Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE

SECURITIES EXCHANGE ACT OF 1934

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o Soliciting Material Pursuant to § 240.14a-11(c) or § 240.14a-12

E.DIGITAL CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

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E.DIGITAL CORPORATION

16770 West Bernardo Drive, San Diego, California 92127

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be Held September 17, 2008

TO THE STOCKHOLDERS OF

E.DIGITAL CORPORATION

Notice is hereby given that the Annual Meeting of Stockholders (the “Annual Meeting”) of e.Digital Corporation, a Delaware corporation (the “Company”), will be held at the offices of the Company, located at 16770 West Bernardo Drive, San Diego, California 92127, on September 17, 2008, beginning at 2:00 p.m. local time. The Annual Meeting will be held for the following purposes:

1. To elect directors of the Company to serve as directors until the annual meeting of stockholders to be held in 2009, and until such directors’ successor has been duly elected and qualified or until such directors have otherwise ceased to serve as directors.

2. To approve an amendment to the Company’s Certificate of Incorporation to increase the number of shares of common stock, $.001 par value, that the Company is authorized to issue from 300,000,000 to 350,000,000.

3. To ratify the appointment of Singer Lewak Greenbaum & Goldstein, LLP as independent accountants for the Company for the fiscal year ending March 31, 2009.

4. To transact such other business as may properly come before the meeting or any postponements or adjournments thereof.

The Board of Directors has fixed July 21, 2008 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and any postponements or adjournments thereof, and only stockholders of record at the close of business on that date are entitled to such notice and to vote at the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be available at the offices of the Company for ten (10) days prior to the Annual Meeting.

We hope that you will use this opportunity to take an active part in the affairs of the Company by voting on the business to come before the Annual Meeting either by executing and returning the enclosed Proxy Card or by casting your vote in person at the Annual Meeting.

STOCKHOLDERS UNABLE TO ATTEND THE ANNUAL MEETING IN PERSON ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. A STAMPED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY CARD BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED.


	By Order of the Board of Directors

	/s/ ROBERT PUTNAM
	Robert Putnam
	Secretary

San Diego, California	Telephone - (858) 304-3016
August 1, 2008	Facsimile - (858) 304-3023

TABLE OF CONTENTS

PROXY STATEMENT	1

RECORD DATE AND VOTING	1

ELECTION OF DIRECTORS (Proposal One)	2

CORPORATE GOVERNANCE	4

APPROVAL OF AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE TOTAL AUTHORIZED SHARES OF COMMON STOCK (Proposal Two)	6

RATIFICATION OF INDEPENDENT AUDITOR (Proposal Three)	9

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	10

EQUITY COMPENSATION PLAN INFORMATION	11

EXECUTIVE COMPENSATION	12

AUDIT COMMITTEE REPORT	15

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	16

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934	18

DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING	18

OTHER BUSINESS OF THE ANNUAL MEETING	18

MISCELLANEOUS	19

e.Digital Corporation

16770 West Bernardo Drive

San Diego, California 92127

ANNUAL MEETING OF STOCKHOLDERS

To Be Held September 17, 2008

PROXY STATEMENT

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of e.Digital Corporation, a Delaware corporation (the “Company”), for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held at 2:00 p.m., local time, on September 17, 2008, and any postponements or adjournments thereof for the purposes set forth in the accompanying Notice of Annual Meeting. The telephone number of the Company is (858) 304-3016 and its facsimile number is (858) 304-3023. This Proxy Statement and the accompanying form of proxy were first mailed to stockholders on or about August 1, 2008.

RECORD DATE AND VOTING

July 21, 2008 has been fixed as the record date (the “Record Date”) for the determination of stockholders entitled to notice of and to vote at the Annual Meeting, and any postponements or adjournments thereof. As of July 21, 2008, there were [276,527,941] shares of the Company’s common stock, $.001 par value per share (the “Common Stock”) and 75,000 shares of Series AA preferred stock (“Series AA Preferred Stock”) issued and outstanding. A majority of the shares entitled to vote, present in person or represented by proxy, will constitute a quorum at the meeting.

Except as provided below, on all matters to be voted upon at the Annual Meeting, each holder of record of Common Stock on the Record Date will be entitled to one vote for each share held, and each holder of Series AA Preferred Stock on the Record Date will be entitle to one hundred votes for each share held, or an aggregate of 7,500,000 votes for the Series AA Preferred Stock. With respect to all matters other then the election of directors and the proposed amendment to the Company’s Certificate of Incorporation, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter will be the act of the stockholders. Directors will be elected by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote on the election of directors. The matter of the proposed amendment to the Company’s Certificate of Incorporation, requires the affirmative vote of a majority of the outstanding shares of Common Stock on the record date. Abstentions will be treated as the equivalent of a negative vote for the purpose of determining whether a proposal has been adopted and will have no effect for the purpose of determining whether a director has been elected. Unless otherwise instructed, proxies solicited by the Company will be voted “FOR” the nominees named herein for election as directors, “FOR” the approval of an amendment to the Company’s Certificate of Incorporation to increase the number of shares of Common Stock, $.001 par value, that the Company is authorized to issue from 300,000,000 to 350,000,000 and “FOR” the ratification of the selection of Singer Lewak Greenbaum & Goldstein LLP to provide audit services to the Company for the fiscal year ending March 31, 2009.

New York Stock Exchange Rules (“NYSE Rules”) generally require that when shares are registered in street or nominee name, its member brokers must receive specific instructions from the beneficial owners in order to vote on certain proposals. However, the NYSE Rules do not require specific instructions in order for a broker to vote on the election of directors. If a member broker indicates on the proxy that such broker does not have discretionary authority as to certain shares to vote on any proposal that does require specific instructions, those shares will not be considered as present and entitled to vote with respect to that matter. Pursuant to Delaware law, a broker non-vote will not be treated as present or voting in person or by proxy on the proposal. A broker non-vote will have no effect for the purpose of determining whether a director has been elected.

A stockholder giving a proxy has the power to revoke it at any time before it is exercised by giving written notice of revocation to the Secretary of the Company, by executing a subsequent proxy, or by attending the Annual Meeting and voting in person. Subject to any such revocation, all shares represented by properly executed proxies will be voted in accordance with the specifications on the enclosed proxy card.

ELECTION OF DIRECTORS

(Proposal One)

General

The Company’s bylaws state that the Board of Directors shall consist of not less than four nor more than seven members. The specific number of Board members within this range is established by the Board of Directors and is set at four for this election. A Board of four directors, will be elected at the Annual Meeting. Unless otherwise instructed, proxy holders will vote the proxies received by them for the Company’s five nominees named below. In the event that any nominee of the Company is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner as will assure the election of as many of the nominees listed below as possible, and, in such event, the specific nominees to be voted for will be determined by the proxy holders. It is not expected that any nominee will be unable or will decline to serve as a director. The term of office of each person elected as a director will continue until the next annual meeting of stockholders and such time as his or her successor is fully elected and qualified or until his or her earlier resignation, removal or death.

Directors and Nominees

The following sets forth certain information concerning our nominees as of July 21, 2008:

Name	Age	Position

Alex Diaz	41	Chairman of the Board and Director
Robert Putnam	49	Senior Vice President, Interim Chief Accounting
		Officer, Secretary and Director
Allen Cocumelli	53	Director
Renee Warden	43	Director

Biographical Information

Alex Diaz - Mr. Diaz joined the Board in July 2002 and was appointed Chairman in November 2002. Mr. Diaz is Executive Vice President of Califormula Radio Group in San Diego, where he oversees the wide area network (WAN) linking audio, production studios, and transmitter sites, all of which he designed. He also established a Web presence for several of Califormula’s San Diego radio stations, including Jammin’ Z90, Radio Latina, and classical music station XLNC1. Before joining Califormula, Mr. Diaz worked at Radio Computing Services in New York. Mr. Diaz holds bachelor’s degrees in mathematics and computer science from the University of California in San Diego.

Robert Putnam - Mr. Putnam was appointed Senior Vice President in April 1993. He was appointed a Director of e.Digital Corporation in 1995. In May 2005, Mr. Putnam assumed the additional responsibilities of Interim Chief Accounting Officer and Corporate Secretary. Mr. Putnam served as Secretary of e.Digital Corporation from March 1998 until December 2001. He served as a Director of American Technology Corporation (“ATC”) from 1984 to September 1997 and served as Secretary/Treasurer until February 1994, President and Chief Executive Officer from February 1994 to September 1997 and currently serves as investor relations of ATC. He also served as Secretary/Treasurer of Patriot Scientific (“Patriot”) from 1989 to 2000 and from 1989 to March 1998 was a Director of Patriot. Mr. Putnam obtained a B.A. degree in mass communications/advertising from Brigham Young University in 1983. Mr. Putnam devotes only part-time services to the company, approximately twenty hours per week.

Allen Cocumelli - Mr. Cocumelli was appointed to the Board of Directors on August 25, 1999 and served as Chairman of the Board from April 2000 until November 2002. Mr. Cocumelli has been Secretary and General Counsel of SimpleNet, Inc. since 2004. Prior thereto, Mr. Cocumelli was a Director of Website Services at Yahoo! Inc. from 2000 to 2004. Prior to joining Yahoo! Inc., Mr. Cocumelli was General Counsel of Simplenet Network Communications Inc. from 1996 and Chief Operating Officer of Simplenet Network Communications Inc. from November 1997 until 1999. Prior to joining Simplenet Network Communications Inc., Mr. Cocumelli was in the private practice of law. From 1978 to 1986 Mr. Cocumelli served as a manager in the Components Manufacturing Group and as Director of Corporate Training and Development at Intel. Mr. Cocumelli obtained a B.S. degree in Industrial Psychology from the University of California, Los Angeles in 1972 and a J.D. from Thomas Jefferson University in 1991. Mr. Cocumelli is a member of the California Bar Association.

Renee Warden - Ms. Warden was appointed to the Board of Directors on August 4, 2005. Ms. Warden has been Director of Accounting for Gratis Card Inc. since April 2006. Prior to its acquisition by Crown Castles in April 2006, Ms. Warden was Manager Special Projects/Collections for Global Signal, Inc. Prior to joining Global Signal, Inc. Ms. Warden was Vice President and Controller for Kintera, Inc. from May 2005 to May 2006. Prior to joining Kintera, Inc., Ms. Warden was an executive officer of e.Digital Corporation. Ms. Warden joined e.Digital Corporation in 1991 as Accounting Manager. In 1997 Ms. Warden was appointed Controller and Corporate Secretary for e.Digital Corporation and in 2003 was promoted to Chief Accounting Officer and Secretary until May 2005. From 1993 to 2003 Ms. Warden also held the positions of Chief Accounting Officer, Secretary and Director of Human Resources for American Technology Corporation. Ms. Warden obtained a B.S. degree in business accounting from the University of Phoenix in 1999.

The terms of all directors will expire at the next annual meeting of the Company’s stockholders, or when their successors are elected and qualified. Directors are elected each year, and all directors serve one-year terms. Officers serve at the pleasure of the Board of Directors. There are no arrangements or understandings between the Company and any other person pursuant to which he was or is to be selected as a director, executive officer or nominee. There are no other persons whose activities are material or are expected to be material to the Company’s affairs. For information concerning beneficial ownership of Common Stock by directors, nominees and executive officers, see “Security Ownership of Certain Beneficial Owners and Management” below.

Required Vote and Recommendation

The election of directors requires the affirmative vote of a plurality of the shares of Common Stock present or represented by proxy and entitled to vote at the Annual Meeting. Accordingly, under Delaware law and the Company’s Certificate of Incorporation and Bylaws, abstentions and broker non-votes will not have any effect on the election of a particular director. Unless otherwise instructed or unless authority to vote is withheld, the enclosed Proxy will be voted for the election of the above Nominees.

The Board of Directors recommends that the stockholders vote “FOR” the election of the above Nominees.

CORPORATE GOVERNANCE

General

Pursuant to Delaware law and our bylaws, our business and affairs are managed by or under the direction of our Board of Directors. Members of the Board are kept informed of our business through discussions with our President and Chief Technical Officer and other officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees. Our Board has two standing committees:

·	The Audit Committee

·	The Compensation Committee

Copies of our Audit Committee Charter and our Compensation Committee Charter, as well as our Code of Ethics are available in print, free of charge, by writing to Investor Relations, e.Digital Corporation, 16770 West Bernardo Drive, San Diego, California 92127.

Director Independence

Our Board of Directors is comprised of four individuals, two of whom (Messrs. Diaz and Cocumelli) we have determined are independent under SEC rules. While Mr. Diaz, as Chairman of our Board of Directors, is technically considered as an executive officer under our bylaws, we do not believe that he meets the definition of an “executive officer” under Rule 16a-1(f) of the Exchange Act in that he does not perform any policy-making functions for our company, nor is he compensated for this position. Consequently, we consider Mr. Diaz as independent.

Board Committees and Meetings

The Board of Directors met 3 times during fiscal 2008 and acted by unanimous 6 times. During such fiscal year, each Board member attended 100% of the meetings of the Board held during the period for which he was a director.

The Company has an Audit Committee and a Compensation Committee. The Company does not have a Nominating Committee or a Corporate Governance Committee.

Audit Committee - The Audit Committee, currently consisting of Ms. Warden and Mr. Putnam, reviews the audit and control functions of the Company, the Company’s accounting principles, policies and practices and financial reporting, the scope of the audit conducted by our Company’s auditors, the fees and all non-audit services of the independent auditors and the independent auditors’ opinion and letter of comment to management and management’s response thereto. The Audit Committee is governed by a written charter adopted in 2000. The Audit Committee was designated on June 7, 2000 and held four meetings during the fiscal year ended March 31, 2008.

Ms. Warden has been designated as the “Audit Committee Financial Expert,” as defined by Regulation S-K, although as a paid accounting consultant to the Company she is not an “independent” director, as defined under the NASDAQ Stock Market rules and Rule 10A-3 of the Securities Exchange Act of 1934. Likewise Mr. Putnam, as an executive officer is not independent.

Compensation Committee - The Compensation Committee is currently comprised of two non-employee Board members, Allen Cocumelli and Alex Diaz. The Compensation Committee reviews and recommends to the Board the salaries, bonuses and prerequisites of our company’s executive officers. The Compensation Committee also reviews and recommends to the Board any new compensation or retirement plans and administers such plans. No executive officer of our Company serves as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our Company’s Board of Directors or Compensation Committee. The Compensation Committee held three meetings during the fiscal year ended March 31, 2008. See “Executive Compensation - Compensation Overview” below.

Communication with Directors

Stockholders and other interested parties who want to communicate with our Board of Directors, the non-employee Board members as a group or any other individual director should write to us at:

e.Digital Corporation

c/o Secretary

16770 West Bernardo Drive

San Diego, California 92127

Pursuant to procedures established by our non-non-employee Board members, we review each communication sent in accordance with the above instructions and forward such communication to the specified person or persons for response. We will not forward any incoherent, obscene or similarly inappropriate communication, or any communication that involves an ordinary business matter (such as a job inquiry, a business account or transaction, a request for information about us, form letters, spam, invitations and other forms of mass mailings), unless requested by a director or at Management’s discretion.

Code of Business Conduct and Ethics

The Company has adopted a Code of Conduct that includes a code of ethics that applies to all of the Company’s employees and directors (including its principal executive officer and its principal finance and accounting officer). This Code of Conduct is posted on the Company’s website and is available for review at www.edigital.com. Copies are also available in print, free of charge, by writing to Investor Relations, e.Digital Corporation, 16770 West Bernardo Drive, San Diego, California 92127. We intend to disclose any amendments to, or waivers from, our code of business conduct and ethics on our website.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Company’s Board of Directors was formed in June 2000 and is currently comprised of Directors, Allen Cocumelli and Alex Diaz. None of these individuals was at any time during the fiscal year 2008, or at any time, an employee or officer of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of the Company’s Board of Directors or Compensation Committee.

Director Compensation

Stock Options - Directors have received in the past and may receive in the future stock options pursuant to the Company’s stock option plans.

Standard Compensation - The Company has no other arrangements to pay any direct or indirect remuneration to any directors of the Company in their capacity as directors other than in the form of reimbursement of expenses for attending directors’ or committee meetings.

APPROVAL OF AMENDMENT TO THE COMPANY’S

CERTIFICATE OF INCORPORATION TO INCREASE

THE TOTAL AUTHORIZED SHARES OF COMMON STOCK

(Proposal Two)

General

On July 8, 2008, the Board of Directors of the Company adopted, subject to stockholder approval, an amendment to the Company’s Certificate of Incorporation (the “Certificate”) to increase the total authorized shares of Common Stock of the Company from 300 million to 350 million. Such increase in the number of authorized shares of Common Stock of the Company would be affected by restating the first paragraph of current Article Fourth of the Certificate to read as follows:

“FOURTH: The aggregate number of shares which the Corporation shall have authority to issue is Three Hundred Fifty-Five Million (355,000,000), divided into Three Hundred Fifty Million (350,000,000) shares of Common Stock of the par value of $.001 per share, and Five Million (5,000,000) shares of preferred stock of the par value of $.001 per share.”

