less than 61
days' notice to us. The number of shares of common stock listed as beneficially
owned by JNC represents the number of shares of common stock issuable to JNC,
subject to the limitation set forth in the first sentence of this footnote, upon
(i) conversion of 300 shares of Series B preferred stock, at a conversion price
of $2.00 (which price will be adjusted on the 30th day and 60th day,
respectively, following the date on which this registration statement is
declared effective by the Securities and Exchange Commission), and (ii) exercise
of the warrant issued to JNC in conjunction with the sale of the Series B
preferred stock for the purchase of 195,000 shares of common stock.
(7) Represents the shares of common stock issuable to issued to JNC Opportunity
Fund Ltd. upon (i) conversion of the Series B preferred stock issued to JNC at
an assumed conversion price of $1.50 at a stated value of $11,400 and (ii)
exercise of the warrant issued to JNC. Since the number of shares of common
stock issuable upon conversion of the Series B preferred stock is dependent in
part upon the market price of the common stock prior to the 30th day and 60th
day, respectively, following the date on which this registration statement is
declared effective by the Securities and Exchange Commission, the actual number
of shares of common stock issuable in respect of such conversions and,
consequently, offered for sale under this Registration Statement, cannot be
determined at this time. We have contractually agreed with JNC to include herein
2,615,000 shares of common stock issuable upon conversion of the Series B
preferred stock and exercise of the warrant.
(8) Assumes sale of all shares of common stock offered hereby.
DIVIDEND POLICY
e.Digital Corporation has never declared or paid any cash dividends on
its common stock and does not currently intend to do so. e.Digital intends to
retain any future earnings to support the development and growth of its
business. Any future determination to pay cash dividends will be at the
discretion of our board of directors and will be dependent upon our financial
condition, results of operations, cash requirements, plans for expansion,
contractual restrictions, if any, and other factors deemed relevant by the board
of directors.
LEGAL MATTERS
The validity of the securities offered will be passed on for the Company
by Higham, McConnell & Dunning LLP, Laguna Niguel, California.
EXPERTS
The consolidated financial statements of e.Digital Corporation appearing
in e.Digital Corporation's Annual Report (Form 10-KSB) for the year ended March
31, 1999 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and included herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
13
<PAGE> 16
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
As permitted by Delaware law, our Certificate of Incorporation provides
that the we will indemnify our officers, directors, employees and agents against
attorneys' fees and other expenses and liabilities they incur to defend, settle
or satisfy any civil or criminal action brought against them arising out of
their association with or activities on behalf of us unless, in any such action,
they are adjudged to have acted with gross negligence or to have engaged in
willful misconduct. We may also bear the expenses of such litigation for any
such persons upon their promise to repay such sums if it is ultimately
determined that they are not entitled to indemnification. Such expenditures
could be substantial and may not be recouped, even if we are so entitled.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, we have
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of American Technology
Corporation in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, we will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Pursuant to the General Corporation Law of Delaware, our Certificate of
Incorporation excludes personal liability on the part of its directors to the
Company for monetary damages based upon any violation of their fiduciary duties
as directors, except as to liability for any breach of the duty of loyalty, acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, acts in violation of Section 174 of the General
Corporation Law of Delaware, or any transaction from which a director receives
an improper personal benefit. This exclusion of liability does not limit any
right which a director may have to be indemnified and does not affect any
director's liability under federal or applicable state securities laws.
14
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable in connection with the distribution of the securities
being registered (estimated except for the registration fee), all of which will
be borne by the Registrant, are as follows:
<TABLE>
<S> <C>
Registration Fee $ 8,199
Blue Sky Fees and Expenses $ 0
Legal Fees and Expenses $ 8,000
Accounting Fees and Expenses $ 2,500
Miscellaneous Expenses $ 2,000
Total $20,699
=======
</TABLE>
Item 15. Indemnification of Directors and Officers.
Article TENTH of the Certificate of Incorporation of the Company
provides:
"TENTH: The corporation shall, to the fullest extent legally
permissible under the provisions of the Delaware General Corporation Law, as the
same may be amended and supplemented, shall indemnify and hold harmless any and
all persons whom it shall have power to indemnify under said provisions from and
against any and all liabilities (including expenses) imposed upon or reasonably
incurred by him in connection with any action, suit or other proceeding in which
he may be involved or with which he may be threatened, or other matters referred
to in or covered by said provisions both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer of the
corporation. Such indemnification provided shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
Agreement or Resolution adopted by the shareholders entitled to vote thereon
after notice."
