Borislav Tonev

e.Digital Corporation (OTCMKTS:EDIG) Sees a Light at the End of the Tunnel

by Borislav Tonev December 17, 2014

It's fair to say that the people currently in charge of e.Digital Corporation (OTCMKTS:EDIG, EDIG message board) are rather proud of their achievements. In each of their press releases, they mention the fact that the company has been around for a while, and that inventions owned by it have helped shape the consumer electronics market. It is true that EDIG started off more than twenty years ago, and it's also true that in its time, it has filled its portfolio with some interesting pieces of technology.

Based on this, it's safe to assume that over the years, many people have treated EDIG as a long term investment rather than a quick OTC play. Unfortunately, they have not had a smooth ride. At the beginning of 2014, for example, the stock hit a 52-week high of around $0.09 per share. Right now, even though it jumped up by a healthy 20% yesterday, it's sitting at just $0.053.

Let's open the latest 10-Q and see if we can find the reasons for the shaky performance. Here's a snapshot of the most important figures as recorded on September 30:

  • cash: $1.8 million
  • current assets: $1.9 million
  • current liabilities: $221 thousand
  • quarterly revenues: $394 thousand
  • quarterly net loss: $172 thousand

There's no getting away from the fact that the balance sheet doesn't look too bad, especially by Pennyland standards. There's a reasonable amount of cash on hand, and the working capital surplus is certainly a welcome relief for the people who spend huge amounts of time looking for a financially healthy OTC company.

Unfortunately, the income statement leaves a lot to be desired, especially when you compare it to the previous reports. During the quarter ended December 31, 2013, for example, EDIG logged nearly $1.3 million in revenues, whereas right now, it's struggling to break the $400 thousand mark.

The products segment is crumbling and the management team has decided to put it out of its misery. According to the latest 10-Q, starting September 2015, EDIG will terminate the sales and support of the eVU portable media players and will focus solely on enforcing its intellectual property.

Fortunately for the shareholders, there is some good news on that front. About an hour after Monday's closing bell, EDIG announced that they have received a favorable ruling after a Markman hearing related to one of their patent infringement lawsuits. Many people now reckon that this will lead to a licensing agreement and, subsequently, to more revenues for EDIG. The excitement sparked by the news was strong enough to push the ticker above the $0.05 per share barrier for the first time since May, but here's where the burning question comes in: “Will EDIG manage to stay where it is today?”.

Only time will tell. If the historical performance is anything to go by, however, things are not looking too good.

Take a look at our previous article, for example. As you can see, back in September 2011, EDIG signed a licensing agreement with HTC and as a result, the stock made a jump pretty similar to the one witnessed yesterday. Consistency, however, proved to be nothing more than a mirage and the ticker is now back where it was three years ago.

The SEC filings clearly show that the revenues coming from licensing simply aren't stable enough and they also show that out of the many agreements the company has signed over the years, only one brings them periodic royalties. If EDIG's management team change this, the stock might just stabilize. If they don't, it will most likely remain rather volatile.

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