The additional shares of Common Stock for which authorization is sought herein would be part of the existing class of Common Stock and, if and when issued, would have the same rights and privileges as the shares of Common Stock presently outstanding. Holders of Common Stock have no preemptive or other subscription rights.

As of July 21, 2008, [276,527,941] shares of Common Stock were issued and outstanding, [1,590,000] shares were reserved for issuance pursuant to outstanding options under the Company’s 1994 Stock Option Plan, [6,953,000] shares were reserved for issuance pursuant to outstanding options under the Company’s 2005 Equity Based Compensation Plan, [1,750,000] shares were reserved for issuance pursuant to other outstanding options, [2,331,572] shares were reserved for issuance upon exercise of warrants issued in 2006, [2,347,398] shares were reserved for issuance upon conversion of convertible debt and [5,534,734] shares were reserved for issuance pursuant to the Company’s equity line with Fusion Capital Fund II, LLC. Therefore, of the 300,000,000 shares of Common Stock currently authorized by the Certificate, only [2,965,355] shares are presently available for general corporate purposes. The Board of Directors has not yet reserved [15,750,000] shares for issuance in connection with Series AA Preferred Stock and related warrants. Assuming this Proposal Two is approved by the stockholders and such additional shares are reserved, a total of [312,784,645] shares of Common Stock will be outstanding or reserved for issuance upon exercise of outstanding options, convertible debt, convertible preferred stock and warrants, and [37,215,355] shares will be available for general corporate purposes.

Purposes and Effects of the Authorized Shares Amendment

The increase in authorized shares of Common Stock is recommended by the Board of Directors in order to provide a sufficient reserve of such shares for the present and future needs and growth of the Company. Prior increases in the authorized shares have primarily been used for equity financing transactions and for stock options and warrants. The Board of Directors believes that the number of authorized shares currently available for issuance will not be sufficient to enable us to respond to potential business opportunities and to pursue important objectives that may be anticipated. Accordingly, the Board believes that it is in the best interests of the Company and its stockholders to increase the number of authorized shares of Common Stock, and the total authorized shares of capital stock, as described above.

On June 27, 2008 the Company sold 75,000 shares of Series AA Preferred Stock at a per share price of $10 for an aggregate amount of $750,000. Dividends of 5% per annum are payable, with certain exceptions, either in cash or in shares of Common Stock at the election of the Company. The stated dollar amount of Series AA Preferred Stock is convertible into fully paid and nonassessable shares of Common Stock at a conversion price of $0.10 per share. The Series AA Preferred Stock shall be subject to automatic conversion on or about June 30, 2010 subject to certain conditions.

At the option of holders, the Series AA Preferred Stock is redeemable at June 30, 2009 should sufficient shares of Common Stock not be authorized and reserved for conversion of all shares of Series AA Preferred Stock by such date. The cash redemption price shall be the greater of (i) $20.00 per share of Series AA Preferred Stock plus a sum equal to all accrued but unpaid dividends, or (ii) the five day average closing price immediately preceding June 30, 2009 multiplied by the number of shares of Common Stock that could be obtained on conversion of the Series AA Preferred Stock.

The Company also issued to the purchasers of the Series AA Preferred Stock, warrants to purchase 7,500,000 shares of Common Stock at $0.10 per share exercisable until June 30, 2011 (“Warrants”). The Warrants are redeemable at June 30, 2009 at the holders option should sufficient shares of Common Stock not be authorized and reserved for exercise of all the Warrants by such date. The cash redemption price shall be the greater of (i) $0.01 per share of Common Stock underlying the Warrants, or (ii) the five day average closing price immediately preceding June 30, 2009 multiplied by the number of shares of Common Stock that could be obtained on a net exercise basis, if any.

The Company agreed with the purchasers of its Series AA Preferred Stock to use its reasonable best efforts to obtain an increase in its authorized shares of Common Stock, and utilize its best efforts thereafter to reserve for issuance to the holders of the preferred shares and the warrants sufficient shares to enable them to perform conversion and exercise.

Should the optional redemption be triggered effective June 30, 2009 due to insufficient shares of common stock being available, the Company would be obligated for a minimum cash redemption of $1,612,500 for the preferred stock and warrants or more depending on the Common Stock price. The following table illustrates the aggregate cash redemption at various common stock prices that the Company could be obligated to pay effective June 30, 2009 if it does not have sufficient shares available to reserve:

Illustration of Redemption Requirement at June 30, 2009

	Series AA		Total
Assumed Common	Preferred	Series AA	Cash
Stock Price	Stock	Warrants	Redemption

$0.10 or less	$1,537,500	$75,000	$1,612,500
$0.125	$1,537,500	$187,500	$1,725,000
$0.15	$1,537,500	$375,000	$1,912,500
$0.20	$1,575,000	$750,000	$2,325,000
$0.25	$1,968,750	$1,125,000	$3,093,750

Failure to obtain an increase in shares of common stock could have an adverse impact on the Company’s operations.

Other than as described in the other proposals in this Proxy Statement, the Board has no current plans to issue Common Stock. However, the Board believes that the availability of such shares will provide the Company with the flexibility to issue Common Stock for proper corporate purposes that may be identified by the Board from time to time, such as financings, acquisitions or strategic business relationships. Further, the Board believes the availability of additional shares of Common Stock will enable the Company to attract and retain talented employees through the grant of stock options and other stock-based incentives. The issuance of additional shares of Common Stock may have a dilutive effect on earnings per share and, for a person who does not purchase additional shares to maintain his or her pro rata interest, on a stockholder’s percentage voting power.

Proposal

At the Annual Meeting, stockholders will be asked to approve the amendment of the Certificate of Incorporation to increase the total authorized shares of Common Stock of the Company from 300 million shares to 350 million shares. Such approval will require the affirmative vote of a majority of the outstanding shares of Common Stock on the record date. As a result, abstentions and broker non-votes will have the same effect as negative votes.

The Board of Directors recommends a vote “FOR” the Proposal.

RATIFICATION OF INDEPENDENT AUDITOR

(Proposal Three)

The Audit Committee has recommended, and the Board has approved, the selection of Singer Lewak Greenbaum & Goldstein LLP to provide audit services to the Company for the fiscal year ending March 31, 2009, and is asking the stockholders to ratify this appointment. The affirmative vote of a majority of the shares represented and voting at the Annual Meeting is being sought to ratify the selection of Singer Lewak Greenbaum & Goldstein LLP. Representatives of Singer Lewak Greenbaum & Goldstein LLP, expected to be present at the Annual Meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

Fees Paid to Independent Auditors

The following table describes fees for professional audit services rendered by Singer Lewak Greenbaum & Goldstein LLP, our principal accountant, for the audit of our annual financial statements for the years ended March 31, 2008 and March 31, 2007 and fees billed for other services rendered by Singer Lewak Greenbaum & Goldstein LLP during those periods. These amounts include fees paid to Singer Lewak Greenbaum & Goldstein LLP.

Type of Fee	2008		2007
Audit Fees ⁽¹⁾	$	158,232	$	90,507
Audit Related Fees ⁽²⁾		15,153		17,695
Tax Fees ⁽³⁾		-		-
All Other Fees ⁽⁴⁾		-		-
Total	$	173,385	$	108,202

	1. Audit Fees include the aggregate fees paid by us during the fiscal year indicated for professional services rendered by Singer Lewak Greenbaum & Goldstein LLP for the audit of our annual financial statements and review of financial statements included in our Forms 10-Q.

	2. Audit Related Fees include the aggregate fees paid by us during the fiscal year indicated for assurance and related services by Singer Lewak Greenbaum & Goldstein LLP that are reasonably related to the performance of the audit or review of our financial statements and not included in Audit Fees.

	3. Tax Fees include the aggregate fees paid by us during the fiscal year for professional services for tax compliance, tax advice and tax planning. No such fees were billed by Singer Lewak Greenbaum & Goldstein LLP for the respective periods.

	4. All Other Fees include the aggregate fees paid by us during the fiscal year indicated for products and services other than the services reported above. No such fees were billed by Singer Lewak Greenbaum & Goldstein LLP for the respective periods.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee on an annual basis reviews audit and non-audit services performed by the independent auditor. All audit and non-audit services are pre-approved by the Audit Committee, which considers, among other things, the possible effect of the performance of such services on the auditors’ independence. The Audit Committee has considered the role of Singer Lewak Greenbaum & Goldstein LLP in providing services to us for the fiscal year ended March 31, 2009 and has concluded that such services are compatible with their independence as our company’s auditors. The Audit Committee has established its pre-approval policies and procedures, pursuant to which the Audit Committee approved the foregoing audit services provided by Singer Lewak Greenbaum & Goldstein LLP in fiscal year 2009.

Proposal

At the Annual Meeting, stockholders will be asked to ratify the appointment of Singer Lewak Greenbaum & Goldstein LLP, as the independent auditors of the Company for the fiscal year ending March 31, 2009

The Board of Directors recommends a vote “FOR” the Proposal.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock

The following security ownership information is set forth, as of June 30, 2008, with respect to (i) each stockholder known by us to be beneficial owners of more than 5% of our outstanding Common Stock, (ii) each of the current directors and nominees for election as directors, (iii) each of the executive officers named in the Summary Compensation Table below and (iv) all current directors, nominees and executive officers as a group (five persons). Other than as set forth below, we are not aware of any other stockholder who may be deemed to be a beneficial owner of more than 5% of our company’s Common Stock.

Name and Address	Amount and Nature of		Percent	Title
of Beneficial Owner	Beneficial Ownership		of Class	of Class

William Blakeley	2,359,375	(1)	*	Common
16770 West Bernardo Drive
San Diego, CA 92127

Robert Putnam	5,341,625	(2)	1.9%	Common
16770 West Bernardo Drive
San Diego, CA 92127

Allen Cocumelli	692,666	(3)	*	Common
16770 West Bernardo Drive
San Diego, CA 92127

Alex Diaz	1,051,666	(4)	*	Common
16770 West Bernardo Drive
San Diego, CA 92127

Renee Warden	816,666	(5)	*	Common
16770 West Bernardo Drive
San Diego, CA 92127

Jerry E. Polis	24,724,360	(6)	8.9%	Common
980 American Pacific Drive, #111
Henderson, NV 89014

All officers, directors and nominees

as a group (5 persons)	10,261,998	(7)	3.3%	Common

(1)	Includes options and warrants exercisable within 60 days to purchase 1,796,875 shares.

(2)

Includes options and warrants exercisable within 60 days to purchase 1,603,125 shares and preferred stock convertible into 1,000,000 shares. Warrants on 1,000,000 shares may not be exercisable and the preferred stock may not be convertible into shares unless and until sufficient shares of common stock are authorized and reserved for exercise.

(3)	Includes options exercisable within 60 days to purchase 691,666 shares.

(4)	Includes options exercisable within 60 days to purchase 691,666 shares.

(5)	Includes options exercisable within 60 days to purchase 816,666 shares.

(6)

Includes (i) 17,952,355 shares of common stock held by the Jerry E. Polis Family Trust (“Family Trust”) of which Mr. Polis is Trustee and warrants exercisable by the Family Trust for 156,250 shares of common stock, (ii) 2,585,230 shares of common stock held by Davric Corporation (“Davric”) of which Mr. Polis is President and Director and convertible debt and warrants held by Davric for 2,425,523 shares of common stock (iii) 1,042,696 shares of common stock held by the Polis Family LLC of which Mr. Polis is a managing member, (iv) 133,000 shares of common stock held by The Polis Charitable Foundation of which Mr. Polis is President, (v) warrants exercisable for 78,125 shares of common stock held by JEP Leasing LLC (“JEP”) over which Mr. Polis exercises control (vi) 100,000 shares of common stock held by the Polis Museum of Fine Art of which Mr. Polis is trustee, (vii) 73,600 shares of common stock held in a personal IRA, (viii) 107,922 shares of common stock held by ASI Capital Corporation of which Mr. Polis is President and (ix) 69,659 shares of common stock held by ASI Technology Corporation of which Mr. Polis is President. Mr. Polis disclaims beneficial ownership of the shares held by the Polis Charitable Foundation and the Polis Museum of Fine Art and to the shares held by ASI Capital Corporation and ASI Technology Corporation except to the extent of his respective pecuniary interest.

(7)

Includes options and warrants exercisable within 60 days to purchase 5,599,998 shares and preferred stock convertible into 1,000,000 shares. Warrants on 1,000,000 shares may not be exercisable and the preferred stock may not be convertible into 1,000,000 shares unless and until sufficient shares of common stock are authorized and reserved for exercise.

(8)

____________________________

* Less than 1%

Series AA Preferred Stock

The following security ownership information is set forth as of June 30, 2008, with respect to certain persons or groups known to the Company to be beneficial owners of more than 5% of Series AA Preferred Stock.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)		Percent of Class	Title of Class
Robert Putnam	10,000	(2)	13.3	Series AA
16770 West Bernardo Drive				Preferred Stock
San Diego, CA 92127

James A. Barnes	15,000	(3)	20.0	Series AA
8617 Canyon View Dr.				Preferred Stock
Las Vegas, NV 89117

Norris Family 1997 Trust	10,000	(4)	13.3%	Series AA
16101 Blue Crystal Trail				Preferred Stock
Poway, CA 92064

James C. Zolin & Josephine Zolin	5,000	(5)	6.7%	Series AA
17108 Via De La Valle				Preferred Stock
Rancho Santa Fe, CA 92067

Victor Gabourel	5,000	(6)	6.7%	Series AA
11404 Cypress Woods Dr.				Preferred Stock
San Diego, CA 92131

Wayne Opperman and Barbara Opperman	10,000	(5)	13.3%	Series AA
36837 Wax Myrtle Place				Preferred Stock
Murieta, CA 92562

Edward J. Kashou & Steven C. Kashou	10,000	(5)	13.3%	Series AA
10321 Hitching Post Way				Preferred Stock
Santee, CA 92071
	5,000	(6)	6.7%	Series AA
Robert M. Kaplan				Preferred Stock
P.O. Box 2600
Sun Valley, ID 83353

(1)	Represents the number of shares of Series AA Preferred Stock held as of June 30, 2008. At such date an aggregate of 75,000 shares of Series AA Preferred Stock were issued and outstanding with each share having 100 votes per share.

(2)	Mr. Putnam is an officer and director of the Company and has sole voting and investment power with respect to the Series AA Preferred Stock.

(3)

Includes 5,000 shares held by Sunrise Capital, Inc., 5,000 shares held by Sunrise Management, Inc. Profit Sharing Plan and 5,000 shares held by Palermo Trust. Mr. Barnes is President of Sunrise Capital, Inc. and Trustee of Sunrise Management, Inc. Profit Sharing Plan and the Palermo Trust. Mr. Barnes shares investment and voting power with respect to the Series AA Preferred Stock with his spouse.

(4)	Voting and investment power with respect to the Series AA Preferred Stock is shared by Elwood G. Norris and Stephanie Norris.

(5)	The named owners are believed by the Company to share investment and voting power over the Series AA Preferred Stock.

(6)	The named owner is believed by the Company to have sole investment and voting power over the Series AA Preferred Stock.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information as of March 31, 2008, with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated as follows:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) (c)

Equity
compensation
plans approved
by security
holders	9,147,167	$0.16	3,630,833
Equity
compensation
plans not
approved by
security holders
(1)	1,750,000	$0.12	-0

Total	10,897,167	$0.16	3,630,833

(1)

Includes (a) 1,000,000 shares of common stock subject to inducement stock options granted to an executive officer in connection with employment and 250,000 shares granted subsequently with an aggregate weighted average exercise price of $0.10 per share, (b) 250,000 shares of common stock subject to inducement stock options granted to an employee with an exercise price of $0.145 per share, and (c) 250,000 shares of common stock granted to a consultant vesting on a performance basis with an exercise price of $0.16 per share.

EXECUTIVE COMPENSATION

Executive Officers

Our current executive officers are as follows:

Name	Age	Position^*
William Blakeley	50	President and Chief Technical Officer
Robert Putnam	49	Senior Vice President, Interim Chief Accounting
		Officer and Secretary

*Alex Diaz, as Chairman of our Board of Directors, is technically considered as an executive officer under our bylaws. However, we do not believe that he meets the definition of an “executive officer” under Rule 16a-1(f) of the Securities Exchange Act of 1934 in that he does not perform any policy-making functions for our Company, nor is he compensated for this position.

For additional information with respect to Messrs. Diaz, Blakeley and Putnam who are also nominees as directors, see “Election of Directors.”