Our Bylaws provide that an officer, director, employee or agent is
entitled to be indemnified for the expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him by reason of any action,
suit or proceeding brought against him by virtue of his acting as such officer,
director, employee or agent, provided he acted in good faith or in a manner he
reasonably believed to be in or not opposed to the best interests of our company
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful.
We have directors and officers liability insurance. The insurance
policy covers liability for claims made against directors and officers for their
wrongful acts involving errors, misstatements, misleading statements or acts or
omissions or neglect or breach of duty, while acting in their individual or
collective capacities for any matter claimed against them solely by reason of
their being directors or officers of our company. The coverage includes damages,
judgment, settlements and costs of legal actions, claims or proceedings and
appeals therefrom but does not include fines or penalties imposed by law for
matters which may be deemed uninsurable under the law.
If Delaware law and California law are in conflict with regard to
our power or obligation to indemnify, and the issue were to be contested in the
Delaware and/or California, the legal outcome is unpredictable.
Item 16. Exhibits.
The exhibits are listed in the Exhibit Index commencing at page
II-4 hereof.
II - 1
<PAGE> 18
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
Provided however, that paragraphs (1)(i) and (1)(ii) shall not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective
amendment to this Registration Statement any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
issuer's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II - 2
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California on July 22, 1999.
e.Digital Corporation
By: /s/ Elwood G. Norris
-----------------------------
ELWOOD G. NORRIS,
CHAIRMAN OF THE BOARD
----------------------------
POWER OF ATTORNEY
Each person whose signature to this Registration Statement appears below
hereby appoints Elwood G. Norris, Alfred H. Falk and Robert Putnam, and each of
them, as his attorney-in-fact to sign on his behalf individually and in the
capacity stated below and to file all amendments and post-effective amendments
to this Registration Statement as such attorney-in-fact may deem necessary or
appropriate.
--------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ Elwood G. Norris Chairman of the Board and Director July 22, 1999
- ---------------------------
Elwood G. Norris
/s/ Alfred H. Falk President, Chief Executive Officer July 22, 1999
- --------------------------- and Director
Alfred H. Falk
/s/ Renee Warden Controller July 22, 1999
- --------------------------- (principal financial and
Renee Warden accounting officer)
/s/ Robert Putnam Vice President and Director July 22, 1999
- ---------------------------
Robert Putnam
</TABLE>
II - 3
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL DESCRIPTION
NUMBER -----------------------
- ------
<S> <C>
2.1 Share Exchange Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988 and filed as an Exhibit to the Company's Registration
Statement on Form 10, as amended.
2.1.1 Amendment of Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988 and filed as an Exhibit to the Company's Registration
Statement on Form 10, as amended.
2.2 Plan and Agreement of Reorganization among the Company, American
Surface Mounted Devices, Inc. and ASMD, Inc.,dated August 11, 1989 and
filed as an Exhibit to the Company's Registration Statement on Form
10, as amended.
2.3 Plan and Agreement of Reorganization among the Company, Sage
Microsystems, Inc., and Sage Micro, Inc., dated November 7, 1991 and
filed as an Exhibit to the Company's Registration Statement on Form
10, as amended.
2.4 Plan and Agreement of Reorganization among the Company, C.A.D. Co.
Engineering, Inc. and CADCO Design Group, Inc., dated June 1, 1992 and
filed as an Exhibit to the Company's Registration Statement on Form
10, as amended.
2.5 Plan and Agreement of Reorganization between American Surface Mounted
Devices, Inc. and Comp General Corporation, Inc., dated March 31 1995
and filed previously as an Exhibit to Registration Statement No.
33-92978.
2.6 Plan of Reorganization and Agreement of Merger, dated July , 1996 and
filed as Exhibit A to the Company's July 3, 1996 Proxy Statement.
3.1 Certificate of Incorporation of Norris Communications, Inc. (as
amended through May 28, 1996) and filed as Exhibit B to the Company's
July 3, 1996 Proxy Statement.