Compensation Discussion and Analysis

Overview - Because we have a limited number of employees and are incurring operating losses introducing new products and exploiting our patent portfolio, we are not a heavily executive laden company. We had no change in executive officers during fiscal 2008 and there were no changes in executive officer pay rates nor any stock options granted to executive officers nor any cash bonuses paid or accrued during the year. Accordingly this year the members of the Compensation Committee (Alex Diaz and Allen Cocumelli) concluded, without a formal meeting, that no additional base salary was to be paid and that no bonus or equity award needed to be made to any executive officer.

The future of our company requires that a plan and compensation philosophy be in place to hire and maintain talented executives in the future. For this reason, the Committee plans to adopt a charter as soon as growth dictates the need for an expanded executive team. In developing our guidelines and ultimately our charter, the following principles are likely to figure greatly in them:

·	To pay salaries that are competitive in our industry and our geographical market.

·	To use, assuming that it makes sense for our company, executive pay practices that are commonly found in companies engaged in a similar industry.

·	To maintain a ‘pay for performance’ outlook, particularly in our incentive programs.

·	To pay salaries, and award merit increases, on the basis of the individual executive’s performance and contributions to our organization.

To attain these goals, we have created an executive compensation program which consists of base pay, a stock option program and employee benefits.

Our executive compensation program rewards executives for company and individual performance. Company and individual performance are strongly considered when we grant base pay increases and equity awards. For all management and supervising employees of our company, other than the PEO (Principal Executive Officer) and PFO (Principal Financial Officer), the PEO and management team decide cash compensation subject to review by the Compensation Committee or the Board. The Board determines and approves all equity awards after input from management. Our company has no bonus plan and due to losses no bonus was accrued or paid for fiscal 2007. We may grant bonuses to executive and non-executive personnel in the future.

The Role of the Compensation Committee - Our Compensation Committee has not adopted a formal charter. The Compensation Committee performs the following functions regarding compensation for the named executive officers (“ NEOs”):

·	Review and approve our company’s goals relating to Principal Executive Officer (“PEO”) compensation.

·	Evaluate the PEO’s performance in light of the goals.

·	Make recommendations to the board regarding compensation to be paid to the other NEOs.

·	Annually review, for all NEOs, annual base salary, bonus, long term incentives, employment-related agreements and special benefits.

Our Process for Setting Executive Pay - Base salaries are intended to be competitive with market rates and are based on an internal evaluation of the responsibilities of each position. Salaries for executive officers are reviewed on an annual basis.

The Committee’s compensation policies are particularly designed to align executive officer and senior management salaries and bonus compensation to the individual’s performance in the short-term and to emphasize compensation from equity, primarily employee stock options, for long-term incentives.

Our long-term incentive program consists of a stock option program pursuant to which the PEO and other executive officers (as well as other key employees) are periodically granted stock options at the then fair market value (or higher prices) of our common stock. These option programs are designed to provide such persons with significant compensation based on overall company performance as reflected in the stock price, to create a valuable retention device through standard two to three year vesting schedules and to help align employees’ and shareholders’ interests. Stock options are typically granted at the time of hire to key new employees, at the time of promotion to certain employees and periodically to a broad group of existing key employees and executive officers.

PEO Compensation - During fiscal 2006, the Committee approved for Mr. Blakeley an annual base salary of $175,000 a level the Committee feels is at the lower range of base salaries for Principal Executive Officers at similarly situated companies. Although the Committee attempts to align the Principal Executive Officer’s salary with performance, it chose to provide no salary increases during fiscal 2008 as part of a general company-wide effort to contain costs. The Committee believes Mr. Blakeley has significant long-term stock incentives. Mr. Blakeley is currently an employee at will.

Compliance with Internal Revenue Code Section 162(m) - Section 162(m) of the Internal Revenue Code disallows a tax deduction to publicly-held companies for compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in any year. The limitation applies only to compensation which is not considered to be performance-based, either because it is not tied to the attainment of performance milestones or because it is not paid pursuant to a stockholder-approved plan. The non-performance based compensation paid to our executive officers for the 2008 fiscal year did not exceed the $1 million limit per officer. It is not expected that the compensation to be paid to our executive officers for the 2009 fiscal year will exceed that limit. Our Stock Option Plan is structured so that any compensation deemed paid to an executive officer in connection with the exercise of his or her outstanding options under the plan with an exercise price per share equal to the fair market value per share of the Common Stock on the grant date will qualify as performance-based compensation which will not be subject to the $1 million limitation. It is unlikely that the cash compensation payable to any of our executive officers in the foreseeable future will approach the $1 million limit. The Committee’s present intention is to comply with the requirements of Section 162(m) unless and until the Committee determines that compliance would not be in the best interest of the company and its shareowners.

Summary Compensation Table

Name and Principal Position	Fiscal Year	Salary⁽¹⁾	Bonus	Option Awards ⁽²⁾	All Other Compensation	Total

William Blakeley, President and Chief Technical Officer (PEO)	2008 2007	$175,000 $175,000	$-0- $-0-	$22,426 $33,026	$-0- $-0-	$197,426 $208,026
Robert Putnam, Senior Vice President, Secretary and Interim Chief Accounting Officer (PFO) ⁽³⁾	2008 2007	$85,000 $85,000	$-0- $-0-	$13,052 $13,052	$-0- $-0-	$98,052 $98,052

(1)	Represents actual cash compensation.

(2)

The value listed in the above table represents the fair value of the options granted in prior years that was recognized in 2008 and 2007 under FAS 123R. Fair value is calculated as of the grant date using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards made on the date of grant is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. Our assumptions in determining fair value are described in note 13 to our audited consolidated financial statements for the year ended March 31, 2008, included in our Annual Report on Form 10-K.

(3)	Mr. Putnam provides part-time services to our company. See “Certain Transactions - Conflicts of Interest.”

Outstanding Equity Awards at Year End

Name	Number of Securities Underlying Unexercised Options Exercisable	Number of Securities Underlying Unexercised Options Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options	Option Exercise Price	Option Expiration Date
William Blakeley	1,500,000 250,000	- -	- -	$0.09 $0.145	11/14/10 03/30/10
Robert Putnam	25,000 500,000	- -	- -	$0.23 $0.145	07/1/09 3/30/10

Option Exercises and Stock Vested Table

There were no options exercised by the Named Executive Officers during fiscal 2008.

There are no pension benefits for any Named Executive Officer.

Employment Agreements, Termination of Employment and Change in Control Arrangements

Mr. Blakeley was employed pursuant to a letter agreement effective November 14, 2005 with no specific term. The starting salary was $175,000, also the rate for fiscal 2007 and 2008. Mr. Blakeley is eligible for an annual bonus as determined by the Board of Directors or its duly appointed committee but no bonus was paid or earned for fiscal 2007 or 2008. Mr. Blakeley’s employment is at will but should his employment be terminated for any reason other than cause, then up to three months severance in the form of salary continuation and benefit continuation shall be payable.

Mr. Blakeley’s stock options provide that if he is terminated after a change in control then he shall have six months post termination to exercise the options rather than one month, subject to certain extensions for regulatory restrictions on resale.

Mr. Putnam has no employment letter or agreement.

Director Compensation

Our directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the board of directors and committee meetings. Employee directors do not receive any cash compensation for services as directors and have not received any equity compensation grants designated for such services. In addition, members of the board of directors who are not employees receive equity compensation grants as consideration for board and committee service from time to time. There is no established policy as to frequency or amount of equity compensation grants for non-employee directors.

The following table sets forth the compensation paid to our non-employee directors in 2008.

Name	Fee Earned or Paid in Cash	Option Awards ⁽²⁾	All Other Compensation	Total
Alex Diaz	--	$9,503	--	$9,503
Allen Cocumelli	--	$9,503	--	$9,503
Renee Warden⁽¹⁾	--	$9,770	--	$9,770

(1)	Ms. Warden served as our Chief Accounting Officer and Secretary until May 2005 and during fiscal 2008 provided accounting services unrelated to her role as a director or audit committee member and earned compensation of $6,121 not included above.

(2)

The value listed in the above table represents the fair value of the options granted in prior years that was recognized in 2008 under FAS 123R. Fair value is calculated as of the grant date using a Black-Scholes option-pricing model. The determination of the fair value of share-based payment awards made on the date of grant is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. Our assumptions in determining fair value are described in note 13 to our audited consolidated financial statements for the year ended March 31, 2008, included in our Annual Report on Form 10-K.

AUDIT COMMITTEE REPORT

The Audit Committee is comprised solely of independent directors, as defined in the Marketplace Rules of The NASDAQ Stock Market, and operates under a written charter adopted by the Board of Directors on June 7, 2000. The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. The Company’s management has primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. The Audit Committee currently consists of two members and holds one position vacant.

The Audit Committee reviewed with Singer Lewak Greenbaum & Goldstein LLP, the Company’s independent auditors for the fiscal year ended March 31, 2008, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under Statement on Auditing Standards No. 61, “Communications with Audit Committees.” In addition, the Audit Committee has discussed with the independent auditors the auditors’ independence from management and the Company including the matters in the written disclosures which were required by the Independence Standards Board. The Audit Committee also reviewed the independence letter from Singer Lewak Greenbaum & Goldstein LLP required by Independence Standard Board Standard No. 1, “Independence Discussions with Audit Committees.”

The Audit Committee discussed with the Company’s independent auditors the overall scope and plans for their respective audits. The Audit Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2008 for filing with the Securities and Exchange Commission. The Audit Committee and the Board have also recommended, subject to shareholder approval, the selection of Singer Lewak Greenbaum & Goldstein LLP as the Company’s independent auditors for the fiscal year ended March 31, 2009.

By: The Audit Committee of the Board of Directors

Date: July 8, 2008

Renee Warden

Robert Putnam

Note: The above report is not deemed to be incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed soliciting material or filed under such Acts.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Conflicts of Interest

Certain conflicts of interest now exist and will continue to exist between e.Digital Corporation and 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. We have not established policies or procedures for the resolution of current or potential conflicts of interest between our company and its management or management affiliated entities. There can be no assurance that members of management will resolve all conflicts of interest in our company’s favor. The officers and directors are accountable to our company as fiduciaries, which means that they are legally obligated to exercise good faith and integrity in handling our company’s affairs. Failure by them to conduct our company’s business in its best interests may result in liability to them.

Officer and director Robert Putnam also acts as Investor Relations of ATC. The possibility exists that these other relationships could affect Mr. Putnam’s independence as a director and/or officer of e.Digital Corporation. Mr. Putnam is obligated to perform his duties in good faith and to act in the best interest of our company and its stockholders, and any failure on his part to do so may constitute a breach of his fiduciary duties and expose such person to damages and other liability under applicable law. While the directors and officers are excluded from liability for certain actions, there is no assurance that Mr. Putnam would be excluded from liability or indemnified if he breached his loyalty to our company.

Transactions with Related Persons

On occasion we engage in certain related party transactions. The following are related party transactions with respect to the two fiscal years ended March 31, 2008.

In August 2006, executive officer Robert Putnam exercised an aggregate of 312,500 A and B warrants for cash of $29,687.50 and received as an early exercise inducement 78,125 warrants exercisable at $.15 per common share until August 31, 2009. The terms of this transaction were the same as those for unrelated persons.

In August 2006, entities affiliated with James A. Barnes, a related party until December 2007 through ownership of greater than 5% of the our Series D preferred stock (subsequently converted to common stock in December 2007), exercised an aggregate of 1,250,000 A and B warrants for cash of $118,750 and received as an early exercise inducement 312,500 warrants exercisable at $.15 per common share until August 31, 2009. The terms of these transactions were the same as those for unrelated persons. During fiscal 2007 and fiscal 2008, we incurred accounting and regulatory consulting services of $30,256 and $36,405, respectively to Sunrise Capital, Inc., a company controlled by Mr. Barnes. On July 24, 2006 Mr. Barnes was granted an option on 150,000 common shares exercisable at $0.145 per share until July 24, 2011 subject to two year vesting and other standard option plan conditions.

In August 2006, entities affiliated with Jerry E. Polis, a related party through ownership of greater than 5% of the our Series D preferred stock (subsequently converted to common stock in December 2007 through which Mr. Polis continued as a related party through ownership of greater than 5% of our outstanding common stock), exercised an aggregate of 1,250,000 A and B warrants for cash and note conversions of $118,750 and received as an early exercise inducement 312,500 warrants exercisable at $.15 per common share until August 31, 2009. Mr. Polis also exercised an additional 250,000 warrants for cash and note conversion of $20,000 without inducement. The terms of these transactions were the same as those for unrelated persons.

On December 12, 2006 our company and Davric Corporation, an entity controlled by Jerry E. Polis, completed an exchange of 15% Unsecured Promissory Notes (“Exchange Agreement”) for (i) a new 7.5% Convertible Subordinated Term Note issued by us in the principal amount of $970,752 due November 30, 2009 (the “Exchange Note”) and (ii) 500,000 shares of common stock (the “Exchange Shares”). As a consequence of the exchange, the previously outstanding 15% Unsecured Promissory Notes (“Retired Notes”) were cancelled. The Exchange Shares were issued as consideration for extending the maturity date and reducing the interest rate from 15% to 7.5%. Without the exchange and the cancellation of the Retired Notes, we would have been obligated to make total payments of approximately $982,300 at December 31, 2006. During fiscal 2007 we made principal and interest payments on the Retired Notes of $117,674.

Pursuant to the terms of the Exchange Note we agreed to pay to Davric Corporation monthly principal and interest installments of $6,000 starting December 2006, increasing to $15,000 starting in February 2007, $30,000 starting in December 2007 and $50,000 starting in December 2008 with maturity November 30, 2009. Commencing with the February 2007 installment payment, we could, subject to certain limitations, elect to make such installment payments either in cash or in shares of common stock (“Monthly Installment Shares”). Monthly Installment Shares are valued at the arithmetic average of the closing prices for the last five trading days of the applicable month without discount. Installment note payments must be paid in cash if the computed average price is less than $0.10 per share. Subject to certain notice periods and other limitations, the balance of the Exchange Note is convertible by Davric Corporation at $0.30 per common share and we may elect to call the Exchange Note for mandatory conversion if the closing sale price of our common stock is at least $0.40 per share for ten consecutive trading days. We also may prepay the Exchange Note in full or in minimum parts of $50,000 on ten-day notice. The Exchange Note may be subordinate to certain future senior indebtedness as defined in the Exchange Note. We are not obligated to register the Exchange Shares, any Monthly Installment Shares or any shares issuable on conversion of the Exchange Note. During fiscal 2007 we made cash principal and interest payments of $12,000 on the Exchange Note and we made an additional $30,000 of principal and interest payments through the issuance of 154,459 restricted shares of common stock. During fiscal 2008 we made $240,000 of principal and interest payments through the issuance of 1,623,808 restricted shares of common stock.

On March 23, 2007 we entered into a short-term purchase order and working capital financing arrangement providing cash proceeds of $750,000. The lender, ASI Capital Corporation, is a Nevada based mortgage broker/banker of which Jerry E. Polis is Chairman, President and largest shareholder. The note was due on September 23, 2007 and effective September 28, 2007, along with a principal reduction of $100,000, the due date was extended to December 23, 2007 and effective December 23, 2007 along with a principal reduction of $200,000 the due date for the remaining principal of $450,000 was extended to June 23, 2008. On April 2, 2007 we paid a $15,000 finance charge by issuing 73,385 restricted shares of common stock and for due date extensions on October 9, 2007 we paid an additional $6,500 finance charge by issuing 34,537 restricted shares of common stock and on January 18, 2008 we paid a $9,000 finance charge by issuing 69,659 restricted shares of common stock. The obligation was amened to be payable to the parent of ASI Capital, Inc. or ASI Technology Corporation in connection with the December 2007 extension. The obligation is documented by an 18% secured promissory note, as amended, with interest payable monthly for any full or partial month the principal is outstanding and is secured pursuant to a security agreement providing a security interest in substantially all of the our assets. During fiscal 2007 we made no principal or interest payments on this note and during fiscal 2008 we made principal payments of $200,000 and cash interest payments of $111,750 (in addition to the finance charges described above).

During fiscal 2008 we paid director and former executive officer Renee Warden an aggregate of $6,121 ($14,082 in fiscal 2007) for accounting services unrelated to her role as a director or audit committee member.

On June 6, 2007, Directors Alex Diaz, Renee Warden and Allen Cocumelli were each granted an option on 250,000 common shares exercisable at $0.18 per share until June 6, 2011 subject to two year vesting and other standard option plan conditions.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the Company’s directors, executive officers and persons who own more than 10% of the Common Stock to file initial reports of ownership (Forms 3) and reports of changes in ownership of Common Stock (Forms 4 and Forms 5) with the Securities and Exchange Commission.

Based solely on a review of copies of such reports furnished to the Company and written representation that no other reports were required during the fiscal year ended March 31, 2008, the Company believes that all persons subject to the reporting requirements pursuant to Section 16(a) filed the required reports on a timely basis with the Securities and Exchange Commission.

DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR

2009 ANNUAL MEETING

Any proposal relating to a proper subject which an eligible stockholder may intend to present for action at the Company’s 2008 Annual Meeting of Stockholders and which such stockholder may wish to have included in the proxy material for such meeting in accordance with the provisions of Rule 14a-8 promulgated under the Exchange Act must be received as far in advance of the meeting as possible in proper form by the Secretary of the Company at 16770 West Bernardo Drive, San Diego, California 92127 and in any event not later than April 3, 2009. It is suggested that any such proposal be submitted by certified mail, return receipt requested.

OTHER BUSINESS OF THE ANNUAL MEETING

Management is not aware of any matters to come before the Annual Meeting or any postponement or adjournment thereof other than the election of directors and the ratification of accountants. However, inasmuch as matters of which Management is not now aware may come before the meeting or any postponement or adjournment thereof, the proxies confer discretionary authority with respect to acting thereon, and the persons named in such proxies intend to vote, act and consent in accordance with their best judgment with respect thereto, provided that, to the extent the Company becomes aware a reasonable time before the Annual Meeting of any matter to come before such meeting, the Company will provide an opportunity to vote by proxy directly on such matter. Upon receipt of such proxies in time for voting, the shares represented thereby will be voted as indicated thereon and as described in this Proxy Statement.

MISCELLANEOUS

The solicitation of proxies is made on behalf of the Company and all the expenses of soliciting proxies from stockholders will be borne by the Company. In addition to the solicitation of proxies by use of the mails, officers and regular employees may communicate with stockholders personally or by mail, telephone, telegram, or otherwise for the purpose of soliciting such proxies, but in such event no additional compensation will be paid to any such persons for such solicitation. The Company will reimburse banks, brokers and other nominees for their reasonable out-of-pocket expenses in forwarding soliciting material to beneficial owners of shares held of record by such persons.


	By Order of the Board of Directors

	/s/ ROBERT PUTNAM
	Robert Putnam
	Secretary
San Diego, California
August 1, 2008

e.Digital Corporation

This Proxy is solicited on behalf of the Board of Directors

2008 ANNUAL MEETING OF STOCKHOLDERS

To Be Held September 17, 2008

The undersigned stockholder of e.Digital Corporation, a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated August 1, 2008, and hereby appoints William Blakeley and Robert Putnam, and each of them, proxies and attorneys-in-fact, with full power to each of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the 2008 Annual Meeting of Stockholders of e.Digital Corporation, to be held on Wednesday, September 17, 2008, at 2:00 p.m., local time, at the offices of the Company, located at 16770 West Bernardo Drive, San Diego, California 92127, and at any adjournment thereof, and to vote all shares of Common Stock which the undersigned would be entitled to vote if then and there personally present, on the matters set forth below:

1. ELECTION OF DIRECTORS: ___ FOR all nominees listed below ___ WITHHOLD AUTHORITY to vote

(except as indicated) for all nominees listed below

If you wish to withhold authority to vote for any individual nominee, strike a line through that nominee’s name in the following list:

Robert Putnam, Allen Cocumelli, Renee Warden and Alex Diaz.

2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK, $.001 PAR VALUE, THAT THE COMPANY IS AUTHORIZED TO ISSUE FROM 300,000,000 TO 350,000,000:

___ FOR __ AGAINST __ ABSTAIN

and, in their discretion, upon such other matter or matters that may properly come before the meeting or any adjournment thereof.

3. PROPOSAL TO RATIFY THE APPOINTMENT OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP, AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING MARCH 31, 2009:

___ FOR __ AGAINST __ ABSTAIN

and, in their discretion, upon such other matter or matters that may properly come before the meeting or any adjournment thereof.

(Continued on reverse side)

THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION AND NO ABSTENTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK THAT THE COMPANY IS AUTHORIZED TO ISSUE FROM 300,000,000 TO 350,000,000 AND FOR THE RATIFICATION OF THE APPOINTMENT OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP, AS INDEPENDENT AUDITORS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. THE TELEPHONE NUMBER OF THE COMPANY IS (858) 304-3016 AND ITS FACSIMILE NUMBER IS (858) 304-3023.

DATED: , 2008



	Signature




	Signature

	(This Proxy should be marked, dated and signed by the stockholder(s) exactly as his or her name appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both should sign).

	o I PLAN TO ATTEND THE MEETING

Attach label here

Even if you plan to join us at the meeting,

Please. . .

Sign, date, and return your proxy in the enclosed, postage paid envelope.

Thank You

EXHIBIT 99.1

LOAN EXTENSION AGREEMENT

This Loan Extension Agreement is dated as of this 30th day of June 2008, by and between ASI Technology Corporation, a Nevada Corporation with a place of business at 980 American Pacific Dr., Ste. 111, Henderson, Nevada, 89114 (the “Lender”), E.Digital Corporation, a Delaware corporation with an office at 16770 West Bernardo Drive, San Diego, California, 92127 (the “Borrower”), in consideration of the mutual covenants contained herein and the benefits to be derived herefrom.

W I T N E S S E T H:

WHEREAS, the Lender and the Borrower have entered into a certain loan arrangement (the “Loan Arrangement”), which Loan Arrangement is evidenced by, among other documents and instruments, a certain Promissory Note dated as of December 23, 2007 made by the Borrower payable to the Lender in the original principal amount of $450,000.00 (the “Note”); and

WHEREAS, the Borrower has requested that the Lender extend the maturity date of the Note as set forth herein and the Lender has agreed to do so upon the terms and conditions set forth herein.

NOW, THEREFORE, it is agreed by and between the Lender and the Borrower as follows:

1. The Lender and the Borrower hereby agree that the maturity date of the Note is extended until December 23, 2008. Until the Maturity Date, the Borrower shall continue to pay, as and when due, all unpaid interest required pursuant to the terms of the Loan Agreement and the Note.

2. The Borrower acknowledges and agrees that, as of the date herein, the outstanding principal balance due under the Note is $400,000.00.

3. Upon the execution hereof, the Borrower shall pay to the Lender an extension fee of $4,000.00, in addition to all fees and expenses incurred by the Lender in connection with the Loan Arrangement. The Borrower may pay the extension fee by delivery of 40,404 restricted shares (“Restricted Shares”) of the common stock, $.001 par value of the Borrower with a deemed value of $.099 per share (which is the average closing price of the common stock for the five trading days immediately preceding the date hereof).

4. Provided no Default or Event of Default shall then be in existence, the Lender shall extend the Maturity Date for an additional period through December 23, 2008, upon the satisfaction of the following conditions:

4.1 Payment by the Borrower of an extension fee equal to 100 basis points of the outstanding balance of the Note as of June 30, 2008; and

4.2 The Borrower provides written notice to the Lender of its request for an extension of the Maturity Date no later than June 30, 2008.

6. The Borrower acknowledges and agrees that any and all collateral granted by the Borrower or any other party to secure the obligations of the Borrower under the Note and the Loan Agreement shall remain in full force and effect and shall continue to secure the obligations of the Borrower to the Lender.

7. It is intended that this Extension Agreement take effect as an instrument under the seal of the laws of the State of Nevada. This Extension Agreement constitutes the entire agreement of the parties with respect to the matters set forth herein and shall not be modified by any prior oral or written discussions.

E.Digital, a Delaware corporation

	By:	/s/ WILLIAM BLAKELEY
	Name:	William Blakeley
	Title:	President and CTO

ASI Technology Corporation, a Nevada Corporation

By:	/s/ JERRY E. POLIS
		Jerry E. Polis
		Chairman of the Board

ACKNOWLEDGED, CONSENTED TO AND AGREED:

E.Digital, a Delaware corporation

	By:	/s/ WILLIAM BLAKELEY
	Name:	William Blakely
	Title	President and CTO

	By:	/s/ ROBERT PUTNAM
	Name:	Robert Putnam
	Title:	Senior Vice President

EXHIBIT 99.2

CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of June 27, 2008, is entered into by and among e.Digital Corporation, a Delaware corporation (the “Company”), and the investors signatory hereto (each such investor is a “Purchaser” and all such investors are, collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933 (the “Securities Act”), as amended, the Company desires to issue and sell to the Purchasers and the Purchasers, severally and not jointly, desire to purchase from the Company (i) shares of the Company’s 5% Series AA Convertible Preferred Stock, par value $.001 per share (the “Preferred Stock”), which are convertible into shares of the Company’s common stock, par value $.001 per share (the “Common Stock”), and (ii) certain other securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows:

ARTICLE I

PURCHASE AND SALE

1.1 The Closing.

(a) The Closing (i) Subject to the terms and conditions set forth in this Agreement the Company shall issue and sell to the Purchasers and the Purchasers shall, severally and not jointly, purchase an aggregate of up to 100,000 shares of Preferred Stock (“Shares”) and certain Common Stock purchase warrants as described below in this Section for an aggregate purchase price of up to $1,000,000. The purchase and sale of such securities shall take place at one or more closings (collectively, the “Closing”) at the offices of McConnell, Dunning & Barwick LLP (“MD&B”), 15 Enterprise, Suite 360, Aliso Viejo, California 92656, immediately following the execution hereof or such later date as the parties shall agree. The date of the Closing is hereinafter referred to as the “Closing Date.”

(ii) At the Closing, the parties shall deliver or shall cause to be delivered the following: (A) the Company shall deliver to each Purchaser (1) a stock certificate registered in the name of such Purchaser, representing a number of Shares equal to the quotient obtained by dividing the purchase price indicated below such Purchaser’s name on the signature page to this Agreement by 10, and (2) a Common Stock purchase warrant, in the form of Exhibit A, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to acquire the number of Warrant Shares (as defined in the Warrant) indicated below such Purchaser’s name on the signature page to this Agreement (collectively, the “Warrants”) and (B) each Purchaser shall deliver (1) the purchase price indicated below such Purchaser’s name on the signature page to this Agreement in United States dollars in immediately available funds by wire transfer to an account designated in writing by the Company for such purpose or, with the consent of the Company, through conversion of outstanding indebtedness, and (2) an executed copy of this Agreement.

1.2 Terms of Preferred Stock. The Preferred Stock shall have the rights preferences and privileges set forth in Exhibit B, and shall be incorporated into a Certificate of Designation (the “Certificate of Designation”) to be filed prior to the Closing by the Company with the Secretary of State of Delaware.

1.3 Certain Defined Terms. For purposes of this Agreement, “Original Issue Date” shall have the meaning set forth in Exhibit B, “Trading Day” shall mean any day on which the Common Stock is traded in the over the counter market, as reported by the NASD’s OTC Bulletin Board or on a Subsequent Market (as hereinafter defined) on which the Common Stock is then listed or quoted, as the case may be and “Business Day” shall mean any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of California are authorized or required by law or other governmental action to close. A “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

2.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchasers:

(a) Organization and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company has no subsidiaries other than as set forth in Schedule 2.1(a) (collectively, the “Subsidiaries”). Each of the Subsidiaries is an entity, duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Each of the Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, (x) adversely affect the legality, validity or enforceability of the Securities (as defined below) or any of this Agreement, the Certificate of Designation or the Warrants (collectively, the “Transaction Documents”), (y) have or result in a material adverse effect on the results of operations, assets, prospects, or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (z) adversely impair the Company’s ability to perform fully on a timely basis its obligations under any of the Transaction Documents (any of (x), (y) or (z), a “Material Adverse Effect”).

(b) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company. Each of the Transaction Documents has been duly executed by the Company and, when delivered (or filed, as the case may be) in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, by-laws or other organizational or charter documents.

(c) Capitalization. The number of authorized, issued and outstanding capital stock of the Company is set forth in Schedule 2.1(c). Except as disclosed in Schedule 2.1(c), the Company owns all of the capital stock of each Subsidiary. No shares of Common Stock are entitled to preemptive or similar rights, nor is any holder of the securities of the Company or any Subsidiary entitled to preemptive or similar rights arising out of any agreement or understanding with the Company or any Subsidiary by virtue of any of the Transaction Documents. Except as a result of the purchase and sale of the Shares and the Warrants and except as disclosed in Schedule 2.1(c), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings, or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. The issue and sale of the Shares, Warrants or Underlying Shares (as hereinafter defined) will not obligate the Company to issue shares of Common Stock or other securities to any Person other than the Purchaser and will not result in a right of any holder of Company’s securities to adjust the exercise or conversion or reset price under such securities.

(d) Issuance of the Shares and the Warrants. The Shares and the Warrants are duly authorized and, when issued and paid for in accordance with the terms hereof, will be duly and validly issued, fully paid and nonassessable, free and clear of all liens, encumbrances and rights of first refusal of any kind (collectively, “Liens”). The Company will use its reasonable best efforts to obtain an increase in its authorized shares of Common Stock, and will utilize its best efforts thereafter to reserve for issuance to the holders of the Shares and the Warrants sufficient shares to enable it to perform its conversion, exercise and other obligations under this Agreement, the Certificate of Designation and the Warrants. The shares of Common Stock issuable upon conversion of the Shares and upon exercise of the Warrants are collectively referred to herein as the “Underlying Shares.” The Shares, the Warrants and the Underlying Shares are collectively referred to herein as, the “Securities.” When issued in accordance with the Certificate of Designation and the Warrants, the Underlying Shares will be duly authorized, validly issued, fully paid and nonassessable, free and clear of all Liens.

(e) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other charter documents (each as amended through the date hereof), or (ii) subject to making and/or obtaining the Required Filings and Approvals (as defined below), conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), as could not, individually or in the aggregate, have or result in a Material Adverse Effect. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, could not have or result in a Material Adverse Effect.

(f) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing of the Certificate of Designation with the Secretary of State of Delaware, (ii) the filings required pursuant to Section 3.9, (iii) the filing with the Securities and Exchange Commission (the “Commission”) of a Notice of Sale of Securities Pursuant to Regulation D (“Form D”) meeting the requirements Rule 506 of Regulation D and, (iv) the filing of Form D and related filings in compliance with applicable state “blue sky” securities laws, and (v) in all other cases where the failure to obtain such consent, waiver, authorization or order, or to give such notice or make such filing could not have or result in, individually or in the aggregate, a Material Adverse Effect (collectively, the “Required Filings and Approvals”).

(g) Litigation; Proceedings. Except as described in the SEC Documents, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or result in a Material Adverse Effect. Except as described in the SEC Documents, (i) neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving (A) a claim of violation of or liability under federal or state securities laws or (B) a claim of breach of fiduciary duty; (ii) the Company does not have pending before the Commission any request for confidential treatment of information and the Company has no knowledge of any expected such request that would be made prior to the Effectiveness Date (as defined in the Registration Rights Agreement); and (iii) there has not been, and to the best of the Company’s knowledge there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.

(h) No Default or Violation. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred which has not been waived which, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound, (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is in violation of any statute, rule or regulation of any governmental authority, in each case of clauses (i), (ii) or (iii) above, except as could not individually or in the aggregate, have or result in a Material Adverse Effect.

(i) Private Offering. Assuming the accuracy of the representations and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as contemplated hereby are exempt from the registration requirements of the Securities Act. Neither the Company nor, to its knowledge, any Person acting on its behalf has taken or is contemplating taking any action which could subject the offering, issuance or sale of the Securities to the registration requirements of the Securities Act including soliciting any offer to buy or sell the Securities by means of any form of general solicitation or advertising.

(j) SEC Documents; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials being collectively referred to herein as the “SEC Documents” and, together with the Schedules to this Agreement, the “Disclosure Materials”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Documents prior to the expiration of any such extension. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Documents, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All material agreements to which the Company is a party or to which the property or assets of the Company are subject have been filed as exhibits to the SEC Documents as required under the Exchange Act. The financial statements of the Company included in the SEC Documents comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. Since March 31, 2008, except as specifically disclosed in the SEC Documents, (a) there has been no event, occurrence or development that has or that could result in a Material Adverse Effect, (b) the Company has not incurred any liabilities (contingent or otherwise) other than (x) liabilities incurred in the ordinary course of business consistent with past practice and (y) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or otherwise required to be disclosed in filings made with the Commission, (c) the Company has not altered its method of accounting or the identity of its auditors and (d) the Company has not declared or made any payment or distribution of cash or other property to its stockholders or officers or directors (other than in compliance with existing Company stock option plans) with respect to its capital stock, or purchased, redeemed (or made any agreements to purchase or redeem) any shares of its capital stock.