3.1.1 Certificate of Amendment of Certificate of Incorporation of Norris
Communications, Inc. filed with the State of Delaware on January 14,
1998 and filed as Exhibit 3.1.1 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1997.
3.1.2 Certificate of Amendment of Certificate of Incorporation of Norris
Communications Inc. filed with the State of Delaware on January 13,
1999 and filed as Exhibit 3.1.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1998.
3.2 Bylaws of the Company, filed as Exhibit C to the Company's July 3,
1996 Proxy Statement.
3.3 Certificate of Designation of Preferences, Rights and Limitations of
Series A Redeemable Convertible Preferred Stock filed with the State
of Delaware on September 19, 1997 and filed as Exhibit 3.3 to the
Company's Current Report on Form 8-K dated October 3, 1997.
3.4 Certificate of Designation of Preferences, Rights and Limitations of
Series B Redeemable Convertible Preferred Stock filed with the State
of Delaware on June 24, 1999, and filed as Exhibit 3.4 to the
Company's Annual Report on Form 10-KSB dated March 31, 1999.
</TABLE>
II - 4
<PAGE> 21
<TABLE>
<S> <C>
4.1 Certificate of Incorporation of Norris Communications, Inc. (as
amended through May 28, 1996) and filed as Exhibit B to the Company's
July 3, 1996 Proxy Statement.
4.1.1 Certificate of Amendment of Certificate of Incorporation of Norris
Communications, Inc. filed with the State of Delaware on January 14,
1998 and filed as Exhibit 3.1.1 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1997.
4.1.2 Certificate of Amendment of Certificate of Incorporation of Norris
Communications Inc. filed with the State of Delaware on January 13,
1999 and filed as Exhibit 3.1.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended December 31, 1998.
4.1.3 Certificate of Designation of Preferences, Rights and Limitations of
Series B Redeemable Convertible Preferred Stock filed with the State
of Delaware on June 24, 1999, and filed as Exhibit 3.4 to the
Company's Annual Report on Form 10-KSB dated March 31, 1999.
4.2 Bylaws of the Company, filed as Exhibit C to the Company's July 3,
1996 Proxy Statement.
4.3 Form Series 98A 12% Convertible Promissory Note with Limited Guaranty
("Notes") due May 15, 1999 between the Company and 6 investors for an
aggregate of $1,000,000 (individual notes vary as to date, amount and
payee); filed as Exhibit 4.6 to the Company's Annual Report on Form
10-KSB dated March 31, 1998.
4.4 Form of Stock Purchase Warrant dated June 12, 1998 entered into
between the Company and Elwood G. Norris and Robert Putnam for an
aggregate of 2,000,000 shares (1,500,000 shares as to Mr. Norris and
500,000 shares as to Mr. Putnam), filed as Exhibit 4.8 to the
Company's Annual Report on Form 10-KSB dated March 31, 1998.
4.5 Warrant Agreement for 500,000 shares dated January 15, 1999 between
the Company and Sunrise Capital, Inc., and filed as Exhibit 4.19 to
the Company's Annual Report on Form 10-KSB dated March 31, 1999.
4.6 Form of Warrant Agreement for an aggregate of 2,907,142 shares (as of
March 31, 1999) issued at various dates between the Company and six
investors, and filed as Exhibit 4.20 to the Company's Annual Report on
Form 10-KSB dated March 31, 1999.
4.7 Form of Warrant Agreement for an aggregate of 1,117,857 shares (as of
March 31, 1999) dated March 1999 between the Company and four
investors, and filed as Exhibit 4.21 to the Company's Annual Report on
Form 10-KSB dated March 31, 1999.
4.8 Warrant Agreement for 100,000 shares dated January 15, 1999 between
the Company and Pomerado Properties, and filed as Exhibit 4.23 to the
Company's Annual Report on Form 10-KSB dated March 31, 1999.
4.9 Warrant Agreement for 195,000 shares dated June 24, 1999 between the
Company and JNC Opportunity Fund Limited, and filed as Exhibit 4.24 to
the Company's Annual Report on Form 10-KSB dated March 31, 1999.
4.10 Warrant Agreement for 137,615 shares dated June 24, 1999 between the
Company and Jesup & Lamont Securities Corporation, and filed as
Exhibit 4.25 to the Company's Annual Report on Form 10-KSB dated March
31, 1999.