(k) Investment Company. The Company is not, and is not an Affiliate (as defined in Rule 405 under the Securities Act) of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(l) Certain Fees. No fees or commissions will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other similar Person with respect to the transactions contemplated by this Agreement. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement. The Company shall indemnify and hold harmless the Purchasers, their employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney’s fees) and expenses suffered in respect of any such claimed or existing fees, as such fees and expenses are incurred.

(m) Seniority. No outstanding class of equity securities of the Company is senior to the Shares in right of payment, whether upon liquidation or dissolution, or otherwise.

(n) Listing and Maintenance Requirements. Except as set forth in the SEC Documents, the Company has not, in the two years preceding the date hereof received notice (written or oral) from the NASD’s OTC Bulletin Board, any stock exchange, market or trading facility on which the Common Stock is or has been listed (or on which it has been quoted) to the effect that the Company is not in compliance with the listing or maintenance requirements of such exchange, market or trading facility. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

(o) Patents and Trademarks. The Company and its Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and rights which are necessary or material for use in connection with their respective businesses as described in the SEC Documents and which the failure to so have would have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). To the best knowledge of the Company, neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or its Subsidiaries violates or infringes upon the rights of any Person. Except as specified in Schedule 2.1(o), to the best knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.

(p) Registration Rights; Rights of Participation. Except as disclosed in the SEC Documents, the Company has not granted or agreed to grant to any Person any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other governmental authority which have not been satisfied. No Person, has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.

(q) Regulatory Permits. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Documents, except where the failure to possess such permits could not, individually or in the aggregate, have or result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(r) Title. The Company and the Subsidiaries have good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and its Subsidiaries are in compliance and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

(s) Labor Relations. No material labor problem exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company.

(t) Shareholders Rights Plan. Neither the consummation of the transactions contemplated hereby nor the issuance of the Underlying Shares will cause the Purchasers to be deemed an “Acquiring Person” under any existing or hereafter adopted shareholders rights plan or similar arrangement.

(u) Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Purchasers or its agents or counsel with any information that constitutes or might constitute material non-public information. The Company understands and confirms that the Purchasers shall be relying on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

2.2 Representations and Warranties of the Purchasers. Each Purchaser hereby for itself and for no other Purchaser represents and warrants to the Company as follows:

(a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The purchase by such Purchaser of the Securities hereunder has been duly authorized by all necessary action on the part of such Purchaser. This Agreement has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms.

(b) Investment Intent. Such Purchaser is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, without prejudice, however, to such Purchaser’s right, subject to the provisions of this Agreement and the Warrants, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold Securities for any period of time. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute the Securities.

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and at each exercise date under its respective Warrants, it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act.

(d) Experience of such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.

(e) Ability of such Purchaser to Bear Risk of Investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(f) Access to Information. Such Purchaser acknowledges that it has reviewed the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company’s financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment and to verify the accuracy and completeness of the information contained in the Disclosure Materials. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and warranties contained in the Transaction Documents.

(g) General Solicitation. Such Purchaser is not purchasing the Securities as a result of or subsequent to any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(h) Reliance. Such Purchaser understands and acknowledges that (i) the Securities are being offered and sold to it without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption, depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and such Purchaser hereby consents to such reliance.

The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 2.2.

ARTICLE III

OTHER AGREEMENTS OF THE PARTIES

3.1 Transfer Restrictions.

(a) Restricted Securities. Securities may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable federal and state securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or to the Company, except as otherwise set forth herein, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. Any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

(b) Legend. The Purchasers agree to the imprinting, so long as is required by this Section 3.1(b), of the following legend on the Securities:

NEITHER THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

3.2 Acknowledgments.

(a) By Purchasers. The Purchasers acknowledge that (i) the issuance of the Underlying Shares upon (A) conversion of the Shares in accordance with the terms of the Certificate of Designation, and (B) exercise of the Warrants in accordance with their terms, will result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions, (ii) the Securities are deemed to be restricted securities and, as such, are subject to restrictions upon transfer and legend conditions as specified in Section 3.1, (iii) registration rights of any kind (demand, piggyback or otherwise) have not been provided hereunder and (iv) certain qualifying officers, directors and employees of the Company may be acquiring Securities hereunder on same terms as other Purchasers.

(b) By Company. The Company acknowledges that its obligation to issue Underlying Shares upon (x) conversion of the Shares in accordance with the terms of the Certificate of Designation, and (y) exercise of the Warrants in accordance with their terms, is unconditional and absolute, subject to the limitations set forth herein, in the Certificate of Designation or pursuant to the Warrants, regardless of the effect of any such dilution.

3.3 Furnishing of Information. As long as the Purchasers own Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if the Company is not required to file reports pursuant to such sections, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act such information as is required for the Purchasers to sell the Securities under Rule 144 promulgated under the Securities Act. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell Underlying Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including causing its attorneys to render and deliver any legal opinion required in order to permit a Purchaser to receive Underlying Shares free of all restrictive legends and to subsequently sell Underlying Shares under Rule 144 upon receipt of a notice of an intention to sell or other form of notice having a similar effect.

3.4 Integration. The Company shall not, and shall use its best efforts to ensure that, no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers.

3.5 Increase in Authorized Shares. The Company will use its reasonable best efforts to obtain an increase in its authorized Common Stock such that thereafter it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon the conversion of Series AA Preferred Stock and exercise of the Warrants as herein provided, such number of shares of Common Stock as shall be equal to the Underlying Shares.

3.6 Reservation and Listing of Underlying Shares. If, after the date hereof, the Company shall list the Common Stock on any of the New York Stock Exchange, American Stock Exchange, or any NASDAQ market (each, a “Subsequent Market”), then the Company shall include in such listing for the benefit of the Purchasers for issuance upon exercise of the Warrants and conversion of the Shares a number of shares of Common Stock equal to not less than the Underlying Shares.

3.7 Conversion and Exercise Obligations and Procedures. The Company shall honor conversion of the Shares and exercise of the Warrants and shall deliver Underlying Shares in accordance with the respective terms, conditions and time periods set forth in the Certificate of Designation and Warrants. The Conversion Notice (as defined in the Certificate of Designation) and Notice of Exercise under the Warrants set forth the totality of the procedures with respect to the conversion of the Shares and exercise of the Warrants, including the form of legal opinion, if necessary, that shall be rendered to the Company’s transfer agent and such other information and instructions as may be reasonably necessary to enable the Purchasers to convert their Shares and exercise their Warrants as contemplated in the Certificate of Designation and the Warrants (as applicable).

3.8 Certain Securities Laws Disclosures; Publicity. The Company shall: (i) file with the Commission a Report on Form 8-K disclosing the transactions contemplated hereby within four Business Days after the Closing Date, and (ii) timely file with the Commission a Form D promulgated under the Securities Act. The Company and the Purchasers shall consult with each other in issuing any press releases or otherwise making public statements or filings and other communications with the Commission or any regulatory agency or stock market or trading facility with respect to the transactions contemplated hereby and neither party shall issue any such press release or otherwise make any such public statement, filings or other communications without the prior written consent of the other, except if such disclosure is required by law or stock market or trading facility regulation, in which such case the disclosing party shall promptly provide the other party with prior notice of such public statement, filing or other communication. Notwithstanding the foregoing, the Company shall not publicly disclose the names of the Purchasers, or include the names of the Purchasers in any filing with the Commission or any regulatory agency, trading facility or stock market without the prior written consent of the Purchasers, except to the extent such disclosure is required by law or stock market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure.

3.9 Use of Proceeds. The Company estimates that it shall use (i) approximately $80,000 of the net proceeds from the sale of the Securities hereunder for note payments on existing debt, (ii) approximately $270,000 of the net proceeds from the sale of the Securities hereunder for payment of existing accounts payable and (iii) the remainder for working capital purposes.

3.10 Exclusivity. The Company shall not issue and sell the Shares to any Person other than to the Purchasers.

3.11 Shareholder Rights Plan. No claim will be made or enforced by the Company or any other Person that any Purchaser is an “Acquiring Person” under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities or shares of Common Stock under the Transaction Documents.

3.12 Trading Restrictions. At no time immediately prior to the date hereof has such Purchaser engaged in or effected, in any manner whatsoever, directly or indirectly, in any “Short Sale” (as defined herein). Each Purchaser further agrees that as long as such Purchaser holds Shares, such Purchaser will not enter into any Short Sales. For purposes hereof, a “Short Sale” by a Purchaser shall mean a marked “short sale” of Common Stock by such Purchaser that is made at a time when there is no equivalent offsetting long position in the Common Stock held by such Purchaser. For purposes of determining whether there is an equivalent offsetting long position in the Common Stock held by a Purchaser, Underlying Shares issuable upon exercises of Warrants and upon delivered Conversion Notices under the Shares shall be deemed to be held long by such Purchaser.

ARTICLE IV

MISCELLANEOUS

4.1 Fees and Expenses. Each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the issuance of the Securities.

4.2 Entire Agreement; Amendments. The Transaction Documents, together with the Exhibits and Schedules thereto contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

4.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:30 p.m. (Pacific Time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement later than 5:30 p.m. (Pacific Time) on any date and earlier than 11:59 p.m. (Pacific Time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	e.Digital Corporation
	16770 West Bernardo Drive
	San Diego, California 92127
	Facsimile No.: (858) 304-3016
	Attn: President

With copy to:	McConnell, Dunning & Barwick LLP
	15 Enterprise, Suite 360
	Aliso Viejo, California 92656
	Facsimile No.: (949) 900-4401
	Attn: Curt C. Barwick, Esq.

If to a Purchaser:	To the address set forth under such Purchaser’s name on the signature pages hereto.

or such other address as may be designated in writing hereafter, in the same manner, by such Person.

4.4 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each of the Purchasers or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.

4.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

4.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers. Except as set forth in Section 3.1(a), the Purchasers may not assign this Agreement or any of the rights or obligations hereunder without the consent of the Company. This provision shall not limit any Purchaser’s right to transfer securities or transfer or assign rights under the Registration Rights Agreement.

4.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

4.8 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City and County of San Diego, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

4.9 Survival. The representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery and conversion or exercise (as the case may be) of the Shares and of the Warrants for a period of one year.

4.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof.

4.11 Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affecting or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

4.12 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance of each other’s obligations under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

4.13 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document is several and not joint with the obligations of any other Purchaser and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

IN WITNESS WHEREOF, the parties hereto have caused this Convertible Preferred Stock Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

	E.DIGITAL CORPORATION

	By: /s/ ROBERT PUTNAM
	Name: Robert Putnam
	Title: Secretary

[Purchaser Signature Pages Follow]

Convertible Preferred Stock Purchase Agreement

Purchaser Signature Page

Name of Purchaser:


	By:
	Name:
	Title:

Purchase Price:	$

Number of
Series AA Shares:

Number of Warrants:

Address for Notice:






Phone:

Email:

EXHIBIT 99.3

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

e.DIGITAL CORPORATION

SERIES AA WARRANT

Warrant No. [______]

Date of Original Issuance: June ●, 2008

e.Digital Corporation, a Delaware corporation (the “Company”), hereby certifies that, for value received, [ ] or its, registered assigns (the “Holder”), has the right to purchase from the Company up to a total of [ ] shares of common stock, $0.001 par value per share (the “Common Stock”), of the Company (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal to $0.10 per share (as adjusted from time to time as provided in Section 8, the “Exercise Price”), at any time and from time to time from and after June ●, 2008 and through and including June 30, 2011 (the “Expiration Date”), and subject to the following terms and conditions.

1. Registration of Warrant. The Company shall register this Series AA Warrant (the “Warrant”), upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

2. Registration of Transfers. The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company’s transfer agent or to the Company at its address specified herein. Upon any such registration or transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the portion of this Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.

3. Exercise and Duration of Warrants.

(a) This Warrant shall be exercisable by the registered Holder at any time and from time to time during the three year period commencing on or after June ●, 2008 to and including the Expiration Date. At 5:30 p.m., Pacific Time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value.

(b) At the option of the registered Holder, in lieu of payment of the Exercise Price, the registered Holder may request in writing that the Company issue to it the net Warrant Shares issuable determined in accordance with the following formula:

NS	=	WS - [EP/CMP x WS]
NS	=	New Shares
WS	=	No. of Warrant Shares issuable upon exercises of the Warrant
EP	=	Exercise Price
CMP	=	Current Market Price (defined as the closing bid price on the date of the request)

4. Delivery of Warrant Shares.

(a) Upon delivery of the Form of Notice of Exercise to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth in Section 14 and upon payment of the Exercise Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the Company shall promptly (but in no event later than five trading days after the Date of Exercise (as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable upon such exercise free of all restrictive or other legends, other than as required under Section 4(e). Any person so designated by the Holder to receive Warrant Shares shall be deemed to have become holder of record of such Warrant Shares as of the Date of Exercise of this Warrant. A “Date of Exercise” means the date on which the Holder shall have delivered to the Company (i) the Form of Notice of Exercise attached hereto (with the Warrant Exercise Log attached to it), appropriately completed and duly signed and (ii) payment of the Exercise Price for the number of Warrant Shares so indicated by the Holder to be purchased.

(b) If the Company fails to deliver to the Holder a certificate or certificates representing the Warrant Shares issuable upon an exercise by the third trading day after the Date of Exercise, then the Holder will have the right to rescind such exercise.

(c) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. If the Company breaches its obligations under this Warrant, then, in addition to any other liabilities the Company may have hereunder and under applicable law, the Company shall pay or reimburse the Holder on demand for all costs of collection and enforcement (including reasonable attorneys fees and expenses).

(d) Transfer Restrictions.

(i) This Warrant and the Warrant Shares may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable federal and state securities laws. In connection with any transfer of this Warrant or any Warrant Shares other than pursuant to an effective registration statement or to the Company, except as otherwise set forth herein, the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor to the effect that such transfer does not require registration under the Securities Act. Notwithstanding the foregoing, the Company, without requiring a legal opinion as described in the immediately preceding sentence, hereby consents to and agrees to register on the books of the Company and with any transfer agent for the securities of the Company any transfer of this Warrant and the Warrant Shares by the Holder to an Affiliate (as defined in Rule 405 under the Securities Act) of the Holder or to one or more funds or managed accounts under common management with such Holder, and any transfer among any such Affiliates or one or more funds or managed accounts, provided that the transferee certifies to the Company that it is an “accredited investor” as defined in Rule 501(a) under the Securities Act and that it is acquiring the Warrant and the Warrant Shares solely for investment purposes (subject to the qualifications hereof).

(ii) Warrant Shares issued while there is not an effective registration statement covering the resale by the Holder of the Warrant Shares (a “Registration Statement”) or while the Holder may not resell such Warrant Shares pursuant to Rule 144(b) under the Securities Act shall be issued with the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

(iii) Notwithstanding anything to the contrary contained herein, Warrant Shares issued when there is an effective Registration Statement, or at a time when the Holder may resell such Warrant Shares under Rule 144(b) under the Securities Act, or when such legend is not required under the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission) shall be issued free of all restrictions and other legends. The Company agrees that following the date on which a Registration Statement is first declared effective by the Securities and Exchange Commission and the date on which Warrant Shares may be resold under 144(b), it will, no later than five trading days following the delivery by a Holder to the Company of a certificate or certificates representing any Warrant Shares issued with a restrictive legend, deliver to such Holder certificates representing such Warrant Shares which shall be free from all restrictive legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company which enlarge the restrictions of transfer set forth in this Section.

5. Charges, Taxes and Expenses. Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe.

7. Reservation of Warrant Shares. The Company covenants that it will utilize its reasonable best efforts to reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (taking into account the adjustments and restrictions of Section 8). The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

8. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 8.

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

(b) Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, “Distributed Property”), then in each such case the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted (effective on such record date) to equal the product of such Exercise Price times a fraction of which the denominator shall be such Exercise Price and of which the numerator shall be such Exercise Price less the then fair market value of the Distributed Property distributed in respect of one outstanding share of Common Stock, as determined by the Company’s independent certified public accountants that regularly examine the financial statements of the Company (an “Appraiser”). In such event, the Holder, after receipt of the determination by the Appraiser, shall have the right to select an additional appraiser (which shall be a nationally recognized accounting firm), in which case such fair market value shall be deemed to equal the average of the values determined by each of the Appraiser and such appraiser. As an alternative to the foregoing adjustment to the Exercise Price, at the request of the Holder delivered before the 90th day after such record date, the Company will deliver to such Holder, within five trading days after such request (or, if later, on the effective date of such distribution), the Distributed Property that such Holder would have been entitled to receive in respect of the Warrant Shares for which this Warrant could have been exercised immediately prior to such record date.

(c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate Consideration”). The aggregate Exercise Price for this Warrant will not be affected by any such Fundamental Transaction, but the Company shall apportion such aggregate Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. In addition, at the Holder’s request, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise Price upon exercise thereof. The terms of any agreement pursuant to which a Fundamental Transaction is affected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that the Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. If any Fundamental Transaction constitutes or results in a Change of Control, then at the request of the Holder delivered before the 90th day after such Fundamental Transaction, the Company (or any such successor or surviving entity) will purchase the Warrant from the Holder for a purchase price, payable in cash within five trading days after such request (or, if later, on the effective date of the Fundamental Transaction), equal to the Black Scholes value of the remaining unexercised portion of this Warrant on the date of such request. As used in this Warrant, “Change of Control” means the occurrence of any of (i) an acquisition after the date hereof by any Person or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of more than one-third of the voting rights or equity interests in the Company, (ii) a replacement of more than one-half of the members of the Company’s board of directors that is not approved by those individuals who are member of the board of directors on the date hereof in one or a series of related transactions, (iii) a merger or consolidation of the Company or any subsidiary or a sale of more than one-third of the assets of the Company in one or a series of related transactions, unless following such transactions or series of transactions, the holders of the Company’s securities prior to the first such transaction continue to hold at least two-thirds of the voting rights and equity interests in of the surviving entity or acquirer of such assets, or (iv) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii).

(d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be increased proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased number of Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment. Notwithstanding the foregoing, no adjustment will be made under this Section 8 in respect of any grant of options or warrants, or the issuance of additional securities, under any duly authorized Company stock option, restricted stock plan or stock purchase plan.

(e) Calculations. All calculations under this Section 8 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

(f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 8, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Company’s transfer agent.

(g) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. Until the exercise of this Warrant or any portion of this Warrant, the Holder shall not have nor exercise any rights by virtue hereof as a stockholder of the Company (including without limitation the right to notification of stockholder meetings or the right to receive any notice or other communication concerning the business and affairs of the Company other than as provided in this Section 8(g)).

(h) Payment of Exercise Price. The Holder shall pay the Exercise Price by delivery of immediately available funds.

9. Limitation on Exercise. Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such exercise (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates under Section 13(d) of the Exchange Act, does not exceed 4.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such exercise). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of an Exercise Notice hereunder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Warrant Shares requested in such Exercise Notice is permitted under this paragraph. The restrictions set forth in this Section 9 shall not apply in determining the consideration and the number of shares or other securities, and other property to which Holder may be entitled upon any adjustment or event contemplated in Section 8 of this Warrant.

10. No Fractional Shares. No fractional shares of Warrant Shares will be issued in connection with any exercise of this Warrant. In lieu of any fractional shares which would, otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the closing price of one Warrant Share as reported on the American Stock Exchange on the date of exercise.

11. Exchange Act Filings. The Holder agrees and acknowledges that it shall have sole responsibility for making any applicable filings with the U.S. Securities and Exchange Commission pursuant to Sections 13 and 16 of the Securities Exchange Act of 1934, as amended, as a result of its acquisition of this Warrant and the Warrant Shares and any future retention or transfer thereof.

12. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (Pacific Time) on a trading day, (ii) the next trading day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a trading day or later than 5:30 p.m. (Pacific Time) on any trading day, (iii) the trading day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be: (i) if to the Company, to e.Digital Corporation, 16770 West Bernardo Drive, San Diego, CA 92127, Facsimile No.: (858) 304-3023, Attn: President, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant Register or such other address or facsimile number as the Holder may provide to the Company in accordance with this Section.

13. Warrant Agent. The Company shall serve as warrant agent under this Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or shareholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.

14. Redemption.

(a) Optional Redemption. The registered Holder shall have the option to require cash redemption effective June 30, 2009 should sufficient shares of Common Stock not be authorized and reserved for full exercise of the Warrant by such date. The Company shall provide the registered Holder with notice no later than ten (10) days following the occurrence of either (i) corporate action to reserve sufficient shares of Common Stock such that this redemption feature shall no longer be effective or (ii) failure to authorize and reserve sufficient Warrant Shares by June 30, 2009 and a computation of the redemption value and the registered Holder’s right to redeem in accordance with the provisions of Section 14 (b). Such notice also shall specify the time and place of redemption and shall be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives the notice

(b) Redemption Price. The cash redemption price shall be the greater of (i) $0.01 per unexercised Warrant Share, or (ii) the five day average closing price immediately preceding June 30, 2009 multiplied by the number of Warrant Shares that could be obtained upon exercise in accordance with Section 3(b). The demand for cash redemption shall be made by the Holder on an all or none basis within thirty (30) days of the receipt of the notice specified in Section 14 (a) in writing and the redemption price shall be paid on or before August 31, 2009 if so redeemed. The Holder shall surrender the Warrant for cancellation at redemption.

(c) Consequences of Failure to Redeem. Should Holder fail to redeem after receipt of the notice specified in Section 14 (a) indicating that the conditions for redemption have been triggered, then the Warrant shall only be exercisable thereafter should sufficient shares otherwise be authorized and reserved for such purpose and the value of the Warrant may thereafter be nil as it may be unexercisable into Common Stock even though there may be an intrinsic value to such Warrant.

15. Miscellaneous.

(a) This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This Warrant may be amended only in writing signed by the Company and the Holder and their successors and assigns.

(b) All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrants (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City and County of San Diego. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City and County of San Diego for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of this Warrant), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto (including its affiliates, agents, officers, directors and employees) hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

(c) The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.

(d) In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.


	e.DIGITAL CORPORATION

	By:	/s/ ROBERT PUTNAM
		Name: ROBERT PUTNAM
		Title: SECRETARY

FORM OF NOTICE OF EXERCISE

To e.Digital Corporation:

In accordance with the Warrant enclosed with this Form of Notice of Exercise, the undersigned hereby irrevocably:

(i) elects to purchase _____________ shares of common stock (“Common Stock”), $0.001 par value per share, of e.Digital Corporation and encloses herewith $________ in cash, certified or official bank check or checks, which sum represents the aggregate Exercise Price (as defined in the Warrant) for the number of shares of Common Stock to which this Notice of Exercise relates, together with any applicable taxes payable by the undersigned pursuant to the Warrant, or

(ii) requests the Company to issue to the undersigned _____________ shares of Common Stock of e.Digital Corporation, pursuant to the terms of Section 3(b) of the attached Warrant on a net issuance basis.

By its delivery of this Form of Notice of Exercise, the Holder represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) permitted to be owned under Section 9 of this Warrant to which this notice relates.

The undersigned requests that certificates for the shares of Common Stock issuable upon this exercise be issued in the name of

PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER

(Please print name and address)

Warrant Shares Exercise Log

Date	Number of Warrant Shares Available to be Exercised	Number of Warrant Shares Exercised	Number of Warrant Shares Remaining to be Exercised

FORM OF ASSIGNMENT

[To be completed and signed only upon transfer of Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by the within Warrant to purchase ____________ shares of Common Stock of e.Digital Corporation to which the within Warrant relates and appoints ________________ attorney to transfer said right on the books of e.Digital Corporation with full power of substitution in the premises.

Dated: _______________, ____

(Signature must conform in all respects to name of holder as specified on the face of the Warrant)

Address of Transferee

In the presence of:

__________________________

EXHIBIT 99.4

CERTIFICATE OF DESIGNATION

OF PREFERENCES, RIGHTS AND LIMITATIONS

SERIES AA PREFERRED STOCK

E.DIGITAL CORPORATION,

a Delaware Corporation

PURSUANT TO SECTION 151 OF THE GENERAL

CORPORATION LAW OF THE STATE OF DELAWARE

The undersigned, WILLIAM BLAKELEY and ROBERT PUTNAM, do hereby certify that:

1. They are the President and Secretary, respectively, of E.DIGITAL CORPORATION, a Delaware corporation (the “Corporation”).

2. The Corporation is authorized to issue five million (5,000,000) shares of preferred stock.

3. The following resolutions were duly adopted by the Board of Directors:

WHEREAS, the Certificate of Incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, comprised of five million (5,000,000) shares, $.001 par value, issuable from time to time in one or more series;

WHEREAS, the Board of Directors of the Corporation is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and

WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant to its authority as aforesaid, to established a series of authorized preferred stock having a par value of $.001 per share, which series shall be designated as “Series AA Preferred Stock” and to fix the rights, preferences, restrictions and other matters relating to the such series of preferred stock as follows:

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby established a series of authorized preferred stock having a par value of $.001 per share, which series shall consist of one hundred thousand (100,000) shares and be designated as “Series AA Preferred Stock,” and does hereby fix and determine the rights, references, restrictions and other matters relating to such series of preferred stock as follows:

1. Designation. The series of preferred stock shall consist of one hundred thousand (100,000) shares designated and known as “Series AA Preferred Stock” (hereinafter referred to as “Series AA Preferred Stock”). The Corporation may issue fractional shares of Series AA Preferred Stock. The Series AA Preferred Stock shall have an initial issue price of Ten Dollars ($10.00) per share (the “Original Issue Price”). The date on which any shares of Series AA Preferred Stock are first issued is referred to herein as the “Original Issue Date.”

2. Voting Rights.

(a) Voting. With respect to each matter submitted to a vote of stockholders of the Corporation, each holder of Series AA Preferred Stock shall be entitled to cast that number of votes which is equivalent to the number of shares of Series AA Preferred Stock owned by such holder times one hundred (100). If a holder is entitled to cast a vote with respect to a fractional share of Common Stock, such fractional share shall be rounded up to the next whole number. The Corporation shall not, without the affirmative vote or written consent of the holders of at least a majority of the outstanding Series AA Preferred Stock (i) authorize or create any additional class or series of stock ranking prior to or on a parity with the Series AA Preferred Stock as to dividends or the distribution of assets upon liquidation, or (ii) change any of the rights, privileges or preferences of the Series AA Preferred Stock.

(b) Class Vote. Except as otherwise required by law or by this Section 2, holders of Common Stock and Series AA Preferred Stock shall vote as a single class on all matters submitted to the stockholders.

3. Dividends. The holders of Series AA Preferred Stock shall be entitled to receive, out of any funds legally available therefor and the Corporation shall pay, dividends at the fixed rate of five percent (5%) per annum, payable in quarterly installments on the 1st day of September, December, March and June of each year. Such dividends shall accrue from the date of issuance of the shares of Series AA Preferred Stock and shall be deemed to accrue from day to day whether or not earned and declared. Such dividends shall be payable before any dividends shall be paid, declared or set apart for any other class of stock, and shall be cumulative so that if for any dividend period such dividends are not paid or declared and set apart therefor, the deficiency shall be paid, in whole or in part (without interest), on the next succeeding dividend payment date on which the Corporation has any funds legally available therefor. Until any delinquency has been fully paid or declared and set apart for payment, no distribution, by dividend or otherwise, shall be paid on, declared or set apart for any other class of stock of the Corporation and no shares of any other class of stock shall be acquired, directly or indirectly, by redemption or otherwise, except for the repurchase by the Corporation of shares of Common Stock for an amount not in excess of the original sale price thereof pursuant to employee stock purchase agreements. Notwithstanding the foregoing, the Corporation, in its sole and absolute discretion, may pay such dividends through the issuance of (i) fully paid and non-assessable shares of Common Stock determined by dividing the accrued but unpaid dividend by the average closing bid price for the Common Stock for the 10 trading days immediately preceding the applicable dividend payment date or (ii) if available, fully paid and non-assessable shares of Series AA Preferred Stock determined by dividing the accrued but unpaid dividend by the Original Issue Price.

4. Rights on Liquidation. On any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Series AA Preferred Stock shall receive, out of assets legally available therefor, an amount equal to $10.00 per share, plus all accrued but unpaid dividends thereon (whether or not such dividends have been declared) to the date fixed for payment of such distributive amount, before any amount shall be paid to the holders of any other class of stock. In the event that the assets of the Corporation available for distribution to the holders of the Series AA Preferred Stock are insufficient to permit full payment to the holders of such shares as herein provided, then such assets shall be distributed ratably among the outstanding shares of Series AA Preferred Stock. In the event that the Corporation has additional assets available for distribution after payment to the holders of the Series AA Preferred Stock as herein provided, such assets shall be distributed to holders of Common Stock.

5. Conversion.

(a) Optional Conversion of the Series AA Preferred Stock. At the election of each holder and upon compliance with the provisions of subparagraph (d) below as to surrender thereof, each share of Series AA Preferred Stock may be converted into that number of fully paid and non-assessable shares of Common Stock of the Corporation (the “Conversion Stock”), determined by dividing $10.00 per share plus a sum equal to all accrued but unpaid dividends by $0.10 (the “Conversion Price”). The conversion price shall be subject to adjustment as hereinafter provided. The ability to convert also shall be subject to the requirement that the aggregate conversion price of each individual conversion (the “Aggregate Conversion Price”) shall equal or exceed $25,000 (the “Conversion Minimum”).

(b) Automatic Conversion. Each remaining outstanding share of Series AA Preferred Stock shall be automatically converted into shares of Common Stock on June 30, 2010 in accordance with the provisions of subparagraph (a) hereof. Pursuant to this subparagraph (b), on the Conversion Date (as defined below), all outstanding shares of Series AA Preferred Stock shall be converted into that number of shares of Common Stock as determined in accordance with subparagraph (a) hereof as if the conversion of such number of shares of Series AA Preferred Stock were made by the holders thereof in accordance therewith without any further action on the part of such holders.

(c) Conversion at Option of Corporation. If for any ten (10) consecutive trading days the Market Price of the Corporation’s Common Stock is at least twenty-five cents ($0.25) per share (as adjusted for stock splits, reorganizations, dividends, recapitalizations and the like), then at any time within ten (10) business days after the end of such ten (10) trading day period, the Corporation shall have the right to require the conversion of all outstanding shares of Series AA Preferred Stock into shares of Common Stock in accordance with the provisions of subparagraph (a) hereof. Pursuant to this subparagraph (c), on the Conversion Date (as defined below), all outstanding shares of Series AA Preferred Stock shall be converted into that number of shares of Common Stock as determined in accordance with subparagraph (a) hereof as if the conversion of such number of shares of Series AA Preferred Stock were made by the holders thereof in accordance therewith without any further action on the part of such holders.

(d) Delivery of Stock Certificates. The holder of any shares of Series AA Preferred Stock may exercise the optional conversion right pursuant to subparagraph (a) above by delivering to the Corporation or its duly authorized transfer agent during regular business hours at the office of the Corporation the certificate or certificates for the shares of Series AA Preferred Stock to be converted, duly endorsed or assigned either in blank or to the Corporation (if required by it), accompanied by written notice (the “Conversion Notice”) stating that such holder elects to convert such shares of Series AA Preferred Stock and shall provide a certificate to the Corporation or its duly authorized transfer agent as to the date of such conversion. Upon the occurrence of an automatic conversion pursuant to subparagraph (b) above or conversion at the option of the Corporation pursuant to subparagraph (c) above, the Corporation shall deliver notice to each holder of Series AA Preferred Stock and the holder of any shares of Series AA Preferred Stock shall deliver to the Corporation at the office of the Corporation the certificate or certificates for all shares of Series AA Preferred Stock then held by such holder, duly endorsed or assigned either in blank or to the Corporation (if requested by it). Conversion shall be deemed to have been effected (i) in the case of an optional conversion pursuant to subparagraph (a), on the date when the aforesaid delivery of the Conversion Notice is made if such day is a business day and otherwise on the business day following the date of the aforesaid delivery, (ii) in the case of an automatic conversion pursuant to subparagraph (b) on June 30, 2010, or (iii) in the case of conversion at the option of the Corporation pursuant to subparagraph (c), upon the date of the notice, and in each case such date is referred to herein as the “Conversion Date.” As promptly as practicable thereafter, the Corporation, through its transfer agent, if any, shall issue and deliver to or upon the written order of such holder, to the place designated by such holder, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled and a check or cash in respect of any fractional interest in a share of Common Stock, as provided below; provided, however, that in the case of a conversion in connection with liquidation, no such certificates need be issued. The person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become the stockholder of record in respect of such Common Stock on the applicable Conversion Date unless the transfer books of the Corporation are closed on that date, in which event such holder shall be deemed to have become the stockholder of record in respect of such Common Stock on the next succeeding date on which the transfer books are open, but the Conversion Price shall be that in effect on the Conversion Date. Upon conversion of only a portion of the number of shares covered by a stock certificate representing shares of Series AA Preferred Stock surrendered for conversion, the Corporation shall issue and deliver to or upon the written order of the holder of the stock certificate so surrendered for conversion, at the expense of the Corporation, a new stock certificate covering the number of shares of Series AA Preferred Stock representing the unconverted portion of the certificate so surrendered. Any transfer taxes applicable to the above-described transactions shall be paid by such transferee. The Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of Common Stock or the reissuance of the Preferred Stock in a name other than that in which the shares of Series AA Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid.