4.11 Convertible Preferred Stock Purchase Agreement between the Company and
JNC Opportunity Fund Limited dated June 24, 1999, and filed as Exhibit
4.26 to the Company's Annual Report on Form 10-KSB dated March 31,
1999.
4.12 Registration Rights Agreement between the Company and JNC Opportunity
Fund Limited dated June 24, 1999, and filed as Exhibit 4.27 to the
Company's Annual Report on Form 10-KSB dated March 31, 1999.
5.1 Opinion of Higham, McConnell & Dunning LLP.*
</TABLE>
II - 5
<PAGE> 22
<TABLE>
<S> <C>
23.1 Consent of Higham, McConnell & Dunning LLP, included in Exhibit 5.1.
23.2 Consent of Ernst & Young LLP.*
</TABLE>
- ----------
* Each exhibit marked with an asterisk is filed concurrently herewith.
Each exhibit not marked with an asterisk is incorporated by reference to
an exhibit previously filed by the Company as indicated above.
II - 6
<PAGE> 1
EXHIBIT 5.1
HIGHAM, MCCONNELL & DUNNING LLP
28202 CABOT ROAD, SUITE 450
LAGUNA NIGUEL, CALIFORNIA 92677
(949) 365-5515
July 23, 1999
e.Digital Corporation
13114 Evening Creek Drive South
San Diego, CA 92128
Re: Registration on Form S-3 of 13,049,042 Shares of Common Stock
of e.Digital Corporation
-------------------------------------------------------------
Gentlemen:
We have acted as counsel to e.Digital Corporation, a Delaware corporation
(the "Company"), in connection with the Company's filing with the Securities
and Exchange Commission (the "Commission") of a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "1933 Act"), with respect to 13,049,042 shares ("Shares") of its Common
Stock, $.001 par value, which may be sold from time to time by certain
shareholders of the Company described in the Registration Statement.
In connection with the opinion expressed below, we have examined and
relied upon, as to factual matters, originals and photostatic or certified
copies of such corporate records, including, without limitation, minutes of the
meetings of the Board of Directors of the Company and other instruments,
certificates of corporate officers, and such other documents as we have deemed
necessary or appropriate as a basis for the opinions hereinafter expressed. In
making such examinations, we have assumed the genuineness of all signatures and
the authenticity of all documents submitted to us as originals, and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. We also have assumed that appropriate action will be
taken prior to the offer and sale of the Common Stock to register and qualify
the Common Stock for issuance and sale under any applicable state "Blue Sky" or
securities laws.
We have examined and relied upon, as matters of law, such considerations
of law as we, in our judgment, have deemed necessary or appropriate to render
the opinion expressed below. This opinion is limited to federal law and the
corporate laws of the States of California and Delaware, and we can assume no
responsibility for the law of any other jurisdiction.
Based upon the foregoing, we are of the opinion that the Shares of the
Company's Common Stock being registered under the 1933 Act pursuant to the
Registration Statement, upon exercise of
<PAGE> 2
e.Digital Corporation
July 23, 1999
Page 2
warrants or conversion of preferred stock described therein, will be legally
issued, fully paid and nonassessable shares of Common Stock of the Company.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving this opinion, we do not hereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the Commission promulgated thereunder.
This opinion is being delivered solely in regard to the transactions
contemplated by the Registration Statement and is intended for use solely in
connection with the consummation of such transactions. This opinion should not
be relied upon for any other purpose without our prior written consent; this
opinion should not be quoted in whole or in part or distributed in any way.
Very truly yours,
HIGHAM, McCONNELL & DUNNING LLP
CCB:SEM
<PAGE> 1
EXHIBIT 23.2
CONSENT OF
INDEPENDENT AUDITORS
We consent to the reference to our Firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of e.Digital
Corporation for the registration of 13,049,042 shares of its common stock and to
the incorporation by reference therein of our report dated June 18, 1999 (except
as to Note 18[f] which is as of June 25, 1999), with respect to the
consolidated financial statements of e.Digital Corporation included in its
Annual Report (Form 10-KSB) for the year ended March 31, 1999 filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Vancouver, Canada Chartered Accountants
July 23, 1999.