(e) No Fractional Shares of Common Stock. No fractional shares of Common Stock shall be issued upon conversion of shares of Series AA Preferred Stock and in lieu thereof, the Corporation shall pay to the holder of such fractional share interest cash in respect of such fractional interest in an amount equal to the Market Price on the Conversion Date multiplied by such fractional interest. The holders of fractional interests shall not be entitled to any rights as stockholders of the Corporation in respect of such fractional interests. In determining the number of shares of Common Stock and the payment, if any, in lieu of fractional shares that a holder of Series AA Preferred Stock shall receive, the total number of shares of Series AA Preferred Stock surrendered for conversion by such holder shall be aggregated.

(f) Changes in Common Stock. If any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another corporation, or the sale, transfer or other disposition of all or substantially all of its assets to another corporation for cash or stock of such other corporation, shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each holder of Series AA Preferred Stock shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the shares of the Common Stock of the Corporation immediately theretofore issuable upon conversion of the Series AA Preferred Stock, such shares of stock, securities or properties as may be issuable or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore issuable upon conversion of the Series AA Preferred Stock had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of each holder of Series AA Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise thereof. The Corporation shall not effect any such consolidation, merger, sale, transfer or other disposition, unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing or otherwise acquiring such properties shall assume, by written instrument executed and mailed or delivered to the holders of Series AA Preferred Stock at the last address of such holders appearing on the books of the Corporation, the obligation to deliver to such holders such shares of stock, securities or properties as, in accordance with the foregoing provisions, such holders may be entitled to acquire. The above provisions of this subparagraph shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers, or other dispositions.

(g) Stock to be Reserved. The Corporation will use its reasonable best efforts to obtain an increase in its authorized Common Stock such that thereafter it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon the conversion of Series AA Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding Series AA Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from preemptive or similar rights on the part of the holders of any shares of capital stock or securities of the Corporation, and free from all liens and charges with respect to the issue thereof; and without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value, if any, per share of the Common Stock is at all times equal to or less than the then effective Conversion Price. The Corporation will take all such action as may be necessary to assure that such shares of Common Stock may be so issued without violation by the Corporation of any applicable law or regulation or agreement, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed. Without limiting the foregoing, the Corporation will take all such action as may be necessary to assure that, upon conversion of any of the Series AA Preferred Stock, an amount equal to the lesser of (i) the par value of each share of Common Stock outstanding immediately prior to such conversion, or (ii) the Conversion Price shall be credited to the Corporation’s stated capital account for each share of Common Stock issued upon such conversion, and that, if clause (i) above is applicable, the balance of the Conversion Price of Series AA Preferred Stock converted shall be credited to the Corporation’s capital surplus account.

(h) Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Series AA Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any Series AA Preferred Stock in any manner which interferes with the timely conversion of such Series AA Preferred Stock.

(j) Taxes. The Corporation shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of the Corporation upon conversion of any shares of Series AA Preferred Stock. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of Common Stock or the reissuance of the Series AA Preferred Stock in a name other than that in which the shares of Series AA Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid.

(k) Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Series AA Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this Certificate of Designations and in the Certificate of Incorporation.

(l) Limitation on Issuance of Conversion Shares; Redemption. Notwithstanding anything herein to the contrary, a holder of Series AA Preferred Stock may not convert shares of Series AA Preferred Stock to the extent such conversion would result in the holder, together with any affiliate thereof, beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules thereunder) in excess of 4.999% of the then issued and outstanding shares of Common Stock, including shares issuable upon conversion of the shares of Series AA Preferred Stock held by such holder after application of this Section. The holder shall have the sole authority and obligation to determine whether the restriction contained in this Section applies and to the extent that the Holder determines that the limitation contained in this Section applies, the determination of which shares of Series AA Preferred Stock are convertible shall be in the sole discretion of the holder. The provisions of this Section shall not apply to conversions specified in Section 5(b) or 5(c). The provisions of this Section may be waived by a holder (but only as to itself and not to any other holder) upon not less than ninety (90) days prior notice to the Corporation. Other Holders shall be unaffected by any such waiver.

6. Redemption.

(a) Optional Redemption. The holders of the Series AA Preferred Stock shall have the option to require cash redemption effective June 30, 2009 should sufficient shares of Common Stock not be authorized and reserved for conversion of all shares of Series AA Preferred Stock by such date. The Corporation shall provide each holder of Series AA Preferred Stock with notice no later than ten (10) days following the occurrence of either (i) corporate action to reserve sufficient shares of Common Stock such that this redemption feature shall no longer be effective or (ii) failure to authorize and reserve sufficient shares by June 30, 2009 and a computation of the redemption value and such holder’s right to redeem in accordance with the provisions of subparagraph (b) hereof. Such notice also shall specify the time and place of redemption and shall be given by certified mail to the holders of record of Series AA Preferred Stock at their respective addresses as the same shall appear on the stock books of the Corporation, but no failure to mail such notice or defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to the holder to whom the Corporation has failed to mail such notice or except as to the holder whose notice was defective. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice

(b) Redemption Price. The cash redemption price shall be the greater of (i) $20.00 per share of Series AA Preferred Stock plus a sum equal to all accrued but unpaid dividends thereon to the date fixed for redemption, or (ii) the five day average closing price immediately preceding June 30, 2009 multiplied by the number of shares of Common Stock that could be obtained on conversion in accordance with Section 5(a). The demand for cash redemption shall be made by each holder of Series AA Preferred Stock on an all or none basis within thirty (30) days of the receipt of the notice specified in subparagraph (a) hereof in writing and the redemption price shall be paid on or before August 31, 2009 if so redeemed. The holder of the Series AA Preferred Stock shall surrender the certificates for the shares of Series AA Preferred Stock for cancellation at redemption.

(c) Consequences of Failure to Redeem. Should a holder of Series AA Preferred Stock fail to redeem after receipt of the notice specified in subparagraph (a) hereof indicating that the conditions for redemption have been triggered, then the Series AA Preferred Stock shall only be convertible thereafter should sufficient shares otherwise be authorized and reserved for such purpose and the value of the Series AA Preferred Stock shall thereafter be limited to its liquidation value.

RESOLVED, FURTHER, that the President or any Vice-President, and the Secretary or any Assistant Secretary, of the Corporation be and they hereby are authorized and directed to prepare and file a Certificate of Designation of Preferences, rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.

IN WITNESS WHEREOF, the undersigned have executed this Certificate this 26th day of June, 2008.

	/s/ WILLIAM BLAKELEY
	WILLIAM BLAKELEY, President


	/s/ ROBERT PUTNAM
	ROBERT PUTNAM, Secretary

EXHIBIT 99.5

SHAREHOLDER ALERT

E.DIGITAL CORPORATION

RECEIVES $750,000 IN SERIES AA FINANCING

Announces Shareholders Meeting Date

(SAN DIEGO, CA, July 1, 2008) - e.Digital Corporation (OTC: EDIG), a leading technology innovator of dedicated portable entertainment systems and patented flash memory-related technology today announced it sold $750,000 of Series AA Convertible Preferred shares and warrants to selected accredited investors including the Company’s senior vice president, Robert Putnam.

The Company expects to use the proceeds from this financing to continue development of the next generation of its proprietary eVU™ entertainment system, fund intellectual property (IP) consulting to continue supporting the Company’s legal representatives in enforcing its Flash-R™ patent portfolio, for note and vendor payments, and general working capital.

The common stock and warrants to purchase common stock have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States without a registration statement or exemption from registration. The Company is not filing a registration statement on the securities. The Company's Form 8-K, being filed today with the Securities and Exchange Commission, provides a description of this transaction.

e.Digital also announced today that it has scheduled its meeting of shareholders for Wednesday, September 17, 2008. Details regarding the record date, meeting time and location, and business items to be transacted are expected to be available this month. The Company also expects to release further information on its eVU business and IP monetization efforts.

About e.Digital Corporation: e.Digital is a leading innovator of dedicated portable inflight entertainment systems. More than 30 airlines have made dedicated portable systems powered by e.Digital technology their inflight entertainment choice. e.Digital also owns and is pursuing the monetization of its Flash-R™ portfolio of flash memory-related patents. e.Digital was the first company to employ and patent important aspects of the use of removable flash memory in portable recording devices. For more information about e.Digital and eVU, please visit: www.edigital.com.

Safe Harbor statement under the Private Securities Litigation Reform of 1995: All statements made in this document, other than statements of historical fact, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. You should not place undue reliance on these statements. We base these statements on particular assumptions that we have made in light of our industry experience, the stage of product and market development, expected future developments and other factors that we believe are appropriate under the circumstances. These forward-looking statements are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about the businesses of the Company and the industries and markets in which the Company operates. Actual outcomes and results may differ materially from what is expressed or implied by the forward-looking statements. More information about potential factors that could affect the Company can be found in its most recent Form 10-K, Form 10-Q and other reports and statements filed with the Securities and Exchange Commission (“SEC”). e.Digital Corporation disclaims any intent or obligation to update these or any forward-looking statements, except as otherwise specifically stated by it.

CONTACT: e.Digital Corporation: Robert Putnam, (858) 304-3016 ext. 205, rputnam@edigital.com

Delaware	33-0591385
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

		Page
PART I

ITEM 1.	Business	2
ITEM 1A.	Risk Factors	10
ITEM 1B.	Unresolved Staff Comments	17
ITEM 2.	Properties	17
ITEM 3.	Legal Proceedings	17
ITEM 4.	Submission of Matters to a Vote of Security Holders	18

PART II

ITEM 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
ITEM 6.	Selected Financial Data	20
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk	29
ITEM 8.	Financial Statements and Supplementary Data	29
ITEM 9.	Changes In and Disagreement With Accountants on Accounting and Financial Disclosure	29
ITEM 9A(T).	Controls and Procedures	29
ITEM 9B.	Other Information	31

PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance	31
ITEM 11.	Executive Compensation	31
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
ITEM 13.	Certain Relationships and Related Transactions and Director Independence	31
ITEM 14.	Principal Accounting Fees and Services	31

PART IV

ITEM 15.	Exhibits, Financial Statement Schedules	31

	Signatures	35

	Financial Statements and Financial Statement Schedules	F-1

Fiscal year ended March 31, 2007
First quarter	$	0.16	$	0.08
Second quarter	$	0.20	$	0.12
Third quarter	$	0.20	$	0.15
Fourth quarter	$	0.28	$	0.16

Fiscal year ended March 31, 2008
First quarter	$	0.23	$	0.17
Second quarter	$	0.22	$	0.16
Third quarter	$	0.11	$	0.18
Fourth quarter	$	0.11	$	0.15

	Year Ended March 31,
	2008			% of			2007			% of			Change
	Dollars			Revenue			Dollars			Revenue			Dollars			%
Revenues:
Product revenues		4,841,855			87	%		1,815,014			100	%		3,026,841			167	%
Service revenues		710,766			13	%		-			0	%		710,766
		5,552,621			100	%		1,815,014			100	%		3,737,607			206	%
Gross Profit:
Product gross profit		986,914			18	%		1,025,241			56	%		(38,327	)		(4	)%
Service gross profit		557,094			10	%		-			0	%		557,094
		1,544,008			28	%		1,025,241			56	%		518,767			51	%
Operating Expenses:
Selling and administrative		1,980,451			36	%		1,618,973			89	%		361,478			22	%
Research and related		1,006,037			18	%		1,474,540			81	%		(468,503	)		(32	)%
		2,986,488			54	%		3,093,513			170	%		(107,025	)		(3	)%
Other expenses		(276,587	)		(5	)%		(1,061,001	)		-58	%		784,414			(74	)%

Loss and comprehensive loss		(1,719,067	)		(31	)%		(3,129,273	)		(172	%)		1,410,206			(45	)%

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		9,147,167	$	0.16		3,630,833
Equity compensation plans not approved by security holders (1)		1,750,000	$	0.12		-0-
Total		10,897,167	$	0.16		3,630,833

	2007			2008			2007 to 2008 variance in $'s			2007 to 2008 variance in %'s
	(in thousands, except percentages)
Working capital (deficit)	$	(1,347	)	$	(1,292	)	$	55			4	%
Cash and cash equivalents	$	695		$	122		$	(573	)		(82	)%
Total assets	$	1,757		$	861		$	(896	)		(51	)%

	As Reported
	6/30/2007			9/30/2007			12/31/2007
Revenues	$	1,304,634		$	2,419,781		$	1,253,247
Gross profit		246,115			597,398			396,351
Loss for the period		(593,406	)		(157,740	)		(397,371	)
Operating profit (loss)		(505,294	)		(90,532	)		(331,246	)
Loss attributable to common shareholders		(620,631	)		(185,265	)		(424,596	)
Basic earnings per common share	$	(0.00	)	$	(0.00	)	$	(0.00	)
Weighted average shares outstanding		244,411,088			246,361,041			249,097,860

				*As Restated()**
	6/30/2007			9/30/2007			12/31/2007			3/31/2008			FYE 2008
Revenues	$	1,304,634		$	2,315,781		$	1,190,847		$	741,359		$	5,552,621
Gross profit		246,115			597,398			396,351			304,144			1,544,008
Loss for the period		(593,406	)		(157,740	)		(397,371	)		(570,550	)		(1,719,067	)
Operating profit (loss)		(505,294	)		(90,532	)		(331,246	)		(515,408	)		(1,442,480	)
Loss attributable to common shareholders		(620,631	)		(185,265	)		(424,596	)		(570,550	)		(1,801,042	)
Basic earnings per common share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)
Weighted average shares outstanding		244,411,088			246,361,041			249,097,860			270,974,359			252,683,865

	6/30/2006			9/30/2006			12/31/2006			3/31/2007			FYE 2007
Revenues	$	21,105		$	13,017		$	1,302,312		$	478,580		$	1,815,014
Gross profit		4,493			419			939,544			80,785			1,025,241
Loss for the period		(1,123,576	)		(1,605,462	)		(156,433	)		(243,802	)		(3,129,273	)
Operating profit (loss)		(683,685	)		(878,706	)		226,003			(731,884	)		(2,068,272	)
Loss attributable to common shareholders		(1,157,284	)		(1,638,388	)		(185,746	)		(270,728	)		(3,252,146	)
Basic earnings per common share	$	(0.01	)	$	(0.01	)	$	(0.00	)	$	(0.00	)	$	(0.01	)
Weighted average shares outstanding		200,431,000			205,997,409			220,870,444			242,537,926			217,130,347

Exhibit
Number		Sequential Description

2.1		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.

3.5		Certificate of Designation of Preferences, Rights and Limitations of Series C Redeemable Convertible Preferred Stock filed with the State of Delaware on October 4, 2000 and filed as Exhibit 3.5 to the Company’s Registration Statement on Form S-3 dated November 3, 2000.

3.6		Certificate of Designation of Preferences, Rights and Limitations of Series D preferred stock filed with the State of Delaware on December 23, 2002 and filed as Exhibit 3.6 to the Company’s Current Report on Form 8-K dated December 30, 2002.

3.7		Certificate of Designation of Preferences, Rights and Limitations of Series E preferred stock filed with the State of Delaware on November 19, 2003 and filed as Exhibit 3.7 to the Company’s Current Report on Form 8-K dated November 21, 2003.

3.8		Certificate of Designation of Preferences, Rights and Limitations of Series EE preferred stock filed with the State of Delaware on November 19, 2004 and filed as Exhibit 3.7 to the Company’s Current Report on Form 8-K dated November 19, 2004.

4.1		Form of Stock Purchase Warrant (Series EE Warrants) exercisable until November 2006 issued to seventeen accredited investors for an aggregate of 4,070,000 common shares (individual warrants differ only as to holder and number of shares) and filed as Exhibit 4.55 to the Company’s Current Report on Form 8-K dated November 19, 2004.

4.2		Form of 12% Subordinated Promissory Note and Warrant Purchase Agreement dated as of June 30, 2005 entered into with certain accredited investors in a maximum aggregate amount of $1,000,000 and filed as Exhibit 4.50 to the Company’s 2004 Form 10-K.

4.2.1		Form of First Amendment to 12% Subordinated Promissory Note dated as of June 30, 2005 between the company and certain accredited investors (individual amendments differ only as to name of Payee) filed as Exhibit 4.51.1 to Form 8-K dated July 13, 2005.

4.2.2		Form of Second Amendment to 12% Subordinated Promissory Note dated as of October 25, 2005 between the company and certain accredited investors (individual amendments differ only as to name of Payee) filed as Exhibit 4.50.2 to Form 8-K dated November 8, 2005.

4.2.3		Form of Amendment to 12% Subordinated Promissory Note and Warrant Purchase Agreement dated as of October 25, 2005 between the company and certain accredited investors (individual amendments differ only as to name of Purchaser) filed as Exhibit 4.50.1 to Form 8-K dated November 8, 2005.

4.3		Form of Stock Purchase Warrant exercisable until June 30, 2007 issued to certain accredited investors for up to an aggregate of 2,000,000 common shares (individual warrants differ only as to holder and number of shares) and filed as Exhibit 4.52 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

4.3.1		Form of First Amendment to Stock Purchase Warrant dated as of June 30, 2005 between the company and certain accredited investors (individual amendments differ only as to name of Holder) filed as Exhibit 4.51.2 to Form 8-K dated July 13, 2005.

4.4		Form of Restricted Common Stock Purchase Agreement, dated February 24, 2006 between the Company and certain accredited investors for purchase of 18,750,000 common shares (individual agreements differ only as to number of shares) and filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 27, 2006.

4.5		Form of Series “A” Warrant exercisable until February 28, 2009, issued February 24, 2006 to certain accredited investors for up to an aggregate of 4,687,500 common shares (individual warrants differ only as to holder and number of shares) and filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 27, 2006

4.6		Form of Series “B” Warrant exercisable until six months after the effectiveness of this Registration Statement or July 31, 2008 whichever is earlier, issued February 24, 2006 to certain accredited investors for up to an aggregate of 4,687,500 common shares (individual warrants differ only as to holder and number of shares) and filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 27, 2006.

4.7		Form of New Warrant issued to 29 investors in August and September 2006 for an aggregate of 2,331,572 common shares exercisable at $0.15 per share through August 31, 2009 filed as Exhibit 4.53 to Form 8-K dated August 28, 2006

4.8		Exchange Agreement between the Company and Davric Corporation dated December 1, 2006 filed as Exhibit 99.1 to Form 8-K dated December 12, 2006.

4.8.1		7.5% Convertible Subordinated Term Note issued by the Company to Davric Corporation dated December 1, 2006 filed as Exhibit 99.2 to Form 8-K dated December 12, 2006.

4.9		Common Stock Purchase Agreement, dated as of January 2, 2007, by and between e.Digital Corporation and Fusion Capital Fund II, LLC filed as Exhibit 10.1 to Form 8-K dated January 8, 2007.

4.10		Registration Rights Agreement, dated as of January 2, 2007, by and between e.Digital Corporation and Fusion Capital Fund II, LLC filed as Exhibit 10.2 to Form 8-K dated January 8, 2007.

10.1		Lease Agreement between the Company and LBA Industrial Fund – Holding Co. II, Inc. and Innsbruck Holdings, L.P. dated March 3, 2006 and filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.

10.2		Agreement for Legal Services and Contingent Fee Arrangement dated March 23, 2007 between the Company and Duane Morris LLP filed as Exhibit 99.1 to Form 8-K dated March 28, 2007. (Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.)

10.3		Secured Promissory Note of the Company to ASI Capital Corporation dated March 23, 2007 filed as Exhibit 99.3 to Form 8-K dated March 28, 2007.

10.3.1		Loan Extension Agreement between the Company and ASI Capital Corporation dated as of September 28, 2007 and previously files as Exhibit 99.1 to Form 8-K dated October 15, 2007.

10.3.2		Secured Promissory Note of the Company to ASI Technology Corporation dated December 23, 2007 filed as Exhibit 99.1 to Form 8-K dated January 4, 2008.

10.4		Security Agreement between the Company and its subsidiary and ASI Capital Corporation dated March 23, 2007 filed as Exhibit 99.4 to Form 8-K dated March 28, 2007.

10.4.1		Security Agreement between the Company and its subsidiary and ASI Technology Corporation dated December 23, 2007 filed as Exhibit 99.2 to Form 8-K dated January 4, 2008.

10.5		Stock Option Plan adopted by the Company on September 29, 1994 ("1994 Plan"), filed as Exhibit 10.10 to the Company's 1995 Form 10-KSB.

10.5.1		First Amendment to Stock Option Plan adopted by the Company on January 26, 1996 and filed previously as Exhibit 10.14.1 to the Company's Annual Report on Form 10-KSB dated March 31, 1998.

10.5.2		Second Amendment to Stock Option Plan adopted by the Company on September 3, 1997 and filed previously as Exhibit 10.14.2 to the Company's Annual Report on Form 10-KSB dated March 31, 1998.

10.5.3		Third Amendment to Stock Option Plan adopted by the Company on November 9, 2000 and filed previously as Exhibit B to the Company's Annual Report on Schedule 14A dated September 22, 2000.

10.6		2005 Equity-Based Compensation Plan, filed as Exhibit B to the to the Company's July 12, 2005 Definitive Proxy Statement.

10.6.1		Form of Incentive Stock Option Agreement under the 2005 Equity-Based Compensation Plan and filed previously as Exhibit 10.6.1 to the Company’s Annual Report on Form 10-K dated March 31, 2007.

10.6.2		Form of Nonstatutory Stock Option Agreement under the 2005 Equity-Based Compensation Plan and filed previously as Exhibit 10.6.2 to the Company’s Annual Report on Form 10-K dated March 31, 2007.

10.7		Employment letter between the Company and William A. Blakeley dated October 20, 2005 filed as Exhibit 99.2 to Form 8-K dated October 27, 2005.

10.7.1		Inducement Stock Option Grant Notice and Inducement Stock Option Agreement for William A. Blakeley dated November 14, 2005 and filed previously as Exhibit 10.7.1 to the Company’s Annual Report on Form 10-K dated March 31, 2007.

10.7.2		Special Stock Option Grant Notice and Stock Option Agreement for William A. Blakeley dated March 30, 2006 and filed previously as Exhibit 10.7.2 to the Company’s Annual Report on Form 10-K dated March 31, 2007.

21.1		List of subsidiaries. *

23.1		Consent of Singer Lewak Greenbaum & Goldstein LLP, Independent Registered Public Accounting Firm.*

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 William Blakeley, Chief Executive Officer.*

31.2		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Robert Putnam, Principal Accounting Officer.*

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 William Blakeley, Chief Executive Officer and Robert Putnam, Principal Accounting Officer.*

Name	Position	Date

/s/ WILLIAM BLAKELEY	President and Chief Technical Officer	June 17, 2008
William Blakeley	(Principal Executive Officer)

/s/ ALEX DIAZ	Chairman of the Board and Director	June 17, 2008
Alex Diaz

/s/ ROBERT PUTNAM	Senior Vice President and Director	June 17, 2008
Robert Putnam	Interim Chief Accounting Officer and
	Secretary (Principal Financial and Accounting Officer)

/s/ ALLEN COCUMELLI	Director	June 17, 2008
Allen Cocumelli

/s/ RENEE WARDEN	Director	June 17, 2008
Renee Warden

	Page

CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND SUBSIDIARY

REPORT OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2008 AND 2007		F-3

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2008 AND 2007		F-4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED MARCH 31, 2008 AND 2007		F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2008 AND 2007		F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-7 to F-24

	As of March 31
	2008			2007
	$			$
ASSETS
Current
Cash and cash equivalents		122,116			694,757
Accounts receivable, trade		174,905			37,029
Inventory		489,238			309,392
Deposits and prepaid expenses		34,717			50,999
Total current assets		820,976			1,092,177
Property and equipment, net of accumulated depreciation of $485,037 and $472,063, respectively		40,061			36,206
Prepaid transaction costs		-			628,584
Total assets		861,037			1,756,967
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current
Accounts payable, trade		836,217			687,132
Other accounts payable and accrued liabilities		198,210			131,107
Accrued employee benefits		149,483			149,528
Customer deposits		80,000			118,850
Deferred revenue		36,500			-
Dividends		-			464,025
Current maturity of convertible term note, net of $25,842 and $34,000 of debt discount		366,989			138,902
Secured promissory note, net of $4,131 and $-0- for debt discount		445,869			750,000
Total current liabilities		2,113,268			2,439,544
Long-term convertible term note, net of $6,141 and $31,983 of debt discount		381,093			748,082
Deferred revenue - long term		72,000			6,000
Total long-term liabilities		453,093			754,082
Total liabilities		2,566,361			3,193,626

Commitments and Contingencies

Stockholders' deficit
Preferred stock, $0.001 par value; 5,000,000 shares authorized
Series D Convertible Preferred stock 250,000 shares designated: -0- and 91,000 issued and outstanding, respectively. Liquidation preference of $-0- and $1,347,099, respectively		-			910,000
Common stock, $0.001 par value, authorized 300,000,000, 272,494,867 and 243,453,037 shares issued and outstanding, respectively		272,495			243,453
Additional paid-in capital		80,103,769			78,236,434
Dividends		-			(464,025	)
Accumulated deficit		(82,081,588	)		(80,362,521	)
Total stockholders' deficit		(1,705,324	)		(1,436,659	)

Total liabilities and stockholders' deficit		861,037			1,756,967

	For the year ended March 31
	2008 $			2007 $
Revenues:
Products		4,841,855			1,815,014
Services		710,766			-
		5,552,621			1,815,014

Cost of revenues:
Products		3,854,941			789,773
Services		153,672			-
		4,008,613			789,773
Gross profit		1,544,008			1,025,241

Operating expenses:
Selling and administrative		1,980,451			1,618,973
Research and related expenditures		1,006,037			1,474,540
Total operating expenses		2,986,488			3,093,513

Operating loss		(1,442,480	)		(2,068,272	)

Other income (expense):
Interest and other income		41,114			12,729
Interest expense		(237,020	)		(1,357,029	)
Other		(80,681	)		283,299
Other expense		(276,587	)		(1,061,001	)

Loss and comprehensive loss for the period		(1,719,067	)		(3,129,273	)
Accrued dividends on the Series D and EE Preferred stock		(81,975	)		(122,873	)
Loss attributable to common stockholders		(1,801,042	)		(3,252,146	)
Loss per common share - basic and diluted		(0.01	)		(0.01	)

Weighted average common shares outstanding		252,683,865			217,130,347

	Preferred stock			Common stock				Additional						Accumulated
	Amount			Shares		Amount		paid-in capital			Dividends			deficit
Balance, March 31, 2006		1,210,000			200,431,000		200,431		73,710,110			(402,305	)		(77,172,095	)
Stock-based compensation		-			-		-		254,275			-			-
Shares issued for conversion of Series D preferred stock		(50,000	)		907,123		907		71,664			22,570			(22,570	)
Shares issued for conversion of Series EE preferred stock		(250,000	)		3,607,289		3,607		284,976			38,583			(38,583	)
Dividends on Series D and EE preferred stock		-			-		-		-			(122,873	)		-
Value assigned to inducement warrants		-			-		-		230,709			-			-
Shares issued upon exercise of warrants		-			11,236,500		11,236		1,028,291			-			-
Shares issued upon conversion of notes		-			18,750,000		18,750		1,481,250			-			-
Shares issued for note refinancing		-			500,000		500		77,000			-			-
Shares issued for term debt payments		-			154,459		155		29,845			-			-
Shares issued for services		-			200,000		200		33,800			-			-
Shares issued for financing commitment		-			3,500,000		3,500		591,500			-			-
Proceeds from sale of common stock at $0.12 per share		-			4,166,666		4,167		495,833			-			-
Offering costs on sale of common stock		-			-		-		(52,819	)		-			-
Loss and comprehensive loss		-			-		-		-			-			(3,129,273	)
Balance, March 31, 2007		910,000			243,453,037		243,453		78,236,434			(464,025	)		(80,362,521	)
Dividends on Series D preferred stock		-			-		-		-			(81,975	)		-
Shares issued for conversion of Series D preferred stock		(910,000	)		18,200,000		18,200		891,800			546,000			-
Shares issued upon exercise of options		-			76,166		76		11,234			-			-
Shares issued upon exercise of warrants		-			2,681,000		2,681		211,799			-			-
Shares issued for term debt payments		-			1,623,808		1,624		238,376			-			-
Shares issued for debt financing fees		-			177,581		178		30,322			-			-
Proceeds from sale of common stock net of $628,584 of prepaid transaction costs		-			6,283,275		6,283		325,133			-			-
Stock-based compensation		-			-		-		158,671			-			-
Loss and comprehensive loss		-			-		-		-			-			(1,719,067	)
Balance, March 31, 2008		-			272,494,867		272,495		80,103,769			-			(82,081,588	)

Years ended March 31,	2008			2007
Net loss	$	(1,719,067	)	$	(3,129,273	)
Accretion on preferred stock:
Series D preferred stock, 12% stated rate		(81,975	)		(112,364	)
Series EE preferred stock, 8% stated rate		-			(10,509	)
Net loss available to common stockholders	$	(1,801,042	)	$	(3,252,146	)

Year ended March 31,	2008 $		2007 $
Cost of revenues		14,411		-
Research and development		33,785		66,833
Selling and administrative		110,475		187,442
Total stock-based compensation expense		158,671		254,275

	For the year ended March 31,
	2008 $		2007 $
Non-cash financing activities:
Common stock issued on conversion of preferred stock		1,456,000		361,154
Shares issued on conversion of debt		—		1,500,000
Shares issued for term debt payments		240,000		17,920
Shares issued for financing commitment		—		595,000
Shares issued for financing fees		30,500		77,500
Note principal applied to exercise of warrants		—		105,062
Value assigned to common shares issued for placement costs		—		34,000
Accrued dividends on preferred stock		81,975		122,873
Value assigned to inducement warrants for early exercise of warrants		—		230,709
Cash payments for interest were as follows:
Interest		109,553		153,063

	March 31,
	2008 $		2007 $
Raw materials		41,354		558
Work in process		217,820		-
Finished goods		230,064		308,834
		489,238		309,392

	Cost $		Accumulated depreciation and amortization $		Net book value $
March 31, 2008
Computer hardware and software		107,117		84,493		22,624
Furniture and equipment		26,499		26,499		—
Machinery and equipment		82,912		79,933		2,979
Leasehold improvements		1,639		328		1,311
Tooling		224,372		211,225		13,147
		442,539		402,478		40,061

March 31, 2007
Computer hardware and software	91,927	80,832	11,095
Furniture and equipment	26,499	26,499	—
Machinery and equipment	82,912	77,521	5,391
Tooling	224,372	204,652	19,720
	425,710	389,504	36,206

	Cost $		Accumulated amortization $		Net book value $
March 31, 2008
Website development costs		43,150		43,150		—
Patents and licenses		39,409		39,409		—
		82,559		82,559		—
March 31, 2007
Website development costs		43,150		43,150		—
Patents and licenses		39,409		39,409		—
		82,559		82,559		—

	March 31, 2008			March 31, 2007
7.5% Convertible Subordinated Term Note	$	780,065		$	952,967
Less unamortized debt discount		(31,983	)		(65,983	)
Less long-term portion – net of related unamortized debt discount		(381,093	)		(748,082	)
Short term portion of Convertible Subordinated Term Note	$	366,989		$	138,902

	March 31, 2008			March 31, 2007
18% Secured Promissory Note	$	450,000		$	750,000
Less unamortized debt discount		(4,131	)		-
Net	$	445,869		$	750,000

	Number			Average Purchase Price Per Share $
Shares purchasable under outstanding warrants at March 31, 2006		14,082,500			0.09
Stock purchase warrants issued		2,331,572			0.15
Stock purchase warrants exercised		(11,236,500	)		0.09
Shares purchasable under outstanding warrants at March 31, 2007		5,177,572			0.11
Stock purchase warrants issued		-			-
Stock purchase warrants exercised		(2,681,000	)		0.08
Stock purchase warrants expired		(165,000	)		0.08
Shares purchasable under outstanding warrants at March 31, 2008		2,331,572			0.15

	Shares #			Weighted average exercise price $		Aggregate Intrinsic Value $
Outstanding March 31, 2006		11,071,666			0.19
Fiscal 2007
Granted		973,000			0.16
Canceled/expired		(1,010,000	)		0.31
Outstanding March 31, 2007		11,034,666			0.17		900,904
Exercisable at March 31, 2007		8,015,835			0.18		634,241
Fiscal 2008
Granted		880,000			0.18
Exercised		(76,166	)		0.15
Canceled/expired		(941,333	)		0.54
Outstanding March 31, 2008		10,897,167			0.16		183,813
Exercisable at March 31, 2008		9,769,916			0.15		183,813

Range of exercise prices		Number outstanding at March 31, 2008		Number exercisable at March 31, 2008		Weighted Average exercise price		Weighted average remaining contractual life		Weighted average Exercise price of options exercisable at March 31, 2008
$		#		#		$		Years		$
$	0.09		1,500,000		1,500,000		0.09		2.6		0.09
$	0.145-$0.16		6,779,167		6,279,167		0.15		1.6		0.15
$	0.18-$0.28		2,568,000		1,940,749		0.21		1.5		0.22
$	0.42-$0.55		50,000		50,000		0.44		0.8		0.44

		e.DIGITAL CORPORATION


Date: July 1, 2008		e.DIGITAL CORPORATION By: /s/ ROBERT PUTNAM —————————————— Robert Putnam, Senior Vice President, Interim Financial Officer and Secretary (Principal Financial and Accounting Officer and duly authorized to sign on behalf of the Registrant)